Question

In a minimum of 200 words respond critically to the following statement: Globalization brings both benefits and costs. Research a global business and identify the benefits it derives as well as the costs it incurs. Be sure to specify the business identity and your sources.

Answer 1

Let's take an example of apparel industry.

Benefits of globalisation

1. Free trade is a way for countries to exchange goods and resources. This means countries can specialise in producing goods where they have a comparative advantage (this means they can produce goods at a lower opportunity cost). When countries specialise there will be several gains from trade:

Lower prices for consumers

Greater choice of goods, e.g cloth imports attracts new fashion sense

Bigger export markets for domestic manufacturers

Economies of scale through being able to specialise in certain goods

Greater competition from more apparel brands across the country.

2. Free movement of labour

Increased labour migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. This process of labour migration also helps reduce geographical inequality. This has been quite effective in the EU, with many Eastern European workers migrating west.

Also, it helps countries with labour shortages fill important posts. For example, the UK needed to recruit nurses from the far east to fill shortages.

However, this issue is also quite controversial. Some are concerned that the free movement of labour can cause excess pressure on housing and social services in some countries. Countries like the US have responded to this process by actively trying to prevent migrants from other countries.

3. Increased economies of scale

Production is increasingly specialised. Globalisation enables goods to be produced in different parts of the world. This greater specialisation enables lower average costs and lower prices for consumers. So bulk amount of cloth production reduces the cost. So companies can bring more value to the customers.

4. Greater competition

Domestic monopolies used to be protected by a lack of competition. However, globalisation means that firms face greater competition from foreign firms.

5. Increased investment

Globalisation has also enabled increased levels of investment. It has made it easier for countries to attract short-term and long-term investment. Investment by multinational companies can play a big role in improving the economies of developing countries.

Costs of globalisation

1. Free trade can harm developing economies

Developing countries often struggle to compete with developed countries, therefore it is argued free trade benefits developed countries more. There is an infant industry argument which says industries in developing countries need protection from free trade to be able to develop. However, developing countries are often harmed by tariff protection, that western economies have on agriculture. Paradox of Free Trade

2. Environmental costs

One problem of globalisation is that it has increased the use of non-renewable resources. It has also contributed to increased pollution and global warming. Firms can also outsource production to where environmental standards are less strict. The dye used in apparel industry is major causative agent of environmental pollution if it gets dissolved in primary water sources.

3. Labour drain

Globalisation enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best-skilled workers, who are attracted by higher wages elsewhere.

4. Tax competition and tax avoidance

Multinational companies like Louis Vitton, Jockey can set up offices in countries like Bermuda and Luxembourg with very low rates of corporation tax and then funnel their profits through these subsidiaries. This means they pay very little tax in the countries where they do most of their business. This means governments have to increase taxes on VAT and income tax. It is also seen as unfair competition for domestic firms who don’t use the same tax avoidance measures.

Reference

https://fashion-history.lovetoknow.com/fashion-clothing-industry/globalization-fashion-industry

https://www.economicshelp.org/blog/81/trade/costs-and-benefits-of-globalisation/