International Trade and Economic Globalization Essay
The world is becoming more and more interconnected. Globalization changes how people consume, work and live almost everywhere of the world. Today, many economic, political, cultural or ecological relationships are not explainable from a national perspective. At the same time, a controversial debate about the consequences of globalization has begun. But what are the main causes for globalization? In what areas it is most prominent? And who are the winners and looser of globalization? How it affects in the economy and the trade of states? The advantages and the disadvantages? All the answers of these questions you will find in this project. But firstly we will show you a video that speaks about globalization .It is really an interesting video that has some important information about globalization and how it affects in economy, culture and politics.
What does globalization mean? Globalization is the system of interaction among the countries of the world in order to develop the global economy. Globalization refers to the integration of economics and societies all over the world. It involves technological, economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure.
Many people think that this world has no borders because we are so connected, but others complain that globalization is making the rich richer and the poor poorer. As far as the consumer is concerned, he can get what he wants in any country and as far as a company is concerned, it can get customers throughout the world. Wealthy companies seek the cheapest labor in any part of the world, to drive down the cost of production and increasing profits.
When used in an economic context, it refers to realization of a global common market, based on the freedom of exchange of goods and capital when used in an industrial context, it refers to emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. When used in a financial context, it refers to emergence of worldwide financial markets and better access to external financing for borrowers. When used in a political context, it refers to the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization.
There are two types of integration—negative and positive. Negative integration is the breaking down of trade barriers or protective barriers such as tariffs and quotas. In the previous chapter, trade protectionism and its policies were discussed. You must remember that the removal of barriers can be beneficial for a country if it allows for products that are important or essential to the economy. For example, by eliminating barriers, the costs of imported raw materials will go down and the supply will increase, making it cheaper to produce the final products for export (like electronics, car parts, and clothes).
Globalization in the context of business strategy has a number of meanings. Globalization is sometimes used to refer to the strategy of providing standard, homogeneous products to all markets on “the globe”. Globalization is also used to refer to the phenomenon of large multinational companies that are developing or have developed a cosmopolitan, global culture and that use global sourcing to provide standard products to a vast array of global markets. In general, globalization refers to development of a global market economy and the proliferation of media technologies like the World Wide Web that is creating a global culture.
According to the globalization glossary, the term is also used to refer to the “expansion of global linkages, organization of social life on a global scale, and growth of global consciousness, hence consolidation of world society.” According to Wikipedia, “globalization or globalization is an umbrella term for a complex series of economic, social, technological, cultural and political changes seen as increasing interdependence, integration and interaction between people and companies in disparate locations.” The term was used as early as 1944 but economists began applying it around 1981. Theodore Levitt is usually credited with first using the term in an article he wrote in 1983 for the Harvard Business Review entitled “Globalization of Markets”.
The International Monetary Fund views economic “globalization” as a historical process that is the result of human innovation and technological progress. The term “refers to the increasing integration of economies around the world, particularly through trade and financial flows.” The term sometimes also refers to the movement of people and knowledge (especially technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization. The term globalization came into common usage in the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactionsboth trade and financial flows. “
It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activityvillage markets, urban industries, or financial centers.” Markets promote efficiency through competition and the division of laborthe specialization that allows people and economies to focus on what they do best. Global markets offer opportunities for people and firms to participate in more and in larger markets.
This change in market access means that firms can obtain lower cost capital, better technology, cheaper imports, and larger export markets. Positive integration on the other hand aims at standardizing international economic laws and policies. For example, a country which has its own policies on taxation trades with a country with its own set of policies on tariffs. Likewise, these countries have their own policies on tariffs. With positive integration (and the continuing growth of the influence of globalization), these countries will work on having similar or identical policies on tariffs Effects of Globalization.
According to economists, there are a lot of global events connected with globalization and integration. It is easy to identify the changes brought by globalization.
1. Improvement of International Trade. Because of globalization, the number of countries where products can be sold or purchased has increased dramatically.
2. Technological Progress. Because of the need to compete and be competitive globally, governments have upgraded their level of technology.
3. Increasing Influence of Multinational Companies. A company that has subsidiaries in various countries is called a multinational. Often, the head office is found in the country where the company was established.
An example is a car company whose head office is based in Japan. This company has branches in different countries. While the head office controls the subsidiaries, the subsidiaries decide on production. The subsidiaries are tasked to increase the production and profits. They are able to do it because they have already penetrated the local markets. The rise of multinational corporations began after World War II. Large companies refer to the countries where their subsidiaries reside as host countries. Globalization has a lot to do with the rise of multinational corporations.
4. Power of the WTO, IMF, and WB. According to experts, another effect of globalization is the strengthening power and influence of international institutions such as the World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank (WB).
5. Greater Mobility of Human Resources across Countries. Globalization allows countries to source their manpower in countries with cheap labor. For instance, the manpower shortages in Taiwan, South Korea, and Malaysia provide opportunities for labor exporting countries such as the Philippines to bring their human resources to those countries for employment.
6. Greater Outsourcing of Business Processes to Other Countries. China, India, and the Philippines are tremendously benefiting from this trend of global business outsourcing. Global companies in the US and Europe take advantage of the cheaper labor and highly-skilled workers that countries like India and the Philippines can offer
7. Civil Society. An important trend in globalization is the increasing influence and broadening scope of the global civil society. Civil society often refers to NGOs (nongovernment organizations). There are institutions in a country that are established and run by citizens. The family, being an institution, is part of the society. In globalization, global civil society refers to organizations that advocate certain issue or cause.
There are NGOs that support women’s rights and there are those that promote environment preservation. These organizations don’t work to counter government policies, but rather to establish policies that are beneficial to all. Both the government and NGOs have the same goal of serving the people. The spread of globalization led to greater influence of NGOs especially in areas of great concern like human rights, the environment, children, and workers. Together with the growing influence of NGOs is the increasing power of multinational corporations. If the trend continues, globalization will pave the way for the realization of the full potential of these two important global actors.
Globalization also affects in the economy of states. Economic globalization has marked world economic activity for years now. Trade agreements such as the North American Free Trade Agreement and enmities such as the World Trade Organization have played a key role in a trend that has increased the connectedness of the world’s economies, allowing goods, services, labor and capital to flow freely across borders. This is really a good thing for the states but globalization does not have just a positive effect on the economy.
Economic globalization includes a rapid increase in international trade in goods and services, as well as the free flow of labor and capital across borders. Also technological factors, we can speak about improvements in transportation such as undergrounds or modern roads which have reduced the cost of shipping goods across the world and computer technology that helps people connecting with each other and makes the works easier. On the capital front, nations have reduced tariffs and other trade barriers, allowing other countries’ goods access to their markets.
So we spoke generally about economic globalization but who are the economical advantages? Globalization enhances free international trades among countries across the world. Cheap imports and extensive competition on international level keep a check on the prices leading to lower inflation rates, which occasionally interrupt the economic growth and development of a nation. Free movement of capitals offers access to the foreign investments to many countries like the United States of America. The developed countries display a tendency for working towards protecting their surrounding environments to large extents. The smooth and the speedy transportation of people and commodities to different corners of the world.
Reduced Child Labor
One of the best advantages of economic globalization is the reduction of child labor. Increased globalization reduces child labor. Over time, as trade promotes economic growth, the need for child labor is greatly reduced. During the next forty years, nations that benefited from increased economic globalization reduced their share of child labor to 19 percent. So this is a good opportunity for children not to work and spend their time in other ways.
Globalization has allowed manufactures to export products all around the world. It is not uncommon for goods made in China to be shipped to the United States. The fact that goods need to travel so far, however, has reduced shipping costs. Additionally, increased demand for shipping has spurred innovation, such as containerization, that has further reduced shipping costs.
Globalization has reduced demand and halted growth for small-scale manufacturing. For example, many American farmers now grow food for large “Mega farms” owned by corporations, rather than small family –owned farms. This consolidation of capital means that there are more workers and fewer small businessman as that level of large, infrastructural investment is needed to ship products around the world.
We said that globalization is the system of interaction among the countries. So it effects in the increased jobs. Many companies make partnership with other companies and people have more opportunities to find jobs .Globalization has made it possible for a company in the United States or Canada to outsource its production and services to developing countries like China or India. This provides new jobs in developing countries. India, for instance has not developed an internal need for an abundance of call centers. However the United States has a high demand, and therefore outsources call center jobs to India.
Another advantage of economic globalization is the reduction of intellectual property. Globalization has reduced the value of intellectual property. In the 1960s, there was little demand for American movies in China. Even if there was, it would be difficult to get pirated movies across the Pacific. In 2011, on the other hand, pirated movies are rife in the developing nations. This increases the supply of intellectual property, which in turn reduces demand, and with it value of that property. The Negative Effects of Globalization on Companies.
Globalization refers to the economic growth of world trade and investment. Many companies offer their services globally to expand their market, or they use services from overseas to decrease their costs. Outsourcing services, decrease in wages, workers’ rights and independent economy are some of the negative effects of globalization on companies.
Decrease in wages
Many jobs performed in emerging countries for less cause a decrease in the wages offered in developing countries. As wages decrease for positions that paid more the workers will feel less appreciated and put forth less effort in their job. In emerging countries where there are minimal wage labor laws, the competition for outsourced work will drive down wages for the workers. When companies stop seeing their personnel as a business investment they create long-term problems for short-term savings.
Foreign workforce offers cheaper labor for many service-related positions, but the control of quality of service, shipping expenses and time delays can have hidden costs. A company considering outsourcing a service needs to look at all related expenses and possible problems from having it done overseas. Shipping products overseas delays in information or financial reporting can reduce any financial savings. Service jobs, such as information technology, manufacturing, education, accounting and software development are being lost in developing countries, such as United States and Europe, to lower paying emerging countries, such as India, China. Outsourcing work that was an internal function may help minimize company expenses. However, the quality of the work can suffer and potentially create more expenses because of the language barriers.
Labor laws that protect workers from exploitation and mistreatment are almost non-existent in some emerging countries. This could potentially harm the image of company that outsources services from a foreign company that exploits children or the rights of their workers. A company’s public reputation in how it treats its employees, even if they are overseas, can cause a loss in customer support of products.
The collapse of the United States economy opened the opportunity for foreign companies to purchase interests in American companies. Investing in foreign companies creates a global interdependency that can stabilize the economy on a temporary basis. It also has the potential to create a “global domino effect”, which could cause a recession throughout the world. This is also true in reverse. As American companies become interdependent on foreign markets and workers ‘recessions in those market places can negatively affect the American business.