Globalization: Re-Enactment of Ignorance is Bliss - Literature review Example

Globalization: Re-Enactment of ‘Ignorance is Bliss’? Introduction: Imagine two brothers talking face to face with each other sharing their joys and sorrows. Now consider this in light of two separate countries. Croatia and Greece are also talking to each other; however this time the talk is regarding national affairs. Both are proposing to form a joint economy in light of a common currency which would dictate unifying economic policies for the region. Such is the role of globalization in the world of today. Even though the picture that comes to our minds regarding this terminology seems to be quite promising, the actual illustration is in fact quite bleak. Even though globalization may prove to unify and revitalize at the corporate and national level, it compromises international standards and financial independence. A multitude of corporations tend to align their policies with globalization after willing to expand their production to greater avenues as yet unexplored. According to Wiersema and Bowen (2007), industry globalization, foreign competition, and firm product diversification also tend to have an influence on the choice of diversification for firms considering globalization. Take the example of Coca-Cola. According to its late CEO, Roberto Goizueta, the terms ‘domestic’ and ‘international’ are no more relevant to the context of the company (Ghemawat, 2003, 78-84). He was of the view that the company should explore new horizons and expand production outside the North America to Asian states as well. For this, the initiation of the campaign ‘think global, act global’ took place. The campaign greatly increased the company’s revenues as by the time Goizueta passed away, Coke was extracting 77 percent of its profits from outside the United States (Ghemawat, 2003, 78-84). This greatly increased the confidence of stockholders as well as consumers. They were of the view that Coke was trying to reach out to them and gave a warm welcome to this initiative by the company. Besides expansion, globalization is also carried out to unify economic policies in regards to a geographic region. The European is the prime example of such integration. The countries of this region resorted to formulating a unifying economy to keep in line with inflation and interest rates. Countries such as France, Italy, and Belgium formed the European Union in 1958 as a means for progress in the euro zone. They did this by introducing a common currency (euro, €) throughout the continent. This insured that all member states were subject to the economic regulations and could proceed with inter-state trade at greater ease. According to Arestis, Basu and Mallick (2005, 507), the existence of multiple currencies may lead to discrepancies in the same region. This will give rise to the developed states being at a advantage as compared to underdeveloped or developing states. The member states were not required anymore to keep in line with the different exchange rates and could participate in cross-border trade transactions with a single currency at hand. If we focus at the global level for a moment we will observe radical changes at that scale too. The global GDP since the 1990s till the time of recession turned out to be a robust 5 percent (Beinhocker, Davis and Mendonca, 2009, 2). Economies all over the world indulged into the free market and started trading with each other. This gave rise to a greater sense of economic prosperity. States all over the world increased their level of trading, leading to greater imports and exports than ever before. As a consequence, the interconnectivity as well as dependence was greatly increased. Besides being optimistic for corporations as well as national economies, there is also the other side of the picture to consider. One of the downturns of globalization is that it leads to a compromise between standards. How to gauge which product is the best fit for the region? In order to accomplish successful entry into the target market, you need to reach out to your target audience. Local demands and standards do not necessarily align with any corporation’s international standards. Local persons may be willing to obtain the product which is cheap and easily accessible rather than going for something which has been manufactured internationally. In order to account for this issue, international standards may sometimes be compromised in line with local demands (Ghemawat, 2003, 78-84). This regional difference of standards may lead to the corporation working on separate levels to satisfy consumers from varying genres. Another significant phenomenon which may arise in line with globalization of a specific product is the practice of arbitrage (Ghemawat, 2003, 78-84). The corporations may charge different prices from consumers of different geographic regions, to account for the differential in costs that they have to pay. Certain companies/investors may also indulge in business for the sake of arbitrage. They may tend to be profit-oriented and go about charging higher prices from people of different regions. This will also lead to a compromise over the company’s standards and may, in effect, deter the corporation’s reputation and credibility regarding investors. Regarding global integration, the situation has not been much optimistic of late. Ever since the era of financial dependence, all countries have been tied down simultaneously. The economic downturn of one spells disaster for the neighbors as well. According to Mishkin (2007, 259-294), even though globalization encourages financial development, it may lead to financial crises at times. The most significant repercussions have been observed in the field of finance (Beinhocker, Davis and Mendonca, 2009, 2), regarding the financial crises of 2008 and the ongoing recession in the euro zone. Since all countries have invested across borders in international financial banks and firms, the repercussions lead to tons of financial losses. In the US recession of trillions of dollars, all countries that were trading in the US dollar suffered heavy losses. When the US economy defaulted, states that held reserves of the American currency were at a loss, as the value of the dollar declined significantly. Similar is the case regarding the European region. When countries such as Greece and Italy had to default, this spelled great disaster for the member states of the European Union. The consequences of a common currency affected all members equally. Additionally, US banks were also impacted by this fall, as the financial institutions which had the defaulters as their borrowers and had invested there, had to face serious credibility risk. This led to a huge circularity problem of whom to blame in times of distress. Conclusion: Globalization has always been seen in light of enabling persons reach out to each other and increasing communication and correspondence amongst the parties involved. However, the impact of a lack of effective communication and greater dependence has been significantly ignored for the past years. The gravity of the situation at hand should be realized without more ado; else the ignorance may not prove to be much ‘bliss’ in times to come. Bibliography Arestis, Basu, Mallick, Philip, Santonu, Sushanta, 2005. Financial Globalization: The Need for a Single Currency and a Global Central Bank. Journal of Post Keynesian Economics , [Online]. 27/3, 507. Available at: http://www.jstor.org/stable/4538941?&Search=yes&searchText=financial&searchText=globalization&list=hide&searchUri=%2Faction%2FdoBasicSearch%3FQuery%3Dfinancial%2Bglobalization%26acc%3Don%26wc%3Don&prevSearch=&item=3&ttl=22324&returnArticleService=showFullText [Accessed 24 December 2011]. Eric Beinhocker, Ian Davis & Lenny Mendonca. 2003. Trend to Watch: Globalization Under Fire. [ONLINE] 2. Available at: http://blogs.hbr.org/hbr/hbr-now/2009/07/trend-to-watch-globalization-u.html. [Accessed 24 December 11]. Mishkin, Frederic S. , 2007. Is Financial Globalization Beneficial?. Journal of Money, Credit and Banking, [Online]. 39/2-3, 259-294. Available at: http://onlinelibrary.wiley.com/doi/10.1111/j.0022-2879.2007.00026.x/abstract;jsessionid=E0E8DBA8F1326970C492A7EB2BD1BA8A.d01t02 [Accessed 24 December 2011]. Pankhaj Ghemawat. 2003. The Forgotten Strategy. [ONLINE] 81/11, 76-84. Available at: http://hbr.org/2003/11/the-forgotten-strategy/ar/1. [Accessed 24 December 11]. Wiersema, Bowen, Margarethe, Harry. P, 2007. Corporate diversification: the impact of foreign competition, industry globalization, and product diversification. Strategic Management Journal, [Online]. 29/2, 115-132. Available at: http://onlinelibrary.wiley.com/doi/10.1002/smj.653/abstract [Accessed 24 December 2011]. Read More