Internationalization of Production and Global Financial Crisis - Essay Example

Outline I. Efficiency on internalization of production 3 a) Internalization leads to the introduction of production relations with other enterprises 3 b) The United States produced powerful caterpillars and the UK manufactured Tractors 3 c) Conditions of capitalism play an essential role in internalization 3 d) Internalization widens sales and procurement 4 e) Another key concept of internalization is harmonization 4 f) Internalization enhances the application of features of international Economy 5 II. Negative impacts of the global financial crisis. a) The crisis occurred from 2007 to 2010 and it resembled the great depression in Many ways 5 b) It led to increased defaults in mortgages due to fall in the price of houses 5 c) It also led to decline in the demand for manufactured goods and services 6 d) The global merchandise and GDP also fluctuated significantly 6 e) The estimated fall in the FDI amounted to USD 600 million 6 Internationalization of Production and Impact of the Global Financial Crisis Efficiency on internationalization of production Internationalization of production involves the establishment of production relations with other enterprises of other countries in which the increase of the country’s production helps in the global production processes. Industrial capitalism is one of the key aspects that help in developing internationalization of production in which imperialism also plays the role. Technical and scientific revolution has the process of internationalization of production making it more intensive. Internationalization started as the inter-sectorial international specialization where later there emerged its various forms such as international specialization of private sectors of producing certain products (Marinov 2013, p.27). For example, Great Britain, USA, Japan and West Germany specialized with large firms where they produced specific types of equipment. Another form involves the production of specific size and type of articles, for example, in the USA’s tractor assembly; they produced most powerful caterpillars with most powerful wheels. Great Britain specialized in producing tractors with medium-sized wheels while West Germany specialized in producing low-powered tractors. Internationalization also split into the specialization of plants of several countries in producing units, articles or parts for assembly. Various enterprises also specialized in technology where they carried out specific types of work. Under technical and scientific research, the corporations of different countries merge in performing design or scientific work. Capitalist conditions also play a key role in the internationalization of production where it specializes in the capital. The growth of internationalization of production also leads to the formation of global economic organizations specializing in other fields of transportation, international finance and trade, production and communications. In a capitalist society, it is both a paradoxical and twofold process. The efficiency of specialist is socialism type of production where its development is foremost done as the planned establishment of the intercontinental socialist breakdown of labor (Marinov 2013, p.30). It takes the basis of coordinating the economic plans of the countries with socialism leading to the formation of firm links amongst socialist countries. Fronts such as sales and procurement are also widened by the internationalization of production. Various enterprises have wider markets and various regions of carrying their activities. For example, Honda which is an automobile plant operating in America can be referred to as internationalization of the firm because it forms other production activities (Marinov 2013, p.32). There are various forms of exports which are carried out in sales market under internationalization such as procurement market. Internationalization of procurement market commenced during Meiji epoch in Japan. The internationalization has assisted in broadening new markets and acquisition of resources. Procurement market is based on the acquisition of resources in which capital investment and raw materials meant to perform production are properly managed. Harmonization is another basic of internationalization. There are various forms including harmonization with political and economic systems internationally and improving the effectiveness of international management. Under the political system, a typical example is that of locating a business in a foreign country through evasion of trade fiction. The dislocation of a business into a foreign country avoids implications on a business that may be brought by two countries confronting due to certain political interests. Under the intercontinental economy system, harmonization focuses on the production of procurement facilities to assist in checking the profits’ variations brought by fluctuation rates of the foreign currency, particularly those businesses that rely on dollar payments. Conclusively, internationalization of the financial activities is a good example where features of the international economy are properly used. The production of the stereo system and televisions among other goods in a nation with low labor cost improves the efficiency of intercontinental management (Marinov 2013, p.33). For example, the Japanese electrical industry entered into South-Eastern part of Asia in order to lower the labor costs. Negative impacts of the global financial crisis The worldwide financial crisis from the year 2007 to the year 2010 was a repetition of the Great Depression of the period between 1929 and 1932. US mortgage market was the origin of the crisis that later spread to various countries in the world such as Ireland, Spain, and United Kingdom. During the Lehman Brothers’ bankruptcy in September 2008, the economic crisis was a general banking crisis but later brought impacts to the real economy and converted to a global recession. The financial crisis rapidly spread across the world due to globalization (Marinov 2013, p.34). Globalization refers to as increasing flows of knowledge and resources, goods and capital across all the nations and setting of organizational structures that manages the global economic activities and transactions. The uneven impacts include the increasing mortgage defaults that accrued in USA in 2007 were caused by prices’ fall in US houses. The mortgage defaults in the housing market led to the rise in interest rates in the aim of covering the bank losses and insolvency of the crediting institutions. Banks in the USA and other countries outlined earlier discovered enormous toxic debts, loss of confidence, falling share costs and also lending rate decreased. The construction segment was mainly affected because there was decrease in building new houses. There was also decrease in demand for goods in the manufacturing sector, such as automobiles that were bought with loans where increase in unemployment, job insecurities and reduced customer spending contributed in the fall of total demand. People lacked confidence into businesses that caused the access to credits reduced that later caused delayed investment and finally leading to recession (Marinov 2013, p.36). Unemployment in the manufacturing sector over the period of 2007 to 2010 was in all countries with global economy despite in developed countries where there were high employment rates. Developing countries lost 2 million jobs as compared to available 6 million jobs. There was also unemployment in other sectors such as retail and wholesale trade and construction sectors in all global economies. During the period of 2007 to 2010, the global merchandise and global GDP fluctuated into different manners. The rate of growth of global GDP was lower than that of international trade. GDP data comprises valued added on products either imports or exports while trade data includes intermediate goods crossing a border. The income elasticity of all merchandise exports was lower than that of manufactured exports. In the period of the year 2007 and 2008, China had 9% points decrease in its exports while Chile had 19% points. However, in Africa the exports increased by 10% points in 2007-2008. Focusing on capital flows in the global economy, UNCTAD estimated the global inflows of FDI (foreign direct investment), falling from US$1.7 trillion to US$1.1 trillion over the period of 2007-2008 which was equivalent to 39 percent. Individual countries’ economies fall over 2007-2008 varied widely. For example, China had -2.6%, Malaysia had -66.6 % while Morocco had -56.6 percent. Reinvested earnings, equity capital, and intra-industry loans, which are the components of FDI, were also affected by the global financial crisis (Marinov 2013, p.45). The equity capital was much affected due to long-term investment policies practiced by transnational corporations. The final effect of global financial crisis during 2007-2008 was declined share of Official Development Assistance (ODA) mainly directed at construction, mining and industry where the shares fell by 2% in 2007. References List Marinov, M. A. (2013). Emerging economies and firms in the global crisis. Basingstoke, Palgrave Macmillan. Read More