Globalisation

1. TNCs (Transnational Corporations)

Definition:
Firms with two or more branch plants across international
boundaries; usually organized in a hierarchy of control and
production, with main HQs in DCs and branch plants in LDCs (host
country).
FDI (Foreign Direct Investment):
Outward FDI: country invests in another country.
Inward FDI: country is being invested by another country.
Types:
a) Set up branch plants.
b) Acquiring existing companies.
c) Buy shares/equity.
d) Diversify buy shares in other industries
Tri-Partite Geographical Structure:
COR

SEMI-PERIPHERY

PERIPHER

DCs: Main HQ
Higher Order Function:
R&D, Financing, Training of
Employees
NIEs: Regional HQs
Intermediate Order Function:
Logistics, (Product Design;
due to cultural proximity)
LDCs: Branch Plants
Lower Order
Function:
Manufacturing

Negative Impacts of TNCs:

ECONOMIC
1) Footloose nature
TNCs have high spatial mobility due to outsourcing of labour
employees are from sub-contractors
Can leave the country for higher comparative cost advantages
elsewhere/ or due to political instability at current country
42,000 jobs lost as electronics TNCs Seagate and Maxtor pulled
out of Singapore due to rising cost pressures.
Abandoning widespread unemployement destabilize host
economy; esp when economic growth is largely dependent on FDI
from TNCs.

2) Economic Hegemony
Large TNCs over-dominate market at the expense of smaller
firms.
Integrate a pyramid of suppliers and manufacturers in one
structure
Conformist structure produces high quality while
shutting out foreign suppliers.
Immense diversification and penetration makes it difficult for
them to lose in the market.
Samsung (a Chaebol) not only has its well-known electronics
sector, but also owns a departmental store, a newspaper,
shipbuilder, and a chemical company.
SOCIAL
3) Labour Exploitation
Sweatshop phenomenon
Priority of profit outsourcing(reduces production cost)
subcontractors have inhumane labour practices.
Provide poor working conditions
Foxconn in China: Apples main subcontractor
10 hour work days without toilet breaks, not allowed to
talk to each other
faced a major issue of suicide due to overwork
Nestle allegations in 2005
children were trafficked to Ivory Coast, forced into
slavery, experienced beatings on cocoa plantations
Infringement on human rights, negatively impacts quality of life
ENVIRONMENTAL
4) Improper disposal of waste
Due to largely lax environmental laws in host countries
Above-ground oil pipe leaks owned by Shell in Nigeria 1990s
contaminated nearby agricultural land, loss of livelihood
of many farmers
Nestle alleged to have exceeded permitted levels of air pollution
by Chinese state.
POLITICAL
5) Weaken power of state
Governments increasingly pander to the demands of TNCs to
sustain economic growth
Philippines: Nestle workers strike in 2008: govt. cracked down on
picket using water cannons

TNCs also operate without regard for social welfare of host

country
2002, Nestle demanded Ethiopia to repay its $6 million debt to
the company despite severe famine at that time

Positive Impacts of TNCs:

ECONOMIC
1) Direct job creation
Nature of TNCs: require mass employment for lower order
function manufacturing
Thousands of people employed who would be otherwise
unemployed due to low/no education
Generate revenue for country + contribute to overall GDP of host
country
LDC Sri Lanka: TNCs account for 20% of all employment in the
manufacturing industry

2) Social strategies to engage with local community

Provide infrastructure and social services for rural communities +
pioneer schemes to help welfare of rural villagers
2011 Nestle $1.5m investment in a program with World Cocoa
Foundation
Aimed at improving educational infrastructure for
children in cocoa-supplying regions of Ivory Coast
reduce child labour
Balance
1) Profit Repatriation
a) Large percentages of profits made by TNCs in LDCs are
repatriated to the home economy, lowering multiplier effect
b) 60% of Coca-colas profits in China are repatriated back to the
US.

2. Role of State & Supranational Bodies

STATE
Definition:
State: an organized body of people under a single government
operating within a defined and established geographical boundary.
Roles:
1) Employer
Quinary sector: Made up of government-led services and of higher
order function
Provides public employment in areas such as finance, research,
education and healthcare.
E.g. National Service in Singapore, Defence Science and Technology
Agency: works on defence research for the Government of
Singapore.
Ministry of Education in Singapore, employs teachers directly.
2) Regulator
a) Ensure adherence to fair wage rates
National Wage Council in Singapore
b) Creation of economic zones
To promote investments in specific areas such as electronics, life
sciences, oil etc
Clearly demarcated zones for various industries, e.g. Jurong
Island for oil in Singapore (refer to case study)
Have well-built infrastructure e.g. roads, water & power
supply, communications etc.
Plug & Play Infrastructure: Unique geographical layout
provides a ready-made template for companies to start up.
Saves start-up costs since most of required infrastructure
has already been provided
Provide tax reliefs/grants to targeted industries
Companies do not need to pay tax for an X number of
years: boosts profits hence attracts companies
SPRING Singapore: statutory board which provides
grants, tax incentives and workshops for SMEs and
investors

3) Collaborator
Engages in bilateral trading arrangements with other states for
an economic win-win
2010: 4 new bilateral trade agreements between Singapore and
Vietnam, such as an interest free loan programme for
Vietnamese students by UOB (the first of its kind). So far: 98
investment projects in Vietnam valued at $470 million in 2009.
Reduces dependency of local firms on state via local linkages
encourages local firms to partner up with TNCs in terms of
logistical support, supply-chain support, and tech transfer.
Local Industry Upgrading Programme (LIUP) in Singapore saw 5
TNCs(Apple, Macromedia, Microsoft, Oracle & BMC software)
assist local firms by providing access to their technologies.
4) Competitor
State sees other states as competitors in the economic race.
Forces state to develop their trade policies and initiatives to
match that of other states.
Malaysias Multi-media Super Corridor against Singapores
Science Parks and Biopolis
Jurong Island by JTC
Clientele of 90 leading petroleum, petrochemicals, speciality
chemicals and manufacturing companies from all over the world
Total gross investment of more than S$27 billion.
Comprises long-standing tenants (e.g. Exxonmobil, Dupont, Chevron
Texaco, Shell) as well as young budding companies.
PLUG & PLAY
Existing infrastructure includes ready land, a networked
community of companied, a comprehensive set of amenities and
a pro-business and secure political environment
INFRASTRUCTURE
Companies are vertically interlinked by the common pipeline
service corridor for synergy and efficiency
Output of one plant is the input of another plant due to cluster
manufacturing arrangement

SUPRANATIONAL BODIES
Definition:
Supranational bodies: organised body of people operating across
geographical boundaries, transcending national spheres of interest
consists of Trading Blocs: EU, NAFTA, and international institutions:
WTO, IMF
Roles:
1) Regulator of Trade
Coalition of governments
Negotiate terms of trade with one another, in pursuit of free trade
Cooperating to reduce trade barriers to benefit economies of
all member states.
e.g. Free Trade Agreements between countries or blocs of
countries
Singapore-US Free Trade Agreement
Both countries can gain access to bigger markets
Increase in exports leads to technological advancements
and social growth for smaller, less powerful economies
Firms wanting to expand overseas will take this opportunity
to offshore/outsource as export costs decrease
Negotiate for the advantage of the world economy, including
assisting developing countries (who have lower bargaining power)
WTO (World Trade Organization)
Removed tariff on good flows worth 142 billion to developing
countries
Uruguay Round of trade talks reduced agricultural subsidies
for the more developed nations by 20%, benefitting poorer
farmers in LDCs who cannot compete.
2) Regulators of Stability
Because economic development is largely dependent on social and
political stability
Investments favour countries with upright, more transparent, more
effective governments and no major social upheavals
Ensures stable economies and stable investments
Supranational bodies ensure member states are politically and
socially stable
To ensure that global economy develops and FDI not
affected by unstable conditions

ASEAN (Association of South-East Asian Nations)

Regulates and resolves political differences among countries

e.g. territorial disputes and prospect of nuclear proliferation

so as to make SEA region a stable and hence major player in
the world economy
3) Marginalization of Non-Member States
Object of SB is to only benefit their member states hence, bias
towards member states
Marginalization of smaller, less developed countries not in such
unions
Intra-trade between member countries more profitable than
trade with non-members due to attractive conditions
EU (European Union)
Freedom of movement for goods, services, labour and
capital for member countries
European non-member countries such as Albania might be
marginalized
Might inhibit even global development by dividing world economy
into few distinct blocs
Within which only member countries benefit

3. Globalisation and NIDL (New International Division of Labour)

Impetus:
PUSH(mainly for DCs)
Expensive labour on
standardized goods
Strong Unions
High expenses on labour welfare
Saturated Markets
Reduced Productivity

PULL(mainly for LDCs)

Very cheap labour(abundant too)

De-industrialization
Rationalisation
Tertiarisation

Rapid Industrialization

No or weak labour unions

Search for new markets
Increased mobility, transport and
communications
State/SB incentives
Cheap Raw materials

DCs
Impact:
1) Deindustrialization & Rationalisation
Contraction of manufacturing activities leading to unemployment in
the secondary sector
Detroit: Exodus of jobs to 4 Asian tigers after the 1970s led to the
death of the state of Detroit; run-down buildings, and extreme
poverty since they used to depend on manufacturing activities for
their livelihood
Causes (PUSH):
a) High-labour costs & high labour unionisation
Due to the high cost of living in DCs, salaries are also
relatively higher in DCs than in LDCs
On top of high labour cost, employer has to fork out 20-25%
of the workers wage to cover for insurance and medical
benefits
Due to strong labour unions can demand higher wages,
insurance payments due to high lobbying power

Airport strikes in Europe and frequent rail strikes in London.

Union strikes in China on the other hand are virtually unheard
of
b) Low productivity
Older manufacturing firms in Europe operate using
outmoded methods of production
Productivity is not maximised while labour costs are still
high
2) Tertiarisation
a) Transition of an economy from a manufacturing-based economy to a
service-based economy, e.g. tourism, finance, education, transport
b) Requires manpower that is highly educated and trained
c) Causes (PUSH):
a) Drop in demand for manufactured goods and services
many traditional markets in DCs have become saturated
e.g. people already own TVs, radios, washing machines etc
and do not replace every year
New markets in the LDCs have begun to emerge
Chinas emerging market of 1 billion consumers has an
insatiable hunger for consumer products
TNCs would rather transfer their operations to LDCs
b) Depletion of profitable raw materials
Transport improvements in LDCs, raw materials can be
cheaply obtained from them
Iron ore industry in the UK (Consett, South Wales) and
Europe (Ruhr)
Mining in the UK became unattractive, and many miners lost
jobs, many iron and steel firms had to rationalise
3) Reindustrialisation
Growth of value-added industries: higher-end manufacturing
activities, e.g. in computer chips, cars.
Jurong Industrial Park: shift to higher-end manufacturing with the
death of NIDL

LDCs
Impact:
1) Rapid Industrialisation
Development of the secondary sector with many branch plants
being built
Creates job opportunities for the masses; low skilled workers
Inward FDI increases the standard of living
Results in Technological and skill transfer (although limited)

Causes (PULL):
1) Cheap abundant labour
Recent emancipation of women in LDCs, led to doubling of the
workforce in recent years
Recent surge of a large workforce with low education and skills
Labour costs in China estimated to be 33 times lower than that in
the US for the textile industry.
Huge save in production costs for TNCs, which translates to a more
competitive sale price, leading to larger profits
2) Weak or no labour unions
Workers in LDCs have no official channel to complain about poor
working conditions/lack of welfare/low salary
Sub-contractors not pressured to increases the salary of workers, or
to pay for insurance or medical benefits; TNCs pay less labour costs
has even lead to increasing suicide rates in Foxconn, China
Coupled with docile attitude of Asian workers; workforce is
attractive for TNCs
3) Role of State
LDC govts. are very keen to attract TNCs to make foreign
investments in their country due to large capital investments and
employment opportunities
Hence create industrial parks or business hubs that sometimes have
tax reliefs/grants
Suzhou Industrial Park in China
Set up by China and Singapore, attracted major TNCs such
as Samsung and Panasonic to site their operations there and
engage labour use from China
4) Role of Supranational Bodies
Act as regulators to facilitate trade in the economy of memberstates
Encourage economic trade in countries that facilitate
interconnectedness leading to NIDL
Creation of FTAs: freedom of movement for goods and services for
member countries, attract TNCs to relocate branch plants to these
countries to enjoy reduced export costs
EU, NAFTA, Singapore-US FTA

4. Rise of New Industries

Service Industries:
Groups tertiary, quaternary and quinary sectors
Industries whose final output is non-material
Growth of service industry in recent years primarily due to
a) rising incomes and expectations
shifts in demand for more complex services like banking ,
tourism etc
b) an increasingly educated and highly literate workforce:
Can be absorbed easily into tertiary work
c) deindustrialisation
PUSH: high labour costs, unionisation etc. PULL: cheap labour
costs, open trade policies
Spread of industries now:
1) Least of the less developing countries (South Africa)
= primary industries are dominant
2) LDCs (Vietnam, China, India)
= secondary industries are dominant
3) Maturing economies (e.g. NIEs: Singapore, S Korea)
= tertiary industries are dominant
4) Highly developed economies (US, Japan)
= quaternary and quinary industries are dominant
Tertiary Sector
Service industries of all kinds (can consist of quaternary and quinary as
well)
Growth due to increase in demand for complex services
As the world gets more developed: populations more affluent
Increase in demand for complex services such as investment
banking and administration
Largely financial in nature
Rise of firms such as POSB in Singapore, AIG and Prudential, and
investment banking in the form of JP Morgan and Merrill Lynch.
Growth due to increased standardization of service products
Technology and skills needed for many services are largely similar
internationally
Hence standards of expected quality of services are similar as well
Education sector: more and more universities in China are offering
courses conducted in English based on Western paradigms
Tourism sector demand for 5-star tourism even in the poorest of
regions
Increased service product compatibility worldwide, allows sector
to be more successful

Quaternary Sector
Made up of services that are thinking and inventing oriented
Usually takes the form of research and development arms of major
corporations
Due to rise in education globally =increase in quality of workforce
Educated and highly literate workforce can be easily absorbed into
such services
Rise of R&D hubs in many DCs: Silicon Valley in California, USA:
hub for R&D operations in many major IT firms such as HewlettPackard
Biopolis in Singapore: hub for biomedical and pharmaceutical
research for major companies like Abbott
Quinary Sector
Made up of services that are government-led and of a higher order
(e.g. education and health research)
State acts as the employer and regulator in this sector by setting up
firms and providing incentives for the quinary sector to thrive
Singapore govt. is the direct employer of DSTA (Defence Science and
Technology Agency) where defence research is done
Growth due to industrial shift in increasingly developing DCs
they deindustrialize and move from manufacturing sectors to a
more knowledge-based and high-value sectors
primary and secondary industries no longer viable for sustained
economic growth due to rising labour costs in country

5. Impact of New Technologies at Work

Economic practices have developed from:

Fordism Flexible Production System (2 ends of a spectrum)
TNCs usually fall in the middle of the spectrum

Fordism
Characteristics:
a) Long assembly lines and mass production of standardized goods
b) Labour intensive: long hours in poor working conditions
c) Just-in-case production
Critique:
a) Many low-end jobs in the assembly lines are easily replaceable and
offshored to LDCs
rationalisation and deindustrialisation
b) Skilled workers became deskilled as a result of rationalisation
Flexible Reproduction Systems (Large cloud)
Consists of many variants
1) Just-in-time Production
Small-batch production
Economies of scope instead of economies of scale
(+) Cost-saving in terms of storage space: prevents depreciation
of parts
(+) More value to products: provides only latest models
(-) The whole chain is interdependentsupply chain must feed
the manufacturing chain
(-) Vulnerable to unexpected demand; prone to surges
2) Outsourcing
Transference of low-order functions to subcontractors
Refer to Negative Impact of TNCs: Footlose Nature
3) SOHO (Small office- home office)
Allows individuals to set up own firms in comfort of their home
Aided with an array of technological devices and connectivity
Very low start-up costs
Common for designers

4) Strategic Alliances
Separate businesses join to offer a broader set of services to
clients
Creates an advantage over competitors by broadening their
scope of operations
E.g. Star Alliance consortium of airlines that share the same
frequent flyer points and access to airport private lounges
5) Joint-Ventures
Partnering of firms to come up with the capital required for a
project
Allows a fair share of the profits as well as technological transfer
6) Reverse Outsourcing
Glocalisation
Sourcing for non-core jobs in the host country
Due to lost in quality control of operations, political/social
instability in LDCs, leakage of intellectual property
Impacts of New Technologies
1) Cost savings and increased efficiency
Increased productivity for manufacturing industry in general
E.g. creation of cell workers by training them to multi-task,
equipped to handle higher order and multi-step processes
1 cell worker in Japan is equivalent to 6 workers in Malaysia
in terms of productivity
E.g. Dell: JIT production: cost savings in terms of storage space
and prevention of depreciation
2) Better business focus
Due to rise of outsourcing: R&D and higher order functions can
give more focus and attention to their operations (due to division
of labour)
Reading of simple X-rays outsourced to India by hospitals in
Singapore where analysis is much cheaper
X-rays electronically transmitted to India, reports come back
in 30 mins
Hospital can focus on higher-end medical work
3) Loss of Jobs
Adoption of more flexible production systems by outsourcing
leads to unemployment of lower-end workers in the host country

Changi Airport decided to outsource lower-end work such as

baggage handlers to subcontracters from LDCs where labour is
cheaper
Caused unemployment of about 1000 Singaporeans in
manufacturing in general

4) Sharing of technology and capital

Due to increasing no. of firms going into alliances and jointventures
Increases amount of capital funding + tech available to firms
enables them to offer a broader set of services and
products
Sony-Ericsson joint-venture between Japanese Sony Corp. and
Swedish Ericsson to make mobile phones.
combined Sonys consumer electronics expertise with
Ericssons technological leadership in communications.