Impacts of Globalization in Business - Literature review Example

Impacts of globalization in business By + Impacts Of Globalization In Business Globalization is simply an increase in international trade where the change can either be gradual among some nation and drastic in others. To understand the impacts of globalization, a possible definition of globalization will be mentioned. Frank G in a book about globalization defined globalization as; Complex modern phenomena that involve the merging of borders, the introduction of new innovations by technology and mix diverse cultures or an occurrence with previous history that is dated back to how people from diverse groups interacted through trade (Herman, 2012 p. 1) This definition brings us to the questions of whether globalization, travel, and trade freedom existed before boarders and regulations in trading activities were introduced. However, the question will be answered at a future research, coming back to the topic at hand- globalization is taking place at a fast rate, especially due to improved technology, easy communication, fast travelling via aircrafts, motor vehicles and ships (Herman, 2012 p. 2). The process of globalization is a complex and multidimensional phenomenon with most of its influential and visible aspects and evidence being economic in nature (UN, 2006 p. 9). Some of the evidence of globalization includes; changes in job markets, search for multilingual personnel, increasing, people relocating from one country to another for greener pastures or travelling all over the world for business matters. Additionally, E-business has a major impact on competition and market developments because the actual location of the company does not really matter (Herman, 2012 p. 4). Economic Dimension According to Budzinski, 2008, economic globalization is the integration of the formerly separated markets across national borders. This is how international and global markets are created. Today, globalization in terms of economic activities is not a new subject rather, has been there for decades now (p. 10). The process of market globalization is influenced by two factors: Liberalization and deregulation: this liberalization of trade in services and goods with respect to General Agreement on Tariffs and Trade (GATT) led to the creation of World Trade Organization (WTO) of 1995, which eliminated the harmful and protectionist practices of most countries so as to protect their industries against competition from other nations. Finally, most regulated industries such as transportation, energy, banking among others have since been deregulated. Technology and innovation: technological advancement has reduced the cost of business such as financial export-import activities dealing with both goods and services. In this context, computer and the Internet has played a major role in economic globalization. In relation to competition, globalization as compared to liberalization and internationalization of markets shows a significant competitive process. This is because globalization, results to enlargement of the market, which increases competition in that particular market because new competitors are created. As an end result, a market dominating enterprise is faced with the threat of losing its position while the newbie in the market has the potential to grow and became a leading market in its field (Budzinski, 2008 p. 13). Competition has improved business, goods and services as well as increase demand of products due to technological advancement. For example, in the steel business advances in material technology has increased the demand of lighter steel than the traditional heavy steel. This is because the light materials of steel had to be produced by every company in the steel business in order to remain competitive in the industry (International trade commission, 1991 p. 16). Technology has also widened the gap between the leaders and losers as well as decreased the chances of small, emerging markets to interact with the leaders of the market globally. The advantage of such interaction is that an innovative entrepreneur has the potential of scaling up within no time and top the industry. Technology and globalization have led to reduced prices of good and services across the globe, mostly due to competition and reduced cost of production. Many financial experts observed that “globalization” has changed the behaviour of price inflation especially in the U.S. economy. Recently, a country like the U.S. has increased its trading activities between other countries such as China among others. Over the globalization period, inflation rates have decreased due to the presence of cheaper and quality product and service alternatives from foreign markets (Ball, 2006 p. 13). Another reason why globalization has reduced prices of goods and services is because of the competitive advantage theory. This means that by concentrating on goods and services where nations have an opportunity cost that is lower than other countries then this can benefit all countries. Thanks to free trade, all countries can be able to interact and settle for goods and services with a competitive advantage. When the tariff barrier is reduced, trade is created. Trade is created during the consumption switch from high cost production to production that is low (Pettinger, 2012 p. 2). Figure 1: Removal of tariffs and reduction in consumer prices by Pettinger, 2012 The figure above explains that when tariffs are removed, consumer prices are lowered. On the other hand, an increase in imports is seen that is an implication of increase demand and an overall rise in economic well-being. Social Dimension Today’s globalization increases the general need for acquiring new knowledge of cultural diversity between not only countries but also corporate cultures. Many countries are transferring their experts from one country to the other to help in building new subsidiaries or to support certain on-going projects. For a country to succeed in business in a foreign country, it takes more than knowledge of language skills, but understanding of influences that comes with sub-culture, diverse communication styles and social behaviour of a particular society. Evidence that globalization is influencing change is the increased business international travels and introducing new activities and business ideas to other cultures. Additionally, the large cities have multilingual habitats and diverse religion and culture (Hermann, 2012 p. 7-9). Generally, social dimension of globalization is the effects of globalization and changes on the lives, work, family and societies of people. Also, globalization has an effect of the employment, income, conditions in the working area and job security. This means that globalization brings new opportunities for the creation of wealth and development of the same. However, globalization is like a two sided coin when it comes to employment and wealth creation. This is because globalization can increase the chances of employment and wealth and also reduce the chances of employment and cause poverty. To start off is the creation of employment; the fall of regulatory barriers has increased trade, migration, and investment across borders. This has not only affected workers from developed countries but has increased the chances for employment in the developing countries. The opportunities for new employment have been influenced by the increase in foreign investments and increase export opportunities. Apart from employment, indicators of the World Development have shown that the ratio of merchandise trade to gross domestic product (GDP) has increased from thirty-one to fifty-seven percent between the years 1990 and 2007. In some countries that changes have been large with employees having a good rise in wages and promise a future for growth. At the same time, however, globalization changes the structure of an economy. Even the neoclassical trade theory opening up to trade will result in winners and losers. In addition to the issue of redistribution and the gains are the cost involved with increased risk of job loss, movement between jobs and industries, and exposure to global economic shocks (Robertson, 2009 p. 1). Conversely, as mentioned above, globalization is capable of causing unemployment. The rapid speeds of technologies have been the major impact on unemployment. With the reduced cost of production, many people have lost their jobs in industries because machines can work faster and efficiently with little maintenance cost as compared to employment wages. This has made many people suffer from job loss and unemployment in such industries becomes difficult. Apart from the use of machinery to replace human labour, education has been another challenge brought by globalization that has led to lack of unemployment opportunities (Wagner, 2000 p. 4). With this globalized economy, only professional experts in business and IT have the opportunities to get employed. This cuts off many unskilled and semi-skilled workers who need employment to feed their families. Unemployment results in social inequality among countries and globalization widens the gap between the rich and poor societies. Therefore, the imbalance between the economy and society is subverting social justice. There is a growing difference between a formal global economy and the expansion of an informal local economy in most societies. The majority, who live in the informal economy, continue to be excluded from directly participating in markets and globalization on a fair and equal basis. Therefore, such economies enjoy none of the property and other rights, or capabilities and assets they need to enter into productive economic transactions. In simpler terms, the benefits of globalization have been unequally distributed, both within and between nations. There is a growing polarization between the poor countries and the rich countries (ILO, 2004 p. 4-6). Globalization has brought business structural change with inadequate social and economic adjustment which has brought uncertainty and insecurity to employees and businesses globally. Women, indigenous people, and the unskilled poor people are the most vulnerable groups. Unemployment and underemployment remain stubborn realities in this globalized world (ILO, 2004 p. 7). With unemployment prevailing among the poor societies, they have to find alternative means to survive somehow. Some countries blame the Western nations for their own business and economic failure, especially when their countries economic resources are used to create massive wealth for the developed countries. Such nations use terrorism as a means of putting their message across and also in revenge to the developed countries. This mostly happens in countries like the Middle East, which are rich in oil which is the driving force of production. Effects of terror on a country causes death of a massive number of people and destruction of billions of dollars’ worth of property, at the end of the day a terror-stricken country faces an economic strain and business failure. Globalization has also brought a high risk associated cybercrime mostly known as hacking. This is when data are illegally accessed by a computer and software genius for his/her own selfish gain, which, at the long end, puts a business at a risk. A hacker can also access credit cards from customers in banks and insurance companies and steal their money and other major property. Cybercrime does not only happen in the country a hacker lives in but, he/she can access to information and credit cards for people in diverse foreign nations. Most businesses and companies have collapsed due to cybercrime where their most important information and secrets are sold to their competitors and their innovative ideas advanced and used by their competitor (ILO, 2004 p. 10). Finally, globalization has been gradual in some countries, while drastic in others. Generally globalization has had both positive and negative effects in the economic and social dimension of business. More often than not, the positive impacts outweigh the negative and this has brought changes in the world economy and lives of the majority population. References Annual survey concerning competitive conditions in the steel industry and industry efforts to adjust and modernize: report to the President on investigation no. 332-209 under section 332 of the Tariff Act of 1930. (Oct. 1989. ed.). 1991. Washington, D.C.: U.S. International Trade Commission. Ball, L. (2006). Has globalization changed inflation? Globalization, 1(2), 29. Budzinski, O. 2008.The governance of global competition competence allocation in international competition policy. Cheltenham, UK: Edward Elgar. Herrmann, A. 2012. Global Awareness Society International 21st Annual Conference .Globalization and its Effect on International Business, 1(1), 17. Pettinger, P. 2012. Trade Liberalisation.Economics Help. Retrieved August 12, 2014, from http://www.economicshelp.org/blog/glossary/trade-liberalisation/ Robertson, R. 2009. Globalization, wages, and the quality of jobs: five country studies. Washington D.C.: World Bank. Trade and development report. 2006. New York: UN. Wagner, H. 2000. Globalization and Unemployment. Berlin, Heidelberg: Springer Berlin Heidelberg. International Labour Organization. 2004. A fair globalization: creating opportunities for all. Geneva: International Labour Organization. Read More