'Many see globalization as an opportunity for international business, but it is clearly a threat.' - Essay Example

? ‘Many see globalization as an opportunity for international business, but it is clearly a threat.' Introduction Globalization as a term has acquired a considerable sensitive force. Some people perceive globalization to be a process that is beneficial to international trade and business that caters to bring future world economic development and something that is irreversible and inevitable (IMF, 2000). On the contrary, some associate globalization with hostility and even fear believing that it raises the issue of inequality between and within nations that threatens employment and living standard, thereby thwarting social and economic progress (Wolff, 1998). Globalization has often been considered as a cradle of the global economic development. Globalization, a so-called ‘world liberator’, has not escaped controversies and criticisms as researchers, business officials, country leaders has often claimed that it has been the main cause of social evils and rising levels of poverty in developing countries. It cannot be denied that globalization offers wide-ranging opportunities for worldwide development. However, the development is not progressing evenly (Wellington and Zandvakili, 2004). Some countries have been able to integrate well with the global economy whereas some have not. The countries that are not being able to integrate well with the advent of globalization are actually being affected by the threats that the world liberator poses. During the 70s and 80s, countries in Africa and Latin America pursued globalization oriented policies that fostered the growth of international business. However, that led to adverse effects that the countries had faced. The economies of the respective countries either declined or stagnated to some extent (Abeles, 2001). The countries became poverty-stricken and high inflation became the norm. The adverse external developments in these countries made the problems even worse (Turiel, 2002). The crisis that occurred in the emerging economies during the 90s made it quite evident that the opportunities of globalization come with its fair share of threats and risks. The risks that arise are mainly due to the globalization of international business (Lloyds, 2010). These risks that countries have been getting exposed to are primarily because of unpredictable capital movements as well as due to social, economic and environmental degradation (Wall, Minocha and Rees, 2010). Globalization, which is thought to be the catalyst behind augmenting integration of local, domestic and international business/markets, is facing several headwinds which may reverse its course completely. This might decelerate the world economic growth and corporate earnings (Mourdoukoutas, 2012). Whether globalization offers extensive opportunities to international business or poses substantial threats to international business is a controversial issue and has often been associated with many debates by world leaders, researchers and economists (Buckley and Ghauri, 2004). Thus, this forms the ground work of this study where the threats posed by globalization to international business will be discussed in details in the following section/sections. Finally, an overall conclusion of the discussions will be provided. Globalization as a threat Threat to the workforce As far as the effects of globalization on international business are concerned, it poses significant threats to the development of the global business environment (Paul, 2008). The effortlessness with which individuals can move from one country to another has proven to be a threat to the scale of professional expertise and skill for businesses in developing countries. Professionals who are highly qualified and possess superior skills migrate to developed countries particularly because they are assured with better pay and incentives (IMF, 2000). As a result, businesses in the developing economies are now experiencing the scarcity of qualified and skilled professionals required to run a profitable business. This is a severe threat that international businesses face, due to globalization, whose workforce will tend to decrease even further as more experienced and learned workers migrate to developed countries. Increased inequality Critics who have stated their views about globalisation propose that globalization does not cancel out of the needs of the developing countries. However, author has suggested that globalization only safeguards the interests of developed countries such as, Europe, United States, Australia, Canada and others. Developing countries are mostly ignored in case of major decisions that are to be made on globalisation even in situations where the countries under concern are directly involved. Globalization serves as a factor that augments the level of inequality between nations (Hartman, et al., 2008). As far as the opponents are concerned, developed countries influence the world economy to such an extent, that they end up affecting the social and economic policies of developing economies. Multinational corporations have also worsened the situation in these developing countries in such a context (Werhane, 2012). These companies have taken the advantage of cheap labour that can be obtained from the developing countries and have exploited them severely. They virtually do very little or no work that is directed towards the welfare of the workers and instead they provide them with poor working conditions. Moreover, these companies do not want their workers to have upgraded knowledge in order to exploit them easily. This affects the standard of work as the workers are left with zero incentives to work efficiently and therefore, it impacts the international business in that country (Gottschalk and Smeeding, 1997). The workers are in no position to improve their social welfare and that affects their work culture (Hofstede, 1997). As a result, they do not work efficiently for international business organizations, thereby hampering the business operations and deteriorating the profitability (Robert and Lajtha, 2002). According to a report published by the World Economic Outlook, although the average per capital income had increased considerably in the 20th century, the gap of income between the developed and developing economies only became wider (Milanovic, 2002). Income distributions were uneven throughout the whole century which affected the international business significantly (Steckel and Moehling, 2001). Increased control by developed countries With the advent of globalisation, the level of control that developed countries have over the businesses in the developing countries has increased significantly (Snowdon and Stonehouse, 2006). This not only threatens the economy of the country, but also the political and social aspects of the country. Political leaders in developed countries have a significant dominance over those of the developing ones. This gives them a certain extent of power to influence the policies and regulations in those countries in order to fulfil their interests, thereby affecting the international businesses based in the developing economies (Richardson, 2002). According to Dozier (2010), these policies are mostly meant to address the interests of certain developing countries. The international businesses based in these developing countries often have to succumb to this pressure created by the developed countries as failing to do so could lead to detrimental effects such as, the withdrawal of financial assistance, foreign direct investments and probable trade restrictions through trade embargos (Czinkota and Ronkainen, 2005; Overby and Servais, 2005). It can be noted that the developing countries, who receive the financial assistances from the developed countries, are not entitled to spend the funds in the projects that they desire to develop (Ricks, 2003). The utilisation of the funds allocated by the developed economies is often dictated by themselves in order to promote their own interests. Although the idea of dominance is true, it is a near perfect example of struggle for dominance that characterizes the societies. Joseph (2003) explained that, international business worldwide strive to outperform each other economically, socially and politically through development of tactics in order to dominate others and beat the competition even if it means adopting unethical acts (Madhok, 1996). Increased dependence on developed countries With the control that the developed countries hold over the businesses in the developing countries, they are becoming increasingly dependent on the former. The moderately regulated trade barriers have led to an increase in the supply of inexpensive products from developed countries to the developing ones. The developed countries are thus in a position from where they can easily manufacture cheaper products through the use of advanced technologies, capital and economies of scale (Robert and Lajtha, 2002). The production of cheaper goods often gives rise to unfair competition for international businesses, based in the developing companies, who produce the similar products, thus, putting them out of the business. Consequently, countries now have to depend heavily on imports in order to fulfil their demands for such goods. This therefore increases the dependence on developed countries and puts them in a position from where they can dictate terms. This poses a significant threat to the prospect of international businesses. As far as the unjustified competition is concerned, this should serve as a wakeup call for the developing countries and not as reason to shut down industries. International businesses based in those counties should rationalise production in order to ensure that they are as efficient as possible for competing in the international field (Ueda, 2012). This however suggests that increased level of competition due to globalization can play a crucial role to the advantage of the international businesses based in the developing countries, if proper strategies that are directed towards addressing the deficiencies of the country are adopted (Levy, 2007). Effect on the socials structure If the conservatives are considered, then it can be said that globalisation has been the major cause of cultural erosion. This has severely degraded the ways in which international business is conducted (Pla-Barber and Puig, 2009). The concept of cultural erosion has led to a worldwide criticism of globalisation. There has been a significant erosion of boundaries and cultural identities between nations. Thus, international business relations between those countries have been severely affected (Dozier, 2010). The threat of globalisation Globalisation is obviously an active process that facilitates corporate expansion across borders and creates a structure of cross-border facilities and economic linkages that has been steadily stemming and changing drastically as the process gathers steam (Husted, et al, 1996). Very similar to its conceptual partner, ‘free trade’, globalization represents an ideology whose primary function is to bring down any conflict to the process by making it seem both highly beneficial and unstoppable (Cherunilam, 2010). Globalisation though sometimes yields economic benefits, yet the economic regime and the process, that it is helping, bring about threatening progressive ends (Potts, 1996). These loose ends should be identified and as such should be fought at each and every level. This is a very formidable task particularly because the political and economic power of its beneficiaries and its momentum are great and thus, contesting this power seems as a utopian undertaking (Clark and Knowles, 2003). However, the fact that globalization possess a threat to international business is because it is associated with certain vulnerabilities. So, international businesses have to adopt effective strategies in order to tackle the impacts caused due to globalisation (Global policy, 2013). The Economic Failure of Globalization Globalization has been engineered by corporate giants who operate internationally. Majority of those companies have been hugely benefited because of it which is why they have been able to successfully convey the idea that globalization is not only inevitable, but it has been a huge success (Madsen and Servais, 1997). However, this fact is erroneous. Even if the distributional effects of globalisation is ignored, still it can be noted that globalisation has been marked by substantial reduction in rates of productivity, output and international growth of companies who conduct international trade and business (Czinkota and Ronkainen, 1997). Under the new framework of elaborate financial power and mobility and with increasing volatility of financial markets and increased risk, real interest rates have risen significantly. This has highly deteriorated the financial performance of international businesses based all over the world. The average real interest of the G7 countries, including US, France, Germany, Italy, Canada, Britain and Japan, has increased substantially from 0.4% in 1971-82 to 4.6% in 1983-94 (Global policy, 2013). This has refrained companies that conduct international business from going into long-term investments in new projects, plants and investments and has also discouraged stimulated spending on the renovation of old facilities. Firms have also refrained from opting for merger deals that involve large volume of essential financial transactions, buybacks of stocks, financial manoeuvres and speculative activities. This has noticeably affected the international business market, thereby hindering the growth prospects of firms that conduct international trade and business. This explains the reasons why the overall growth in productivity of the OECD member countries fell from 3.3% in 1960-73 to 0.8% in 1973-95, which reflects an overall decline of 75% (Global policy, 2013), thereby significantly affecting the stability of international businesses in these countries. The gross fixed investments in percentage fell from 4.8% during the period 1959-1970 to 2.8% between 1971 and 1994, with an overall reduction of 42% (Global policy, 2013). This highlights the fact that investors did not have much confidence on the companies regarding whether they will be able to perform well during globalisation. That is what might have prompted the investors not to invest in the business which is evident from the falling rate of gross fixed investment. However, the fact cannot be negated that despite such slackened productivity growth, multinational giants have been able to accrue huge benefits from globalisation. This is particularly because globalisation has helped these companies to keep their wages down, even though the real interest rates kept on increasing. The high tax payers have been able to skim off a large portion of the already reduced productivity gains, thereby enabling influential incomes and stock market values to rise rapidly. However, as far as the global majority is concerned, it is a completely different story. Income inequality highly increased between and within countries which led to a huge amount of workforce outsourcing. Officials with superior knowledge, skills and expertise migrated to developed countries in order to seek better pay and incentives. This significantly hampers the quality of work done in the companies, which conduct international trade and business, particularly because of a scarcity of skilled workforce. The primary reason for this is the advent of globalisation (Husted, 2003). The other negative effects that globalisation has on the international business are that it facilitates international trade and the growth of the integrated world economy, due to globalisation, also led to the development of international trade, which exacerbated income inequalities both between less industrialized as well industrialised economies. The globally integrated commerce is being increasingly controlled by transnational corporations who seek to fulfil their own interest, thereby striving to maximise their profit without paying any attention to the development needs of individual countries or even the local population, who have an important contribution towards the profit that the companies are making. In addition to that, the protectionist policies in highly industrialised countries prevent international businesses that operate in the third world countries from accessing the international export market. This gives rise to an unhealthy competition (Bird and Stevens, 2003). Furthermore, the volatility and volume of capital flows increase the risk of banking and currency crisis by a considerable level. Countries with weak financial framework are more vulnerable to this form of risks. The unfair competition that exists between the developing countries, in order to attract foreign investments, leads to ‘race to the bottom’ which prompts the countries to lower the environmental standard in which they operate. Lastly, globalisation also leads to a loss of cultural uniqueness in favour of homogenization and the loss of universal culture, which is heavily inspired from the American culture (Adler, 2010). Conclusion This paper involved an in-depth study of the threats that international business face due to the advent of globalisation. The research outcome suggested that globalisation, although provides prospective opportunities which when grabbed can lead to the economic development of a country, yet those opportunities comes with its fare share of risks, costs as well as restrictions (Rugman, 2009). In addition, the opportunities are actually limited to certain number of countries and not all. It has been seen that at a time when a country benefits significantly from a global economy, it is always associated with another country being equally affected by the advent of globalisation. The developing and the under-developed countries are the ones who have been mostly affected by globalisation. The developed countries kept on accruing benefits from the globalised world by exploiting the resources available in the developing and the under-developed countries, without paying any regard to the latter’s development needs. Globalisation has increased the rate of poverty in many countries around the world. It has also given rise to income inequality, thereby hampering the quality of work done by international businesses around the world. Consequently, the financial performance of these companies highly deteriorated too. The developing countries have become increasingly dependent on the developed ones as a result of globalisation and thus, they are severely exploited. The international businesses in those countries have very little scope of development due to this dominance. Globalisation has not only hampered the international businesses in developing countries, but also in the developed ones to some extent, characterised by a wholesome economic failure. The fact that globalisation provides prospective opportunities cannot be negated. However, it poses threat to the international businesses around the world and this fact cannot be undermined. Reference List Abeles, T. P., 2001. The Impact of Globalization. On the Horizon, 9(2), pp. 1-3. Adler, J., 2010. Globalization: opportunities and threats to developing country business. [online] Available at: [Accessed 17 December 2013]. Bird, A. and Stevens, M. J., 2003. Toward an emergent global culture and the effects of globalization on obsolescing national cultures. Journal of International Management, 9, pp. 395-407. Buckley, P. J. and Ghauri, P. N., 2004. 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