Globalization (Encyclopedia of Environmental Issues, Revised Edition)
The modern state emerged in western Europe in 1648, with the Peace of Westphalia, which brought to a close the Thirty Years’ War among Europe’s various princes and ended the political struggle between the Roman Catholic Church and the European state, with the secular state arising as the sovereign and independent actor on the world stage. In this state-centric model, each state was recognized by other states as having the exclusive right to determine domestic policy, and each was expected to address common issues and to resolve conflicted interests through negotiations with other states in a process referred to as international relations.
After World War II, the United Nations was established (in October, 1945) to usher in a new era of postinternational or global relations. The United Nations followed the model of the League of Nations, created in 1919 following World War I under the Treaty of Versailles, “to promote international cooperation and to achieve peace and security.” The extent and appalling nature of the crimes of the Nazis against Jews and other victim groups forged a consensus among members of the global community regarding shared norms of behavior, while structural reconstruction of Europe and elsewhere after the war welded global economic networks; these factors together ultimately undermined the import of state sovereignty in favor of global cooperation. New global realities demanded that states cooperate with each...
(The entire section is 578 words.)
Controversies (Encyclopedia of Environmental Issues, Revised Edition)
Globalization is the subject of heated debate around the world, among politicians and economists as well as among scientists and environmental activists. From the standpoint of environmental ethics, globalizing trade practices have had devastating effects on the earth’s natural environment. Regional neglect and the pollution of air, land, and ocean waters are driven by the “race to the bottom” phenomenon that pits developing countries against each other in efforts to lure global investors. Critics argue that the existing system is simply a broader-reaching, more profitable model of colonialism, a neocolonialism, whereby governments act as mere salespersons, promoting the profits of their corporations in a global marketplace.
Critics charge also that developing countries have no fighting chance in the global trade game, and so the rich get richer through the growing exploitation of the global poor and the devastation of the environment, in both the developed and the developing nations. Globalists, in contrast, assert that “free trade” promotes freedom and democracy, and that even as global inequality rises, poverty can be reduced through free trade. They argue that problems such as environmental degradation and global warming should be viewed as opportunities for entrepreneurial innovation and new economic ventures, and not as problems to be addressed through political intervention and legal restrictions.
(The entire section is 211 words.)
Further Reading (Encyclopedia of Environmental Issues, Revised Edition)
Bhagwati, Jagdish. In Defense of Globalization. New York: Oxford University Press, 2004.
Braun, Joachim von, and Eugenio Diaz-Bonilla, eds. Globalization of Food and Agriculture and the Poor. New York: Oxford University Press, 2007.
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-first Century. 2d rev. ed. New York: Farrar, Straus and Giroux, 2008.
Glyn, Andrew. Capitalism Unleashed: Finance, Globalization, and Welfare. New York: Oxford University Press, 2006.
McCulloch, Jock, and Geoffrey Tweedale. Defending the Indefensible: The Global Asbestos Industry and Its Fight for Survival. New York: Oxford University Press, 2008.
Mander, Jerry, and Edward Goldsmith. The Case Against the Global Economy: And for a Turn Toward the Local. San Francisco: Sierra Club Books, 1996.
(The entire section is 112 words.)
Globalization (Encyclopedia of Management)
Globalization refers to the process of integration across societies and economies. The phenomenon encompasses the flow of products, services, labor, finance, information, and ideas moving across national borders. The frequency and intensity of the flows relate to the upward or downward direction of globalization as a trend.
There is a popular notion that there has been an increase of globalization since the early 1980s. However, a comparison of the period between 1870 and 1914 to the post-World War II era indicates a greater degree of globalization in the earlier part of the century than the latter half. This is true in regards to international trade growth and capital flows, as well as migration of people to America.
If a perspective starts after 1945t the start of the Cold Warlobalization is a growing trend with a predominance of global economic integration that leads to greater interdependence among nations. Between 1990 and 2001, total output of export and import of goods as a proportion of GDP rose from 32.3 percent to 37.9 percent in developed countries and 33.8 percent to 48.9 percent for low- to middle-income countries. From 1990 to 2003, international trade export rose by $3.4 to $7.3 trillion (see Figure 1). Hence, the general direction of globalization is growth that is unevenly distributed between wealthier and poorer countries.
A primary economic rationale for globalization is reducing barriers to trade for the enrichment of all societies. The greater good would be served by leveraging
This economic rationale for global integration depends on supporting factors to facilitate the process. The factors include advances in transportation, communication, and technology to provide the necessary conduits for global economic integration. While these factors are necessary, they are not sufficient. Collaboration with political will through international relations is required to leverage the potential of the supporting factors.
Globalization from 1870 to 1914 came to an end with the World War I as various countries pursued isolationism and protectionism agendas through various treatieshe Treaty of Brest-Litovsk (1918), the Treaty of Versailles (1918), the Treaty of St. Germain (1919), and the Treaty of Trianon (1920). U.S. trade policieshe Tariff acts of 1921, 1922, 1924, 1926, and the Smooth Hawley Tariffs of 1930aised barriers to trade. These events contributed to the implosion of globalization for more than forty years.
Toward the end of World War II, forty-four countries met in an effort to re-establish international trade. The milestone is referred to as Bretton Woods, named after the New Hampshire country inn where the meeting was held. Results of Bretton Woods included the creation of the International Monetary Fund (IMF), the World Bank, and subsequently, the General Agreements on Tariffs and Trade (GATT).
In 1948 the International Trade Organization (ITO) was established as an agency of the United Nations, with fifty member countries and the Havana Charter to facilitate international trade but it failed. As a result, GATT rose to fill the void as a channel for multilateral trade negotiations and recognition of "Most Favored Nation" status that applied the same trading conditions between members that applied to other trading partners with "most favored" partner standing.
GATT involved a number of different multilateral rounds of trade negotiations to reduce trade barriers and facilitate international trade. In the first round, the twenty-three founding members of GATT agreed to 45,000 tariff concessions affecting 20 percent of international trade worth $10 billion. Many of GATT's trade rules were drawn from the ITO charter. Subsequent trade rounds involved more members and additional issues, but the basic foundation of GATT remained the same.
In the second round, the Kennedy Round of the mid-1960s, the focus continued with tariff reductions.
In the third round, the Tokyo Round (1973979), 102 countries participated to reform the trading system, resulting in tariff on manufactured products reduced to 4.7 percent from a high of 40 percent at the inception of GATT. Important issues revolved around anti-dumping measures, and subsidies and countervailing measures. The reduction of trade barriers enabled about an average of 8 percent growth of world trade per year in the 1950s and 1960s.
In the fourth round, the Uruguay Round (1986 to 1993), 125 countries participated to develop a more comprehensive system.
On April 15, 1995, in Marrakesh, Morocco, a deal was signed to create the World Trade Organization (WTO), which replaced GATT with a permanent institution that required a full and permanent commitment. The WTO encompasses trade in goods, services, and intellectual property related to trade with a more efficient dispute settlement system.
COMPLEXITIES AND CONTROVERSIES
The increase of globalization surfaced many complex and controversial issues as economies and societies became more interdependent with greater frequency of interactions between one another. A number of important trends make up globalization including: (1) location of integration activities; (2) impact upon poorer societies; (3) flow of capital; (4) migration of labor and work; (5) diffusion of technology; (6) sustainability of the natural environment; (7) reconfiguration of cultural dynamics; and (8) development of organizational strategies for global competition.
Many authors specialize in exploring each issue with much greater depth. The purpose of reviewing the different trends in this essay is to provide some highlight concerning the interrelated complexities underlying globalization.
LOCATION OF INTEGRATION ACTIVITIES.
The extent of globalization unfolds in an uneven fashion to the degree that the question is raised whether international trade is more focused on regional rather than global integration. Trading blocs, such as the North American Free Trade Agreement (NAFTA), the European Union (EU), the Asia-Pacific Economic Co-operation (APEC), Mercosur (South American trading bloc), the Association of South East Asian Nations (ASEAN), and the East Africa Community (EAC), support regional cooperation between geographical neighbors.
Georgios Chortareas' and Theodore Pelagidis' research findings on openness and convergence in international trade indicate that intra-regional trade increased more than global trade in most situations. They stated that "despite the positive international climate resulting from important reductions in transportation costs, the development of new technologies and trade liberalization markets continue to be determined, to a large extent, regionally and nationally
Within NAFTA, intra-regional exports rose from 34 percent in the 1980s to more than 56 percent in 2000; exports between Asian country members amounted to 48 percent in 2000; and exports within the EU were sustained at about 62 percent.
An example of limitations to fair market access for developing countries is that developed countries subsidize agricultural producers with about $330 billion per year, which creates a significant disadvantage for poorer economies without such subsidies. The impact is exacerbated because 70 percent of the world's poor population lives in rural communities and depends heavily on agriculture. Hence, one of the concerns with uneven distribution of globalization is its impact on poorer economies by perpetuating systems of inequality.
IMPACT ON POORER SOCIETIES.
A challenge to globalization is that inequality arises from imbalances in trade liberalization where the rich gain disproportionately more than the poor. Ajit K. Ghose examined the impact of international trade on income inequality and found that inter-country inequality increased from 1981 to 1997, in a sample of ninety-six national economies, but international inequality measured by per capita GDP declined. The ratio of average income for the wealthiest 20 percent compared to the poorest 20 percent rose from 30 to 74 from the early 1960s to the late 1990s.
In 2004, one billion people owned 80 percent of the world's GDP, while another billion survives on a $1. However, during the same period, when average income is weighted by population, income inequality dropped by 10 percent in the same period. Also, global income distribution became more equal with other measures such as purchasing power parity or the number of people living in poverty.
The World Development Indicators for 2004 showed a drop in absolute number of people living on $1 per day from 1.5 billion in 1981 to 1.1 billion in 2001 with most of the achievements taking place in the East Asia region. Thus, the impact of globalization on inequality is a complex issue depending on the particular measures. More specific examination needs to account for other contributing factors, such as how regionalism increases concentration of trade between countries that are wealthier and leaving poorer countries at the margin.
FLOW OF CAPITAL.
The flow of capital relates to both regionalism and inequality issues. Two forms of capital flow are foreign direct investments (FDI) made by business firms and investment portfolios, diversified with foreign assets or borrowers seeking foreign funding. Data from the World Bank indicated that FDI grew from an average of $100 billion per year in the 1980s to $370 billion in 1997. Net private capital flow amounts to about $200 billion in 2004.
Also, some economies have significant remittance flows from labor migration, which were approximately $100 billion in 2003 and $126 billion in 2004 for ninety developing countries. Some Caribbean countries receive more than 10 percent of their GDP from remittances. While developing countries are the primary recipients of remittances, transaction costs can amount to 10 to 15 percent per transaction. Reducing such obstacles would benefit poorer countries with heavy dependencies on remittances. The flow of money across national borders relates to the migration of both labor and work.
MIGRATION OF LABOR AND WORK.
An important dimension of globalization is the migration of people. While the proportion of migration was greater during the earlier mercantilism period, sovereign border controls to a large extent create a filtration process for migration. About 175 million people lived in a different country than their birth country in 2000. They can be separated into three categories: 158 million international migrants, 16 million refugees, and 900,000 asylum seekers.
An important global trend in the future is the movement of labor from developing to developed countries because of the latter's need for labor with an aging population. Family-sponsored migration makes up 45 to 75 percent of international migrants who mainly originate from developing countries to countries in Europe and North America.
Even before 9/11, legal migration of labor needed to overcome substantial bureaucracy in the border control process. The number applying for entry into developed countries often far exceeds the number permitted. Due to extensive legal processes, some migrants enter illegally, while others become illegal with expiration of legal status.
Anti-terrorism measures imposed shortly after the 9/11 attacks resulted in a minor shift in the flow of migrants away from the United States toward other developed countries. With the aging of baby boomers in many developed countries, future globalization of migrant labor flows is receiving more attention, especially in education, health care, retirement funding, and housing, as well as meeting workforce needs to sustain business competitiveness.
Although migrant labor often entails the movement of people in search of work, a related globalization trend is the migration of work to different geographical location. While multinational corporations (MNCs) often seek low-cost labor, innovation advances in computer technology, satellite communication infrastructures, internet developments, and efficient transportation network enable companies to distribute work in ways not possible before.
Compression of time and space with internet technology allows for the distribution of work to take place around the world with global virtual teams. The phenomena of outsourcing and offshoring expand on the earlier sourcing of low-cost manufacturing. During the 1960s and 1970s, MNCs migrated to low-wage labor to manufacture products that entailed significant labor costs.
Expansion of MNCs in the 1990s encompassed highly skilled workers, service work, and global virtual teams. Firms started to outsource information technology (IT) functions as early as the 1970s, but a major wave of outsourcing started in 1989 with the shortage of skilled IT workers in developed countries. At the same time, the trend of shifting work around the globe to leverage the different time zones began with the financial industry's ability to shift trading between the various stock exchanges in New York, Tokyo, and Hong Kong, and London.
Technological innovations in computers and the internet enabled other industries, such as software engineering, data transcription, and customer service centers to also shift work around the globe. Higher education and high-skill health care jobs are also embarking on global outsourcing.
In 2001, outsourcing expenditures amounted to $3.7 trillion and the estimation for 2003 is $5.1 trillion. The impact of global outsourcing is not just a relocation of jobs, but also a dampening of employee compensation levels in more developed economies. For example, in 2000, salaries for senior software engineers were as high as $130K, but dropped to about $100K at the end of 2002; and entry-level computer help-desk staff salaries dropped from about $55K to $35K. For IT vendor firms in countries like India, IT engineering jobs command a premium Indian salary that is at a fraction of their U.S. counterparts. In sum, migration of labor and work create complex globalization dynamics.
DIFFUSION OF TECHNOLOGY.
Innovations in telecommunication, information technology, and computing advances make up key drivers to support the increase of globalization. In 1995, the World Wide Web had 20 million users, exploded to 400 million by late 2000 and had an estimated one billion users in 2005. However, the rapid growth and adoption of information technology is not evenly diffused around the world.
The gap between high versus low adoption rates is often referred to as the digital divide. In 2002, the number of users per 1000 people was highest in Iceland at 647.9; others in the top five ranks of internet users included Sweden at 573.1, the United States at 551.4, Denmark and Canada both at 512.8, and Finland at 508.9. In comparison, countries at the low end of internet use were Tajikistan and Myanmar at 0.5 per 1000, Ethiopia at 0.7, the Congo at 0.9, Burundi at 1.2, and Bangladesh at 1.5.
The digital divide reflects other disparities of globalization. Globalization of computer technology also entails a growing trend of computer crimes on an international basis, which requires cross-border collaboration to address it. Additional globalization trends related to computer technology include developments in artificial intelligence, high-speed connections such as wireless applications, and integration with biotechnology.
SUSTAINABILITY OF THE NATURAL ENVIRONMENT.
The impacts of globalization on environment sustainability are hotly contested, with major environmental protests held at international economic meetings or prominent multilateral trade forums. The United Nation's 1987 publication of the Brundtland Report (named for Gro Brundtland, Prime Minister of Norway), galvanized international attention on sustainable development. A major assumption was that the degradation of the environment in developing countries was due primarily to poverty.
Some advocates of globalization consider free trade to be a solution to alleviate poverty and subsequently, reduce pollution. However, the arguments depend upon corporate social responsibility, managerial knowledge of environmental sustainability, and a level of ignorance in the developing community.
Critics find that often large MNCs have greater financial resources than some developing countries, which can be used to compromise and derail regulatory regimes from protecting the environment. For example, while a MNC may not produce or sell certain environmentally damaging products in a country with tight regulatory controls, they may find their way to markets with fewer environmental regulatory constraintspollution havens." This line of logic leads to the notion of globalization becoming a "race to the bottom" as countries compete with lowering of environmental standards to attract foreign capital for economic development.
One of the landmarks on environmental globalization is the Kyoto Accord, an international treaty to reduce greenhouse gas emissions based on exchanging limited pollution credits between countries. After lengthy multilateral complex negotiations, the Kyoto Accord was concluded in December, 1997 for ratification by national governments. On February 16, 2005, the date for the Kyoto Protocol to take effect, 141 nations ratified the agreement. Even though the United States is the world's largest polluter in volume and per capita output of greenhouse gases, the Bush administration refused to ratify the Kyoto Accord.
RECONFIGURATION OF CULTURAL DYNAMICS.
Culture is another area of complex controversies with globalization. Competing perspectives about how globalization affects cultures revolve around the debates of cultural homogenization versus cultural diversification. The optimistic view of cultural globalization is that cultural diversity focuses on freer cultural exchanges with broader choices and enrichment of learning from different traditions. People have greater choices of globally produced goods, in addition to local offerings, without being bound by their geographical location. Alternatively, critics of cultural globalization present evidence demonstrating the depletion of cultural diversity through processes referred to as "Disneyfication" or "McDonaldization."
Furthermore, not only is cultural diversity diminished but cultural quality is as well with mass produced goods being directed toward a common denominator. The criticisms are related to a sense of "Americanization" of the world, rather than globalization. The process involves a sense of far-reaching, anonymous cultural imperialism. Debates from each perspective are intense with substantial evidence that also reveals complex ties to social and political dynamics within and between national borders.
Cultural globalization continues into the foreseeable future with many more controversial dynamics related to three important issues: 1) the impact of extractive industries on the socio-economic, cultural exclusion and dislocation of indigenous peoples and their traditional knowledge; 2) international trading of cultural goods and knowledge; and 3) inflow of immigration impacts on national culture, which creates a tension between a sense of threat to the national culture and migrant demands for respect to their traditions in a multicultural society.
DEVELOPMENT OF ORGANIZATIONAL STRATEGIES FOR GLOBAL COMPETITION.
The multiple dynamics of globalizationegionalism, inequality, financial flows, migration of labor and work, technological innovations, environmental sustainability, and cultural dynamicsorm a turbulent and complex environment for managing business operations. While seven trends were highlighted to provide a brief sketch of interrelated complexities and controversies globalization, it also surfaced other significant issues.
Global concerns revolve around terrorism, rapid transmission of pandemic diseases and viruses, the rise of China's and India's economies, an aging population in wealthier northern countries versus younger growing populations in the southern hemisphere, and advances in biotechnology are intricately embedded in globalization processes.
COMPETING IN THE GLOBAL ECONOMY
Globalization entails both opportunities and threats for creating and sustaining competitive strategies. Emerging economies offer resources in terms of labor, as well as expanding market opportunities. However, geopolitical relationships and backlashes from perceptions of cultural imperialism, such as the tensions between the United States and the European Union during the Iraq war create challenges for business operations.
Global managers have a wide range of options to deal with globalization. Organizational strategies for international operations involve two related demandshe need for local orientation and the need for integration (as shown in Figure 2). Firms with low need for local orientation, but high need for integration require a global strategy that centralizes core operations with minor modifications for local adaptation. However, firms with a need for high local orientation, but low need for integration, require a multinational strategy that decentralizes significant operations to respond to local market conditions. Firms integrating a high need for both local orientation and organizational integration should strive for a transnational strategy.
In addition to selecting a strategy for global competition, managers also need to make decisions regarding the internationalization process. Two processes are important. First, the development of innovations in a home market and as products moves along the product life cycle stages, firms can take products entering into the plateau of a mature stage to new international markets. Often the flow moves from developed to developing countries.
Second, stages of internationalization with foreign entry modes that involve increasing resource commitment and risks start with exporting to licensing or joint ventures to wholly owned subsidiaries. The stage approach to internationalization takes time, which is a challenge within a global environment where information moves around the world in nanoseconds.
Alternatively, Kenichi Ohmae argued that the speed and complexities of globalization require firms to rethink their internationalization process because incremental stage models are too slow. Given the rate and quantity of knowledge flows in global competition, firms are likely to face competition in their home markets, with comparable innovations to their own before they are able to establish a foothold in the international market.
The incremental stage models are too slow for competing in an increasingly integrated global economy. Ohmae suggested that firms form global strategic alliances with partners established in three major marketsorth America, Europe, and Asia, particularly Japan. Development of global competitive intelligence and innovation among the partners provide for rapid market development and the establishment of strategic positions in multiple locations.
Basically, globalization into the twenty-first century creates a fundamentally different competitive environment that shifted from incremental internationalization processes to almost simultaneous deployment of innovations. This internationalization process also shifts the work of global managers from managing a field of expatriates to collaborating with strategic partners across national borders and managing global off-shore outsourcing vendors in multiple geographical locations.
Globalization is a culmination of complex and controversial trends that include degree of geographical integration, inequalities, financial flows, labor and work, technological innovations, environmental sustainability, cultural dynamics, and organizational strategies for global competition. Given a historical perspective, globalization has fluctuated over time and many indicators support a trend of increasing globalization since the 1980s.
While the United States is the dominant superpower in the global economy, the rise of both China and India is an important consideration for international business. Global managers have options for strategies and structures, as well as different internationalization processes. In sum, globalization creates a competitive arena where MNCs evolve into global networks with collaboration and controversial differences as necessities to sustain a competitive strategy.
Agenor, Pierre-Richard. "Does Globalization Hurt the Poor?" International Economics and Economic Policy 1, no. 1 (2004): 211.
Chortareas, Georgios E., and Theodore Pelagidis. "Trade Flows: A Facet of Regionalism or Globalisation?" Cambridge Journal of Economics 28, no. 2 (March 2004): 35371.
Clott, Christopher B. "Perspectives on Global Outsourcing and the Changing Nature of Work." Business and Society Review 109, no. 2 (2004): 15370.
Corbett, M. "Outsourcing's Next Wave." Fortune, 14 June 2002.
Cowan, Tyler. Creative Destruction: How Globalization is Changing the World's Culture. Princeton, NJ: Princeton University Press, 2002.
Doyle, Michael W. "The Challenge of Worldwide Migration." Journal of International Affairs 57, no. 2 (Spring 2004): 1.
Ghose, Ajit K. "Global Inequality and International Trade." Cambridge Journal of Economics 28, no. 2 (March 2004): 22952.
Johanson, J. and J.E. Vahlne. "The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitment." Journal of International Business 8 (1977): 232.
Keohane, Robert O., and Joseph S. Nye, Jr. "Globalization: What's New?" Foreign Policy, Spring, 10419.
Minyard, Alan D. "The World Trade Organization: History, Structure, and Analysis." 1996. Available from <<a href="http://www2.netdoor.com/~aminyard/">http://www2.netdoor.com/~aminyard/>.
Neal, Christopher. "Global Poverty Down by Half Since 1981 but Progress Uneven as Economic Growth Eludes Many Countries." The World Bank Group, 2004. Available from <<a href="http://web.worldbank.org">http://web.worldbank.org>.
Ohmae, Kenichi. The Borderless World. New York, NY: Harper Business, 1990.
O'Neil, Tim. "Globalization: Fads, Fictions, and Facts." Business Economics 39 (January 2004): 167.
Palvia, Shallendra. "Global Outsourcing of IT and IT Enabled Services: Impact on U.S. and Global Economy." Journal of Information Technology Cases and Applications 5, no. 3 (2003): 11.
Simon, David. "Dilemmas of Development and the Environment in a Globalizing World: Theory, Policy and Praxis." Progress in Development Studies 3, no. 1 (2003): 51.
United Nations Development Program. Human Development Report, 2004: Cultural Liberties in Today's Diverse World. New York, NY: Oxford University Press, 2004.
United Nations Development Program. Human Development Report, 2001: Making New Technologies Work for Human Development. New York: Oxford University Press, 2001.
Wolf, Martin. Why Globalization Works. New Haven, CT: Yale University Press, 2004.
World Bank. World Development Report, 2003: Sustainable Development in a Dynamic World. New York, NY: Oxford University Press, 2003.
World Commission on Environment and Development. Brundtland Report: Our Common Future. New York, NY: Oxford University Press, 1987.
Globalization (Encyclopedia of Small Business)
Globalization is the process by which the economies of countries around the world become increasingly integrated over time. This integration occurs as technological advances expedite the trade of goods and services, the flow of capital, and the migration of people across international borders. The term has been used in this context since the 1980s, when computer technology first began making it easier and faster to conduct business internationally. Globalization can also refer to the efforts of businesses to expand their operations to new countries and markets.
According to a cover story in Business Week, globalization "has created millions of jobs from Malaysia to Mexico and a cornucopia of affordable goods for Western consumers. It has brought phone service to some 300 million households in developing nations and a transfer of nearly $2 trillion from rich countries to poor through equity, bond investments, and commercial loans. It's helped topple dictators by making information available in once sheltered countries. And now the Internet is poised to narrow the gulf that separates rich nations from poor nations even further in the decade to come."
Without a doubt, globalization has had a number of positive effects on nations and businesses around the world. Yet the conceptnce regarded as almost universally positiveas undergone a bit of a reassessment in recent years. In fact, widespread protests against the World Trade Organization (WTO) and consumer boycotts arising from the practices of multinational corporations in developing countries have raised public awareness of the hazards of globalization. "The plain truth is that market liberalization by itself does not lift all boats, and in some cases, it has caused severe damage to poor nations," the Business Week article admitted. "What's more, there's no point denying that multinationals have contributed to labor, environmental, and human rights abuses as they pursue profit around the globe."
THE CONTROVERSY OVER GLOBALIZATION
Globalization gives companies access to wider markets and consumers access to a greater variety of goods and services. But the benefits of globalization are not always shared by all of the parties involved in trade. Unfortunately, developing countrieshich need the potential benefits of globalization the mostre often the losers. "The downside of global capitalism is the disruption of whole societies, from financial meltdowns to practices by multinationals that would never be tolerated in the West," the Business Week article noted. "Industrialized countries have enacted all sorts of worker, consumer, and environmental safeguards since the turn of the century, and civil rights have a strong tradition. But the global economy is pretty much still in the robber-baron age."
Some people view globalization in positive terms, as a key force in promoting worldwide economic development. But others believe that unrestricted global trade will only serve to increase the inequality between developed and developing countries. In reality, globalization offers both opportunities and risks for developing countries, and there is a great deal of variation in their experiences with it. Some regions, like Asia, have integrated into the global economy quickly and achieved economic growth as a result. But other regions, like Africa, have suffered from increased political instability, poverty, and environmental degradation since they became involved in international trade. "The real question isn't whether free markets are good or bad," the Business Week article stated. "It is why they are producing such wildly different results in different countries. Figuring out that answer is essential if businesses, government leaders, and workers are all to realize the benefits of global markets."
In the late 1990s, there was a great deal of debate about how advanced economies and multinational corporations could help developing nations to share in the benefits of globalization. Some experts claim that developing nations need debt relief, an increased flow of direct financial investment and technology, and unrestricted access to markets in advanced countries in order to begin catching up. Others claim that these measures are pointless unless the leaders of the developing nations show a willingness to establish a stable government and invest in the education of their citizens. "Before trade and foreign capital can translate into sustainable growth, governments first must deliver political stability, sound economic management, and educated workers," the Business Week article argued. Otherwise, foreign investment would likely lead to government corruption and the exploitation of workers.
The potential problems with globalization are not limited to developing nations, however. Some workers in advanced economiesarticularly those in unskilled jobs and belonging to labor unionseel that they are being increasingly displaced by low-wage competition in developing countries. Some of these workers are unable to make the transition to skilled jobs and service-oriented industries. Other critics of globalization claim that integration into a global economy reduces the sovereignty of nations, especially in regards to economic policy making. They worry that advanced nations will face limited choices in tax and monetary policies under the rules of world trade.
The concerns of developed and developing countries overlap to create a complex web of problems for globalization. Some countries will inevitably be viewed as trying to impose their values on other countries. "Balancing growth with environmental and labor regulations is wrenchingly complex in countries where people live on the margin," according to Business Week. "Many poor nations fiercely resist discussion of labor or environmental issues in the WTO because they feel the process will be hijacked by Western protectionists. The feeling is that Western unions will shield jobs at home by imposing standards that drive up labor costs in emerging markets to levels where developing nations can't compete."
THE ROLE OF THE WTO
In the late 1990s, much of the controversy over globalization focused on the World Trade Organization (WTO). The WTO was established in 1995 to facilitate world trade and resolve disputes between nations. Headquartered in Geneva, Switzerland, the WTO had 134 member nations in 1999, three-quarters of which were developing nations. According to Simon J. Evenett in an article for Finance and Development, the WTO "serves the developing countries' interests by facilitating trade reform, providing a mechanism for settling disputes, strengthening the credibility of trade reforms, and promoting transparent trade regimes that lower transaction costs."
Shortly after it was established, the WTO became a lightning rod for controversy over globalization. "Seen through one lens, the World Trade Organization is a benevolent United Nations of trade, with just enough enforcement powers to help nations work out their differences," Steve Wilhelm wrote in the Puget Sound Business Journal. "Seen through another lens, the WTO is a menacing, corporate-dominated world government of trade in which the legislative body and the courts operate outside the scrutiny of anyone who's not a government leader or corporate lawyer. From this viewpoint, the organization's power to adjudicate trade disputes also gives it the power to override national laws, including environmental protections. In a sense, it compromises the sovereignty of its member nations."
The two main issues embraced by anti-WTO activists are the rights of laborers and protection of the environment. "As production and consumption grow around the world, many impacts fall on the people who supply labor to produce things, and the environment that supplies the raw materials and absorbs the effluent," Wilhelm noted. Those who oppose the WTO worry that global free trade will threaten hard-fought labor and environmental victories in the United States and other developed nations. For example, activists protested thatnder WTO ruleshe United States could not prevent the import of shrimp caught in nets that also caught an endangered species of sea turtle.
Protesters were also concerned about the loss of American jobs overseas and the poor social and environmental records of multinational corporations operating in developing countries. "The heady, unrealistic days of globalization appear to be over," Business Week noted. "Where once it was promised that the simple spread of markets would melt poverty, dissolve dictatorships, and integrate diverse cultures, today the mere mention of globalization generates anger, discord, and accusations."
FOUR LEVELS OF GLOBALIZATION
Globalization most often refers to the increasing degree of connection between various countries and their economies. But another definition involves the efforts of businesses to expand their operations into foreign markets. This definition has gained importance with the advent of the Internet, which gives all companies the potential to achieve global reach in their operations.
As Jennifer Derryberry wrote in Sales and Marketing Management, businesses generally operate at one of four basic levels of globalization. The first level is a multidomestic company. At this level, the business consists of several independent units that operate in different countries, with little communication between them. The second level, an international company, maintains a headquarters in one country and operates branches in other countries. At this level, the company is likely to impose its home country bias on other markets rather than making a true effort to integrate into the global economy.
The third level of globalization, a transnational company, consists of loosely integrated business units in several countries. At this level, the company makes a greater effort to address the local needs of operations in each country. The fourth level of globalization is a truly global company. This type of business views the world as a single market, develops an overall strategy for its various operations around the world, and applies the lessons of each country to ensure its global success. Derryberry noted that this is the ideal level for a globalizing organization, but that it is not easy to achieve.
Bates, Jenny. "Get Globalization Messagend Agendaight." Journal of Commerce and Commercial. April 27, 2000.
Bruce, Barnard. "A Brief History of the WTO." Europe. November 1999.
Derryberry, Jennifer. "What It Really Means to Go Global." Sales and Marketing Management. December 1999.
Evenett, Simon J. "The World Trading System: The Road Ahead." Finance and Development. December 1999.
Gilpin, Robert. The Challenge of Global Capitalism. Princeton University Press, 2000.
"Global Capitalism." Business Week. November 6, 2000.
"Globalization: Lessons Learned." Business Week. November 6, 2000.
International Monetary Fund. World Economic Outlook. May 2000.
Micklethwait, John, and Adrian Wooldridge. A Future Perfect: The Challenge and Hidden Promise of Globalization. Times Books, 2000.
Wilhelm, Steve. "Labor, Ecology Issues Are at Heart of Protests." Puget Sound Business Journal. November 12, 1999.
Woods, Bob. "The New Economy." Chief Executive. August 2000.
Globalization (Encyclopedia of Business)
There are competing definitions of globalization, some favorable and others less so. From the perspective of business, it is a process of worldwide economic integration. A more broad perspective describes the process through which culture is diffused throughout the world as a result of various forces including trade, travel, and communications. In some cases, the term is often used without clear definition. For example, Ramesh Diwan, professor of economics at Renssalaer Polytechnic Institute, says, "Globalization has become a buzz word." He continues, "Like other similar buzz words, such as sustainable development, it is rarely defined but used to promote arguments favoring business interests." Therefore, an introduction to the topic requires a working definition.
The Turin European Council calls economic globalization one of the major challenges facing the European Union. The Council defines globalization as a process of worldwide economic integration based on three forces:
- The liberalization of international trade and capital movements
- Accelerating technological process and the advent of the information society
- Deregulation through withdrawal of the state from specified areas of economic activity.
Businesses want to know what it means for a company to globalize, and they ask several kinds of questions. First, is there something fundamentally different about doing business globally as compared to established business practices? Second, will globalization require different practices in the future as compared to today? Third, what products and services will firms need as they globalize?
Meanwhile, globalization involves more than economics. Cultural globalization involves the spread of language, products, and customs as people intermingle. In some cases, cultural perspectives literally involve love and gene pools as people from around the world intermarry.
A third facet of globalization involves government and international organizations. Nation states have created supranational organizations such as the European Union and the World Trade Organization. Such organizations, in turn, include new rules of law and international bodies charged with enforcement of those laws. Further, governments of single nations are changing their outlooks as a result of globalization.
Globalization means different things to every nation of the world and cannot be discussed fully in a short essay. Therefore, this discussion provides only an introduction to several facets of globalization. First, the forces behind globalization are outlined. Second, examples of global businesses are given along with discussion of characteristics they share. Third, the results of globalization are discussed. Finally, there is a brief introduction to issues arising from globalization that must be addressed as we enter the 21st century.
THE FORCES BEHIND GLOBALIZATION
Business firms want to globalize in order to expand their markets, increase sales, and increase profits. Free trade agreements facilitate those activities and promote economic globalization. Such agreements vary in scope. Some are bilateral such as the U.S.-Canada Free Trade Agreement and the U.S.-Israel Free Trade Agreement. Others are multilateral and regional such as the North American Free Trade Agreement (NAFTA), Mercosur (including Argentina, Brazil, Paraguay, and Uruguay as full members and Chile as an associate member), and the 18-member Asia Pacific Economic Cooperation Group (APEC). The European Union (EU) goes further by creating a supranational government. And the World Trade Organization (WTO) includes more than 120 nations from around the world. These agreements and organizations are facilitating economic integration on a regional and worldwide basis.
Trade agreements facilitate the activities of major companies. For example, Ford Motor Company is working to create a "world car" that can be sold and used throughout the "global village." Trade agreements facilitate distribution systems, franchising, joint ventures, and other cross-border collaborations between and among businesses. Coca-Cola and Pepsi-Cola are sold in hundreds of countries throughout the world. Franchises for McDonald's hamburgers, Pizza Hut, Subway, Burger King, and others carry U.S. trade names as well as U.S.-style fast foods (and fast eating styles) throughout the world.
One of the major forces facilitating such globalization is the expansion of communication systems. During the final decades of the 20th century, the Internet globalized communications. One document can be distributed throughout the world in seconds. Using computer software, that document can be converted quickly to various languages for use almost anywhere in world. Telecommunications systems allow radio and television transmissions to be broadcast throughout the world within seconds. For example, the Cable News Network (CNN), based in the United States, produces 24-hour news broadcasts that can be seen around the world by traveling businesspeople and others. CNN's 24-hour coverage of the Persian Gulf War in 1991 established the network as one that serves global audiences. It is not viewed as "foreign" when it broadcasts to and from countries other than the United States.
EXAMPLES OF GLOBALIZED BUSINESSES
There is no established definition of the "global" business, but it is helpful to look at companies that operate on a worldwide basis to try to identify characteristics that show how their outlook and operations are global. One group of researchers identified and studied how the following large companies are responding to the forces of globalization: Banque National' de Paris; Canon; CSX; Electrolux, JCB; Pirelli; Royal Trust; TNT Express Worldwide; and Waste Management, Inc. That study identified four common characteristics of global companies. First, activities such as marketing, manufacturing, logistics, and research and development are approached based on a holistic, worldwide plan. Second, the global company does not confine itself within boundaries; its headquarters is, ideally, transparent to customers. Third, global business adjusts its business to meet the needs of local customers; cultural diversity and understanding are crucial. Fourth, the company strives to balance an integrated, global system with the need to be sensitive to local needs.
The automobile industry provides excellent examples of the globalization of business. Toyota (a Japanese firm) manufactures its Camry model in the United States. Major U.S. automobile firms have all formed alliances with Asian or European firms. GM is allied with Toyota and Saab; Ford has alliances with Mazda, Jaguar, and Volvo; and Chrysler has joined forces with a European company to become Daimler Chrysler.
THE RESULTS OF GLOBALIZATION
Globalization has various effects, some positive and some negative. One effect is that it promotes greater cultural homogeneity. Common demands, common consumer preferences, and large bodies of common information can (sometimes unfortunately) lead to the blending of cultures and the erosion of cultural differences.
A second effect of globalization is that it changes the role of government. For example, as individual nations join the European Union (EU), they give up certain powers of law that previously belonged to individual national governments. As EU nations agree to a common currency (the Euro) and defer to the judgment of the European Court of Justice on matters covered by EU law, they give up certain aspects of individual sovereignty. Yet, at the same time, globalization does not eliminate the need for government. Rather, according to Claude Smadja, managing director of the World Economic Forum, it is forcing governments to redefine their role at the national level. Governments must strive to formulate and implement policies that facilitate economic activity, and they must provide citizens with education and skills needed to function in a global economy. Smadja asserts that governments must strive to provide a counterbalance to the negative effects of globalizationnsecurity resulting from an emphasis on speed, flexibility, and permanent change. Governments must work to prevent social instability and political backlash.
A third effect is that increased industrialization resulting from economic globalization leads to environmental pollution. These effects are illustrated by massive environment problems along the U.S./Mexican border. But such problems are found throughout the world, especially in developing nations. As a result, many environmentalists actively oppose trade agreements such as NAFTA and trade organizations such as the WTO and APEC.
A fourth effect is that globalization increases the gap between the rich and the poor. This gap is especially pronounced in Latin America. In the late 1990s, there was a severe food shortage in Argentina, and many Argentinians relied on the government for food supplies. Seventy-eight percent of Brazil's population survived on less than $100 U.S. per month per family.
Further, globalization causes economic problems in one region of the world to be felt throughout the world. In the late 1990s, there were signs of recession in Latin America, and East Asia suffered from a severe economic downturn. Economic woes in Latin America, Asia, and the economies of other emerging markets affect the economies of nations around the world. As a result, it is said that the pronouncements of the "Group of Seven" do provide a true representation of world economic interests. (The Group of Seven, or G-7, is an economic group that includes the United States, Japan, Germany, France, Great Britain, Canada, and Italy.) Some economists suggest that powers such as Brazil, China, and others deserve representation in world economic summitry.
LOOKING TO THE FUTURE
As we look to the future, we face various questions. Are there alternatives to globalization? Perhaps. Some commentators, for example, assert that regionalization can and should shift the balance of economic power away from the United States and toward lesser developed economies in Latin America and Asia. Others assert that globalization is an inevitable and irreversible process. If that is true, how can harm resulting from globalization be avoided or minimized? How can the globalization process be used to promote a more even distribution of wealth instead of widening the gap between the rich and the poor? These are challenges that world leaders face as we enter the 21st century. The answers will not be easy.
[Paulette L. Stenzel]
Daniels, John L., and N. Caroline Daniel. Global Vision: Building New Models for the Corporation of the Future. New York: McGraw-Hill, 1993.
Johnson, Hazel, M. "Dispelling the Myth of Globalization: The Case for Regionalization." In Nandi, Proshanta K., and Shahidullah, Shahid, M., eds. Globalization and the Evolving World Society. Boston, MA: Brill Academic Publishers, 1998.
Nandi, Proshanta K., and Shahidullah, Shahid, M. "Globalization and Development: the Emerging Dynamics and Dilemmas." In Nandi, Proshanta K., and Shahidullah, Shahid, M., eds. Globalization and the Evolving World Society. Boston, MA: Brill Academic Publishers, 1998.
O'Sullivan, Noel. "Concept and Reality in Globalization Theory." In C. P. Rao, Ed. Globalization, Privatization, and Free Market Economy. Westport, CT: Quorum Books/Greenwood Pub. Group, 1998.
Smadja, Claude. "Living Dangerously: We Need New International Mechanisms to Harness Globalization's Potential to Generate Prosperity." Time, 22 February 1999.