The Relevance of Globalization in International Business - Coursework Example

Running Head: GLOBALIZATION Globalization [Name Of Student] [Name Of Institution] Introduction Globalization is without any doubt the motto for the new millennium and has raised considerable debate in the economic spheres since the beginning of the nineties. The controversy around the topic basically questions whether the unregulated market forces will become an agent for more divergence or convergence of income internationally. Those in favor of globalization argue that it has led to increased understanding of other communities, improved living standards, has increased the purchasing potential of the common man and most of all has enabled supremacy of democracy over communism. Those from the opposing school of thought argue that all the gains that come from globalization are at the expense of lesser developed countries. They say that it is almost the same as imperialism with its prime action being the relocation of factories to under developed countries with cheaper labor and most vulnerable environmental laws. They further argue that even in the developed nations, globalization has not brought benefits to all, but only to a selected few of the society (Chortareas et al, 2004). Also, the so-called freedom which has come as a byproduct of globalization has led to more insecure work environments as the workers remain under a constant threat that their owners might shift the entire production to another country with cheaper labor. Nonetheless, the mainstream economists still advocate that globalization has the potential to alleviate poverty, safeguard environment, bring together different cultures and most of all lessen the income gap between the poor and rich nations of the world. The globalization of economic activity in the international business scenario is different. It is a rather advanced version of internationalization, which also implies a certain level of functional incorporation amongst detached economic actions. This means that global economy has the potential to function as an entity in real world on a huge scale. Sudden shifts, authentic and drastic revolutions are the forces that are changing the nature and environment of businesses in the current age of globalization. The business arena is getting tougher and the competitors too resourceful as organizations are liberated from the traditional ways of operating (Pavitt, 2005). The old notions for conducting business no longer hold true in the era of globalization. Globalization is a term with no specific definition and is often used interchangeably with the term internationalization. In its true sense, globalization has a much broader meaning than just being present in more than one country. Large international bodies may in reality hinder the process of globalization. The essence of being global lies with the ability to integrate the functional units (Guest, 1996). In this paper, I shall discuss the relevance of globalization in international business and the degree of world integration. Also, I shall analyze globalization in terms of international business activities such as the trade in goods and services, foreign direct investment, international financial crisis etc. Discussion To understand the relevance of globalization in the international business environment; it is important to understand the concept itself. Globalization entails the merger of ideas, methods and technologies in such a way that it strengthens the global social relations and networks by connecting distant regions so that even local happenings are influenced by global events that take place miles away. Therefore globalization is not just internationalization, but infact it is a source that has reshaped the manner in which people perceive distances or localness. It thus has vast economic, social, cultural and political aspects which are the reason for its influence in the change process that is taking place in the international business settings (Beck, 2001). To evaluate whether globalization can really offer a win-win situation, requires analysis which looks further than the modernization thesis and considers concepts of information revolution, liberal trade setups, innovation of technology and addresses the global division of labor. These four concepts are the key blocks which serve as the foundation for understanding the two different aspects of globalization (Gilpin, 2000). It is nonetheless, irrefutable that while some nations are enjoying the bounties of globalization, others are suffering in hardship and poverty because of it. Which country shall suffer and which shall enjoy depends on the ability of that country to open to technology and new information. The more liberalization of trade a country adopts the more safety nets it requires to create to safeguard its own industries and achieving the right balance is the key to being competitive in the global market (Simon, 2003). With internationalization of capital, the result is the concentration of wealth in a few countries with more production and therefore it poses a threat to the monopolistic practices and also represses competition. Moreover, with the global division of labor, a few nations have mastered production of some basic products while others have focused on finished goods, hence more gaps between the poor and rich nations of the world. (Clott, 2004) With globalization, the international interaction is dominated by media and the power vested in the international community which acts to pursue mutual interests combined with the political as well as economic forces of globalization. In short, it would be apt to state that globalization on one hands tries to limit the destructive potential inherent in nationalism, but on the other hand it is also a hindrance to the positive aspects of nationalism; activities that are pursued with a collective national good in mind. The sole aim of globalization should have been to give a chance to the under developed countries of the world to share the technologies available with the wealthier nations and speed their progress towards advancement. This however, is not the case. Globalization has led to more concentration of power with the already wealthy nations like the U.S who dominate the markets and economies of the countries where they outsource their work. This has led to a hidden international slavery as countries like Pakistan who are indebted by foreign aid from giants like U.S, end up shaping their domestic policies and national agendas in accordance with the donor nations. Countries like U.S, then use this influence to achieve greater political goods. This severely hampers the spirit of sovereign rule of state which no longer exists for the developing countries. Also, the presence of international MNC’s in countries, like Pakistan, dominate the local market and badly affect the local companies. If globalization has brought better living opportunities, prosperity through trade to the poor countries of the world, it has done so at the expense of their sovereignty and even the main beneficiary has remained countries like U.S who have exploited these nations to achieve their own agendas. Globalization has in fact become a vicious circle of power trapping the poorer countries of the world. A few economists still believe that unrestricted trade only serves one purpose; the increment in the gap between the rich and poor nations. The truth is that globalization offers both new chances and risks at the same time to the developing nations. Consider for instance, Asia, which has managed to integrate swiftly into the global economy and has been able to prosper as a result. (Micklethwait and Wooldridge, 2000) But at the same time, countries like Africa have suffered immensely due to their political instability, environmental degradation and increased poverty, all due participation in free trade (Micklethwait and Wooldridge, 2000). Such concerns of the wealthy and the developing countries of the world persist to weave an intricate web of issues for globalization where the wealthy nations are viewed as imposing their beliefs and values on the lesser developed nations. There are nations which have maintained their sovereignty and have not allowed superpowers to take advantage of their weakness. Consider India, a country rich in human capital. The liberalization of the domestic economy coupled with India’s integration with the international market has enabled it to accelerate its growth rates from 5.6% in the early nineties to as high as 77.8% by the end of the decade. It is now considered to be the fastest growing economy of the world. But this is just one example. Both India and Pakistan got freedom for British rule at the same time in 1947. Since then India has established itself a place in the world market, but Pakistan has not been able to do so and has fallen prey to the trap of the super powers lending money in name of foreign aid, actually indebting the country and inhibiting its growth. With globalization, a different sort of community is emerging; one which marks the future distinctly and differently from the past. The notions of interconnectivity are widespread in the trade and business environment and remaining aloof and disconnected is not an option anymore. It is known that countries always had an influence over each other. With globalization, this influence has become more pronounced (Farrell, 2004). The connectivity between nations is transforming the people and culture; the way businesses operate and govern. This is evident from the revolutions that are obvious from the set paradox. Deeply rooted are the chaotic forces that are present due to globalization; forces which segment and create partitions, forces that create disparities amongst generations, forces that affect society in general and their ambitions and above all the sagacity that has spread despite all attempts by the democratic setups of isolation and discrimination. For instance, to study the impact of globalization on the disparity, a focus on trade policy is beneficial as it is a significant element of any country’s exposure and adaptation to globalization. Consider Latin American nations like Columbia, Mexico and Brazil which after the implementation of NAFTA shows high tariff rates. India is another great example which has undergone massive trade liberalization and has successfully increased its tariff in the manufacturing sector up to a huge 30% (Held et al, 2006). Together with this the cultural bonding and the advent of technology; especially the cheap alternatives to travel and communicate cross boundaries has resulted in new definitions of self-identities that draw people close to each other ignoring all boundary and border hurdles. Another significant impact of globalization has been the notably uneven distribution of costs and advantages. This has resulted in the intensification in discrepancies in wealth, power and also consumption patterns both within and between countries. Though it’s a well-known axiom that globalization encompasses interdependence, meaning that the events of one country affect those in another, but the reality is that this interdependence is radically asymmetric; leaving a few states more vulnerable than some others (Hutton, 2001). While some countries prosper because of globalization, some are left to suffer on its account too. Those who prosper advocate and embrace globalization but amongst the vulnerable nations, despair and opposition prevails in opposition to globalization. Globalization offers flexibility and adaptability to countries businesses but at the same time this may curtail their ability to embed and develop in an individual national setup. This offers another insight for foreign direct investment. (Landes, 2003) The main dilemma of globalization is that it is primarily based on the hypothesis of free and fair trade. Trade liberalization, however, is not practiced in the developing countries of the world where there are still concerns over the protection of their market. For the lesser developed countries, to enter another market is almost an impossible task especially since they are dictated by the terms of trade from the developed countries (Clott, 2004). This poses the question that in such a scenario how can the lesser developed countries benefit from globalization? (Chortareas et al, 2004) Another assumption from the neo-liberal supporters is that foreign direct investment helps make a positive contribution to the host nation’s economy by providing management, technological infrastructure and other resources to them. But the ground realities are strikingly different where multinationals stifle competition, indulge in capital races and therefore threat the very sovereignty and autonomy of the host nation (Simon, 2003). FDI, furthermore has more detrimental impacts on the balance of payments of the host country. First and foremost the capital flights and the resulting flow of income sends back the profits to the parent company. This results in further debts for the balance of payments of the host nation (Chortareas et al, 2004). Secondly the foreign subsidiary imports a significant quantity of inputs from other countries which adds to the debts on the host nation’s balance of payments (Chortareas et al, 2004). Understanding the forces and relevance of globalization in international business makes it necessary to analyze the FDI by multinational corporations. MNCs intervene in majority of the trade flows in the world. Consider for instance the finding from Bernard, Jensen and Schott who discovered that as much as ninety percent of the US trade flow through a multinational of U.S with as high as 50% of the trade actually taking place between branches of the same MNC over the world. This gives us an insight as to how much power and influence MNCs command over the global market today. Also, MNCs affect FDI through taxes. According to law, MNCs are taxable both in the parent and host nation. Parent countries support these MNCs by decreasing or completely eliminating the double taxation by offering either credits or reductions. This has a significant impact on the foreign direct investment. A research suggested that in the decade of eighties alone, the FDI response to the trade activities including tariff- jumping FDI happened only for companies who had some associations with MNCs. Economists note that local companies face a 3% hike in their anticipated discount profitability from anti-dumping duties unless the foreign MNCs that are subject to tax and duties settle on tariff-jumping in which scenario the local firms are not affected. With globalization, countries are exposed to a variety of options; both for outsourcing their own activities or receiving as a host country. In the last decade, due to globalization outsourcing of call centers to third world countries, like Pakistan and India became a popular trend, giving employment options to the host countries and enabling the outsourcing countries to get their job done at almost half the price, as these countries look for options where there is a massive labor force, thereby reducing the cost of labor (Micklethwait and Wooldridge, 2000). Denim jeans, a name in jeans clothing, is now stitched mostly in Bangladesh and Indonesia, owing to the cheap labor cost available there. Likewise, the maquiladoras in Mexico are used to put together intermediate products in the form of finished goods which are made for the American market. The political sphere also has been affected by globalization (Stiglitz, 2002). It is being pressed forward in two different nations for the political order, both of which have their roots in the preliminary sect of modernity. The first order entails it as a marketplace where the basic relations are seen as an instrument for bargaining deals with people and segments which function in self interest. The next one conceives the political order as commonwealth which is a state where each individual functions in accordance with a common interest and agenda; where people cooperate in all endeavors to build and maintain a system of government which puts into practice the collective moral values and shared beliefs (Giddens, 2000). Nonetheless, globalization is without any doubt a very dynamic process; one which has brought multiple advantages to nations where the standard of living of people has increased due to decline in poverty levels and better trade has revolutionized the economic scene. It is also important to discuss here that usually globalization stems from some technological breakthrough which drives the political units and societies in a race to align themselves with the current happenings (Scholte, 2000). But what happened in the last wave of globalization in the end of the 20th century has raised many concerns as it outstretches the capacity of the nations to adapt. (Giddens, 2000) Since the hub of the economy of any country lies in the financial transactions of the company through which individuals assess value, the collapse of the financial drive of globalization has resulted in a significant catastrophe of values. Such catastrophes result in conspiracy theories which are usually administered by foreign elements. Infact, with globalization the potential of the government to safeguard its country from external influences has significantly declined. This is also because of the unprecedented nature of globalization (Giddens, 2000). Conclusion Globalization has many implications for the economy at the national level. It has resulted in more dependence on the already wealthier countries as they continue to use globalization as a tool to conquer the market and exploit the vulnerable poorer nations of the world. A classic example of this is the British who entered the Indian subcontinent as traders. With time they dominated the Indian market and resulted in ruling the subcontinent for two hundred years. Globalization has also increased the competition between different world markets as goods and trade takes place in the movement of capital. This then becomes a key intervening force for shaping the national economy which is no more solely controlled by domestic developments and policies. One of the main elements that shape and drive international dynamics is that they overpower the efforts by states to administer globalization or even control the level of its influence. There are many examples in economics which demonstrate the prevention of conflict, the restoration and protection of the environment. So much so, that even to make the most trivial change in the legislation, every government is bound by the international laws that reign supreme over every authority. One of the main elements that shape and drive international dynamics is that they overpower the efforts by states to administer globalization or even control the level of its influence. There are many examples in economics which demonstrate the prevention of conflict, the restoration and protection of the environment. So much so, that even to make the most trivial change in the legislation, every government is bound by the international laws that reign supreme over every authority. References Beardwell, I. (2004) Contemporary Industrial Relations: A Critical Analysis. Oxford University Press, Oxford, pp 44. Beck, U. (2001) What is Globalization?, Cambridge: Polity Press. 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