International Business Environment: Impacts of Globalisation - Essay Example

?International Business Environment Introduction While analysing the current global economy, evidently, most of the countries including America and almost all European countries are still struggling with the dreadful impacts of the 2008-09 global financial crisis. It is interesting to note that developing economies like India, China, and many Middle East countries could effectively address this crisis to a great extent. Nowadays, the difference between developed and developing countries is continuously decreasing, because most of the developed countries currently grow at slow pace whereas majority of developing countries broaden their economies dramatically. However, there still exists a distinctive group called underdeveloped economies despite the economic revolution emerged over the last few decades as a result of globalisation and industrialisation. The given case clearly indicates that Strinidal (hypothetical) is a poor country with an average per capita of $2000 at market exchange rates. In addition, the country’s population is only 40 million, which constitutes 35% urban people. The case context also reflects that the nation’s export base is very weak and this situation imposes serious threats to the Strinidal’s economic growth. This paper will critically analyse the World Bank’s suggestion for globalisation in Strinidal. Globalisation According to Imade (2003), globalisation refers to the process through which national economies and cultures are integrated into an international economy so as to enhance international trade, direct foreign investment, migration, and technology sharing. The concept of globalisation greatly contributes to effective and rapid circulation of ideas, languages, and cultural ideologies. With intent to enhance foreign investment and cross-border trade for international business expansion, nations have liberalised cross border trade regulations. Brahm (2005) says that the emergence of globalisation can be directly attributed to the World War I & II and their serious after-effects which raised serious ethical issues across the globe. On the basis of numerous studies, economists realised that the concept of globalisation would contribute to the rapid economic restructuring of the global economic condition. In addition to the economic benefits, nations could improve their political as well technological relations globally. The last few years’ experiences have proved that globalisation can benefit developing countries more in achieving rapid economic growth. To be more specific, despite the possible socio-economic adverse impacts, globalisation stimulates the advancement of nations’ economic stature (WTO). In order to comprehend how globalisation will assist Strinidal to promote economic development, it is necessary to analyse various strengths and weaknesses of this concept. The following part will mainly discuss the impacts of globalisation on economies, technology, and immigration. Impacts of Globalisation on Economies Before the emergence of globalisation, developing and underdeveloped countries had little access to developed markets and improved technology. This condition negatively affected the economic growth and thereby living standards in underdeveloped economies. However, since the globalisation, the global economic environment has undergone tremendous changes. According to Devetak and Hughes (2008, p.34), globalisation connects nations through a global network, and it assists a nation to get access to foreign markets and customers. The rampant economic growth of developing economies like India, China, and Brazil can be attributed to the fruitful trade laws under globalisation perspective. As Slaughter & Swagel (1997) point out, the removal of trade barriers promote import and export activities by which a government acquires foreign investments (IMF). Often, foreign markets benefit an organisation rather than domestic markets when a potential offshore country offers favourable business conditions including cheap raw materials, labour, liberal government laws, and large number of potential customers. For instance, Starbucks Coffee Company transplanted its business operation from the United States to China and other parts of the globe. The emergence of a global financial market is the direct impact of globalisation, which assisted the borrowers to get better access to external financing. This external financial assistance aids the organisations to expand globally. In addition, the global interconnectedness helps nations to attract more and more investors to complete their capital accumulation process successfully. This favourable economic environment increases the volume of national and international trade transactions which in turn would boost the rapid economic development of a country. As per statistical data, “everyday more than $1.5 trillion is swapped in the world’s currency markets and around one fifth of products and services generated per year are bought and sold.” (Benefits of Globalisation). Evidently, the economic development of a country improves the standard of living of its citizens. The improving unemployment rates in third world countries can also be clearly referred to the fruitful impact of the globalisation. The rise in people’s living standard would assist the nations to concentrate more on economic development. In the opinion of Arnold (2008, p.300), other fascinating feature of the globalisation is that it can keep inflation level lower. The higher inflation rate in a country will cause dreadful issues and ultimately it will impede all proposed economic policies. Therefore, the effective globalisation strategies would certainly aid governments to trim down public sector spending and to minimise troubles associated with a higher level of inflation. The excellent economic results obtained in 1980s can be attributed to the increased global trade activities; and in 1986, commerce as a percentage of gross world products rose from 15% to 27% (Benefits of Globalisation). Although globalisation offers numerous benefits to an economy, this concept has some limitations too. It is argued that globalisation has largely contributed to economical class system. Critics are of the opinion that social class system would not contribute to a country’s balanced economic growth. To illustrate, since globalisation mainly meets the interests of high and medium class people, the cross cultural trade concept would generate a poor class having more requirements. In the opinion of Weissman (2003), globalisation makes the rich richer and the poor poorer. Since globalisation provides wider market access, this situation may benefit corporate giants to exploit domestic and traditional marketers. For instance, cheaper electronic products from China have become a threat to UK and other global marketers. Impacts of Globalisation on Technology In the opinion of Dorner (1999), the fruitful elements of globalisation contributed to the development of a new technological era that restructured the living standards and business concepts of the modern world. The tremendous development in technology was the central element that led to industrial revolution. The industrial revolution notably changed the structure of families, communities, and worksite environment. The industrialisation process largely reduced manual labor since the human efforts were replaced by technologically improved machineries. The increased application of technology in productive activities also augmented the volume of production. Therefore, it was necessary to employ more and more workers in order to efficiently operate machineries and other technical systems. In order to take advantages of these increased employment opportunities, population concentrated near to factories and other worksite areas. The result was the emergence of urbanisation which plays a crucial role in developing metropolitan cities. It is obvious that technology was also one of the major factors that led to the emergence of globalisation. However, globalisation has largely contributed to the rapid technological growth. Since globalisation removes international trade barriers, it has largely increased the transactional volume of business organisations. As the business transactional volume has largely increased, firms face difficulties to run their operations smoothly. The condition forced firms to develop highly improved technologies. Porter and Miller (1985) reflect that every business organisation wishes to deliver its services more effectively, and hence it searches for further technological developments frequently. The explosive growth of information technology is one of the major outcomes of globalisation and industrial revolution. For instance, the introduction of internet and related facilities has restructured the world and the way people communicate. Globalisation has produced some negative effects also on the technology. As a result of industrial revolution, industries largely gravitated towards technologically developed countries with intent to minimise the cost of production. However, this activity reduced the productivity and further caused an increase in unemployment rate especially, in developing and underdeveloped countries. The increased dependence on machineries and other technical equipments has made human work insignificant. Similarly, the increased technological developments have greatly raised environmental issues such as global warming and green house effect. Impacts of globalisation on Immigration Before the beginning of 21st century, the main intention of migrants was simply to leave home country to become a member of another country’s community. Those days, traveling from one’s home country to other foreign destination was expensive and time consuming. In addition, inter-communication between countries was also expensive. However, globalisation and thereby rapid technological advancement assisted immigrants to maintain effective ties with their home countries. As reported by The University of Iowa Center for International Finance and Development (n.d.), after the introduction of globalisation, several countries allowed immigrants to have attachment with their home country; and some countries have also formulated laws for enabling the immigrants to be dual citizens (Immigration & Globalisation). These favorable practices have evidently intensified the rate of migration across the globe. Many of the globalisation supporters opine that this concept and thereby increased immigration activities would offer ranges of economic benefits including low unemployment rate and ease availability of expertise to both the home country and the recipient country. Globalisation and International Relations The concept of global economy came into existence with the emergence of globalisation, and this process notably assisted different segments of the international market. Globalisation has significantly contributed to the creation of a global market and a global system of production. Capital marketers also enjoy the benefits of globalisation as it has contributed to the integration of financial systems. In addition, globalisation enhanced the development of telecommunications media which in turn fastened the spread of global mass culture (European Parliament). Globalisation eliminated international trade barriers and thus promoted international relations once this concept weakened the ability of nations to control transnational operations and economic activities. Companies transplanted their production facilities to other countries where costs are comparatively lower. In the opinion of Macmillan (2010), in order to take advantages of liberal international trade laws, a number of corporate global giants spread their business across the globe. As discussed earlier, before 21st century, traveling from one’s home country to other foreign destination was expensive and time consuming. In addition, inter-communication between countries was also expensive. However, globalisation and thereby rapid technological advancement assisted immigrants to maintain effective ties with their home countries. Simoens, Villeneuve, and Hurst argue that Immigration assisted the countries to resolve ranges of employment issues like ‘nurse shortages’. Thus the increased level of immigration process became a stimulant in promoting international relations. In short, globalisation greatly strengthened the inter-country relationships which in turn dramatically amplified the global economic growth. Globalisation and Third World Countries In order to clearly evaluate how the globalisation affected underdeveloped countries, it is necessary to look at some third world economies and analyse how they grew over the last decade(s). This procedure will be helpful to identify the growth constraints to third world countries and thereby to assess whether globalisation is recommendable for Strinidal. Africa Bhorat and Westhuizen report that the African economy’ annual growth was only 2% between the period 1984 and 1993; this growth rate was not even enough to meet the increasing population needs. In order to stop poverty from worsening, Africa should have achieved a growth an annual growth rate of 5%. Increased European influence and lack of effective leadership or sound economic policy stunted the economic growth of Africa. In addition, the African societies had not enough knowledge regarding the maintenance of infrastructure although colonial powers had greatly invested in infrastructure. To illustrate, the Belgish Congo had 88,000 miles of usable in 1960 which was reduced to 12,000 miles in 1985. Asia In the beginning of 1990’s, most Asian countries were underdeveloped. However, it seems that Asian economy has attained significant growth during the last two decades and majority survivors of global financial crisis 2008-09 were Asian countries. Countries like Japan, South Korea, and Singapore were lifted to the rank of developed countries and nations such as India and China are becoming world’s most potential market segments. Bangladesh was one of the poorest countries in the world in the early 1990s and by 2010 the country was the 43rd world’s largest economy according to the International Monetary Fund (World Economic Forum). Latin America While analysing the economic landscape of Latin America, it is precise that this region is still dependant on western economies. International Monetary Fund states that “weakening commodity prices in the cases of copper, oil and coffee, coffee prices have declined since 1997 by about 60%, are a major obstacle on the way to economic prosperity” (cited in Damer, 2002). In addition, Latin American countries largely depend on capital inflows from industrialised countries since external debt is still beyond the limits in this region. Internal wars also contributed to diminution of the Latin America’s economic growth. In contrast to the general case, Chile achieved a better GDP growth rate of 7% annually between 1984 and 1993 whereas the country’s growth rate was 5% between 1994 and 2001 (Trading economics). Recommendations to Strinidal The above sessions clearly illustrate the pros and corns of globalisation for global economies. In the above discussion, all points support the concept of globalisation except the argument that globalisation makes the poor poorer. To scrutinise the authenticity of this argument, it is necessary to consider economic performance of other poorly developed countries (because Strinidal is an underdeveloped country) over the globalisation era and to evaluate the causes of their economic uplift or downturn. From the analysis on the third world countries over the last few decades, it is evident that some of the poorly developed nations still remain at the same or below the state they had been before globalisation. However, the identified underdevelopment could not be attributed to globalisation because it has been proved that a number of poor countries have already taken advantages of this new environment. Hence, it is advisable for the Strinidal to accept the IMF/WB’s recommendations for engaging more with globalisation. While analysing countries which are economically weaker today, most cases indicate that such counties have been burdened either with colonial legacies or self-inflicted problems. Similarly, peace is a crucial factor to the economic development of a country and most of the poorly developed countries like Afghanistan are still lacking this. “Nothing is able to destroy entrepreneurial spirit and waste resources, human and natural, like war” (Damer, 2002). In addition, the influence of law plays a significant role in the economic growth of a country. People may not invest their time, money, and effort in productive purposes unless they are convinced that they can harvest the fruits of their investment and labour. While looking at the political spectrum of underdeveloped countries, it is clear that most of them cannot effectively preserve the interests of the citizens. In other words, they are politically instable. Likewise, a supportive economic policy is essential to promote the economic goals of a country. Countries adopting a hostile approach to foreign investment and competition may not take advantages of trade. In addition, every nation needs to perform some basic functions including maintenance of public order, establishment of an effective education and health system, and certain administrative operations. Many of the third world countries have not established a sound economic policy yet. Although globalisation may negatively affect the Strinidal in case of a recession, rejection of this concept means that the country is going into self-imposed exile. As Damer strongly argues, “sheltering one’s industries from foreign competition might work in the short term to fix temporary inefficiencies, but will lead to inefficiency and loss of competitiveness in the long term” (Damer, 2002). Therefore, when Strinidal hesitates to confront with foreign competition, it will be keeping itself away from economic development. On the other hand, if Strinidal engages with deeper globalisation, it would raise its urban population from its current status. Since the country is struggling with inadequate financial resources, deeper globalisation may aid the country to attract more foreign investments. In addition, this strategy would be beneficial for the country to enhance knowledge transfer, which plays a significant role in a country’s rapid economic advancement. Conclusion In total, deeper globalisation is reasonable for Strinidal to promote its overall economic growth by fostering trade, foreign investment, and data transfer. Stunted economic growth of underdeveloped countries could not be attributed to globalisation since most of such countries do not maintain a healthy environment for development. Undoubtedly, adopting a deeper globalisation policy would benefit Strinidal in the long term. References Arnold, RA 2008, Macroeconomics, Cengage Learning, US. Brahm, E July 2005, ‘Globalisation’, Beyond Intractability.org, Viewed 08 November 2011, Business Maps of India n.d, ‘Benefits of globalisation’, Viewed 08 November, 2011, Bhorat, H & Westhuizen, CV n.d, ‘Economic growth, poverty and inequality in South Africa: The first decade of democracy’, Development Policy Research Unit, Viewed 08 November 2011, Damer, D 2002, ‘Are third world countries the losers of globalisation?’, Economics: Term Paper, pp.1-10, Viewed 08 November, 2011, Devetak, R & Hughes, CW 2008, The globalisation of political violence: Globalisation’s shadow, Routledge, Abingdon. Dorner, P June 1999, ‘Technology and globalisation: Modern-era constraints on local initiatives for land reform’, United Nations Research Institute for Social Development, pp.1-17, Viewed 08 November, 2011, European Parliament July 2001, ‘Globalisation of the media industry and possible threats to cultural diversity: Final study’, STOA Programme, pp.1-99, Viewed 08 November, 2011, Imade, LO 2003, ‘The two faces of globalisation: Impoverishment or prosperity?’, Globalisation (2003), Viewed 08 November, 2011, Porter, ME & Millar, VE 1985, ‘How information gives you competitive advantage’, Harvard Business Review, pp.1-13, Viewed 08 November, 2011, Palgrave McMillan 2010, ‘Globalisation & International relations 2010’, pp. 1-50, Viewed 08 November 2011, Slaughter, MJ & Swagel P September 1997, ‘Does globalisation lower wages and export jobs?’, International Monetary Fund, Viewed 08 November, 2011, Simoens, S, Villeneuve, M & Hurst, J 2005, ‘Tackling nurse shortages in OECD countries’, OECD Health Working Papers, Viewed 08 November, 2011, Schwab, K 2009, ‘The global competitiveness report 2009-2010’, World Economic Forum, pp. 1-479, Viewed 08 November 2011, Trading Economics 2011, ‘Chile GDP per capita PPP’, Viewed 08 November 2011, The University of Iowa Center for International Finance and Development, n.d, ‘Immigration & globalisation’, Viewed 08 November, 2011, Weissman, R 2003, “Grotesque inequality: Corporate Globalisation and the global gap between rich and poor”, Multinational Monitor Magazine, Viewed 08 November, 2011, < http://www.thirdworldtraveler.com/Third_World/Grotesque_Inequality.html> WTO: World Trade Organisation n.d, Viewed 08 November 2011, Read More