Impacts of Globalization on the Internationalization of Trade

2800 words (11 pages) Business Assignment

11th Jun 2020 Business Assignment Reference this

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ABSTRACT

This essay examines the role of globalization in the current world situation. It provides a complete insight into the effects of globalization. It further discusses how globalization has affected the role of the state, the power distribution and market conditions. This paper deals with globalization as a refinement of the concept of internationalization of trade.

INTRODUCTION

According to Dickens P, globalization is the process – an evolution of closer economic integration of increased trade, foreign investment, government policies, TNC’s and new technology (Global Shift, Chapter 1, 2011).  Globalization is the topic of this age. The key economic dimensions of globalization are opening up of economies to international competitions. This will allow the movement of goods, ideas, and capital more freely. The aspect of globalization has been embraced by many countries and the governments believe that it brings a more dynamic economic model and provides a platform for the country to integrate with the global economy. Globalization brings disruptive and domestic economy change. Because of this factor, it has the potential to generate winners as well as losers. Hence globalization remains a topic of debate around the world.

GLOBAL INEQUALITY

There has been a rise in the number of people living in severe poverty over the last two centuries. The population of the world has increased turning the situation of extreme poverty to inequality. Throughout modern economic history, there is a concurrence that global inequality is on the rise. Since 1980, there has been a rise in economic growth in many Asian countries (most populated countries). At the same time, there was an extremely poor economic situation in many countries in Africa. Due to many factors, there has been a major shift in the cost of living index in different countries. In developing countries, the government focused on sound economic policies, far-reaching social and economic transformation and main importance was given to improve the living standards.

But the developed countries shifted their focus to gain power in the world. More importance was given to provide political support for trade and investment. Liberalization of the market was prioritized and technology advancement was given scope.

The following graph shows how the per capita income of the world has changed over the period for last century.

There was no stable income over the last century as there were a lot of factors that affect the per capita income of people.

THE IMPACT OF GLOBALIZATION ON BUSINESS IN DEVELOPED COUNTRIES

Global market

The privatization of state-owned industries has resulted in successful emerging markets in most developed countries. The industries are attempting to extend their value chain by increasing consumer demand internationally.

Multinational corporations are the outcome of globalization. Through globalization, multinational companies will enlarge the market, enjoy economies of scale and attract investors (Smith V.A and Omar, 2005).

Cultural Management:

Globalization has led to creating a multi-cultural business environment. People are exposed to other culture and these experiences have given the companies a better way to understand and operate in a different country. The western culture has a big impact on global understanding. While the Asian countries follow a different principle, it is evident that understanding the culture and the behavior of the people and utilizing this in the business activity gives the companies a better chance to successfully operate in that market.

For example, McDonald’s is a multinational company and has its operation worldwide. But the company has done a wonderful job of understanding the taste and culture of the host country. The McDonald’s menu in India is completely different than the one in Australia. Hence it is important to understand any culture to succeed in different markets.

Foreign Trade:

Globalization has paved the way for and expanded foreign trade in the world. The developing countries can now have goods and services that once were available only in developed county. This has helped the customers meet their needs. Countries can now export goods that are available in substantial quantities. These countries get a comparative advantage. Foreign trade has given birth to organizations like the World Trade Organization (WTO). WTO is a international organization that influence governments to follow trade rules, copyrights, policies on subsidy, taxes, and tariffs.

Foreign Investment:

The developing countries have been affected positively by foreign investment. A country like India has attracted a lot of foreign investment in the past decade. A lot of investment has been made on Indian companies and this has increased the flow of capital in the country.

Resource Imperative:

The developing countries need capital, technology, and skills from the developed country while the developed countries need natural and human resources. This has resulted in the growth of interdependency of nations and a better relationship.

Competition:

Competition is one of the positive effects of globalization. The companies across the world are focused on improving the quality of the products due to global competition. Customer care and services have increased, so the customers can reach maximum utility from the goods and service. The domestic companies are compelled to raise their standards and customer satisfaction level to survive in the market due to foreign competition. Globalization has a created healthy competitive environment.

Culture: 

The world today is the results of several cultures coming together. The businesses have also developed a structural framework to support culture and diversity. This gives extra responsibility to the companies to make sure their operations do not offend any culture as it has a global market now.

NEGATIVE IMPACTS OF GLOBALIZATION

Job Insecurity: 

The businesses in developed country have been outsourcing manufacturing and white-collar jobs due to less labor cost in a developing country. This has increased the fear of unemployment in developed country. The exploitation of labor is also the main effect of globalization. Safety standards are ignored to produce cheap products.

Fluctuation in the price:

The developed countries have been forced to lower the cost of goods and services due to an increase in competition. For example, countries like India produce goods at a lower cost. These goods are cheaper than the goods produced in the country. This forces the company to reduce the cost of their goods. The company’s ability to sustain social status in the country is reduced because of this.

IMPACT OF GLOBALIZATION IN DEVELOPING COUNTRIES

Employment situation:

Developed countries prefer to work with countries which have cheap labor and resource cost. The concept of outsourcing was started due to globalization. Developing countries such as India are provided jobs such as accounting, customer care, software, and insurance. Therefore this has created more employment opportunities in India. This has a direct impact on the country’s domestic growth.

Poverty Alleviation:

Globalization has played a role in poverty reduction in developing countries. Because of more job opportunities, the people can earn and spend money thus increasing the standard of living. Since globalization, there have been fewer people below the poverty line in developing countries.

Technology and Education:

This is a powerful force that drives the world towards converging commonality. Technology has created a better way of transportation and communication. In developing countries, technology plays a vital role in educating people and making life easier.

Globalization has increased access to higher education in developing countries. It has also helped in reducing the knowledge gap.

For example, the total number of the international students coming to Australia has increased massively over the last decade. A large percentage of these students are from developing countries like India, Srilanka, Pakistan. This is the result of globalization.

The inflow of Investment:

Foreign investment is always welcomed by developing countries as it provides employment, technology, and capital. This increases the export of the country and increases the current account. A country like Indonesia is known for its tourism and 50% of the country’s GDP is through foreign tourists.

NEGATIVE EFFECTS:

Unemployment:

Globalization has been tricky in the employment sector. This is because of modern technology. The machines are taking away job opportunity and there is less requirement for personnel. But to make machines we need human resources. Hence it can be said that, even in developing counties there is a demand for skilled labor.

Trade Barriers:

Powerful countries have the power to influence the trade terms. This is not always beneficial to developing countries. Tariffs rates, and taxes are huge and this affects the developing country.

Western Culture:

People are ignoring their own culture and are practicing western culture. This can cause misunderstanding due to the language barrier.

IMPACT OF GLOBALIZATION ON INDIA

The Indian economy was in a serious crisis in 1991 when the foreign currency reserves went down by $1 billion. India’s then Finance Minister Mr. Manmohan Singh launched an LPG policy India saw its development in various sectors. The LPG model stands for Liberalization, Privatization, and Globalization.

The new economic policy had the following measures to overcome the crisis.

  1. Devaluation
  2. Disinvestment
  3. NRI schemes
  4. Encouraging foreign direct investment

Globalization had an impact of various sectors of the Indian economy.

Agriculture Sector:

Globalization has helped in raising the living standards, alleviating poverty, assuring food security and exportation of agricultural products. By doing this it made a substantial contribution to the national economic growth. Agricultural imports account for about 15-18% of the total exports.

Industrial sector:

Globalization took place in various industries like steel, pharmaceutical, petroleum, textile, cement retail, and chemical. In 1991 the government of India opened its economy to foreign investments and this was one of the best decisions made as it had a great impact on different industries and created employment opportunities. The foreign companies bought new technology along with its investment and this helped in making the Indian industry more technologically advanced.

Financial Sector:

India’s program towards liberalization of economy was the most important component as there was reform of the financial sector.

The graph below shows the rise in GDP of India and shows the distribution in the contribution of overall GDP by agriculture, industry and service sector in India for the last century.

EXPORTS: Since the introduction of the new policy in 1991, it took quite a time for India to make full use of its export power. Since 2004-05, India saw a gradual rise in exportation. By 2010 the total revenue reached $200 billion and is still growing.

FDI: The foreign direct investment also took quite some time, since its introduction in 1991. But FDI saw a dramatic rise in 2005-06. India encouraged FDI and currently, the country attracts a lot of investment, thus increasing the flow of funds in the country.

REASONS FOR FDI IN INDIA

Few reasons why India manages to attract a lot of foreign businesses are

. Market Growth

. Cheap Cost

. Flexible Government policy

. Man Power

The graph below explains the percentage of different factors.

Problems Due To Globalization in India

  1. The rise in pay gap between the rich and the poor.
  2. The ethical responsibility of the business has been diminished.
  3. High growth but there is still a problem of unemployment.
  4. Price fluctuation of every daily used commodity.

CONCLUSION:

By looking at the example of India we can tell that globalization brings people and businesses together through the exchange of ideas, money, and culture, internationally. However many critics think that it adversely affects the development of the country. The benefits of globalization directly depend on that country’s policy, tradition, adaptability, culture, and people.

I would like to conclude my essay by saying, globalization is already part of our world and it has reached a level where it cannot come back. But it is in the hands of the people to either make it successful for the country or blame it for the downfall of the country.

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