Globalization in the Republic of Korea - Coursework Example

Running Head: CONNECTING THE LOCAL WITH THE GLOBAL School: Topic: Connecting the Local with the Global Lecturer: presented: Introduction Changes that have been occurring in the global scale have had both positive and adverse effects on economies. These are as a result of globalization which may strengthen or weaken the existing economic systems. Economies may benefit from globalization of industries; leading to the benefits of foreign direct investment, increased exports through protection by international organizations such as WTO and NAFTA amongst others as well as improved productivity as a result of technological transfer. This has led to increased economic growth in emerging economies. On the other hand, economies are exposed to the risk of the spread of economic crisis, for example the current financial crisis in the United States which spread to several other economies due to globalization. However, the benefits of globalization surpass the adverse effects since economies continue to thrive despite the negative aspects of globalization (John and Thomas 1997). For example, the East Asian economies are amongst those that have reaped much benefit from changes in the global scale. Once a peripheral economy, even with the devastating outcomes from the Korean War, Seoul, the capital of Republic of Korea, has become the worlds 11th largest economy in the world and has overcome the world economists expectation by developing into a semi-peripheral economy in a short time. This essay is a critique of events that have occurred as a result of globalization in South Korea. It offers an overview of the benefits that the community has reaped from globalization, as well as some hitches that have affected the people due to the globalization phenomenon in Seoul. It also gives the impression that the benefits that the benefits of globalization to the community surpass the few hitches that have been experienced. In the conclusion, it highlights the world-system theory of globalization that is reflected by the ideas that have been discussed. Globalization in the Republic of Korea Globalization is one of the occurrences in the Republic of Korea that has had extensive effects on the country’s economy. The community in Seoul, which is the capital city, has been affected by the shift from protectionism to a liberalized economic system. The proliferation of foreign direct investment is as a result of globalization. The United States leads in the number of foreign companies investing in the country, which is focused towards more import liberalization in order to encourage consumption of foreign products in the country. This was meant to encourage foreign investment in the country (Noland 2009). The barriers to trade were reduced since 1984, making it easy for foreign organizations to enter in to the country’s expansive market especially in Seoul. According to (Stephanie 2000) the U.S. and Asian countries was at highs of 30% and 32% respectively, of the total number of foreign investors established in Seoul by early 1990s. An increase in foreign direct investments increased the employment opportunities in Seoul, thereby contributing to improved standards of living in the community. More over, it contributed to ethnic diversity as foreign investors brought in skilled employees to work with the locals in their companies. However, the foreigners were few, ranging from 0.3% to 0.5% of the work-force (Laxiun 1998). The elimination of trade barriers in the Republic of Korea is attributed to globalization, which occurred as countries began entering in to agreements such as NAFTA and WTO for the purpose of facilitating trade between economies. Globalization of trade led to creation of a link between the investors and the people who needed the funds for development purposes, as well as facilitating the link between the capital markets with the citizens (Ha-Joon 2002). Under such arrangements, the investors had a chance of gaining from their investment, while the citizens benefited from foreign borrowing in order to accomplish their goals through small and medium enterprises. Since the investors were mainly from developed countries, they introduced advanced technology which was made available to local firms through foreign borrowing, contributing to economic growth in Seoul. With sustainable growth, South Korea was able to maintain low levels of inflation, which had a positive impact on the people, especially the community living in Seoul who provided the major market for locally manufactured goods (Noland 2009). Diversification of local investors abroad was one of the resultant aspects that were made possible by globalization. The investors from Seoul community were able to access finances from abroad for expansion of their businesses locally, which largely contributed to the national economy, especially through employment creation that could not be accomplished without obtaining the funds locally. Availability of capital locally created the efficiency for domestic investment, which helped in the maintenance of substantial capital for investment; thereby contributing to the speed of economic development which translated to a reduction of the gap between the rich and the poor. A declining gap between the rich and the poor is one aspect of the community living in Seoul that is not common in many of the emerging economies (Stephanie 2000). In many countries, the gap is usually extremely large, which hampers the rate of economic growth as governments try to provide the citizens with basic necessities, which they could afford if the gap between the rich and the poor was small. It is usually made small through facilitating small and medium enterprises as well as ensuring that a large percentage of the population is employed (Laxiun 1998). As organizations enter the local market, it is likely that they will bring in new management techniques that are more superior to the convectional ones. Globalization of trade enhanced the capability of the people of Seoul to allocate their finances in the right way and also make strong investment decisions, especially from the experience gained from working with foreign investors. This is an important aspect that has enhanced the survival of many companies in Seoul in spite of the global economic down turn (Yoon 2000). In other words, globalization facilitated knowledge transfer, which played a significant role in helping local investors to manage their finances through integrating strong ideas from foreign investors in to their own system, coming up with even stronger investment decisions and risk management techniques that have enabled them to survive despite the economic crisis (Daniel 2007). More over, competition from the foreign companies compelled them to improve their products leading to acceptance in the local and foreign markets. In regard to corporate finance, Seoul investors acquired the ability to make important investment decisions (Robert and Chan 2002). Initially, the problem of investors in small and medium size enterprises was the fact that they could not approach domestic lenders due to the high rates of borrowing, which was a major discouragement that made such businesses to stagnate for lack of funds. However, the convergence of these rates as a result of globalization made it possible for them to access credit (Daniel 2007). In many situations currently, the borrowers do not have to offer collateral to obtain loans that makes it possible to acquire funds for the small businesses operating with a small capital. These enterprises are mainly owned by members of the Seoul community who earn a low income (Ha-Joon 2002). On the other hand, even the starters can obtain loans, which they could not access before the globalization of trade. The success of these small enterprises has a positive impact to the economy and the community in general since there is a high rate of returns on their investment. The level of economic activities in South Korea rose as foreign investors engaged in competition for the unexploited market and investment ground. This led to increased government revenue, which on the other hand significantly changed the lives of the people of South Korea in terms of access to social amenities that the government was able to provide from the revenue earned. Schools and hospitals were made available to the community, while on the other hand; modern technology was introduced, which made it possible for the people to learn new methods of production protectionism (Ha-Joon 2002). With the increase in the number of foreign partners, the Republic of Korea established market for its exports, mainly manufactured products. More over, competition for the Seoul market enhanced the quality of products that were offered by foreign investors (Cline 1997). All the producers ensured that their products are acceptable and at favorable prices. This made the Korean people to receive quality products, which is a development that is unlikely to change over time. This translated to improved efficiency in production for the local manufacturers in order to compete effectively with the foreign investors. On the other hand, the people were presented with a variety of products to choose from as foreign investors flooded the market. Globalization has many other advantages that it has presented to the people of Seoul. It has generated prudent conduct in carrying out business operations due to entry of international standards in the Seoul market. One of the significant changes that occurred in the Seoul firms due to globalization was the standardization of operations. Since the companies have to compete from a common ground with foreign investors, the international standards have to be observed in terms of quality and measures of products as well as in dealing with employment terms (Robert and Chan 2002). Introduction of international standards in local production means that the Seoul community was safeguarded from substandard commodities, as well as inappropriate remuneration. All products as well as employment opportunities have to be offered according to the internationally accepted standards, failure to which a company may be unable to compete due to unacceptable products or failure to retain skilled employees as they look for better opportunities. Better quality products and admirable employment terms are advantage of globalization to the community in Seoul. In regard to financial institutions, the requirements for borrowers to qualify for loans were lowered as a result of competition from foreign lenders as a result of globalization that presented the Seoul community with an opportunity to borrow finances from abroad. Financial institutions began to offer good and efficient services or else they could end up losing important customers. The foreign organizations are a major employer to the local communities. Since they are mainly concentrated in Seoul, the population density is ever increasing as people move to the city to look for employment. The concentration of people in this region has led to the development of economic activities in the form of small businesses in order to satisfy the demand for the common goods that the population needs, but are not provided by the large manufacturing organizations. This means that the local companies and small enterprises operating in Seoul have a large local market where commodities can be sold in small scale (Daniel 2007). For example, the rise in population in Seoul has resulted in high demand for Information Technology services since internet usage for communication purposes has greatly increased. However, this has had a negative impact on Korean co-corporations as people tend to move towards these small businesses (Cline 1997). This is an indication of the social implications of the changes brought about by foreign direct investment. People no longer want to work for the Korean companies whose pay is much lower than the foreign companies and instead tend towards the small scale enterprises that are more profitable due to the large market (Laxiun 1998) There are a few problems facing the Seoul community as a result of globalization although they are likely to affect the local firms in the short-run, but in the long-run the firms are likely to regain their productivity (Yoon 2000). Due to the interconnections that exist between Seoul and other foreign economies, for example the United States, the local business has been adversely affected by the global economic crisis. For example, most of the United States owned companies closed as a result of the current financial crisis. The over reliance of the people in Seoul on employment by foreign organizations has made many people vulnerable to loss of employment. Even the Korean companies have not been spared by the effect of the financial crisis. Once companies close, they affect the community in a big way, especially a reduction in the employment opportunities (Ajit and Zammit 2000). Apart from closing, some companies such as Samsung have resorted to freezing wages at the current level as a measure to counter the effects of the down turn. This means a negative impact to the employees, since the cost of living continues to increase. They have to lower their level of consumption of particular commodities, or even to move to lower class apartments which they are capable of paying (Yoon 2000). Many other companies have similar measures including the reduction of entry level salaries. Others have adopted job sharing in order to help in lowering the rate of unemployment arising from the closure of companies and freezing the hiring more employees (Laxiun 1998). However, the benefits of globalization outweigh the disadvantages in regard to the Seoul community’s perspective. Even though foreign companies are closing down, as a result of the economic crisis, the capacity of local companies to manage resources effectively has made it possible for them to find new ways of maintaining profitability at the height of economic crisis, due to the knowledge transfer regarding management issues. The Korean companies are therefore likely to recover from the crisis through locally generated ideas in Seoul, meaning that measures to cope with the global economic crisis will be generated, and the local organizations will accomplish increased production and profitability. Conclusion Globalization is one of the aspects of global economic restructuring, which have had a significant influence on the local community in Seoul. It has largely influenced the standards of living of the people through generating employment opportunities as well as the establishment of small and medium enterprises that are an important source of livelihood for many. It has also led to the improvement of products and services offered to the people due to competition. However, impacts of globalization have made the economy unable to cope with external forces, such as the global financial crisis, although the new knowledge regarding effective allocation of resources has saved local industries from collapsing, and the situation might get back to normal in a short time. The theory that applies in this case is the “World-system theory of globalization” since in this case; the main driver towards globalization is the need to establish new market for products as well as resources to finance local investment. Technology is also cited as one of the driver as nations move to the unexploited grounds to use their innovativeness in technology to expand their production. As foreign companies entered in Seoul, they specialized in various sectors such as manufacturing and finance (John and Thomas 1997). In general globalization has helped the community in Seoul in terms of generation of employment opportunities, improved standards of production, market for locally manufactured goods as well as accessibility of credit for Seoul investors. The benefits of globalization therefore surpass the disadvantages, and Seoul may continue advancing in regard to economic development, which explains the emergence of Seoul, the capital of the Republic of Korea, as a semi-peripheral economy, from a marginal economy. References Ajit S. and Zammit A. (2000). The Global Labor Standards Controversy: Critical Issues. Geneva, Switzerland: South Centre. Cline W. (1997). Trade and Income Distribution, Institute for International Economics. Daniel P. A. (2007). The evolution of South Koreas rural institutions: the political economy of export promotion and market protection: Agricultural and Livestock Sectors. Journal of East Asian Studies, Vol. 5(6) pp 56-64 Ha-Joon C. Kicking Away the Ladder: Policies and Institutions for Economic Development in Historical Perspective, Anthem Press, 2002. John B. and Thomas G. M. (1997). "World Culture in the World Polity." American Sociological Review 62(2) pp 171-190. Laxiun Z. (1998). “The Impact of Foreign Direct Investment on Wages and Employment.” Oxford Economic Papers, 50 pp 284-301. Noland M. “Restructuring Koreas Financial Sector for Greater Competitiveness, Institute for International Economics”, Working Paper, pp 96-114 Robert R. and Chan A. “From North-South to South-South: The True Face of Global Competition.” Foreign Affairs, 81(5) pp 8-13. Stephanie S. “The Effects of Structural Change and Economic Liberalization on Gender Wage Differentials in South Korea and Taiwan.” Cambridge Journal of Economics, 24(4) pp 437-459. Yoon B. S. (2000). “Regional Income Distribution in South Korea”. Journal of the Asia Pacific Economy, 5(2) pp 57-72 Read More