Globalisation of Business Activities - Coursework Example

Globalisation of business activities Introduction Globalisation –Liberalisation- was a giant leap in the past two decades. Liberal is a fine word having a number of connotations. According to Oxford Advanced Learners Dictionary it stands for a person 'open minded; having, showing broad mind, free from prejudice. Until 1920 it stood for the principles of the Liberal Party favouring moderate democratic reforms in favour of progress and opposed to privilege. American Webster’s Dictionary has added new dimensions to it 'lacking moral restraint' and 'associated with the principles of political liberalism,....esp. economic freedom, greater individual participation in government' and constitutional political and administrative reforms designed to secure these objective's and 'not bound by authoritarianism, orthodoxy, or traditional forms'. Liberalisation is a noun from liberal i.e. it covers all the ideas or ideals that the root liberal connotes. 'Progress' and 'economic freedom' are the two norms adopted in 1991 hardly knowing that if the generosity is shown to others the monetary gains accruing to them from it would naturally be surrounded with all the other meanings of the word. The arrow had only one target-economic progress. But on the way it hit many interests of the nations. Goyal K A. & P.K.Khicha, “Globalization of Business: Future Challenges”, Third concept, An International Journal of Ideas. The four factors, which in my view, have accelerated this process in the past two decades, are the following. Here, we will discuss the impact of globalization on production and marketing and ultimately consumer price inflation in the global market, it can be stated that there is the sole evidence of the factors accelerated and affect in last two decades. (Dunning, J. H. (1993) The Globalization of Business: the challenge of the 1990s. Routledge; London. ) 1. Import prices As I stated above, globalization sector imports have been growing strongly, but euro area imports from low-cost countries such as India, China and the new EU Member States (henceforth NMS) have been growing even more rapidly. But there are countries suffering with the aggression of the MNCs. Rising imports from low-cost countries are putting downward pressure on extra-euro area manufacturing import prices. Overall, it is estimated that the increase in import penetration from low-cost countries over this period may have dampened euro area import price inflation by an average of 2.1 percentage points each year. 2. Wages Turning briefly to recent euro area wage developments, globalisation may have been one contributing factor to an extended period of wage moderation within the euro area (for instance, through offshoring or the threat of offshoring), across both manufacturing and service sector. While productivity growth in the euro area has also been moderate over the last decade, real wage growth has also been low. Over 1985-1995 both productivity (output per person) and real wage growth rates averaged around 1.9%. Over the period 1996-2006, average productivity growth was approximately 1%, with average real wage growth around 0.4%. But, in the euro area it appears that wage moderation since the setting up of the euro has been a very powerful response to the level of mass unemployment that characterized Europe in the 90’s. The wage moderation has been at the root of the remarkable employment success of the euro area with 15 million new net jobs created in nine years, 2 million more than in the U.S. during the same period. 3. Overall impact on producer and consumer prices The recent trends experience thus indicates that relative price impacts have been strong over the last decade, with disinflation in manufactured goods contrasting with a strong acceleration in prices for commodities, though a complete assessment of their importance relative to historical norms is hampered by limited past data. The producer price inflation has shown strong relative price effects, with muted development in consumer goods . 4. Economic Growth Globalization is a universal concept meant for the benefit of all member countries and to raise standard of welfare of the people. This means that it should raise the rate of economic growth in poor third world countries and reduce world poverty. It should not increase inequalities or undermine socio-economic security within countries. The sole concept of unity for poverty alleviation has a significant accelerative point in the growth of globalization. It is widely accepted factor that the clear cut test for globalization is whether it is significantly speeds up development and the reduction of absolute poverty in the world, and whether it ensures economic, social and environmental sustainability. Further to these the 4 Sectors which took part in the process is also mentioned here in the following. Effects of Globalisation Gradually the effects of liberalisation started manifesting in different ways. The World Bank and IMF have been insisting on the full implementation of the General Agreement on Tariffs and Trade (GATT) that implies the acceptance of Trade Related Intellectual Property Rights (TRIPS) and Trade Related Investment Measures (TRIMS). The draft agreement was prepared by Arthur Dunkel, Director General of the Geneva based General Agreement on Tariffs and Trade. The negotiations started in September 1986 at Punta Del Este in Uruguay, a South American country. GATT is based in Geneva and Dunkel is a great champion of free trade. Naturally all the progressive countries are interested in the Dunkel Draft and want to impose it on Third World countries. It deals with 14 areas covering every aspect of our lives i.e. food, medicine, services, industry, jobs, textiles, nature, agriculture, investment, industry and technology. According to Dunkel Draft all the countries expecting help from progressive countries would allow the multinationals of these countries full freedom in the beneficiary country according to the dictates of the donor or lending countries. 1. Pharmaceuticals Third world countries had been facing problems specially in accepting the Dunkel Draft in two fields- both governed by TRIPS i.e., Trade Related intellectual Property rights. The USA has been insisting upon accepting the Trade Mark Patent rights of the USA drug manufacturers for 20 years as prevalent in that country. In most of the Third world countries the patent right is for five years only. This would mean that for 20 years their firms can't manufacture these drugs. The governments have said that it won't affect either the health of the nation or the interests of drug manufacturers. The Drug Manufacturers' Association has claimed that the turnover of patented drugs is 40 per cent for antibiotics, 98 per cent for antibacterial, 70 per cent for antileprotics, 40 per cent for cardiovascular drugs, 48 per cent for anti-asthmatics and 89 per cent for contraceptive hormones. These are all life saving drugs. The foreign manufacturers under Dunkel umbrella would have 20 years' patent rights on them. Sometimes they purchase bulk drugs from Third World Countries and prepare a combination with them, getting them patented depriving the Third World Country right on what it has basically manufactured. The government has almost conceded to their 20 year patent protection. 2. Intellectual Property Rights Similar is the case of plant variety protection in the TRIPS regime. The foreign suppliers have claimed Plant Breeders Rights i.e. the seed companies will not be allowed to multiply seeds brought from a foreign country. The farmers would not be allowed to sell seeds to their neighbours. Even public sector and state institutions would not be able to do any research on the so called new varieties or release their findings to the farmers. The seed varieties will be limited and agriculture would be totally at the mercy of the multinational seed companies. It would be relevant to note that many plant varieties of vegetables, fruits and food grains were basically taken away by the Europeans from under developed countries. Further research was done by them in their own countries. Thus basically a large number of seeds and plants belonged to under developed countries. By making a few generic changes the European Multinationals claim them as their own patented creation. 3. Textiles Let us take one more category-the field of textiles. Third World Countries had a Multi-Fibre Agreement (MFA) with GATT countries. Under the agreement the synthetic fibres used in textiles that originated in EC countries and USA and patented there remain under their control. All those manufacturing them in Third World Countries have to pay royalty and technical know-how charges and import, a number of machinery and component constituents from the country of origin. Third World Countries’ Govt or laboratories are not allowed to do any research on them to improve the quantitative or qualitative contents. The agreement nil expires on December 31, 1992 is destined to be extended by the end of the century. Results of Government negotiations with the concerned nations that follow the Dunkel proposals have come to naught. Thus howsoever big textile manufacturer of Third World Countries may be it would remain in the grips of industrialised nations for a long time. 4. Free Market economy Liberalisation has two aspects-to allow the Multinationals to establish and invest in Third World Countries and to be a part of the Free Market Economy accepted and propagated by Gorbachev too who considered Karl Marx an enemy of openness in socio-economic-political set up. With the fall of socialist regimes of Europe Free Market Economy has been the pole star of the ships f economic development in developing countries. USA that has emerged s a unipolar force in World politics found it rather difficult to compete with Japan, Korea, Germany, Switzerland and even Thailand in many areas like electronic goods, cars, engineering goods, drugs, chemicals and garments and so had to find a channel to stand a champion of free market as well as to make up its losses caused by its shortcomings. It found the easiest way through GATT based on Draft Dunkel Text (DDT) As soon as it found the backward countries in need of finances it enforced the conditions of DDT. On developing countries’ refusal to accept all of them the country was brought under Carla Hill's Super 301 that restrained developing nations from exporting a number of products to the USA. Thus the economy of USA can hardly be called Free Market Economy. It is being controlled by large business houses and producers. It is thus oligopolist or monopoly capitalist economy Economist Kenneth Galbraith was almost correct when he referred to it as the military – industrial complex. When Bill Clinton, a Democrat has been elected the President of the USA, People had hopes that he may be helpful to Third World Countries. But his two statements issued immediately after his election in November,' 92 have belied the hopes of the government of Third World Countries. He has said that he would lay more stress on Non-proliferation Treaty and there would be no change in the foreign policy. It means the stumbling blocks persist and we should not expect any soft loans or concessions from IMF and WB. Moreover democrats have a majority in the USA Congress. Earlier whenever the Congress resolved for a strict action against Third World Countries (and it did) Bush vetoed it. The scene is as on and on even after pretty long sixteen years. Assessment as an individual affected by the process of globalisation in the Past 5 years II. GLOBALISATION FOR ECONOMIC LIBERALISATION As a philanthropist closely watching the progress and development of the third world countries and the world as a whole, I find the following impacts of Globalization in the past 5 years. During the early eighties, a need was felt for giving a respite to the wiling Third World Countries economy. Although their performance in all the industrial and agricultural sectors was good, yet the economy had not developed a thrust for going beyond the take-off stage. Further to Globalisation, the benefits of development had not seeped down to the level of common masses. Economic progress had been made but that was not sufficient for propelling the engines of growth. On the other hand, the economics of China, Taiwan, Malaysia, Indonesia and Singapore performed very well. Their exports, per capita production and per capita income rose sharply and now, these nations have already become developed enough for imparting good living standards to their masses. The industrial development is also impressive in the case of these nations. Since I am a mighty entrepreneur I can increase my family exporting business to a great extent and in fact it was a boom in that period. But the very same time the competition became very stiff and company had t spend to assure high quality. The very best aspect of globalization is that the ultimate customer would be able t get fine quality products. So as a customer I assess my products and I decided not to compromise on quality. This step would be harsh for Third World Countries families but it is inevitable. But due to the rapid pace of economic liberalisation, more firms from abroad would flood the markets with of high quality cheap goods. Manufacturers have been feeling the heat in computers, textiles, light machinery, apparels, consumer electronics and other vital consumer goods sectors. I find quality products in everywhere. (Dunning, J. H. (1993) The Globalization of Business: the challenge of the 1990s. Routledge; London. ) Due to liberalisation on of the economy, exports and imports would increase. Hence, the economic growth would be faster. As an example, the USA, Canada, the UK are the leading importers of the world. They are also the leading exporters of the world and also enjoy highest economic and social living standards in the world. Imports should not be a reason for worry. They are necessary for our economic growth and for our social development on a mass scale. Economic liberalisation would upgrade my living standards. It has done so during the past as well. Me as a consumer has a wide ranging choices in televisions, music systems, cars, clothes and textiles, state-of-the-art home appliances, cellular phones and accessories and many more products. This has been made possible due to competition from the foreign players. Paperwork in exports is being cut down. Red tape is being reduced. Bureaucracy is assisting in the process of economic development. Education in the rural areas has been given a big boost. The emphasis is on vocational education rather than theoretical and directionless cramming of the books and notes. We can see colour televisions, cable networks and telephones, STDs and ISDs in the rural areas of the country. Many villages still need electrification. This task would be completed within a decade. Further, the rural masses are enjoying better living standards with the advent of new and cheaper technologies in the economic scene; refrigerators, televisions, CD players, computers, water pumps, cellular phones, cable TV networks, better farm seeds, fertilisers, latest health facilities, medicines, transportation networks etc are some of the few blessings bestowed by the liberalised economy upon the rural masses. Urbans are also working hard and are enjoying every bit of it. The economic standards have improved. There has been a steep rise in the material assets, property and cash inflows. Hoogveldt, A. (1997) Globalisation and the Postcolonial World: the new political economy of development. Macmillan; London. We must remain optimistic but should not ignore the dismal features of our economy. Firstly, the multinationals have penetrated deeply into our urban and rural markets. These corporations have good financial muscles and are competent on managerial and technical fronts. These firms have thrown many local companies out of competition. Our masses are hungry for imported technologies in music systems, televisions, cellular phones, telecommunications, fast food, medicines etc. The local manufacturers have suffered on this account very heavily as they have lost their own local and regional market niches due to the advent of the MNCs. References 1. Goyal K A. & P.K.Khicha, “Globalization of Business: Future Challenges”, Third concept, An International Journal of Ideas. 2. Ojha. A.K. , Globalization & Liberalization – prospects of new world order, Third concept- An International Journal of Ideas, August-2002. 3. Diana Farrell, December 2004, Beyond Off shoring: Assess Your Company’s global potential, Harvard Business Review, December-2004 4. Bartlett, Christopher A and Samantha Ghoshal, “Going Global-Lessons from late Movers”, Harward business Review, March- April 2000 5. Child, john and David K. Tse, China’s Transition and its Implications for International Business”, Journal of International Business studies, Volume 32 Number 2001 6. United Nations- UNCTAD, World Investment report [10] World Bank, World Bank Indicators 7. Amin, S. (1997) Capitalism in the Age of Globalization. Zed Books; London. 8. Casson, M.C. (1988) Recent trends in international business: a new analysis. University of Reading Economics Department Discussion Paper, No. 112. 9. Dunning, J. H. (1993) The Globalization of Business: the challenge of the 1990s. Routledge; London. 10. Frieden, J.A. and D.A. Lake (eds.) (1995) International Political Economy: perspectives on global power and wealth, 3rd edn. Routledge; London. 11. Heckscher, E.F. (1919) The effect of foreign trade on the distribution of income. Translated from the Swedish (1949) in American Economic Association: Readings in the Theory of International Trade (pp.272-300). Blakiston; Philadelphia. 12. Hoogveldt, A. (1997) Globalisation and the Postcolonial World: the new political economy of development. Macmillan; London. 13. Kindleberger, C.P. (1975) The rise of free trade in Western Europe, Journal of Economic History, 35(1). Reprinted as Ch.5 in J.A. Frieden and D.A. Lake (1995, pp.73-89). 14. Mittelman, J.H. (ed.) (1997) Globalization :critical reflections. Lynne Rienner Publishers; Boulder, Colorado. Read More