Core Module 20 International Interdependence Foundation part: Consequences of Economic Globalization 1. What are the factors that promote economic globalization? 2. Who will benefit from economic globalization? What should be done so that more people may benefit from economic globalization? 1 Pre-lesson Activity: How is economic globalization related to us? 1. What are the products or services provided by international corporations/multi-national companies that we will come into contact with in our daily life? Complete the following table based on the observations made from your daily life. Scope Products/services Company/Brand name Clothes Food Electronic products Entertainment 2 The country where the company based in 2. With reference to the information in part 1, do you think Hong Kong possess some characteristics of a global city? 3. What are the benefits brought by globalization to our daily life? 3 Worksheet 1: Characteristics of economic globalization Compare the two comics below and answer the following questions. Comic 1: Family life in Hong Kong in the 1970s 4 Source 2: Family life in Hong Kong nowadays 5 1. Compare the products and services in the 1970s with that nowadays. What are the differences between them? 1970s Nowadays Products (e.g. clothes, toys and food) Services (e.g. entertainments, domestic services and shopping services) 6 2. Hong Kong people are greatly affected by globalization. With reference to these phenomena in the comics, summarize some characteristics of globalization. What is economic globalization? Economic globalization means cross-boundary economic activities, by which people from different countries may do business. Driven by free economy and technological advancement, there has been a huge transaction volume of goods and services across countries. That brings collaborative production of goods and services by different countries for the consumption of people all over the world. Meanwhile, the rapid flow of factors such as labour, capital, information and technology across countries has further promoted economic globalization. With economic globalization, there are frequent economic activities across countries. With the technological advancement in logistic, electronic media and the internet, companies today may link up with the world for trades across countries and forming multi-national corporations is possible. In a globalized world, multi-national corporations may participate in real-time transactions across countries. The concept of “international time zone” becomes less important and the world becomes smaller as time and space are “squeezed”. Therefore, international trades are getting faster and there are more opportunities for the development of international corporations. 7 Worksheet 2:Factors contributing to economic globalization Source 1: With the development of communication technologies, time and space are no longer problems when we want to promote our products. People can get access to our latest information through channels such as TV and internet instantly. Our products can then draw their attention. In addition to promotion, our company has launched an online shopping platform so that consumers can buy our products comfortably at home. Head of Marketing Department of a multi-national company Source 2: Milestones of IT development 1940s The first electronic digital computer was developed 1950s The first satellite was launched by the former Soviet Union 1960s The first fax machine came into the world 1990s World Wide Web 2000s Web 2.0 came into being 2010s More than 2 billion Internet users all over the world Source: Xinhuanet.com, local news roundup 8 Source 1: Transportation becomes more and more convenient when transportation cost is getting lower and lower. That makes us to be able to reach different places easlier and faster. While we have established our production bases in places where production costs are much lower, huge volume of products can be transported to all parts of the world for sale conveniently. Moreover, we can conduct frequent on-site inspection to ensure the quality of products. Head of Logistics Department of a multi-national company Source 2: Development of transport technologies The following table shows the speed of transport in different periods: Period Major transport Hourly rate 1500s-1840s Horse-drawn coaches and sailing ships 1.6km/hr Steam locomotive 104km/hr Steam ships 58km/hr 1930s-1950s Propeller aircraft 480-640km/hr 1960s-21st century Jet passenger aircraft 800-1120km/hr 1850s-1930s Source: Harvey (1989). The condition of postmodernity. p. 241 (translated and edited). 9 Source 1 To boost our business, we invest worldwide and attract more talents to our company. We have published recruitment ads around the world in the hope of attracting top talents around the world to our US headquarters. Moreover, we will hire workers and supervisors from places where we operate our factories. As their wage level is lower, our production cost is substantially reduced. Head of HR of a multi-national company Source 2 Global Wage Report (Extract) Ranking Country / Region Monthly average wages per person (US$) 1 Luxembourg 4089 2 Norway 3678 3 Austria 3437 4 United States 3263 30 Hong Kong, China 1545 57 China 656 70 Philippines 279 71 Pakistan 256 72 Tajik 227 Source: Integrated report (2012) 10 We had been operating most of our factories in the US in the past. However, as a number of new international organizations have been provi ding st rong support t o cert ai n developing countries/territories in their economic development by ways such as policies favorable to foreign investors and improvement in infrastructure, we actively invest in these countries. By doing so we reduce our production cost and provide support to economic development of these countries. It’s really a win-win situation. Head of Production Department of a multi-national company Source 2: Functions of organizations for international cooperation (Extract) Organization Functions World Trade Organization Establish trade agreements; resolve trade disputes; review trade (WTO) policies. World Bank Provide loans and technical support to developing countries. International Monetary Fund (IMF) Foster global monetary cooperation; stabilize exchange rates; provide financial assistance to countries that have trouble. Organization for Economic Provide a forum in which governments can work together to share Co-operation and experiences and seek solutions to common problems, and look at Development (OECD) issues that directly affect the lives of ordinary people. Source: Xinhuanet., local integrated report 11 With reference to the information above, summarize and explain the factors contributing to economic globalization. Reading Factors contributing to Material economic globalization Explanation A B 12 C D Factors contributing to economic globalization Economic globalization has appeared many years ago. However, it has been growing rapidly from the 1990s onwards. In addition to the change in the mode of doing businesses and worldwide division of labour, we may also understand the factors that contribute to economic globalization from the aspect of political and technological developments. 1. Political factors For political factors, during the period between the end of World War II and early 1990s, the world was divided into two major camps, the capitalist and the socialist. The gaps and conflict of interest, 13 between the two camps had been an obstacle to global economic cooperation and development. In the early 1990s, the collapse of the Soviet Union and the gradual shift of the communist countries to capitalist market economies which had brought communications and trade between countries from the two camps. In addition, the establishment of a number of international economic organizations had promoted the development of globalization. For example, the World Trade Organization and the Asia-Pacific Economic Cooperation Conference have been established to eliminate trade barriers across countries and strengthen the cooperation among countries for a better economic cooperation. 2. Technological factors For technological factors, the rapid development of internet as a global information network during the 1990s made the global one world. People around the world can exchange ideas, communicate and promote global economic trading through internet. For example, with technological development, people can participate in financial or commercial transactions through a variety of online transaction platforms. Every individual or multi-national companies can use those online platforms and a variety of electronic money to deal with people all over the world. This convenient mode of transaction has promoted economic globalization and the operations of various trading companies. In addition to internet, the development of transport and logistic services had promoted the rapid flow of talents and goods across countries. Trade and negotiations can be conducted in a more efficient and time-saving manner. On the other hand, the reform and opening up of China and the relaxation of controls on financial systems in the US are also factors contributing to economic globalization. 14 Case study: Positive and negative effects of economic globalization Guidelines for teaching activities: 1. Divide students into two groups, one focuses on the materials of developing countries and the other on developed countries. 2. Further divide each group into four small groups. Each group represents a particular type of stakeholder and is responsible for completing the related worksheet. 3. Hold a forum on the topic of positive and negative effects of economic globalization. Each group expresses their opinions for the respective stakeholder. Positive and negative effects of economic globalization (Materials for developing countries) : Worldwide production and sales network of iPhone 15 The Foxconn suicide incidents which occurred one after another were unusual. It’s just because the management treats the young employees in a military way and didn’t care about their mental wellness. Moreover, a report shows that workers in Foxconn have to work for more than 60 hours a week and sometimes have to work seven days a week Political commentator consecutively. This will certainly cause negative impacts to their physical and mental wellness. My hometown is famous for its pottery. Our peers had stayed in the village to produce pottery together in the past years. However, more and more of my peers migrated to cities now. Some peers told me that you can earn higher wages if you work in factories in cities. Foxconn, for example, pays a wage that is 3 times of my current wage. Many pottery factories in my hometown closed down now and I am thinking of working at Foxconn’s factory in Shenzhen. Migrant worker : Details of Foxconn’s pay rise Date Details June 1, 2010 Minimum wage of workers increased by 30% from RMB 900 to RMB 1200 October 1, 2010 Workers at Foxconn’s Shenzhen hub can have a wage increase to RMB 2000 if they pass a performance review February 1, 2012 16%-25% Pay rise for basic wages of all employees all over China to RMB 2200 Proposed In May 2012, Terry Gou, Chairman of Foxconn, announced the plan to double the wage of employees in China to RMB 4400 Source: Local integrated report, 2012 16 : News headlines Greater demand for budget smart phones will push smart phone market to price war Smart phone market is big and a variety of latest models of smart phones have been launched by manufacturers. However, market saturation began in some developed countries. Some manufacturers forecast that the growth of smart phone market would be recorded mainly in developing countries in the coming few years. In order to explore these markets, manufacturers have been working hard in developing relatively cheaper smart phones. We cannot expect these smart phones to have the same features as those of high-end phones, given their lower prices. They, however, attract a number of consumers who cannot afford high-end phones. An example is China. Huawei, a company mainly engaged in the development of budget smart phones, saw its market share increased to 12% in 2011 from 7.4% in 2010. ZTE, another manufacturer of budget smart phones, was able to increase its market share from 3.6% to 11%. Facing the challenges of budget smart phones, certain multi-national brands are expected to lower the prices of their products. It is believed that consumers can buy smart phones at a lower price in the future. Foxconn offers stimulus for the Chinese economy Following the expansion of the smart phone market, Foxconn as an original equipment manufacturer (OEM) of smart phones has been expanding its market. With a turnover of not more than RMB 800 million during its early years in Shenzhen, Foxconn had seen its revenue jumped to about RMB 420 billion and had been among the Fortune 500 for a few years time. The development of Foxconn also fosters the economic growth of China. Foxconn’s products accounted for over 4% of China’s total exports in 2011 and had been among the top 200 Export Enterprises in China for consecutive eight years. Meanwhile, according to Foxconn’s announcements, the company hired 1 million workers from all parts of the world in 2010 when more than 0.9 million workers are working across China, providing a lot of job opportunities for the people in China. Many migrant workers had switched to Foxconn’s factories. This fosters China’s economic transformation and development. 17 In addition, multi-national corporations had brought advanced technologies to manufacturers in China when they engaged manufacturers in China as their OEMs. In addition to OEM productions, many manufacturers in China are now working on developing their own smart phones and bringing their products to the world. Source: Local integrated report (2011) Meaning of OEM: Generally, it refers to a manufacturer produces goods by applying purchasing company’s technology and according to the required standard. Goods will then be sold under the name of the purchasing firm. Record sheet by groups Group one Stakeholder: Consumers in developing countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects Consumers in developing countries 18 Negative effects Group two Stakeholder: OEM’s workers in developing countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects Negative effects OEM’s workers in developing countries Group three Stakeholder: OEMs in developing countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects OEMs in developing countries 19 Negative effects Group four Stakeholder: Government officials of developing countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects Negative effects Government officials of developing countries 20 Positive and negative effects of economic globalization (Material for developed countries) : Worldwide production and sales network of iPhone : Opinions of different people Increasing relocations of production lines from the US to other countries had caused material impacts to the livelihood of people in the US. Let’s take iPhone as an example. Nearly 700,000 workers engage in the production and assembly of iPhone and other Apple’s products. However, most of them are not working in the US. On the contrary, over 90% of them are hired by overseas companies in Asia, Europe or other regions. It is such outsourcing mode of production that pushes up the U.S. unemployment rate. I think the manufacturers should relocate their production lines back to the US. 21 A member of the United States Congress Nowadays, we have more and more choices of smart phones in the market, but less and less choices of traditional mobile phones. You should understand that I don’t know how to use smart phones as I am old. My friends and I want to talk to our family members on phones that are user-friendly and portable. The phone manufacturers simply ignore our needs. A consumer : Distribution of cost and profit of iPhone as a percentage of its selling price Cost or profit % Profits of Apple Inc., a US company 58.5% Profits of other US companies 2.4% Profits of companies in South Korea, European Union, Japan 6.8% and Taiwan Uncategorized profits 5.3% Cost of raw materials 21.9% Labour cost in China 1.8% Labour cost in other regions (excluding China) 3.5% Source: Capturing value in global networks: Apple’s iPad and iPhone (2011) : News headlines New smart phones rushed to market in fierce competition Smart phones have now become the major trend in mobile phones. While the market of smart phones has been expanding, manufacturers from all parts of the world have been launching new models to provide more choices for consumers. A survey report in relation to a study on online search traffic for the latest smart phones shows that “iPhone” ranked first in terms of online search traffic over the past 22 six months, while the search traffic for “HTC” and “Samsung” had increased by 250% and 400% respectively. The data reflects shows that there’s still keen competition in the smartphone industry. Manufacturers rush to launch smartphones with new features such as gesture control and 3D camera to attract the consumers. Innovative industries as the way out for the US economy The gains made by products such as iPhone and iPad have pushed the profit of Apple Inc. up to record highs. Despite the uncertainties in the US economy in recent years, the gains made by Apple Inc. shows that there is still a huge potential in the market of innovative industries. When the business of a company is expanding, their employees may earn higher salaries. When a company grows, it offers more job opportunities for the domestic workers, including those engaging in the manufacturing industry. In 2010, Apple Inc. hired over 8,000 workers. When the unemployment rate reached record high in the US, it had been reported that US president Barack Obama had asked why iPhone cannot be manufactured in the US. However, the management of Apple explained that they cannot do so, not only because of wages to the workers, but also because of the fact that local manufacturers are less competitive than overseas contractors in terms of efficiency and flexibility. Nevertheless, Apple retains its high value-added industries such as customer services and R&D in the US. Accordingly, Apple has created a lot of quality jobs for the people in the US, including entrepreneurs engaged in the businesses of developing and selling iPhone and iPad applications. In the past two decades, it is beyond controversy that developing countries such as China has taken away a lot of manufacturing jobs in the US. However, some people said that US workers are not willing to do low-skilled jobs as those in Foxconn’s factories in China, it is understandable that the US will outsource these jobs to developing countries. Source: Xinhuanet.com, local news roundup (2010) 23 Record sheet by groups Group five Stakeholder: Consumers in developed countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects Negative effects Consumers in developed countries Group six Stakeholder: Workers in developed countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects Workers in developed countries 24 Negative effects Group seven Stakeholder : Manufacturers in developed countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects Negative effects Manufacturers in developed countries Group eight Stakeholder : Government officials of developed countries With reference to the information above, analyze the positive and negative effects of economic globalization from the perspective of the following stakeholder. Stakeholder Positive effects Government officials of developed countries 25 Negative effects Forum: Does economic globalization bring positive or negative effects? Listen to the presentation of your classmates. Jot down and summarize the points in the following table. Stakeholder Positive effects Consumers OEMs’workers Developing countries OEMs Government officials 26 Negative effects Stakeholder Positive effects Consumers Workers Developed countries OEMs Government officials 27 Negative effects Class work Does economic globalization bring more positive effects or negative effects to the people and the countries? 28 Effects of economic globalization Economic globalization brings positive and negative effects to both producers and consumers. We can study the effects of economic globalization from the economic perspective in evaluating the positive and negative effects of economic globalization. On the other hand, economic globalization not only brings effects to individuals, but also brings positive and negative effects to the countries. Positive effects Through economic globalization, companies in the developed countries can engage certain developing countries as the manufacturers of their goods for lowering their production costs and having greater profits. Meanwhile, there would be business opportunities for the developing countries. Consumers can buy products at a lower price and choose from a variety of goods around the world. Developed and developing countries may cooperate and attain economic transformation easier. There will be transfer of production technologies, greater flow of capital mobility and higher GDP for accelerating economic development and lower unemployment rate, which bring positive effects to the development of the developing countries. Negative effects International division of labour comes from economic globalization, workers who are less competitive may find their wages lowered or benefits and protections deprived in such international division of labour. International division of labour leads to competitions among countries, and lower production cost is the selling point that attracts foreign investors. As a result, working conditions in developing countries may be worsened. On the other hand, international division of labour means that some jobs from the developed countries are taken by the developing countries. As a result, there is a rise in the unemployment rates of developed countries. For consumers, products at low prices flow across countries and compete with local products, and may even squeeze the local products out of the market. As a result, consumers can only choose imported goods and their interests are affected in that sense. 29 Worksheet 3: International organizations contributing to economic globalization The following news articles are related to international organizations. Read the following news carefully and answer the questions below. : International Monetary Fund The International Monetary Fund (IMF) had announced that Cyprus, a country in Europe, had made a formal request for financial assistance from the IMF. The Cyprus Government had decided to apply for financial assistance from the European Union to help it to deal with the country’s banking crisis. Christine Lagarde, Managing Director of IMF, announced on the same day that IMF stands ready to help Cyprus to attain stable and sustainable economic growth and to restore its financial sector. Source: Integrated report, June 2012. : World Bank The World Bank has recently officially launched its education project in Yunnan, China. The World Bank would provide a loan of over 300 million dollars to support nine vocational training schools in Yunnan in enhancing the quality of education and economic development. Jim Yong Kim, president of the World Bank, stated that the World Bank will continue to help developing countries such as China to fight poverty and will provide developing countries with various kinds of support such as personal training, financial management and funding. Source: Integrated report, June 2012. 30 : Organisation for Economic Co-operation and Development (OECD) According to the report recently released by OECD, the number of people in the US receiving higher education as a percentage to the total population did not increase for the past 30 years. It was reported that among the members, there were 22 economies which have higher percentages of technological and engineering graduates than that of the US. OECD warned that it reflects a gradual vanishment of the advantages of the US in its innovative industries, which will cause negative effects to the long-term economic development of the US. The report further states that the gap between the rich and the poor has been widening and has caused impacts to the improvement of quality of life of the US people. In that regard, OECD suggests that the US should strengthen the training of engineering and technological talents to restore its status as a leader in innovative industries by training of top talents. OECD had published a number of reports in relation to the developments of different countries as part of its efforts in enhancing competitiveness of the countries and improving the quality of life of their people. 31 1. Match the objectives and work of the following international organizations. International organizations Organisation for Economic Co-operation and Development (OECD) Objectives and work ‧ A‧ specialized agency of the United Nations which is responsible for stabilizing exchange rates and promoting international cooperation on monetary issues. It also grants various kinds of loans to countries in trouble or potential difficulties, helps members stabilize their monetary position, improving international income and expenditure and supervises members which apply for loans in launching fiscal and financial reforms to solve their structural economic problems. World Bank ‧ An ‧ organization with the mission of supporting countries in reducing poverty and achieving sustainable development. It comprises two institutions managed by some 180 member countries: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD aims to reduce poverty in middle-income and creditworthy poorer countries, while IDA focuses exclusively on the world’s poorest countries. It provides low-interest loans, interest-free credits and grants to developing countries. These support a wide array of investments in such areas as education, health and infrastructure. It also offers support to developing countries through policy advice, research and analysis, and technical assistance. International Monetary Fund ‧ It‧ is an inter-governmental international economic organization formed by 34 countries of market economy. It provides a forum in which governments can work together to share experiences and seek solutions to common problems. It also looks at issues that directly affect the lives of ordinary people, e.g. how much they pay in taxes and social security, and how much leisure time they can take. Furthermore, it recommends policies designed to make the lives of ordinary people better. 32 2. Summarize the information above. What are the things these international organizations had done in promoting economic globalization? Contributions of international organizations (OECD, the World Bank and IMF) to economic globalization and their work Countries around the world had established a number of international organizations to provide essential platforms for joint efforts in achieving international trades and economic development, fostering trade agreements across the borders and dealing with international economic issues. The well known organizations among them are OECD, the World Bank and IMF. OECD Founded in 1961, OECD aims at enhancing the economic and social living conditions of the people all over the world. Through a series of studies, OECD works with governments from all parts of the world to see what can be done in driving positive economic, social and environmental changes. OECD analyzes, measures and applies various statistics for economic development in the aspects such as trade, investment and productivity to set international standards for different countries’ reference. The World Bank Founded in 1944, the World Bank aims at improving living conditions of the needy countries. Through providing financial assistance such as low interest loans and 33 borrowings, the World Bank offers financial support to poor countries in the aspects of education, medical services, infrastructure and agriculture, helps these countries in the transfer of technologies and knowledge and helps them in their economic development. IMF Founded in 1945, IMF aims at helping people from all parts of the world to solve their economic problems and offer support to the developing countries by giving economic policy advice. IMF supports all financial policies that maintain the stability of exchange rates and open financial policies. It helps the countries to maintain sustainable and stable development in their international financial systems. It also helps countries with difficulties in development and helps them improve their conditions such as economic development, unemployment rate and income. 34 Concept map of International interdependence World Bank OECD End of cold war, opening up of markets Internet promotes trades at any time and any place International politics Technological development IMF International organizations contributing to economic globalization Factors contributing to economic globalization Huge transaction volume of goods and services Labour mobility across countries Economic globalization Rapid flow of capital, information and technology Effects of economic globalization 經濟全球化的影響 Positive effects Producers Negative effects Relocation of production lines to regions The number of jobs in developed where production cost is lower for greater countries profits; more jobs for reduced and wages to developing low-skilled workers lowered countries and higher wages to workers Consumers Products at lower prices Fewer choices of products (particularly local products that are less competitive) Countries Promote economic development Number of jobs reduced; facing global competitions 35