chp 9 economic impacts of globalisation

⁃ economic impact on countries

Good ;
In globalisation, there will be international trade.
⁃ Governments would sign Free Trade Agreements (FTAs) which identify areas of cooperation,
open access to selected sectors and lower tariffs in the selected sectors.
⁃ These agreements could be between countries or even between regional groupings.
Example: In 2004, USA and Singapore signed an FTA. Both cooperated in the electronics and
information technology, chemical and petrochemicals

By 2012, total US investments in Singapore had exceeded the volume of other Asia-Pacific countries
⁃ Singapore companies have supported about 40 000 jobs in the US.
⁃ In 2012, bilateral trade (US and Spore) amounted to US$68 billion – a 70% jump since the
treaty was inked
⁃ Sg became the third largest Asian investor in the USA.

Link: With FTAs in place, governments cut red tape and make investing between and among the
countries easier. This facilitates more companies to set up plants in other countries, hence investments
increase. With the FTAs, companies could also gain access to markets to sell their products.
Therefore, all countries involved would have closer cooperation and more trade. All these would lead
to an expansion of the economy.

BAD;
In the international economy today, the US, the European Union and China are major buyers of
whatever the rest have produced.
⁃ Since they are major buyers and sources of FDI, economic shocks in either one of them could
affect the economies of the world.
⁃ The impact would be more pronounced in countries or regions with an open economy. That is,
countries who rely heavily on them for trade.

Example: 2008 Global Financial Crisis.

⁃ AIG, Fannie Mae and Lehman Brothers. The financial crisis saw many MNCs becoming very
cautious.
⁃ MNCs became focused on selling their current inventory and started to delay capital
investment
⁃ . Together, MNCs and suppliers postponed capital investments, froze hiring and retrenched
staff as inventories rose and orders continued to fall.
⁃ As a result, demand for consumer goods from the US fell and companies in the rest of the
world were badly hit. Europe was affected as many of its banks had investments in the USA.

⁃ As seen above, economies in international trade are prone to fluctuations overseas. The
Global Financial Crisis originated in the US and all the countries with trade links to the US were
affected. Their economies experienced slow growth rates and higher unemployment rates. The impact
will be more pronounced when the country is more tied to trade with the US.
 ⁃ economic impact on companies

GOOD;
Higher profits/Market share
⁃ With FTAs, the countries involved will have to allow MNCs to enter and
benefit from the terms of the FTA.
⁃ MNCs will be able to set up operations in other countries – gaining access to
raw materials, land, labour
⁃ also markets to sell their finished goods.
⁃ MNCs will then be able to lower their costs and increase profits.

Example: Apple Inc is an example of an MNC that is able to reap higher profits due
to globalisation. While most components and assembly of the iPhone 6s is done in
China, the camera is sourced from Japan while its processor is from Korea.

Link: With the developments in technology and transportation, Apple Inc. is able to
reap higher profits as they take advantage of the lower cost of labour and raw
materials in other economies. In addition, they are able to sell their products to many
markets around the world. In 2016, Apple Inc. reported a $9 billion net profit of their
sales around the world.

BAD;
Lower profits/Market share
⁃ While globalisation increases access for companies to shift production and
sales overseas, they are also exposed to increased competition from other
companies in the global economy.
⁃ Companies have to think of innovative ways to increase their market share
and try means to lower their cost of production.
⁃ FTAs are signed or in an open economy such as Singapore, companies are
not protected by artificial barriers.
⁃ If they are not innovative and bring down costs (adapt), they will have to
close down or be sold to bigger players.

⁃ Example: One example of an MNC that was unable to anticipate changing

markets and ensure that its products and services remain relevant and competitive
was Carrefour, a French hypermarket chain. In 2012, Carrefour closed its only
branch in Singapore after 15 years.

⁃ Link: It was unable to compete with other companies offering similar products
in Singapore. As a result, they lost their market share and were forced to close
down.

⁃
economic impact on individuals

GOOD;
Higher income
⁃ Globalisation enables easier access to knowledge, skills and ideas.
⁃ People also have freer mobility.
⁃ With a global shortage of talents in areas such as artificial Intelligence,
aerospace, cybersecurity, and nursing
⁃ governments and companies are willing to pay compensation packages to
attract people in these areas.

⁃ Example: One example is engineer Jumadi Husani, a NTU graduate who was
headhunted to work in Dubai for triple his pay.

Link: Given developments in transportation and the global shortage of talents, people
with these skills will be headhunted and offered attractive packages to work in other
countries.

BAD;
Loss of income
⁃ Individuals can also face a loss of income due to globalisation.
⁃ Since people and capital can move freely in globalisation (transportation and
agreements), those who are unable to keep up with the changes in skill can be
vulnerable to losing their jobs.
⁃ Jobs may also be lost when MNCs close down their operations and shift to
another location.
⁃ Lower-skilled people from other countries will come in to look for jobs and this
is where the citizens might be displaced or their salary might be depressed.
Example: In 2010, IBM Singapore opened its $90 million, 360,000 sqf manufacturing
in Tampines with much fanfare. However, in 2019, IBM Singapore announced that the
facility would be shut and 200 out of 400 professionals were retrenched.

Link: From the example, with globalisation manpower can be very porous and fluid.
While MNCs could invest millions in a country and create jobs in the process, they are
always looking globally to see if other countries could offer them more attractive terms
and lower costs. Once they are able to find more attractive places, they will not
hesitate to shut its operations and retrench staff.