The World of Regionalism and Globalism - Essay Example

The World of Regionalism and Globalism In the contemporary world where the concepts of Globalisation and Regionalism have attracted scholarly attention, the question whether businesses operate in a world of regionalism or globalism given their seemingly contradictory nature was bound to arise. In order to understand the full implication of the effect the two have on international business, this essay explores the two mainstream assumptions that arise out of the debate on the relationship between globalism and regionalism. The two assumptions critical to understanding whether businesses operate in a world of regionalism or globalism are first, that Regionalism presents a challenge and threat to Globalisation or secondly, that Regionalism compliments Globalisation and the development regionalism can has been supported by Globalisation. Globalisation is the process by which the various world economies become increasingly interlinked resulting in a worldwide economy characterized by global economic policy making conducted by mandated international agencies such as the World Trade Organization (WTO). However, Globalization can also be perceived in terms an emerging global culture in which people consume similar goods and services across boundaries in addition to having a common business language for example English. The continued integration of world economies enables efficient and effective economic interaction and in turn, they are further promoted by it (Todaro and Smith, 2003). The increased interaction and integration leads to improved openness and willingness of different economies to undertake international trade which paves the way for financial flows and direct foreign investment. Therefore, Globalization enables the increased mobility of factors of production chief among them capital and labour which facilitates business carried out among states and global business actors. Global business actors in this case refer to the private sector actors who are in control of assets in more than one country and are also referred to as multinationals or multinational corporations (MNCs). The importance of this group in the assessment of globalization is based on their control over a growing share of international trade flows which are beyond the reach of their parent governments (Bremmer, 2010). One of the most important benefits of Globalization over the years has been the elimination of barriers to international trade and investment therefore resulting in a more efficient allocation of capital in addition to ensuring consumers have greater freedom of choice. The need for free market led to the establishment of international institution such as WTO and World Bank whose role is to encourage multilateralism. Proponents of globalization believed that removing trade barriers and increasing the free capital flow across countries was going to narrow the wide income gap between rich and poor countries (Kozul-Wright and Rayment, 2004). However, opponents of this stand have had contrary opinion asserting that these international institutions benefit rich developed countries more than the poor developing countries. Given the belief that globalization benefits the rich developed countries more than the developing countries, countries that feel disadvantaged by globalism in business resorted to putting in place their own free trade agreements with other countries neighbouring countries that face the same problems resulting to the what is known as Regionalism (Kozul-Wright and Rayment, 2004). While globalism represents the integration of world economies, Regionalism represents the concentration of economic activities in a particular region. Accordingly, an analysis of regionalism would imply an inquiry into the function of businesses operating from a specific geographical location where such business organizations will be characterized by strategies that regionalise the capital flow, or investment decisions. In understanding how regionalism affects international business undertakings, there are three areas of importance; it represents a focus on a particular geographical area, there is a specific regional project appended to it and lastly, there is the institutionalisation of regionalism through free trade agreements or common markets as regional arrangements (Hveem, 2000). Therefore, economic integration within given regions occurs when a group of nations come together to put in place trading a bloc or an economic union. In contemporary world, countries recognize the need to work with those around them leading to the formation of trading blocs such as the European Union (EU), Asia Pacific Economic Cooperation (APEC), the North American Free Trade Area (NAFTA), and the Southern Common Market (MERCOSUR). In such cases these countries agree to have a higher tariff requirement against goods and services of non-member countries which in effect frees internal trade among member countries. This economic integration offers a prime opportunity for businesses to take advantage of economies of large scale production that they can now access due expanded market for their goods and services (Di Mauro, Dees and McKibbin, 2008). Whenever the trade relationship between globalism and regionalism is analyzed, the first argument presented by many is that Regionalism challenges Globalisation. Increased business engagements within regions has led to fears that it would hinder multilateral trade liberalization and that its existence plays to offer resistance to globalization given that states and business executive perceive it as a platform where alternative norms and trade practices can be developed. Those with this view therefore argue that regionalism presents an emerging multiregional system of international relations where business engagements between regions are increasing while global trade is reducing (Hurrell, 2007). There are many reasons that may lead to one making the conclusion that businesses in the world operate on the basis of regionalism and not globalism. Among such reasons is the argument that formulation of policies that promote trade within particular regional trading bloc while creating barriers to external trade has led to businesses having a preference for regional trade as opposed to globalism. Therefore, by placing tariff and non-tariff barriers that gives undue advantage to local business enterprises while disadvantaging multinational companies (MNCs) and businesses originating from non-member states, regional organizations have decreased global trade. Amongst regional trading blocs, the pursuit local enterprise promotion has resulted in rules of origin which categorizes business enterprises as either local or foreign. The consequence of this arrangement is that business enterprises that do not have local ownership and control do not enjoy the benefits of the regional trade arrangements (Bigman, 2002). Since the introduction of Regionalism as an alternative form of international trade as opposed to globalization, it has had a profound impact on the environment of nation-states. One of the major effects of regionalism has been the regulating impact experienced by MNCs due to the establishment of controls like competition policies, corporate laws and labour policies. In addition to these policies, Regionalism stresses the employment of local factors of production and use of locally available raw materials with the aim of encouraging economic development within a particular region while at the same time avoiding the exploitation of capitalist oriented MNCs. For this to be effective, member countries have made it possible to have a local exploitation of raw materials, processing and consumption taking place within the same regional bloc therefore avoiding the need to engage in a global trade (Dash, 2008). Historically, it can be argued that regionalization evolves when hegemony declines given that the two have always development in a tense relationship. Consequently, given the emphasis on regionalization in the recent years, it can be interpreted as a significant world alignment in opposition to globalization. This is especially true when putting into consideration the views held by some that globalization and regionalism are incompatible based on the idea that globalization is supported by the hegemony. Such views accounts for the reason why globalization in the present day is easily equated with Americanization due to its promotion and universalisation of hegemonic values (Park and Hirowatari, 2002). Formation of regional blocs that promotes business among members is seen as the best way to fight this universalisation of hegemonic values as member states formulate their own rules and regulations that will ensure their goods and services access the available markets. Without the establishment of these regional trade agreements, goods and services from member states will not be able to compete with those from outside which might be of higher quality or whose production had been subsidized therefore coming into the market with lower prices (Park and Hirowatari, 2002). However, those who see regionalism as complementing globalisation claim there is evidence to prove that these false. Firstly, it can be argued that, while there has been a new wave of regionalism since the 1980’s, in reality, the concept is not new (Baylis, Smith and Owens, 2010). Regionalism together with Globalisation has all influenced the way international business is conducted since the development of the earliest political communities (Hurrell, 2007). Therefore, the argument that suddenly regionalism has overturned and now pose a serious challenge to Globalisation may seem redundant. Further, those who are in favour of the idea that regionalism complements globalisation argue that Regionalism cannot be seen as offering a challenge to Globalisation in such a way that it becomes a substitute. This is based on the argument that Regionalism and Globalisation are by definition two entirely distinct concepts and therefore one can never be a perfect replacement for the other. Based on the definitions of the two concepts, Globalisation is an ongoing process that is persistently occurring worldwide and is influenced by a combination of actors, state or non-state, who are a part of the international relations. As an on-going phenomenon, globalism can never be replaced by regionalism as the need for goods and services will always be satisfied due to the excesses in one region of the world (Arestis, Baddeley and McCombie, 2003). While globalization is a phenomenon that might be seen as happening naturally due to the human quest to satisfy their needs, Regionalism is a process that occurs due to conscious efforts made by those who participate in the process. This means that states in a particular region take the initiative to form a regional organisation and therefore, come up with the necessary rules and regulations that will guide how these organizations will function based on the regionally accepted norms and values. Consequently, regionalism becomes a voluntary process in addition to being under the direct influence of the states in a given region. Therefore, it has become clear so far that the assertion that Regionalism challenges Globalisation is constructed on a weak argument. It is clear that it is possible for Globalisation to continue even with conscious efforts by the states to encourage Regionalism (Dent, 2008). The second assumption on whether businesses operate in a world of regionalism or globalism according to scholars investigating the relationship between Regionalism and Globalisation concerns the view that Regionalism in some way complements Globalisation. The multilateral framework that gave rise to the environment under which regional institutions work has often been seen as being a vital component for the development of regionalism in business operations. However, this assertion is only partly true based on different reasons one of them being the fact that it is the technological revolution brought about by Globalisation provided an essential basis for Regionalism to thrive (Farazmand and Pinkowski, 2006). Therefore, it is because of globalization that states and individuals wherever they are located can nowadays communicate with each other with ease. Additionally, due to Globalisation any development that occurs in one region enlightens and feed into developments in other regions (Baylis, Smith and Owens, 2010). This development has in effect increased the need for inter-regional cooperation without which it would have been difficult for regional organizations of such scale as the European Union to develop into what it currently is. In this regard, contemporary businesses will seek to better their performance by making comparisons of their potential gains when trading within their designated regions against their chances when they expand provision of their goods or services to other markets outside their trading bloc (Farazmand and Pinkowski, 2006). There is still another angle through which business operation can be explored to determine whether it is true or not to claim that businesses operate in a world of regionalism and not globalism. The analysis of what has come to be known as the “one world/many worlds relationship (Hurrell, 2007). When state and non-state actors prefer to conduct business within given regions as it has been illustrated, it does not imply that Regionalism is challenging Globalisation but is in fact building on the effects of Globalisation. What is clear is that regionalism is in most cases used as a springboard that prepares the actors for Globalisation (Farazmand and Pinkowski, 2006). Additionally when conducting business, some might argue that regionalism offers a safer version of Globalisation which is still part of taking advantage of some of the provisions set in place by globalization. State and non-state actors wishing to conduct business always have the desire to benefit from the effects of Globalisation; however, they have reservations that insecurity that comes with it. Therefore, they see regionalization as offering the best opportunity for them to take advantage of international trade but only on a smaller scale. Regional trading blocs consequently provide more security for investment by these business enterprises due to the closer involvement of regional institutions agreed upon by different states (Telo, 2007). Hurrell (2007) notes the region provides the most suitable and practical level for state and non state actors to escape the changing and increasing pressure characteristic of capitalist oriented global competition in addition to the need to participate in a more regulated and managed business environment. Even as those who see this as proof of the fact that business are now operating in a world of regionalism and not globalism, it can be argued that in this case, Regionalism does not challenge Globalisation, but rather cooperation within particular regions is part of the necessary groundwork for an open international economy (Telo, 2007). Based on the above assertion presented by Telo (2007) the argument that in providing a safer version of Globalisation, regionalism act as a springboard towards a global economy becomes even clear. Regional liberalization in this case is seen as the best means to achieving liberalization and globalization in a view of Regionalism called open regionalism. Open regionalism is an essential theoretical model in the analysis of the relationship between globalization and regionalism. Therefore presents open regionalism presents the concept of regionalism as being in the middle of the globalized economics and world politics (Farazmand and Pinkowski, 2006). Being at the centre of the globalized economy, regionalism provides the necessary institutions and regional economies that act as a form of training camp for many businesses that aspire to have a global presence in their provision of goods and services. While functioning at the regional stage, these businesses get to taste some of the benefits experienced due to Globalisation while at the same time having the opportunity to test their products on a level of international trade that has control mechanisms in place, while escaping the insecurity presented by the global market (Farazmand and Pinkowski, 2006). From the analysis of the two assumptions on whether regionalism has replaced globalism in conducting business, it becomes apparent that the important aspect in the relationship between the two is the determination of the purpose that Regionalism provide to the businesses belonging to members of a given regional bloc. Given that the main function performed by Regionalism is to increase economic cooperation among members on the basis of their shared interests, norms and values, large business organization are thus provided with a lifeline to expand and prepare for global competition (Telo, 2007). However, it is still accurate to note that this form of cooperation can be facilitated easily when smaller and more similar group of states is the key actors. But this form of regional cooperation in many cases offers the requisite opportunity that enables regional businesses to be internationally competitive. The compatibility of regionalism and globalism in business undertaking can be further illustrated by the support accorded by WTO to regional trade agreements that reduce barriers on trade within the specific group. The WTO agreements that are bidding to members on a global scale recognize that the fact that regional trade agreements in addition to having a closer economic integration among countries are beneficial. Even as WTO agreements accepts the fact that there are circumstances under which regional trade agreements might hurt the trade interests of non-member countries, there are mechanisms such as the provisions of GATT’s Article 24 which permit regional trade agreements under special exception, provided the checks and balances contained in the Article are observed (Lee, 2012). From the foregoing arguments, it becomes apparent that both regionalism and globalism continue to be important processes that businesses take advantage of in order to ensure they access markets for their goods and services. Although there has been an increase in the volume of regional trade, this does not mean businesses are no longer operating in a world of globalism given the complex nature of the underlying reasons for doing business either regionally or globally. 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