Globalization & International Business
This article focuses on globalization and how it affects the economic, political, and social frameworks of countries across the world. There is a discussion of the four aspects of globalization as well as the pros and cons of its implementation. In addition, the article discusses the impact of globalization on emerging markets.
Keywords Capital Movements; Direct foreign investment; Emerging Markets; Globalization; Physical Capital Stock; Trade; Trade Liberalization; World Development Report
International Business: Globalization
Globalization, which can be defined as the growing combination of the economic and social aspects of the world, has been a point of contention in international economics. Although there has been rapid growth and reduction of poverty in countries such as China and India, there has been increasing antagonism over concerns that globalization has not improved matters of equality and environmental promotion (World Bank, n.d.). The concept of globalization has generated many different reactions. "Some view it as a process that is beneficial-a key to future world economic development-and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress" (International Monetary Group, 2000, Section IV, ¶ 2).
Four Aspects of Globalization
The International Monetary Group (n.d.) defined four aspects of globalization. These aspects were trade, capital movements, movement of people and spread of knowledge and technology.
- Trade: Reports show that underdeveloped countries have started to up their portions of world trade, which can be shown through the increase in share from 19 percent in 1971 to 29 percent in 1999.
- Capital Movements: Individuals, such as venture capitalists, elevated private capital flows to developing countries throughout the 1990s.
- Movement of People: It was found that many workers in developing countries tend to relocate from one country to another in an effort to gain work experience and job opportunities. Most of the migration was found to be between developing countries.
- Spread of Knowledge: Exchanging information tends to be an overlooked aspect of globalization. Through the use of direct foreign investment, there could be opportunities for technical innovation as well as the expansion of physical capital stock.
Although globalization provides opportunities for development across the world, many believe the process has not been progressing evenly among all countries. It has been found that some countries (i.e. East Asia) are integrating into the global system at a faster pace than others. However, other countries, such as those in Latin America (other than Brazil) (Carranza Ko, 2013) and Africa, have not experienced the same level of change. Countries in these regions saw their economies stagnate or decline during the 1970s and 1980s. During the 1990s, the world experienced a crisis in the emerging markets, though the early 2000s saw robust growth in the BRIC nations. During the global financial crisis of 2008, Brazil, India and China were almost alone in the world in experiencing economic growth (Yao & Zhou, 2011; Carrasco & Williams, 2012).
Risks of Globalization
One of the lessons learned from the emerging market crisis in the 1990s was that there are risks when attempting to integrate to a global economy. Two major risks are volatile capital movements as well as social, economic, and environmental degradation as a result of poverty. Some other risks include:
- Instability in national governments
- War, both civil and international
- Potential nationalization of an organization's resources
- Cancellation or non-renewal of export or import licenses
- Confiscation of the importer's company
- Imposition of an import ban after the shipment of the goods
- Imposition of exchange controls by the importer's country or foreign currency shortages
- Surrendering political sovereignty
- Differences and fluctuations in the value of different currencies
- Differences in prevailing wage rates
- Difficulties in enforcing property rights
- Insolvency of the buyer
- Failure of the buyer to pay the amount due within six months after the due date
- Surrendering economic sovereignty
Although the 1990s was not a good time for emerging markets, there was a rebound during the next decade. According to a study of multinational corporations, "two thirds of the respondents believed investment in emerging markets is likely to continue to grow, with three quarters claiming to be actively investing in Central and Eastern Europe" (“Survey reveals,” 2005, p. 43). Such optimism was borne out. Antoine van Agtmael, a senior executive at World Bank Group, was the first person to use the term "emerging markets" (Jana, 2007). Brazil, Russia, India, and China, which are known as the BRIC economies, were first identified as countries poised for large and rapid economic growth. Real GDP was expected to grow three times faster in these countries over the next six years (Goldman Sachs, 2003). South Africa was later added to the list. In fact, between 2001 and 2010 the BRICs GDP per capita growth leaped as much as 10%, a staggering rate compared with the U.S. and Europe whose average over the same period was a mere 1%. In 2013, China was projected to be the largest economy in the world by 2027, while the BRICs were expected to equal the G7 in size by 2032 (Nelson, Maniam & Leavell, 2013). The significance of emerging markets has reached a point where corporations have recognized their influence on the corporations' bottom line.
The Altradius survey reported that the highest percentage of respondents from the multinational corporations was investing as follows: 74% invested in Central and Eastern Europe, 43% invested in China, and 35% invested in India and Southeast Asia. The countries that received the most funding in Central and Eastern Europe include Poland (60%), Czech Republic (46%), Russia (40%) followed by other EU accession countries. In Southeast Asia, India was the top choice followed by Malaysia, Thailand, and Indonesia (“Survey reveals,” 2005).
Although the news appeared to be promising for emerging markets, there were some concerns that needed to be addressed. According to Olsen, Pinto and Virji (2005), some potential pitfalls included:
- Organizations must deal with the same growth challenges that they face in other markets. Some of these challenges deal with: Understanding what the customer wants, developing unique and cost effective offers, creating an effective marketing strategy and overcoming internal organizational barriers.
- Organizations must be prepared to cope with the changeability and imbalance of developing markets. Although venture capitalists are willing to fund these ventures, many seasoned venture capital managers are not willing to deal with fund management for these types of accounts.
- Corporate headquarter offices tend to take too much time when making decisions and communicating information, which hinders subsidiaries from reacting to problems in a timely manner. Organizations must eliminate the bureaucratic red tape and provide opportunities to respond quickly when solving problems. Another option would be to empower the subsidiaries to make decisions up to a certain level.
According to the 1999 World Development Report, there was an increasing difference between the developed and developing countries (World Bank, 1999). Many had the perception that the international community should be doing more to close the gap since the aid per capita to developing countries was reduced by one third in the 1990s. “As developing countries made strides to open their economies and expand their exports, they were faced with significant trade barriers with no aid or trade. To many in the developing world, trade policy in the more advanced countries seems to be more a matter of self-interest than of general principle" (Stiglitz, 2000, p. 438).
It appears that if there was a good economic analysis, it is used in favor of the advanced countries in order to support their self-interests. Given the number of opportunities for developing countries to be placed at a disadvantage, supporters of trade...
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