Benefits and Costs of Globalisation - Coursework Example

Globalisation Introduction With the increasing technologies in communication and transport, costs of communication and movement of people and goods around the world have declined significantly. This means that markets across the world have been brought closer and so have people who are now able to work and do business across different countries in the world. Ideas can be developed and shared seamlessly by people in different organisations across the world. Companies can outsource their operations to markets that they deem to offer the most competitive costs of labour. These transformations constitute what is commonly referred to as globalisation although there is no single universally accepted definition of the term. To understand the gist of the word ‘globalisation’, this paper will look at different definitions of the term from different contexts. The paper will then discuss the benefits and costs of globalisation and analyse the key challenges posed by the phenomenon for national governments. Finally, the paper discuss how discuss how globalisation has impacted particular organisations and will use a case study of the giant multinational retailer Walmart. Meaning of globalisation As mentioned in the introduction, there is no single universally accepted definition of the term ‘globalisation’. Many definitions are coined based on the context in which one looks at the term. For instance, it could be about the integration of markets, the coming together of people, societies and nations, advances in technology and improvements in communications and transport, increases in the flow of ideas and capital across the globe and so forth. Even institutions within the United Nations system have different definitions of globalisation. For example the United Nations Educational, Scientific and Cultural Organization (UNESCO) defines globalisation as a multidimensional process that is characterised by the acceptance of a set of economic rules for the whole world designed to maximise productivity and profits; technological innovation and organisational change premised on flexibilisation and adaptability; reduction of the welfare state, privatisation of social amenities; adaptability of labour relations and frailer trade unions; effective transfer to multinational organisations of the control of national economic policy instruments; and dissemination of common cultural values, as well as the re-emergence of nationalism, social movements and cultural conflict (Urzua, 2000, cited by UNESCO, 2012). On the other hand, the World Bank defines globalisation as the increasing interdependence of countries due to the growing integration of trade, people, finance, and ideas in one global market (Subbotina & Sheram, 2000, 66). According to the World Bank, this integration is mainly caused by international trade and cross-border investment flows. It is therefore evident that the reason why there is no single universal definition of globalisation is because of the multiplicity of issues involved. Al-Rodhan (2006, p. 3) notes that globalisation encompasses economic integration; the transfer of policies across countries; the dissemination of knowledge; the reproduction, relations and discourses of power; and cultural stability. Similarly, in 1997 the European Commission defined globalisation as the process by which production and markets in different countries become increasingly interdependent because of the dynamics of trade in services and goods and flows in technology and capital (Held, 2000, p. 92). Perhaps the simplest definition which touches on all the issues involved in globalisation is that which is given by (Stiglitz, 2002) that globalisation is the closer integration of the people and countries of the world which has been caused by the huge decrease in costs of communication and transportation, and the removal of artificial obstacles to the flows of services, goods, knowledge, capital and to a lesser degree persons across borders (Straw & Glennie, 2012, p. 16). Stiglitz’s (2002) definition as cited by Straw and Glennie (2012) seems to capture most of the elements involved in globalisation. These are the coming closer of people and countries due to significant reductions in the cost of transportation and communication. Because of these reductions, people are able to move and communicate seamlessly across the world, companies can outsource their operations and hire staff across diverse cultures, companies can source for raw materials and setup their operations across different countries and also export what they produce across different borders, and so forth. With increased transportation and communication people can create and share ideas – be they good or bad – without difficulties. As Jovanovic (2011, p. 269) puts it, globalisation is a phenomenon that has literally flattened the world by reducing distances in terms of financial, communication and organisations contexts. Benefits and costs of globalisation Benefits Globalisation has many positive impacts. The first one is associated with the flow of capital across markets. If foreign capital is properly used, it can make a significant contribution to the economic development of a nation (Cherunilam, 2008, p. 91). For instance, many foreign companies have invested in China and this is contributing to significant growth of the country’s economy. Another benefit is that productivity grows more quickly when countries produce services and goods in which they have a comparative advantage. This is seen in Asian countries which are the origins of giant electronics companies like Samsung, Sony, LG and Canon. These countries can focus in their areas of operation knowing that they have ready markets across the world and that they can import whatever they do not produce locally. Along the same line, globalisation leads to competition on a global basis (Colander, 2005, p. 70). For instance, American firms like Kodak and Apple have to compete with Asian companies like Canon and Samsung. This leads to more research and development in products and services and consequently leads to better quality of goods and services and lower prices of the same due to economies of scale and scope of production (Intriligator, 2003, p. 7). Additionally, because of liberalisation of the international market due to global competition, consumers are assured of better choices as well as consumer surplus (Cherunilam, 2008, p. 91). As Cherulinam (2008, p. 91) notes, increase in competition makes companies more cost and quality conscious, and more importantly – innovative. To national economies, globalisation leads to an open economy which spurs innovation and fresh ideas from other countries. One of the major benefits along this line is the increase in foreign direct investment (FDI) at a rate that Intriligator (2003, p. 7) notes is much greater than the increase in word trade. Such investment plays a fundamental role in the transfer of technology, in the formation of global ventures, and in industrial restructuring, all of which have major bearings at the national level. Although the growth of new technologies has been a factor in globalisation, globalisation and the spur of competition have also encouraged further advances in technology and speeded up its spread within countries through FDI. The open economy attributed to globalisation has also led to the increase in trade in services, including managerial, financial, legal and information services as well as other intangibles of different types which are the core of international trade. For instance, intellectual capital has become one of the most important services traded today (Intriligator, 2003, p. 7). Globalisation also leads to mutually beneficial exchange between parties, which can be firms, individuals or other organisations such as countries, trading blocs, or continents. It also results in increased productivity due to rationalisation of production on an international scale as well as competitive pressures for incessant innovation on a global basis (Intriligator, 2003, p. 7). Furthermore, globalisation opens up several domestic and global opportunities for firms in developing countries (Cherunilam, 2008, p. 92). For example, developing countries have greatly benefited from rapid expansion in the ICT sector. Outsourcing of ICT services enables services to be provided by developing counties and delivered to developed countries and this creates opportunities for employment (United Nations, 2002, p. 175). Costs of globalisation Globalisation also presents costs that can be perceived as great perils. The first cost relates to the question of who gains from the potential benefits of globalisation. According to Colander (2005, p. 71), there can be substantial equity challenges in the distribution of gains from globalisation among individuals, nations, organisations and regions. It appears that many gains of globalisation go to developed countries because they have adequate resources to invest globally at the expense of poor countries. This creates greater inequalities which consequently result in possible conflicts locally and internationally. Another cost associated with globalisation is that of possible regional or global instabilities emanating from interdependencies of economies on a global scale. It is possible that economic fluctuations in one country could have a regional or even international global impact (Colander, 2005, p. 71) as seen in the global financial crisis of 2008-2009. Globalisation also leads to a situation whereby the control of national economies is perceived by some people as probably moving away from sovereign governments to other organisations, including the most powerful nation states, multinational enterprises, and global firms (Colander, 2005, p. 72). For instance, many poor oil producing countries such as Angola and have their economies virtually controlled by international oil and gas firms. There are also cultural and social costs of globalisation such as the risk of nations losing their identity, becoming the victims of neo-colonialism and increase in international crimes such terrorism (Lane, 2006, p. 4). All these are enhanced by the increase in communication and transport technologies, which increase mobility and ‘reduce’ distance the between nations and people. There is also the risk of negative environmental impacts from global firms’ operations (Lane, 2006, p. 4). For instance, companies whose activities adversely affect the environment may tend to move their operations to countries which have weaker environmental regulations – to the detriment of the citizens of such countries. Key challenges posed by globalisation for national governments Some of the challenges posed by globalisation for national governments have been discussed above under costs of globalisation. The first challenge is that the traditional role of sovereign governments in regulation of business and aspects such as communication is being decimated. According to Mills, Blossfeld and Bernardi (2006, p. 7), globalisation leads to the internationalisation of markets and subsequent decline of national borders. This means that national governments’ roles in the control of companies, workers’ conditions, unions, and the nation-state itself are greatly reduced. Another problem is that national governments find it challenging to attract foreign investment. For instance, Cherunilam (2008, p. 92) argues that FDI inflow into India is far below target. The problem is that while multinational companies invest in foreign markets, they do so only when there is an economic rationale to do so. For instance, the country to invest in must have a ready market and should have a good investment environment – which some governments fail to provide. This means that governments must change their policies to benefit from globalisation. It is also evident that when governments liberalise their markets to benefit from global integration, they also open room for economic inequality. For example, in China liberalisation has created many islands of affluence. Such inequalities imply that many sections and sectors of the economy may not directly benefit from mere liberalisation (Cherunilam 2008, p. 92). Another concern is that freer trade leads to competitive pressures that push down environmental standards. There is evidence that standards are dropping because countries strive to attract more investments (Esty & Ivanova, 2003, p. 4). The challenge therefore is whether countries should continue lowering their environmental standards to attract more industries. Impact of globalisation on organisations: case study – Walmart Walmart is one of the firms that have embraced globalisation and which are impacted by the phenomenon. Headquartered in the United States, Walmart is trying to achieve borderless retailing with global pricing, sourcing and logistics. By adopting borderless retailing, the firm seeks to make the movement of goods and the use of pricing tactics as seamless in all areas where it operates as has historically been the case in its stores in the United States. Over time, the company has expanded to countries such as Brazil, Chile, Argentina, Japan, China and the United Kingdom (Hitt, Ireland & Hoskisson, 2010, p. 10) Walmart’s strategy has mainly been acquisition of or formation of alliances with existing companies in the countries in which it ventures. For instance, it acquired a 6.1 per cent stake in Seiyu in Japan (Walmart, 2012), it acquired Asda in the United Kingdom (Thoenig & Waldman, 2006, p. 145), and it made strategic alliances and acquisitions in China (Chuang et al, 2011). Firms engaging in globalisation must make culturally sensitive decisions when managing their operations (Hitt, Ireland & Hoskisson, 2010, p. 10). Although Walmart has been successful in the United States and in some international markets, it has met resistance in some areas. For instance, in China, its centralised model of operation could not work effectively due to the Chinese guanxi culture of forming relationships. In addition, Walmart was unable to sufficiently develop social capital with local governments and other regions in China (Chuang et al., 2011). Walmart has also been accused of putting too much pressure on its suppliers in China to lower their prices so that it can accommodate its low pricing strategy that is popular in the United States. In turn, the suppliers have been accused of violating their employees’ rights through disincentives like low wages and not honouring other employee relations regulations (Chan, 2011, p. 51). This case illustrates some of the cultural and operational challenges that organisations encounter when they embrace globalisation and venture in international markets. Conclusion In summary, globalisation involves the integration of people and nations due to reductions in costs of transport and communications. Because of this, markets become freer so that more people and organisations can exchange goods, services, knowledge and capital seamlessly across the world. This leads to more productivity, innovation, higher quality and lower prices of goods and services. Globalisation also opens up new business opportunities especially in developing countries. The downsides of globalisation include loss of state sovereignty in many areas, increase in inequalities, interdependence of economies that may lead to massive failures, the control of some economies by multinational companies, loss of cultural identity and negative environmental impacts. The costs of globalisation addressed are some of the key challenges that national governments have to grapple with. Firms that embrace globalisation and which venture internationally also stand to benefit but are likely to face cultural and operational challenges as shown by the case study on Walmart. References Al-Rodhan, N. R. F. (2006). 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Retrieved 28 March 2013, from http://corporate.walmart.com/our-story/locations/japan Read More