International Business - Globalization - Essay Example

International Business - Globalization Name: University: Course Title: Instructor: Date of submission: International Business: Globalization Introduction The world today has become a global village as economies of different countries and regions and cultures of different communities all over the world have become integrated. However, the term globalization has been widely used to refer to linking of economies of individual nations into an international economy through such activities as technology advancement, migration of people, foreign investment, trade or business, capital flows and military missions. Globalization involves exchange of ideas, languages, socio-cultural practices and technology advancement among other things. Most people have acknowledged the term as the greater exchange of ideas, people, capital, goods and services, and labour as a result of international economic linkage (Milward, 2003, p.37). This paper seeks to compare and contrast the current era of globalization with the first age of globalization. The paper will also examine the advantages and disadvantages of globalization in its current context. The First and Second Eras of Globalization The first era of globalization begun when Columbus opened trade between the old and the new world by setting sail, and lasted between 1492 and 1800s. The first era of globalization was primarily about individual countries and their muscles. The second era of globalization lasted from 1800 to around 2000. This era was characterized by multinational companies as the dynamic forces facilitating global integration. These companies went global in search of markets, as well as labor. It is believed that industrial revolution played an essential role during this era of globalization. The influence of technology for example steamships and engineering telegraph also played crucial roles. The steam engines together with the railroad ensured falling costs of transportation in the first half of this era. The engineering of telegraph in conjunction to the telephones, satellites, the PC, as well as the early versions of the world wide web were crucial in the second half of this era because they ensured the cost of telecommunications were manageable to most multinational companies (Lib.utk.edu, 2006). The First and Second World War had significant effects on both the first and second eras of globalization. According to Ritzer (2010, p.173), these world wars had adverse effects on both political and economic globalization. Countries such as Germany and Italy moved in the direction of autarky with the view of becoming economically self-sufficient. This movement of many countries in the direction of autarky negatively affected how various countries related to and dealt with other countries. This adversely affected both globalization and international business in both the first and the second eras of globalization. The US on its part, had a tendency towards isolationism as a result of the world wars. Even though isolationism was more political than economical in nature, it still had adverse effects on globalization and international business. Colonialism, Globalization and International Business (The Case of Indonesia) Colonialism is a form of international relation between two or more countries. Colonialism encourages both globalization and international business between countries, and globalization facilitates international business. Globalization of the Indonesian economy started with Dutch colonialism. However, with the end of Dutch colonialism in Indonesia and subsequently the end of cold war, analysts have argued that the country is headed to disintegration (Suryadinata, 2000, p.38). This is not conducive for both international business and globalization. Suryadinata argues that Dutch colonialism played a significant role in fostering the globalization of Indonesia. For instance, during this period many Indonesians received western education, lived under the Dutch administration and economic system. As such it is argued that the modern Indonesia is primarily a product of the nationalist effects of the country’s reaction to Dutch colonialism. Therefore, although cultural globalization had taken place, Dutch colonialism in Indonesia enhanced both political and economic globalization (Suryadinata, 2000, p.39). Tariff and How It Decreases Importing and Exporting Between Countries Tariffs are barriers to international business, which are aimed at protecting local business industries. They are an impediment to international business and economic globalization. However, globalization has led to the reduction of trade and investment tariffs and other barriers to economic and political barriers to globalization by ensuring increased global income. Economic growth in many countries is as a result of foreign investment, which as been favored by the reduced trade and investment barriers and increased global income created by globalization (Global Education, 2005). The Role of GATT Agreement the Bretton Woods System, Banks and WTO The role of the General Agreement on Tariffs and Trade (GATT) is to oversee international trade in goods. The workings and operations of GATT are the mandate of Council for Trade in Goods. The council is constituted by representatives from all the member countries of WTO. In line with the GATT, the Council for Trade in Goods consists of 10 committees, which oversee various segments of international business and trade such as market access, agriculture, subsidies, customs valuation, investment, import licensing, state trading enterprises, information technology, as well as anti-dumping measures among others. The world trade organization on the other hand, is the only international organization with the mandate of ensuring that international trade flows smoothly, freely and predictable as possible. The WTO deals with international rules of trade between various countries (World Trade Organization, 2012). The Bretton Woods system was created to address the concerns that various countries had raised due to diminishing cooperation among states after both the first and second world wars. Bretton Woods system was to find lasting to solutions to high tariffs, import restrictions, protectionist practices by various countries, as well as the tendency by various governments to devalue their currencies with the aim of gaining competitive advantage in global trade. All these were viewed as resulting from lack of cooperation among various countries. The system saw the creation of five key elements to address these concerns and to promote international trade. First, countries were to establish “per value” for their currencies. Second, monetary authorities in countries to allow the exchange of their currencies with those of other countries at established rates. Third, international monetary fund (IMF) was mandated to establish, stabilize, and oversees the exchange rates of currencies. Fourth, countries were to eliminate all restrictions on the use of their currencies in international trade. Lastly, the entire system was to be based on the US dollar, which technically became the global currency (Ritzer, 2010, p.174). Advantages of Globalization Globalization has brought with it improvements in communication and transportation linkages. This fact has exposed large sections of the national economies to the cross-border trade and to the flow of capital. Improved economic integration and growth in globalised economies has led to countries acquiring massive wealth hence improved provision of social services like health care, housing provision and clean water (Global Education, 2005). Globalization has enhanced efficient and speedy flow and sharing of information. The way people communicate and learn, do business and find solution to various problems has changed for the better. Due to globalization people are able to freely move across borders and venture into international business. Globalization has also led to international interdependence and the creation of global institutions, which advocate for peaceful co-existence and inter-governmental dispute resolution. International peace due to globalization has created an environment for international business and peaceful conflict management through such bodies as WTO (Global Education, 2005). Globalization has enhanced foreign direct investment, which plays crucial role in the transfer of technology, restructuring of industrial developments as well as global enterprise formation which all stimulate and impact on national economies and international business (Gangopadhyay & Chartterji, 2005, p.212). Disadvantages of Globalization Globalization changes the sovereignty of a country without necessarily eroding it. This leads to national economies which are interdependent on the global economy. Therefore there is a lot of external international influence on countries when they are making decisions regarding domestic and international business policies (Mildward, 2003, p.37). Leaders of these countries also fear loosing the ability to determine their country’s own economic policies, express political dissatisfaction among others due to pressure from the international community. World economic giants like the US have major influence in the global economic institutions like the World Bank and the World Trade Organization. This fact can greatly jeopardize the interest of the developing economies (Global Education, 2005). Globalization therefore contributes to gross inequity not only among the developed and the undeveloped economies, but also among individuals, regions and organizations in the distribution of the benefits of globalization (Gangopadhyay & Chartterji, 2005, p.136). Liberalization of trade and great technological advancements are some of the products of globalization which have led to the decline of indigenous industries. Importation of cheap manufactured goods has contributed to the destruction of indigenous agricultural communities especially in the developing economies (Global Education, 2005). Globalization brings with it efficiency, but this efficiency brings destruction by jeopardizing jobs to workers who were in the indigenous industries. This in turn destroys the value of such capital (Tanzi, 2004, p.4). Globalization triggers competition among countries especially in the labour market. Developed countries offer better wages for their laborers. This may encourage brain drain where highly qualified and educated specialists move to the developed nations for better wages and greater career prospects creating shortage of such specialists in developing nations. Conclusion As much as it is important to appreciate the positive aspects of globalization, recognition of the existence of negative aspects is also very important. The negative aspects of globalization should not be used as a scapegoat for failure of individual country fiscal policies and programs as a country that does not embrace globalization, and the forces accompanying it risks paying dearly in the long run. This country would be characterized by low rates of economic growth as compared to other countries. However, if a country accepts globalization, its government must formulate and implement relevant fiscal policy to facilitate the positive effects of globalization and oppose the negative impacts of globalization. References Gangopadhyay, P. & Chartterji, M. (2005). Economic of globalization in Asia. Haunts: Ashgate Publishing Company. Global Education. (2005). Globalization. Retrieved, March 8, 2012 from: http://www.globaleducation.edna.edu.au/globaled/go/cache/offonce/pid/178 Lib.utk.edu. (2006). Ready for the World? Retrieved, March 8, 2012 from: http://www.lib.utk.edu/news/readyfortheworld/archives/the_world_is_flat/001137.html Milward, B. (2003). Globalization? Internationalization and monopoly capitalism: historical processes and capitalist dynamism. Cheltenham: Edward Elgar Publishing Limited. Ritzer, G. (2010). Globalization: A Basic Text. West Sussex: Wiley-Blackwell. Suryadinata, L. (2000). Nationalism and Globalization: East and West. Pasir Panjang: Institute of Southeast Asian Studies. Tanzi, V. (2004). Globalization and the Need for fiscal Reform in Developing Countries. Buenos Aires: The institute for the integration of Latin America and the Caribbean (INTAL). World Trade Organization. (2012). GATT and the Goods Council. Retrieved, March 8, 2012 from: http://www.wto.org/english/tratop_e/gatt_e/gatt_e.htm. World Trade Organization. (2012). The WTO in Brief. Retrieved, March 8, 2012 from: http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm Read More