CHALLENGES OF GLOBALIZATION

CHALLENGES OF GLOBALIZATION • Globalization – the

creation of a single global economy & community.– What has led to this?

• End of Cold War• Spread of Democracy• Creation of the Internet• Outsourcing – process

where a company hires other companies to perform some work;• Offshoring – practice of

moving production overseas.

CHALLENGES OF GLOBALIZATION

Economic activities require 4 types of resources:1. Natural Resources – from nature; used to create goods/services (air, water, plants, minerals used for i.e. cotton, lumber, iron ore, water, etc.).


2. Human Resources – human labor required to produce something (planning, studying, training & work required to produce a good/service).


– 3. Capital Resources – goods made to make other goods & services (not goods made to consume). (Machines, tools; i.e. a hammer is a capital good used to build something; Infrastructure (technology, transportation routes, communications, networks) are also capital resources.


– 4. Entrepreneurship – people who bring together & organize all productive resources (business owners or managers).


• Location of Productive Resources – location of economic activity depends on where resources are found. Physical geography can determine where resources are located...


• Examples:– Large amounts of coal are

needed to make steel. Western Pennsylvania has a lot of coal, so Pittsburgh became the U.S. center for the steel industry.

– Saudi Arabia has a lot of oil reserves found in the Persian Gulf. Many oil companies are located there.


• Management of Resources: because resources are essential to many economic activities, management of them is important. – Countries might require licenses

or permits to extract resources; might have strict regulations.

– i.e. – Water – necessary for drinking, farms, factories, etc. Special permits/licenses are necessary to use large amounts; penalties are put on polluters, etc.


• Climate affects location of economic activities: influences types of crops that can be grown in an area;– Example: sugar cane grew

well in Caribbean islands – warm, lots of rain. Since Sugarcane is bulky & heavy, shipment was expensive; refineries were built on islands because it was cheaper.


• Human Resources –where humans & entrepreneurs are located affects location of economic activities. – i.e. Japan – has few natural

resources, but a large educated workforce is found there. It is a center of manufacturing – Sony, Toyota, Honda – all located in Japan.


• Infrastructure – important to location of economic activities; the investment a society makes to roads, railroad tracks, electric power, telephone/Internet lines, are important!

• Finished goods need to be transported via roads/railways; where there is no electric power, telephone, etc. won’t attract manufacturing.


• Access to Consumers: location of consumers influences economic activity; more activities are found in populated areas; – Physical barriers (mountains,

forests, deserts) make it difficult to reach consumers.

– Flatlands & valleys bring resources & people together.

– Note: changes in technology or infrastructure can eliminate barriers.


• Changes in Geography affect location of economic activities:– 1. Changes in Climate – • Sahel – was used for herding

but less water & grass over time results in people migrating south.• Warming of Earth – causing

farming activities in N. Hemisphere to move farther north (by about 200 miles or so).


– 2. Changes in Resources –Discovery of new resources causes increase in activity; when it runs out, towns can be deserted.

California Ghost Town (After Gold Rush)

CHALLENGES OF GLOBALIZATION – 3. Changes in Infrastructure

- construction of canals, railroads, paved roads, makes it easier to access resources, attracting new activities. • i.e. Erie Canal – made it

possible to ship farm products from Midwest to NYC.• i.e. Completion of Railroad –

linked E. & W. U.S. Texas Cattlemen could drive cattle to Kansas where they would be shipped by railroad to consumers in the East.


• TRADE – different areas specialize in different economic activities – this leads to trade (exchange of goods/services).– Uneven Distribution of

Resources: different climates, soils, landforms, minerals create diverse ecosystems with different plants/animals.


• Petroleum – one of our most important resources – key source of energy & necessary for products from fertilizers to plastics.

Petroleum is made by decaying microscopic animals & plants in the sea. Many countries have almost no oil, while others have an abundance. See map.


• Human Resources – also unevenly distributed! (i.e. China has a lot of workers willing to work for low wages compared to more developed countries. In developed countries, strong educations give much experience/training for entrepreneurs, high technology, etc.)


• Specialization – uneven distribution of resources, natural & human, leads to specialization – each region making goods based on what resources are available. – Comparative Advantage –

producing goods & services that can be made at the lowest cost.


• Specialization encourages trade: regions rarely produce everything they need; they exchange through trade – exporting & importing.– Exports – goods/services

sold from one country to others;

– Imports – goods from foreign countries brought to a country for use or sale.


• History of Global Trade Patterns:

• 1. Ancient World – trade was advanced even then.– i.e. Ancient Egypt –

grain/mineral surplus – traded these with Greece for wine & olives;

– i.e. Roman Empire – exported olive oil & wine to N. Africa for wheat, China for silk & porcelain, Egypt for cotton, India for spices.


– 2. Middle Ages – After fall of Roman Empire, trade was disrupted; Europe communities became mostly self-sufficient; in other parts of the world, trade thrived:• Islamic World – Many ports in

Middle East were used for trade;• West Africa – Timbuktu was a

center for gold/salt. Arab merchants crossed Sahara.• Americas – Maya traded salt,

cacao, pottery with Guatemala in exchange for turquoise, jade.


– 3. Rise of Atlantic Trade – As colonies were set up in America & new trade routes were established to China & India around Africa, Mediterranean trade grew less important.• Great Britain became leading

naval power in 1700s with colonies all over the world, dominating world trade.


– 4. Industry, Protectionism & Empire: Development of steamships, railroad & factories all increased speed & scale of trade. • European powers –

established plantations & mines in their colonies to obtain raw materials to use in Europe’s factories. They also established trading posts in China while U.S. opened up trade with Japan.

Some countries reacted to influx of British goods by enacting protective tariffs – adding duties (taxes) to imports, making British goods more expensive.

CHALLENGES OF GLOBALIZATION 5. Collapse of Trade

Barriers: WTO (World Trade Organization)-

oversees trade agreements around world (97% world represented).

Free Trade Zones – i.e. NAFTA (North American Free Trade Association); EU (European Union). Eliminates restrictions on goods moving from one country to another.


– 6. Offshoring & Outsourcing –• Companies now move production

to countries where costs of labor, etc. are lower. (Offshoring).• Companies hire other companies

overseas to produce parts or provided services to free up others to focus on other issues. (Outsourcing) – i.e. a computer assembled in U.S.

might have parts manufactured in China or Mexico.

– i.e. when American customers call customer service, they may speak to an English-speaking representative from another country.

CHALLENGES OF GGLOBALIZATION • Information technology like

Internet open up trade to more customers.

• Containerized Cargo makes shipping easier as well… goods are packed onto large truck-like containers & loaded onto a ship, then serve as backs of trucks after being delivered, or as railroad cars, without repacking.


• COSTS/BENEFITS TO GLOBALIZATION:– Benefits:• People enjoy goods/services

from all over the world• Benefits of connectivity – ease

of communication via phone, facebook, email, skype, etc.• Advances in technology,

medicine, engineering, spread quickly.• Advances in speed of economic

development – average standards of living are higher than ever before.


– Costs –• Manufacturing has shifted

away from countries where labor is more costly – cause workers in developed countries lose their jobs;• Workers in newly

industrialized countries are forced to work long hours under harsh conditions;• Pollution & climate change

have increased;• Pandemics (diseases spread

across globe) are spread more quickly.


Costs (Cont.)• Some feel they have no

control over their local economy – a financial crisis in one country leads to others.• Local communities &

cultures are losing their uniqueness – Fast food & Pop music replace local customs/traditions.• Can cause violent reactions;

i.e. Islamic fundamentalists express anger over contemporary global culture using terrorism.

CHALLENGES OF GLOBALIZATION

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