Globalisation and internationalisation
Internationalisation means countries trade and deal with each other, but each country keeps its own market, rules and companies. Think of two shopkeepers exchanging goods.
Globalisation means markets, production, money, people and information are joined across the whole world. A company may design in one country, make parts in several, and sell in a hundred.
What makes it grow:
- Cheaper ships, planes and containers.
- The internet and mobile phones.
- Lower trade barriers (such as taxes on imports).
- Big multinational companies placing work where it is best done.
Benefits: more choice, lower prices, new jobs, shared ideas. Costs: some local jobs and firms lose out, countries depend on each other, and a problem in one place (a war, a storm, a virus) can spread to others.
Current state of the Japanese economy
Japan is one of the world's largest economies and a leader in cars, machine tools, robots and electronic parts and materials. Its main facts, in simple form:
- Few natural resources: it must import most of its oil, gas, coal and a large part of its food. This is why trade is so important.
- Exports: vehicles, machinery, electronic parts and chemicals sold across the world. Many firms also build factories abroad.
- Ageing and shrinking population: about 3 in 10 people are aged 65 or more, and fewer babies are born. That means fewer workers and more spending on care and pensions.
- Slow growth and low inflation for many years, followed by recent efforts to raise wages and prices gently.
- Exchange rate: the yen's value changes with world events. A weak yen makes exports cheaper for foreigners but imports more costly. A strong yen does the opposite.
Responses include more automation and robots, support for women and older people to work, welcoming more foreign workers, and growth in new areas such as green energy.
How the exchange rate works for Japan
The exchange rate is the price of one currency in another. If 1 US dollar costs 150 yen, a car priced at 3,000,000 yen costs 3,000,000 / 150 = 20,000 dollars abroad. If the yen gets stronger so that 1 dollar costs 100 yen, the same car costs 30,000 dollars. Buyers abroad may then choose other cars. At the same time, oil priced in dollars becomes cheaper in yen. This is why Japan watches the yen so closely.
Try it
Try it in the 3D: before moving the yen slider, guess which bar will go up when the yen gets stronger. Then check.
Try it at home: look at five things in your room (phone, shirt, shoes, bottle, toy). Read the labels. How many different countries made them? You have just drawn a small globalisation web.
Key formulas and definitions
- Price abroad = price in yen / yen per dollar
- Trade balance = exports - imports
- Import dependence (%) = imports / total use x 100
- Stronger yen: exports cost more abroad, imports cost less at home
Worked examples
1. A Japanese machine costs 1,200,000 yen. The rate is 120 yen per dollar. What is the price in dollars?
1,200,000 / 120 = 10,000 dollars.
2. The yen strengthens to 100 yen per dollar. What is the same machine's price in dollars now?
1,200,000 / 100 = 12,000 dollars. It costs more for foreign buyers, so they may buy fewer.
3. A country's exports are 90 units and its imports are 110 units. Find its trade balance.
90 - 110 = -20, a trade deficit of 20 units.
4. A country uses 200 units of energy and imports 170 of them. What per cent is imported?
170 / 200 x 100 = 85%. The country is highly dependent on imports.
Common mistakes
- Using 'globalisation' and 'internationalisation' as the same word. Globalisation is a deeper joining, not just trade between two countries.
- Thinking a strong currency is always good. It makes exports costlier abroad.
- Saying Japan has no industry because it has few resources. It earns by making and selling high-value goods.
- Thinking an ageing population only costs money. It also creates demand for care services and robots.