Globalization of Business Activities - Essay Example

Globalization of Business Activities Answer Globalization may be termed as a phenomenon where goods and services produced in one country are freely accessible in the rest of the world without any restrictions. From the manufacturer’s perspective, globalization accords the benefit of a much larger market than the domestic market. Furthermore, the manufacturers get access to cheap and good quality raw material, technological support as well as access to financial resources under a globalized world. The customers tend to benefit because they have access to the best quality goods at the cheapest prices as there are no quotas or tariffs. Consumers thus get more value for their money. In this way, globalization is a win-win situation for the seller as well as the buyer. The process of globalization is pretty complex as it interlinks the cultural, economic, as well as political environments of various countries that indulge in international trade. Globalization also entails the free movement of information, managerial personnel as well as entrepreneurs which has made the entire world become a ‘global village.’ Simply put, globalization has enhanced the interaction and integration of different countries as well as its people and governments. Globalization is a multi dimensional process. While it’s economic inference means opening up of domestic market and free trade and commerce among other countries, its political connotation is limiting the powers and functions of the state. The process of globalization grants more rights and freedom to the individual as a consumer and also empowers the private sector. Ideologically, the process of globalization entails supporting the spread of liberalism and capitalism. Answer 2) The International Monetary Fund (IMF) defines globalisation as “the process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies.” While the debate on the advantages and disadvantages of globalization continues to rage, the phenomenon has benefited all countries, albeit in varying degrees. The fact of the matter remains that the phenomenon is here to stay and nobody can reverse it in totality. At best, a country, on its own accord, can decide not to engage in global trade. This aloofness thwarts the access of benefits that globalization brings in its wake and therefore, countries have been and would continue to indulge in foreign trade. Tony Blair, the former Prime Minister of United Kingdom strongly backed the idea of globalisation and stated that countries must “embrace globalisation and not retreat from it” The process of globalization, per se, is not new. The economic integration between countries can be traced back to as back as 2,000 years. Globalization has gained tremendous speed in the last few decades primarily due to the following reasons: a) More and more countries have embraced the process of globalization in the recent past. Emerging countries like India adopted the policies of liberalization, globalization and privatization in the early 1990’s thereby allowing the global players to enter its shores as well as creating an opportunity for its own manufacturers to sell on foreign soil. In nutshell there is enhanced trade between different economies of the world which has heightened the flow of goods and services as well as capital and labour across borders. The General Agreement on Trade and Tariffs (GATT) and, subsequently, the World Trade Organisation (WTO) have been largely responsible for reduction in tariffs across a range of products. This has enabled developing countries export goods at competitive prices to developed countries like the United Kingdom. The formation of regional trading blocs like the European Union (EU) and North American Free Trade Area (NAFTA) has led to a reduction in tariff and non-tariff barriers. b) The biggest factor responsible for expediting the process of globalization in recent times has been the emergence of new technologies which have literally shrunk the distance between two countries to zilch. Technological progress, particularly developments in the field of Information and Communications Technology (ICT), has played a significant role in enhancing global trade. Among other things, ICT has reduced the transaction costs considerably, for e.g. the cost of a three-minute phone call between London and New York in 1930 was seventy times more than what it was in 1990. Further advancements in satellite and broadband communications are likely to reduce transaction costs even further. Again data suggests that the transaction cost for a simple non-cash payment at a brick-and-mortar branch is expected to cost the bank as much as 11 times more than the cost incurred by the bank had the transaction consummated over the Internet. The Internet can also be used as a distribution channels which can effectively increase market coverage. Last, but not the least, the World Wide Web has bestowed the companies to host advertisements and other marketing campaigns and reach people throughout the world without really bothering about the cost. c) The appearance and rise of low-wage economies like India and China on the world stage has propelled the process of globalization manifold. These two economies have increased their trade linkages considerably and have enhanced their shares of global output, trade and foreign direct investment. These countries boast of humungous population, provide cheap labour and are therefore the preferred destination for labour intensive companies as well as outsourcing, a phenomenon where firms relocate their ‘non-core’ activities to foreign countries or to third parties in foreign countries. d) The growing popularity of movies, music, actors and other celebrities as well as their availability across the globe has helped increase the process of globalization in no small measure. There have been instances where countries have objected to the spread of foreign culture in their domestic culture accusing the former of eroding the latter. This has particularly been witnessed with regard to the spread of American culture. Globalization, a top-down process, originates from the developed countries and the multinational corporations (MNCs) based in these countries are pioneers in initiating this process. Such MNCs get a ready market for their goods and services in the developing countries. These companies also benefit from the fact that they get cheap labour from the developing countries. The onus to adapt as per the requirements of the foreign country lies on the developing countries. Slowly but surely, the values and norms of developed countries creep into developing countries, leading to a growth of a monoculture - the culture of the North being imposed on the South. There has not only been a hue and cry against this monoculture or ‘cultural invasion’ from developing countries like India but also from developed countries like France. In fact France had insisted that there be a ‘cultural exception’ to world trade rules to thwart the American popular culture in its territory. However, in general, citizens of various countries have started imbibing foreign cultures and have benefitted from them as well. This openness towards other cultures has helped organization to employ people from different countries with varied views, opinions, likings and disliking. This has also enabled companies to set up offshore offices, employ locals and get the work done. The intensity of the globalization process is measured by the KOF index which measures the economic, social, and political dimensions of globalization. The KOF Index ranks various countries after having generated a score for them which is based on values being assigned to various variables on a scale of 1 to 100. A higher values indicates greater globalization and vice versa. The United Kingdom also features on the 24th rank on the KOF Index with a score of 80.18. As a country, the United Kingdom has had its share of advantages and disadvantages from the process of globalization. Within the country, there has been a transformation and the contribution of various sectors towards the gross domestic product has undergone a change. There has been a continued shift in output and employment from manufacturing sector towards the services sector. Growth has been witnessed in the financial intermediation, education as well as the hotels and restaurants industry. The financial services sector in the United Kingdom contributed 6.5 percent to the gross value added in 1996. The figure rose to 9.4 percent in 2006. Likewise the export of financial services registered a growth in terms of share of the total exports. While financial services constituted 4 percent of the total UK exports in 2006, the percentage share of financial services exports had risen to 7.7 percent by 2007. The UK banking sector is now one of the most deregulated of all sectors of the economy. Two major process changes have been witnessed due to the drivers of globalization. a) Outsourcing Call Centres The ICT has revolutionized the banking Industry. These technological changes have had the most far-reaching impact on the banking sector. Courtesy the advent of Internet and cheaper long distance telephony, banks have been able to set up their call centres in foreign countries like India, China, Philippines, Malaysia and other Asian countries. It has been estimated that manpower costs typically account for 55 to 60 percent of the total cost of a Call Centre. This is where these countries have provided the real edge to foreign banks. Manpower cost in these countries is a fraction of the manpower cost in foreign countries. Thus banks save a lot of money by setting up their call centres abroad. The developing countries have large number of qualified, IT literate, trained, skilled and experienced professionals. It is for this reason that these countries have successfully met the ever increasing international demand for call centre outsourcing services and have been able to provide cost-effective services and customer-oriented call centres. Be it an inbound call center, telemarketing services, technical helpdesk services, email support services or chat support services, the ICT has provided the requisite wherewithal to these countries to deliver top notch services. The call centres employ the up-to-the-minute technology, the newest software and high-end and infrastructure to provide exceptional services to their clients, i.e. the foreign banks. Latest techniques in information processing, telecommunications, and financial technologies have greatly helped financial institutions reach a greater geographic area and at the same time manage larger information flows from more locations and that too with minimal risks of leakage. Apart from Call Centres, the technological advancements have enabled banks save on building retail brick-and-mortar networks of branches. With the advent of Internet and Mobile banking, customers need not visit the branches for routine tasks. In this way, technology has provided them with anytime and anywhere banking. At the same time, the new tools of technology have also made it easy for banks to create and deliver new products and services. Finally, ICT has kind of delegated the work of the bank employees to the customer. For e.g. tasks like carrying out a transfer of funds between bank accounts on the Internet or a bill payment, which were earlier done by the bank are now carried out by the customer. Mergers and Acquisitions The process of globalization has enabled banks to grow through the inorganic route, i.e. by mergers and acquisitions not only in the domestic market but also in the International market. Deregulation in most parts of the world has allowed consolidation in financial institutions. A banking consortium comprising of Royal Bank of Scotland (RBS), Santander and Fortis had acquired the Amsterdam based ABN AMRO Bank a few years ago. This particular merger deal was pretty complex.  Fortis acquired the private banking business of ABN AMRO. However in some countries like India Fortis did not have the required licence to retain the private banking business. Therefore the ABN AMRO private clients in this country were acquired by Fortis and RBS. As a part of the deal, Fortis bought the asset management company in India. This is just one of the numerous examples of mergers and acquisitions that have happened in the banking industry in the wake of deregulation and increased cross-border trade activity. Due to globalization, the number of financial institutions is declining but their average size is increasing. Larger institutions are reaping the rewards of economies of scale while the smaller ones are always being gobbled up by the big fish. In general, globalization has facilitated risk diversification by banks and improved their overall performance and that of the countries in which they operate. The phenomenon of globalization has enabled individual companies to improve their resource allocation, cut costs and thus add value to all stakeholders. Answer 3) There may be advantages of globalization for some countries, sectors or companies while there may be disadvantages for others. However, at the end of the day, the real beneficiary is the consumer. Gone are the days when there was only one company in a particular industry and could charge customers at will. Times have changed though. The consumer has numerous options to choose from today. Globalization has therefore given me, as a consumer, to choose the best quality product at the cheapest price. Moreover I have the option to choose any brand, be it from any country. The process of globalization has made the local manufacturer sit back and think that the nearest rival may be from the farthest place. The food that I eat, the clothes that I wear and the life style I lead is changing, albeit slowly and steadily. However that is not because of any compulsion, that is a personal choice and that choice is being given to me by the phenomenon of globalization. I, as an individual, think that the local culture should not be made a water tight compartment and that it should not be completely protected from outside influence. In fact, one should learn, mix and interact with other cultures to become a better individual. To that extent, Globalization has helped me a lot. It has changed the way I think about people and their countries and has helped me become a responsible citizen of the World. Last but not the least, the process of globalization has increased the chances of my employability. There are numerous foreign multinational companies operating in the country and trying to employ the best manpower. At the same time, the locals look at qualified personnel so as to challenge the big players. All in all, the process of globalization has created more job opportunities. On the negative side, the process of globalization has depleted natural resources. Companies, in order to gain maximum profits, have given scant respect to the preservation of resources. The increased production and trading of goods has taken its toll on the environment as well. I, as an individual, am impacted by the increasing global warming. References BATTILOSSI, S. 2006, "The determinants of multinational banking during the first globalisation 1880-1914", European Review of Economic History, vol. 10, no. 3, pp. 361-388. Betrán, C., Ferri, J. & Pons, M.A. 2010, "Explaining UK wage inequality in the past globalisation period, 1880-1913", Cliometrica, vol. 4, no. 1, pp. 19-50. Globalisations losers need support 2007, , London (UK), United Kingdom, London (UK). Greenslade, J., Millard, S. & Peacock, C. 2008, "How has globalisation affected inflation dynamics in the United Kingdom?", Bank of England.Quarterly Bulletin, vol. 48, no. 3, pp. 292-298. 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