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TOPIC: Globalization

SUBJECT: Business Communication

SUBJECT CODE: MBA2001 (SP/12)

NAME: Raajkumar Sadhasivam

ROLL No: MBA/50039/11

PRESENTED TO: Ms Indrani Basu


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C O N T E N T S

1. Introduction to globalization 1i. Definition 1ii. Different waves of globalization 2iii. Main motivations and drivers for globalization 3iv. Features of globalization 4

2.Globalization and outsourcing 6i. Sweatshops 7

3.Advantage of globalization 74.Disadvantage of globalization 85.Conclusion 86.References 9


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Introduction to Globalization

The global economy is in the midst of a radical transformation, with far-reaching and

fundamental changes in technology, production, and trading patterns. Faster informationflows and falling transport costs are breaking down geographical barriers to economic

activity. The boundary between what can and cannot be traded is being steadily eroded, and

the global market is encompassing ever-greater numbers of goods and services.

What is Globalisation?

Globalization is an issue that rouses strong emotions among people. The first step in

understanding the topic is to define what it means. We are hampered by the reality that thereis no one single agreed definitionindeed the term globalisation is used in slightly different

ways in different contexts by various writers and commentators.

Definition

It refers to the increasing global relationships of culture, people, and economic activity. It is

generally used to refer to economic globalization.

The global distribution of the production of goods and services, through reduction of barriers

to international trade such as tariffs, export fees, and import fees and the reduction of

restrictions on the movement of capital and on investment.

Globalisation is essentially a process of deeper international economic integration that

involves:

1. A rapid expansion of international trade in goods and services between countries.2. A huge increase in the value oftransfers of financial capital across national

boundaries including the expansion of foreign direct investment (FDI) by trans-

national companies.

3. The internationalization of products and services by large firms.4. Shifts in production and consumption from country to country.

The annual growth in merchandise trade (trade in manufactures, agricultural products, fuels

and mining products has consistently out-paced the growth of output. This means that trade


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as a share of output in the global economy has continued to increasemarking an increase in

trade integration within the world economic system.

Another way of describing globalisation is to describe it as a process ofmaking the world

economy more interdependent. The expansion of trade in goods and services, the huge

increase in flows of financial capital across national boundaries and the significant increase in

multinational economic activity means that most of the worlds economies are increasingly

dependent on each other for their macroeconomic health.

Secondly, changes in the structure of company taxation and personal taxation from country to

country tends to influence flows of investment and have feedback effects in the long term on

national income, employment and wealth.

Different Waves of Globalisation

Globalisation is not new! Indeed there have seen several previous waves of globalisation.

Nick Stern, Chief Economist of the World Bankhas identified three major stages of

globalization:

o Wave One: Began around 1870 and ended with the descent into global protectionismduring the interwar period of the 1920s and 1930s. This period involved rapid growth

in international trade driven by economic policies that sought to liberalize flows of

goods and people, and by emerging technology, which reduced transport costs. This

first wave started the pattern which persisted for over a century of developing

countries specializing in primary commodities which they export to the developed

countries in return for manufactures. During this wave of globalisation, the level of

world trade (defined by the ratio of world exports to GDP) increased from 2 per cent

of GDP in 1800 to 10 per cent in 1870, 17 per cent in 1900 and 21 per cent in 1913.

o Wave Two: After 1945, there was a second wave of globalization built on a surge inworld trade and reconstruction of the world economy. The rapid expansion of trade

was supported by the establishment of new international economic institutions. The

International Monetary Fund (IMF) was created in 1944 to promote a stable monetary

system and so provide a sound basis for multilateral trade, and the World Bank

(founded as the International Bank for Reconstruction and Development) to help

restore economic activity in the devastated countries of Europe and Asia. Their aim
http://www.bbc.co.uk/worldservice/programmes/globalisationhttp://www.bbc.co.uk/worldservice/programmes/globalisationhttp://www.bbc.co.uk/worldservice/programmes/globalisation


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was to promote lasting multilateral economic co-operation between nations. The

General Agreement on Tariffs and Trade (GATT) signed in 1947 provided a

framework for progressive mutual reduction in import tariffs.

o Wave Three: The current wave of globalisation which is demonstrated for exampleby a sharp rise in the ratio of trade to GDP for many countries and secondly, a

sustained increase in capital flows between counties and trade in goods and services.

Main Motivations and Drivers for Globalisation

As the well respected commentator Hamish McRae has argued, Business is the main

driver of globalization! The process of globalisation is motivated largely by the desire of

multinational corporations to increase profits and also by the motivation of individual

national governments to tap into the wider macroeconomic and social benefits that come

from greater trade in goods, services and the free flow of financial capital.

Among the main drivers of globalisation are the following:

o Improvements in transportation including containerisation the reduced cost ofshipping different goods and services around the global economy helps to bring prices

in the country of manufacture closer to prices in the export market, and adds to the

process where markets are increasingly similar and genuinely contestable in an

international sense.

o Technological change reducing massively the cost of transmitting andcommunicating information - sometimes known as the death of distance this is an

enormous factor behind the growth of trade in knowledge products using internet

technology. Advances in transport technology have lowered the costs, increased the

speed and reliability of transporting goods and people extending the geographical

reach of firms by making new and growing markets accessible on a cost-effective

basis.

o De-regulation of global financial markets: The process of deregulation has includedthe abolition of capital controls in many countries. The opening up of capital markets

in developed and developing countries facilitates foreign direct investment and

encourages the free flow of money across national boundaries


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o Differences in tax systems: The desire of multi-national corporations to benefit fromlower labour costs and other favourable factor endowments abroad and therefore

develop and exploit fresh comparative advantages in production

o Avoidance of import protection: Many businesses are influenced by a desire tocircumvent tariff and non-tariff barriers erected by regional trading blocs to give

themselves more competitive access to fast-growing economies such as those in the

emerging markets and in eastern Europe

o Economies of scale: Many economists believe that there has beenan increase in theestimated minimum efficient scale associated with particular industries. This is linked

to technological changes, innovation and invention in many different markets. If the

MES is rising this means that the domestic market may be regarded as too small to

satisfy the selling needs of these industries. Overseas sales become essential.

The main features of globalization are stated below.

1. Liberalisation:

o The freedom of the industrialist/businessman to establish industry, trade or commerceeither in his country or abroad; free exchange of capital, goods, service and

technologies between countries;

2. Free Trade:

o Free trade between countries; absence of excessive governmental control over trade;3. Globalization of Economic Activities:

o Control of economic activities by domestic market and international market;coordination of national economy and world economy;

4. Connectivity:

o Localities being connected with the world by breaking national boundaries; forging oflinks between one society and another, and between one country and another through

international transmission of knowledge, literature, technology, culture and

information.


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5. Borderless Globe:

o Breaking of national barriers and creation of inter- connectedness; the ideal of'borderless globe' articulated by Kenichi Ohmae.

6. A Composite Process:

o Integration of nation-states across the world by common economic, commercial,political, cultural and technological ties; creation of a new world order with no

national boundaries;

7. A Multi-dimensional Process:

o Economically, it means opening up of national market, free trade and commerceamong nations, and integration of national economies with the world economy.

Politically, it means limited powers and functions of state, more rights and freedoms

granted to the individual and empowerment of private sector; culturally, it means

exchange of cultural values between societies and between nations; and ideologically,

it means the spread of liberalism and capitalism.

8.A Top-Down process:

o Globalization originates from developed countries and the MNCs (multinationalcorporations) based in them. Technologies, capital, products and services come from

them to developing countries. It is for developing countries to accept these things,

adapt themselves to them and to be influenced by them.

o As a result, the values and norms of developed countries are gradually rooted indeveloping countries. This leads to the growth of a monoculture - the culture of the

north (developed countries) being imposed on the South (developing countries). This

involves the erosion and loss of the identity and the cultures of developing countries.

Globalization is thus a one-way traffic: it flows from the North to the South.

o But this view of globalization has been contested. Some scholars have argued thatglobalization tends to provoke backlash at the community, local, regional and ethnic

levels when the national government fails to resist or counter the invasion of

globalization.


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o In the face of aggression of globalization, the people, in protest against the failure ofthe national government to defend them, develop or strengthen their allegiance to

their community, locality, region or ethnic group. In this process, local identity,

regional identity and ethnic identity take root and get strengthened. Thus globalization

goes hand in hand with localization, regionalization and multiculturalism.

Globalization and outsourcing

Outsourcing is not a new phenomenon. What and how we outsource really depends on

the value chain of the business. In early 1900s, Ford Motor Company used to have complete

vertical integration- from raw materials to the assembly line for the production of the Model

T cars - to avoid any supply chain issues. The thinking was more command-and-control and

having everything less than one corporate hierarchy would give managers address quality and

inefficiency issues much better.

Well, supply-chain changed that because it became really hard for any organization to remain

competitive in all areas of manufacturing. Instead of vertical integration, we now have a

supply-chain network consisting of hundreds of suppliers manufacturing tens of thousands of

parts. Specialty when combined with efficiency led to better, faster and cheaper products.

In the services industry, functions such as legal, accounting and information technology have

been outsourced for some time. Add globalization to the mix, these resources are now

available in every country. Instead of relying on local service providers, now the whole

world is your neighbourhood - pick and choose as you please.

READINESS RISKS - If you are just starting out, you will face geopolitical, country-

specific, and socio-economic risks. Not all countries have the legal or infrastructure similar to

those of the developed countries.

STARTUP RISKS - Once you have identified which country or countries you will be

working with, you have to address cultural and language communication barriers. According

to Albert Mehrabian, only 7% of the communication is carried out by words (e-mail), 38% by

the tone of your voice (talking to another person in the same native language over phone),

and 55% by your body language. When you are communicating with someone in Russia via

e-mail, there is a lot of room for miscommunication and confusion. You will also have to deal

with the contract laws differences as well as intellectual properties laws.


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RAMPUP RISKS - If you have come this far, you will now be concerned about knowledge

transfer, project specific training, business know how, and the overall understanding of the

context which may not be shared by all stakeholders. You will deal with project and program

specific risks.

Sweatshops

There is no single definition of what a sweatshop is. The US Department of Labour

defines a sweatshop as a factory that violates two or more labour laws, such as those

pertaining to wages and benefits, child labour or working hours. In general, a sweatshop can

be described as a workplace where workers are subject to extreme exploitation, including the

absence of a living wage or benefits, poor working conditions, and arbitrary discipline, suchas verbal and physical abuse. Since sweatshop workers are paid less than their daily expenses,

they are never able to save any money to improve their lives. They are trapped in an awful

cycle of exploitation.

Defenders of sweatshops often bring up the fact that even though sweatshops are bad, they at

least give people jobs they wouldn't have had otherwise. However, the types of jobs

sweatshop workers receive are so bad that they rarely improve their economic situation.

How can we end sweatshops?

There needs to be full public disclosure. Companies must disclose the treatment and

pay of workers and how and where products were made. This disclosure needs to be backed

with independent monitoring of working conditions and pay. Violations that are discovered

must be corrected in a way that protects workers and their jobs. This includes paying for

education for child workers found in factories and paying parents a living wage.

Advantages of Globalization

Increased free trade between nations Increased liquidity of capital allowing investors in developed nations to invest in

developing nations

Corporations have greater flexibility to operate across borders Global mass media ties the world together
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Increased flow of communications allows vital information to be shared betweenindividuals and corporations around the world

Greater ease and speed of transportation for goods and people Reduction of cultural barriers increases the global village effect Spread of democratic ideals to developed nations Greater interdependence of nation-states Reduction of likelihood of war between developed nations Increases in environmental protection in developed nations.

Disadvantages of globalization

Increased flow of skilled and non-skilled jobs from developed to developing nationsas corporations seek out the cheapest labour

Increased likelihood of economic disruptions in one nation effecting all nations Corporate influence of nation-states far exceeds that of civil society organizations and

average individuals

Threat that control of world media by a handful of corporations will limit culturalexpression

Greater chance of reactions for globalization being violent in an attempt to preservecultural heritage

Greater risk of diseases being transported unintentionally between nations Spread of a materialistic lifestyle and attitude that sees consumption as the path to

prosperity

International bodies like the World Trade Organization infringe on national andindividual sovereignty

Conclusion

One cannot deny that globalization has intensified a lot of hidden problems in

developing countries and make some situation even worse for them. But the fault is not due

to globalization but deficiency in their economy system. To survive in those challenges,

developing should make good use of the opportunity and benefits that globalization brings.

They should use the tremendous resources and technology, learn from the competitors and

complete themselves.


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REFERENCES

Manfred B. Steger (2003), Introduction to globalization. GLOBALIZATION: A Very Short

Introduction (pp. 1-5). Oxford: Oxford University Press.

Smith, T. J., & Weyers, J. Derivatives and other securities. The Journal of Economics, 8(2).

Retrieved June 5, 2005, fromhttp://econ.com/ds

Geoff Riley, Eton College, Different Waves of Globalisation. International Economy.

Retrieved 2 0 0 6 , from http://tutor2u.net/economics/revision-notes/a2-macro-globalisation-

introduction.html
http://econ.com/dshttp://econ.com/dshttp://econ.com/dshttp://tutor2u.net/economics/revision-notes/a2-macro-globalisation-introduction.htmlhttp://tutor2u.net/economics/revision-notes/a2-macro-globalisation-introduction.htmlhttp://tutor2u.net/economics/revision-notes/a2-macro-globalisation-introduction.htmlhttp://tutor2u.net/economics/revision-notes/a2-macro-globalisation-introduction.htmlhttp://econ.com/ds

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