Impact of Globalization on Development of Nations - Literature review Example

Impact of globalisation on the advances in economic and social development for all regions across the globe (Style: Harvard) ID 19714 OrderIssue. 338468 26 November 2009 Table of Contents: Table of Figures: 2 Table of Figures: Figure No. Figure description and link Figure 1 The globalization framework and benefits model developed by Levy (2007) Introduction to Globalization As described by Clark and Knowles (2003), globalisation is viewed differently from the perspective of many definitions – global scope (large), global village (small), pervasive (global culture), standardised (global product, global practice, global service, etc.), comprehensive (global strategy), open system (defined as against “international” being a closed system), etc. Some definitions of globalisation presented by the authors are as presented below: (a) Globalisation is the process that involves integration of markets at international level for goods, services and capital, which puts pressures on the involved societies to change their localised traditional practices. [Rodrick. 1997 taken from Clark and Knowles. 2003] (b) Globalisation is about development of worldwide social relationships among localities that are distant such that their local happenings get influenced by the events happening thousands of miles away. [Giddens. 1990 taken from Clark and Knowles. 2003] (c) Globalisation is related internationalisation of production and business of organisations that requires organisational structural changes, resources, management practices, capabilities and competencies to meet the needs & requirements of cross border production, business, transactional strategies and marketing operations. [Dunning. 1993 taken from Clark and Knowles. 2003] (d) Globalisation is essentially a plurality of global knowledge systems that results in cultures which spill over across boundaries (that were developed to constraint them) in many countries and hence forms a mass global society. [Worsley. 1999 taken from Clark and Knowles. 2003] (e) Globalisation is an extension of geographic limits of economic activities across national boundaries of multiple countries such that the many internationally dispersed activities get categorised under global definitions and are functionally integrated. [Dicken. 1998 taken from Clark and Knowles. 2003] There are many such definitions that describe globalisation at economical, cultural, religious, linguistic, political, social, etc. levels but, as reiterated by Clark and Knowles (2003), a clear, concise and consolidated definition is yet to arrive. The paper is targeted to analyse the impact of globalisation on economic and social development of regions across the globe. The methodology employed for the study comprises of study of selected empirical literatures on globalisation. The arguments that support globalisation as well as the ones that criticise globalisations have been considered to arrive at the conclusions. Impact of Globalization on Development of Nations – Evidences from Empirical Studies Vernon (1971) carried out an empirical analysis of the relationship between globalization of businesses and national economic goals of a country. As per his analytics the nations look forward to enhancements of much larger systems than just earning profits from exports or duties from imports. Enhancement of infrastructure, people competencies, technology, cross border controls for mutual benefits, etc., acquisition of foreign currency, better utilization of capitals, higher revenues and margins are some of the economic benefits that nations look forward from globalization. For example, the development of global information and communications technologies (ICT), global aviation and road transportation of the nations is the result of collaborative working among nations to share their competencies and put demands on the industries multilaterally to achieve mutual economic benefits. Figure 4: The globalization framework and benefits model developed by Levy (2007) Levy (2007) developed a model of global and local benefits that countries can avail by virtue of globalization. They defined three types of trading in international business engagements – multilateral, regional and bilateral. The oldest form of multinational businesses have been bilateral and regional – like United States having business relations with Canada and Mexico. But the modern world of globalization is based on all the three models explained by Levy (2007). The technology innovations, especially in the field of ICT, has enabled transfer of products and services over long distances thus resulting in multilateral relationships among many countries in multi-layer fashion. The technological innovations have seen emergence of new global players like India and China. Levy (2007) claims that globalization has benefitted the nations to tackle some of the intrinsic social problems like poverty and inflation although other new types of problems have aroused – like security threats. However, overall globalization has resulted in significant positive impacts like good governance by global governments and institutions and corporate social responsibility (especially delivered by the multi-national corporations). The local societies of nations have witnessed enhancements in terms of cultural shifts, more opportunities of work, international engagements, better products & services, reduced cost of living, etc. As described by Taylor and Arango et al. (1996), the national, regional and household economies of third world countries have been rapidly linked with labour markets of the west thus providing enormous opportunities of immigration to developed countries. These immigrants have not only sent voluminous foreign currencies back to their families and friends but also have generated new business opportunities for their native countries in the world of developed countries. The developed countries on the other hand achieve bridging of gaps in labour supply as per requirements of their industrial framework. The demand of foreign labour in developed countries also indicate the level of upgrading of labour skills and competencies that the developing countries have been able to carry out to meet the demands of the labour demands in the developed countries. The technological advancements especially in telecommunications, mobile networks and the Internet has resulted in global “Silicon Valley Effects” comprising of global co-ordination of research and development activities resulting in significant transition of knowledge from developed countries to developing countries. The authors argued that the software industry boom at Bangalore, India is one such phenomenon in which the companies at Bangalore can directly work for companies in east coast and west coast regions of United States irrespective of the distance between Bangalore and US cities being in excess of 9000 miles. They analysed that technological advancements of both the countries resulted in bilateral diplomatic, political and bureaucratic relations benefitting both the economies mutually. For example, one of the major achievements for both countries is the reduction of constraints in exchange of US Dollars and Indian Rupees. Practically every bank in US and India supported international transactions in both the currencies in the early nineties when the International Exchange policies were not as liberal as we have today. The same report analyzed the impact of vicinity to United States on Mexico and Latin America. These regions enjoyed enormous US dollar remittances resulting in substantial increase in income of rural as well as urban workers especially due to immigrant workers to US and due to services exports. In another paper by Taylor and Arango et al. (1996), presented another dimension of development of a nation – the development of communities. The enhancements begin from development of households which scale up to as huge as a nationwide framework of development of communities supported by special interest groups, agencies, institutions and above all, the government themselves. Immigration support management to United States and Canada is a popular industry in many developing countries. Even the government realises the increase in foreign currency reserves that they achieve and hence promote multiple schemes of education in developed countries or immigration support to developed countries. This strategy may backfire if there is shortage of labour in the native country but for the world’s most populous countries like China and India, shortage of labour is like an impossible phenomenon for them. Also, developed countries define their VISA quotas based on the labour demands and hence only a small percentage of skilled labour are able to achieve opportunities of immigration. Another major advantage of globalization described by Mishkin (2009) is the development of global financial institutions. He described that institutional reforms in developing countries that fuel financial development, entrepreneurship and economic growth are major effects of globalization that are witnessed in the modern world. As reviewed by Mishkin (2009), empirical evidences suggest the following radical changes in developing countries due to institutional reforms: (a) Access to capital funding by the unprivileged helping them to acquire property rights and other form of assets that can help them achieve return on investments. (b) More flexible legal system that can execute contracts more fairly at high speeds to help the nation achieve the best out of global opportunities. (c) Reduction of corruption due to induction of more objective policies supporting international trade and business relations. Some countries have seen a spurt of privatisation of government owned companies to achieve better returns. (d) Transparency and quality of financial information has improved considerably due to institutional support in developing countries. This has forced even the local financial institutions to become more fair and transparent in fear of losing customers. One good example is the stringent competition faced by local banks of a country with the multinational banks. Another example can be liberalization of insurance markets in many developing countries. (e) The level of corporate governance has improved considerably in developing countries due to globalization of business and need for compliance with global regulations. For example, compliance with Sarbanes Oxley act (Findlaw. 2002) is now a global requirement of every company across the world that has business relationships with the United States. (f) The final point that Mishkin (2009) presented is the institutionalizing of banking regulations as per global best practices. For example, many developing countries are adopting IFRS standards of accounting and ISA standard of auditing which are international practices adopted by US, UK and the European Union. Not all aftermaths of globalization are positive. Many scholars have discussed the negative outcomes of globalization as discussed herewith. Moshirian (2003) argued that globalization has resulted in spurt of liberalization across the world which means that the responsibilities of the nations transacting in the global framework has increased manifold. But not all countries appreciate this fact and support the global causes given that the global regulatory framework is not effective enough for all the countries. The IMF and the World Bank have tried to implement financial environment which is accepted by many advanced and developing countries across the world. However, there are accountabilities pertaining to national self-responsibility, human rights, commitment to mitigate ecological threat to the planet, curbing of terrorism and other criminal activities, etc. which are not addressed adequately. Bowden and Martin (1995) presented that the stock market prices, systematic risks and investor’s emotions are no longer linked with the native economy only but is linked with multiple economies across the world. Hence, a poor performance of Chinese or Japanese stock market on a particular day can impact US or London stock markets and vice versa. Hence, while a nation avails the benefits of global economic growth, it also needs to avail the horrors of global economic crashes. The current economic crisis is an excellent example of this phenomenon. A crash in the US mortgage markets has had cascaded effects across the world as if there are high speed ripples formed on the surface of water. Everyone was impacted in no time. This may be considered as one of the major pitfalls of globalization of financial institutions by virtue of liberalization policies. Ricks (2003) claimed that the pitfalls of globalization has been existing since thousands of years since the system of global trades started and they are existent even today. He argued that globalization in effect reduces national sovereignty, changes cultural values, reduces efforts of independence and reduces entrepreneurial activities as well. Gruenberg (1998) noted that pressure of globalization results in additional expenditures on public requirements to meet the demands of the global companies. Most substantial among them are the expenses on buildings and transport infrastructures. Thus developing nations face significant temporary fiscal squeeze which may backfire significantly if the return on investments planned do not get realised. One can imagine what would have happened to governments that invested immediately before the current economic crisis. Economic and Social Benefits achieved by nations due to Globalisation Intriligator (2004) analysed the impact of globalisation with respect to major enhancements in global trade and exchanges with the help of a borderless international economy that is open but integrated. They analysed that the impact of globalisation has been significant on the capital movements, the currency exchanges, technology transfers, international technology integration, people skill enhancements and knowledge transfers, people travel and migrations, and an international flow of ideas and information. They mentioned that the volumes of international transactions on New York Stock Exchange has already exceeded 1.2 Trillion Dollars which is increasing significantly day by day. They attributed technology advanced as a major demand of globalisation and hence the growth of Internet, Hardware and Software platforms witnessed all over the world has been a major contribution of globalisation to all the countries making them part of a small global village. International technology platforms like the global leased circuits, undersea optical fibre cables, Internet servers, client end low cost computing device, revolutions in enhancement of computing and storage capacity (microchips, hardware capacities, data storage facilities, computing centres, etc.), etc. have brought the economies and their businesses much closer thus enhancing their interoperability and transactional capabilities that helped in major global revolutions like the economic liberalisations and deregulation in financial industry. The support by institutions like World Bank, International Monetary Fund, Global Development Banks, etc. and multinational corporations in these enhancements across the world in many regions has been commendable. Companies like HSBC, Ford Motors, IBM, Microsoft, Cisco, etc. have been successful in meeting the local needs and demands of regions through their global technology innovation platforms and supply chain networks. With the help of highly commendable global technology platforms developed by large multinational, even small entrepreneurs are able to develop their markets and customer bases thousands of miles away. In the modern world, a software developer in Bangladesh can own a website hosted in the US and serve customers in Europe and UK. he can receive payments through multiple International channels like Wire Transfers, PayPal, AlertPay, E-Gold, Western Union etc. that not only ensure immediate currency purchase and sale (currency conversion) but also ensure transfer to funds in the bank account of the trader in just a few hours or days. The economic prosperity and well being of individuals across the globe has been enhanced significantly due to these global integrated multi-tier platforms. One major advantage of globalisation presented by Luo (2005) is enhancement of corporate governance and accountability systems by virtue of changes in board composition, board size, ownership concentration, interlocking directorate, executive compensation, market discipline, duality and inbreeding in such way that auditing standards, financial and non-financial disclosures, and the processing of accounting information meets global standards and best practices. A lot of changes have occurred due to changes in institutional and legal environments that have ensured enhancements in investor rights protection, property rights protection, capital investment protection, regulatory laws (like integrated framework of regulations of the European Union that influences UK as well), etc. supported by the global political systems that govern their own countries but collaborate internationally through the embassies or the handshaking institutions. The complexity in managing such integrations are managed by international information processing and reporting which in turn depends upon the technological enhancements that the countries have achieved due to globalisation. Needless to state, the countries that have not yet availed the infrastructure components helping them to integrate with the rest of world are still out of race and deprived of these benefits of global developments. The recent players like Brazil, China, India, Philippines, etc. have been able to overcome the regulatory collaborative, communication and mindset barriers in implementation of the infrastructure components that has helped them to evolve as major players in the global economy. These countries enjoy the contribution of large number of multi-national corporations to their economy helping them to openly integrate with the world and enhance the well being of their people. They have not only openly allowed their people to serve the needs of other countries but have also invited people from other parts of the world to serve them. The people in these countries have been successful in earning money in high value foreign currencies like USD, Euros and UK Pounds while working from their own localities where they could earn only a fraction of this from local job opportunities. The interaction with other countries have resulted in change of people thinking, self realisation of local weaknesses, change in cultural aspects of life, religion and beliefs, lifestyle, eating and health habits, knowledge of global products and services thus improving their local bargaining power, etc. In nutshell, globalisation has resulted in major changes in the economy of scales, well being and social development of natives of different countries. [Intriligator. 2004; Taylor and Arango et al. 1996] Conclusion: Advantages and Challenges of Globalization In nutshell, globalization is like a cake that is made for everyone but not everyone may be paying the same price for it. There are many positive aspects of globalization like economic reforms, employment growth, increased foreign currency reserves, liberalization, faster and easier access to capital, reduced corruption, improved global policies, improved infrastructures, improved knowledge management, etc. leading to overall development of nations. The developing nations use globalization as an opportunity to grow faster and developed countries use globalization to achieve reduced gaps in labour demands and better services and products from developed countries at lower costs. Developed Countries, especially United States, have achieved global dominance on the world economy by significantly increasing the dependence of countries upon them. The global innovations are happening to fulfil the needs of United States and other developing countries and not to improve the competitive advantages of the local nations. This is recognised as the major disadvantage of globalization. The developed countries are offering enormous opportunities for skills labour immigrations with higher wages and remunerations and hence new entrepreneurship activities in many developing countries have reduced substantially. The developing nations are more focussed to meet the needs of the developed countries and less focussed on self dependence, self-sustenance and growth. Even the global infrastructure development have been carried out in such a way that the developed countries form the hubs and the developing countries form the spokes – evidences can be seen in development of Internet links, aviation routes or mobile networks. Other disadvantages of globalization include increased security threats for developed as well as developing countries due to increased flow of foreigners, and high speed diffusion of global economic disturbances especially when they occur in the hub countries. Overall, there are more advantages of globalisation than the disadvantages. It has changed lives of very large number of people across the world by virtue of well being, cultural and social change and internationalisation of businesses of their native countries. The life has changed significantly for them such that they are able to serve the needs of people across the countries and own responsibilities and accountabilities that hold importance at global levels. To conclude, globalization is an excellent phenomenon that every country should avail to improve their economy and infrastructure but not at the cost of reduction in competitive advantages. References Bowden, Roger J. and Martin, Vance L. (1995). 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