How Globalisation Has Affected the World Economy

Introduction

There was a time when an imported product was used to be seen as a valuable possession. The time has changed and brought with it a dramatic change in global commerce. Today people in most of the world have access to almost every product and service. This change has been realized by globalization. Free trade and international integration in economic development have opened new ways for global business.

Not only major corporate giants but emerging industrialists are also looking at the scope of transnational business. Outsourcing of manufacturing and service sectors has entered a new era, enabling industries to withstand the current competitive world by expanding their businesses to economically favorable countries. The earlier mindset of companies focusing mainly on the domestic market has changed now to explore profitable options abroad. Companies are able to set up units in countries where a qualified workforce is available for relatively low wages. This in turn is beneficial to people as products are available to them at cheaper prices. Apart from this globalization is seen as a valuable tool in improving harmony between countries as economic prosperity becomes more important than traditional rivalry.

Though globalization can be seen as an integration of social, economical and cultural aspects of different countries, the actual perception differs among people and regions. For example, the meaning of globalization in the economic aspect can be described in the words of the great author and linguist, Noam Chomsky:

The term “globalization,” like most terms of public discourse, has two meanings: its literal meaning, and a technical sense used for doctrinal purposes. In its literal sense, “globalization” means international integration. Its strongest proponents since its origins have been the workers movements and the left (which is why unions are called “internationals”), and the strongest proponents today are those who meet annually in the World Social Forum and its many regional offshoots. In the technical sense defined by the powerful, they are described as “anti-globalization,” which means that they favor globalization directed to the needs and concerns of people, not investors, financial institutions and other sectors of power, with the interests of people incidental. That’s “globalization” in the technical doctrinal sense. (Noam Chomsky n. p)

Hence the understanding of globalization needs a detailed review of its history and development, along with supporting and opposing opinions. It is essential to know about the approaches and economic positions of various countries in regards to globalization.

History

Global commerce has been in practice for centuries. However, earlier industrialization can mainly be described as a rivalry of commercial empires created by western European nations. They tried to expand businesses in their empires of sixteenth, seventeenth and eighteenth centuries (Seavoy 181). The focus on profits had made these countries encourage imperial commerce in return for high tax revenues. However, vast industrialization and the use of generated profits in enhancing military power had led to unwanted consequences. The initial dominance of Britain had been replaced by Germany, leading to escalation of conflicts (Seavoy 182).

The two world wars in the first half of the twentieth century made the involved countries to rethink about their economic strategies. Apart from the termination of German militarism, all the war effected countries had to face severe economic crisis (Seavoy 181). This led to focus on new strategies of self-sufficiency.

The western European countries’ and North American political elite tried to emphasize industrial growth for profits but in a cooperative atmosphere. They decided to end the imperial rivalry that had led to the two world wars. The main focus of their new strategies included policies that could enhance the scope for a healthy global economy. These policies concentrate mainly at ending imperial rivalry among industrialized nations through encouraging free trade, establishing organizations to mediate global commerce, regional trade associations to enhance cooperation among industrialized countries, motivating peasant countries to allow investments by multinational corporations, and distribution of raw materials among countries based on their ability to purchase (Seavoy 182).

The reason behind adopting such policies was that the post world war I period had seen severe competition among western European nations and Japan to acquire dominance by possessing raw materials and technology to the maximum extent possible. These countries witnessed retaliatory actions when they tried to restrict one another in enhancing their businesses worldwide (Seavoy 185). The seven year great depression between 1930 and 1937 increased such rivalry for materials among these countries. However, the impact of the Second World War made them understand the importance a modified international trade strategy that allows free trade among industrialized nations. Mainly, the United States followed by England, Australia and Canada were concerned about a new vision to allow free trade.

The main focus of these countries shifted to creating employment opportunities for their public, as it guarantees political stability and economic prosperity (Seavoy 185). They believed that globalization and free trade would help them achieve this objective.

However, there were certain immediate problems after the Second World War. Western European and Japanese political elite were mainly concerned about protecting their countries from the possible aggression of the Soviet Union (Seavoy 185). Reindustrializing the war affected Western Europe, and engaging Germany and Japan into a new economic and political system were also important (Seavoy 185). Obviously, eliminating imperial commercial rivalry in international trade remained a high priority.

Evolution

Consequently, the strong intention of the industrialized nations to foster the development of a new era with cooperative and liberal trade policies led to the creation of various agreements, and regional and international trade policies. Some of the important milestones in this developmental process are discussed here.

Bretton Woods Agreement

The agreement’s main purpose was to implement a stable system of exchange rates and to make all currencies easily convertible (Seavoy 186). As most of the pre WWII international trade was involved by industrialized states, the agreement was mainly to help these nations. The negotiation was started with 44 countries in 1944 and was made effective in 1946 with the participation 32 countries (Seavoy 186). According to this agreement, the exchange rates of the participating countries were fixed in relation to the US dollar. This action was to prevent countries from purposeful devaluations by countries to gain short-term competitive edge over other countries.

The agreement guaranteed flow of materials and easy convertibility of currencies. The United States was in economically stable position to assist and guide other industrialized nations. This made the NATO countries to make transactions in reference to the US dollar. The implementation of fixed exchange rates helped in maintaining price stability all over the world and led to low inflation (Seavoy 186).

However, maintaining fixed exchange rates required a source of liquidity for the involved countries. The convertibility of the US dollar into other currencies fulfilled this requirement. Furthermore, a pool of liquidity called International Monetary Fund (IMF) was established in March 1947 to supervise currency conversions and to resolve financial difficulties of industrialized nations (Seavoy 187). IMF requires the respective nations to implement its policies in order to get loans from it. Though it was initially intended to serve the needs of industrialized nations, its functionality was expanded by 1973 (Seavoy 188).

After WWII, the initial concentration of the political elite of industrialized countries was to restore the functionality of industries that were essential for increasing productivity to the pre war level. However, the lack of sufficient financial resources in the badly war effected countries became a major problem for restructuring process. To help these nations from crisis, the United States implemented the Marshall Plan that provided necessary funding to these countries.

The Marshall Plan

The Marshall Plan, which was treated as a joint European-American venture, was in operation from 1948 to 1952 (The Marshall Plan n. p). During this time, the United States had helped 16 European countries by providing $13 billion dollars in the form of economic aid and technical assistance (The Marshall Plan n. p). In this four year period, the gross product of the participating countries increased by 30 percent compared to the prewar level, whereas industrial productivity increased by 40 percent (The Marshall Plan n. p.).

However, the involved countries were required to stick to certain principles such as lowering trade barriers and hastening payments for trade in order to be eligible to get aid (Seavoy 188). It was not a concern for the European leaders as they recognized the immediate need for such policies to give impetus to industrial reconstruction. They established European Payment Union (EPU) in 1950 to facilitate economic integration and reduce related trade barriers in Western Europe. Moreover, the advantage from the Marshall Plan and currency controls during that period helped these nations develop dollar reserves and attain satisfactory industrial growth (Seavoy 189).

European Common Market

The intention of the political of the Western Europe to prevent any one nation to show military dominance over others had made them think of uniform policies for countries that would allow political and economic stability. Three main issues should be mentioned that led to the formation European Common Market.

  1. The role of the Organization of European Economic Cooperation in distributing aid from the Marshall Plan among participating countries was very effective (Seavoy 190).
  2. The free trade treaty called Benelux Customs Union of 1948 including the Netherlands, Belgium and Luxembourg was formed to provide economic and political integration (Seavoy 190).
  3. The European Coal and Steel Community was formed in July 1952 to integrate the production of coal and steel in Western Europe into a single market, thereby preventing the dominance of any one country (Seavoy 191).

The successful operation of the above entities had made European leaders to move further towards forming an economic union to cover all industrial areas. The result was the creation of European Common Market or European Economic Community (ECC) in 1957’s Treat of Rome (Seavoy 191).

This community initially had six members including France, Germany, Italy, the Netherlands, Belgium and Luxembourg. It mandated removal economic barriers among the member nations and permitted free trade. Corporations would extend their businesses to any of these nations without having troubles regarding capital flows and profit transfers. The economic boundaries among these countries were eliminated (Seavoy 191).

However, Britain did not prefer initially to join common market, as its major trade was with commonwealth and colonial countries (Seavoy 192). Rather it had formed European Free Trade Area (EFTA) in 1960 with six other members including Sweden, Portugal, Denmark, Norway, Austria and Switzerland (Seavoy 192). The organization failed in practice due to lack of strong intentions towards economic integrity. With the success of the common market, however, Britain had applied for membership to ECC and became a member in 1973 after two previous vetoes by France (Seavoy 192-4). The compromises that Britain had to make were ending Commonwealth preference for imported food products and providing monetary contributions for the maintenance of the Common Market (Seavoy 194).

The Common Market had many member nations by 1970, and had formulated principles that would allow free trade among European nations. Initially, all industrial products were kept under the purview of the Common Market except hose of agriculture. The Common market policies mandate a uniform tariff to restrict any country from gaining access to cheaper products from nonmember nations (Seavoy 195). The main purposes of the Common Market were to enhance profitable trades for member nations with nonmember nations and improving political integrity among members (Seavoy 195).

The successful reindustrialization of the European countries and the increasing spending of the US on defense purposes reduced the dominant position of the US dollar. This had insisted the US to argue that Common Market nations should contribute more to the maintenance of NATO (Seavoy 196). This period also witnessed changing policies of the US from allowing preferential entry for European products into domestic market (Seavoy 197).

The success of the Common Market had motivated political leaders towards more means of integration and led to the formation the European Union in the long run. It is essential to look at the formation and performance of the European Union to have an idea of the resultant economic prosperity.

European Union

The collapse of the Soviet Union and the growing prosperity of the Common Market nations opened ways for the organization of a new union through the Maastricht Treaty. The purposes of the Treaty were to adopt euro as a common currency and implement common labor laws to allow citizens of the European Union to get employment in any of the member countries (Seavoy 200-1). The European Union finally came into existence in 1993.

The European Union encompasses 27 member states, and has independent central bank to control credit policies and inflation (Seavoy 201). The Directorate General of European Commission (DG ECFIN) provides economic forecasts twice every year in spring and autumn for the members, potential members and the EU as a whole (European Commission n. p.). The economic policies have to be monitored and implemented at both national and European level.

The collapse of the Soviet Union had raised certain problems for the European Union such as security of its eastern border, protection of emerging fragile democracies, control of migration from Eastern Europe and implementation of policies to integrate political economies of the new nations with the EU (Seavoy 201). The European Union has been very successful that predictions on the evolution of the Republic of Europe are on the rise (Seavoy 203-4). It has been successful in improving economies of the member states and also preventing another war by increasing interdependency among members (Seavoy 203).

Global Commercial Policies

The purpose of the Bretton Woods Agreement further meant to reduce trade barriers through a General Agreement on Tariffs and Trade (GATT) (Seavoy 213). It also gave impetus to the establishment of the International Monetary Fund (IMF) and the World Bank.

GATT and WTO

GATT mainly focused on multilateral reductions of trade barriers by reciprocity and providing rules to resolve trade disputes (Seavoy 214). It took three years from 1945 to 1947 for GATT to come into existence with prominent support from the United States. Initially GATT had no institutional structure, and disputes were resolved through negotiations and mediations by experts (Seavoy 214). The main intention of eliminating political and economical barriers to enhance free trade has been strongly supported by the United States and many European countries through organized efforts.

Moreover, the rules of GATT would allow relaxation of rules for countries with healthy economies but persistent balance of payment problems (Seavoy 214). While GATT mainly served the economic interests of the industrial nations who have strong manufacturing and distributing abilities, peasant nations would compensate their commercial weaknesses by organizing producer cartels (Seavoy 215).

In due course of time, GATT was transformed into the World Trade Organization (WTO) in 1995’s Uruguay sessions including 128 member nations (Seavoy 216). As stated by Seavoy, “the first priority for WTO was encouraging the harmonization of procedures for transferring investment capital, liquid funds, financial services, data processing, and telecommunication technologies among nations in order to increase the availability of commercial information and minimize the impact of speculation” (216).

International Monetary Fund

The IMF was formed in March 1947 with an intention to supervise a revolving fund to aid Western European countries in the post WWII reindustrialization process (Seavoy 219). However, it could not perform up to its intended purpose initially due to the availability of the Marshall Plan for the respective nations and later by the growing value of the European currency that would make central and international commercial banks of the Europe to provide required liquidity for the related countries (Seavoy 217).

In the process, IMF had started concentrating on the economical problems of the peasant nations. It started providing loans for purchase of products like petrol and food. IMF principally requires the benefitting nations to implement certain reforms in political economy, failing which the financial support to those nations may be suspended. However, in certain countries where no alternative government can be present, the reforms ignored leading to wastage of funds (Seavoy 225).

On the other hand, to let the involved parties overcome sovereign debts, IMF would provide debt relief by reducing interest rates, allowing more years for repayment, permitting smaller incremental payments, waving payments of the principal except annual interest, and total cancellation of some debts (seavoy 222).

World Bank

The World Bank was established in June 1946 with the main purpose of providing loans to European countries to recover from the damages of the Second World War. It was intended to provide loans to the respective countries to reconstruct industrial sectors. The main financial source for the bank was by selling long-term bonds to governments and commercial banks in the principal industrial nations (Seavoy 227). However, the bank’s resources were not enough to sufficiently fund the reconstruction processes of the Western European nations.

Over the time, the bank’s strategy was shifted to concentrate on peasant nations by 1950. The bank started lending to nations with small industrial sectors for developing general facilities and manufacturing sectors (Seavoy 227). Though the inability of these countries to repay loans owing to economic and political uncertainties remained a concern, the intention to explore these nations through commercial penetration remained as a motivation (Seavoy 227).

The World Bank established a subsidiary fund called the International Development Association (IDA) in 1960. The main purpose of it was to combine economic growth and social justice to alleviate poverty and improve living standards of the people in less developed countries. Both the World Bank and IDA became instrumental in implementing the strategies of the United States and other major industrialized countries towards achieving long-term political goals (Seavoy 228). Through IDA, the World Bank concentrated on providing interest free loans for agricultural development in respective countries.

For the initial decade, it provided nearly 10 percent of all loans for agricultural development, 32 percent for transportation, 32 percent for electric power generation and 2 percent for education (Seavoy 228). The loans for agriculture were nearly tripled for the next decade at around 27 percent. The earlier focus of the IDA was on India and Pakistan, and was later shifted to sub-Saharan African nations (Seavoy 228).

The main intention behind funding for agriculture and other general facilities seemed to be the alleviation of poverty in these nations. In the view of Robert S. McNamara, loans provided to these peasant nations can be utilized to develop proper infrastructure and self-sufficiency (seavoy 229-30). However, there seemed to be difference of opinions in this approach as some would argue that if the people in these nations had utilized the given money for proper development these would have become like industrialized nations with those huge amounts of almost interest free loans (seavoy 229-30).

Moreover, the lack of experts in the post-colonial peasant nations to plan and implement technical development strategies for poverty alleviation had made the World Bank to carry on with the responsibility. Most of these experts and guidance would come from the economic elite of the United States and their strategies obviously reflected the policies of their government (Seavoy 230). The IDA has slowly turned into a development-directing organization than a mere lending agency (Seavoy 230).

According to Seavoy, the policies f the World Bank/IDA to promote economic development and alleviate poverty in the post-colonial peasant nations failed drastically as the authorities could not differentiate between absolute poverty and subsistence (Seavoy 229-34). This has been supported with statistics that the IDA had disbursed nearly 71 billion dollars between 1960 and 1972 for poverty alleviation programs but couldn’t achieve considerable results in return (Seavoy 233-4). It has been argued that funding these nations without motivating their policy makers for proper reforms would not achieve favorable results except making these nations as the neo-colonial dependents on the World Bank/IDA.

Regional Trade Agreements

Apart from the efforts to enhance political and economic prosperity of the industrialized nations through various policies and organizations, there are several other trade agreements that need to be noticed.

  1. LAFTA, 1960: Latin American Free Trade Association which later became Latin American Integration Association (LAIA) in 1980 (Seavoy 234).
  2. ASEAN, 1967: The Association South East Asian Nations for reducing tariffs and enabling free trade (Seavoy 234).
  3. CARICOM, 1973: a customs union of 14 former British colonies in the Caribbean area (Seavoy 234).
  4. CER, 1983 and ANZERTA, 1989: trade agreements between New Zealand and Australia (Seavoy 234).
  5. CUSTA, 1988: Canada-United States Free Trade Agreement that emerged from the 1965 free trade agreement of autos and auto parts (Seavoy 234).
  6. MERCOSUR (Mercado Commun del Sur), 1991: agreement between Argentina, Brazil, Paraguay, and Uruguay to form a common market by 1996 (Seavoy 234).
  7. NAFTA, 1994: North American Free Trade Agreement between Canada, Mexico and the United States (Seavoy 234).
  8. CIS, 1995: the Commonwealth of Independent States, a Russian attempt to maintain the economic unity of the former Soviet Union (Seavoy 234).

The number of regional trade agreements increased between mid 1980s and mid 1990s with as much as 33 such agreements between 1990 and 1994 due to the end of the cold war and the increasing prosperity of the European Union (Seavoy 235). It was the time when policy makers of the countries with small industrial sectors to shift their policies from import substitution to allow direct investments by multinational corporations. These direct investments provided benefits to the involved nations by creating jobs for both skilled and unskilled labor (Seavoy 235). This allowed the transfer of advanced technologies owned by multinational companies into these countries. Moreover, products made for export by these companies would rise foreign exchange levels (Seavoy 235).

Regional trade agreements can be viewed in two different perspectives. While one sees at them as an impediment to global integration by dividing countries into regional cooperative groups, others observe them as a means of better cooperation among neighboring countries that will further enhance the scope of global commerce and free trade by removing trade barriers at regional levels. For example the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States has been successful in enhancing regional trade and resulting in profits for the three members (Seavoy 235-7). Its success has further to the addition of Chile as the fourth member.

The effect of reducing trade barriers and allowing global commerce has been evident over the time. All the industrialized nations that opted for free trade have realized economic prosperity with faster growth in the global arena. On the other side, countries that chose policies of self-sufficiency are considerably lagging behind in economic growth. Moreover, the increase in consumer cultures in the industrialized nations provided enhanced growth opportunities. Compared to 1946, the share of the United States in the gross global product has increasingly been reduced by the rapid growth of the European Union and countries like Japan (Seavoy 238).

Agriculture

The demand for food after the WWII made the Western European Countries to subsidize their agricultural sectors. This helped in retaining cultivators from migrating to urban areas and increasing food production (Seavoy 238). Though the Western Europe succeeded in achieving the production of surplus amounts of food grains, the produced food was highly expensive compared to that of the United States, Canada, Australia, and Argentina (Seavoy 238). Agriculture almost took the form of a corporate sector with the consolidation of small cultivating units to larger ones, replacement of horses with tractor and the inputs of Green revolution (Seavoy 239).

Among the nations of the Common Market, the cultivators would sell their harvests first after which imports were made to fulfill remaining needs. These countries further promoted a policy called the Common Agricultural Policy (CAP) (Seavoy 239). The purpose of the CAP was to maintain common tariff and common funds to provide guarantee for the producers of non-perishable commodities (Seavoy 239).

However, some of the members in the Common Market such as Green, Ireland, Portugal, Finland, and Spain have inefficient agricultural sectors. They had to wait for ten years after entering the Common Market to get permitted for free trade with other member nations. Subsidies to agriculture were high between 1986 and 1990 (Seavoy 240). The agricultural sector had increasingly been seen as out of the purview of the GATT and WTO, as there were political necessities of protecting cultivators. Hence, bilateral contracts have been encouraged for countries to attain fixed price and fixed quantities (seavoy 240).

However, outside the EU, there were countries like India and that of the sub-Saharan Africa whose leaders couldn’t create political economy that is essential for commercialization of agriculture. (Seavoy 240-1).

In this way, the WWII and post WWII conditions motivated political leaders to create new strategies that would improve peace and harmony by helping countries achieve economic prosperity in a cooperative environment. Their vision and efforts gave rise to the establishment of nearly six institutions of which five were intended for reducing trade barriers and promoting international commerce for the industrialized nations.

Though the initial purpose of the organizations such as GATT/WTO, IMF, World Bank, Common Market/EU and OECD were to enhance cooperation and trade among industrialized nations, they have been subjected to modifications according to the time and global situations to serve their purpose at a broader level involving maximum number of countries. The sixth organization was NATO whose main function was to protect Western European nations and help in maintaining regional stability.

They ensured successful reduction of tensions among principal industrial nations and promoted production of new wealth (seavoy 245). The policies of these institutions and the determined efforts by the political leaders of the involved nations helped in creating new wealth than by sharing the existing wealth and increasing global commerce through enhanced product generation. The initial concerns regarding creation of employment and achieving political stability have been addressed successfully by these free trade policies. It becomes evident by the difference in per capita productions and economic stability of these countries.

However, the perception of globalization by the newly participating countries in the global market and the approach of global and multinational corporations in exploring the options created by emerging options of international trade need to be analyzed. Moreover, given the disparity in the distribution of wealth and technology among nations all over the world, it becomes imperative to focus on the positive and negative opinions on globalization.

Global Corporations and Strategies

The reduction of trade barriers and promotion of international businesses by increasing number of countries make more corporations to focus on global market. The activities of the global corporations in the twenty-first century aid in improving material welfare for the citizens of the participating countries. By following free trade based on functional abilities rather than imperial rivalries, these corporations create consumer cultures in the involved countries and ensure social and economic stability of the societies by creating jobs and wealth.

Simply, the global corporations can be seen as providing three major benefits for the involved countries:

  1. Reduction of National Commercial Rivalries: Global corporations compete on the norms that the participating nations assign to institutions such as IMF, WTO and regional trade organizations; and in accordance with other trade policies that these nations adopt (Seavoy 251). Competition is between companies but not between nations, meaning that companies explore the options of increasing their businesses based on technology development, favorable environments but the nations would have to allow free trade in and out of the country irrespective of the nationality of a particular corporation. These companies can invest on and distribute products effectively on global scale. The operational strategies and skilled based career growth for employees allow more succeful productivity.
  2. Creation of Employment: Global corporations create new jobs and there by helps in creating new wealth for the participating nations (Seavoy 252). The increase in the number of jobs helps in maintaining social security and providing governments with more tax revenues. Political entities would also need to compete on the basis of how effectively they can maintain the prosperity than competing on ideologies (Seavoy 252). Practical approach based on citizen welfare and economic stability is encouraged.
  3. Creation of New Taxable Wealth: The efficient management skills of the global corporations not only provides countries having low industrial sectors with modern technology and high quality product generations, but also provides countries with high taxes through increased investments (seavoy 252). Domestic problems of these countries such as tax evasions, in efficient management can be overcome by the entrance of global corporations, as they create high competition in product generation with transparent management techniques.

The basic functional sector of a corporation has considerable impact in deciding whether Or not it can grow globally. Becoming a global corporation depends on the chances of exploring available options, nature of the industry, and presence of geographical limitations. Apart from these efficient management strategies become vital in maintaining company’s trade in different nations.

Globalization seems to be more useful for companies that are in manufacturing sector, as they can set up units and easily transfer raw materials and products among nations. As stated by Seavoy, the basic strategies of the multinational corporations in becoming global are very similar to those employed for growing in domestic markets (Seavoy 253). These strategies include mastery of a technology and process, mergers with favorable corporations, access to large amounts of credit and investment, and efficient foreign sales (Seavoy 253).

As Alfred D. Chandler puts it

Manufacturing enterprises became multifunctional, multiregional and multiproduct because the addition of new units permitted them to maintain a long-term rate of return on investment by reducing overall costs of production and distribution, by providing products that satisfied existing demands, and by transferring facilities and skills to more profitable markets when returns were reduced by competition, changing technology, or altered market demand. (qtd. in Seavoy 254)

In the interwar period (1918-1938), becoming global or multinational was more of a defensive strategy to protect themselves from the threats of import restrictions on the marketing of manufactured products in foreign markets (Seavoy 255). However, in the post WWII period, with the successful reindustrialization of the European countries and Japan have favored companies to invest in foreign markets, as free trade was made into existence through norms of Common Market, GATT and other similar entities (Seavoy 255).

Communications have greatly improved making it easier for higher authorities and managers to contact their foreign branches within no time. This has made companies to establish manufacturing and servicing units in different nations that are favorable to free trade. Along with the emergence major corporations in the global arena, mergers also increased leading to oligopolies and oligopolistic competition (Seavoy 254). This oligopolistic competition has worked well in providing corporations with access to vast range of markets and huge capital for investment. Moreover, with the increase in the number of global manufacturing companies, related sectors such as banking, communication, information and insurance services also expanded their horizons on a global basis catering to and benefiting from the needs of global manufacturing corporations (Seavoy 255).

With the improving reindustrialization of the Western European nations, the United States and Common Market recognized by 1960 that the benefits of global commerce were enormous and every participant country should be benefitted from it (seavoy 255). As the industrialized nations have been mostly favorable for global commerce and free trade, they have benefited largely from globalization. The main motivation for these nations to encourage direct investments by foreign companies has been to create sufficient employment in the domestic arena (Seaoy 256).

The principal industrial countries have not concentrated on the nationality of a company investing in the domestic market or an agency lending money to the domestic companies (Seavoy 255). The process in which a foreign company acquires local businesses or the transfer of profits from the domestic markets takes place has never been the matters of concern for the governments of industrial nations (Seavoy 255). They looked at globalization as a means of providing jobs and social security in respective countries through increasing taxable wealth.

The opinion was that creating stable social conditions would aid in creating political stability and regional harmony.

However, in countries with small industrial sectors, policy makers should take favorable reforms in order to reap the benefits of globalization. As these countries often do not have the financial ability, management efficiency or required technology, they can allow global and multinational companies to invest directly in the domestic markets. This would permit inflow of technology and foreign exchange while helping in raising the standards of domestic organizations either through unavoidable competition or through mutual understanding and cooperation at various levels. Global corporations are excellent sources of wealth to improve domestic industrial sectors (Seavoy 256).

Earlier, the United States was in a dominating position with many of its industries having multinational operations as early as 1900 (seavoy 256). The reindustrialization of Western Europe and Japan after the World War II gave the already well established domestic industries of the United States to explore chances in the global arena on a large scale. With the US producing as much as 36 percent of the total world’s industrial output by 1900s, the reindustrialization of the European nations created new dimensions for its business strategies (Seavoy 256). Obviously, this made the US companies as the first ones to reap the benefits of free trade and other liberal foreign policies.

With the completion of the reindustrialization process by 1960, political and economic conditions have turned favorable for global corporations (seavoy 256). This further gave impetus to the countries of the Common Market and Japan to expand their operations from the national and regional markets. Most of the major companies at that time noticed The US as the favorable business destination, establishing their headquarters in that country and expanding their operations from there to other regions. It had reached peak by 1970s and 1980s with the major industries of the Common Market and Japan turning into global corporations (Seavoy 257). Their operations coupled with the policies of the respective countries to freely permit foreign direct investments made the standards of their global commerce at par with the United States.

As Seavoy puts it, “the key to internationalization of business during the post-World War II period was not the traditional export or import of goods, but foreign direct investment” (257). The scope for these global corporations, and in turn their profits for enormous, as their efficient managers were able to control production, distribution and marketing of goods as per requirements. The manufacture of goods took place in view of the global demands rather than adopting strategies in relation to domestic needs and viabilities. This gave an impetus to the growth of all related sectors even at a faster rate.

The aftermath of the debt crisis after 1982 mandated the affected nations to reconsider the policies of protected business strategies and to let allow foreign direct investments (Seavoy 258). The consequent attempts to deregulate protected national businesses such as telecommunications, banks and electric utilities created a surge in the global commerce (seavoy 258). Countries and industries realized the need to diversify operations and involve in multiple manufacturing and merging processes to escape from the threat of being reduced to smaller market ranges by the highly competitive global corporations. The dramatic growth in global commerce mandated companies to expand their operations to as many countries as possible due to the fact that profit gains were largely dependent on efficient global expansion (Seavoy 258).

As a whole, the world income increased at an average rate of 6 percent per year between 1985 and 1990, with the exports increasing at over 9 percent per year during the same period (Seavoy 257). Furthermore, this period witnessed the increase in direct foreign investment at an average rate of 27 percent per year (Seavoy 257). One of the reasons behind the increasing global commerce was the end of cold war that provided an assurance for political and economic stability, reducing mandatory spending on defense strategies. This had further increased the scope of global market by involving the emerging democratic countries that were a part of the former Soviet Union.

Regarding the efficiency of companies to invest in foreign countries, it largely depended on the ability of higher managements. Professional managers had to implement new strategies to get benefitted from the internationalization of businesses and shift from the traditional policies of descendents of founding entrepreneurs that used to prefer cartel formations to maintain profit margins (seavoy 258). For example, the 1870’s dominance of Britain as a leading industrial country was overcome by the United States and German corporations, as the higher management of British companies preferred cartel formation and portfolio investments than to go for direct foreign investments (seavoy 259). The preferred places for portfolio investments were the countries like Canada, Australia, the United States, India, and South America Nations (Seavoy 259).

Moreover, the impeding factors for the growth of traditional British companies were the slowness in introducing innovative mass production techniques, reluctance to encourage professional managers to form strategies, reduced focus on research and product standardization, and failure to develop brand loyalty (Seavoy 259). The consequential failure of the earlier British companies in adapting to changing global conditions worked as an example for the United States and German companies to go for direct investments.

The increase success of the Common market and the changing global trends made companies to concentrate on hiring professional managers who could expand businesses on a global scale and effectively perform the processes of direct investment. At the same time, given the scope for expanding protected industries, governments of realized that privatization of state owned corporations would allow foreign direct investments (Seavoy 259).

According to Seavoy,

The nature of international competition in the twenty first century will be redefined by globalization of economic activities of transnational corporations which can be interestingly viewed as networks of international production in which intra-firm flows of capital, goods, services, training, and technology play an important role and their major value adding function is the integration, organization, and management of those international flows. (261)

The reasons for the increased globalization of major corporations after the end of the cold war were political feasibility, peace among nations and industrial competition (Seavoy 261). The stability of economies and governments of the industrialized countries propelled foreign direct investments into these nations. As a result, most of the direct investments in 1990s were in the United States, Europe and Japan. These regions provided investors with favorable economic and political environments with reduce tariffs and liberal market policies. Moreover, companies had to reduce manufacturing costs to sustain in competition, which would be possible only through

expansion into the maximum number of possible areas and nations. The increase in market base would permit ease in manufacturing by providing sustainable customer base and qualified workforce at cheap labor. In the process, overseas earnings of the corporations surpassed the profits from domestic markets resulting in new global identity.

The success of the industrial nations in globalization and the effects of debt crisis in mid 1980s insisted countries with small industrial sectors to open ways for foreign direct investments (Seavoy 262). Moreover, the condition of export driven economies in countries like Singapore, Malysia, Taiwan, South Korea, and Japan who were minimally effected by the debt crisis became a motivation for other countries (Seavoy 262).

There were three alternatives for the nations with small industrial sectors to direct investments. They were encouraging entrepreneurs to explore vast unskilled labor to manufacture labor incentive products such as textiles for export purposes, promoting few big industries to compete with global corporations, and partnering with global corporations to expand markets (Seavoy 263). The availability of required credit may work well to some extent in the first two options. Coming to joint ventures, proper determination of involved parties becomes a vital factor. In this particular condition, the global corporation may contribute capital, technology and management skills; whereas the domestic corporation may contribute labor, factory and domestic distribution channels (Seavoy 263).

However, joint ventures always have a threat of being neglected by the domestic corporation. In general, major share in most of the joint ventures are owned by domestic corporation. The condition may become worsen if the domestic partner is supposed to contribute political influence (Seavoy 263). For decisions driven by political motives may cause a negative effect on business operations, organization and finally profit gains.

In such situations, global partner will have only two options, either to withdraw from the venture or to buyout the corporation (Seavoy 263). However, these choices depend on the policies of the respective governments that may further worsen the situation for global partner. This is why, global corporations are mostly reluctant go for joint ventures in countries with highly protected industries (seavoy 263). Overall, allowing direct investments seems to be the best possible method for enhancing economic prosperity of these countries.

Peasant Nations

The situation in peasant nations is quite different and cannot attract direct investments from global corporations. Three possible reasons can be discussed for the reluctance of global corporations to invest in peasant nations.

  1. Capital acquisition is not a priority in these countries, as they merely produce commodities for local markets (Seavoy 264).
  2. Given the standards of living, the people in these countries cannot be seen as an attractive customer base (Seavoy 264).
  3. The perception of political elite in these countries that direct investments by global corporations are a new means of colonialism (Seavoy 264).

Most of these nations believed in nationalized industrial system for longtime. They perceived globalization and direct investments as a threat to their sovereignty. Instead, they preferred to opt for Marxist ideology and believed that socialist political economy would help in industrialization (Seavoy 264).

However, there are many examples to show the failure of the policies adapted by these political leaders. The only sustained industries with good export potential have been the oil and mining industries (Seavoy 264). Although these countries received many industries as gifts from industrialized countries, the failure in proper maintenance has resulted in no development of living standards. For example, the textile, footwear and cement industries of Tanzania which were received as gifts are lagging behind expected production rates due to inefficient management and poor supply of raw materials (Seavoy 264).

Measuring Globalization

It is essential to know about the impact of globalization in regards to economic aspects. The KOF index proposed by the Swiss elite provides a way of measuring globalization in terms of Social, economic and political aspects (KOF index n. p).

The KOF index measures economic impacts in terms of –

  • Actual economic flows
  • Economic restrictions (KOF index n. p).

Before knowing how to calculate economic aspects it is essential to learn about the actual Meanings of certain terms.

Data on Actual flows is calculated in terms of trade, foreign direct investment flows and Stocks, portfolio investments and income payments to foreign nationals (KOF def. & sour. 1).

  • Trade is defined as the sum of exports and imports of goods and services measured as a share of gross domestic product (qtd. in KOF def & sour. 1).
  • Gross foreign direct investment is the sum of the absolute values of inflows and outflows of foreign direct investment recorded in the balance of payments financial account. It includes equity capital, reinvestment of earnings, other long-term capital, and short-term capital. Data are in percent of GDP (qtd. in KOF def & sour. 1).
  • Foreign direct investment stocks are some of inward and outward stock as a percentage of GDP (qtd. in KOF def & sour. 1).
  • Portfolio investment is the sum of the absolute values of inflows and outflows of portfolio investment recorded in the balance of payments. Data are in percent of GDP (qtd. in KOF def & sour. 1).
  • Income payments refer to employee compensation paid to nonresident workers and investment income (payments on direct investment, portfolio investment, other investments). Income derived from the use of intangible assets is excluded. Data are present in percent of GDP (qtd. in KOF def. & sour. 1).

Data on economic restrictions are observed in terms of hidden import barriers, mean tariff Rate, taxes on international trade, and capital account restrictions (qtd. in KOF def. & sour. 1).

  • The hidden import barrier index is based on the Global Competitiveness Report’s survey question: “In your country, tariff and non-tariff barriers significantly reduce the ability of imported goods to compete in the domestic market.” The question’s wording has varied slightly over the years (qtd. in KOF def. & sour. 1).
  • As the mean tariff rate increases, countries are assigned lower ratings. The rate declines toward zero as the mean tariff rate (qtd. in KOF def. & sour. 1).
  • Taxes on international trade include import duties, export duties, profits of export or import monopolies, exchange profits, and exchange taxes (qtd. in KOF def. & sour. 1).
  • Capital account restrictions are based on two components whether the foreign investments in a country are rare and limited or prevalent and encouraged (qtd. in KOF def. & sour. 1).

Method of Calculation

The above variables are converted to an index on a scale of one to hundred, with hundred as the maximum value and one as the minimum value (2008 KOF index 3). Higher the value indicates greater globalization (2008 KOF index 3).

Though data is not available for every country, calculations are made on a yearly basis (2008 KOF index 3). According to the rankings of from the KOF index Belgium, Austria and Sweden are in top three positions of globalization (KOF rankings 1).

According to another version, the economic aspect of globalization can be measured in terms of two groups namely the degree of globalization and the results of globalization, with these two groups encompassing issues like trade, industry, culture, medicine, and population etc. (Globalization 6). The degree of globalization can be expressed as the number of entities such as local, regional and global. Globality in this context explains operations that extend over continents (Globalization 6).

Reference Indicators of the Globalization of Trade

According to OCDE, there are certain indicators for the globalization of trade:

  1. Trade is the oldest form of internationalization of economic activities. Indicators involving trade can be made at the level of a country, whole industry, a sector, affirm or a product (OCDE handbook 27).
  2. Some of the trade indicators reflect the scale of globalization, where as the other indicators reflect the trade involving foreign-controlled affiliates (OCDE handbook 27).
  3. A country can be recognized as largely internationalized if a huge portion of its domestic products are exported (OCDE handbook 27).
  4. International trade involving multinational firms are covered by exports and imports of foreign affiliates in the host countries along with intra-firm trade of host countries (OCDE handbook 27).
  5. Intra-firm trade is an important indicator in that it measures exports and imports in relation to both inward and outward investments of a country (OCDE handbook 27).
  6. The ratio of intra-firm exports to a sector’s total exports depends on various factors such as the nature of foreign affiliates and whether the product is an initial, middle or final one of the process (OCDE handbook 28).

Globalization Problems

In order to assess the implementation of globalization process by different countries and the perception of industries and people towards globalization, it is essential to focus on the problems associated with the practice of globalization. The problems related to globalization can be assessed in terms problems to governments, industries and the public.

Problems for Governments

According to Dunning, globalization can be evaluated by three changes, namely accelerated internationalization of production, the increased mobility of capital and the greater mobility of knowledge or information (Dunning 137). The rapidity of internationalization can be measured through increasing production of goods under the supervision of global corporations; the mobility of capital and the information can be measure by the transactions of foreign exchange and the ease of communications respectively (Dunning 137).

There are six problems for governments in relation to globalization that can be discussed in the following manner.

  1. Counter-Cyclical Economic Management: The flexibility to check demand in the economy at times of oscillation of economy between boom and slump may not be in the hands of the governments. The reason could be that such changes or policy decisions should be global and systemic, collectively agreed, coordinated and financed (Dunning 137).
  2. Financial Stability: It has become harder for the countries to provide firms with stable money owing to the mobility of capital (Dunning 138). Countries have to face problems in maintaining the balance in the currency value in terms of national economy and in comparison with foreign currencies (Dunning 138).
  3. Financing State Budgets: countries may resort to debt as an alternative to taxes for financing their spending (Dunning 137). The problem arises with the fact that governments cannot increase taxes on corporations due to the fear of losing competitiveness as a host country. Also, the governments cannot hike personal taxes more than certain limit due to electoral obligations. Such situations will make the governments to look at debts as an easy option to finance for internal spending.
  4. Industrial and Competition Policy: Governments favoring globalization have to ensure competition in the national markets, so that the industries can compete better at the international level (Dunning 139). Moreover, it becomes important ensure healthy competition among corporations without any vested interests. Other responsibilities of governments include those of management of labour relations, and maintenance of law and order (Dunning 139).
  5. Managing Labour Relations: The responsibility of maintaining harmony between labour unions and organizational management by providing labour unions with the right to participate in policy making processes has been shifted from the hands of governments to the managers of multinational corporations (Dunning 140). It does mean that new labour conflicts such as difference of interest between workers at home and the workers at a foreign unit can be solved only by the related management through diplomatic processes (Dunning 140).
  6. Crime Prevention: New forms of crime have increased by exploiting the option that have resulted from globalization. Problems such as unregulated drug trafficking, weapon transfers and illegal immigration have been on rise (Dunning 140). The existing cooperative agencies like Interpol and Europol lack necessary powers to counteract transnational crimes (Dunning 140).

Problems for Business

There are two basic problems for business in relation to globalization are competition at international level and the inadequacy of governments (Dunning 140).

  1. Competition at international level: To enter global markets, industries need to be able to compete with many major corporations all over the world. Anyway, the competition can be favorable or unfavorable depending on the nature of business and its management abilities. For example, globalization in sectors like communications and finance services opens up great avenues for companies to enhance growth and profits (Dunning 141).
  2. Inadequacy of Governments: As discussed earlier, the powers of governments have been restricted by globalization. Hence, the inefficiency of governments in relation to the lack of stability of international monetary and finance systems may have serious consequences for industries in respective countries (Dunning 141).

Problems for People

It is essential to know about the problems to public from globalization. It is interesting that the consequences of globalization cannot only be measured in terms of governments and industries, as people also become important as they are effected either directly or indirectly (Dunning 143). Many moral concerns arise from the activities of global corporations taking from individual to environmental level concerns. For example, the duties in multinational corporations may mandate employees to work away from home for constantly longer periods without having the chance to meet their families (Dunning 143). Moreover, the inability of governments to properly allocate profits of global commerce for the welfare of citizens may have negative consequences for public.

Growth and Poverty in a Globalizing World

The rapid tendency towards globalization of the world economy has been increased for the past two decades. This has led to the rise of disparity among nations with some countries becoming economically prosperous and the others becoming poor. There is a need for the analysis of globalization for the past two decades.

Globalization in Production and in Labor Markets

The tendency for the globalization of production and labor markets has been dramatically increased over the past two decades. Corporations have multinational branches managed by efficient managers who can deal with changing trends in the current world. These companies try access raw materials and workforce from cheaper sources and manufacture products to transfer and distribute in various nations all over the world.

Most of the corporate giants today think that they need be global in operations to get maximum benefits by international trade. This has made corporate to look for setting braches I favorable nations. Almost all sectors are involved in globalization process such as automobile industry, steel, aircraft, computers, telecommunications, electronics, chemicals, drugs and many other manufacturing sectors (Fred & Dominic 117). For example, the world’s second largest food production company Nestle has fifty branches all over the world; America’s Gillette has twenty two (Fred & Dominic 117). Ford has twenty six component units and six assembly plants all over the world (Fred & Dominic 118).

Outsourcing has become a common place in today’s world. Most of the companies tend to outsource some of its operations to foreign countries. This trend seems to be occurring more because of an effort to withstand competition than to do it by choice (Fred & Dominic 118).

Companies like the US’s IBM are outsourcing projects of developing component parts to maintain manufacturing costs at competitive levels (Fred & Dominic 118). This trend has been increasing among various companies through joint ventures and licensing arrangements, among others (Fred & Dominic 118). The present scenario indicates that outsourcing and mutual collaborative projects will further increase over the time.

Outsourcing and collaborative projects are so increased that it has become difficult to identify the nationality of a particular product. It does mean that a company may have its main unit in a particular country, but it may get various components required for particular product from different sources. Decentralization in view of local markets and centralized operation in view of global commerce are going hand in hand in order to increase profit gains for the industries.

The globalization process has spread to even labor markets. Today, most of the developed countries are outsourcing projects to countries where workforce is available at competitive wages. Not only low skilled jobs but technical jobs requiring high knowledge and expertise are also being outsourced owing to the availability of talented workforce that are as equally skilled and competitive as the employees in the home country of the corporations (Fred & Dominic 118-9).

Moreover, service sectors are also affected by this globalization trend. For example, employees from Jamaica are working online for airline companies of the United States, making data entry and other related works such as ticket booking (Fred & Dominic 119). Not only this, high skilled technical fields are being shifted to other countries where favorable economic environment exists with the availability of highly trained professionals. Countries like India are being benefitted from this scenario by providing educated workforce at cheaper costs and liberalizing policies to allow foreign companies invest and setup units in domestic markets.

This has led companies like Texas Instruments and IBM to establish research and development units in these countries (Fred & Dominic 119). The paramount of these changes are intentions of companies to shift vast number of high level jobs to developing countries with better resources. For example, IBM has announced that it would shift nearly 7500 hi-tech jobs from the US to other nations (Fred & Dominic 119).

However, concerns arise that such shifting of jobs to other places would create job crisis in the developed countries (Fred & Dominic 119). For the scenario seems that the availability of cheap yet qualified labor in other places would make companies to shift more and more jobs from the developed countries where the wages are remarkably high. On the other hand, preventing companies from transferring jobs to other countries may make them susceptible in the present global competition, thereby making them shift entire operations to favorable countries (Fred & Dominic 119).

As Fred and Dominic put it, “Globalization in production and labor markets is important and inevitable—important because it increases efficiency; inevitable because international competition requires it (119). To withstand in competition and gain profits taking advantage of globalization, companies need to have access to raw materials and components from cheaper and better areas; and should be able to market products all over the world at reasonably competitive prices. This makes outsourcing an inevitable strategy for most of the global and multinational companies.

Apart from these, unexpected disasters such as terrorist attacks may change the free trade environment in a particular country at least to some extent. The explanation can be given that the aftermath measures such as increased controls and protective procedures would need to be funded by increasing costs in related areas such as transportation and communication (Fred & Dominic 119). As both the above are vital for the development of globalization process, constraints on them may affect free trade and domestic access to foreign corporations.

Globalization, Economic Growth and Development

The economic growth of a particular country depends on many factors such as level of education, political stability, quality of workforce, absorption and innovation new technologies and investment capacities, among others. Apart from these, globalization has a major impact on a country’s development as it can open ways to a wide range of commercial goals if the country’s policies are favorable. The measurement of standard of living in a country and a comparison of it with other countries can be done through purchasing power parity (PPP) per capita incomes (Fred & Dominic 120).

Considering the fact that globalization has dramatically increased during 1980 through 2000 when compared to the period of 1960-1980, the former period can be best used to evaluate the trends and affects of globalization while the later is considered as pre globalization or early globalization period (Fred & Dominic 120).

For a better understanding of the influence of globalization in various regions and in turn its effects, it would be essential to make a comparative analysis of PPP of various countries during the pre or early and rapid globalization periods.

Weighted Yearly Average Real PPP Per Capita Income Percentage Growth in Various Regions, 1960–1980 and 1980–2000
Region 1960–1980 1980–2000
East Asia 2.85 6.12
South Asia 0.55 3.00
Asia 1.98 4.86
China and India 1.74 5.75
Middle East & North Africa 3.21 0.15
Sub‐Saharan Africa 1.29 −0.58
Latin America 3.13 0.08
Developing World 2.12 3.11
Developing World, excl. China & India 2.51 0.69
Eastern Europe 4.03 −1.88
Nonindustrialized World 2.32 2.84
Industrialized World 3.27 1.55
World 2.50 2.65

From the above data, it becomes evident that Asian countries did reasonably well during the initial period of globalization and later achieved dramatic growth between 1980 and 2000. Moreover, China and India seem to have highly benefited from the globalization process. Coming to Middle East and North Africa and Sub-Saharan, the trend worsened from the initial period, which can be understood in terms persistent poverty and diseases in those country along with very fragile economies. Latin America and Eastern Europe also have decreased PPP in 1980-2000 period compared to 1960-80 period.

As a whole, while the PPP has increased in the developing world over the time, PPP of the developed world, excluding emerging economies China and India has showed a decline.

Moreover, the PPP in the industrialized world has decreased from the initial to the rapid globalization period, whereas the PPP in non industrialized countries has shown slight increase, which can be an indicative of the changes brought by globalization of economy. Finally, the world as a whole has a marginal increase of purchasing power parity over the period of globalization.

Apart from the above analysis it drawing comparisons in terms of PPP per capita in developed and developing nations can further illustrate the influence of globalization on economic stability and growth.

Weighted Yearly Average Real PPP Per Capita Income Growth in Rich Countries, Globalizers and Nonglobalizers, 1960s, 1970s, 1980s, and 1990s
Group of Countries 1960s 1970s 1980s 1990s
Rich Countries 4.7 3.1 2.3 2.2
Globalizers 1.4 2.9 3.5 5.0
Nonglobalizers 2.4 3.3 0.8 1.4

The above table depicts that the purchasing power parity per capita incomes in the developing countries favoring globalization has increased from 1960 through 2000 by nearly four folds. At the same time, the PPP of the developed world has declined almost by half. The countries that are not in favor global commerce have inconsistent and declining PPP from 1960 through 2000.

Interestingly, it becomes clear from the above data that there is a clear economic disparity between globalizers and nonglobalizers. It can be assessed in the way that developed countries with excellent financial and political stability have benefitted from globalization of trade; where as poor countries could not enter the global arena with such pace owing to many drawbacks such as lack of financial resources, skilled labor, educational standards and political stability etc.

Globalization and Poverty

One way to measure the poverty levels and economic inequalities in the world is to compare the average PPP per capita of the richest nation to the poorest nation, 10 poorest nations and 20 poorest nations (Fred & Dominic 122). This method of evaluation has made the United Nations and World Bank to conclude that globalization ahs increased economic disparities between developed countries and the poor developing countries of the world.

Another approach to assess poverty is to analyse the change in the number of poor people over the time (fred & Dominic 123). The data can be collected either through national accounts data or through national surveys (fred & Dominic 123). According to a survey conducted by the World Bank, the number of poor people in the developing countries declined from 52.5 in 1960 to 42.5 in 1980 and 13.1 in 2000 (Fred & Dominic 123). This may be indicative of the rising living standards in the developing countries in accordance with the improved practices of globalization.

Apart from these data, there are certain other examples that make clear the benefits of entering global commerce. The emergence of China into the global market and subsequent growth of its economy explains the potential benefits from globalization. However, a country’s participation in globalization and free trade depends on various factors. Countries with better resources are the first to explore and develop from options arising from free trade policies. The inability of certain countries to compete in the initial stages may further worsen their prospects, as other countries may achieve high development and position in the global market making it difficult to compete for the new entrants with minimum resources.

Country Case Studies

The individual case studies of different countries provide valuable information regarding the effects of globalization on the world economy.

Canada

The impact of globalization on Canadian economy can be observed under three themes.

  1. Regionalization: The Canadian perspective of globalization is regionalization due to agreements such as FTA (US-Canada Free Trade Agreement) and NAFTA (North American Free Trade Agreement) (Dunning 175).
  2. Developing Skills for National Responsiveness: This is mainly attributed to the asymmetries in the size of the US and Canadian economies (Dunning 175).
  3. Large Amount of Foreign Ownership: Nearly one third of Canadian manufacturing sector is of foreign organizations of which nearly two thirds belong to the US (Dunning 175).

Unlike the US, a triad economy, Canada is a small, open economy with strong ties with the United States through FTA and NAFTA. The Canadian economy is nearly one tenth of the US economy (Dunning 175). Though Canada has access to major business arenas though the US, it has certain obligations owing to its relatively smaller economic size. For example, the US right to use trade remedy laws as countervailing duty (CVD) and anti dumping actions (AD) poses a threat of abuse for Canada (Dunning 175).

Secondly, apartment from the basic management strategies like cost, differentiation and focus, Canadian managers need to be aware of the national responsiveness. To be precise, globalization for Canada means acting in accordance with the US triad market to avoid any contingent actions by the US (Dunning 176). The obligations of CVD mandates Canada not act at the international solely based on the cost advantage (Dunning 176). Canadian organizations have to operate by forming coalitions with the US counterparts whenever it seems necessary.

Thirdly, the high percent of foreign owned businesses in Canada makes the country to act with coordination between state-owned and foreign owned businesses (Dunning 176). To compete in the global arena, both businesses should have a competitive environment to make them better equipped for the international trade.

In recent times, the Canadian dollar is becoming stronger compared to the US counterpart. Though this provide an advantage for imports, non commodity exports may face the problems arising from high currency value and the depreciation of the US dollar (Mussa n. p).

Australia

Australian economy is very interesting to do a comparative study of globalization and international business, as it has the characteristics of both the developing and developed economies (Dunning 203). Similarities to developing economy include heavy reliance on commodity exports, large external debt, and large imports of capital and technology (Dunning 203). The characteristics similar to a developed nation are high living standards and social indicators, keeping it in the middle ranks of the OECD. (Dunning 203).

Moreover, Australian economy that was once used to be of protectionist type transformed to liberalization and globalization through the policy reforms of 1980s (Dunning 203). Also, Australia is on the periphery of the dynamic East Asia with continuously increasing involvement with those countries (Dunning 203).

Australian labour and financial markets were once used to be very rigid and tightly regulated. Though it was able to perform well in business during 1960s and 70s, its economic performance was much below the levels of many other OECD members (Dunning 209). In 1980s, Australia undertook major reforms to liberalize policies in order to gain access to global commerce. Since then, Australia has become a classic example for the results of transformation from protective economic policies to liberal policies.

The United Kingdom

In 1979, the United Kingdom followed systematic approach to address the internal rigidities related to labour and capital markets and financial structures (Dunning 253). These processes increased the scope for foreign direct investments, allowing more foreign corporations to invest in the United Kingdom.

Though it initially concentrated on its business strategies with commonwealth countries, the success of the Common Market made it focus on commerce with neighboring European nations. The strong ties with the US have always remained as an advantage for Britain in competing at international level.

The United States of America

The US has been very important in the evolution of globalization by aiding western European nations in reindustrialization process during the post WWII period. The strength and stability of the US economy made corporations from many countries to operate primarily from the United States.

Consequently, the inward flows of trade, investments and technology to the US in the last two decades increased the foreign transactions more than any G7 nation (Dunning 285). During the period of 1975-94, the share of GDP from exports and imports exceeded from 11 percent to 22 percent (Dunning 285). From 1977 to 1991, the rate of foreign direct investments into the US increased from nearly 5 percent to 20 percent (Dunning 286). Hence, the US is not only a source of FDI outflows, but also a major host nation for FDIs (Dunning 286).

Moreover, the share of foreign inventor’s share of the US patents also increased from 38 percent in 1978 to 45 percent in 1993. Interestingly, this growth along with the fact of stability of the number of US patents owned by inventors of countries like Japan, Germany and other G7 members indicate the increasing number of inventors in the US market from a wide array of nations (Dunning 286).

The spectacular success of the European Union and the Japan in global business has reduced the dominance of the US at the international level. Nevertheless, The United States still have deciding role in the global economy with its corporations and operations spreading worldwide.

France

According to J. Attali’s Verbatim, the mid 1982 was a major turning point France’s traditional conception of economic policy (qtd. in Dunning 321). During the period of 1981 to 83, the main lines of economic policies were formulated with the intention of revival of nationalization, revival of the ‘nation-champions’ concept, revival of demand through wage increases, and revival of macro-organizational policy (dunning 321). The revival of macro-organizational policy with the theme of reconquest of the domestic market was mainly intended to strengthen domestic industries and restrict penetration of foreign products into the domestic market. Production lines were formulated to guide on production and distribution activities (Dunning 321).

However, these policies resulted in rise in inflation, trade deficits and depreciation of franc (Dunning 321). The failure of these policies reflected the impossibility of adopting nationalized policies in an open economy (Dunning 321). Later, these policies were abandoned and focus was driven to ‘competitive disinflation’ (dunning 321). These efforts coupled with further changes in policies slowly helped in strengthening the economy.

The globalization of France’s economy took place in two ways. Firstly, the strategies of 1980s helped in strengthening domestic markets, thereby enabling domestic industries to invest in other countries by adapting global strategies. Secondly, the presence of foreign industries in France had increased with the increased efforts of France to compensate French investments’ outflows with inward flows of foreign direct investments (Dunning 322-3). France’s FDIs started increasing from 6percent in 1980, reaching a record level of 18 percent of the world total by 1992 (Dunning 323).

Germany

The two distinctive features of German economy are openness and international orientation (Dunning 338). The Germany economy is an ideal example for globalization as it allowed and competed with foreign investments into the country and also tried to explore options for investing in other countries. The predominant feature in 1990s was that it concentrated on exports than on internationalization through FDIs (Dunning 338). Nevertheless, the German FDI between 1990 and 1993 was almost 10 percent of the world’s total keeping it in the top third rank after the US and Japan (Dunning 338).

Germany has the record of higher outflows of FDIs than inflows. The main reason for the decrease of inflow of FDIs and the increase the outflow of FDIs in the later years was the remarkably high labour costs in Germany (Dunning 339). The outflow of FDIs by Germany started as early as the post WWI period and continuously increased until 1990. Its international investments almost reflected the trends in the world.

However, there was a decline in German outward FDIs in early 1990s that can be explained through some reasons. Firstly, there was a declining trend I the worldwide FDIs due to the recession in the industrialized nations in the early 1990s (Dunning 339). The proposed creation of single European markets had made German companies to consolidate their foreign investments (Dunning 339). German companies have started investing mostly in European countries with 85 percent of FDIs flowing to European countries by 1993 (Dunning 1993).

By 1992 and 1993, inward investments by foreign countries also noticed some rise from the inflow of FDIs from European countries. However, the inflow of FDIs from Japan decrease dpartly because of recession and change in focus of Japan to South-East Asian countries (Dunning 341).

Japan

According to Dunning, the ‘flying-geese’ paradigm of economic development best describes the major industrialization-cum-globalization strategies of Japan (377). The paradigm means that a sequential development occurs in the hierarchical system of the global economy through the medium of trade, investment and knowledge transfers (Dunning 377). Japanese economic policies were intended to develop interactions with both the developed and developing economies.

Japan’s strategy of sequential development through imports, donmestic production, and then exports increased in the post WWII period. Japan had to import important products in the early stages of economic development and also in the post WWII period due to the lack of production ability in at home (Dunning 383). In time, Japan adopted ‘techno protectionism’, which means indigenization, diffusion and nurturing of technology to make the country rich in technology (Dunning 384).

The main characteristic of Japanese economy is the domestic rivalry that gave rise to outward expansion of domestic markets (Dunning 386). Japan started with production of low grade goods to compensate for the initial lack of high end technology, and it gave rise to excessive competition among domestic industries (Dunning 386). The over production of similar kinds of goods reduced demand and profit margins; and forced companies to search for favorable areas in other countries.

As a whole, Japan’s trade approach can be treated as a combination of successes and failures. Yet it managed to becomes successful in the international arena through macro-organizational processes that are usually adopted by developing countries with underdeveloped market mechanism (Dunning 400).

East Asia

East Asian countries can be studied as a single entity for some reasons that all these countries have recognised the need for selective and other interventions to promote industrialization (Dunning 414). However, each country recognized different policy needs, identified market failures and adopted different solutions (Dunning 414). The difference between the East Asian nations and other Asian countries was that economic policies were strongly export oriented, provided private-sector primacy, management economies with strong and able governments (Dunning 414).

While Hong Kong has the most liberal economic regime with excellent inflow and outflow of FDIs, Singapore ahs main focus on major industrial development and free trade (Dunning 417). And, Korea focuses on indigenous development of technologies, giving secondary preference to FDIs (Dunning 420). Finally, Taiwan aims at export oriented policies and comprehensive protection of imports (Dunning 421).

Latin America

Latin Americans also have to formulate their policies in accordance with the increasing globalization and free trade (Dunning 434). The changes in the regulatory environment of these countries, trade regimes, and asset-ownership structures have advanced to irreversible levels. Finally, Latin American economies have become increasingly open and competitive to go in line with the global trends (Dunning 434).

India

The approach of India towards changing trends in the global arena has taken a dramatic surge in the twenty century. There are certain important reasons for this new approach. Firstly, the emergence of marginal account surplus has seemed to have reduced the concerns over current account deficits (Economy watch n. p). Secondly, workers’ remittances and software exports have resulted from the global integration (Economy watch n. p). Third, the avoidance of sovereign debt through commercial borrowings and proper management of external debt have helped India withstand in the period of global crisis and experience respectable growth (economy watch n. p). Fourth, the primary focus is on the management of capital account than current account (Economy watch n. p). Fifth, careful integration with global trade arena has provided with competitive efficiency and confidence (Economy watch n. p). Finally, importance has been given to management of external sector by linking it to domestic sector (economy watch n. p).

Consequently, India has moved from managing external sector to integrating external and domestic sectors, and the global sector (Economy watch n. p). The progression of India into global economy is causing debates on the possible influences on the global economy.

The implementation of reforms in 1991 gave a new mode to India’s growth in the global arena. The economic growth has increased from 5.2 percent in 1991 to 9 percent today (Challenges n. p). Also, foreign reserves have soared from mere US $ 2 billion to 200 billion dollars (Challenges n. p). The five challenges by globalization before India are governance, energy and resources, equity, security and ecology (Challenges n. p). The availability of highly qualified and skilled professionals has become a major advantage for India to get benefitted from globalization. Many global corporations are outsourcing service and manufacturing sectors to India due to the availability of qualified labour for relatively cheaper wages.

China

China is the fastest growing economy in the East Asia with nearly 10 percent growth per annum since the start of economic reforms. The growth of Chinese economy is evident from the fact that the GDP, between 1979 and 2001, increased from $177 billion to $1.6 trillion (Lau 4).. Also, it has survived East crisis with little damage (Lau 4). It is one of the few socialist countries that have transformed from a central planned economy to market economy.

Chinese is one of the leading countries in the global economy with a constant GDP of 7-8 percent of which exports amount for 20 percent (Lau 7). According to the US International Trade Commission, the real GDP of China will increase by 4 percent by 2010 (Lau 7).

The exports and imports of China have been increasing constantly with a trade surplus of US $ 22 billion in the year 2001 (Lau 18).

China, India and Global Economy

Chinese and Indian economies are growing at a faster rate since 1980. According to the World Bank report, the growth of GDPs of China and India during 1980-90 was 10.3 percent and 5.7 respectively (Srinivasan 1). Indian GDP showed a surge in 2003-04 at 8.5 percent, recovering from severe drought of previous year (Srinivasan 1).

The integration of domestic markets with global markets started ten years earlier in China than India. The share of world GDP for the period 2000-2004 was 17.6 and 4.14 percent for China and India respectively (Srinivasan 7). Also, the combined share of China and India was found to be 21.73 percent (Srinivasan 7).

The above data and other information indicate that both the economies are growing faster and integrating with the global market. However, China is moving head of India in global integration due to it relatively earlier entrance into global commerce.

Pro-globalization

Globalization has been observed in different angles from various sectors. Some countries and people are supportive of globalization, where as others cynical about it.

The supporters of globalization show the following points as advantages of globalization process.

  • Free Trade is increased among nations (Ideas n. p).
  • Increased liquidity of capitol allows investors in developed nations to invest in eveloping nations.
  • Corporations have greater flexibility to operate all over the world.
  • Increased modes of communication would allow vital information to be shared at faster and easier manner (Ideas n. p).
  • The evolution of global mass media ties the world together.
  • There will be greater ease for transport goods and people across nations.
  • Reduction of regional barriers will enhance the positive effects of globalization.
  • Interdependence of nations will increase and there by reduces the chances of rivalry.
  • Environmental protection can be enhanced in developed nations through negotiations and debates at global levels.

Anti-globalization

Some others have the opinion that globalization has n impeding effect on domestic job sector in developed nations by making multinational corporations to shift their operations to countries having workforce at cheaper costs. Some of the objections can be observed as under.

  • There will be increased flow of skilled and non skilled labour to developing nations as companies want workforce for cheaper wages (Ideas n. p).
  • Economic disruption in one nation may likely affect other nations as well due to close economic ties.
  • Countries’ preference may shift from normal citizens and civil society organizations to multinational corporations and may make policies in favor of them at the cost of publicwelfare (Ideas n. p).
  • The control world media by a limited number of corporations may affect freedom of expression (Ideas n. p).
  • Materialistic lifestyle and attitude may spread making it a path of prosperity.
  • Concerns are there regarding possible interference of international organizations in a country’s sovereignty (Ideas n. p).
  • There may be a chance of civil war within developing countries or war between developing countries for resources (Ideas n. p).
  • There may be damaging effects on the environment in developing countries due to injudicious exploitation by multinational companies (Ideas n. p).

Conclusion

All in all, starting from the post World War II, the process of globalization has evolved through the establishment of various organizations and implementation of free trade policies. The liberalization that was once meant for the development of industrialized nations has later spread to the entire world, involving more number of countries into globalization.

Industrialized countries with strong economic and political stability have been successful in exploring the scope of globalization through encouraging multinational and global corporations towards foreign direct investments, mergers and increased spread of trade all over the world.

The increase of international trade has opened up new options for developing countries to integrate in global economies by implementing reforms that permit entry for global corporations into domestic markets. Countries with small industrial sectors can get benefits by allowing global corporations to transfer technology and capitol in return for a secured business area.

Though there is a difference of opinions regarding the effects of globalization, the change and international trade has been so enormous that no country can avoid itself from integrating into global commerce, failing which the countries may have to lag behind in development.

The feasibility in manufacturing products at comparatively lesser investments through setting u units in countries with skilled labor for low wages has helped in reducing product costs to the consumer. Moreover, competition among multinational corporations results in quality output at reduced costs.

As a whole each and every country around the world are more or less directly or indirectly involved in or affected by the emerging trends of globalization.

Works Cited

Seavoy, Ronald E. Origins and Growth of the Global Economy. Westport: Praeger, 2003.

Fred, Compano & Dominick, Salvatore. Income Distribution. New York: OUP, 2006.

Dunning, John H. Governments, Globalization, and International Business. Oxford: Oxford.

Chat with Noam Chomsky. The Washington Post. 2006. Web.

The Marshall Plan. 2008. Web.

Eurpean Commission: economic and Financial Affairs. 2008. Web.

KOF Index of Globalization. 2008. Web.

Definitions and Sources; 2008 KOF Index of Globalization. Web.

2008 KOF INDEx of Globalization. Web.

2008 KOF Index of Globalization Rankings. Web.

Schlamberger, Niko. Globalization-What, Why and How to Measure. Web.

OCDE Handbook of Economic Globalization Indicators. 2008. Web.

Mussa, Michael. Global Economic Prospects 2007/2008. Web.

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Lau, Lawrence J. China in the Global Economy. 2002. Web.

Srinivasan, T. N. China, India and the World Economy. 2008. Web.

Ideas: Advantages and Disadvantages of Globalization. 2008. Web.

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