Globalisation of Trade - Literature review Example

?Globalisation of Trade Globalisation can be simply defined as the process of incorporating national cultures in order for fostering international trade, direct foreign investment, migration, and technology sharing. Globalisation led to the emergence of a global economy and the rapid cross border circulation of ideas, languages, and cultural ideologies. The very idea eliminated international trade barriers which in turn intensified liberalised cross border trade. As Cairola (2007) points out, developed countries dramatically increased their production levels during the 1950-70 by through international diffusion of mass production and assembly lines; hence, there arose a need for finding new markets to supply excess products and services. Companies believed that exporting of these excess items to foreign needy markets would be a potential strategy to promote growth (ibid). In addition, intra-firm trade also contributed to the current international trade. On the other hand, developing nations also supported the idea of internationalisation of global production since they find it as a way to enhance their growth by supplying raw materials and labour to multinational enterprises. As the author points out, between the 1960s and the 1980s, developing economies started to change their focus from import substitution to export promotion policies with intent to enhance economic stagnation. They also gave specific importance on their industrial development. Thus, developing economies eventually began to integrate into the global trading system even though their participation is still lower as compared to other developed economies (ibid). In order to take advantages of the trade liberalisation, organisations today are trying to become less hierarchical and more decentralised. Undoubtedly, multinational corporations obtain more advantages of trade globalisation as they get free access to global markets despite cross border barriers. In order to enhance foreign investments, governments are promoting development of transnational corporations. Even though countries like China put obstacles to foreign investment, currently they are softening their attitude towards multinational enterprises. Globalisation critics argue that multinational corporations take unfair advantages over poor countries by exploiting their physical resources and labour. This criticism seems to be true to some extent while analyzing regions like Africa and Latin America. As Domer (1999) points out, African countries still remain underdeveloped whereas the Latin American region is still dependant on Western economies. The author points out that the African economy’s growth rate stood at around 2% over the 1984-1993 period and this poor rate was not enough to meet even increasing needs of the African population (ibid). The increased European influence and lack of an effective leadership significantly contributed to Africa’s stunted growth. Weakening commodity prices was the major growth impediment to Latin American countries in 1990s; and many of the Latin American countries still heavily depend upon capital inflows from industrialised countries due to their huge external debts (ibid). Arguments for globalisation of trade The process of trade globalisation has benefited economies across the globe to obtain uninterrupted supply of different goods and services and take advantages of improved overseas facilities. Some of the benefits of globalisation are listed below. 1. Improvement in international relations As a result of globalisation of trade, the concept of global economy came into existence which in turn enhanced the growth of different segments of the international market. In addition, the globalisation process resulted in the creation of a global market and a global system of production. Evidently, capital marketers also enjoy far reaching benefits of globalisation as this concept has led to the integration of financial systems. With the emergence of globalisation, dramatic developments took place in the area of telecommunications media which in turn stimulated the spread of global mass culture (European Parliament, 2012). Evidently, globalisation restricted nations’ ability to control transnational business operations and economic activities. Since then, organisations increasingly transplanted their production and other business facilities to overseas countries where raw materials and labour are available at a lower cost. As Macmillan (2010) clearly states, many multinational corporate giants spread their business across the globe so as to take advantages of liberal cross border trade laws. Therefore, this concept forced nations to maintain good relationship with other countries. Before 21st century, the rate of cross border travel was very low because travelling from one’s home country to a foreign destination was very expensive and time consuming (ibid). Since communication facilities were not well developed at that time, inter-communication between nations was also an expensive task. However, this situation changed as a result of globalisation and associated rapid technological advancement, which greatly benefited immigrants to maintain effective ties with their relatives and friends in the home country (ibid). Authors like Simoens et al (2005) point out, increased immigration flow assisted many countries to resolve their employment issues like nurse shortage. Hence, arguably increased flow of immigrants across international borders became a stimulant in enhancing international relations (ibid). In addition, the process of globalisation can be well linked to international relations theory. According to Chatzikonstantinou and Sarigiannidis, “international relations theory is defined as nothing more but the systematic reflection of phenomena, designed to explain them and to show how they are related to each other in a meaningful, intelligent pattern, instead of being merely random items in an incoherent universe” (as cited in Nikoloudi and Skiadas, n. d.). Hence, while analysing globalisation with reference to the international relations theory, it seems that the process has added value to relations between countries worldwide. In brief, globalisation markedly strengthened inter-country relations which in turn dramatically improved global economic development. 2. Increased immigration flow Globalisation has significantly increased the level of immigration flow. The idea of globalisation notably increased companies’ transaction volumes and hence they were forced to find more skilled and experienced workers who could effectively contribute to improved value chain operations. Organisations considered immigration as a potential way to resolve their employee shortage issues. Hence, countries liberalised their immigration policies and offered improved remuneration and other facilities to immigrant workers. A report of The University of Iowa Centre for International Finance and Development (2012) reports that globalisation persuaded several countries to allow its immigrant workers to have better attachment with their home country. In addition, some other countries amended their immigration policies to allow the immigrant workers to be dual citizens (ibid). This type of supportive practices significantly intensified the migration rate across the globe. Altogether, globalisation made labour globally mobile and accessible. Furthermore, increased immigration flow assisted nations to hire expertise in areas where they are weak and underperforming (Bourdreaux, 1997). Bourdreaux adds that liberalised immigration policies benefited multinational enterprises very much as they could find relatively cheap labour from third world countries; and in addition, immigration is an effective way to hire technically and professionally skilled workers and thereby improve firms’ operational efficiency and overall performance (ibid). Majority of the immigrants would be financially needy people and therefore they are less likely to quit the job soon after they are employed. Hence, employment of immigrant workers may aid multinational corporations to reduce their employee turnover ratio. A better employee turnover ratio would assist organisations to minimise their employee recruitment and training expenses notably so as to increase shareholder values. According to a report by the Productivity Commission of the Australian government (2006), one of the major benefits of increased immigration flow is that this concept assists a country to keep its unemployment rate lower. It is clear that all countries, specifically poorly developed countries, cannot provide employment to its entire people as those countries lack adequate industrial ventures or productive programmes; and under such conditions, migration is a potential prospect for unemployed people to find better opportunities abroad (ibid). As unemployment rate is a factor influencing a country’s economic growth, liberalised immigration policies and thereby reduced unemployment rate promotes economic development of the Third World (ibid). 3. Technological development Authors like Dorner (1999) opine that the idea of globalisation and resulted changes in the global business world led to the formation of a new technological era that reshaped business concepts and living standards of the modern world. The dramatic development in technology over the last three decades in turn contributed to huge industrial growth. Scholarly studies point out that the process of industrial revolution noticeably transformed the structure of families, communities, and worksite environments. As Alinaitwe et al (2006) point out, since human efforts were widely replaced by improved technological innovations, the industrialisation process heavily decreased manual labour. The authors add that the extensive application of technology in production processes markedly augmented the volume of production; and hence, employing more skilled workers became necessary for operating machineries and other technical systems productively (ibid). In order to get better access to the employment landscape, people moved their living arrangements near to factories and other workplace areas. Although technology was one of the major factors led to the emergence of globalisation, the concept (globalisation) largely intensified the further growth of technology. Since liberalisation of cross border trade led to an increase in transactional volume of business organisations, business firms found it difficult to run their operations smoothly. As a result, organisations were forced to develop highly improved technologies to support their supply chain activities. As Porter and Miller (1985) remind, since every business house attempts to deliver its services more efficiently, it would frequently search for innovative and improved technological applications. The immense growth of information technology could be attributed to trade globalisation and industrial revolution (ibid). Development of internet related facilities notably changed the way the world operates and people communicate (Castells, 1999). Yergin et al (2000) identify that the process of trade globalisation fuelled the development of transportation sector because increased mobility was necessary to take full advantages of the globalisation. As a result, air travel attained popularity worldwide and nations developed innovative technologies to provide people with improved airline services at affordable rates (ibid). As increased use of vehicles challenged the sustainability of natural resources like petrol and diesel, nations were forced to seek for alternative technologies. Hence, development innovative hybrid electric vehicles can be ascribed to globalisation of trade. In, short explosive technological development over the past few decades is one of the most fascinating advantages of trade globalisation. Arguments against globalisation of trade Although globalisation has contributed to nations’ rapid economic growth and cross border movement of capital, labour, cultures, and ideas, this concept has some potential disadvantages too. Some major demerits are briefly discussed below. 1. Pollution of local environment Export oriented destruction and related issues seem to be the major adverse effect of globalisation on the environment. Globalisation significantly increased the consumption demand which intensified the overuse of resources. In addition, higher rate of industrial growth evidently affects ecosystems. Both the overuse of resources and ecosystem destruction threaten the environmental sustainability. Data indicate that nearly 11 million acres of forest are cut a year for meeting the needs of commercial and property industries. Deforestation evidently leads to the loss of biodiversity, and in addition, it has far reaching consequences on the weather distribution patterns. According to a report (All Voices, 2010), export oriented over-fishing is another area of resource depletion. This issue is common around the globe, for reports indicate that 9 of the world’s 17 major fishing areas are in decline and 4 of those fishing grounds have been completely fished already (ibid). A study by the UN’s Food and Agriculture Organisation in 2005 indicates that approximately a quarter of the world’s commercial fish species have been over-exploited and global stocks of most fish species have reached their limits (ibid). As Weber et al (n. d.) reflect, industrial growth forces the developing world to rely heavily on fossil fuels, which is a direct cause of greenhouse gas emissions and thereby global warming. High levels of greenhouse gas emissions cause the depletion of the ozone layer. The authors also point that global warming is contributing to sea level rise due to the melting of ice sheets and glaciers (ibid). Reports indicate that the average temperature at the earth’s atmosphere has risen by nearly 0.6o since the late 19th century due to global warming (All Voices, 2010). Trade globalisation greatly increased the movement of traded goods by maritime transport, which contributes to approximately 5% emissions of sulphur oxides and 14% nitrogen oxides in the world (ibid). The report “Globalisation and environmental protection: A global governance perspective” prepared by Esty and Ivanova (2003) points out many severe impacts globalisation can have on the environment. The authors argue that globalisation caused pollution levels to go beyond the accepted levels. In the report, they indicate that ecosystem services including water preservation, flood prevention, carbon sequestration, and oxygen provision often go unnoticed because of the over emphasis on globalisation (ibid). Similarly, globalisation caused the emergence of a disposable culture, which caused the pollution of soil, water, and air. Evidently, such issues adversely affect agricultural production and thereafter cause many epidemics across the world. 2. Politics in trade matters The intrusion of politics in trade activities heavily limits the scope of trade globalisation. Grigg and Murray (2012) argue that many countries like China still adopt a hostile approach to foreign business houses, for in those countries, foreign companies need to meet a series of formalities and procedures to start up a business. The authors believe that due to political parties’ unfair intervention in trade activities, the concept of free trade under globalisation may never be possible (ibid). Most of the governments give some sorts of trade concessions or tariff exceptions to their domestic companies while charging higher for foreign firms. Hence, organisations do not get free access to foreign markets. Jakobsen (n. d.) also points out that some political parties intrude in trade activities so as to gain cheap publicity and improve their public support. They argue that foreign companies will limit the business of domestic marketers and threaten the sustainability of traditional industries (ibid). Sometimes those political parties may get public support and hence people would boycott the company products or organise strikes against it; and since under such circumstances, the government cannot overcome public protests, the company may be compelled to wind up its operations (ibid). Since modern people are very concerned about environmental safety and sustainability of water and other natural resources, politicians can easily gain public support by convincing people that foreign firm are dreadfully exploiting the nation’s resources. The rate of corruption is very high in third world countries and in some developing countries. As Ellis and Waldron (2001) reflect, politicians lead the corruption activities in many of those countries, and multinational enterprises face a series of operational challenges while operating in a corrupt country (ibid). According to the authors, in order to provide government sanctions and other legal certificates in those countries, politicians may demand bribe and/or other unfair helps. This situation would cause foreign firms to incur additional expenses and eventually they may be forced to end up their operations in those countries (ibid). Undoubtedly, such political intrusions are the major reason why poor countries still remain underdeveloped. Another issue pointed by Newmayer (2005) is that some countries place strict restrictions on immigration policies so as to preserve the employment interests of their citizens. Although such a restrictive immigration policy may assist nations to improve their unemployment rate, it prevents companies from hiring better expertise they need to meet fixed standards (ibid). Hence, companies will be forced to employ native workers who may or may not possess required job skills and experiences. Admittedly, such a working condition would adversely affect firms’ operational efficiency and productivity. 3. Threat to small businesses enterprises (SMEs) SMEs can have a great influence on a nation’s economic viability. It was the stronger small business industry that assisted many economies like India and China to defend the recent global recession effectively. However, the globalisation of trade greatly threatens the operational efficiency and sustainability of small business enterprises. For small business houses, lack of funding seems to be the major challenge posed by globalisation. As globalisation allows multinational corporate giants to enter a foreign market despite geographic barriers, currently bankers have numerous potential business clients. Therefore, bankers are not willing to extend credit facilities to small business enterprises that are less attractive prospects for banks. Hence, small businesses are struggling to raise funds for meeting their day to day business activities and other expansion requirements. In the view of Hwang (2007), multinational corporations have many competitive advantages over SMEs. Since multinationals involve in large scale operations, they can notably reduce production cost per unit relative to small businesses; and therefore, it is possible for multinational enterprises to create intense competition for SMEs by setting lower prices (ibid). International companies may offer diversified product choices to its customers whereas SMEs possess only a limited product lines. Under such a situation, customer would probably look for multinationals’ offerings. Furthermore, multinational corporations may have more skilled workforce and managerial expertise. Hence, they are more likely to dominate small businesses in the market. In her research paper “Globalisation and its impact on small scale industries in India”, Sonia (2009) analyses how the globalisation process impacts overall performance of small scale businesses in India. Based on the evaluation of extensive facts and figures, the writer concludes that globalisation hinders the growth of small scale enterprises mainly because of the over dominance of multinational corporations (ibid). Small scale industries constitute the backbone of a country and hence their stunted growth would adversely affect the national economy as a whole. The lack of infrastructural development and technological growth place SMEs well behind multinationals. It is obvious that SMEs cannot raise huge funds to improve their infrastructure or technological capabilities. There are still many small business houses operating in the complete absence of computer facilities. Hence, their efficiency in value chain activities may be deadly low and they cannot successfully confront with well developed multinational companies. As multinational companies are large in size, they can make risky investments by spreading the elements of risk. This strategy is not possible in case of SMEs that are comparatively small in size. In addition, the level of resistance to change is high in small business firms as compared to multinational corporations. It is clear that the process of trade globalisation brings a lot of operational as well as managerial changes every day. Hence, change management will be a difficult task for SMEs, and this situation will make them vulnerable to market trend changes. 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