Assignment: 1 / 1
Due Date: 19 June 2006
Date of submission: 19 June 2006
2. The Character and Impact of Globalization trends.
l What is the globalization trend?
l What is their character?
l What is their impact?
History of Globalization
Species once spread across the earth very slowly, blocked by deep oceans and varying climates on land. Human beings took more than one million years to move from Africa to all the other continents. Human trade and communication over great distance dates back more than 2,000 years, when products first began to travel between China and Europe along the Silk Road. Within a few centuries the Silk Road carried Buddhism from India to China. It was the desire to trade that drove European nations to develop great sailing ships at the end of the fifteenth century, breaking the Venetian monopoly on trade with Asia and causing the European discovery of the Americas in 1492. These ships became the technology that allowed large numbers of plants, animals, people, and viruses to be transported from one continent to another.
During the European colonial period, traders, invaders, settlers, and slaves were transported via ocean-going ships from one continent to another. These colonists brought new diseases and exotic species with them that ravaged human populations and ecosystems in Asia, Africa, the Americas, and Australia. The modes of transportation, and the speed at which items have been transported, have increased exponentially over time. As these capabilities have developed, new communications technologies were introduced that have enabled corporations, governments, and militaries to significantly increase the transportation of goods, services, and information from continent to continent.
Increases in the frequency of these intercontinental contacts are known as the process of globalization. American political scientists , define globalism as “a state of the world involving networks of interdependence at multi-continental distances.” Globalism has generally been increasing throughout modern history and it is this process of increasing globalism that is called globalization.
Various dimensions or aspects of globalization have been identified, the most important of which are economic, political, and cultural. Economic globalization generally refers to expansion and intensification of international trade and investment; political globalization to the organization of transnational governmental and regulatory institutions and the diffusion of liberal political ideology and institutional forms; and cultural globalization, often but not always, to the spread of Western ideas and cultural practices (Environment knows no political borders). Global governance structures would be a crucial aspect of the globalization process.
In the modern era, globalization saw an earlier flowering towards the end of the 19th century, mainly among the countries that are today developed or rich. For many of these countries trade and capital market flows relative to GDP were close to or higher than in recent years. That earlier peak of globalization was reversed in the first half of the 20th century, a time of growing protectionism, in a context of bitter national and great-power strife, world wars, revolutions, rising authoritarian ideologies, and massive economic and political instability.
In the last 50 years the tide has flown towards greater globalization once more. International relations have been more tranquil (at least compared to the previous half century), supported by the creation and consolidation of the United Nations system as a means of peacefully resolving political differences between states, and of institutions like the GATT (today the WTO), which provide a framework of rules for countries to manage their commercial policies. The end of colonialism brought scores of independent new actors onto the world scene, while also removing a shameful stain associated with the earlier 19th century episode of globalization. The 1994 Uruguay Round of the GATT saw developing countries become engaged on a wide range of multilateral international trade issues for the first time.
A growing share of spending on goods and services is devoted to imports from other countries. And a growing share of what countries produce is sold to foreigners as exports. Among rich or developed countries the share of international trade in total output (exports plus imports of goods relative to GDP) rose from 27 to 39 percent between 1987 and 1997. For developing countries it rose from 10 to 17 percent. ( 2000.)
Foreign Direct Investment (FDI)
Firms based in one country increasingly make investments to establish and run business operations in other countries. US firms invested US$133 billion abroad in 1998, while foreign firms invested US$193 billion in the US. Overall world FDI flows more than tripled between 1988 and 1998, from US$192 billion to US$610 billion, and the share of FDI to GDP is generally rising in both developed and developing countries. Developing countries received about a quarter of world FDI inflows in 1988-98 on average, though the share fluctuated quite a bit from year to year. This is now the largest form of private capital inflow to developing countries.
Capital Market Flows
In many countries (especially in the developed world) savers increasingly diversify their portfolios to include foreign financial assets (foreign bonds, equities, loans), while borrowers increasingly turn to foreign sources of funds, along with domestic ones. While flows of this kind to developing countries also rose sharply in the 1990s, they have been much more volatile than either trade or FDI flows, and have also been restricted to a narrower range of 'emerging market' countries.
There are many aspects in globalization trend such as economy, culture, academics and information technology.
The future population growth of developing countries will continue to rise despite control measure. Thus, by the middle of this century, more than 80% of the world’s population will be concentrated in the developing world.
Technological change will be the hallmark of this century as rapid developments continue in the field of electronics, micro electronics, lasers, computers, etc. the use of these technologies around the world will facilitate communication and business worldwide. Integration will also mark the development of telecommunications coming together, for example, into one multi-entertainment and communication. Companies that create technological breakthrough in the field of agriculture will be the major gainers in the future world with increased population pressures, as will be countries and firms spending more on R& D and technology in general.
Free Market Economies
The process of development of free market economies will be accelerated and it will be this approach to economic development which will determine the future of the world’s economic systems. Large economic bloc such as India and China are likely to develop more rapidly with free market economies.
Global alliance becomes more and more common among multi-nation enterprises. Global tie-ups are motivated by the fact that firms need to gain easy access to new markets, to share costs of expansion, and to increase skills without having to develop them in-house, all of which can take place through a relationship with collaborating partners. Given that the lead time for setting up one’s own operations can be considerable, and much expense can be incurred in the process, to say nothing of the level of risk taken, various forms of partnership provide a viable and frequently exercised option, particularly when one is seeking to establish a new business or develop an already existing business within a new territory.
The need for global tie-up is accelerated by rapid changes taking place in global markets where consumer tastes and preferences are becoming universal on account of ever-increasing exposure to global media.
Global Tie-up: Some Examples
Global alliances are equally relevant in service as in manufacturing sectors. Thus, airlines around the world are seeking closer ties with each other to gain economies of scale. For instance, Lufthansa has made moves to form a new entity incorporating the erstwhile East Germany’s Influg Airline and is developing closer ties with Air France. Similarly, Singapore Airlines is forming a joint venture with Sabena of Belgium. Alitalia is establishing commercial arrangements with Iberia of Spain and US Air. These are all signs of increasing global alliances to improve efficiency and be better prepared for competition
Global Man-Management and Cultures
One of the greatest challenges facing global firms is the need to develop human resources capable of handling global operations. This is a major challenge as global forms operate in multiple cultural environments whereas individuals tend to be brought up in single environments.
The policy of employing nationals from home countries and sending them out run foreign operations has been the standard practice of traditional global forms. Attractive hardship allowances and improved prospects in return are among the incentives provided. Some factors that expatriates consider in overseas postings are whether they will be able to afford the same lifestyle in terms of modern living, if they will be able to establish a social circle, whether good schooling is available for children, chances of advancement when they return to their own country, language difficulties, concern about safety and medical care. The common western practice is an extension of the same approach. However, with world that is rapidly shrinking and with comfort and security levels improving in many parts of the world, expatriates in some countries of Asia and Africa, having tasted the benefits and having tasted the benefits and having adapted to a new country, are often reluctant to return home. If opportunities for growth are lacking within one area, expatriates often switch jobs and continue to live in thee societies for decades, sometimes even marrying locally.
Today, the trend is increasingly towards finding global managers in the mould of the American Apple Corporation and Compaq’s chief operating officers, both Germans. This type of manager can skip easily across frontiers, from function to function (though they are most often wanted for special, rather than general talents) and industry to industry. When the UK-based advertising giant Saatchi & Saatchi was looking for the global answer, for example, the CEO selected was a Frenchman, with no advertising background, who had made his mark running a medical market-research firm in the US. The language skills of these managers are most often impeccable, their knowledge of management and management practice outstanding, their flexibility probably the greatest displayed by managers at any time business history – and with some having more than a couple of important international jobs before the age of 40 – their ambition, like their experience, knows no fronties.
Since global trade is encouraged by most nations, they have cooperated in constructing an international framework that helps transfer goods and services across borders while still allowing for the imposition of restrictions and controls by their respective governments.
While various common agreements exists, the development of a globally uniform regulatory framework has been a slow process own to differences in levels of development, ideologies and perceptions of the priority of different issues by different nations. Further, there is generally a long delay between the time when the need for an agreement is identical and when the agreement is finally negotiated globally.
World Trade Organization (WTO)
World Trade Organization has to take into account such issues as social policies, workers’ rights and minimum wages, even competition policy. There is also the fact that there remains scope for more liberalization, tariffs in newly covered sectors are still too high. Finally, major new economics, such as those of Russia and China will come into the WTO fold, and talks more than before.
International Air Transport Association (IATA)
IATA came into being in 1919 at the Hague between one Dutch, one German and three Scandinavian airlines. It was only in 1938 that Pan American and non-European became involved. Regular conferences based on geographic zones are now held and rates and frequencies between global ports modulated. Rates are recommended by the conferences and the stability of air costs is largely due to conception of IATA.
The United Nations Conference on Trade and Development (UNCTAD)
There are several other conventions and conferences held to simplify and standardize trade globally. These include the United Nations Conference on Trade and Development (UNCTAD), held in 1964, during which the developing countries pressurized industrialized nations for preference in exports. Several industrial countries have complied and several special agreements have also been developed to allocate production and markets to raise the export earnings of the developing world.
Regional Economic and Trade Forums
Nations in various regions have come together to form their own economic communities or groups for improved economic and trade integration within their regions. These include the European Economic Community (EEC), the European Free Trade Association (EFTA), the Latin American Free Trade Association (LAFTA), the Council for Mutual Economic Assistance (COMECON), the Arab Common Market (ACM), the Asian Free Trade Area (AFTA), the West Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC). This economic integration hopes to achieve regional competitive advantage in global markets, by aiming at the following:
- Free trade areas – where tariffs are abolished between members.
- Common external tariff to non-members.
- Access to common markets.
- Common or harmonious national economic policies.
- Complete economic integration.
There are obviously many aspects of globalization. Contemporary globalization represents a real revolution in human affairs. It is a massive change in the way that civilization is organized.
One of problems and issues associated with rapid globalization is an increase in the risks of spreading economic maladies.
With all key economies closely connected in a globalization process, they now have become mutually vulnerable. This means that various forms of economic diseases can spread rapidly from one country to another.
Vulnerability refers to rapid capital movements and the associated destabilizations of currencies. Predators can make a lot of money speculating on currencies, but at a heavy cost to the countries being attacked.
Globalization is accompanied by a related human tragedy in displaced workforces. Regard the wandering heavy industries that move frequently from one country to another. The tennis shoe industry in Asia moved every few years from one country to the next, leaving behind displaced workers while jobs are created in other countries.
This, in many ways, could be considered old wine in new bottles. Exploitation of labor and natural resources has been taking place since the beginning of the Industrial Revolution. But the exploitation of cheap labor has increased greatly as has the devastation of natural resources in poorer countries.
The Economics of Globalization: A Labor View
Globalization is a process that is impacting profoundly the lives of workers everywhere. It brings problems as well as benefits, and these problems run deeper than just the fact that there are winners and losers. It is changing the very structure of our economy, and in doing so it is establishing patterns of incentives that can have negative societal effects long into the future.
Globalization is not a natural process over which we have no control. Instead, it is being driven by the choices of business, governments, and international policymakers.
The creation of a unified national economy in the second half of the 19th century, through the fusing together of the different regional economies, involved the same processes. Just as national economic integration produced benefits, so too can global economic integration. But national economic integration also brought problems, and we addressed those problems through the creation of modern government. Addressing the problems raised by global economic integration is more difficult because of the deeper political problems, and because of the lack of proper structures of international economic governance.
At the beginning of the 19th century, production took place on the factory floor while management sat above in overlooking offices. Today, companies can be headquartered in New York while production takes place thousands of miles away in China.
Globalization is also being driven by economic policies which have sought to remove barriers to the flow of goods and capitals between countries and in doing so have increased the international integration of national economies.
Globalization brings significant economic
benefits. These benefits include increased goods market competition that has
contributed to lower prices and improvements in quality. It has also contributed
to improvements in production efficiency with domestic firms forced to go
head-to-head with their foreign rivals. There have also been improvements in the
provision of financing which has helped developing countries acquire the capital
necessary for their own development.
But side-by-side, there have been serious negative effects with globalization creating new forms of wage and workplace competition that have twisted the distribution of income in favor of the most well to do. It has also twisted the economic structure such that policy makers now face a pattern of incentives that has them increasingly compelled to run economic policy for the benefit of those corporate interests which have been empowered by the globalized economy.
There is a tendency for demand to leak out of the national economy owing to an increased propensity to import goods. This increase in macroeconomic leakiness is true for almost all industrialized countries, with trade (i.e. imports and exports) as a share of GDP having increased by more than 50 percent over the last 30 years.
There is a tendency for jobs to leak out of an
economy if labor markets are not sufficiently flexible, or if profit taxes are
relatively unfavorable compared to conditions elsewhere. Microeconomic leakiness
has been promoted very much by technological developments that have lowered
costs of transportation and costs of coordinating production. Economic policy
has also contributed to increased microeconomic leakiness by bringing down trade
barriers and making it cheaper and more economically feasible to shift
production between countries.
Another form of leakiness is "financial leakiness" whereby money flows between countries. Today, more than $1.5 trillion is traded in foreign exchange markets every day, whereas the actual value of international trade is less than three percent of this amount. The existing structure is unstable, and it also gives financial interests too much sway over domestic and international economic policy. (The globalization of capital markets has brought a new kind of competition among currencies, since international investors will pull their funds out of any currency in which they lose confidence. This has produced a sustained bias toward tighter fiscal and monetary policies around the world to reassure international investors)
Once again, this change has been driven by technological innovation in the form of lowered costs of electronic communication and transacting, and once again it has also been driven by policy which has removed controls on the international movement of money.
Macroeconomic leakiness has tended to promote
an increased reliance on exports, which means that countries are more exposed to
shocks originating abroad. Macroeconomic leakiness also means that countries
rely more heavily on imports so that demand leaks out of the economy when policy
makers try to expand economic activity.
Microeconomic leakiness poses a different set of problems. In particular, it has increased the bargaining power of business vis-à-vis both labor and government. Thus, a recent study found that after NAFTA was implemented there was a 33 percent increase in business use of threats to relocate production during wage bargaining rounds. Government has also been put under pressure through the use of threats to move to win tax concessions.
If tax conditions are deemed relatively less favorable than elsewhere, business now threatens to invest only in those places where conditions are more favorable.
Moreover, export-led growth also fosters wage
competition, deteriorated work place conditions, degraded environments, and
weakened systems of governmental social support. This is because countries and
business have an incentive to try and gain international competitive advantage
by any means possible.
Huge imbalance of power between business and labor.
The global enforcement of core International Labor Organization (ILO) labor standards that give workers the rights of free association and collective bargaining is a key. In a similar vein, there is a need for new rules to prevent international tax competition.
The current state of Globalization and
regionalization suggests that the international system is unevenly structured.
Institutional financial structures both at public and private levels – WTO,
World Bank, IMF, and Private Financial Institutions (PFIs) - need to be
restructured to ensure human security, sustainable development and
non-discriminatory trade regimes. Theories on international trade and finance
have not yet produced long term strategies for a just, fair and balanced global
competition in the face of proliferating multinational enterprises. Given this,
state-based political decisions and actions in developing world will continue to
play a major role in the social sector despite the fact that developing nations
under severe pressure from the WTO and developed world, are urging them to
introduce faster economic reforms for foreign investment, free trade regimes and
capital flow. The developing world needs to convince the rich North that
fetterless capitalism and borderless globalization must adjust to the hard
boiled realities of poor developing nations.
The shift in power structure will continue to inform the international system. A mix of geo-strategic, geo-economics and geo-cultural factors are likely to propel public decision makers to fashion their countries’ foreign policies and reinvent new diplomatic strategies accordingly to fit in the potential currents of globalization and regionalization. The issues of global governance and environment, global culture and democracy will continue to lure international theorists and policy practitioners into working out new formulations, paradigms and conceptual underpinnings.