Themes of Globalization - Essay Example

Themes of Globalization Introduction: In the past few decades globalization has become a vital social, cultural and technological theme. The term Globalisation , is probably one of the most debatable issues of today. The world we have around us, is transforming into a complete Global Village. The term "Global Village" refers to the widening of the global system. The International Monetary Fund (IMF) defines ‘Globalisation as "The increasing integration of markets both for goods and services and for capital." There are numerous conflicting ideas, explaining the advantages and dis advantages of ‘Globalisation’. ‘Globalisation involves an interaction between economic and cultural factors whereby changes in production and consumptions patterns can be seen as producing new shared identities’. (Woodward, 1997). ‘Globalization is also referred to as the tendency of firms to extend their sales ownership and /or manufacturing to new markets abroad. For example. Toyota produces Camry in Kentucky; While Dell produces and sells Pc’s in China. Free Trade areas – agreements that reduce tariffs and barriers among trading partners further encourage international trade. NAFTA (the North American Free Trade Area) and the EU (European Union) are examples. Doing Business internationally today is big business. For example the total value of US imports rose from $799 million in 1994 to $135 billion in 2003; Exports rose from $72 billion to $88 billion in the same period. More globalization means more Competition and more competition means more pressure to be ‘World Class’. That is to lower costs and to make employees more productive .As one expert puts it ‘ the bottom line is that the growing integration of the world economy into a single , huge market place is increasing the intensity of competition in a wide range of manufacturing and service industries’.(Dessler:2005) Case Study: The Question posed to us in this Case Study is whether Dixon Ticonderoga is a victim of globalization or a global opportunist? Dixon Ticonderoga is a victim of Globalisation. Dixon has owned one of the oldest public companies of pencil manufacturing in the U.S. His company has enjoyed a long period of success. That halted in the 1970’s. That only because China had started dumping their pencils in the U.S market at cheaper rates. And it was only after some time that the duties were imposed on the imports which raised the prices. This helped Dixon’s company to make profits again, but then the Chinese kept making better cheaper pencils and as a result after a few years, the imports returned to the high level they were at, before the imposition of duties. Dixon in the meantime was trying rigorously to meet this foreign competition on price. He tried and experimented on making cheaper pencils by using recycled paper. He had to dump the idea as they were getting stuck in the sharpener. He then also decided to use the Canadian Insencedar wood for his premium brand. Later, he started purchasing lower priced Indonesian wood. Dixon started to purchase erasers from a Korean supplier, in an effort to further reduce costs. But the company was still loosing money. And all his efforts were in vain. Theory Application: ‘Globalization creates anxieties, largely because of what trade theory and international Economics say about its likely impacts on the geographical distribution of economic activities. Classical Ricardian trade theory, if applied directly to a world of decreasing trade barriers and transportation/transactions costs, suggests that comparative advantage effects will be freed up to play themselves out on a wider spatial scale, leading to rearrangement of activities on the landscape. The economies of places will generally become more specialized, clearer expressions of their globally-redefined comparative advantages ‘(Ricardo, 1963; Balassa, 1963). International Business Theories: International business also plays a vital role. Some of the International Business theories are: Theory of Comparative Advantage - Specialization: Specialization of products and services can increase both individual and global efficiency. Since specialization in some products may result in no production of some goods in a given country, there is a need for international business or trade. For example, consider a two country world of the USA and Japan. Let us assume that Japan can produce television sets of comparable quality at a cheaper price than the US. Let us also assume that the US has cost advantages in the production of automobiles. In this setup, the US will import television sets from Japan, while Japan will import automobiles from the US. Since both products are produced at the lowest possible cost, global efficiency is enhanced. Imperfect Markets Theory: Due to imperfect markets and the resulting immobility of resources, resources cannot be easily and freely retrieved by the MNC. Consequently, the MNC must sometimes go to the resources rather than retrieve resources such as low cost land, labor etc. An example would be US auto manufactures setting-up factories in Mexico to take advantage of the low-cost labor there. Product Cycle Theory: A firm is likely to market its product first in the home country due to the ready availability of information about markets and competitors. As the market in the home country matures, the corporation, seeking foreign demand, initially exports its product. After learning more about the foreign country and how to gain advantage over competitors in foreign countries, the firm opens production facilities overseas. (International Financial Management, Sixth Edition, Jeff Madura. Copyright © 2000 by West Publishing Company. All Rights Reserved.) Hence, we can clearly deduce that Dixon was in a situation where the Imperfect market theory sets in .It was merely the competition and pressure Dixon felt, as a threat that led him to drastic actions, so much so that he completely decided to close down in the US and move to China. ‘The term "globalization" has acquired considerable emotive force. Some view it as a process that is beneficial—a key to future world economic development—and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress. This brief offers an overview of some aspects of globalization and aims to identify ways in which countries can tap the gains of this process, while remaining realistic about its potential and its risks’.(IMF Globalization: Threat or Opportunity? By IMF Staff April 12, 2000 (Corrected January 2002) Globalisation: ‘Globalisation is a highly uneven set of processes whose impact varies over space, through time, and between social groups. Global forces by -pass many peoples and places. Many towns in the Third World, as well as rural areas of Western society, produce mainly for local consumption using local techniques. Even within global cities certain neighborhoods where poverty and disadvantage prevail are peripheral to the working of the global economy. The unevenness of globalisation is apparent at all levels of society. At the world scale it is seen in the disparities between booming and declining regions, and at the urban scale in the social polarisation between affluent and marginalized citizens.’Michael Pacione, ‘The internal structure of cities in the third world’,(Geography, 86:3, July 2001). Dixon can be assumed as the Pioneer in the Pencil industry as he started off in 1913. Almost all of America had been using his companies’ pencils for all this time, and all of a sudden this company started going in to losses. The fact being that Washington acted as a lobby for aiding china in its interest, but did not provide any security to pencil manufacturing firm in the US. If there would have been Import duty structures from the beginning China, would have thought twice, before dumping its pencils in the U.S market. “Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor ,Increased likelihood of economic disruptions in one nation effecting all nations, Corporate influence of nation-states far exceeds that of civil society organizations and average individuals ,Threat that control of world media by a handful of corporations will limit cultural expression ,Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage ,Greater risk of diseases being transported unintentionally between nations ,Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity ,International bodies like the World Trade Organization infringe on national and individual sovereignty ,Increase in the chances of civil war within developing countries and open war between developing countries as they vie for resources ,Decreases in environmental integrity as polluting corporations take advantage of weak regulatory rules in developing countries . Risks of International Business Exchange Rate Risk: Exchange Rate Risk is defined as the variability in home-country cash flows due to the fluctuations in the host-country exchange rates. This risk can affect both the revenues and costs of an MNC negatively Political Risk: Some examples of political risk include: 1) nationalization or being taken-over without receiving adequate compensation 2) Restrictions by host country governments on remittances to the parent company, 3) Change in taxation policies in mid-stream. In addition, the form of the government, its stability and the form of the legal system etc. will affect the political risk of a country. Business Risk: Business risk arises from host country business and economic conditions. Slowing or weakening Japanese and European markets often leads to reduced demand for products of U.S. MNCs in these markets, thereby, contributing to the business risk of the U. S. MNCs. (International Financial Management, Sixth Edition, Jeff Madura Copyright © 2000 by West Publishing Company. All Rights Reserved.) Globalisation effects on Dixon : Dixon unfortunately came under the umbrella of Globalisation being a disadvantage. His year’s old established firm in the US had to be in troubled waters, due to lack of security provided to him and his firm by the government. Dixon, decided to move to China altogether shutting down in the U.S. Even the U.S Market would face a serious revenue slump, by his company not being there at all. Being the giants they always had succeeded produced and met increasing demands of the U.S Market. They obviously contributed a lot to the government revenue over these years. ‘Globalisation presents both challenges and opportunities. The challenge is the extent to which national economic policies and corporate strategies enable the economy to enhance productivity and competitiveness and take advantage of the opportunities and overcome problems. The key will be national competitiveness with the foundations lying in the competitiveness of individual industries. Industries will need to engineer and sustain competitive advantage in international terms. The public sector will need to create and sustain a climate for building and maintaining competitiveness’ (Mr.M Supermaniam DSG Trade, Langkawi, 12 – 14 November, 1999)   Reference List Ablen, Peter A., "Globalization of Stock, Futures, and Options Markets," in The International Finance Reader, Edt. Robert W. Kolb, Kolb Publishing Co., Miami, 1993, pp. 5-26. Eiteman, David K., Arthur I. Stonehill, and Michael H. Moffett, Multinational Business Finance, Addison-Wesley Publishing Company, 7th Edition, 1995, Chapter 1: Introduction to Multinational Business Finance, pp. 1-24, and Chapter 3: The Foreign Exchange Market, pp. 80-107. O'Brien, Thomas J., Global Financial Management, John Wiley & Sons, New York, First Edition, 1996, Chapter 1: Exchange Rates and Global Financial Management, pp. 3-27. Eng, Maximo V., Francis A. Lees, and Laurence J. Mauer, Global Finance, Harper Collins College Publishers, First Edition, 1995, Chapter 1: Global Finance and the World Economic Environment, pp. 2-19. Chapter 2: Foreign Exchange Markets, pp. 77-118. Giddy, Ian, Global Financial Markets, D. C. Heath and Company, 1994, Chapter 1: An Introduction to the World of International Finance, pp. 3-12, and Chapter 2: Foreign-Exchange and Eurocurrency Markets, pp. 13-43. Madura, Jeff, International Financial Management, West Publishing Co., Fourth Edition, 1995, Chapter 1: Multinational Financial Management: An Overview, pp. 3-30, and Chapter 3: International Financial Markets, pp. 55-82. Shapiro, Alan C., Multinational Financial Management, Allyn and Bacon, Boston, Fourth Edition, 1992, Chapter 1: Introduction: Multinational Enterprise and Multinational Financial Management , pp. 3-31, and Chapter 2: The Foreign Exchange Market, pp. 33-37. Zaheer, Srilatha, "Circadian Rhythms: The Effects of Global Market Integration in the Currency Trading Industry", Journal of International Business Studies, Vol. 26, No. 4, Fourth Quarter, 1995, pp. 699-728. ( Mr.M Supermaniam DSG Trade, Langkawi, 12 – 14 November, 1999) Read More