Globalisation: Our Connected Economic World
1. The Building Blocks: Trade, Investment, and Supply Chains
Globalisation rests on two main pillars: international trade and foreign investment. Trade is when a country sells (exports) or buys (imports) goods from another. For example, a student in New York might wear sneakers designed in Germany but manufactured in Vietnam. This is possible because of complex global supply chains, where different parts of a product are made in different countries.
2. Foreign Investment: Building Factories and Buying Shares
Investment is the other half of the story. A company from one country might build a factory in another (Foreign Direct Investment), like a Japanese car company opening a plant in the United States. This creates jobs and brings new technology. Alternatively, investors might buy shares in a company on the other side of the world (Foreign Portfolio Investment). This flow of money helps businesses grow and fuels economic activity globally.
3. Real-World Example: The Global Smartphone
A single smartphone is a perfect example of globalisation in action. Its journey involves many countries, each contributing a key part. The table below shows a simplified supply chain for one device.
| Component / Service | Country of Origin | Economic Contribution |
|---|---|---|
| Design & Software | United States | High-value intellectual property & brand. |
| High-Performance Screen | South Korea | Advanced manufacturing and technology export. |
| Camera Modules | Japan / Germany | Precision optics and specialized components. |
| Final Assembly | China / India | Skilled labor, logistics, and large-scale manufacturing. |
| Lithium for Battery | Australia / Chile | Extraction and export of natural resources. |
Frequently Asked Questions
Companies often move production to countries where costs, like wages, are lower. This allows them to produce goods more cheaply. For example, a toy company might build a factory in a country where labor costs are lower, which can make the toys less expensive for consumers everywhere. This is known as seeking cost efficiency.
No, it affects everyone. For consumers, it means more choices and often lower prices (like finding fresh fruit from another hemisphere in your local supermarket). For workers, it can create new jobs in some industries (like tech or logistics) but can also lead to job losses in others (like local manufacturing) if companies move abroad.
A trade agreement is a deal between two or more countries to make trade easier. They agree to lower things like tariffs[1] (taxes on imports) or quotas[2] (limits on quantity). An example is the agreement between the United States, Mexico, and Canada (USMCA), which allows most goods to be traded freely between these countries.
Footnote
[2] Quotas: A government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period.
[3] Supply Chain: The entire network of entities, activities, information, and resources involved in moving a product or service from the supplier to the customer.