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2013-10-01 Globalization.docx

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Geography 2143A/B
Milford Green

Globalization October 1, 2013 The year 2015 -China and US slugging it out for #1; Japan is #3 -you have the same regions that don’t fare well (e.g.Africa, SouthAmerica) Graph: AHistory of World GDP -history of world GDP from the year 1 -beginning of current last 2000 years -China and India were the big players because world’s population was concentrated there -year 1: productivity almost same everywhere -year 1000: total world production went down -but relative shares of India and China still dominant -up to 1870, they started to sthink -industrial powers (20 -century): starts to get bigger -US starts to take major role after WWI -in the last 2 decades: increase in terms of productivity (probably something to do with computerization) Graph: Measures of Global Economic Integration -As a % of world GDP -world economy becoming more and more interconnected over time -increases in global trade are good (from economic perspective, not cultural perspective) Graph: Global Tradeablility of Goods and Services Graph: Growth in World Trade -annual percentage change in world trade volume -we had major recession in 2008; in 2009 and the year subsequently, there’s been rebound in world trade Graph: Leading Exporters -Merchandise exports as a % of world exports -importance of merchandise exports -WTO: most of the exports was merchandise; not services -around 2000: China’s line starts to go almost vertical; becomes an really powerful trading partner 1 TNCs -companies like IBMs can move from place to place Transnational Corporations -TNCs are the primary agents of international trade -TNCs are agents for technology transfer TNCs Aren’t New -The First Wave of Globalization with TNCs ended with the Great Depression (1929) -The current one started with the end of World War II 1914 TNCs -first TNC existed as far back into the Roman Empire -we wouldn’t call them corporations in a sense that we think of corporations (stockholders, etc.) -actual beginning of corporations as we recognize: professional admin staff, diverse officesdoesn’t date that far -incubator for modern corporation: was the railway -it was the first industry that had to deal with space in a major way -it extends in a large area -railway requires you to be able to administer corporation over a large space -first gold standard for corporate management was Pennsylvania railroad, later it was U.S. Steel, then General Motors -now? MaybeApple -100 years ago, there were TNCs but there weren’t a lot 1914 chart -Numbers and types of business enterprise engaged in international business in 1914 -dominated by UK: has 200 enterprises, followed by Switzerland, Germany, and US -in 3 of 4 cases, it was manufacturing -Germany: dominated chemicals up to 1914 -after 1914 (after US got involved in WWI) -Germany lost a lot of their chemical patents; a lot of them became American corporations -no service sectors List -multinational enterprises that still existed in 1914 -corporations have two duties: 1. Make money (profit); 2. Become immortal 2 -they want to survive forever -if you don’t survive, you won’t be making any profits -Nestle, J & P Coats, Lever Brothers, Bayer, Siemens are still around -most of these aren’t in the same industries they started out in -some corporations went bankrupt TNCs evolve in 4 stages 1. Demand abroad – export of a commodity from home country to a new foreign market -foreigners find out product and want it; how do corporations meet demand for that product? They export it 2. Establishment of production facilities abroad, exports of same item drop -once they establish a presence in foreign country, the next step is to establish facilities there and stop exporting Stage Three 3. Foreign production facilities now also service foreign markets other than first -e.g. Toyota opening a plant in Tennessee and producing Camrys and exporting those to Canada Stage Four 4. Foreign production facilities export back to home country -Extensions to this general pattern of TNC evolution when ties to a specific product are called the product life cycle model -original country becoming more economically developed and moving away from manufacture-based economy to service-based economy Product Life Cycle 3 -overall, the idea of the model is pretty good -this is the geographic version of model -talks about how product changes in location over time -when product first starts, it becomes more localized; once it starts to become more mature, it becomes more geographically disperse -LDCs: lesser developed countries -The product life cycle is getting shorter and shorter -because innovations are more rapidly copied by competitors, pushing down margins and transforming today’s consumer sensation into tomorrow’s commonplace commodity -In the toys and games business today, up to 40% of all products on the market are less than one year old -Once-uniform mass markets are breaking up into countless niches in which everything has to be customized for a small group of consumers -do we need a new iPhone every year? -they produce a new model every year -through marketing, it creates demand for the product -another factor that causes these changes to occur: competitors quickly copying other producers -e.g.Apple comes up with new phone; Samsung releases new phone -Samsung adds a feature in their phone; next year, Apple includes that feature on their new phone -competitive behaviour (everyone copying everyone else) pushes down profit market -something viewed as “cutting edge” will quickly move into the common place -toys and games business: very rapid turnover rate -producing companies used to face a very uniform market -didn’t have to customize product very much; everyone expected to be the same thing -e.g. in the US, there were 3 major networks on television; today, there are a wide selection of channels and networks (e.g. cable); channels about narrow topics -with these niche markets, you have an increasingly small number of customers that have to be catered to -to do that, you have to be innovative and take your products and make it more and more diverse Chart -Asequential model of TNC development -instead of having production facility in a new country, you can license product (someone pay you money to produce it) -major drawback of licensing: you lose control of the trade market -e.g.Apple known for high-end electronic 4 -you license it to somebody and they made something really crappy and putApple’s name on it -it’s bad for Apple Largest Firms by Revenues 2013 -largest company in world is Royal Dutch Shell (GB/Netherlands – oil), followed by Wal-Mart (US – retail), Exxon Mobile (US – oil), Sinopec Group (China – oil), China National Petroleum (China – oil), BP (UK – oil), State Grid (China – electricity), Toyota Motor (Japan – automobile), Volkswagen (Germany – automobile), Total S.A. (France – oil) -oil companies dominate the list -depends on price of oil* -Wal-Mart was #1 a few years ago when oil prices were down -now oil prices went up and their rankings go back up -China – has the most corporations on the top 10 list -in 2003, there wouldn’t be a Chinese company on the top 10 list -Japanese companies would have as many or more than US in the list -All 500 firms on the list racked up combined revenue of $29 trillion. From this $1.6 trillion was profit, about the same asAustralia’s GDP -some companies are really large and have significant clout Number of Global 500, 2013 -US has 132 firms in global 500, China has 81, Japan has 62, Canada has 9 -Canada has 65 out of the top 2000 Largest Canada Firms, 2012 -Royal Bank of Canada: #50, followed by TD Bank #71, Scotiabank #84, BMO #131, Suncor #142, Manulife Financial #156, CIBC #161 -TD has moved up over the past decade -there are large firms in Canada, but none of them crack in the top echelon Transfer pricing -The major advantage TNCs enjoy is transfer pricing – technique to shift profits to countries with lower corporate taxation rates -has something to do with taxes: a way that TNCs to cheat on their taxes -they ship profits from countries that have high tax rates to countries that have low tax rates -they change price of goods from one country to the next 5 Transfer pricing (or reinvoicing) -The incentives for TNCs to engage in transfer pricing -examples: Germany, Ireland, U.S. -can hold profits offshore -several large American firms do that – as long as they don’t bring it back (repatriate), then they don’t have to pay for the taxes Examples -Prem Sikka, professor of accounting at the University of Essex, gives examples of US companies that have recorded imports of -plastic buckets from the Czech Republic at $972.98 each, -fence posts from Canada at $1,853.50 each, -a kilo of toilet paper from China priced at $4,121.81, -a litre of apple juice from Israel at $2,052 and a ballpoint pen from Trinidad at $8,500. -Examples in the other direction – under-priced exports -include a toilet, with bowl and cistern, to Hong Kong for $1.75, -prefabricated buildings to Trinidad at $1.20 a unit -bulldozers to Venezuela at the apparent bargain price of just $387.83. -the prices are fiction created by TNCs to allow them to manipulate their taxes -US has a special division in
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