Géography: chapter 1

Globalization: economic agents, flows, networks How are organized networks and flows in a globalization

dominated by transnational corporations?

I) Globalization and Transnational Corporations Globalization is a process marked by increasing trade between

an increasing number of areas, which thus become interdependent. Globalization is closely linked to the strategy of TNCs.

Transnational corporations (TNCs) are large companies operating in several states, directly or through subsidiaries.

A) TNCs and globalization

1) TNCs are important agents of globalization

There are several agents of globalization: states, international organizations, even organized crime.

But TNCs are the most important agents.

Where can you find the headquarters of the biggest TNCs? Is this geography changing?

• Where are TNCs from?

TNCs are mostly companies of rich countries

There is a growing number of TNCs based in emerging countries, especially in China.

• Why are they important agents of globalization ?

Their wealth make them very powerful. The most powerful of them are retail, energy or automotive companies. But there are TNCs in all the economic sectors: most of the brands you know are TNCs.

2) How do TNCs affect globalization?

TNCs affect globalization by their “inward investments”, whose goals are:

•To get raw materials

Example :

Total invest in Africa to discover new oil fields

• To expand into new markets

Example:

Ikea expands into China to take advantage of the growing Chinese market

• To optimize the production thanks to the New International Division of Labour (NIDL) (you will also hear about the IDL)

The IDL means that :

-production relies on many countries,

-each country has been chosen for its comparative advantages (cheap raw materials, cost of the workforce, efficiency of transports, …)

→ As a result, we can talk about a « global industrial shift », in which production processes are relocated from developed countries to emerging countries.

Even if you think about something which seems very simple, such as jeans, there are several countries involved...

That's what you'll have to show in your personal presentation of a globalized product !

The NIDL is always moving, changing: if a TNC decides to close a factory and to reopen it in a country where the workforce is cheaper, we call it...?

Offshoring.

TNCs can also use « contract manufacturers »: for example, Nike only owns few factories, the largest part of its products are made by contract manufacturers.

This strategy has both positive and negative consequences:

+ : industrialization of poor countries where people go richer (slowly, of course); cheap products for consumers of MEDCs

- : exploited workforce and environmental destruction in LEDCs, deindustrialization in MEDCs.

However, the NIDL does not only mean the pursuit of cheaper costs, it really depends on the strategy of each TNC:

If we take the example of cars manufacturing, we can see that on the one hand, the French companies are producing more and more cars abroad, but on the other hand, the Japanese company Toyota decided in 2012 to expand its activity in France to provide Northern America in « Yaris ».

Finally, we can say that the world, organized by TNCs, is really complicated: there are both relations of exchange, complementarity and competition between countries.

B) Networks make possible and flows reflect the strategy of TNCs

1) Transportation networks have been regularly improved

• Networks make possible exchanges between territories. It can be exchanges of goods or immaterial flows. They are composed of axis and hubs. They can be ranked (local, national, global networks).

• Those networks have been deeply transformed:

- Maritime transportation (see II): let's focus on the rise of intermodal containers

Intermodal containers are standardized reusable steel boxes used for the safe, efficient and secure storage and movement of materials and products within a global containerized intermodal freight transport system.

Big advantage: the tranporter just have to care for the box, not for what's inside the box: no time wasted.

But what does mean: « a global containerized intermodal freight transport system »?

It means huge harbors, with rapid container cranes (grues)

It also means cheap transport on huge ships (14500 containers for the biggest ones)

At least, « intermodal » means that a container can either travel on a truck…

…or on a double-decker train, such as those Union Pacific Railway trains crossing the USA.

– Air transport

Do you know Federal Express ? Do you know what this company invented?

FedEx was the first transportation company to use to model of « hubs and spokes »: all the parcels were collected in one single airport and sent to their final destination during the night. Advantages: only one dispatching place, easy to manage. Since that, FedEx opened other hubs in Asia and Europe (Roissy Airport)

The model of « hubs and spokes » has been adapted to the transportation of passengers.

- Transport of informations Thanks to the telephone networks, the rise of Internet, even if it concerns

above all MEDCs, made possible instant sharing of informations.

Percentage of the population connected to Internet in 2010

2) The rapid growth of the flows

• Flows mean the moving of persons, goods, services, virtual data (money or information) using the networks

• Flows of goods and services are expanding faster than production. More than a quarter of the world’s production is exchanged.

How to explain this?

-there are « unavoidable exchanges », of products which can not be found everywhere, such as raw materials (Oil…)

-But many flows result of the IDL (remember your personal work!)

• Money flows are also increasing rapidly:

- Because of the IDL (inward investments)

- Because of speculation and tax evasion (money transfer to tax havens)

• Human flows are also increasing, but you have to make a difference between:

– Migrations, widely caused by social contrasts, and which happen often in bad conditions (illegal immigration)

– Tourism (circa 1 billion international tourists per year), which reflects the improvement of the standard of living and the fact that in our societies spare time activities are getting more and more important.

II) Focus on… maritime roads and maritime transport

A)Overview of maritime transport

• In the heart of globalization

Shipping makes globalization possible:

Shipping has been completely transformed

*Bigger ships

*Bigger harbors

*Ships specialized in one product and container ships

• What are the main maritime roads?

→ The main maritime roads connect the busiest port regions, eg Eastern Asia and Western Europe, where huge ports can be found.

• Where are the biggest ports?

Caribeean Sea

Gulf of Guinea

Red Sea Gulf of

Aden

China Sea

Bosphorus

Hormuz

→ The biggest ports are the ports connected to the busiest hinterlands, which must be:

-populated areas but also

-places of production and/or consumption.

• How shipping takes advantage of the world’s contrasts

There are about 50 000 international ships, often with « flag of convenience » (eg. A ship registered in Panama, to take advantage of the lack of social rules). Most of the 700 000 sailors come from LEDCs, eg. Philippines Most of the 460 000 officers come from MEDCs

• The main agents of shipping:

-Shipping companies

-Ship builders

-Ports

Shipping companies (which are TNCs) are the most influent agents:

Shipping companies are powerful: they chose some ports as hubs and make them rich… So ports have to be attractive (efficiency, costs, …) to attract those companies. Example: the port of Marsaxlokk in Malta, Mediterranean hub of French company CMA-CGM

B) Issues of a changing activity

• How to secure strategic places

What can we call strategic places?

→ Straits and canals are very important because ships are obliged to cross them. The two main canals (Suez and Panama) are being widened and modernized. In the straits, as they are choke points, the maritime traffic must be carefully controled to avoid accidents.

Controling shipping in Brittany and in the English Channel

Countries bordering these strategic ways are watched carefully by countries reliant on shipping.

Example: if Iran is so carefully watched, it’s also because it could threaten the Strait of Hormuz, crossed by many tankers.

• Piracy is back!

Where is there piracy and why?

Caribeean Sea

Gulf of Guinea

Red Sea Gulf of

Aden

China Sea

Bosphorus

Hormuz

Main piracy areas

→ Nowadays, accidents can still happen. But the most serious problem is piracy. What makes piracy possible is the fact that shipping roads pass off very poor countries, excluded of globalization, and often at war: for their population, piracy is a way to get a lot of money.

Example: in Somalia in 2009, the estimated amount of money stolen by pirates was 38 million dollars, while foreign aid to Somalia was only 3,5 million dollars, and the whole Somalian budget was 13,5 million dollars…

• Changes in shipping: the rise of Asia:

Here’s a list of the 15 world’s busiest ports in 2012

- The world’s busiest ports are now in Asia, particularly in China

-92% of the ships are built in Asia

Be careful, inverted ranking

-The biggest shipping companies are still European, but Asian companies are increasing.

Conclusion:

Agents, flows and networks show a rising and moving globalization.

However, social and environmental issues are important challenges.