Globalisation of Economic and Business Activity - Essay Example

Globalisation of economic and business activity of the Introduction The contemporary world has seen an increased global scope for trade and business. Such a change can be attributed to several reasons; including improvement in transportation and communication that has brought the world together. Technological breakthrough has been the pioneer in determining worker and manager relationships as well as setting the trade culture. The internet has hastened the process of globalisation too. This paper is an analysis of the rise in economic and business activity among nations and also studies the impact of globalisation on the global economy. The paper also studies the market structure predominance in UK and tries to examine the markets that are predominant in the country. Lastly, the paper examines the impact of globalisation and economic activity on firms and the way they can maximise profits. Increase in Economic and Business Activity A close look by economists has suggested that in general, the level of economic integration has increased from 5% to about 19% as per the Suez Canal report estimates. According to Paul Krugman, increase in the level of world trade activity was initiated since the 1970s (Grieco & Ikenberry, 2003). The general growth trade in exports, foreign direct investment and production carried on until the World War 1, when there was a general economic slump. The economic activity revived after facing several major bumps, including the Great Depression, World War 2 and the recent global financial crisis of 2007-10 (Grieco & Ikenberry, 2003). Figure 1: World GDP and Trade (Source: Unitedstatescensus, n.d.) According to economists, there are five basic indicators that highlight the level of economic and business activity in estimating cross-national integration as a process of globalisation. Firstly, the fastest growing sector has been the services industry for advanced nations. For this purpose, one compares the production levels with the level of trade. As an example of UK, GDP has risen from £0.3 trillion to £1.5 trillion. Exports have increased 107% from 1990 to 2012 (Worldbank, 2014). Secondly, the services sector appears to be growing at the fastest pace. For United States, for example, services exports stood at 30% of the total exports in 2013, while it was 17% in 1960 and about just 2% in 1900. This explains that the services sector is growing rapidly (Worldbank, 2014). Thirdly, the contemporary trade should be considered; where similar goods, rather than different goods, are being traded. Fourthly, as a consequence of globalisation, transfer of technology and knowhow is also seen between subsidiaries that are established globally for large corporations. Here, economic activity differences arise in production of intermediary and final products. Lastly, globalisation has seen that developing nations are increasingly gaining momentum to become large exporters of intermediate produce from developing (China) to developed (USA) nations. This explains that driven by economic policy and technology, the international economic activity has been on a rise (Karagiannis & Madjd-Sadjadi, 2007). Global Markets Predominance The global market study shall include a comprehensive study of interconnection and communication between supply and demand of major industries and manufacturers. The energy sector is plagued with ever increasing oil prices, which have invariably driven up the costs for nearly all manufacturing concerns. Increasing oil and fuel prices decelerate the growth prospects for both developing as well as developed nations. The financial services sector is experiencing globalisation at a very fast pace. Increasing competition has brought about price wars in terms of product offerings and also contributed towards development of multitude of savings options in the globalised world. UK and USA continue to dominate the aerospace and the automobile industry. Education industry is moving to developing nations like, India and China, in order to expand their scope. The retail sector and the consumer goods industry foreground the impacts of globalisation most prominently. Packaged food availability and franchise system evolution define the expansion of the food and retail industry. A very new segment adding on to become a large contributor to world economy is the BPO and KPO divisions within services outsourcing and this is shaping up within the developing nations (Economywatch, 2010). UK Market Structures The global market structures can be said to be a good mix of oligopolistic and monopolistically competitive markets. Oligopoly is a market structure where few large players dominate the industry and set the prices. The case for United Kingdom is one with oligopolistic market structure. There are few firms that provide the majority produce in most industries. This includes retailing, supermarkets, transport services, health and hygiene and food. Each firm is producing similar products and are independent from each other. In UK, Tesco, Sainsbury’s, Morrison, Asda and few others dominate the supermarkets chain industry (Gavin, 2001). The major markets in UK are the automotive and the aerospace industry. The automotive industry accounts for about £26.6 billion of exports (SMMT, 2014). The aerospace industry is the second largest one in the world. Both the markets are largely oligopolistic in nature. The automotive industry has almost all genres of cars and export over 80% of their manufactured produce. It is estimated that the industry shall make the highest car volumes by 2017. The industry employs more than 82000 people within about 2350 companies. It is estimated that another £3 billion can be generated by establishment of parts suppliers within the industry (SMMT, 2014). The country houses almost all major car manufacturers and their assembly plants are also located within the domestic boundary. The figures reflect the level of economic activity and its rise due to economic, policy and technological advancements. The aerospace industry in United Kingdom is another major contributor towards the GDP. Although UK no longer manufactures complete aircrafts used for commercial purposes, the fact remains that the aerospace industry is still the most buoyant after the massive economic downturn. The country exports almost 75% of its aircraft produce and contributed £12 billion to the annual GDP, as of 2012. The industry has about 17% market share, which lies second to that of United States (Excell & Nathan, 2013). This industry ranks high in engineering requirement and continuous up-gradation of technology. The aerospace company also employs over 230,000 people that are engaged in about 3000 small and large companies. The aerospace supply chain is oligopolistic in nature (Excell & Nathan, 2013). The automotive and the aerospace industry work on similar lines, in terms of industry structure as well. Globalisation and Firms Companies have been the largest source and also, beneficiaries of the results of globalisation. It has been made possible for companies to get cheaper inputs, produce at large scales to sell to a larger market and benefit from the economies of large scale production as a result of globalisation. Samsung is a company established in South Korea that is engaged in the business of electronics and telecommunications. The company has now got 45% of world market share in the smartphone segment (Grant and Kirchmaier, 2004). The company tried to lower the manufacturing costs and labour costs by way of subcontracting less important aspects of the production process to foreign firms. A part of outsourcing also incorporates supply chain and product design of the company. It is not necessary that only large corporations shall benefit as a result of globalisation. Small companies like, those of local tea, in Taiwan borrowed the product concept from Starbucks to obtain a structure and design concept for their tea; they now have an established network of local ‘Cha’ or tea outlets. In order to continue reaping benefits derived from the globalisation process, companies need to go in for increased standardisation so that they have access to global markets. This is because the market needs standardised products as competition shall prevail among the same firms, which compete year after year. Even so, small local companies here shall not be able to compete and would be eaten up by larger corporate due to lack of financial strength so as to standardise their produce. Companies shall always face stiff competition, which implies that employees need to be kept well-trained and updated to suit dynamic needs of the environment. The primary aim of firms should be to continue to innovate in order to survive within the markets. Profit Maximisation for firms The key to maximise profits in the globalised context is by way of focussing on cost minimisation techniques and gaining a better share of the market through standardisation of products. Increased innovation shall help in gaining early mover advantages and hence, the competitive edge over other firms (Giovanni et al., 2012). Conclusion Globalisation and economic activity are the two most powerful sources that shape the contemporary world. These have affected us in ways including our consumption, business decisions, saving patterns as well as communication methods. This has in turn altered the structural composition of our societies. References Economywatch. 2010. Global Economy. Retrieved from http://www.economywatch.com/world-industries/global-industry.html Excell, J. & Nathan, S. 2013. Reasons to be cheerful about the UK aerospace sector. Retrieved from http://www.theengineer.co.uk/aerospace/in-depth/reasons-to-be-cheerful-about-the-uk-aerospace-sector/1017274.article Gavin, B. 2001. The European Union and Globalisation: Towards Global Democratic Governance. Cheltenham: Edward Elgar. Giovanni, H. B., Alexander, C., Mawson, D., Driver, R., Maratos, P. & Zammit-Maempel, K. 2012. UK trade performance across markets and sectors. BIS economics paper, 17, February. Grant, J. and Kirchmaier, T. 2004. Corporate Ownership Structure and Performance in Europe. CEP Discussion Paper, 631, April. Grieco, J. M. & Ikenberry, G. J. 2003. State Power and World Markets: The International Political Economy. New York: W. W. Norton & Company Incorporated. Karagiannis, N. & Madjd-Sadjadi, Z. 2007. Modern State Intervention in the Era of Globalisation. Cheltenham: Edward Elgar. SMMT. 2014. UK automotive sector. Retrieved from http://www.smmt.co.uk/industry-topics/uk-automotive-sector/ Unitedstatescensus. n.d. U.S. International Trade in Goods and Services (FT900). Retrieved from http://www.census.gov/foreign-trade/Press-Release/current_press_release/ Worldbank. 2014. Uk Statistics. Retrieved from http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS Read More