Factors Contributing to Increased Globalisation

This section explains the factors contributing to increased globalisation covering, the reduction of international trade barriers, political change, the reduced cost of transport and communication, the increased significance of global companies, increased investment flows, migration and structural change. 

Globalisation refers to the increasing interconnectedness and interdependence of economies, businesses, and societies around the world. It has transformed how businesses operate, how economies grow, and how societies interact. Several key factors have contributed to the acceleration of globalisation, which has led to greater integration of markets, industries, and cultures worldwide. These factors include the reduction of trade barriers, political changes, advancements in transport and communication, the rise of multinational companies, and more. 

Reduction of International Trade Barriers/Trade Liberalisation

The reduction of international trade barriers has been one of the most significant drivers of globalisation. Trade barriers, such as tariffs (taxes on imports) and quotas (limits on the quantity of goods imported), historically limited the flow of goods and services between countries. Over the past few decades, there has been a concerted global effort to reduce these barriers, primarily through international agreements, such as those made by the World Trade Organization (WTO), and regional trade agreements like the European Union (EU), North American Free Trade Agreement (NAFTA), and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Trade liberalisation has allowed businesses to access new markets with fewer restrictions, enabling them to export and import goods and services more freely. This has led to an increase in competition and innovation, as companies must meet the demands of a larger, more diverse consumer base. Consumers benefit from access to a wider variety of products, often at lower prices.

For example, the reduction of tariffs on agricultural products between the EU and Africa has enabled businesses in both regions to exchange goods with fewer obstacles, promoting economic growth on both sides.

Political Change

Political change, particularly the shift towards democracy, market-oriented policies, and more open economies, has played an essential role in facilitating globalisation. The fall of the Soviet Union in 1991, for example, marked a significant turning point in global trade. Countries such as China, India, and Russia, which had previously adopted closed or centrally planned economies, began to embrace more market-driven policies, leading to greater integration with the global economy.

In China, the economic reforms initiated by Deng Xiaoping in the late 1970s, which included opening up to foreign trade and investment, helped transform the country into a global economic power. Similarly, the Indian economy liberalised in the 1990s, reducing trade barriers, and encouraging foreign investment, which has helped it become a leading emerging market.

Political stability and cooperation between nations also contribute to globalisation, as it fosters an environment where international businesses can operate without excessive risk. The EU’s single market, for example, allows businesses in member countries to trade freely without customs checks or other regulatory barriers.

Reduced Cost of Transport and Communication

Advances in transportation and communication technologies have significantly lowered the cost of doing business internationally. The cost of transporting goods across the world has dropped due to improvements in shipping, aviation, and logistics. The rise of container shipping, which allows for the efficient transport of bulk goods, has enabled global supply chains to flourish. The advent of air freight also allows companies to move goods quickly across long distances, ensuring fast delivery times for perishable or time-sensitive products.

The digital revolution has had an equally transformative effect on communication. The widespread availability of the internet, coupled with innovations in telecommunications and information technology, has made it possible for businesses to communicate instantly with customers, suppliers, and partners across the globe. Online platforms, email, video conferencing, and collaboration tools have reduced the need for face-to-face meetings and helped businesses establish global operations with minimal overhead costs.

For example, companies such as Amazon and Alibaba rely on advanced logistics and communication technologies to manage global operations, offering customers access to products from all over the world, with quick delivery times and reliable customer service.

Increased Significance of Global (Transnational) Companies

The rise of multinational corporations (MNCs) or transnational companies has been both a driver and a result of globalisation. These large corporations operate in multiple countries, often establishing subsidiaries or joint ventures to manage local operations. MNCs benefit from economies of scale, access to new markets, and the ability to source materials and labour from the most cost-effective locations.

Companies such as Apple, Google, Toyota, and Coca-Cola are examples of transnational corporations that have global operations, allowing them to influence markets and cultures worldwide. These companies drive innovation and competition, while also shaping consumer preferences and industry standards across countries. Their size and resources enable them to influence trade policies and market conditions, further accelerating globalisation.

Increased Investment Flows (FDI)

Foreign Direct Investment (FDI) refers to investments made by a company or individual in business interests located in another country. FDI has significantly increased as businesses seek to expand into new markets, access cheaper labour, or secure resources.

Increased FDI flows have contributed to globalisation by facilitating cross-border capital flows. Developing countries have particularly benefited from FDI, as it brings in much-needed capital, technology, and expertise. For example, FDI into China has played a key role in the country’s economic transformation, helping it become the “world’s factory” for many goods.

Global financial markets are also more integrated than ever, with cross-border investments and partnerships forming a critical part of the international business landscape. This increased flow of capital has enabled businesses to access funds, grow operations internationally, and expand their global footprint.

Migration (Within and Between Economies)

Migration plays a key role in globalisation by facilitating the movement of labour across borders. Migrants bring skills, knowledge, and cultural diversity, which are essential for the growth of businesses in different parts of the world. In developed economies, migration often helps fill labour shortages in key sectors such as healthcare, construction, and technology.

For example, skilled workers from countries like India, the Philippines, and Eastern Europe have migrated to the UK, the US, and other developed economies to fill gaps in the labour market, boosting productivity and innovation. Similarly, migration between countries, such as the movement of low-skilled workers from Latin America to the US, has allowed businesses to access cheap labour, thus reducing production costs.

As people migrate, they also become consumers in their new countries, contributing to increased demand for goods and services, which in turn stimulates global business growth.

Growth of the Global Labour Force

As globalisation has progressed, the global labour force has expanded, due in part to demographic trends such as population growth in developing countries. The labour force in emerging economies has grown substantially, providing a large pool of workers willing to participate in global supply chains. This has helped reduce the cost of production in many sectors, making goods and services more affordable and accessible to consumers.

The growing global labour force also promotes specialisation, as countries can focus on industries where they have a comparative advantage in terms of labour availability and cost. For example, many low-cost manufacturing operations are located in countries like China, India, and Vietnam, where labour costs are lower than in developed economies.

Structural Change

Structural change refers to shifts in the economic structure of a country or region, often as a result of globalisation. Over the past few decades, many countries have shifted from being primarily agriculture-based to becoming more industrialised or service-oriented economies. This transformation has been driven by globalisation as companies in developed countries outsource manufacturing to cheaper locations, while expanding in sectors such as finance, technology, and services.

For example, India's service sector has boomed due to its increasing role in global outsourcing, especially in IT and business process outsourcing (BPO). Similarly, countries like South Korea and Taiwan have rapidly industrialised and become global leaders in electronics and technology.

Structural changes also include the shift towards more integrated supply chains, where production processes are broken up across various countries. This global division of labour allows businesses to optimise production by sourcing materials and components from regions where they are most cost-effective.

Summary

Globalisation is driven by a complex interplay of factors that include the reduction of trade barriers, political change, advancements in transport and communication, the rise of multinational corporations, increased investment flows, migration, the growth of the global labour force, and structural changes in economies. These factors together have created an environment where businesses can expand their operations globally, consumers have access to a wider variety of goods and services, and economies are increasingly interconnected. As these trends continue to shape the global landscape, understanding the factors contributing to globalisation is essential for businesses and policymakers alike.