Lesson video

Hello, my name is Chloe and I'm a geography field studies tutor.

This lesson is called Economic Impacts of Globalization, and it forms part of the places and people unit of work.

We're going to be looking at TNCs and how they can invest in this country and the impact that that investment has both for good and for bad.

Let's get started.

By the end of this lesson, you will be able to assess how FDI and TNCs have affected the UK.

There's quite a few key words for us to get our heads around.

First of all, let's start with FDI.

This stands for Foreign Direct Investment.

In other words, investment in a business that operates in another country.

A TNC is a transnational corporation.

You might also see it written as transnational company.

This is a company that operates in more than one country.

Globalization is an increased connectedness between different countries, and that spreads money, ideas, goods, and people.

Free trade is trade that exists between countries or economic regions where there's no tariffs or tax on imported or exported goods.

Privatization is the takeover of state run industries by private corporations.

There are two parts in this lesson.

We're first gonna look at the reasons for increased FDI and TNC activity, and then we're gonna have a look at the impact that that increased activity has had.

Let's start with the reasons.

So let's start by looking at these reasons.

They're gonna fall into three categories.

We're going to look at globalization itself, free trade, and privatization.

We're then gonna look at the impacts, and we're gonna be splitting that into the positive impacts and the negative ones.

Let's start with globalization.

FDI or foreign direct investment comes in a few different forms and put me our head around these, first of all.

A TNC could buy land and/or buildings in another country and then locate a new business there.

Or it could be that the TNC will take over an existing business in another country and operate it externally.

Or it could be that the TNC will simply just invest in an existing business in another country and take a share of the profits, although it will not actually run the business directly.

Aspects of globalization have made it easier for TNCs to operate in the UK and in other countries, and for TNCs from the UK to operate in other countries.

Remember, it works both ways.

So there's been an increase in size and reach of international banks.

This means it's much easier to move finances around because your bank is gonna be operating globally.

TNCs can make the best use of helpful exchange rates and different taxation systems.

They can have money existing in lots of different countries and then use it when the time is right for these different exchange rates.

Improved transportation networks is another aspect of globalization, which means that TNC activity is much easier and more likely to happen.

For example, things like containerization or the movement of containers, which you would normally see on the back of a lorry, but then being moved by ships to different parts of the world.

That's a key aspect of transportation.

But of course, there's also been larger, better connected ports and airports that have also eased these activities.

Workers can move easily between international offices because of these transportation networks.

Raw materials can move easily from sources to factories, and of course at the other end of things, the finished products can easily move to the global markets.

So from the factories, from the manufacturing countries to where they're actually being sold.

Another aspect of globalization is improved communication networks.

For example, online communication such as email and video conferencing has really taken off as part of globalization.

Workers do not have to meet face-to-face with colleagues in other countries anymore.

Online communication is instant, so TNC can react quickly to market changes and products can be marketed globally online.

Let's check our understanding so far.

Which of these is not enhanced by TNCs operating online?

The movement of payments and profit through the banking system, how international workers communicate with each other, moving raw materials from source countries to factories or marketing products to new customers?

Which of those is not to do with TNCs operating online specifically?

Have a think about your options and then come back to me with the right answer.

Well, hopefully you recognize that all of those things are happening because of globalization, but in terms of specifically, because of online communication, the one that isn't is about moving raw materials.

That's to do with the transportation networks being improved through globalization, not online operations.

We've done globalization.

Let's look now at free trade.

Linked globalization's been the rise of free trade policies.

Countries have created economic alliances through trade agreements.

The UK, for example, used to be part of the EU trade bloc, and don't worry, I haven't made a spelling mistake there.

That is how you spell bloc.

The UK got low or no tariffs on goods traded between EU members, so there was no taxation on goods coming in or outta the UK if they were coming from the EU or going to the EU.

This meant that goods were cheaper for consumers, and raw materials were cheaper for manufacturers.

Generally, the cost of producing and selling things came down.

Let's say, listening on this conversation that Aisha, Jun and Lucas are having, Aisha says, so if I started a business or invested in one, it would be better to do it within a trade bloc like the EU.

Jun says, you'd have such a lot of people and other businesses to trade with.

The bigger the trade bloc, the more TNCs there might be.

Make sense.

Lucas says, but you could also create trade agreements with other countries outside the EU to try to get your products to even more of the world.

He makes a really good point there.

It's not just that you get free tariffs when you are working within a trade bloc, you might be able to set up really incentivized trade agreements with other countries that aren't in your trade bloc.

So you might, for example, as the UK be able to create really good trade agreements with United States or with China, and that means that those products might be slightly cheaper than if you were not to have that trade agreement.

Let's check our understanding of those ideas.

True or false?

TNCs operating in a trade bloc like the EU will receive cheaper raw materials from sources within the trade bloc.

Is that true or false?

Have a think about everything we've just learned.

Pause the video and then come back to me.

Well, hopefully you recognized.

Yeah, it is true.

Now try to explain why that is a true statement?

Yes.

So the idea of cheaper raw materials comes from the idea of there being no or low tariffs on goods moving within the bloc.

This would mean those raw materials from source countries would be traded in a much cheaper fashion.

We are now onto our third reason for why there's increased FDI and TNC activity, and that is privatization.

Up until the late 1970s, many services in the UK were run by the state or the government.

Examples of this were things like rail lines, water services, and energy.

So unlike today where there's lots of choices that you can take when you are asking for those services.

In the 1970s, it was the case that the government ran the one company that was providing those services.

At the end of the 1970s, state run services was sold off to different private companies via a process called privatization.

Privatization created many new companies, some of which were funded by FDI, so the UK government did not have enough money to run certain services, or at least not to run them to the best that they could be.

Privatizing these services meant that they were run by multiple private companies.

So instead of there being one state run water company, for example, there were now multiple water companies operating across the UK.

These companies were in competition with each other.

They wanted to get as many customers as possible, just like any business.

This meant that they tended to invest more in the services.

They wanted to produce something which was different or better than their competitors because they really wanted those customers to choose them rather than others.

Now, and overall, this meant that the services themselves improved because the companies were willing to invest more and more money to make them better than their competitors.

Complete the sentences with the missing words.

We've got three to find here.

Do pause the video so you can have a look through the paragraph and then I'll come back to me and I'll tell you the right answers.

Right.

Let's take a look at the answers that you got.

Some of the new services companies that resulted from privatization brought FDI to the UK.

It was believed that private companies would invest more than the government, or you could have put state as they needed to improve services in order to compete with each other.

Well done.

Hope you got those right.

Let's now look at our first task.

Use the letter codes to sort the following statements into the correct place in the diagram.

So let's look at the five statements that we've got, first of all.

A allows workers to collaborate across country borders.

B creates competition between potential service providers.

C encourages new TNCs to enter the EU and the UK.

D increases the amount of trade between countries, and E allows cheaper movement and trade of raw materials.

So we need to place these into a diagram, but let's have a look at the diagram first.

So we see we've got three different areas that we need to fit these statements into.

Globalization, trade agreements and prioritization.

But it's a little bit more complex than that because we've also got some of those statements that might fit into both globalization and trade agreements, and some of the statements will fit into trade agreements and privatization.

So instead of three areas, we've actually got five different areas to fit them into.

Do pause the video so you can go back to those statements and see if you can work out which part of this diagram they fit into?

Okay, let's see where you put those letters.

So A was: allows workers to collaborate across country borders.

Well done if you recognize that that one is A.

The next one, B was: can create competition between potential service providers that can only go in privatization.

Well done if you put that there.

C encourages new TNCs to enter the EU and the UK.

This is a little bit more tricky.

It covers both privatization and trade agreements.

New TNCs would definitely come into the UK because of privatization, but if they want to come into the as well, yeah, that's probably gonna be due to trade agreements, 'cause the trade bloc is gonna really help them out.

And then D increases the amount of trade between countries.

Well done if you recognize that that's the trade agreements in the middle.

And then E, this one allows cheaper movement and trade of raw materials, both globalization and trade agreements.

Well done if you've got those.

That was not an easy task at all.

Now we'll move on to the second part of today's lesson.

We're gonna be looking at the impact all of the activity has had on different places, but especially on the UK.

So first of all, let's start with those positive impacts.

FDI and TNCs play a crucial role in the UK economy.

TNCs may spend FDI on things like infrastructure projects like roads and pipelines, really big projects that require a lot of money.

They might spend money on science and research development, particularly if they're trying to develop new products.

And they might do training for local people to become their employees, so they're actually investing in a workforce as well as in things like roads and bricks and mortar.

TNCs may bring other advantages to the UK as well.

Cutting edge technology and new ideas might become quite common.

Things like a 3D printer that you can see in the picture there.

They may have successful ways of working that can be adopted by smaller UK companies.

If you like, they might kind of mentor smaller businesses and everyone benefits from those kind of investments.

A country's economic position internationally may become more stable and the country's profile may be raised.

If the UK manages to attract a lot of TNCs.

It really shows that as a country you are looking outward and trying to really become more of a partner politically and economically with other areas of the world.

TNCs also create jobs in the UK, and while some workers may come from overseas, there might be a few.

The building and the operations of a new industry will employ local people.

A great example of this is Nissan Sunderland.

It's a car plant in the northeast and it's owned by a Japanese car company, TNC Nissan, and it employs around 6,000 people.

You can see a picture of it here.

So let's check our understanding there.

True or false?

The UK does not need FDI and TNCs.

You can probably see where this is going, but do pause the video so you can have a think and then come back to me.

Yes, of course it's false, but more importantly, why is that statement so false?

Yeah, so FDI and TNCs are crucial parts of international business and without FDI, many UK businesses and services would simply not be able to operate at all.

We've done the positive, it's only right that we bounce things off and look at the negative impacts that increased FDI and TNC activity can have.

The movement of TNCs into an area is not always welcomed.

Here you've got a diagram showing quite a few little local shops, but here comes the TNC.

Given their size and wealth, TNCs may out-compete smaller local, independent businesses.

You can see what's happened.

They've closed down.

New businesses may find it harder to become established in parts of the UK where TNCs dominate.

Some areas of the UK that have suffered from de-industrialization.

So the loss of industry are now reliant on FDI from TNCs.

If the TNC suffers economically, it may withdraw those investments and downsize or close the facilities they own with little regard for the local economy.

So just as easily as the TNC can invest money in an area, it can also very quickly withdraw that money.

Let's look at what Sofia's thinking here.

Can you guess what Sofia is thinking about?

Well done if you recognize that Sofia is thinking about the Nissan car plant.

If they were to withdraw some of their investment, it could mean serious job losses for that part of the northeast of the UK.

Let's check our understanding now.

Why might local people be cautious of a new large industry in their area run by a TNC?

The TNC could withdraw funding from the area at any time.

The new industry could compete with smaller, independent businesses.

The TNC might not respect the laws of the UK.

The new industry could create even more FDI from other TNCs in the future.

Have a think about each of those statements and which of those might make local people slightly cautious of the TNC?

Well, hopefully you got that the TNC withdrawing funding is of definite concern.

It could mean that people face a very uncertain future if they're not sure if that TNC is gonna remain in the area, but well done as well if you saw that the second one is also true that the new industries coming in will compete with smaller independent businesses.

Maybe some businesses which will have been operating for quite some time in that area.

Our final practice task of this lesson.

To what extent are TNCs important to the UK?

In your answer, make sure you develop ideas that are both in favor of TNCs in the UK and against their investments.

The clue there is in the first parts of the question, to what extent means you have to explore both sides and kind of weigh them up within your answer.

Do pauses the video.

This is gonna take a little bit of planning and then a little bit of time actually writing your answer, making sure that you cover both sides of the argument in your answer.

So here's some of the things you may have included in your answer.

TNCs are important to the UK as they create new industries that employ people.

Their investments also provide infrastructure and new technology, which benefits the UK and saves the government money.

If you notice so far I've only talked positively about what TNCs can do.

Let's see what else I say though.

However, we're changing our tune now.

However, some regions of the UK could become over reliant on the industry they create, and if the TNC suddenly decide to leave the UK, those local economies will go into decline.

So here I've mentioned the more negative side of TNCs and FDI.

Overall, though the UK is a highly globalized country and TNCs make up an important part of our connections to the rest of the world.

So I've tried to then draw it all together into a conclusion.

There's a lot going on in a very small paragraph.

Check through your own, have you balanced the good and the bad side of TNCs within your answer?

Now let's summarize what we've learned today.

The UK has created connections to TNCs through better transport and communication, as well as through trade agreements with other countries.

The privatization of UK services brought many TNCs to the UK.

The FDI brought to areas by TNCs can really boost local economies and new industries can create jobs.

However, these new industries can out-compete local businesses and create an unhealthy dependence.

Well done, there was quite a lot to take in there with quite a lot of new language to be thinking about as well.

It's quite interesting to look at the UK as an example of a country that is outward looking.

We actually want to be more globalized and we recognize that as a small island, it's really important that we build close connections with other countries, both politically, but even more so economically.

Compare our situations with other countries.

Are they trying to be more nationalistic and trying to create their own businesses from within and actually remove themselves from the global economy?

There are some examples out there.

See if you can find them next time you listen to the news.