Globalization and Its Impacts on Todays International Business - Coursework Example

Globalization and its impacts on today’s international business Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission Abstract The heightened economic integration of the global economies and societies has been one of the chief discourses in the realms of international business in the recent decades. Diverse scholars have forwarded different propositions in the profound attempts to expound on the principle drivers of this integration, what are its key features and its impacts on the conduct of business at the global scale. This has greatly influenced the instigation of debates on the concept of globalization in the contemporary world. On the other hand, there has been variance among different schools of thought in regard to the actual time when globalization really started, with majority of international business analysts citing the epoch after the end of WW2 as the pivotal are which instigated globalization. However, there are other analysts who argue that globalization began further back in time, prompting a maze on the actual time when it really became manifest and portrayed tremendous impacts on the conduct of business at the international level. There have also been varying perceptions n regard to the impacts of this phenomenon on international trade. In one extreme end, there are those proponents who perceive globalization as a robust and benign force that is fundamental in enhancing economic prosperity mostly in the underdeveloped world. On the opposite extreme end, there is another group which tends to blame all the ills in the contemporary world to globalization. Against this background, this paper is a profound effort to explore the impacts of globalization on international business in the contemporary world. Keywords: Globalization, International business, Economic growth. Globalization and international business International business can basically be perceived to infer to cross-border economic activity. Lane and Milesi-Ferritti (2007) revealed the enhanced importance of cross-border capital flow since the mid-1980s. Nonetheless, it is imperative to be cognizant of the fact that international business has been in the society for a long period of time. Watson (2005) noted that this has been in existence in diverse forms and can be traced back to when there was instigation of interaction between different societies. Despite the fact that these communities engaged in trading minerals or beads like flints thousands of years ago, they were involved in a prehistoric form of international business. On the other hand, Soubbotina and Sheram (2000) cited that globalization can be perceived to refer to the heightening level of interdependence between states which has emanated from the elevated integration of trade, ideas and people in a singular marketplace. In the business realms, globalization mainly centers on cross-border investment flows and international trade as the chief components of this integration. Kumenit (2008) determined that the concept of globalization was not immensely popular until the 20th century. However, this term has evolved to become a conventional issues being conceived to affect the entire realm of human life, ranging from socio-economic, geo-political to technological contexts of countries throughout the globe. According to Soubbotina and Sheram (2000), the robust cradle of globalization can be traced in the post-World War II era and it gained significant acceleration since the mid-1980, being propelled by two key factors. Firstly, there were elevated technological advancements which culminated in minimization of communication, transportation and computation costs to a point whereby it was economically viable for a firm to locate production units in different countries (Soubbotina & Sheram, 2000). The second factor is directly related to elevated liberalization of capital market and trade whereby in the contemporary world, increasing numbers of governments are unwilling to engage in economy protection in their respective countries from direct investment or influence the market through import tariffs and nontariff obstacles , for instance legal prohibitions, import quotas and restraints on exports (Soubbotina & Sheram, 2000). According to the World Commission on Social Dimension of globalization (2006), there are some rudimentary characteristics that underpin globalization in regard to international business. These are trade, foreign direct investment (FDI), technology and financial flows. All these aspects have posed massive impacts on international business as embedded in the subsequent analysis. Nonetheless, it is imperative to be cognizant of the fact that globalization has both positively and negatively impacted on today’s international business. Impacts of globalization on international business World Commission on Social Dimension of globalization (2006) determined that a synergy of interactive effects of the developments in trade, finance and technology and FDI has posed varying impacts on diverse economic sectors, conduct of international business, categories of workers and social groups and forms of enterprises. Nonetheless, the scope in this paper will be limited to the effects of globalization on international business. In addition, these impacts will be categorized into two broad categories; positive and negative, aimed at the deducing viable inferences at the end of this papers. Positive impacts Globalization has posed diverse positive impacts on international business which include but not limited to those explored in the subsequent analysis. Increased FDI into the underdeveloped and developing nations Nunnekamp (2002) inferred that globalization has been instrumental in international competition for FDI with recent evidence showing the importance of this activity mostly targeting the developing countries. In this regard, globalization has been perceived as a game changer in the approaches to foreign direct investment. Instigation of increased FDI has diverse impacts on the conduct of business at the international level. This is whereby the exportation rate of these developing countries has elevated due to the establishment of production units by diverse multi-national corporations in their local market. This is best epitomized by the establishment of production units by Unilever in countries like South Africa which has elevated the amount of exports in terms of products like various beauty products from this particular country. Consequently, it is apparent that most of these developing countries have experienced heightened export margins as a result of FDI, spurring favorable balance of payment. This has been key in not only heightening the economic growth in these countries in terms of gross domestic product (GDP) but also increasing the level of employment leading to better standards of living. The latter fact is supported by World Commission on Social Dimension of globalization (2006) who determined that cross-border investment has potentially hastened the rate of growth in most countries most predominantly where there have been spillover benefits from technological and skills transfer to the local economy. In this regard, investments have raised the labor productivity and incomes, thus posing positive impacts on both national economic growth and employment. Both of these factors have increased the level of engagement of particular countries in international business. Liberalization of the international market It is an apparent fact that globalization has played a major role in the trend towards liberalization of world economies with most governments reducing the level of market control in their respective economies. This has been spearheaded by the establishment of international institutions like International Monetary Fund (IMF), World Bank, General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO). According to Soubbotina and Sheram (2000), these institutions have played a major role in promoting free trade in place of protectionism. The main merits of countries participating in unrestricted free trade are that they promote elevated access of their local producers to broader, international markets. In addition, these national economies benefit from international division of labor and the necessity to confront more robust competition in the world markets. Against this background, the local producers are endowed with increased capacity towards more efficient and effective production as a result of production specialization at the international spectrum as well as pressure that emanates from international market competition. In this regard, consumers are presented with an ideal opportunity to enjoy a wider variety of locally produced as well as imported products. Therefore, market liberalization that has been instigated by heightened globalization can be perceived to be a major factor in elevating the levels of importation and exportation which have been key in increasing the magnitude of international business. This is best epitomized in India whereby with the introduction of market liberalization in the 1990s, the level of exports and imports have tremendously increased due to continued engagement in international business as portrayed in the following table. Table 1.0: India’s foreign trade (US $ Million) Source: Goyal, K.A. (2006). Enhanced technological knowhow World Commission on Social Dimension of globalization (2006) cited that the technological revolution that originated from the industrialized countries has been chief in the facilitation of globalization, and has had enormous effects on the rest of the world economy. To a great extent, the new technology has transformed comparative advantage at the international level through making knowledge a fundamental factor in the production process. In the contemporary world, the high-tech and knowledge-extensive industries have evolved to become one of the fastest growing sectors in the global economy. It has been pointed out that this technology which has been instigated by globalization affects international business environment at diverse levels. This is best exemplified by the fact that the enhancement of telecommunications has played a major role in empowering different corporations to stretch the value chains to localities in distant places and in the process providing competitive advantages. This is epitomized by the enhanced company-consumer relationship which has been extended at the global level due to the diverse technological advances like the internet. In this regard, consumers are able to procure books online through Amazon as opposed to going to their local business store. This is just an example of how technology has been a chief organizing principle in the conduct of international business. Elevated establishment of trading blocs Wang (2010) determined that regionalization has increased in popularity and became more common in the contemporary world. This is evidenced by the launching of diverse trading blocs whose intent is to promote the economic welfare of the member countries. Globalization has been the principle motivating factor behind these establishments in the sense that the liberalization of the market brought about by globalization has prompted countries with similar business interests to come together and increase their bargaining power in the internationals market. The formation of EU, NAFTA, APEC and ASEAN among other trading blocs has significantly altered the patterns of global economy and international business. The increased inter-dependence between the member countries and their increased negotiating abilities in the international market has not only elevated competition between different regional blocs but has also resulted in production of high quality goods which can adequately compete in the global market. In addition, these trading blocs have resulted in not only mass production of goods and services but also mass exportation of these products to other regions which has tended to promote international business, for instance, since the establishment of NAFTA, the trade between the U.S, Canada and Mexico has more than doubled with improved economic cooperation projected to grow in the future (Wang, 2010). Nonetheless, these trading blocs are also characterized by massive trade barriers like high tariffs to countries outside their jurisdiction which has tended to prompt a paradigm shift in the conduct of international business. Negative impacts of globalization on international business There have been several negative effects of globalization on international business. It is imperative to note that globalization prompts people to change their trading activities, their ways of conducting business and also spurs countries to instigate new national policies as a response to the international business realities (Thoumrungroje, 2004). In this regard, the internationalization of trade has posed different negative effects on business both at individual countries’ level and also at the global level. Effects of economic slumps The widespread globalization has resulted in a phenomenon whereby economic meltdown in one particular nation or region rapidly spreads to other nations who are in have direct international business links with the nation or region experiencing the recession. The high level of inter-dependence means that the effects of economic depression in one country or region spills over to other countries which are engaged in export-import relationship and even the wider globe thus altering the pattern of international business. This can also be viewed from the perception of global financial systems like World Bank and IMF. This is best exemplified by the Asian Financial crisis of 1997 which severely affected the conduct of international business around the world (Woo, 2000; McLean, 2001). The most recent example of effects of globalization in regard to economic recession is that if the 2008 Global Financial Recession which started in the USA with notable corporations like Lehman Brothers collapsing and others like AIG undergoing swift nationalization. The effects of this recession rapidly spread to other regions and within a short time, the effects of this slump which originated from a singular country spread worldwide. This is a major effect that has been brought about by globalization and thus has direct negative impacts on international business. Inequalities in competitiveness and rewards This has also been a major concern by many scholars that globalization has been key in deepening inequalities between the developed and developing countries. Despite the fact that these countries have continued to engage in international business, the level of economic rewards has been minimal when compared to the developed countries. This is founded on the fact that most of the developed countries tend to procure raw materials like coffee, cotton, cocoa and Tea among others from the developing nations where they are produced at low prices, process them and then re-export these finished products to the same countries at exaggerated prices. In this regard, the developed countries exploit the processing incapacity of the developing countries in their international business relations. Due to this relationship, the developed countries not only suffer from continued inadequacy in international market competitive advantage but also result in unequal distribution of rewards between these regions. This is supported by Mostert (2003) who cited that the benefits out of international business in the developed nations improved six times between 1900 and 2000 whereas those in the poorest countries have only increased by 3% during the same time. Increased trends towards ‘dumping’ of goods This is another negative effect of globalization mostly brought about by market liberalization. This is whereby some of the prominent countries in international business produce some low quality goods which rather than being consumed in their local markets, they end-up dumping them in the international markets posing negative corollaries to the consumers in the recipient countries. This has been detrimental trend in the international business which has been brought about by globalization with countries like China being accused of producing low quality goods ranging from electronics to other consumable goods and later dumping them in the international market, posing massive threats to consumers. This is a result of reduced regulations of the international market. Conclusion Globalization in academia is subjected to diverse perspectives regarding its origin, characteristics and even impacts on the different realms of human life in the contemporary world. This is evidenced by antagonistic views in regard to its impacts in the global set-up. In regard to international business, globalization poses both positive and negative impacts. Some of the most predominant positive impacts include enhanced technological knowhow, international market liberalization, elevated establishment of trading blocs and increased FDI into the developing which has spurred economic growth. Nonetheless, globalization has also posed negative impacts on international business as experienced by effects of economic slumps, inequalities in competitiveness and rewards and also increased trend towards ‘dumping’ of goods. References Goyal, K.A., 2006, ‘Impact of Globalization on Developing Countries (With Special Reference To India)’, International Research Journal of Finance and Economics, no. 5, pp. 166-171. Kumenit, T. 2008, Reflections on Globalization and its impact On the Law of International Business, University of Gondar, Gondar. Lane, P.R & Milesi-Ferritti, G.M., 2007, ‘The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004’, The Journal of International Economics, vol. 73, pp. 223-250. McLean, R., 2001, ‘Globalization and the Asian Financial Crisis’, Atlantic Economic Journal, 29 (3): 471. Mostert, J., 2003, The impact of globalisation on developing countries. Available from: . (08 May, 2012). Nunnekamp, P., 2002, Determinants of FDI in Developing Countries: Has Globalization Changed the Rules of the Game?, Kiel Institute for World Economics, Kiel. Soubbotina, T. P. & Sheram, K.A., 2000, Beyond Economic Growth; Meeting the Challenges of Global Development, The World Bank, Washington D.C. Thoumrungroje, A., 2004, The Effects of Globalization on Marketing Strategy and Performance, Washington State University, Washington, D.C. Wang, N., 2010, ‘The Relationship between Regional Trading Blocs and Globalization’, International Journal of Economics and Finance, vol. 2, no. 1, pp. 171-173. Woo, WT, 2000, ‘Coping with Accelerated Capital Flows from the Globalization of Financial Markets’, ASEAN Economic Bulletin, vol.17, no.2, pp.193-204. World Commission on Social Dimension of globalization, 2006, A Fair Globalization: Creating Opportunities for All, International Labour Organization, Geneva. Read More