Downsizing and Globalization In the USA and the UK - Assignment Example

Downsizing and Globalization Economists and finance experts in the 80’s vaunted globalization as a means for economically developed nations to exploit new business opportunities. Ten years down the line however, the negative impact of globalization of the labour market became evident. Looking at the labour statistics of some western nations such as the United States, United Kingdom, and other European economic powerhouses like Germany, the massive job destruction is evidently a making of the globalization. Firms were contending with the increasing international competition and low wages in Asia and the former Eastern Bloc, turning to cost-cutting measures through downsizing the labour. Consequently, jobs relocated or disappeared altogether. Strategic alliances, computerization, lean production, and other strategies propagated the process of wage reduction and rationalization at alarming rates (Scholte, 2005:34). This paper seeks to explain why companies downsizing and globalization strategies, and the implications of these strategies to the daily and work life in developed nations. Introduction The eighties was a decade of praise for globalization for potentially offering countries and firms wealthy opportunities previously inaccessible and unexploited. The subsequent impact of this was a rush to globalization, which resulted in an explosive growth in international business. Burgeoning globalization allowed large, medium, and small-scale business, thus appearing as a saviour from economic stagnation. The concept of looking beyond national boundaries and capturing the international market that then seem to be within reach became the fashion. In recent times however, an edge to the globalization process has emerged, alarmingly prevalent and conspicuous. It is becoming evident that globalization indeed creates opportunities for businesses, but at a certain cost. The cost is the international rationalization process, which is currently wrecking havoc in the labour market, particularly in certain parts of Europe. The primary reason for adoption of downsizing and globalization strategies by firms is to achieve cost cutting and increase revenue by capturing the global market (Scholte, 2005:132). However, this results in serious implication for the economy of the country of origin, as more workers lose their jobs and plunge into poverty, which significantly reduces the standards of living. Reasons for Downsizing In essence, downsizing refers to the planned elimination of jobs or positions. Many corporations and business have used, or are likely to use, the strategy to achieve different goals. In the United States for instance, approximately 43 million jobs were slashed off between 1979 and 1995. Evidently, this is a significant portion of the workforce (Archibald, 2009:321). Companies adopt downsizing measures due to a number of factors that affect the organizational and work structure, including computerization, consolidations, globalization, and divestment. These factors create a new attitude towards employment, a new workforce, and over and above all, reduced job morale, and security. The prevalent increase in global business has led to more competition in the marketplace (Slaughter and Swagel, 1997). In addition, the increasing rate of technological advancement enables businesses to achieve higher productivity and run their global businesses smoothly. Often, companies are unable to keep up with the enormous technological advancement introduced into the market every month. The subsequent shift from producing products to providing services often leads to reengineering and downsizing of many companies. Companies employ downsizing strategies in financial attempts to produce larger revenue margins. Holding other factors constant, the fewer the employees a company has, the more productive and efficient the workplace. Conventionally, the remaining workers feel obliged to become more efficient in quality and speed, as well as the significant reduction in use of company resources (Archibald, 2009:325). Nonetheless, this is not always the case, though most CEOs and managers believe that downsizing will achieve these results. Companies also turn to downsizing measures as a response to organizational decline in the workforce or to threats of organizational competition. In other words, if a firm in an industry downsizes, others are likely to follow suit to remain competitive. In business, companies must keep up to par with their rivals to survive and maintain their market niche. A prime example of downsizing in recent times is evident in the banking sector. Currently, many banks, especially in the economically developed countries, are downsizing due to the intense global competition that face significant threats from deregulation (Baumol, Blinder, and Wolff, 2005:57). Furthermore, the sector faces stiff competition from other institutions providing financial services such as brokerage firms and insurance companies. Alternatively, companies may adopt downsizing strategies in attempts to raise their stock prices or after mergers or acquisition. In recent times, the business world has witnessed the merging of large companies to form a single entity, which is capable of grossing more than a whole country! In other instances, a business may close shop and offer employees new jobs in a different location. This is evidently difficult for those workers with families (The Independent). Despite all the criticism on downsizing, the strategy has some positive results, including improved business practices and processes. Implications of Downsizing Conventionally, the less skilled and efficient employees were the victims of downsizing. In the contemporary business world however, downsizing is not necessarily a reflection of how an employee does their job. Today, downsizing targets positions held rather than the individual occupants. Interestingly, the skills of employees sometimes get them promoted or transferred to less secure jobs rather than cuts. This occurs because companies seek to cut costs at higher positions in the end, eliminating the costly positions. Thus, companies concentrate on numbers, not employees. Some people manage to jump right back into new positions after downsizing, but many conceive the situation differently altogether. Downsized employees suffer shock and anger, which result to depression in most cases. While the downsized employee suffers socially, financially, and personally, many other entities also feel the hit, including the immediate family, dependants, and the government too (Granter, 2009:64). The downsizing strategy leads to less employed workers, thus the government revenue from income tax reduces as the demand for government services such as food stamps and unemployment insurance increases. The resultant squeeze between increasing government expenditure and declining government income produces a huge budget deficit and leads to relatively huge government debts. The current debate over the huge government debts and the debt crisis in Europe primarily focus on the spending side of the ledger. Yet the main problem is that wealthy corporations that dominate the national government and the social values of their societies fail to pay their equal share of taxes. Major political parties support globalization of eth economy and the free market concept, yet this is the very process that increases economic gigantism underlying the problems of long-term insolvency of governments and the budget crisis (Hassrad et al., 2009:65). The increase in size of global corporations has increased their ability to influence the governments to reduce corporate taxes and eliminate restrictions on movement of money and commodities. The tax load from corporate tax share cut falls to the working people, as well as their children and grandchildren. Downsizing leads to high levels of unemployment and eminent job insecurity. However, states do not admit to the increasing levels of unemployment, and instead hides this phenomenon by defining git away. The logical definition of unemployment is people who want jobs but are unable to find them, which is almost double the figure that results from governments’ definition. The official rates of unemployment in economically developed countries do not include the millions of people discouraged from looking for jobs such that they stopped, and then proceeds to count the millions in part-time employment as fully employed. Employers may not need workers as their employees, but they surely do need them as consumers for their services and products. If all corporate firms focus on profit maximization in the global market, they may shed off employees for any reasons that enhance the profitability of the company. This is logical at the micro-economic level. However, adding all the micro-economic decisions for downsizing, the macro-economic implications are stagnation and the associated social ills (Blackburn, 1999:23). The positive results of corporate downsizing creates a perception that in the current economic market, the greater the downsizing by a firm, the higher the stock prices. Rationally, corporate chieftains running the economy should display nicer behaviour. Over the past three decades however, transnational firms got everything they wanted: from free trade agreements, collapse of communism, weakening of trade unions, deregulation, lower taxes, and decreasing wage rates. This creates an entirely dangerous dynamic at work, as the firms pocket more profits and deteriorate the standards of living of their workers. At the centre of job losses because of corporate downsizing, one key factor completely escapes the discourse: the larger part of unemployment is because of the old drive by firms to replace human workers with technology. Executive management of most companies perceive technology as an optimal way of dumping employees, especially who question authority and make demands, and replace them with technological machines. This is evident in all leading economies, like the UK. Consider this, the manufacturing sector in the UK has recorded significant decline in the past three decades from about thirty-four percent to less than sixteen percent, despite the steady increase in output in the manufacturing sector. If such a trend continues, in both UK and the rest of the world, then we may witness the elimination of mass manufacturing jobs (McCann et al., 2008:363). Reasons for Globalization Business globalization is the most common strategy employed by companies to move their operations to foreign countries. These businesses have different reasons for globalizing their operations. Some adopt defensive or reactive approach to stay ahead of competition, while others take aggressive and proactive approaches to attain the same objective. Nonetheless, companies may decide to adopt both approaches in efforts to avoid a decrease in their competitiveness (Archibald, 2009:290). To maintain their competitiveness, companies have to move hastily to secure solid foundations in some of the established and emerging market in the world with customized services and products that suit the needs of that particular market. The world over, markets are attracting new capital investment with good incentive packages (Scholte, 2005:91). Among the defensive and reactive reasons for business globalization strategies include trade barriers, customer demand, regulations and restrictions, and globalization of competition. Concerning trade barriers, companies shift from exporting products to manufacturing them in foreign countries to evade the burden of quotas, tariffs, buy-local policy, and other various restrictions that add costs to the export business. In response to customer demands for reliability, product assurance, and solution to logistical problems, and effective operations, companies opt to shift their base of operation overseas. Most foreign customers may wish that supply stay local to enhance production flow. Subsequently, companies tend to follow their requests to avoid losing business. Most companies with interest in foreign investment and operation are aware that leaving overseas companies for long periods without significant competition may make it hard for them to penetrate in the future. In this regard therefore, they tend to act quickly. Lastly, the home government for most companies often have expensive and unnecessary regulations and restrictions that limit expansion, make costs uncontrollable, and encroach on the profits of the company (Hassrad et al., 2009:90). This, therefore, forces companies to move to foreign market environments that have few restrictive operations. The aggressive and proactive reasons for business globalization include economies of scales, growth opportunities, incentives, and cost savings and resource access. Often, companies invest their extra profits in expansion projects, but at times, such opportunities are limited due the level of market saturation. Consequently, they opt to venture into foreign markets that provide such expansion opportunities. It then follows that these companies also try to maximize efficiency through utilizing their underused resources in capital and human assets such as machinery, technology, and management. In efforts to achieve economies of scales, companies may seek to achieve higher output levels over huge fixed costs in order to obtain lower costs per unit. They may also desire to maximize the use of their equipments and perhaps spread the costs of research and development over the life cycle of the product. Corporate businesses in the economically developed country also enjoy attractive incentive packages from developing countries who seek to attract development and improvement through technology, capital, and skills infusion. Easy access to raw materials, low operational costs, low wages, power, and transportation also attract business in terms of cost saving and resource access (Blackburn, 1999:18). Implications of Globalization A portion of economists and financial experts argue that globalization of businesses has opened varied challenges like inequalities in different countries, volatility of financial markets, and deteriorating environmental conditions. The other significant effect of globalization is the discrimination of the third world countries. Moreover, global companies tend to independent entities without any one country as their home base, and thus do not have any interests in supporting the government through taxes (Baumol, Blinder, and Wolff, 2005:53). Accordingly, this results in a shrinking tax base, or the ‘fiscal crisis of a nation’, as some economists refer to the situation. The shrinking tax base refers to tendency of the government’s expenditures to exceed revenues. In worse case scenarios, the corporate class uses the underlying principle of global competition to plunge down the living standards of the majority, thus effectively shifting more wealth from their pockets to theirs. This results in growing inequality between the rich and the poor, subsequently producing rebellion and resentment world widely (The Independent). Increased business globalization means that more companies are able to exploit the huge global labour pool. Thus, they may feel less obliged to adhere to the social welfare regulations of any given state. Global firms often want different forms of subsidies from the government, but when the issue of government regulation arises to allow people to exert control over them, the corporate ideology turns to deregulation, downsizing, and ‘free trade’. The possibility of a genuine democratic government is a serious threat to the power of large global firms, thus governments need dismantling (Baumol, Blinder, and Wolff, 2005:55). Transnational firms tend to become less dependent on the workforce of any particular nation as they have a global pool of labour at their disposal. According to recent statistics, it is evident that global corporations in the UK, the US, and other developed economies have been downsizing jobs while expanding employment overseas. Worth noting is their sharp increase in total profits derived from overseas operations (McCann, L. et al., 2008:357). Global competition is among the major reasons for the reduction in labour costs, and the global market seems to set the standards of behaviour for countries seeking to thrive in the current economy. Most of the economically developed countries are used to the downsizing effect of globalization, thus they have instated measures to cope with the consequences. Nonetheless, the reengineering and restructuring of business practices and processes have led to greater inequalities, less job security, and a social organization that trails the education level of people (Moore and Lewis, 2009:223). The infamous skill premiums have recorded significant increase. Globalization has also made the relationship between the firm and the employee less autocratic and less paternalistic today (Hassrad et al., 2009:132). Despite the job insecurity, there is more job autonomy and opportunity for defining the job. The resultant speculative investments from business globalization are often liquid than real economy investment. This has led to the explosive growth of new financial speculation: the prosperous derivatives market. these investments gain value from other underlying assets such as currencies, stocks, or bonds, but are merely bets on the rise or fall of the assets in a given time period. The implication of the derivative market may seem small, but not until one compares it to the real economy (Hitt et al., 2010:206). However, the global derivates may equal the volume of global trade transactions in less than a week. The shift of investments to the derivative market and the globalization of capital market significantly weaken the power of governments to control their national economies as well as protect the jobs of their citizens. Thus, national governments, especially of developed nations, become hostages to the mobility of the globalized capital markets. Firms may threaten to shift their base of operation when confronted with strict environmental regulations or higher taxes (Scholte, 2005:73). Conclusion Business globalization and downsizing are good strategies for companies, but improper management may lead to serious implications to the work and daily life of concerned societies. Business globalization ultimately results to downsizing, with the central objective of reducing operational costs. However, the advent and advancement of computer technology has also led to downsizing of corporate firms in cost savings efforts. Globalization of economy and the shift of investment from the real economy to speculative investment have serious implications for governments, as it creates an artificial squeeze between the income and expenditure. This subsequently results in budget deficits that increase the overall national debt. Downsizing also lowers the standards of living in any given country, as more people lose their source and income. This results to poor living standards, as well as social evils or poverty at worst (Granter, 2009:137). Bibliography Blackburn, B., 1999. ‘The Vicious Circle of Competitive Unemployment’ International Journal of Sociology and Social Policy 19: 1-2, pp. 1-26. (Blackburn, 1999:3) Granter, E., 2009. 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