Globalisation and International Business - Case Study Example

Running Head: International Business International Business [Institute’s Executive Summary The recent phenomenon of globalization has completely turned the world around. The research has showed that international businesses have significantly increased, in the sense that there has been increasing growth in multinationals. However, it also was an observation that only a few countries have benefited from this neo-liberal policy. In addition, in the globalized world, it is ‘the survival of the fittest’. International Business At the turn of the 20th century, new approaches to the world occurred. The Cold had ended, with the emergence of one single bloc. The world had become a single ‘market place’ (Eriksen, pp.3, 2007). This was aided by the phenomena, Globalisation. Globalisation is undertaken as a reality, and Renato Ruggeriero has put it aptly, a reality that has overwhelmed all others (Scholte, pp.1, 2000). Globalisation has been aided by free trade and the increment of international businesses. What in essence is free trade? There are various definitions of free trade; free trade is trade that is not held up by national or international laws (Baggini, Fosl, pp.32, 2010). Globalisation is a term that is on everyone’s lips. However, only a few people have had a clear and definitive definition of the term. However, definitions form the basis of an individual’s perceptions and evaluations (Scholte, pp.42, 2000). The definition of globalisation, according to the European Commission is: “Globalisation can be defined as the process by which markets and production in different countries are becoming increasingly interdependent due to the dynamics of trade in goods and services and flow of capitals and technology” (Held, pp. 92, 2000). In essence, increased trade, and international economic activity, faster communication networks define globalisation. In a way, globalisation has led to the compression of the world. Due to this, the world has been brought closer, in different ways, for better or for worse (Eriksen, pp.4, 2007). The beginning of the paper will identify the benefits that have been brought due to increased trade and international business. The neo-liberals largely advocate the working of the free market, and in effect promote free trade. A very common theory that promotes free trade is that of comparative advantage. This theory assumes that there are two countries in the world, each producing one single good. In a way, these two countries will only produce goods in which they are better off, because it will be more profitable, and exchange the goods with each other. Therefore, ‘comparative advantage theory’ is the rationale for free trade. For example, India and China have a comparative advantage in the production of clothing because of cheap labor. In addition, Japan has a comparative advantage in electronic equipment because it has a technological edge (Gitman & McDaniel, pp.73, 2008). David Ricardo gave this theory. Technically speaking, the consumption frontier of a country will lie outside the production frontier of a company due to free trade (Thirlwall & Lopez, pp.7, 2008). In addition, another rationale for free trade has been the neoclassical factor endowment theory. This theory argues that it is not because of “technological differences that free trade is required, but because different countries are endowed with different factor supplies” (Todaro & Smith, pp. 560-565, 2003). In a sense, neoclassical thinkers suggest that trade has provided nations with the opportunity to capitalize on those resources which are abundant (Todaro & Smith, pp 561, 2003) In addition, although globalisation has received much criticism, a closer look into statistics will also show that globalisation has created wealth and jobs. Because of globalisation, livings standards have greatly improved, because a large consumer market is created. International competition also keeps prices down, therefore keeping the risk of inflation quite low. For example, since 1997, prices for many heavily traded goods have declined. This includes an 86 percent drop in prices of computers and peripherals, 68 percent for video equipment etc. Different multinational companies such as Microsoft and Pepsi are enjoying a high level of profits (Gitman & McDaniel, pp.74, 2008). Therefore, the question arises when such phenomena’s are so advantageous, why such a controversy over issues such as ‘Bananas War’ occur. Globalisation is thought to be an uneven process; in the sense that it affects different people throughout the world quite differently (Steger, pp. 12, 2007). The big disadvantage to the ‘theory of comparative advantage’ (Steger, pp. 12, 2007) is that it rests on the assumption that there is full employment. In real world, however, not all resources are employed. When unemployment exists, the opportunity cost of using resources is zero. Therefore, the comparative advantage does not hold true. A recent example to this problem is that due to globalisation farmers in Mexico cannot compete with the farmers of the United States under the North African Free Trade Agreement (NAFTA), signed in 1994. In this sense, free trade has benefited the Americans but not the Mexicans (Thrilwall & Lopez, pp. 10-12, 2008). The question has specifically mentioned the “Banana trade”. According to Anup Shah (2010), “Although bananas may only looks like a fruit, they represent a wide variety of environmental, economic, social, and political problems.” The Banana Trade War illustrates unfairness in the global trade market and the ‘globalisation’ of the agricultural economy. In such a competitive world, there are different producers of banana. Such an example of a producer is Australia, which is oversupplying the bananas in the market, implying that they have to sell at a lower price than the market price. The reason is that the weather conditions favor the early ripening of these bananas. This has also led to a constant war between countries such as Australia, Peru, and Philippines (Cayabyab, 2010). This is understandable by a simple supply and demand illustration. As the diagram below shows, the shift in supply curve to the right has decreased the price level and increased the quantity of bananas in the market. Therefore, globalization, in effect has led to an excess supply in the market in the sense that some countries are losing while others might be gaining. Bananas are thought to be significant for economic and food security, since they are number four on staple crops’ list and they bring in a large amount of profits (Cohen, n.p, 2007). The imperialism associated with the trade of bananas can be judged by the fact that in countries such as Brazil and India, bananas are one of the main exports, and they are mostly exported to former colonial masters. In a way, the shackles of colonialism still bind the former colonies. If a country does not act according to the wishes of the major importer, then the importer can impose a trade sanction against the exporting country. In addition, there have been instances where one company has dominated the entire market. One such company in the case of Central America is United Fruit Company (Shah, 2010). This company has “thrived on the lack of unity, poverty and corrupt governments” (Shah, 2010) in Central America. Such multinationals have exploited the cheap labor, and sending out huge amounts of profits abroad (Shah, 2010). In this sense, even the banana trade has not benefited the people who are exporting these fruits, but actually the multinationals. These multinationals are present in these areas due to the growing globalisation. Globalisation, therefore, in essence is benefiting only a few privileged. Adding to the Banana War controversy are the different organisations that are power players in the globalised world. These organisations include the World Trade Agreement (WTO). In the international world, small businesses such as those of Caribbean cannot compete against giant multinationals and Latin America “dollar” bananas. The organisation meant to aid the third world failed miserably for it ruled against the Lomeo Convention. In response, local producers, by this ruling will have to compete against giant multinationals. Therefore, proved again, globalisation is not helping the third world (Shah, 2010). In conclusion, it one can state that globalisation is not beneficial for many of the world’s poor. This can come under exemplification by the fact that the sales of General Motors and Ford are greater than the total output of the sub-Saharan states of Africa (Samli, pp.43, 2008). Nations, therefore, fight over issues because globalisation is a creation of those who are fit to rule the world, and are the most privileged. In a sense whether it is accepted or not, it is a reality that most of the underdeveloped world is written out of the equation. However, with the perusal of such goals of globalization, international businesses continue to increase significantly. References Baggini, Julian, and Peter S Fosl. 2010 "Basic Tools for Argument." The Philosophers Toolkit: A Compendium of Philosophical Concepts and Methods. Oxford: Blackwell Publishers Limited. 32. Print. Cayabyab, Romy. 2010. Banana growers ‘at war’ with economics. Retrieved on April 02, 2011: http://romeocayabyab.com/banana-growers-at-war-with-economics Eriksen, Thomas Hylland. 2007. "Globalisation today" Globalisation: the key concepts. New York: Oxford Publishers. 3-4. Print. Gitman, Lawrence J, and McDaniel, Carl. 2008. "Competing in the Global Marketplace." The Future of Business: The Essentials. Cengage Learning. 73-74. Print. Held, David. 2000. "A working definition of economic globalisation." A globalizing world: culture, economics, politics. New York: Routledge. 92. Print. Samli, A. Coskun. 2008. "Companies are growing larger than nations." Globalisation from the bottom up: a blueprint for modern capitalism. New York: Springer. 43. Print. Scholte, Jan Aart. 2008. "What is Global about Globalisation?" Globalisation: a critical introduction. London: Macmillan Press Ltd. 1, 42. Print. Shah, Anup. 2010. "The Banana Trade War - Global Issues." Global Issues. Retrieved on April 02, 2011: www.globalissues.org/article/63/the-banana-trade-war Steger, Manfred. 2009. "Globalisation: A contested topic." Globalisation. New York: Oxford University Press. 12. Print. Thirlwall, A. P, and López, Penelope. 2008."The theory and measurement of Trade Liberalization." Trade liberalization and the poverty of nations. Massachusetts: Edward Elgar Publishing Limited. 10-12. Print. Todaro, Michael P, and Smith, Stephen C. 2003. "Policies and Problems: International." Economic Development, 8/E. New Delhi: Pearson Education Ltd. 561. Print. Read More