An Introduction to the Globalization Debate - Essay Example

National, regional and global economies are in a constant of flux as s attempt to dynamically respond to the challenges posed by globalisation. Many have attempted to do so, and thereby render their markets either more attractive for international business or more competitive, through entry into economic integration agreements. It is important to clarify, however, that economic integration agreements possess both advantages and disadvantages, and the nature of either is immediately related to the level and type of economic integration in question. Following a brief overview of the different types of economic integration and their implications for business, this essay will focus on economic integration in the European Union and how it impacts upon business and market activities therein. There are four different types and levels of economic integration. One of the most popular in the post-globalisation era and generally perceived of as a first step towards eventual regionalisation or the formation of a regional economic bloc is free trade agreements (Held and McGrew, 2003). As Hill (2007) clarifies, within the context of free trade agreements, all types of internal barriers to trade, or the movement of goods and services between member countries, is removed. While in FTAs member country set their own trade and economic policies with non-members, policies towards members are determined by the agreement in question. As far as the impact upon business and market relations is concerned, it is important to clarify that the said level of integration has tremendous benefits for member states and businesses within as it effectively expands the market. At the same time, competition over markets is intensified and, needless to say, if the member states in question are unequal, this can be a disadvantage. In simpler terms, within the context of NAFTA, Mexican businesses have to compete with U.S. ones over both the regional and the domestic markets without the protection they were once afforded (within the home market) by tariffs, quotas and subsidies. Custom Unions are a second type and level of integration. Custom union agreements replicate all of the characteristics of FTA's but take integration one step further through the adoption of common policies towards non-member states. The European Union has its genesis in this type of integration. Taking the concept of economic integration characteristic of custom unions one step further, Common Markets allow the free movement of both labour and capital across national borders. Post-1992 EU is an example of this type of economic integration. Economic Unions, as in post-2002 European Union, constitutes a deep form of economic integration and benefits for member states are quite substantial. Economic Unions possess all the features of Common Markets but are further characterized by economic policy harmonisation, including the adoption of a single monetary unit and common taxation, monetary and fiscal policies (Hill, 2007). While the advantages of this type of union, as will be illustrated through reference to the EU, are tremendous, the formation of such unions is a lengthy and often problematic process. As Held and McGrew (2003) explain, they are problematic because they require the complete redefinition of the role of the state, not just in the market but in the domestic economy. As the harmonisation of all economic and market policies is the key here, not to mention the adoption of common market and economic policies towards non-member states, some of the powers customarily assigned to the nation state is transferred to the union itself. As this brings the question of national sovereignty to the fore, the negotiation process is an extremely thorny one (Held and McGrew, 2003). As may have been deduced from the foregoing, Economic Unions, as with all other types of integration, have their disadvantages. One of this is trade creation versus trade diversification. Within the context of the former, high cost domestic producers are replaced by low cost producers within the union, or free trade area. Businesses, therefore, are required to be much more competitive and, indeed, to maintain quality while cutting down on production costs. Within the context of the latter, however, the benefits to internal producers are quite substantial. Through the imposition of tariffs, quotas and custom duties on imports from without the union, low-cost foreign producers are effectively replaced by high cost ones. In essence, this means that the union market is assured for domestic producers. The advantages, as earlier noted, are tremendous and serve as the primary impetus for the formation of economic unions. Economic unions allow countries to focus upon their existent comparative advantages, or to create comparative advantages through the specialization in the production and export of goods which they are ideally suited for, whether in terms of knowledge, skill, resources and experience. Furthermore, the flow of foreign direct investment across borders implies the movement and transfer of technology and knowledge among member stated. A third important advantage, as outline by Hill (2007) lies in the movement of labour across borders. This means that workers can go where productivity is highest, with this implying an expansion of the work opportunities enjoyed by workers in member states. Proceeding from the above stated, it is evident that economic integration is an inherently market-based phenomenon. It is within the context of the stated that the European Union embarked on the process of the creation of a single economic market as early as the mid 1980s through the adoption of the Single Europe Act. The Single European Act [SEA] which entered into force in 1987, had two fundamental goals. According to Pinder (2001) the first was the establishment of a single European market. The creation of a single economic market was dependent on the adoption of common market policies and a single regulatory environment, thereby ensuring that all businesses functioning within the EU, or entering it, adhered to the same guidelines, whether regarding labour and employment or commercial activities. In fulfilling this first goal SEA effectively obliterated artificial and national boundaries to the movement of goods, labour and services, across and between EU member states (Pinder, 2001). It establishes the legal basis for the unrestricted movement of capitals goods and services between member states, effectively declaring the legal obliteration of intra-EU national boundaries and the replacement of the aforementioned with a single EU regional/supra-national boundary. The first goal of the SEA, as articulated in the above was not just the establishment of a single EU market but the solidification of the region's singularity of market. The creation, and subsequent fortification, of the envisioned EU market was deemed impossible were the economic aspect of the integrative process not accompanied by the establishment of legal and political institutions and policies as would facilitate and legitimize the latter. Within the contextual framework of the aforementioned, the second goal of the SEA was articulated as the reformation of existent EU political institutions for the explicit purpose of maximising efficiency of EU business and market activities across the member states (Pinder, 2001). The implications of the above explained level of economic integration for international businesses are quite significant. Held and McGrew explain that the harmonisation of the market environment across the EU facilitated the growth and expansion of European-based businesses, as it expanded their market from the domestic to the regional. Added to that, it significantly increased the attraction of the EU as a business investment market as entry effectively meant access to an entire region. In other words, integration, as described, facilitated international business activities and removed some if the constraints which confronted European-based businesses in their bid for expansion and eventual internationalisation. While, as indicated in the preceding paragraph, the advantages of integration are tremendous, regionalisation also posed as a serious challenge to business because of the stringent nature of the competition laws in the EU. As noted by Niels and ten Kate (2004) the passage of the SEA expanded the potentialities for the emergence of cross-EU monopolies through vertical mergers. Accordingly, and for the purpose of fortifying the competition regime across the EU and within the framework of the SEA, EU competition policy began to assume a "legalistic approach," wherein European Court [EC] case law began to establish the foundational principles of competition (Niels and ten Kate, 2004). For example, in the Virgin/British airways case, where the latter accused the former of exploiting its position of dominance to wrest away the former's share of the intra-EU holiday market, the EC, and as per Article 81, ruled that British Airways had indeed attempted the stated through the exploitation of loyalty schemes, and that the use of loyalty schemes for the establishment of dominance constituted illegal and unfair competition (Niels and ten Kate, 2004). For international businesses operating within the EU, the implications are quite serious because it means that the said entities must enter the region with a comprehensive understanding of the regulatory framework operating within and must stringently adhere to it. To an extent, this means that apart from acculturation into the region's business culture, acculturation into its legal environment is imperative. In conclusion to this overview on economic integration and its implication for international businesses, two things are apparent. The first is that integration has facilitated the expansion and growth of European-based businesses, at least from the domestic/national to the regional/international levels. The second is that the advantages are, of course, balanced out by disadvantages with the most obvious being the stringent nature of the regulatory environment. Within the context of the stated, one can conclude that economic integration promises unique opportunities for international businesses but insists on strict adherence to regulations. Bibliography Held, D. and McGrew, A (2003) The Global Transformations Reader: An Introduction to the Globalization Debate. London: Polity Press. Niels, G. and ten Kate, A. (2004). Introduction: Antitrust in the US and the EU - Converging or diverging paths Anti-Trust Bulletin. Pinder, John (2001) A Short Guide to the European Union, Oxford: Oxford University Press. Read More