Economics of Globalisation Watch - Case Study Example

Task 1 Economics of Globalisation Watch Red Bull Tries to Slip Energy Shots through Kiwi Backdoor: Article Analysis One of the latest trends in the world of beverages is the consumption of energy drinks and makes one of the rapidly growing beverages on the world market. They can be purchased from the same place a bottle of water or of coke. They can be taken in a mixture of alcoholic drinks. They can also have additives like glucose, caffeine, alcohol and vitamins to make them more appealing to consumers across the world. They are produced in different brands of flavors meeting the tastes and preferences of different consumers in different countries across the globe. This analysis will explain the global economic trends of beverages by first explaining a few concepts economic globalization that will assist in understanding the issues in the article that will be analyzed (Joshi, 2009). Economics is the study of the way goods and services are produced, distributed and consumed. Global economic integration is the fast, deep and wide interconnectedness these aspects of economics around the globe. It focuses on explaining how interaction takes place between economies of different nations by explaining the factors involved. The analysis of economics is done through by societal, financial and business organizations. Macroeconomics is a subdivision of economics that is concerned with the structure, performance, behavior and management of the overall economy, including regional, national and global economy. Macroeconomics examines how various factors like Gross Domestic Product (GDP), Gross National Product (GNP).payment balances, rates of unemployment and inflation. The study of macroeconomics also involves the study of how international interactions take place through international trade and international laws and regulations. The macroeconomics school of thought about the Theory of Supply argues that economic growth can occur effectively by reducing the restrictions for people to supply products such as reducing import taxes, income taxes and by being flexible enough to allow the reduction in the restrictions. The law of demand in macroeconomics states that the factors of unemployment, national income and other macroeconomic measure affect everyone, either a supplier or a consumer. The theory asserts the consumers will demand products if the process are low. Therefore, as the prices of commodities rise, the demand decreases because the purchasing power of the consumers has reduced. The consumers then tend to move towards getting goods that are cheap goods, resulting from the substitution effect. Some of the factors affecting demand are changes in supply that occurs from differences laws and regulations taking place on the global platform. The supply might be restricted in case of international trade where a supplier does not meet the laws of a particular country. There might also high import taxes imposed when a country wants to develop the supply of its own goods. This is the case of the experiences that Red Bull goes through when its energy shot were held by Quarrantine Inspection Agency of Australia as reported by Leonie Lamont on March 4, 2011 in the Business Day. Red Bull is a leading world supplier of energy drinks. In the article, it is evident that the world leading supplier of energy drinks has been found itself in a mix that is driven the concepts of macroeconomics in the world market. Globalization of economics is driven by public policy and collaborations between different nations. The caffeinated Red Bull Energy Shots has become among the Australians. This is a drink produced in the US. With its amazing taste and the craze that is has developed in the Australian consumers, Red Bull has a wide market in Australia. The bar owners have seized the opportunity found in the changing trend where energy beverages are spiced up with something like caffeine and mixed with alcohol. One dimension of economic globalization and macroeconomics can be extracted from this story. Advances in technology have always been viewed as the main drivers of economic integration. A technology that mixes caffeine and alcohol with an energy drink has resulted in the production of a tasty drink those appeals to the tastes of different around the world including Australians. Red Bull Company attempts to sell this product to its consumers across the globe courtesy of technological advancements in transport and communication. However, its attempts to get these goods to Australia are hindered by yet another factor affecting economic globalization; international collaborations and public policy. As listed in the article, the goods were transported from US through New Zealand to Australia. As John Bird says, the goods were “simply passing through New Zealand en route to Australia.” The problem starts when the goods of transit to Australia, are “unloaded, placed on other vessels” On reaching Australia, the goods are seized and retained by Australian Quarantine and Inspection Service. The reason for this seizure was; “the shots did not meet the code in either caffeine content or country of origin labeling” (Lamont, 2011). This brings us to another aspect of economic globalization: public policy. Even though goods produced from one country meet the international standards, they should also comply with the rules and regulations of the country of destination. Different countries impose different regulation on several products depending on the economic needs and the international collaborations. If a country does want a certain product to be sold in its market, it will impose limitations to ensure that the supply of the product is scarce and as a result, the demand decreases of the high prices. Due to international collaborations, there is evidence that the shots have been sold in New Zealand for the past six months meaning they comply the laws of that country which is also means they comply with the trans-Tasman law which is recognized in Australia. Some countries impose restrictions on imported goods so that they can promote the supply of their own goods. Therefore, it is evident that the case involving Red Bull Energy Shots is not all about meeting the national food standards but it’s a case of them “being discontinued in the Australia market as the country focused on its core drinks.” The bottom line is that the macroeconomics theories of demand and supply continue to explain what is experienced in the global market. Even though human tastes and advances in technology that ensures cheap transport and communication, public policy and international laws will always have an upper hand. It is the reality of the impacts public policy has on economic globalization that Red Bull Company experiences as listed in this article. Task 2 Factors that have encouraged Economic Globalization Globalization is not a new concept in the 21st Century. Global economic globalization can also be referred to as global economic integration which refers to the wide, deep and fast interconnectedness of economic aspects in the world (Czinkota & Kotabe, 1998). The process of global economic integration that is felt in the 21st century was not a smooth sail. Nor have all those affected by this process benefitted from it. Despite the difficulties that this process has encountered like the eras of war or the downfall of the Roman Empire, the level of economic globalization has continued to rise and it still does. In fact, the last century has seen rapid growth of global economic integration. Several factors have encouraged economic globalization and they are likely to continue strengthening the process in future. First, improved communication and transport networks have eased the process of transporting goods and services, and the moving of aspects of production and communication has become cheap and useful with the advancement in technology. Second, the enhanced socio-cultural exchange that comes from human migration from one nation to the other which has let to individual and societal tastes to be generalized. Third, formulation and implementation of public policies by different governments that allow for direct foreign investments and international collaborations. This has significantly affected the face and speed of rising economic integration around the globe. The next few pages will discuss the three main factors that have encouraged economic globalization as mentioned above. Improvements in transport and communication infrastructure and technology, socio-cultural integration and changes in the public policies each have different roles to play in speed and mode of economic globalization from different facets. They evidently interact in various vital ways. Fact improvements in technology have led to improved and cheap transport and communication around the world. Anyone will agree that such tremendous improvements do not happen in an economic vacuum. People have the desire to make use the opportunities that are brought about by what they see as the advantages of global economic integration. This makes up the tastes and preferences that come up the advantages of economic integration. This then leads to continued improvements in investments that drive innovations that will meet the needs of people not just ion one nation but around the world. The tastes are of course not universal, because of the different cultural backgrounds that people around the world have. The tastes are just general and as a result the innovations are designed to meet these generalized needs. This is then linked to the improvements in the formulation and implementations of internationally accepted public policies that play an important role in promoting investment and innovations in the transport and communication sector, both aimed at pursuing the benefits strong economic globalization, such as internal security and national defense. The improvements in transport and communication technology have made these two requirements to be cheaper and accessible from most parts of the world. The improvements in transport and communication have in turn affected the tasted people have for closer integration. For instance, in the past, people from Europe first came to know about the availability of tea and spices in the East as a result of very little and costly trade. The increasing yearning for these spices coming from the limited trading experience across the borders accelerated the exploration for cheaper and easier means of getting these spices and tea. As a result of these extensive explorations, the discovery of America happened and the frontiers of world economic integration were exposed. In the recent past, it is evident that the need for goods and services produced from far away countries (including those experienced through tourism and travel), as well as for venture in new locations increased. As these experiences continued to grow, the tastes resulting from the benefits of economic integration around the world continues to increase. For example, seems that multinational investors have achieved great experiences with investments in firms in developing countries. They have also grown interests in diversification of their ventures included in the assets that the own around the world. The role of public policy in encouraging economic integration has been seen in the extent to which people around the world have responded to the availability of tastes found in other countries and the technologies that have led to the world economic integration. On the technological score, it is important to note that most of the public issues in the modern world as far as commerce is concerned are carried out over the World Wide Web. Before the recent innovations in computer and communication technology, the internet was not available which made difficult to conduct commerce. As if by chance, the issues of public policy did not rise by then. The influence tastes that on the issues of public policy is very complicated and almost hard to understand. Looking at the common desire to fully take advantage of the benefits resulting from economic globalization, public policy usually supports close integrations in political integrations that ensure security. The nature of the public policies directed towards making economic globalization easy between different political divides is characteristically two sided. If there are state of the art ports built from public funds in a particular country, such are mostly aimed at facilitating international relations in trade. However, such a country is likely to impose import quotas and tariffs that are usually aimed at discouraging people from importing products that only meet their individual tastes. People are therefore encouraged to use domestically produced goods and services. On a sad note, the mechanist whose fallacy appears to give a realistic support to such policies often find political support in whatever they want to import. Such smart political leaders like Abraham Lincoln, who supported the protection of a tariff as well as publicly supported investments to develop the economic integration economically, often miss Lerner’s (1995) symmetry theory. This theory states that “tax on imports is fundamentally the same thing as a tax on exports.” (Lerner, 1995) It is important to emphasize that relationship between public policy and both socio-cultural factors of tastes and the technological factors of transport and communication are a bit complicated and astounding. Two illustrations will help to explain this complexity. The first illustration comes from the active trade that has been witnessed between the Bordeaux region of France and Britain for so many centuries, where France exports large amounts of the Bordeaux wine to Britain. However, this trade was gravely suppressed by various eras of hostility and enmity between France and Britain when one country sought to suppress the trade with the other or vice versa. As a result of the trade being partially cut off and partially as a result of the strong ties with other allies like Portugal, Britain then turned to developing it trade ties with Portugal and importing Portuguese wines. The Portuguese wines did not however, replace the taste of the Bordeaux wines from France and hence did not meet the requirements of the British people. To solve this, a new product was developed where the red wine from the Portuguese Duoro region was prepared with brandy from grapes giving the wine the alcoholic kick. The development of this new product was able to replace the desire for Bordeaux wines resulting from the technological innovation. The product is now the modern Port that created a considerable market between Britain and Portugal. This trade has been retained by both countries, especially Britain, even after the ties between France were mended and the Bordeaux wines brought back to Britain. The second illustration is about the concerns of the public policy in the USA which have great effects on international trade of such products like sugar. In a way, these policies are as a result of the policies practiced by Admiral Lord Nelson and Napoleon Bonaparte. For a long time, the United States of America have held tough and rigid import quotas on sugar to maintain the domestic rates at approximately four times are the rates in the world market (Griffin & Pustay, 2005). Domestically, the political interests supporting such policies are the sugar cane producer and refiners in he south as well as Hawaii and some sugar beet producers mainly in the upper Midwestern countries. The creation of sugar from the sugar beet plant is a new technology that dates back to the Napoleonic era. Long before this period, sugar was produces from sugarcane primarily grown in the West Indies. The establishment of naval supremacy by Admiral Lord Nelson over France made Britain to cut off its ties with Emperor Napoleon from the importation of sugar from the West Indies. In retaliation, Emperor Napoleon had to look for an alternative of getting sugar and as a result the sugar beet was discovered. From that time to the modern days, the technology of creating sugar from the sugar beet has been around and is here to stay. The continued encouragement of economic globalization from the public policies is formulation and implementation of policies that are aimed at increasing international trade. This will be done though removing trade barriers that eliminate most of the restrictions on international trade in most goods in the developed countries, with an exemption on several manufactured goods and agricultural products. To ensure that this still continues, individual countries address some issues arising from trade in goods from the agricultural sector and solve the complicated limitations that virtually hold back the possibility of trading in the emerging services. International trade in services has been made possible through advances in technology that have led to great advances in transport and communication. For example, the world is now a global village, where a person from a remote area in an underdeveloped country is able to get the financial advice of a qualified doctor in a developed country. This is made possible by the technological advances in such software applications such as Skype, webcam and the internet. Payment is still done though the net through the globally accepted mode of payments such as credit cards and pay pal. If there is an emergency and such a person needs to be treated in another country, the availability of aircrafts and aero planes makes it very possible for a person who is not able to access good medical attention to get it. The same can be seen from such technologies as video conferencing where someone the owner of a company can address the board meeting from another country without any hiccups. How better can international communication get? As the factors encouraging economic globalization become universally understood and accepted, view is that the process of economic globalization will continue taking place through an almost involuntary manner. The integration between developments in socio-cultural tastes and preferences that can be found around the world, development of new technologies in transport and communication and public policy continue are seen to be the main aspects of the advances seen in global economic integration. People in the world will continue to strengthen it through migration, tours and travel; trade in goods and services, capital flow (Bryan & Rafferty, 1999) and through taking advantage of the new technologies to access information. Unlike a lot of unfortunate eras seen in the past, economic globalization will not take place at the edge of the sword or the explosion of a bomb (Bhagwati, 2004). This then provides the required assurance that the factors encouraging economic integration are taking us towards a better global economy in the future. Advantages and Disadvantages of Economic Globalization The issues seen as the effects globalization has on the world economy produce different feelings that make people to discuss them openly separating black from white. The issue of economic integration is complex and is an interconnection of different things as discussed above. The following are what are perceived to be the advantages of globalization: Rapid economic growth: Countries that have embraced economic globalization have continuously grown and expanded their economies as compared to those who try to shield themselves from the effects of globalization. A well managed open economy is said to grow on an average of 2.5% faster than the growth rate of closed economies. This is mainly attributed to the free flow of trade, capital flow and technological know-how that allows investors from one nation to invest in another nation. Improved standards of living and poverty reduction: Faster economic growth resulting from economic integration has helped countries like India to cut their poverty rate. China is another example that has reduced the number of poor people it her rural areas from 250 million to 34 million within 20 years of embracing global economic integration (Kerr & Perdikis, 1995). This results from cheap imports that make people to access a variety of products. This imposes competition to local producers leading to increased productivity and efficiency. Advancement in technology: Increase in technological know-how has led to decreased prices and costs of products and services by changing the way communication and transport take place across the globe. The technology leads to global media that ties that world together paving way to better flow of communication allowing the sharing of important information between corporations and individuals around the globe. Increased life expectancy: Reduced poverty, increased standards of living and advancement in technology leads to creation of wealth that makes people around the world to access clean water and health care increasing their life expectancy. Greater than 85% of the world’s population are expected to live at least 60 years, which is almost twice as much as what was listed a century ago (Kerr & Perdikis, 1995). Improved working conditions at the workplace: Global economic integration has let to flow of information across the countries such as the internationally accepted standards in different areas. As a result, companies have adopted workplace standards for their multinational companies in developing countries paying respect to international labor standards. The salaries that the people working in these countries get are twice as the average wages in those countries. Growth in modern flow of communication: The spread of information has resulted to the ousting of bad dictatorial regimes. The best example is what is happening in the Arab world right not. The flow of information through twitter, facebook, Gmail and all other blog and chatting sites led to the uprisings in the Tunisia, Egypt, Libya and others even when state communication through radio and television has been cut off. Respect and appreciation for cultural identities and diversities: This has resulted from human migration from one country to the other that makes people of one country to recognize the benefits of cultural diversity which leads to improved access to human rights and democracy. Global economic integration has its benefits but it comes with a price. Poorly managed economic globalization will lead to the following problems: Socio-economic disruptions: Trade liberalizations resulting from economic globalization benefits well-off industries but punish the struggling ones. Most of the time it requires the underdeveloped countries to restructure and reforms their economies. Even of this has potential long-term benefits, there are dislocations in terms of places of resident where people have to move to pave way to a proposed industry which disrupts their social lives (Riley, 2005). Dropping standards of living: The countries who are unable global economic integration such that they don’t have resources that will attract the interest of any other country for economic ties brings problems to them. As such, their standards of living drop way far below those of people in wealthy countries. Increased spread of diseases: Increase in easy travel and trade has facilitated the spread of pant, animal and human diseases like SARS, bird Flu, swine flu and HIV/AIDS across international borders. The AIDS disaster has dramatically reduced the life expectancy of people in many parts of Africa to way below 35 years. The delays of solving these problems have increased pressure on economies worsening the situations. Before global economic integration, tobacco and cigarette smoking was not in the developing countries. After globalization, these have been introduced in developing countries like those in Africa and led to the diverse financial and health costs arising from this. Destruction of traditional agricultural communities: Technological advancements and freedoms in international trade alter the economic structure of a country by allowing cheap imported goods to the economy. This leads to destruction of native agricultural communities and unemployment. This leads to reduction in food supply as people move to work in the established MNCs and those who are not qualified to work in them become irrelevant and are laid off (Crosby, 2009). Increased need for migration: Free communication and free flow of information has led to spread of information citing differences between countries. This makes people want to move from poorer to richer countries. The richer countries on their part have tightened their restrictions against migrants. Those who migrate to other countries face natives with xenophobia making vulnerable to any adversity that might arise from this. References Leamer, E. 1995. “International Trade Theory: The Evidence,” in Gene Grossman and Kenneth Rogoff, eds., Handbook of International Economics, Vol. 3. Amsterdam: North Holland, pp. 139-1 Bryan, D.B. and Rafferty, M. 1999. The Global Economy in Australia. Sydney: Allen and Unwin Griffin, R.W. and Pustay, M.W. 2005. International Business, 3rd Edition. New Jersey: Prentice- Hall Pearson Czinkota, M.R. and Kotabe, M. (Eds.) 1998. Trends in International Business: critical perspectives. Maldon, Mass: Blackwell Kerr, W.A. and Perdikis, N. 1995. The Economics of International Business. London: Chapman and Hall Joshi, R.M, 2009. International Business, Oxford University Press, New Delhi and New York Riley, T. 2005. "Year 12 Economics". Tim Riley Publications, 2005 p. 12 Bhagwati, J.D. 2004. In Defense of Globalization. Oxford, New York: Oxford University Press. Lamont, L. 2011. Red Bull Tries to Slip Energy Shots through Kiwi Backdoor, Business Day. Viewed from http://www.smh.com.au/business/red-bull-tries-to-slip-energy-shots-through-kiwi-backdoor-20110303-1bgfi.html#ixzz1Khq6cyZ1 on April 23, 2011 Crosby, A.W., 2009. "The Columbian exchange: biological and cultural consequences of 1492", Greenwood Publishing Group, Read More