Globalization and the Bretton Woods Agreement 1944 - Coursework Example

Name: Course: Tutor: Date: International Business Q1. Globalization Globalization is a process and a means to attain goals of globalism. It is one of the most influential sources in determination of the future of the future path of the world. Globalization has many dimensions including political, social, cultural, security and environmental among others (Boudreaux 1). It is a process that allows greater interaction among countries, persons and businesses around the world, leading to development of the global economy. It is manifested by political, social, cultural and technological integration of individuals, societies and economies all over the world. According to the Institute on Globalization and Food Systems (67), the process of globalization is brought about by the linearization of international trade, paving way for corporations to pursue larger markets. This is enhanced by huge advances in infrastructure, communication and transportation that ultimately results in convergence of buyer preferences in many products such as consumer goods, industrial products as well as business services. Consequently, globalization has assisted international corporations to create new market opportunities, reduce market costs and realize higher incomes. The Institute on Globalization and Food Systems (67) further explains that globalization helps organizations to lower their overall cost structure and to improve the quality or functionality of their products. In addition, it involves sourcing of goods and services from different locations around the world, which helps international corporations to take advantage of national differences in the cost and quality of factors of production. According to the Institute on Globalization and Food Systems (67), this process is termed as globalization of production. According to Sapru (503), international corporations are able to participate in global relations under common rules in the recent world. Several agreements including the World Trade Organization (WTO) 1995, General Agreement on Tariffs and Trade (GATT) 1947 provide the rules for trade contracts, labour relations, environmental care, sanitary and food safety compliance among others. Generally, these rules reduce international trade and investment barriers by stipulating fair and open trade policies to bind the parties. WTO (July 2008) further points out that amidst globalization, there has been remarkable improvement in the living standards of people owing to the advancement in information technology. This has been achieved through international media such as Internet, World Wide Web, Email, videoconferencing and company intranets and extranets. According to the source, this has supported international businesses by enhancing easy, fast and less costly movement of data and equipment around the world. Also, improvement in technology has enabled transportation to be more efficient and dependable. As such, transportation has been a key factor in the globalization of production and markets (WTO, July 2008). Finally, globalization has played a notable role in enhancement of national sovereignty within states. For example, it has greatly helped to spread democracy in the world. However, some sources have termed this phenomenon to be a threat the national sovereignty. According to Pfaller and Lerch (93), there seems to be a shift in control of nations’ economies from the governments of sovereign states to other entities such as nation states, multinational organizations and international organizations amidst the process of globalization. Consequently, national sovereignty seems to be undermined in the process. Q2. The Bretton Woods Agreement 1944 The Bretton Woods agreement is an agreement signed by the original members of the United Nations in 1944. This agreement led to the establishment of International Monetary Fund (IMF) and the International Bank for Reconstruction and Development among other structures. The main aim of this agreement was to setup rules for commercial and financial relations among the parties. According to Snowdon and Vane (55), the main component of the agreement was the requirement that all parties peg their currencies to a certain amount of gold. Before then, the currencies of most countries were pegged to the US dollar which was pegged to gold. Thus, the rule intended to establish a liberal system of trade and payments and also fixed rates which would be compatible with full pursuit of employment. According to Snowdon and Vane (56), IMF was intended to promote international monetary cooperation among the parties of the Bretton Woods agreement. In particular, it was meant to facilitate the expansion of international trade and thereby contribute to the promotion and maintenance of high levels of employment. Also, this organ was established to promote stability of exchange rates through establishment of a system of multilateral trade as well as eliminate foreign exchange restrictions. In addition, IMF was intended to facilitate correction of maladjustments in the balance of payments without destroying international or national prosperity. Finally, this organ was set to minimize disequilibrium in the international balance of payments. As noted earlier, the International Bank for Reconstruction and Development (World Bank) was also set in the Bretton Woods conference. The prime purpose of this organ was to make long term development loans out of its own recourses such as borrowings from the world’s capital markets. According to Snowdon and Vane (56), this organ was meant to accomplish other functions such as promotion of private foreign investment by means of guarantees or participation. In addition, it was set to encourage international investments through promotion of long-range balanced growth of international trade and maintenance of equilibrium in the balance of payments. According to Snowdon and Vane (57), the Bretton Woods payments system broke down in 1971. Though IMF and World Bank remained in operation the break down of the system led to the end of the fixed exchange rate regime that had been established. Snowdon and Vane further note that in the early post war years, the exchange controls that had been inherited from post war years led to limitations in the scope for speculative runs on currencies. The scope for speculative movements highly increased with the persistent reduction in exchange controls, both capital and current. This resulted into an acute inability of the fixed rate system to provide for adjustments in the exchange rates. The problem was heightened by fundamental changes in the US position of balance of payments. By the end of 1960s, the US was experiencing balance of payments and the dollar had weakened. According to Snowdon and Vane (57), the US abandoned the convertibility of the dollar into gold at a fixed rate later in August 1971. This marked the onset of a new era with an increasing resort to floating exchange rates. Continued liberalization of capital movements in the subsequent years made fixed rates hard to maintain. This explains why the fixed rate regime established in the 1944 Bretton Woods conference was replaced by floating rates regime with only o few countries pegging their rates to a currency such as the dollar. Q4. Hofstede framework and culture The Hofstede framework was developed by Geert Hofstede from analysis of national cultures. Initially, these ideas were based on a large research project into the differences in national culture across subsidiaries of a multinational corporation (IBM) in 40 countries (Hofstede 2). This was followed by studies covering students in 23 countries, elites in 19 countries, up-market consumers in 15 countries, civil service managers in 14 countries and commercial airline pilots in 23 countries. Originally, the framework comprised of four dimensions: individualism/ collectivism, uncertainty avoidance, power distance and masculinity/femininity. A fifth dimension was added later, called long-term orientation. According to Hofstede (13), individualists value independence and they tend to believe that personal interests and goals are more important than group interests. On the other hand, collectivists tend to perceive themselves as members of an extended family or organization. Such individuals place group interests ahead of individual needs. Hofstede explains that a society with higher levels of uncertainty avoidance feels a greater need for written rules and consensus and hardly tolerates deviations from any laid down norms. In contrast, a society with low levels of uncertainty avoidance rely less on formal rules and is more risk tolerant. Hofstede (14) points out that in a masculine society, individuals are likely to be more ambitious, aggressive and competitive. In contrast, individuals in a feminine society are more humble, modest and nurturing. At the same time, individuals in societies with higher levels of power distance tend to follow formal codes of conduct. Such individuals are likely to be reluctant to disagree with supervisors. On the other hand, persons in societies characterized with lower power distance do not feel as constrained by actual or perceived differences in power, position and status. Finally, persons in a society with a long-term cultural orientation value respect for tradition’s perseverance and thriftiness and possess a sense of personal shame. In contrast, persons in a society with short-term cultural orientation are characterized by individualism, tertiary and organic relationships (Hofstede 14). According to Cooper and Argyris (140), there exist different cultures between countries, in different parts of any given country and within a single organization. Consequently, international business organizations are faced with cultural diversity everyday. The authors further note that diversity may be displayed in the various social and cultural backgrounds of workers within the organization or the variety of customers served. For example, people from Australia, New Zealand, the Netherlands and South Africa have an individualistic culture. On the other hand, countries such as Japan, Korea and the Middle East have a collective culture. At the same time, United States and other Scandinavian countries are known to have low uncertainty avoidance while Japan is characterized to have high uncertainty avoidance. In regard to power distance, countries such as France, Spain, and Japan are high on this characteristic. This is in contrast to the known characteristics of Australia and Scandinavian countries. In short, such kinds of differences will have unique influences on international organizations in different countries. Thus, learning to live and work in a culturally diverse world requires application of the Hofstede culture framework (Cooper and Argyris 140). Works cited Boudreaux D. J. Globalization: Yesterday and Today. Greenwood: ABC-CLIO 2008. Cooper C. L. and Argyris C, The Concise Blackwell Encyclopaedia of Management. Massachusetts Wiley: Blackwell, 1998. Hofstede, G. Culture’s Consequences: International Differences in Work Related Values. California: Sage Publications, Inc., 1984. Institute on Globalization and Food Systems. Global Environmental Changes, Globalization and Food Systems. Bonn: IICA Publishers, 2004. Pfaller, A and Lerch, M. Challenges of globalization: New Trends in International Politics and Society. New Jersey: Transaction Publishers, 2005. Sapru R. K. Administrative Theories and Management Thought (2nd edition). New Delhi: PHI Learning Pvt. Ltd, India, 2008. Snowdon, B and Vane H. R, An Encyclopaedia of Macroeconomics. Cheltenham: Edward Elgar Publishing, 2002. World Trade Organization (WTO), “The WTO launches World Trade Report 2008: Trade in a Globalizing World”, Press 534, OECD, Geneva, Switzerland, July 2008.03 May 2011. Read More