Growing Inequality in International Business - Essay Example

Growing Inequality in International Business Name Institutional Affiliation Table of Contents Table of Contents 2 Introduction 3 The Economic Environment 4 The Managerial and Labor Environment 7 The Regulatory Environment 11 The Financial Environment 13 The Political and Legal Environment 16 References 18 Growing Inequality in International Business Introduction Global inequality has for a very long time been a subject of much inquiry to economists. Lately, the issue has also attracted intense popular interest. This interest has been sparkled by the perception that global inequality has been increasing greatly in the last two decades. According to Cavusgil, Knight and Riesenberger (2012), it is widely acknowledged that income inequalities between the rich and poor countries have been increasing in the last twenty years. Growth of income in poor countries, especially in the developing world, has been slow compared to income growth in the developed nations (Cavusgil, Knight and Riesenberger, 2012). Studies indicate that globalization has contributed to the growth of income inequality, given that it is the rich countries that benefit most from this system while the poor countries remain impoverished (Buckley, 2004). The growing global inequality has had a huge impact on industries and enterprises around the world. Global inequality is replicated in industries and enterprises alike, and this affects the way they conduct their businesses. Research shows that constant imbalances in the international sphere have affected some of the most influential industries like the oil and financial industries (Buckley, 2004). Economists assert that global inequalities are hugely affecting the growth of international businesses. Global inequality is a phenomenon that is gradually taking root in the contemporary world. The impact of global inequality is evident both in the domestic and international spheres. The international business world is experiencing the effects of global inequality on a large-scale, and this has a huge implication on the day-to-day running of such businesses. Inequality impedes the growth and development of international trade relations, hampers the growth of the economy, limits the growth of global businesses and causes instability in the labor market (Falck, 2007). Governments and international enterprises assert that global inequality is a threat to the economic stability of nations, both in the domestic and international spheres, thus it is extremely important for managers and enterprises to evaluate the issue (Gottschalk and Justino, 2006). The issue of global inequality should be addressed comprehensively by the relevant stakeholders to bring order to the corporate world and governments. This report seeks to affirm that global inequality is a reality in today’s world, and only feasible measures can be taken to effectively take care of the situation. Managers and enterprises, as the principle leaders of the corporate world, need to comprehensively evaluate the question of global inequality in order to create a viable environment for growth and sustainability in the international business arena. The Economic Environment Without deliberate and detailed evaluation of the extent of global inequality, it will be difficult to achieve the much-needed growth in the business world. The business world plays a very instrumental role in the growth and development of a nation’s economy. However, the global inequality taking shape in the 21st century is threatening to impede the growth businesses and, consequently, the growth of the economy. Managers have to evaluate the issue of global inequality to avoid a decline in their operations and a nation’s economy. It is worth noting that domestic and international industries are driving forces in enhancing the economic prospects of countries (Gottschalk and Justino, 2006). It is the responsibility of managers to ensure that any form of inequality impeding economic growth is evaluated and addressed accordingly. Therefore, tackling the question of inequality is important because it helps in improving the general outlook of international businesses. Experts argue that multinational corporations are able to enhance their corporate image by evaluating any levels of inequality in their operations, and taking the necessary steps to address the inequalities (Lucke and Spinanger, 2004). When multinational companies in the automobile industry ensure that the level of expertise grows evenly in different regions around the world, this helps them to remain relevant in the industry. Expertise is a valuable resource that contributes significantly in the growth of a company’s operations, thus improving its market share and the overall economy a country. Global enterprises and managers are central figures in creating a favorable environment for economic growth by eliminating global inequalities. Effective evaluation of the existing global inequalities in the commercial world calls for managers and enterprises to understand the importance of equal distribution of resources. The fact that resources are not been distributed equally among deserving parties is the reason why inequality has become a big problem. Research shows that unequal distribution of resources impedes growth in the commercial sector and in the government (Lucke and Spinanger, 2004). As a result, it is highly valuable for managers and enterprises to ensure that a constant evaluation of available resources is done to avoid instances of inequality. For example, international companies in the oil sector should ensure that there is equal distribution of its resources in the countries of operation. Oil drilling companies should give job opportunities to the local people, instead of pushing them away. When oil drilling companies working in foreign countries employ their own expatriates, this implies that the level of inequality will continue to grow, and this will hamper the growth prospects of the host nation. Thus, it is imperative for company leaders to assess the extent of inequalities as far as distribution of resources is concerned, in order to create an environment that encourages growth. Effective assessment of the global inequality trends is crucial in bringing together all the major stakeholders in the global corporate business arena. Governments and international organizations like the International Labor Organization are major stakeholders in addressing the issue of global inequalities. Since international enterprises play a crucial role in the growth of international businesses, it is vital for managers to put into consideration the need to engage other stakeholders in maximizing the potential for growth (Trebilcock and Howse, 2005). Of course, the need for engagement is geared towards the formation of feasible policies aimed at reducing the ever-increasing incidences of global inequalities. The government takes the front row seat in coming up with regulations that discourage the economic inequalities. The regulations play a crucial role in protecting vulnerable groups from the unequal distribution of important resources (Trebilcock and Howse, 2005). In this respect, it is pertinent, through constant evaluation of global trends, for managers to work closely with government institutions to set policies aimed at restricting the expansion of inequality. For instance, managers and relevant enterprises have the responsibility to evaluate the export and import markets, and advice the government accordingly on how to avoid inequalities. Protecting the interests of a developing nation from overly exploitation from a developed country, the government can work closely with managers to form feasible regulatory policies (Lucke and Spinanger, 2004). In addition, the importance of managers evaluating the prevailing global inequalities is that it allows them to work with relevant institutions that improve their labor environment. The International Labor Organization is directly affected by the global inequalities being experienced in the world. As an advocate of equality and the empowerment of the labor market, the ILO, in conjunction with managers across different industries, can merge their efforts in ensuring that equality prevails in the labor market. Hence, a critical analysis of this point births the idea that the deliberate evaluation of global inequalities by managers and enterprises around the world brings significant stakeholders together and fosters the equitable economic and corporate growth. The Managerial and Labor Environment Global inequalities cause a decline in labor stability and poor managerial execution. In response to this assertion, managers have an invaluable obligation of ensuring that they keep track of the prevailing trends in the international arena in order to make feasible decisions regarding the labor environment. The labor environment is extremely significant in today’s global economy; businesses and governments are relying on labor to achieve their goals and objectives (Wild, Wild and Han, 2008). However, it is unfortunate that the labor environment has been greatly affected by the global inequalities being experienced today. It is worth to identify and evaluate an industry that has affected the labor environment, and contributed to the global inequalities in human capital. The oil industry is a perfect example of how domestic and international companies have affected the labor environment. The oil industry for instance, has had its operations largely influenced by the global inequality trends of the 21st century. Given the prominence of the oil sector in the global economy, it is without a doubt that inequalities experienced in the sector impedes the capacity of economies and businesses to grow. The oil industry carries a huge percentage of the global economy, but the most unfortunate aspect is that it is less labor-intensive (Wild, Wild and Han, 2008). This implies that it does not create employment as other industries do. The oil industry involves intensive drilling and mining of oil rich lands, which is a contributing factor to the inequality being experienced in it. The intensive drilling and mining of oil rich lands involves heavy machinery and top-notch physical infrastructure that excludes human capital (Dorrenbacher and Geppert, 2011). Much of the oil industry is concentrated on the investment of physical capital, as opposed to human capital, thus creating a corporate culture of capital inequality. A critical analysis of this point shows the extent of global inequalities in the international markets. The culture of global inequality has infiltrated the oil and gas industries; according to Dorrenbacher and Geppert (2011), it is the rich people who benefit from oil extraction. Rich nations benefit significantly from the oil and gas industries at the expense of the poor nations. This imbalance is experienced when rich nations provide intensive physical capital to drill and mine oil from developing countries, while employing very few people. Despite the significance of the industry in the global markets, research shows that, actually, it employs few people compared to other industries (Dorrenbacher and Geppert, 2011). On the subject of the capital-intensiveness of the industry, experts argue that oil companies invest more finances on tools, infrastructure and money in order to garner enormous profits (Lucke and Spinanger, 2004). Compared to labor-intensive industries, which invest most of their finances on employees, the oil industry is usually focused more on non-labor components (Lucke and Spinanger, 2004). Unlike other industries, heavy financial investments are channeled to the buying of land, acquiring specialized machinery and developing top-infrastructure. In light of this, Gooderham and Nordhaug (2003) assert that the oil industry does not create jobs like other industries. The minimal capacity of the industry to invest in labor implies that it does not create strong avenues for empowering jobs creation. A critical analysis of the oil industry shows that this trend creates inequality in the business cycle. A business cycle should have a uniform distribution of the crucial elements including physical and human resources. While other industries, like the education industry, are becoming more and more labor-intensive, the oil industry continues to be more capital-intensive. The fact that few people are getting employed in the oil sector is an indication that global inequality has a huge impact on the industry. According to Sitkin and Bowen (2010), the oil industry in Angola employs about 1% of its citizens. The trend of minimal employment in the oil industry is a global inequality that is affecting many people. Oil-related companies working in the developing world employ expatriates to work on their projects, thus failing to employ the local people. The significance of oil as a natural resource cannot be underestimated. Thus, the global inequalities existing today have trickle-down effects on the domestic and international contexts of the oil industry. Oil companies benefit mostly the wealthy at the expense of the poor. The owners of equipment and fossil fuels, which form a big part of the industry, are the ones who get the largest shares of profits (Hudec, Kennedy and Southwick, 2002). It is not the creation of employment that takes much prominence in the oil industry, but the creation of more capital for the oil companies. Looking at this from a global perspective, it is evident that wealthy nations are the ones that benefit much from the oil industry. Developing nations lack the capacity to invest in the high-tech machinery and infrastructure used to run the oil industry, thus developed nations emerge as capital providers and, in the process, get more profits than the developing countries (Hudec, Kennedy and Southwick, 2002). Since some poor nations lack the financial and infrastructure capacity to drill their oil deposits, wealthy nations take advantage of their expertise and financial power to reap benefits from this inequality. The imperative nature of the oil industry makes it a target of the growing global inequality. Based on this critical analysis, it is evident that managers and enterprises have a huge responsibility to ensure that growing global inequalities do not impede the growth and development of the labor environment. In connection with ensuring that the labor environment remains robust, managers need to address the question of global inequalities by providing equal opportunities to all potential employees. Global inequalities associated with labor hamper the realization and utilization of potential in the job market (Alm, Martinez-Vazquez and Rider, 2006). It is a common global trend that men dominate the job market more than women, especially in technical fields like IT and engineering. As a result, women find themselves fighting for minimal places in other job markets (Alm, Martinez-Vazquez and Rider, 2006). The question of inequalities in the labor environment is not only about gender, but also age. Numerous people are finding themselves being edged out of the labor market because of their ages. For instance, in developing countries, young people find it hard to get jobs in management positions because they are perceived to lack the required experience (Alm, Martinez-Vazquez and Rider, 2006). This, indeed, is a global inequality trend that is taking root in the modern corporate world. Based on this argument, managers of domestic and international companies should evaluate the level of inequalities in the labor environment, in respect to gender and age, and come up with possible remedies to address the gap that exists. The managerial environment plays a crucial role in the running of businesses around the world. The ability of managers to make decisions concerning their enterprises goes a long way in determining whether inequalities arise. As the leaders of corporations, managers have the responsibility to ensure that they protect the integrity of their environments. Inequalities related to age and gender should not surface in the corporate world, as long as the people involved are qualified to perform at any level. Inequality based on gender and age is evident in the contemporary world, but the enterprises, whether domestic or international, need to ensure that such inequalities do not obstruct the growth and development of talent (Alm, Martinez-Vazquez and Rider, 2006). Thus, it is extremely paramount for managers, through constant assessment, to realize that their role as top executives is to ensure that the trends in global inequalities do not hinder the growth of potential. The Regulatory Environment Regulating the international corporate environment is influential in solving the problems associated with growing global inequality. This means that international managers and enterprises have to align themselves with regulatory bodies to enable businesses to benefit fully from the opportunities that are available. Without an effective regulation system in the international enterprises system, the question of global inequality will continue to affect international businesses and trade (Bardhan, Bowles and Wallerstein, 2006). As earlier discussed, international enterprises work with governments to set up policies aimed at regulating the international market system in order to limit the increase of inequalities. Through a careful evaluation of the international business system, international managers are able to identify areas that require substantial regulation in order to achieve expected results (Bardhan, Bowles and Wallerstein, 2006). Apart from the government, other institutions have contributed in assisting the international enterprises system to deal with growing global inequality. Since its inception, the International Labor Organization has partnered with governments and international enterprises to eradicate the global inequalities in the labor market (Hudec, Kennedy and Southwick, 2002). The International Labor Organization works collaboratively with international enterprises to form laws and action plans aimed at improving the labor environment (Hudec, Kennedy and Southwick, 2002). At the international level, the ILO ensures that the set labor rules and regulations that govern the international business system are followed accordingly. Through the efforts of the international organization, managers can learn how to enforce legal procedures aimed at regulating the international corporate environment. Therefore, managers are tasked with the role of putting in place mechanisms that pursue justice for employees. This not only improves the working conditions of the employees, but also fosters the development of the international business environment. The capacity of international enterprises and managers to assess the degree of global inequality and work with regulatory institutions to curb the spread of the same plays a crucial role in creating a thriving corporate environment. The Financial Environment The financial environment is a major source of global inequality that international enterprises and managers need to address. The financial environment is an extremely volatile area that forces governments and international companies to drastic measures to create stability. The lack of stability in the international system forces nations to be involved in currency wars (Helpman, Marin and Verdier, 2008). This refers to the devaluation of a country’s currency to make it more competitive in the international market (Helpman, Marin and Verdier, 2008). As a country’s rate of currency exchange falls, so does the cost of its export goods. This implies that the low costs of exports will attract many buyers from other countries. Additionally, a devalued currency encourages the growth of domestic companies that seek to satisfy the growing demand of exports (Helpman, Marin and Verdier, 2008). An important point to reiterate on is that the decline in the costs of exports means that the costs of imports go high; hence, discouraging people from buying imported products (Helpman, Marin and Verdier, 2008). The genesis of this financial policy is the fact that the international system is affected by the global systems of inequalities that exist between and among countries. According to financial experts, while currency wars can have a positive impact on the economy of a country by increasing its exports, this policy can have negative effects as well. One of the negative effects of currency devaluation is the creation of trade embargoes that limit the growth of international trade. It becomes difficult for countries to trade with one another because of the limitations that they instill on one another (Binda, 2013). Another negative effect is the rise in the rate of inflation because of failing to take the necessary policy precautions (Binda, 2013). Of course, a high inflation affects a country’s economy, and discourages foreign investors. Additionally, a currency war has the potential of increasing the volatility of a currency, and this impedes the growth of foreign investment in a country (Binda, 2013). A critical analysis of this financial climate shows clearly that the global stage is characterized by inequalities that force countries to take drastic measures aimed at leveling the international market’s field. However, this policy has negative implications that threaten the escalation of more inequalities. Therefore, international enterprises and managers are tasked with the obligation of ensuring that such global inequalities do not have trickle-down effects that hinder the growth of global trade and enterprises. Effective evaluation of the current global inequalities affecting the global financial system calls for international enterprises and managers to take coordinated financial policy steps to encourage the growth of domestic demand, as opposed to devaluing a currency. As experts argue, currency wars only lead to unbalanced international financial systems that threaten to disrupt the growth of trade among countries (Alm, Martinez-Vazquez and Rider, 2006). The actions of international companies and managers to consider taking feasible fiscal policies to avoid the escalation of an unbalanced international system play a significant role in enhancing the demand for domestic production as well as boosting global demand. Moreover, it is important for global corporate leaders to be on the forefront in campaigning for the collaborative partnership between major stakeholders in the global financial environment and international financial institutions. This aims at giving the international body the mandate to assess and identify any potential sources of international imbalances, and also provide counter measures to tackle the problems. The IMF is an international financial institution that is directly affected by the financial imbalances that arise in the global market (Alm, Martinez-Vazquez and Rider, 2006). Thus, the ability of the IMF to identify and recommend coordinated measures of solving the imbalances that exist in the international markets is significant in allowing both surplus and deficit countries to work together towards limiting the expansion of global inequality (Binda, 2013). Countries are able to coordinate their efforts to find long-term solutions to fiscal challenges instead of dwelling on measures that only attract instability in the international market. When international enterprises and managers address the issue of global inequality in the financial environment, they are simply making it possible for countries to trade with one another with ease. Trade embargoes are removed when major stakeholders in the international markets work together to evaluate and tackle the sources of inequality. Once effective measures are taken to address the issue of inequality in the international commercial system, it becomes easier for the export and import markets to grow. In addition, the capacity of international players in the global markets to put in place systems of eradicating inequality plays a dominant role in leveling the playing field for direct foreign investment to thrive. Foreign investors are able to invest in other countries because the factors that impede their growth are handled at the international level. Therefore, domestic and global investments increase because of the capacity of international enterprises and managers to assess existing inequalities and, at the same time, recommend effective measures of addressing the challenges. A critical evaluation of the financial climate in the global arena shows that fiscal inequality between countries is, indeed, a reality, and only the calculated measures of major international players can address the problem. The outcome of effective handling of inequalities in the global financial climate is the growth and development of trade and international businesses. The Political and Legal Environment The political and legal environment is very important in the international business sphere. International enterprises and managers have to consider the political and legal factors existing in different countries to operate effectively. It is significant to note that different countries have different political and legal parameters; hence, affecting the dynamics of international businesses. Diversity in government regimes has a great impact on the political and legal factors that affect international enterprises and managers (Cavusgil, Knight and Riesenberger, 2012). For instance, an authoritarian regime and democratic regime present different political and legal circumstances for international businesses. An authoritarian regime can come up with stringent government regulations that hamper the growth of multinational corporations, while a democratic regime can foster a liberal business environment that encourages the growth of multinational corporations (Cavusgil, Knight and Riesenberger, 2012). The different political and legal factors existing in different nations are an indication of the global inequality that international businesses face in their operations. International companies face diverse political and legal risks depending on the prevailing conditions in a country or a regional economic bloc (Cavusgil, Knight and Riesenberger, 2012). Based on the global political and legal inequalities that exist in the international business environment, it becomes extremely important for international enterprises and managers to carefully evaluate these inequalities in order to make informed investment decisions. Political stability is an imperative aspect that international enterprises and managers need to assess while making investment decisions. Nations that have political stability are the best to work with because the governments provide a viable environment for international businesses to thrive (Gottschalk and Justino, 2006). On the other hand, countries that lack political stability, in most cases, have negative consequences on the effective operations of international enterprises. Thus, it is extremely valuable for international companies to evaluate the state of a country’s political stability before making investment plans. The ability of international managers to consider this factor goes a long way in ensuring that a company’s resources are channeled to an environment that encourages the growth of international business. The legal aspect plays a very crucial role in the growth and development of international businesses. International companies need to consider the legal aspects that exist in a country or regional block to maximize on its capacity to operate effectively (Gottschalk and Justino, 2006). In this respect, it is highly significant for international enterprises and managers to evaluate the different legal parameters put in place in different countries, in order to make the right decisions on investment. Putting the trade rules of a country or regional block into consideration is important for international enterprises (Gottschalk and Justino, 2006). Compliance to these legal entities means that international companies are able to operate successfully in different countries. For example, by adhering to consumer protection regulations in different countries, international businesses are able to reap huge benefits from the market. However, stringent legal provisions like excessive tax laws are not good for the growth of international trade. Therefore, it is very important for international managers and enterprises to be mindful of the political and legal environment that they operate in. The aftermath of effective handling of the inequalities that exist in the political and legal environment is fundamental in enhancing growth in international business. This report is a candid expression of the challenges facing the international business environment. International enterprises and managers are facing numerous challenges arising from the global inequalities that affect the day-to-day running of the international corporate sphere. The growing global inequalities present various challenges like a decline in the growth of international business, decline in international trade relations and the lack of growth in the labor market. As a result, international companies emerge as influential parties in restoring the required balance to encourage the growth of international business. The managers are required to constantly evaluate the global inequalities to come up with feasible solutions to the prevailing challenges. They have to closely monitor the financial climate, managerial and labor environment, the political and legal environment, the regulatory environment and the economic environment to foster growth in the international business arena. It is evident that every major stakeholder has to participate collaboratively in dealing with the global inequalities to create a robust international business environment. References Alm, J., Martinez-Vazquez, J., & Rider, M. (2006). The challenges of tax reform in a global economy. New York, NY: Springer. Bardhan, P. K., Bowles, S., & Wallerstein, M. (2006). Globalization and egalitarian redistribution. Princeton, NJ: Princeton University Press. Binda, V. (2013). The dynamics of big business: Structure, strategy, and impact in Italy and Spain. New York: Routledge. Buckley, P. J. (2004). 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