Definitions of developed, developing, and emerging countries

Countries around the world vary in their economic progress, which influences how they participate in global trade and investment. These differences are often measured by factors like gross domestic product (GDP) per person and living standards.

Developed countries

Developed countries are wealthier nations with advanced industries, such as the UK, Japan, and Australia. They typically have high GDP per person and strong living standards.

Developing countries

Developing countries are nations like Colombia and Angola that depend heavily on sectors such as manufacturing, farming, and other work-intensive activities. They usually have low GDP per person and lower living standards compared to developed nations.

Emerging countries

Emerging countries are a subset of developing countries that are advancing rapidly towards development, such as China. These nations are growing quickly but have not yet reached full developed status.

Characteristics of globalisation

Globalisation describes the process where economies worldwide become more interconnected, functioning almost as a single large economy through greater trade, investment, and resource sharing. This trend has accelerated significantly over the past 50 years.

Economic integration

Economies connect more closely through the free flow of capital (financial resources) and labour across borders, alongside unrestricted trade in goods and services.

Additional economic traits:

• A rising share of all trade being international.
• Greater flows of financial capital between nations.
• More integrated production processes, where product components are made in various countries.
• Involvement of more countries in global trade.
• Increased foreign ownership of businesses.
• De-industrialisation in developed nations (loss of manufacturing) alongside industrialisation in developing and emerging ones.

International division of labour

Enhanced international division and movement of labour occurs due to globalisation.

This means production tasks are split across countries or shift from developed to less developed areas:

• Developing and emerging nations are gaining skills and technology for manufacturing goods sold to developed countries, often due to lower labour costs.
• This attracts foreign firms to set up operations there, especially with good infrastructure like transport networks.
• An example is India providing software services to many European firms.

Technological and knowledge sharing

Advances in technology and employee expertise (intellectual capital) are applied and protected (e.g., via patents) on a global level.

Political and cultural dimensions

International organisations like the United Nations (UN) promote joint decision-making and cooperation between nations. Culturally, globalisation spreads elements like global brands (e.g., McDonald's) and practices (e.g., yoga) worldwide.

Role and features of multinational corporations

A major driver of globalisation is the expansion of large firms that operate across borders, influencing trade, investment, and economic growth in multiple countries.

Definition of multinational corporations

Multinational corporations (MNCs), also known as multinational companies or transnational corporations (TNCs), are businesses that operate in at least one country beyond their home base. Examples include Nissan and KFC.

Factors attracting MNCs to invest in a country

• Resource availability - Access to inexpensive labour and raw materials reduces costs.
• Infrastructure - Strong transport networks facilitate efficient operations.
• Market access - Entry to new customer bases expands sales opportunities.
• Government policies - Supportive regulations, such as incentives for foreign investment, encourage setup.

Strategies used by MNCs

MNCs often split their activities to minimise expenses by placing each operation in the most cost-effective location.

Key strategies include:

• Offshoring - Establishing parts of the business in another country.
• Outsourcing - Contracting work to external organisations, often abroad.

Causes of globalisation

Several interconnected factors have fuelled the rapid growth of globalisation, making international economic activities easier and more profitable.

Trade liberalisation

The lowering or elimination of barriers like tariffs and restrictions on international trade (reducing protectionism). This is often negotiated through bodies like the World Trade Organisation (WTO), which also sets global product standards to build consumer trust in imports.

Technological advances

• Transport improvements - Lower real costs and faster shipping times, such as through larger cargo vessels, make exporting and importing more affordable.
• Communications advances - Technologies like the internet simplify and cheapen the interactions needed for global trade.

Business expansion strategies

• Profit-seeking by firms - Businesses, particularly MNCs, expand abroad to boost earnings, often through foreign direct investment (FDI) in places with low labour costs. FDI involves a company from one nation investing in another, such as heavy overseas capital flows into China.
• Economies of scale exploitation - Firms grow internationally to spread costs over larger outputs, increasing efficiency.
• Influence of MNCs - Their rising numbers and power lead to more global trade in goods, services, and investments.

Government and policy factors

• Government incentives - Policies that attract foreign firms, such as subsidies, to gain trade benefits.
• Opening of new markets - Former closed economies becoming accessible, like post-Cold War Eastern European nations (including Russia) and China's entry into the WTO in 2001.
• Growth of trading blocs - Groups like the European Union (EU) increase trade among member countries.
• Sovereign state investments - Governments investing national funds abroad, such as Norway using oil revenues to buy into foreign firms.

Economic specialisation

International specialisation occurs when countries focus on producing what they do best, which boosts global trade.