Globalisation and Its Impacts on International Trade - Case Study Example

Globalisation and its Impacts Introduction Globalisation creates opportunities for international trade among the BRICS nations but it has several risk factors that according the researcher is a threat to the global economy. International business refers to the process of buying and selling of goods and services within the countries. The international trade between the countries promotes development of the trading partners and the trading would have comparative advantage in producing one product that they can export to other countries (Hamilton and Webster, 2012). The business activities may be carried out by government as well as the private enterprises. The enterprises that participate in the international trade have to consider the political, cultural, economical social and historical aspects of the other countries before signing the free trade agreement with them. Over the years, the BRICS countries have enhanced their financial as well as the technical performance and have developed a means of economic cooperation with the developed countries. The impact of the development of the BRICS nations can be measured with regard to the low income countries. Trade, economic growth within the nations and the investments made by the developed nations on the developing nations are the important indicators of development within the nations (Hamilton and Webster, 2012). The researcher aims at analysing the opportunities and threats created by globalisation through the performance of the BRICS nations. The paper offers a scope to the researcher to carry out an overall study on the factors that determine the positive and the negative impacts of globalisation. Performance of the BRICS Nations The BRICS nations have proved to be the most emerging economies in terms of economic growth and the countries have improved their political improvement in the regional as well as international level. The growth rates within the economies are high and the demographic development within the economies plans to consider BRICS nations in the lead position. The four countries Brazil, Russia, India and China were part of BRIC group in 2006 and in 2010 South Africa joined the group and the group was renamed as the BRICS group (Kunnanatt, 2013). The economy in Russia was considered as uncertain about the positive economic growth but due to the high educational policy as well as the stable macroeconomic policy, there is an increasing growth rate in Russia. However, South Africa is still on the verge of development because the GDP growth in South Africa is only one third of Brazil’s and Russia’s GDP and a smaller fraction of the GDP growth rate of China and India. The political environment within the economy is quite stable. BRICS nations are considered as the important contributors to the financial performance of the economy (Kunnanatt, 2013). However, it is said that BRICS nations have not improved much in the field of per capita income but the country has been influencing the global economic development to a greater extent. Brazil has been focusing on the social sector, education and poverty reduction in order to follow the path of development. The study suggests that the country has proved to be a biggest exporter of agricultural goods and provides a lot of technical assistance about agricultural development. The engagement of Brazil in FDI as well as in mining sector can be considered as an important step to development (Kunnanatt, 2013). It has been studied that the non-BRIC countries proceed towards the service sector, whereas, the BRIC nations are inclined towards the production economies where the products are manufactured and exported to other nations. The research says that currently the contribution of the BRICs nations in the world economy is around 15% of the GDP and the number is expected to increase in the next few years (Kunnanatt, 2013). The BRICS nations contribute to the GDP through the production in small and medium enterprises and these enterprises are depended on the financing through banks. There are even high opportunities for the cross-border trade among various nations that promotes the growth and development within the economies. The BRICS nations have experienced growth for a long term which was mainly due to the cooperation that the nations have within themselves. However, after years of strong growth rate, the BRICS nations are likely to experience an economic slowdown as predicted by the IMF. IMF has recorded the global GDP growth rate to 3.1% in 2013 as compared to 3.3% in the previous year (Kunnanatt, 2013). Despite the economic slowdown, the GDP growth rate of BRICS nations rose as per the growth rate of the advanced nations. The investments in the education, health and infrastructure are the important challenges that an organization faces in the economy. IMF has also predicted that due to the slow recovery of the US and the European countries as well as a slow pace of growth rate in China contributes to the fact that the BRICS growth rate would remain constant throughout 2015. However, China was considered as the second largest economy in the world but the growth rate in China gradually declined as the GDP growth rate in 2014 fell from 7.75 to 7.5% (Chen and De Lombaerde, 2014). The growth rate was still higher than 7% as compared to the developing economies and the slowdown in growth rate of China is having an impact on the other BRICS nations (Kunnanatt, 2013). India is considered as the second largest among the BRICS nations both by size as well as population (Chen and De Lombaerde, 2014). However, like China there is a slow growth rate in India as well. The growth rate was equally slow in Brazil, Russia and South Africa that led to a slow growth of the BRICS nations. However, the weak labour market performance in BRICS often takes place due to two reasons that is the jobs offered to the labourers are challenging and also due to the low level of education among the public. Further, the competitiveness in Brazil is further undermined by barriers in the private sector as well as barriers in the market for monopoly. However, India shows a fairly even performance but the combination of the weak tax issues along with subsidies weakens the economy as a whole. After the global financial crisis, there was a huge impact on the BRICS nations as there was a slowdown in the economic growth of the nations. It has been studied that the BRICS countries are different in terms of the political environment. The nations have continued their GDP growth rate without much investment in human development. The only factor that was common in the BRICS nations was the scale of GDP growth rate and the sustained growth rate in the economy. There was a drastic fall in the GDP growth rate in 2011 and there was a huge income inequality within the rich and the poor living in the country (Kunnanatt, 2013). The environmental degradation within the countries contributed to the slowdown in human development leading to inequality among the nations. The characteristics of the export-driven economy of the BRICS nations are considered as different in various nations. India and China have tried to carry out international trade by exporting their low cost products to other nations. This in turn was an impact of the globalisation that took place within the economy (Kunnanatt, 2013). The multinational enterprises within China plan to invest in other developed nations in order to promote their businesses in the international market. The higher demand for the raw materials from the nations like India and China has enhanced the GDP of South Africa, Russia and Brazil. In 2012, it was decided in the BRICS summit that the member nations would contribute $75 billion in order to overcome the issues related to the global financial crisis (Chen and De Lombaerde, 2014). In 2013, there was an agreement signed among the BRICS nations related to the establishment of the ‘development bank’ which aimed at mobilising the resources in order to carry out the infrastructure process of the developing nations (Chen and De Lombaerde, 2014). Study reveals that the BRICS nations comprises of almost three billion people having a real GDP of $14.8 trillion. By 2018, it is expected that the economic outcome in the BRICS nations would outweigh that of the US (Chen and De Lombaerde, 2014). The BRICS nations have been successful in attracting the FDI such that the developed economies can invest in developing economies that enables trade relations. A large portion of the inflow of FDI in China has been in the manufacturing sector, whereas, FDI in South Africa, Brazil and Russia has focused mainly on the natural resources particularly in the mining sector. However, in case of India the FDI focuses on the service sector. The total share of BRICS nations in the world exports have doubled in the recent years according to the study with China comprising of the large market share. The capital goods exports have been increasing with the impact of globalisation. It has led to the increase in resources within the economy. It was noted that most of the growth rate in BRICS nations was due to the economic boom that took place in China with its rise in exports of cheap goods (Chen and De Lombaerde, 2014). However, in 2013, there was a fall in the imports and exports on China and the policymakers had to face trade off related to real estate controls and monetary policy which is essential for achieving a high economic growth within the country. Opportunity and Threats posed by Globalisation in International Business Opportunities of Globalisation Globalisation has created an opportunity for international trade among the BRICS nations. The BRICS nations have a high developing potential and the nations comprise a huge market. These nations tend to offer the entrepreneurs the facility to produce at low operating cost and earn a huge profit within the economy. The nations also provide an opportunity for the entrepreneurs to carry out a long lasting business. Therefore, there arise possibilities when the entrepreneurs prefer to relocate themselves to these nations in order to earn huge profit by carrying out business in these nations. The impact of globalisation in the BRICS nations was significant in 2010 (Carmody, 2012). According to the World Bank data, the share of global GDP by the BRICS nations was about 18.48 trillion US dollar (Carmody, 2012). The highest share of per capita GDP value was that of Russia. The other indicators used to measure the impact of globalisation are the foreign exchange as well as the gold reserves. The BRICSW nations have a total of 3.68 trillion US dollar which according to the IMF reports comprises of 40% of the world’s foreign exchange reserves (Carmody, 2012). Globalisation has successfully set up its position in the international markets through the BRIC nations. For example, Brazil and Russia focuses on the supplies of raw materials whereas, China and India manufactures products at cheap rates and sells them in the international markets so as to earn huge revenues. Figure 1: Foreign direct investment, net outflows (% of GDP) (Source: World Bank, 2015a) Brazil is the only BRIC nation that has experienced a low fall in shares that is only 15% and it had a high inflation rate as compared to the developed countries. It has been studied that Brazil supplies raw materials to the China and China then exports cheap goods to Brazilian markets. The trade takes place as a result of the globalisation (Chen and De Lombaerde, 2014). However, it was noted that gradually Russia could overcome the impacts of the global economic crisis and the country is spending on research as well as developing new technologies in order to accelerate the production levels within the economy. Russia has huge reserves of crude oil as well as natural gas that the country is capable of serving other nations. Figure 2: Exports of goods and services (% of GDP) (Source: World Bank, 2015b) The supplies of these raw materials have helped the country in generating a lot of revenue in the economy. However, India experienced a fall of 26% in the GDP growth rate during the global economic crisis and the country could overcome the situation (Chen and De Lombaerde, 2014). However, Globalisation had its real impact of creating both opportunity as well as the risk factor. Through globalisation, the BRICS nations can participate in the international decision making process. Threats of Globalisation According to the researcher though globalisation creates several opportunities for trade among the BRICS nations but it is actually posing a threat to the economy. Theory states that the risk factor associated with that of the globalisation is the setting up of multinational IT firms within the economy. As in case of India, as a result of the globalisation, there are many new industries set up in the country that has reduced the agricultural lands and also ruined the livelihood of the farmers. Though the industries within the country provide job opportunities, yet it prefers workers who are highly skilled and has technical knowledge. The companies use cost cutting techniques by hiring only skilled labour force so that they need not spend much time and money in training the workers (Chen and De Lombaerde, 2014). Further, the multinational have also conducted foreign direct investments within the economy for setting up multispecialty hospitals as well as educational institutions for children, but these facilities are not affordable by the poor families and there are situations that the poor families have to suffer without undergoing treatment. Hence, the use of technologies within the economy is leading the country to the path of development but there are few sectors in India that still needs to be developed. The multinational enterprises within the country have created a problem of unemployment among the unskilled labour force and this in turn has given rise to the problem of poverty. Further, the majority of the raw materials from Brazil and Russia are exported to other nations for producing final products and there arises a situation within the economies when there are no raw materials left in the economy (Kunnanatt, 2013). The countries then face a scarcity of natural resources like the crude oil, minerals and gas. The countries would be unable to export raw materials further and the economies would run at a loss. Similarly, in case of India and China which produces and sells the finished goods in the international markets at low prices would face huge competition from other developed economies. The improved techniques used to accelerate the level of production in order to produce for large number of customers would raise the cost of production. Hence, it would be difficult for the countries to sell goods at such low prices. This appears to be a challenge for the developing economies to raise the cost of production as well as earn a huge profit in the international market. The globalisation process also increases the gap between the rich as well as the poor within the countries. The rich people can afford the most expensive treatment facilities, whereas, the poor are unable to afford the technological innovation that takes place within the economy. It also reduces the ethical responsibility of the business practices and the main objective of the multinational corporations is to expand their business and earn a huge profit (Chen and De Lombaerde, 2014). Further, the high salaries offered by the multination enterprises prompts the younger generation to quit their higher studies and join the companies so that they start their career at a very young age. The establishment of the shopping malls and the emergence of foreign brands within the country have raised the prices of goods that are of daily requirement. There has been an increased corruption as well as the political instability within the economy that proves to be a negative consequence of globalisation. Due to the setting up of multinational companies within the economy, the smaller companies would find it difficult to set up their business as the multinational firms would capture a large share of the market and earn a huge profit margin (Kunnanatt, 2013). As a result of globalisation, many of the local firm go bankrupt as they suffer huge losses in the international markets. Also, due to the impact of globalisation, many people are learning English and they are actually forgetting their local language which can be considered as a negative impact of globalisation on culture of the society. Even the educational institutions are emphasizing more on the English speaking ability of the students so that they can communicate with the people of other nations. Globalization also results in hyper-specialisation of the countries on one particular good and they prefer to produce and export that good throughout the year which may even result in loss of the country due to huge competition in the international market. It often encourages the monopoly power of the multinational enterprises and they tend to dominate over the local firms. Further, there arises inconsistency in the consumer preferences as the consumers of one country would have a different preference pattern compared to the other country. So, the firms need to produce according to the consumer preferences (Chen and De Lombaerde, 2014). The policies set by the trading partners must also be according to the host country and the other country has to conduct its trade according to these policies. The globalisation also poses threat of civil war among the trading partners due to the demand of raw materials within the economy. Further, the impact of globalisation has been negative over the environmental integrity as the multinationals take benefit of the poor regulatory rules in the developing nations (Chen and De Lombaerde, 2014). Conclusion The study has been carried out on the impacts of globalisation on the economy based on the performance of the BRICS nations. The BRICS nations have shown a rapid growth following a path of development. Brazil and Russia has played a key role in the exporting of raw materials to the other nations producing final goods. Whereas, India and China plans to produce the final goods at cheap rates and sell them in the international markets in order to earn a high profit. However, after the economic crisis of 2008 the BRICS nations faced a slowdown in their GDP growth rates that they could overcome in the next few years with the emergence of globalisation in the economy. The globalisation involves some positive impacts as well as it also involves the risk factors posing threat to the economy. Globalisation promotes international trade through the foreign direct investment by the multinational companies in the developing nations. By participating in the international trade, the BRICS nations are following a path of development and they get a scope to enhance their trade relations with other developed nations. Nonetheless, the globalisation has a few drawbacks that are although the multinational have conducted the foreign direct investment in the developing nations but the services provided by them have not been helpful to the poor people. The technological innovation has simply raised the cost within the economy that has become unaffordable for the poorer sections. Thus, the research proves that the process of globalisation is not fully efficient in reducing poverty as well as corruption from the economy. Reference List Carmody, P., 2012. Another BRIC in the Wallandquest; South Africas Developmental Impact and Contradictory Rise in Africa and Beyond. European Journal of Development Research, 24(2), pp. 223-241. Chen, L. and De Lombaerde, P., 2014. Testing the relationships between globalization, regionalization and the regional hubness of the BRICs. Journal of Policy Modeling, 36, pp. S111-S131. Hamilton, L. and Webster, P., 2012. The International Business environment. 2nd eds. Oxford: Oxford University Press. Kunnanatt, J. T., 2013. Globalization and Developing Countries: A Global Participation Model. Economics, Management, and Financial Markets, (4), pp. 42-58. World Bank, 2015a. Foreign direct investment, net outflows (% of GDP). [online] Available at: [Accessed 27 May 2015]. World Bank, 2015b. Exports of goods and services (% of GDP). [online] Available at: [Accessed 27 May 2015]. Read More