Globalization and Its Impact on Global Business Practices - Essay Example

Globalization and Its Impact on Global Business Practices 1. Introduction According to Freedman(1999 ,p 156), globalization means “various quantitative and qualitative developments ranging from a dramatic increase in international transactions, to the international and spatial reorganization of production, the global harmonization of tastes and standards, liberalization, deregulation, privatization, the arrival of new information technologies etc”.In this essay, the main drivers of globalization and the impact of globalization on global business practices are discussed. 2. Drivers of Globalization The main actors involved in the globalization process include states, Inter Governmental Organizations(IGOs),Non Governmental Organizations(NGOs), experts ,global policy networks, Multinational Corporations and private authorities(Karns and Mingst,2004,p16). IGOs are organizations consisting of at least three states as members linked together through an agreement called intergovernmental agreement. Examples of IGOs are WTO, North American Free Trade Agreement (NAFTA), OPEC, World Bank, IMF, UNO etc (Hart, 2008,p15).States create IGOs and are the main actors in the decision making process. Now the main power among the states is the USA. USA, Europe and Japan called the triad economies have been traditionally dominating the global business and the decision making process in the IGOs (Accenture, 2007). In addition to these, globalization has resulted in the emergence of new political actors ie the Non Governmental Organizations, which have close links with these international government organizations. The main influences on the boundaries of the nation state due to globalization according to various definitions can be classified as economic, political and cultural. 3. Impact of Globalization on Global Business Practices The rise in liberalization and deregulation and the rapidly declining transportation and communication costs as well as the reduction in barriers to good and services have resulted in a high rise in the trade, FDI and transfer of technical knowledge (Frankel, 2000). The rise in FDI has outweighed the rise in exports all over the world (UNCTAD, 2000). Moreover, as a consequence of the internationalization of production, there has been a shift in the production from goods to services all over the world with the services sector contributing to about two thirds of the world GDP compared to only half of the world GDP in the 1980s(World Bank,2009). The globalization process has changed the traditional home country determinants of FDI. Moreover, it has resulted in getting access to many resources, which could not be accessed earlier, which in turn results in enhancing efficiency. Thus, there has been a shift to efficiency-seeking FDI in developing nations (Dunning, 1999). The regulatory environment for FDI has also changed with the rise in bilateral investment treaties and trade and economic integration agreements .Minimum of five WTO agreements are there in this regard namely the GATS, the TRIMs, the TRIPs, the GPA and the ASCM(OECD,2004). The reorganization and relocation of the production of goods and services as a part of the globalization process has also resulted in increasing global value chains and associated production networks. This has resulted in fragmented and specialized production of goods and services by firms all over the world (UNESCAP, 2007). The significant rise in cross border investments and the international trade has resulted in ethical issues involved in the decision-making in the cross-country settings. Hence, all standardized products have established global markets and the firms have to adopt for main business entry strategies, which are different from the domestic business entry strategies (Yiicel etal, 2009). These are an international strategy, a multi-domestic strategy, a global strategy, and a transnational strategy (Bartlett and Ghoshal, 1989; Yiicel etal, 2009). The ethical issues involved in the cross-cultural settings of the global businesses include bribery, unfair pricing, illegal activities, tax evasion practices, cultural differences, political influences etc (Yiicel et al, 2009). Hence, studies demand the need for international norms and business ethics to be created by the IGOs like the WTO,IMF, World Bank etc in this regard to solve the ethical problems(Yiicel et al, 2009). For example, when the WTO’s dispute settlement mechanism, with its tool of retaliatory compensation, is used by the US or EU is much more powerful against a developing country than when employed by the latter against the former. The main difference in the political capacity of developed and developing nations is mainly due to the Weighted Voting in the Bretton Woods institutions (Yunker, 1999). As a result of globalization and the consequent rise in the trade and investment as well as technology, the quality of life is argued to have been improved on the one hand. On the other hand, it is argued that it has risks associated like environmental problems including emission of green house gases, increased pollution, climatic change problems etc, due to these the quality of life can be reduced also (Crafts, 2002). Another major issue involved in the multilateral diplomacy is to incorporate NGOs in the global governance process (Naidoo, 2005,p1). This is because for the better performance of the IGOS like the WTO, permission from both government and non-government organization are needed. Due to the involvement of many players with multiple interests, rules, issues and hierarchies, which have been quite unstable, it is argued to have been very difficult to obtain a common agreements for collective actions or goals. References Accenture(2007): “The Rise of the Multi polar World”, http://www.accenture.com/NR/rdonlyres/FDE9A8E7-6839-472B-8C9E-957DD6DF1B76/0/MultiPolar_World_final.pdf, Accessed April 16 2010. Appadurai, A. (2001) “Disjuncture and Difference in the Global Cultural Economy.” In David Held and Anthony McGrew (eds.), The Global Transformations Reader, Malden, MA: Polity Press. Bartlett C. A. and S. 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