Business Operates in a World of Regionalism not Globalism - Essay Example

Regionalism and Globalism Introduction The ancient model of (one or two man) Robinson Cruise economy does not exist in the contemporary world any longer. The state of economic affairs in nations has become diversified, in terms of both scale and scope. The emergence of globalization and liberalization, in the segment of international trade, signifies that over time, commercial activities between nations have substantially grown. At this juncture, the Gross National Products of almost all nations of the world have improved significantly. The rise in per person income levels in many nations are now associated with rise in the standard of livings of individuals. The aggregate demand for goods and services in the economies has substantially improved with the rising per person income thresholds. In this epoch, business organizations constantly try to enhance their operations, with the use of efficient strategies, to sustain and cater to the rising demands. It is true that over a long period of time, international trade has improved. However, its social, political and economic implications are stressed most often in the recent years. This paper sheds light on the exact manner in which business organizations must operate. As the world economy has opened up, business organizations have turned out to be Multinational Corporations. The rise in the degree of internationalization of contemporary firms in the global economy indicates that most business firms now operate across their domestic borders. Even so, the precise nature of global business operational and management strategy is still a concern for many corporations. Some of the firms have realized that their business can operate in a generalist framework across different markets; on the other hand, there are also many firms who modify their nature of business ascendancy on the basis of regional differences across different markets. This paper will try to estimate the most important driving force of international trade, between regionalism and globalism (Atikian, 2013). Business Operates in a World of Regionalism not Globalism With rapid improvement in the state of scientific innovation and technology, global market is shrinking in the contemporary world. The degree of interdependence between nations has significantly risen over years. At this stage, there are several weaknesses and unaddressed atrocities in the globalized world. The modern researchers have claimed that inequitable distribution of income and wealth between nations is solely responsible for the defects in business operations in the world of globalism. Although the economic systems of the nations have become integrated with each other, yet the social, political and cultural disparities between them are still high. It has been claimed by these economists that the nature of demand as well as tastes and preferences of consumers largely depends on the social, cultural and political attributes across different nations. Perhaps, this is the reason for which, in the current era, the concept of regionalism dominates the business operations of many companies. Scholars have claimed that regionalism has become a popular terminology as it solves most of the problems associated with global multilateralism. The importance of the term ‘globalization’ and its implications, following World War II, must be realized, before analyzing the precise reasons for which scholars consider such a liberal system to be faulty, since its inception (Shaughnessy, 2013). The term, globalization, has been differently interpreted by different theorists and scholars. The nature of its impact and existence in the real world has always been construed in varying forms for this reason. After emergence of the American world and following the World War II, globalization was seen to surface in the market. The inceptions of International Monetary Fund, World Bank and the United Nations in the world economy had marked the beginning of globalization. Many scholars have claimed that globalization have generated high growth in the international trading market, thereby promoting the degree of new penetrations in national markets (of different nations). It has internationalized the extent of economic, environmental, financial and political problems or advances across nations (Chobanyan and Leigh, 2006). Economists, previously, had claimed that a rise in the production of firms can always help them to reduce their average cost of production, thereby helping them to earn a higher degree of profits. Before globalization, many business firms could not exploit their productive resources properly as their domestic markets had become saturated. However, after globalization, these firms could exploit their resources efficiently in international markets and enjoy the fruits of scale economies. Companies like, Procter & Gamble and Accenture, could turn out to be such global giants only because they could enjoy the fruits of free trade. Owing to globalization, many companies in developed nations of the world gained access to cheap sources of labour from the developing nations, as the degree of labour mobility had also increased then. On the other hand, the business firms of developing nations also benefited from globalization in several ways. These corporations experienced a higher degree of competition with an essence of free market economies in their local markets. The scope of foreign investments of these companies was also seen to increase. Moreover, globalization has generated a complete integration of the financial markets. Deregulation of the entire financial market is subject to a globalized business world. The volume of finances that could be used by business firms for further growth had also improved after globalization. The emergence of International Policy Coordination helped the firms to experience more liberal forms of governments across nations. Globalization in the world market had generated even technological enhancements for all business firms (Dogl, Holtbrugge and Schuster, 2010). The firms in the globalized market experienced a wide pool of technological and financial resources for their future growth. The base of potential customers for companies across nations also improved in such market form. The correct application of Ricardian Comparative Cost Analysis could be made by business firms only in the globalized market. The companies started to manufacture only those products, over which its domestic market had comparative cost advantages. The firms started to outsource articles from the international markets, over which it did not possess cost advantages. Thus, the above analysis explains and justifies the fact that business firms, in the modern era, must operate under globalism. However, the unequal growth rates between nations suggest certain inherent flaws in the globalized system of world. Some of the scholars have commented that benefits of globalization have partially favoured the growth of companies in developed economies, rather than the ones in developing nations. It was claimed by Toshiro Tanaka, a political scientist, that selectiveness is the pivotal problem in the globalized scenario. He claimed that exclusion is one of the primary inbuilt characteristics of globalization and the huge benefits generated by a globalized business world are also evenly balanced by misery, violence and conflicts. Many scholars believe that if business firms operate in a world of globalism, then they are subjected to partial growth, in terms of capitalistic mode of manufacture and technological innovation. The concept of regionalism is also diversified, similar to that of globalization. The concept of regionalism does not confine to the idea of geographical regions. It also comprises concepts relating to social system and organized cooperation in fields of economy, culture and security. Even so, it should be noted that regionalism is of two types, namely Old and New regionalism. Old regionalism had existed during Cold War in the global market, whereas New regionalism exists in the modern days. The concept of Old regionalism was more prevalent in nations with hegemonic power. The business firms operating in these nations were under regulations that were inward-oriented and protectionist in nature. The governments of these nations instructed the firms to increase their scale of their business operations in the domestic market, more than that in the international markets. The regulations such as, NATO and Warsaw Pact, are the best examples of policies undertaken in the nations following Old regionalism principles (Smith, 2010). The scholars have claimed that the concept of New regionalism is a multidimensional and more comprehensive process, which even includes the concepts of trade, economic development as well as security, social and environmental issues. This is a system that states that the non-state (non-political) entities in economies were more active in the decision making processes than the political entities. The scope of New Regionalism is much broader than that of globalization. New regionalism relates to more concepts in marketplaces than simple free trade (that is primarily addressed in globalized markets). Perhaps, this is why many economists believe that if business firms operate in the world of regionalism, instead of simple globalism, then their aggregate business performance would be better. This is because regionalism seeks rectification of the issues faced by globalized markets. The globalized world is transformed into a better form with the principles of New regionalism, as they address to more facets in the market than simple economic aspects that are considered in the globalized market. The economists have claimed that regionalism in the modern market system has proved to be more efficient in securing the marketplaces and strengthening the economies (than globalism) through the generation of Regional Trade Agreements (RTAs). It is true that globalization has promoted economic growth across nations. The Gross Domestic Products of most nations have increased with its essence. However, globalism principles in the markets have imbibed a higher degree of market concentrated powers in nations that have lowered the net social welfare thresholds. High concentrated monopolistic powers of certain giant firms in the nations have decremented the level of competition in the industry. Cases of Antirust in the market have significantly increased, like that of Microsoft Corporation who acts as a market monopolist. Globalism in the market has reduced the powers of states in the nations in order to peruse macroeconomic policies. This has created several problems in the markets. Concentrated powers in the economy have increased the cost of medical treatments as rising monopolistic powers of pharmaceutical giants have turned health care into luxury consumption. Unfair trade practices result in market failures and reduce the producer or consumer surpluses in markets. The unfair strategic tools, like, Limit and Predatory pricing, threaten new firms to enter in strategic business segments in the market. It is claimed by several economists that the powers of private organizations must be checked by the government authorities through macroeconomic policies. Growth of business firms in an economy can be indicated with globalism, but the criterion of equitability in that growth should be ensured by government authorities. On the contrary, regionalism, in the contemporary world, with the help of RTAs, further stabilizes the business environment by promoting a greater participation of state authorities in the form of stable macroeconomic policies. North American Free Trade Agreement (NAFTA) and rise in the number of economic and political policies of Mexico are prominent examples of RTAs (Slack and Nigel, 2005). These policies are built on the notion of Export Promotion and Import Substitution. The business firms under such principles are allowed to grow globally, provided that their domestic business is well-developed. Thus, the level of competition in the industry (hence, social welfare) proves to be better, if business firms operate under regionalism, instead of a simple world of globalism. It is considered that an export-led growth of the booming world economies is non-consistent in nature. The productive capacities of the domestic economies must be improved for achieving a sustainable growth. If business firms operate in a market, based on regionalism, then their operations are more appropriate, as world markets are highly diversified in terms of market characteristics. Similar to a case of a single dress which does not fit one and all; same principles of business operations are not applicable in all the modern world markets. Say, Company X operates in market A and B. Market A is labour intensive in nature, whereas market B is a capital intensive one. Then, in that case, company X would optimize its cost in business if it adopts a labour intensive mode of production in market A, whereas adopt a capital intensive mode of production in market B. The government policies towards human equality are stronger in Sri Lanka than in Pakistan. So, a multinational corporation should concentrate more on the code of ethics in the workplace of its Sri Lankan branch than that of Pakistan. Moreover, as the tastes and preferences of consumers differ across different regions, the nature of business strategies (product, price, place and promotion) should also vary accordingly (Butje, 2005). For example, Organization of African Unity (OAU) had been formed in the African continent in order to reduce wars and political disturbances within African nations (Nieuwenhuizen, 2007). It was found that in the globalized scenario, the degree of foreign business dominance (primarily by developed western nations) in African markets had lowered the scope of growth of domestic businesses within the nation. Thus, as per the motto of regionalism, OAU had been introduced to promote political interference (welfare-oriented) as well as protect the interests of domestic companies in the African markets. The reduced corruption in African markets, in the recent days, denotes the success of business operations in the continent within the realm of regionalism (Negishi, 2001). Business firms, operating in the globalized world, are subjected to a situation where their domestic markets possess a lesser control over changes in the external affairs. The political scientist, Neils Lange, had claimed that the rising amount of cultural discrepancies among different regions has lowered commonality among the supposed “imagined communities” (where standardization exists in terms of education and languages). In the contemporary world, spread of cultural globalization has increased the number of cultural attributes that are faced by business organizations in different regions. It has been claimed by several analysts that globalism in business cannot be removed, but it should be subjected to different operations in different regions. For example, prices of the products of Nike Inc. in a developing nation, like, India, should be relatively lesser than that in its Swedish market. Conclusion It is true that regional differences between nations are lesser in the modern world, as European and Asian markets are found to lower their regional discrepancies by increasing the number of Asia-Europe Meetings (ASEM). Nevertheless, it should be noted that the state of political, social, cultural and economic aspects are different across nations. On a micro level, business firms, nowadays, must operate in terms of regionalism. Although the nature of business operations in different regions should not be same, but the scope of operations must always be similar globally. In that sense, it can be claimed that business corporations, on a macro level, should operate in the world of globalism. This issue can be precisely summarized by stating that modern business firms, operating in a globalized phase, must also be built on regionalist principles in the scope of their business operations. So, considering globalism and regionalism, the latter should be built upon the former (Arnold, 2008). Reference List Arnold, R. A., 2008. Macroeconomics. Connecticut: Cengage Learning. Atikian, J., 2013. Industrial shift: The structure of the new world economy. Basingstoke: Palgrave Macmillan. Butje, M., 2005. Product marketing for technology companies. London: Routledge. Chobanyan, A. and Leigh, L., 2006. The competitive advantages of nations Applying the “Diamond” model to Armenia. International Journal of Emerging Markets, 1(2), pp. 147-164. Dogl, C., Holtbrugge, D. and Schuster, T., 2010. Competitive advantage of German renewable energy firms in India and China. International Journal of Emerging Markets, 7(2), pp. 191-214. Negishi, T., 2001. Developments of international trade theory. Berlin: Springer. Nieuwenhuizen, C., 2007. Business management for entrepreneurs. Landsdown: Juta and Company Ltd. Shaughnessy, J. O., 2013. Business organization. London: Routledge. Slack, N. and Nigel, S., 2005. Operations strategy. New Jersey: Pearson Education. Smith, F., 2010. Environmental Sustainability: Practical Global Applications. Massachusetts: CRC Press. Read More