Discuss the impact of globalisation on developing economies (20) Globalisation is about the processes that have resulted in ever closer links between the world’s economies. Expressed in a more simple way this means developing economies developing closer links through things like trade, investment, production and then in more recent times, migration of people and transfer of technology. In recent years the speed that globalisation is growing at has increased massively and the impact is seen most greatly on developing economies.
The two main characteristics of globalisation are global brands and global sourcing. Global branding involves one brand being available in most international markets. Examples of global brands include McDonalds and coca-cola. Even though the price charged in each economy may be different, the product will be almost identical in every country. Global sourcing on the other hand is more about ways in which global companies produce on a worldwide scale. In this way, domestic producing becomes replaced by investing in capital on an international scale.
Examples of global sourcing can be seen by the actions of Nike and Toyota. Both global branding and global sourcing have their positives and negatives on developing economies. The obvious benefit of global branding is about the improvement of competition, choice and price of products available in economies. When a country is developing, when more products become available on the market, standards of living may increase within the country. If price is driven down by importing goods then more money will flow through the economy in the form of consumer expenditure.
If there is more choice, it drives domestic producers to try and compete at the same level and thus improving the quality of their goods to match the ones imported from abroad. If the products are to do with medical practices, it may improve the growth of the growing economy dramatically as life expectancy can increase as more medicines become available in their economy. It also raises the standard of living in that consumers can benefit the enjoyment of global brands which may be cleaner and produced in a better and safer environment, and so the country can develop further.
However there are also problems with global branding. Domestic businesses rely on imports to be expensive in order for them to keep their businesses making enough profit to stay afloat. If brands become available that are cheaper than those domestically produced then it may become difficult for producers to maintain their businesses. In this context that may result in job losses which ultimately is not good for a developing economy because the economy cannot grow and AD cannot increase unless consumer expenditure increases along with it.
Also, it may reduce exports as businesses cannot afford to export their produce abroad as they are not making enough money at home. In addition there are also benefits of global sourcing. A developing country may be chosen by a first world country to invest capital equipment in. The developed country will use this capital equipment in poorer countries to produce more cheaply on a domestic scale. The benefits that would occur to the developing economy would include increased employment as the developed country pays the foreign workers to produce their goods and services.
The country also get to benefit from the technology introduced to their economy. The result of this would be improved working practices along with a higher skilled workforce.. This would help the economy to develop further and grow as income would increase and therefore consumer expenditure which would eventually lead to an increase in AD and increased economic growth in the long term. Yet, there are still disadvantages of economic sourcing. The gap in the global economy between rich and poor becomes much more accentuated as global sourcing leads to exploitation of foreign workers.
Some people seek employment so desperately that they will settle on any wage. This does not aid a developing economy as workers are forced into working long days with little pay. As a result of this, standards of living decrease as more people suffer work related injuries, particularly because the safety standards in other countries are not the same. This does not allow a developing economy to grow further as there is less money flowing through the economy and people are forced into work that is available but not manageable. Overall there are some extreme positives and negatives of globalisation in developing countries.
It is difficult to judge whether the advantages outweigh the disadvantages of globalisation in these countries that are trying to grow. Perhaps it is more beneficial to a developing economy to benefit from the new technology and wider range of jobs available and to sacrifice increasing standards of living. But yet it is difficult for an economy to fully develop if standards of living do not increase or if they start to fall. Maybe the best option for these countries would be to put a limit on globalisation so that they can experience the benefits without incurring so many of the negative aspects.