Globalisation: The Road Forward or The Road to Nowhere - Essay Example

Globalisation: The Road Forward or The Road to Nowhere Introduction: Globalisation refers to the increased interconnectivity and social intercourses between people and places located in different regions of the world, specifically in the areas of transportation, communication networks, information technology and cultural exchanges between different countries of the world in order to establish a peaceful and harmonious world order. It has been defined: “Globalization is the condition in which an organization, irrespective of its physical location can procure raw materials from or sell finished goods or services to any country around the world. Globalization enables firms to leverage global learning to enhance their core competencies.” (Globalization. 2003). Case for globalisation: The principle reasons for globalisation is to experience the quality and services provided by various other countries of the world in order to understand better the state of technological advancement and the applications of specialised knowledge, training and skills towards product development and enhancement of quality and delivery parameters in order to produce world class products that could compete in the international market places. It also offers exposures to the socio-cultural demographics and economic profiles of international trading partners and could be viewed as co-operative efforts between different denizens of the world to interact, whether culturally, economically and commercially in order to promote a stronger bond within different work partners in different locations of the world. Some people tend to equate globalization with just economic globalization. However, this is not the case, and it is often seen that globalisation refers to a broad spectrum of efforts and activities, which entails joint efforts between nations, even in non-economic areas, and includes, in its ambit, human and resource capital movements, material movements, funds transfer and information transmission along the internet superhighway, transcended territorial borders. As is often said, globalisation perceives the world as a borderless and limitless market where there is ample scope for free trade and exchanges between different counties, separated by diverse cultures, environment and economic differentiations that could bring economic growth and prosperity among the partners Origin of Globalisation: It dates back nearly to the mid forties of the 20th Century, since the end of the World War II, when the economists and financial theorists and practitioners opined that costs associated with protectionism and reduced economic integration could spell danger for the economy of any country. There are several measures for determining the impact of globalisation on a country’s economy and they are: Goods and services : the balance of trade and balance of payment of countries affect their globalisation programmes Economic condition of the country: globalisation invokes raising the standards and quality aspects of products and service to compete in global environments with stringent quality requirements and product designing systems. Globalisation can be taken up only by those manufacturers and suppliers whose products and services could successfully cater to international markets and clientele. Thus the market entry for globalisation is restricted to the highest quality products only in order to compete in world markets which is quality and price sensitive. Movement of labour and people. It is but natural for labour to move from places of scarcity to places of plenty. The population of countries is also a major factor, since there would not be ample opportunities for countries having large populations to offer suitable jobs for the masses; therefore it has become necessary for job seekers to seek greener pastures by immigrating to other countries in search of work. The migrant work force forms a substantial part of the expatriate population in many countries, including Middle East and African and Arabian countries, also in the developed economies of UK, US and Germany. However there is an important aspect with regard to core workers rights in trade and investments in FDI that needs to be addressed to. “The temptation of the countries to attract the FDI (Foreign Direct Investments) by denying workers the most basic worker’s right of freedom of association and the rights to bargain collectively” (Globalization: What is to be done. 2007). The movement of capital is also in search for markets, where the capital could be utilized fully, and there be accretion in the values of capital. Entrepreneurs would make use of globalisation to invest in countries and technologies which would provide them with ample returns, in terms of incomes, dividends, and capital appreciation. Stagnation of capital could cause capital dearth’s and eventual losses because the basic idea behind globalisation is capital accretion and growth functions, keeping in view the long term aspects of business, and investment opportunities outside the territories of the respective countries in order to realize foreign exchanges and thus contribute to the local economy. Financial implications of globalisation: In the age of globalisation the strategy of the American controlled international Financial institutions was to initiate changes in the development strategies of member countries in order to accommodate a liberalised US market prototype capital market. After the financial crisis of the 1990s, many of the East Asian Countries strengthened their economies, and were able to build large currency reserves which acts as a buffer against future exchange deficits. With high economic stability, the need for seeking fresh loans from the IFI’s have come down, since the member countries have ample foreign currency reserves to guard against economic deficiencies. Therefore the advent of the new globalisation drives have opened the markets and thus, the developed countries have not resorted to large scale borrowings from the international financial institutions as was witnessed during the middle and end of the 20th century period. As a direct result of globalisation, the trade barriers between different countries inhabiting the globe has broken down and distances have been ruthlessly annihilated by the advent of advanced technology The revolution of internet technology has ushered in instant information availability to nearly all parts of the globe and instead of the traditional brick and mortar systems, the latest technology envisages “fibre-optic cable or satellite to numerically controlled machineries.” (Globalisation: Curse or Boon?). The effects of globalisation has made possible fast changing technologies and better advanced methods of doing global business with an international chain of marketing choices and brand preferences. Therefore, in the marketing that is envisaged today, products manufactured, for instance in India or China, may find markets in Nigeria,, Canada or even Australia, and similarly, products of the USA or India may be found in far flung markets like Ethiopia, Czech Republic or sub Saharan Africa which is considered to be lowest standards of living and the highest level of poverty in the world. The globalisation networks have reinforced and upgraded in tune with changing business trends and nuances, and more and more products and services, especially from the moderately developed or developing countries, like India, China and Brazil are emerging as world competitors, thereby offering stiff competition to the established markets of European countries In today’s world, the business responses and adherence to quality and servicing standards, given the free economy and the removal of trade barriers, have contributed significantly, to increased competitiveness and free availability of world class products, services and infra-structure in all parts of the developed or developing economies. All this has been possible only due to increased and effective communication strategies developed by countries and economies, which have transformed the entire globe into a business village which spawns trade, commerce and business relationships that has hitherto not been possible earlier. In today’s world, the obsession with globalisation is not just selling of goods services and technology into other markets but also in providing software support and development programme in a vital and strategic role for organisational development and promotion. Impact of World Trade Organisation: In the context of globalisation, it is necessary to write about world Trade Organization. (WTO)However, the work undertaken by the World Trade Organisation has been setbacked by the failures of the negotiation of the Doha talks among the member nations and the inability to reach a general consensus on important matters. Significant progress has to be made in the areas of agricultural subsidies, tariffs etc. However, the most important aspect relates to the talks in 2006, is to help countries “helping developing countries in their efforts to more effectively participating in the global trading system.” It is often found that many economies are unable to bring their produce to the markets for selling. This was primarily the reason that , as an offshoot of the globalisation efforts, the Aid for Trade programme was launched , primarily, in order to help the small and marginal member countries achieve trade sufficiency and actively participate in global trading . For this it is also necessary to extend to them the financial and logistic supports for bringing their product to the global marketplace in order to get the best prices for their agricultural produces, farm products and industrial products. In the case of developed or developing countries, the aspect of getting markets are not very important, since they already have established markets and trading partners in the world markets; it is the poor and underprivileged producers in poorer countries, especially in Saharan belt, and other parts of African continent that needs to be attended to. The WTO seeks the active assistant of other world bodies like the IMF, The World Bank, UNCTAD, OECD, UNDP, and regional cooperative councils and banks of the region for uplifting the economies of poorer countries by providing them the necessary aid for conducting trade activities and improving their economies to be at par with the other developing counties of the world. In this context, it is also necessary for the WTO to make sure that the activities are properly funded by the relevant funding agencies and that all possible efforts and assistance are provided to the countries in their objectives for achieving sufficient trade progression and trade development programmes. In the very words of the current Director-General of the World Trade Organisation, Mr. Pascal Lamy, “The main mission of the WTO is to open markets and regulate world trade. Not that trade opening in itself creates wealth or that wealth creation in itself reduces poverty. We all know that the mechanisms that translate trade opening into poverty reduction are complex. Indeed, adequate domestic policies, whether on education, social safety nets, innovation, infrastructure or fiscal policies are also essential ingredients. While we work on advancing towards a more open and equitable multilateral trading system, it is crucial that the domestic agendas of our Members also advance in the same direction” (Annual Report. 2007) The benefits of globalisation There have been many advantages of globalisation and its first advantage has been that it has exponentially increased the movement of goods and services in the world economy. Through the process of globalization goods and services are being massed produced and thereby the economies of large scale production are being achieved by firms in the world market. As a direct consequence of globalisation there has been a six fold rise in the output of goods and services in the global markets and these needs to be viewed in the context of the world population having increased by just more than 2 times over the period of around 50 years. The main effects of globalisation have been that the gulf between the poor and underprivileged and the rich have widened, since the rich have continued to become richer and the poor have only managed to become poorer. Even within countries, the disparity between the rich citizens and the poor denizens have increased, further contributing to the unbalanced growth of the economy. Rise in production and productivity, newer entries of commodities and global giants into the local and country economy and massive influx of foreign goods and consumables, especially in the retail markets have been the fallouts of globalisation and its aftermath has been that there have been massive spurt of economic activities in all spheres. The firms that have chosen to become global have remained competitive and have become successful, but to the select few who were late, or who could not imbibe the full advantages of globalisation had either to quit or to remain static. “Another negative aspect of globalisation is that a great majority of developed countries remain removed from the process” (Balakrishnan 2007). Thus, one of the main aspects of globalisation is that the disparity, or gulf between the rich and the poor, whether in the world economies, or in the local economies, have widened conspicuously over the last two decades or so, largely due to the effects of globalisation and its worldwide impact on trade, commerce and industry. The other aspects of globalisation has been that with the opening up of the economy and tourist traffic, the spread of diseases like HIV and other sexually transmitted diseases (STD) has been on the rise, further contributing to the health conditions, especially of the poorer countries. It is believed that the sub Saharan region is the front runner in the incidence of HIV in the world, and the figures are rising, which may be one of the main reasons for the low growth of the economy in recent years. Povery and disease are partners and this is best illustrated in the case of South Asian Countries and sub-Saharan Africa which account for almost a major chunk of the world’s poor. The advent of globalisation has also brought about an impetus in the world economy, in that all major parameters of rising economies, like standard of living index, Gross Domestic Product,(GDP ), major consumer indices and balance of trade and balance of payments situations inmost globalised countries are on the rise. Their foreign exchange deposits and BoP situation have improved immensely and most countries have reinforced their economic positions, having healthy economic growth. But the flip side is that the economies of the countries who have opted for globalization has been integrated into the world global economy. As a result, domestic economy is not totally determined by domestic policies, initiatives and market fluctuations, but by a cohort of both international and local policies which impacts the local economy of most globalised nations. Threats for globalisation: But along with the climate of economic growth and liberalised economy, there have been other threats. International terrorist organizations have taken advantage of the liberalised trade climates to perpetuate their anti-social activities through international funding from their sponsors. The banks have, unwittingly, or unknowingly, become parties to international syndicated crimes through the use of laundered money, and this is seen as a major threat for world finance, Money laundering is difficult to trace, since the origins may not be easily known and also, the parties cannot be identified. However, banks need to be careful in dealing with laundered money, since they could become accessories in the money laundering business. Therefore, one of the best methods by which the banks could protect themselves and the institutions from the ill effects of globalisation, is through safety nets and ensuring that they are in possession of details of the names , addresses and personal particulars of the payers, payees, and the intermediaries involved in major monetary transactions involving the banks. It also further needs to be seen that the banks need to co-operate and actively involve themselves with the law enforcement agencies in detecting and thwarting crimes through money laundering and funding for terrorists activities. It needs to establish the bona fides of the parties before indulging in banking without non customers or sending of Wire transfers and money transfers to unknown persons or destinations. Another aspect of globalisation has been with regard to Cyber crimes, which has resulted due to the opening up of the world economies and business opportunities. The most important advantages of internet usage, its transparency and ease of operation has, ironically become its greatest disadvantage, in that , with just minimum operational knowledge , it is possible to operate accounts of parties in far off places, even without their knowledge or consent. The offshoot of globalisation, that is the internet and intranet operations, have also contributed to the increase in internet crimes and computer espionage activities. There have been many good and adverse effects of globalisation. The good aspects are that there have been healthy economic development and greater co-operation between the countries of the globe. The flip side has been that this may have resulted in worldwide climatic changes, loss of biodiversity and lowered security, especially with places of national importance and economic significance being singled out as prime targets. Post 9/11, the world has felt the immediate need for enhanced safety of people and properties and many countries, particularly, USA, UK are determined to see that no future threats to the stability of the countries should ever occur, if avoidable and preempted. Current globalisation trends: Source: A current globalisation trends: European Commission: Directorate General For economic and financial appraisal Special Report No. 1/2002: Reponses to the challenges of globalisation: P. 18 It is seen from the above graph that since 1950, the volume of trade has been increasing rapidly and since the early nineties , it has registered a sharp increase, from ECU/EUR 530 billion to EUR 1194 B , an increase of more than 125 % between the years 1992 to 2000. (European Economy. 2002). Source: International flow of Capital: European Commission: Directorate General For economic and financial appraisal Special Report No. 1/202: Reponses to the challenges of globalisation: P. 20 The method of assessing the degree of international capital movement build-up is to look at the total size of the GDP vis-a –vis the GDP of the country ‘s economy. This could be seen as the net capital in-outflow and could seen as the indicator of the capital market movements. However, there is yet another parameter of assessing the international capital movements, and that is the correlation between the domestic savings and domestic investments. It is assumed that in an economy of perfect capital movements, the savings would be used for allocation in projects yielding highest yields and thus there would exist no relationship between the savings and investments. In the diagram depicted above, it is seen that only towards the late 20th century was it possible for the savings to reach the levels of the late 19th century. Source: International flow of labour: European Commission: Directorate General For economic and financial appraisal Special Report No. 1/2002: Reponses to the challenges of globalisation: P. 20 From the above diagram it is evident that foreign direct investments (FDI) play a significant role in the private capital inflows of countries as against bonds and equities. The spurt in FDI has been caused by the need for companies to invest for reasons like enhanced market growth, seeking economies in procurement of raw material and maybe, simply for diversification plans to counter economic trends in a single country (Brigham & Ehrhardt 2004, p.1016 – 1017). Foreign Direct Investments (FDI): an instrument of globalisation Although it has been said that globalization is a foot forward, it has been seen that there are many hurdles in the path of international trade and commercial ventures, and the induction of foreign direct investments (FDI) especially, in poorer countries. One of the major aspects of FDI is that it impacts local economy of the country, makes the available of goods and services dearer and, in short, adversely affects the economy because of availability of goods and services which may not be well within the reach of the common masses . Besides the impact on the local economy caused by FDI, foreign technology and services always comes with a price. Employment opportunities may rise and the standard of living and state of comfort levels of the people who rise, but along with it, the local businesses may become uncompetitive, and a price war would be on the anvil, if MNC sell their goods and services at a competitive prices , matching the local availability. Due to the high investments and capital infra-structure provided by the big players, there would not be much to lose even if their businesses do not perform well for several months, since they have the inbuilt resources and abilities to withstand market vicissitudes, but the small and marginal players would be affected since loss of business could create serious cash flow problems which they may be unable to withstand. Therefore, in the long run, either they have to close down the businesses or, make themselves competitive to take on the big players, which, in most cases are unlikely. The problems associated with globalization is that in the short run, it creates market imbalances, unless the strategy of the big players are not create undue competition, but to also give space to the local marketers. Major barriers to the progress of globalisation process The major problems are in the following areas: Currency adjustment and fluctuations : since different multinational companies are situated at the different international locations, the question of currency fluctuations may arise, which may need to be adjusted from time to time and accounted for Economic and legal ramifications: One of the main impacts of globalization is that different countries have different legal and administrative systems, which need to be respected and obeyed by the commercial houses and establishments. This may also entail the need for local partners and profit sharing. Further, there may be restrictions on repatriation of locally earned profits to the parent companies, questions relating to licensing and adherence to local laws. Difference in taxations laws relating to countries would make it increasingly difficult for MNC to have common policies and procedures and given the current practices, it would be increasingly difficult to apply set policies in all countries of their operation. Therefore, it has become necessary for MNC operating in different locations of the globe to be flexible in their operations, and adhere, as far as is possible to laws governing the land in which they operate. “Furthermore, a foreign government may restrict the amount of the cash that may be repatriated to the parent company. For example, some governments place a ceiling, stated as a percentage of a company’s net worth, on the amount of cash dividends that a subsidiary can pay to its parent. Such restrictions are normally intended to force multinational firms to reinvest earnings in the foreign country, although restrictions are sometimes imposed to prevent large currency outflows, which might disrupt the exchange rate” (Brigham & Ehrhardt 2004, P.1038). Languages and its uses form an integral part of business communication systems and Japanese and Chinese businesses speak a host of languages, besides English. Thereby, they are in a better position to gain strategic business information by use of their linguistic abilities. Cultural difference may an important role in shaping business strategies, especially in Far East and Oriental cultures. Therefore, it becomes imperative to have prior knowledge about the cultural settings and customs before indulging in business ventures The governments of the countries in which the global companies operate also play an important role in shaping their destinies, since negotiations with local governments form the key for business establishment and progression. Foreign companies cannot prosper without adherence to local conditions. Moreover, the local governments are also bound to protect the interests of the local business communities and their prospects while addressing to the aspects of Multinational Corporations, who have entered, as a process of the opening up of the economy and established themselves in host countries. Political risks: By far the political risks constitute a major part of the business prospects and operations in any country of operation. Local governments are very much empowered to enforce local laws to place restrictions on the transference of Local profits earned by the global players and, in extreme cases, could also seize the assets without offering any kind of compensations, whatsoever. However, MNC could counter this threat by using only local capital for operations, and take appropriate insurance coverage against risks of business expropriations, and losses suffered thereon. Political risks are accepted risks whenever business crosses the territorial waters of countries, and is an accepted risk for entrepreneurs big and small. But business planners must be aware of, and take necessary precautions, to counter such occurrences, before potential danger becomes a real one. The concept of globalisation is of comparatively recent origin and has been in the international circuit for around 20 years, or so. But it also needs to be seen updated to the present context, and made relevant to markets around the world. In today’s world, clients assume supremacy and have to be catered in the international markets. However excellent and market-oriented a product may be, unless it is able to serve the interests of a large clientele, according to market demands, it would cease to become relevant and thus obviated from the market. It has been seen that in many cases, especially in the South Asian and African countries, there is a distinct lack of diversity in their exports, because of which the integration of some of these countries into the world economic order, is getting delayed. It is believed that necessary support needs to be rendered to these counties in order to bring them at par with the other countries. Accordingly, as part of its assistances packages, “Between 1987 and 2004, 8.1 percent of total Bank commitments (US$ 38 billion) went to 117 countries to help them become better integrated into the global economy” (Assessing World Bank support for trade 1987 – 2004. 2007). It is necessary that the World Bank, the International Monetary Fund, United Nations Development programmes, OECD, etc., lay special emphasis on the needs of poorer and non developed countries by providing necessary aid for trades in order to allow subsidies to allow their produces to be traded in world markets.\ Conclusions: The true impact of globalisations could be realized when all nations, rich or poor, developed or underdeveloped, Eastern or Western oriented, are all given ample opportunities, to become a part of the world economic and global order. It has been earlier said that globalisation refers not only to developments in the economic and financial spheres, but is a all encompassing term which connotes diverse aspects of human endeavour , whether of culture, trade and commerce, political, travel and tourism development and human bonding. Hence, it becomes necessary to determine a new world order, with regard to globalization, which embraces all aspects and sees the entire world as a unified whole without any prejudices or pre-conditions. In this regard, the World Bodies, including the UNO and its affiliates, play an important role in bringing people and cultures together on a global platform. It is also necessary that the globalization process should increase the earnings potential and the standard of living of countries, especially in lower or non developed economies. The role of the World Bank, in alleviating poverty and ushering in a new world economic order is no less significance. In the words of Mr. Robert B. Zoellick, President, World Bank Group, “Globalization has brought uneven benefits to the billions in middle income countries who have started to climb the ladder of development since the end of the Cold War. In many lands, social tensions are weakening political cohesion. These middle income countries need to continue to grow, to offer inclusive development, and to adopt environmental policies for sustainable prosperity” (Catalyzing the future. 2007). Whether globalization would yield results or would end in a fiasco in future, is a matter of conjecture which even its most ardent supporters or detractors would refrain from commenting upon. A lot about the future of globalization would depend upon the global nations themselves, their visions, goals and what they would like to achieve out of the global programmes. As is the case with all vehicles of growth, globalisation would be as good as it is programmed for the total upliftment of the world’s poorest and underprivileged communities and the interaction between nations on the international platforms of trade, commercial and industry. To a large extent, globalisation has served the purpose of its benefactors and it is not to be targeted towards the non- developed, underdeveloped or developing countries of the world in order to create global partnerships for the establishment of a new world order through the process of globalisation . The international community, with the active participation of lead catalysts, needs to perpetuate its role as creators of a new world destiny through globalisation for the common good of the world community. This is necessary for setting the globalisaton process well on the road for growth and development. However, the path for globalisation is not as easy as it appears. Threats of increased attrition, loss of sense of security and enhanced levels of growth induced stress are natural fallouts of the process. Moreover, the pace of globalization also has to be maintained and as host of diverse aspects have to be brought together under one umbrella in order to sustain globalisation in the long run. Its myriad problems need to be analyzed on a case-to-case basis, keeping in view the fact that in a global environment, not only the local economies are affected but its impacts are also felt in the global environment. Bibliography Annual Report. (2007). World Trade Organisation. Last accessed 6 December 2007 at: http://www.wto.org/english/res_e/booksp_e/anrep_e/anrep07_e.pdf Assessing World Bank support for trade 1987 – 2004. (2007). The World Bank. [online]. Independent Evaluation Group (IEG). Last accessed 6 December 2007 at: http://web.worldbank.org/WBSITE/EXTERNAL/EXTOED/EXTASSWBSUPTRA1987/0,,menuPK:3891770~pagePK:64168427~piPK:64168435~theSitePK:3891705,00.html Balakrishnan, Chandrasekharan. (2007). Impact of globalization on developing countries and India. Introduction About.com: Economics. Last accessed 6 December 2007 at: http://economics.about.com/od/globalizationtrade/l/aaglobalization.htm Brigham, F. Eugene & Ehrhardt, C. Michael., 2004. Financial Management: Theory & Practice. Multinational or Global Corporation. Multinational Financial Management. 10th Ed. P.1016 – 1017. Thomson Asia Pvt. Limited: Singapore. Brigham, F. Eugene & Ehrhardt, C. Michael., 2004. Financial Management: Theory & Practice. Multinational Capital Budgeting: 10th Ed. P.1038. Thomson Asia Pvt. Limited. Singapore. Catalyzing the future. (2007). An inclusive and sustainable globalisation. Annual Meetings: 2007. News & Broadcast. Last accessed 6 December 2007 at: http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21520625~pagePK:34370~piPK:42770~theSitePK:4607,00.html European Economy. (2002). Special Report. Responses to the challenges of globalisation. Trade in goods and services. [online]. Economic and Financial Affairs. P.18. 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