Globalization and its effects on world business - Essay Example

Globalization and its effects on world business Introduction Globalization is the world-wide interconnectedness between nations induced by a process where basic socioeconomic arrangements like markets, culture, politics, values and norms become dis-embedded from their spatial context as a result of massification, diffusion and expansion of transnational flows of people, information, products and finances. This paper explores the effects of globalization at the individual level and at the national level (Parker 346). Impact of globalization Globalization poses a problem to American workers as more American firms undertake trading initiatives with low-wage developing countries. Several American firms outsource their production process or lower wages and benefits for their employees. I am in favour of globalization as much of what Americans consume is produced abroad, and an equally large amount of American products are exported. An open integrated world economy provides economies of scale; when different countries specialize in different segments of the production chain, trade enhances the economic output locally and abroad boosting living standards (Parker 346). Competition emanating from economic integration makes the US economy more efficient and productive as global markets give consumers more choices helping to reduce the cost of goods and services. This helps keep inflation in check. According to the Peterson Institute for International Economics, integration of the global economy generates an economic gain of between $500 billion and $1 trillion to the US economy each year (Parker 346). Global economic integration accompanied by rapid technological advancement has had negative effects on some sections of the economy. For some businessmen, these developments have been accompanied by stress and anxiety as new competitors arise and compete for market share. Increased trade with low-wage developing countries drives down the wages of domestic home-grown workers even though such countries produce cheap imports that benefit American citizens. The economic interdependence is associated with rising wage inequality as high-skilled workers earn better wages while low-skilled workers earn less (Parker 346). Trends in globalization In the current phase of technological globalization, economic distances have shrunk as more people can communicate instantaneously. This has enabled firms to break up the production process into discrete steps and to produce goods in those locations that yield the most profit. The integration of Russia, Brazil, China and India into the world economy has engaged a large part of the world population into the global economy. These emerging global powers contribute around 50% of the world labor, and when advancements in information technology come into play a more competitive working economy is created (Ahearn 6). The government has contributed to global economic integration by reducing restrictions on trade, and capital flows making it easier for companies to act as global players. The World Trade Organization, NAFTA and other such organizations have aided globalization by giving all members a relatively level playing ground, and this has facilitated the inclusion of billions of new workers to the global economy (Burtless 476). Impact of globalization on my job As a worker in a small enterprise – I worker for an auditing firm with branches in five states- I am directly affected by globalization. The most direct impact of globalization on my work is the presence of multinational corporations (MNCs) like Ernst and Young who are in direct competition with our business (Burtless 476). For a start, MNCs utilize superior technology, are better managed, are more connected to the market and are more efficient that smaller firms like ours. In addition to this, they offer employees better training and pay higher wages. The increasing presence of MNCs in the auditing business has intensified competition, and as a result, price mark-ups have reduced, and small firms earn lesser profits. As a result of the competition, small enterprises like ours have been forced to adopt new technologies and improve remuneration for their employees (Burtless 476). There are some benefits of the presence of MNCs in our region as we have been able to exploit some business opportunities created by the MNCs; this is in addition to technological spill-overs, as some employees leave MNCs and join our firm. When the MNCs outsource from the local firms they provide training equipment and share technology with the contracted firms (Scheves and Slaughter 234). Effects of globalization on financial institutions in the Middle East As globalization spread to the Middle East, the natives found it hard to reconcile with the western model of banking which endorsed concepts such as interest on loans, and, as a result, Islamic banking institutions evolved. There has been a proliferation of Islamic retail banks throughout the Muslim world with some establishing themselves in western countries such as Germany and Denmark. The assets under the management of Islamic banks in 1994 were worth $60 billion, but the figure grew exponentially to $500 billion in 2005. Moody’s Investor Services assert that Islamic banking has grown faster than conventional banking in the last 10 years. The major characteristic of Islamic financial institutions is the banning of interests charges on loans (Newell 12). Future trends In the future, the production process of most products will become more international with a large proportion of raw materials, intermediate products or processes and parts crossing international boundaries during the production process. This will represent a shift where world trade will take place during the production process rather than in the sale of finished products (Scheves and Slaughter 234). The dispersion of the labor force across regions will result in fewer unionasable workers. The flexibilisation of employment conditions will undermine the capability of employees to systematize themselves in order to protect their rights (Newell 10). More countries are likely to create regulation-free zones with minimal social protection and lacking environmental regulation to lure investors (Newell p.9). These zones are also likely to diversify into information and biotechnology parks with facilities designed to attract those industries requiring highly skilled and educated workforce (Beerkens 7). Mitigating the effects of globalization Even though, globalization has contributed to the growth of the American economy in terms of improved living standards and disposable incomes, the positive developments have coincided with increased foreign competition, a declining wage share of the national income, and rising earnings inequality. The main cause of anxiety among Americans is job losses in the manufacturing sector and outsourcing of service sector jobs to other countries. The total number of manufacturing jobs in the US fell from 15.8 million in 2001 to 11.7 million in 2011 as a result of outsourcing (Beerkens 7). To take advantage of globalization, I am going to increase my skill levels through acquisition of more skills. There is statistical evidence indicating that higher skilled workers generally earn more than lower skilled workers as they are more able to adapt to the evolving demands of the job market. The government is also in favor of programs that invest in worker education and training in order to reduce inequality and would like to take advantage of such programs (Beerkens 5). I am convinced that the new government policy on free trade agreements (FTAs) which aim to reduce unfair trade practices by a foreign country partners will reduce pressure on American workers. Eliminating unfair subsidies, predatory pricing strategies and freedom of association for foreign workers will provide fresh markets for American goods and ensure a fair competition for all players (Wagner 176). Conclusion Globalization is a global phenomenon that cannot be undermined or wished away. Inherent to globalization is worldwide connectedness facilitated by advances in technology. For most workers especially lower grade workers, globalization presents a threat to their livelihood as firms can always outsource in low-wage countries. It is, therefore, important for both the government and all stakeholders to take measures aimed at mitigating the effects of globalization. Works cited: Beerkens, Eric, Globalisation: Definitions and Perspectives. 2006. Web 23rd Feb 2013< http://www.beerkens.info/files/globalisation.pdf > Ahearn, Raymond. Globalization, Worker Insecurity, and Policy Approaches. 2012. Web 23rd Feb 2013 < http://www.fas.org/sgp/crs/misc/RL34091.pdf> Parker, Barbara. Introduction to globalization and business: relationships and responsibilities. London [u.a.]: SAGE 2005. Print. Burtless, Gary. Globaphobia: confronting fears about open trade. Washington DC: Brookings Inst. [u.a.], 1998. Print. Newell, Peter. Globalisation and the future state. 2002. Web 23rd Feb 2013 < http://www2.ids.ac.uk/gdr/cfs/pdfs/wp141.pdf > Scheve, Kenneth and Slaughter, Matthew. Globalization and the perceptions of American workers. Washington, DC: Inst. for Internat. Economics 2001 Print. Wagner, Helmut. Globalization and unemployment: with 24 tables. Berlin [u.a.]: Springer, 2000 Print.     Read More