The Effect of Globalization on Hong Kong Business - Research Paper Example

Executive Summary The ongoing process of Globalization and economic evolution in the industry will favor companies with strong brand equity, a loyalgroup of recurring customers and a proven record in innovation. Globalization is more about the competitiveness of countries and the survival of the fittest. Under the World Trade Organization, the elimination of quantitative restrictions have fast tracked the economic growth of developing countries with foreign direct investment coming in from Developed countries and or the first world countries. Various economic theories suggests that there will losers and these losers could demand that Governments throw up protectionist barriers against the threat of cut-price competition. However, subsidies, grants and governmental support are not sustainable in the long run. This would only create distortions and would also increase the input costs of manufacturing like cost of power, gas etc. Dependence of an Industry on subsidies, grants and support would only make demand for more support. Research Assignment Globalization; its effects on International Business and impact on Hong Kong Introduction Globalization calls for augmented interdependence of countries because of their enlarged economic integration via foreign direct investment, joint ventures, trade, migration of immigrants and foreign investment, foreign aid, and international migration of people and ideas. With the eradication of quotas, now, the survival in the international trade markets for countries depends on using the benefits of propinquity from a marketing, design and production point of view and also with an ability to counter the highly volatile market demand. New News about globalization is that the comparative productivity, price, exchange rates, transportation costs and custom duties and or tariffs will continue to affect patterns of sourcing; a new set of factors related to the distribution of products plays an increasingly vital role. Globalization and free trade economy can be termed as synonyms. Globalization is much more than an monetary event. The technological and political changes that force the process of economic globalization have gigantic non-economic consequences. In a free trade economy without the limitations of quotas, consumers and manufacturers in one area of the world seek for consumers and manufacturers in another part of the world, and with the international division of labor, greater efficiency can be achieved in catering the market needs and demands. Having better access to overseas suppliers and more sourcing options, companies with established and pliant brands will be able to realize upside potential by taking advantage of outsourcing and partnership opportunities. The ongoing process of evolution in the industry will favor companies with strong brand equity, a loyal group of recurring customers and a proven record in innovation. The economic advantage of integration of free market economies has always been interpreted. Quantitative restrictions / quotas ended under the General Agreement on Tariffs and Trade (GATT) and World Trade Organization kicked in. Approximately over 150 countries are members of the WTO. Gains of WTO and end of quotas can be seen now because of various bilateral and or regional agreements. These agreements provide a free movement of capital and labor which ultimately promotes competitiveness. The most important result of trade and investment, however, is economic growth, which in turn leads to a better environment. That is true because, as incomes rise, the demand for improved environmental quality also rises. Numerous studies have confirmed that, in practice, trade and investment activities usually have a positive impact on the environment. Criticism on Globalization There are various thoughts on the bilateral and regional trade agreements. One thought views that in a multilateral regime, bilateral trade agreements create trade distortions. The level playing field as envisaged by the WTO is thus distorted. For example, Free Trade Agreements and Regional Opportunity Zones created between various Countries. Economic globalization, the ongoing process of greater economic interdependence among countries, is reflected in the increased amount of cross-border trade in goods and services, high volume of financial flows, and increasing flows of labor. One view is that the forces of globalization compel economic and business integration to the extent that it has become conventional wisdom that a more integrated world will be more homogenous. Some activists of various anti- globalization movements would probably agree that they are not against the idea of closer international trade ties and cooperation. Their argument is that the interests of poorer countries and the interests of the less privileged in developed countries are usually not taken into consideration. Globalization is not a novel concept. They also argue that multinational companies tend to invest in nations that maintain low standards of environmental compliance. As international investment in developing countries becomes more prevalent, competition for capital supposedly forces recipient countries into a vicious corkscrew by continually weakening their environmental laws and regulations. Failure of the Doha Round The Doha round of WTO talks were meant to level the playing field for the developing countries, but negotiations collapsed bitterly in July 2006, putting an end to what activists termed the best opportunity to lift Africa out of poverty. In reality, they have brought the crucial Doha talks to almost a stand still by refusing to withdraw subsidies to which EU alone contributes 30 Billion Pounds. The United States was pessimistic as around the world European Union directed blame at the US. However, EU has been part of the reason for failure throughout the five years. Technically speaking the United States was blamed for the collapse in July 2006, because it viewed that developing countries would not open markets in the same way that it was being asked to open its and so it saw no reason in continuing the talks. It wanted what would seem like a fair deal: rich countries open their market, and poor countries do the same in return. Without understanding context or history, this sounds just and equal. The collapse of the Doha Round of Talks was not sudden. The EU and US in particular aimed for more open markets in poor countries, sometimes even blaming the poorer countries for failed talks, or calling deals criticized as bad for the poor, as good for the poor. Effects of Globalization Numerous researches suggest that there are three phase of modern globalization. The first one started one hundred years ago and took place between 1870 and 1914. Over this period, exports nearly doubled relative to world GDP to about 8 percent and foreign investment nearly tripled relative to the GDP of developing countries in Africa, Asia, and Latin America. International migration was predominant with about 10 percent of the world's population moving from Europe to the New World and from China and India to the less populated neighboring countries. The second phase of globalization lasted from the 1950s to the 1980s and was amongst the developed countries. Trade and investment flows were growing among the countries of Europe, North America, and Japan, aided by a series of multilateral agreements on trade liberalization under the patronage of the General Agreement on Tariffs and Trade (GATT). At the same time, most developing countries were stuck in the role of primary goods exporters and were largely isolated from international capital flows. The third phase of globalization began in early 1980 and is still present as of today. It is two main characteristics. The first one is concerned with the technological advances that have fundamentally lowered the costs of transportation, communication, and computation to the degree that it is often economically viable for a firm to locate different phases of production overseas. The second characteristic is about increasing liberalization of trade and capital markets more and more governments of developing countries choose to reduce protection of their economies from foreign competition and influence by lowering import tariffs and minimizing non-tariff barriers such as import quotas, export restraints, and legal prohibitions. New risks and challenges are being faced by countries that are under the influence of globalization. The noteworthy benefits of free trade come from the increased access of producers to large international markets like the European Union and the United States. For an economy, market access provides means to benefit from the international division of labor by moving its resources to the most productive uses by specializing in producing and exporting what it can produce best, while importing all the rest. Overall, domestic producers utilizing their country's comparative advantages in the global markets produce more efficiently, and consumers enjoy a wider variety of domestic and imported goods at lower prices. On the contrary, countries opening to international trade and undertaking trade liberalization also face substantial risk associated with the strong competition in international markets. On one hand, it can be argued that international competition creates the necessary pressures to prevent economic and technological stagnation, to stimulate domestic producers to produce better goods, and to lower the costs of production. On the other hand, there is a high risk that many national enterprises and even entire industries those that are less competitive and adaptable-will be forced out of business. A country that tries to focus on producing almost everything it needs domestically would deprive itself of the enormous economic benefits of international specialization. On the other hand, less focus on international specialization makes a country overly dependent on exports of one or a few goods and is risky because of volatile global market demand can significantly worsen such a country's terms of trade. Diversification of production and exports is always beneficial for a country. Relocating an industry overseas is rather not easy. Physical and human capital previously employed cannot be easily relocated to other countries due to constraints like lack of additional investment, shortage of information on international markets access and modern technologies. At the same time shutting down an enterprise impoverish people and contributes to the slowness of the national economic growth. This could probably be one of the reasons why trade liberalization is often opposed even in first world countries. Quite often developing countries often argue that many of their industries require provisional protection until they become better established and less vulnerable to foreign competition. To protect domestic producers, governments resort to subsidies, grants, anti-dumping and countervailing duties to make foreign goods more expensive and less attractive to consumers. In the long run, these policies can be economically dangerous because they allow domestic producers to continue producing less efficiently and eventually lead to economic stagnation. Subsidies, Grants and State support in the long run are not sustainable. They would only increase the input costs of manufacturing like cost of power, gas etc. Dependence of an Industry on subsidies, grants and support would only make demand for more support. For instance; Agricultural subsidies in the Western World; their Agricultural sector is not viable without subsidies. Investing in increased international competitiveness of key industries should be considered as an alternative to protectionist policies. Industries built on core strength will be viable and would survive in the long run. For example in Textiles, core strength would come from Cotton, Spinning & Weaving, production efficiencies and market share. The full spirit of a free trade global economy has not been achieved yet. Even though developing countries have reduced their import tariffs by half during the past 20 years, remaining tariffs constitute a serious impediment to growing trade relationships within the developing world. In developed countries, the average import tariffs are considerably lower but they are much higher for exactly those goods in which developing countries are most competitive for example agricultural products and labor-intensive manufactures, such as textiles and apparel. According to an estimate developing country on average face tariffs twice as high as those faced by developed countries. Non-tariff barriers extensively used by developed countries and often seen as unjustifiable by developing countries for example social and environmental compliance issues additionally provoke this situation. Globalization and Hong Kong Hong Kong frequently called the Global City transited from the British Colonial rule in 1997. Hong Kong's assimilation into the world economic system began in the early 19th century. The strength of Hong Kong's economy, the economic growth prospective of the neighboring East Asia region, its relative political steadiness, its status as a regional financial centre, and its international outlook undoubtedly places Hong Kong among the world top cities. Hong Kong's extravagant post-war economic growth has also ensured its rank among the first-tier East Asian Newly Industrialized Economies (NIEs). As with other Asian NIEs Hong Kong is categorized as an administrative state, mostly because of its ex-colonial status. In East Asian perspective, Hong Kong economic growth is incomparable. The maintenance of Hong Kong's system of governance guaranteed under the Basic Law meant that the system was remarkably well insulated from external pressures and influences. Ensuring economic stability and continuity in the transition to SAR status was a key factor in understanding Hong Kong's recent history. Economic globalization cannot be assessed independent from other factors that form governance in Hong Kong. Hong Kong's comparative size and its lack of natural resources, its status as a port of international significance has enabled it to integrate well into the world economy and has turned it to its advantage. Hong Kong's history of commerce within the British Empire and the neighboring region brought it into the world economy relatively early. This was mainly due to its integration with the British colonial network of ports, that expanded rapidly over the nineteenth century. Hong Kong was strategically an important city from military point of view for the Great Britain in the Far East. The important position of Hong Kong in the embryonic economic sub region lies in its status as a world city. However, now that Hong Kong is reunified with China, foreign investment is increasingly flowing into China via Hong Kong. China's awaiting access to the World Trade Organization (WTO) is likely to speed up this process. Hong Kong's community and its way of life are internationalized; economic development has allowed the citizens of Hong Kong to receive higher education abroad for example. Moreover, many professionals achieve their qualifications in western countries, particularly Australia, Britain, Canada and the United States. Hong Kong achieved a high level of economic development in a relatively short space of time. As a British colony, promotion of Hong Kong's economy was more to do with steering the colony away from conflict in China rather than a conscious attempt by the sovereign power to 'modernize' the colony (Chun 1996: 58). Hong Kong is the eighth largest world trade entity, the busiest container port and the fourth ranking financial centre, as well as the main 'gateway' to the People's Republic of China (PRC). Economic development prompted the expansion of public services, particularly in health, education and housing. Hong Kong regards its society as open and praiseworthy and the expansion in its economy has improved the standard of living for the vast majority of people, not all have gained evenly from rapid economic developments. The public sector is well developed and carries out, or subsidizes, most of the functions found in liberal democracies. Hong Kong's government seems to be much of Keynesian in nature and has never shied away from using its public expenditure program to fine tune the economy. Furthermore, in August 1998, the government intervened on the financial markets to guard the Hong Kong dollar 'peg' to the US dollar. The government is only inconspicuous in terms of restricting involvement in particular sectors or industries. Overall, the belief in the ability of the free market to deliver economic prosperity is deeply entrenched in Hong Kong society. References World Bank, The East Asian Miracle: Economic Growth and Public Policy (Oxford: Oxford University Press, 1993), p. 2. The eight economies are Hong Kong, Indonesia, South Korea, Japan, Malaysia, Singapore, Taiwan, and Thailand. World Bank, East Asian Miracle, p. 33. Daniel T. Griswold, "The Blessings and Challenges of Globalization," Paper presented at the Eighth International Congress of Professors World Peace Academy, Seoul, South Korea, February 10, 2000, pp. 12-13. David Thurber, "Globalization Dangers Still to Be Resolved," Associated Press, February 14, 2000. Bhagwati, Jagdiesh (1978). Foreign Trade Regimes and Economic Development: Anatomy and Consequences of Exchange Control Regimes. Cambridge, MA: Ballinger. Edwards, Sebastian (1998). "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, 31, 3 (Sept), 1358-1393. International Monetary Fund (1997). World Economic Outlook: Globalization Opportunities and Challenges, Washington, DC (May). Krueger Anne (1978). Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences. Cambridge, MA: Ballinger. Chan M. (1997), 'The Legacy of the British Administration of Hong Kong: A View from Hong Kong', The China Quarterly No. 151: 567- 582. Hirst P. and Thompson G. (1996), Globalization in Question, (Cambridge: Polity Press). Sing M. (1996), 'Economic Development, Civil Society and Democratization in Hong Kong', Journal of Contemporary Asia 26, 4: 482-504. Research Paper on Globalization; its effects on International Business and impact on Hong Kong Table of Contents Pages Globalization; An Introduction 1 - 2 Criticism on Globalization 2 Failure of the Doha Round of Talks 3 Effects of Globalization 3 - 7 Globalization and Hong Kong 7 - 8 Read More