Globalization and International Business - Research Paper Example

International Business> and Section # of Globalization and International Business go hand in hand; they are instrumental in the growth of each other. Without globalization, international businesses would not have prospered as much and vice versa. The impact of efficient communication tools, improved transportation networks gave rise to globalization and helped augment international business all over the world. International businesses can be conducted either through import and export of goods and services, through licensing and other methods. FDI is very important for the growth of less developed economies and is a means through which international business takes place. The degree of globalization can be gauged by the political difference that exists between the trading countries; the cultural proximity can augment such businesses, the institutional factors that help increase the enrollment of international students and information dissemination. In short, without globalization, international businesses would not have seen such success. INTRODUCTION Globalization is a phenomenon that has gathered immense attention and importance in terms of business related activities over the past two decades. It is due to globalization that difference country economies, societies, social structure, cultures are now amalgamating together and a common global culture is emerging. The world has now become global village, where more and more people are connected through advanced telecommunication systems; social networking websites have further strengthened these connections. When it comes to international business, one of the biggest reasons for its popularity and cost advantages is globalization. Improved communication networks, transportation networks etc have helped both globalization and international business to prosper. Therefore, the impact of globalization on international business has actually been fairly fruitful and benefitting. (Scholte, 2000) Globalization even has been helpful in market expansion; making markets stronger, more diversified for risk and efficient. This research paper aims to identify the advantages that globalization has had on the lives of people, as well as on the likes of a business. It then outlines the major areas through which globalization and international business are linked and support each other; they are through foreign direct investment, international trade of goods and services from all across the world. Another aspect of globalization, the linking of markets, is outlined through discussion on the recent financial crisis that shook more than half the world’s market. It then analyzes the degree of globalization in different parts of the world as outlined by cultural differences, political stability, institutional differences etc., ending with a conclusion. GLOBALIZATION AND ITS ADVANTAGES According to the Oxford English Dictionary, globalization is defined as “the act of globalizing”; this is derived from the noun global which means involving the whole world; something which is universal. This definition of globalization pretty much covers the basic concept of the word; involvement of more than one country; moving towards a single world economy, involving the whole world in trade. In terms of business, considering the whole world as a single market rather than concentrating on a certain country. (Oxford English Dictionary) From the economic point of view, globalization has been a blessing for businesses all over the world. It has helped them to increase their markets which were previously confined to one of two countries, reduced their costs by outsourcing their work to cheaper areas of production and helped them raise capital from all over the world; in short, businesses have benefitted the most from these phenomena. People from all over the world are now connected, thanks to the information and technological age that we are going through; these advancements have been fundamental in providing the path to develop markets free of governments, geographical boundaries etc. (Waters, 2001) Corporations all over the world now have greater access to capital; capital is now flowing from developed countries to developing countries, sometimes through aid or foreign direct investment. There is a great reduction in the cultural barriers that were present before, making international business easier and more sustaining. Apart from these, there are numerous other advantages that globalization has helped us achieve, most of them involving economic markets and international businesses. INTERNATIONAL BUSINESS AND GLOBALIZATION There exists a positive relationship between globalization and international business. It is due to globalization that has taken place at a mammoth growth rate which has helped international business spread its wings far and wide, throughout the world. There are negative aspects of globalization on international business, namely free trade but it can be debated whether it is actually a negative anomaly or a step towards greater efficiency of markets. (Scholte, 2000) However, one can also argue that it is due to increased international business, coupled with technological advancements such as communication and transport networks, that globalization has taken place. The world is global village because of the extent of international business that is taking place. All things aside, globalization and international business have been instrumental for each other, when it comes to growth. There are a number of reasons why companies indulge in international business. One would be to increase the market size and reap profits, to reduce costs by acquiring resources, to minimize the risk of working in just one country etc. International trade of goods and services Companies indulge in international business for many reasons. They want to expand their markets and increase their sales; IBM, Nestle, Sony etc have now become global brands and the companies are reaping phenomenal profits as they are now not confined to a small geographic area but are working throughout the world. (Robertson, 1994) There are a number of way through which organizations are entering newer markets all over the world and conducting international business. One can enter the markets through exports and imports of merchandise which is being produced by a local company, for example Nokia cell phones are available all over the world; the same holds true for service oriented organizations where imports and exports of service can also take place. Some tangible aspects of a service oriented organization moves across the borders as well when such a transaction happens. For example, HSBC, proudly brands and positions itself as the ‘World’s local bank’. They are present in most of the countries in the world, providing their services. Another way through which international trade of goods and services takes place is through licensing. All these methods are only possible because of the communication advancements, the lowered costs of transportation and information flow that can readily take place over the internet and other systems. Foreign Direct Investment- a result of Globalization and International Business Another important factor through which the international businesses benefitted, augmented by globalization is the availability of capital. As the political boundaries are vanishing, more capital is available for organizations from other countries. Investment from developing countries where people have more money to invest is now moving to countries that need that capital. Through foreign investment or portfolio investment, foreign entities are entering different markets and investing their capital. Foreign Direct Investment is one of the ways through which this is taking place. FDI is defined as the participation of one country into another country’s economy for a longer term. FDI allows controlling rights in the stakes of a local corporation. (Waters, 2001) Foreign direct investment has been instrumental in the development of free economies and greater efficiencies of organizations. Foreign investors demand greater efficiency, leading to efficient markets. There is greater emphasis now on governments, to make policies which incorporate the impact of FDI on their business and economic cycles, understanding the linkages that are present (Jansen, 2004). International Financial Crisis and Globalization The international financial crisis started on a small scale when the best financial institutions started to collapse, and had to file for bankruptcy. Due to the high interdependency and interrelatedness of the whole global world with each other, due to the phenomena of globalization, the effect started to spread worldwide, and became international, with almost all countries and all sectors getting affected by it. From the common man to the huge institutions and industries, the effect of the financial crisis has spared no one. (Scholte, 2000) Various indicators, like employment levels or poverty levels have shown a sharp fall or rise respectively, either of which will be a negative connotation for the society, in general. The point in consideration as of now is whether this strong financial crisis will be able to weaken globalization, make it strong or the latter will be indifferent to it. Indifference is something which is not possible since globalization has been so engraved in the dynamics of a country, of an industry, of an individual that the effect has to be there. The options left are then whether globalization has become stronger all this while or gone weak. Different experts have different opinions. (Waters, 2001) One of the experts says that globalization is a phenomenon which comes and goes, and as of now, it is going, the reason being the financial crisis. Mr. Harold James very rightly explains the modus operandi of globalization, which actually receives a spur of activity and up rise when there is some new technological phenomena. But when it gets too much to handle for the masses, that are when the problems begin, one of them being financial instability. (Robertson, 1994) Another expert has the opinion that there are many other factors, apart from financial issues, that can make the globalization stay, and that it is staying, irrespective of the severity of the financial crisis. Degree of Globalization in different parts of the world The globalization has made the whole world come together as a single entity. Its like there were no boundaries in the first place. The highest degree of the usage of globalization and to mould it into a significant advantage is seen in the Developed Countries. When it comes to labor, the developed countries know that the labor available in their home country will be way more expensive than the one that they can hire from the Developing Countries or the Least Developed Countries (LDCs). One example of this is that a labor doing the same work in America would charge $150 for an hour of services rendered, while the same work will be done by an Indian for only $25 per hour. Therefore, the degree of globalization is higher in the Developed Countries than the LDCs or the Developing Countries. The Developed ones make much better use of this dynamic phenomenon. (Scholte, 2000) Political Differences Usually it is not thought that politics can become global as well, since usually politics is the way a nations own government or leaders will ensure the law and order system as well as the judiciary and the security of the common man. But with time, globalization has also engulfed the political arena. There has been political integration between the whole world under the bodies of International Monetary Fund, World Bank or the World Trade Organization. (Waters, 2001) There are movements on a global scale, on issues which are faced globally, for instance, on poverty or women rights. And then there are the NGOs which collaborate all over the world to get the best resources for the aims that they have. The political differences lie in the fact that the West is more active in forming these political alliances, and of securing a safe position politically. In the United Nations, the veto power is held by France, Russia, United Kingdom, United States and China. Majority of these countries lie in the West, and thus they practice political globalization far more than the other countries. Country Sovereignty The sovereignty of individual countries are being greatly affected by globalization, and all this is due to the fact that the latter has increased the dependency of countries on other countries or on organizations which have been formed with the integration of many entities. For instance, nowadays, it is seen that the Developing Countries like Pakistan, even though that they are sovereign in themselves, and do not have to be subordinate to any other country are losing their sovereignty, just because of their taking aids, monetary or otherwise, from political global organizations like International Monetary Fund (IMF). The states now have to let go of the authority and the control that they once enjoyed over the whole country and its decision. (Robertson, 1994) Now some of it has to be given to the international bodies in function and which are overlooking the interest of the whole world simultaneously. Cultural Differences The cultures are now getting amalgamated very smoothly and swiftly. The change has taken so long and it was so slow in nature, that the difference cannot be felt. The East and the West are now getting influenced with the cultures of each other, with more influence of the West on the former. Higher trade, accelerating political incorporation and better collaboration is achieved, but at the cost of the cultural loss that a certain country has because of this assimilation. The differences will erode and vanish completely in the future, and the world will all look like one big similar cultural platform. But then again, this was what was required when globalization came in. It had envisioned a world in which human energy is applied such that it leaves behind the human differences, bringing all humans together as one. From getting cultural shocks when a person traveled from one time zone to another to a time when the world will feel like home – globalization has come a long way. (Scholte, 2000) Institutional Differences: When it comes to institutions, the educational institutions as well as the organizational institution play a vital role in any society. And thus, globalization has impacted their development as well, in different degrees in various parts of the world. It is seen that there is a huge amount of brain drain from Least Developed Countries or Developing Countries and the youth leaves their home country to make use of the better institutions which are there in the Developed Countries. Their objectives might be to fly back home after they are done and benefit their homeland only. (Robertson, 1994) But globalization has had the effect of such movement of human and intellectual capital from the already less developed countries. Social Differences Many social differences also occur in different parts of the world. Globalization has actually liberated the woman gender to a great extent in some parts of the world whereas in some parts, the woman still stands as the object of dishonor and killing. (Waters, 2001) Globalization has given such issues a place for progress and a platform where such facts can be voiced and corrected for good. CONCLUSION Globalization, the disappearance of political boundaries and increased communication networks has increased the occurrence of international business. The two phenomena are interlinked and cannot be as successful without the presence of the other. The impact of globalization is not only confined to international business, but it also incorporates the merging of economic markets and financial markets, providing added capital resources to the organization. Globalization and international business are impacting all areas of business; FDI is instrumental for the growth of less developed countries, for the mammoth profits of IBM, Nokia etc and increased efficiency of financial markets. BIBLIOGRAPHY Books: Scholte, J. (2000) Globalization: a critical introduction. Palgrave MacMillan. Waters, M. (2001) Globalization. Routledge. Robertson, R. (1994) Globalization: social theory and global culture. Sage. Websites: Oxford English Dictionary. 2nd Edition. Oxford University Press. Available from www.oed.com [21 May 2010] Jansen, W., Stokman, C. (2004) Foreign Direct Investment and International Business Movement Cycle. Available from http://www.ecb.int/pub/pdf/scpwps/ecbwp401.pdf [21 May 2010] Read More