Effects Of Globalization On Business – Managerial Economics
ECON 3041 Managerial Economics
ECON 3041 Managerial Economics
Literature Review
Today’s world of business has become more globalized. Many businesses in various countries have embraced globalization and have now entered into international trade (Levitt, 2013). Globalization is a representation of integration of information technology, cultural practices, investments and international trade globally. The various global changes in the world have necessitated the need for business organizations to restructure their strategies in order to move out of their national boundaries to take part in the international trade and survive the stiff competition involved in it. The changes include changes in environmental, legal, cultural, political and economic practices as well as the development of information communication technology and transport among others (Appadurai, 2016). Globalization is not a new thing as it has been experienced by business organizations many years ago as the traditional traders used to travel for long distances across borders in search of rare commodities such as gold and salt which they then sold at their local areas to make profits.
Globalization has various effects on business which are either negative or positive but the positive effects outweigh the negative effects by a great margin. This therefore means that globalization positively impacts business and should be embraced by various nations in the world for better economic growth (Dreher, 2010). For the last three decades globalization has been rising at a fast pace and its various benefits have been witnessed in improvement of various nations economic growth such as the United States, China and India. Therefore globalization forms an interesting topic for discussion to explore its effects on environment, cultural practices, economic growth and poverty among others. The effect of globalization on business has been discussed based on the changes imposed by various businesses participating in trade across borders on their nation’s gross domestic product.
Globalization has enabled the transfer of improved technology across businesses worldwide (Mueller, 2014). Over the past years there has been a rise in the technology level for many businesses participating in international trade. The technology of communication and computing has risen over the past years enabling the flow of crucial business ideas and information between nations. More developed countries in terms of technology advancement such as the United States pass modern methods of productivity to less developed nations in the global international market. This enables businesses in various developing nations to minimize their costs of production and improve their profitability. This in long term contributes much towards improving the nation’s economic growth which is reflected by the increased gross domestic product. The transfer of technology in the global market also enables consumers to access information about the various available goods and services in the global and thus the consumers have a wide range of commodities from which they can make their choices. Through the transfer of the improved technology, smaller businesses in various nations can also take part in the global trade and compete favorably irrespective of the seller or buyer physical location. Traders located in different nations can trade on digital platforms. Also for the case of international companies, meetings can be held with various managers across all branches digitally. This actually minimizes wastage of time and money which could otherwise be spent on travelling activities to meet at a common identified venue. Technology has assisted much towards improving various business operations and it still continues to advance. A business which keeps on adjusting to technological global market changes is better placed in terms of international competition.
Model and Data
Globalization intensifies competition among businesses involved in international trade (World Commission on the Social Dimension of Globalization, 2014). Many businesses embrace the strategies of globalization in order to enjoy competitive advantage involved in the foreign markets and also avoid the competition associated with the domestic industries. The stiff competition as a result of globalization shapes the operations of businesses. These operations include production and also distribution. Businesses have to adopt efficient methods of production adjusted according to global technology advancements in order to minimize the costs of production and improve the quality of their products. The minimized costs of production mean that businesses offer their quality products at relatively low prices and hence increase their sales which in turn improve their profitability. Businesses also have to use efficient means of distributing their goods and services to the final consumer. Efficient means of distribution eliminates the activities many middlemen and brokers which increase the prices of goods and services to the final consumer. In a nutshell, the efficiency in production and distribution of goods and services as a result of globalization enables businesses to increase their sales and improve their profitability which in turn improves the entire nation’s productivity by contributing towards improving the nation’s gross domestic product. Many businesses in the global trade prefer to offer products which their nations have comparative advantage in producing in order to minimize the level of competition in the international market. For example, many nations like Mexico in the United States of America are well known for production of oil and natural gas. Therefore many businesses from the United States prefer to participate in the global trade of oil and natural gas and hence end up competing favorably.
Globalization has enabled the development and access of diversified market by businesses participating in the international trade (Rodrik, 2012). Globalization brings together people and businesses from different nations either physically or digitally. With the vast number of customers in the global trade, businesses can sell their products to many people from different and hence diverse their market. The huge market over which businesses sell their products enables them to increase their sales and hence improve their productivity. Also consumers can choose a variety of products from the many businesses in the global market. This will enable consumers to choose their best quality at the cheapest price possible in the global market. Globalization also provides employment to jobless people from different countries participating in international trade. The people from the less developed nations benefit most from global trade as they move to different countries in search for jobs. Through globalization the concept of outsourcing arises whereby the nations with comparative advantage in performing certain jobs are assigned the jobs. A good example is India which benefits much from being assigned technological jobs such as software development and support.
Globalization promotes positive political changes that result in the unification and socialization between different countries. In addition, globalization results in formulation of beneficial trade agreements and humanitarian organizations like the UN and NAFTA. Globalization unites different countries under a single market; thereby creating numerous businesses opportunities for companies (Katerina & Aneta, 2014). Globalization leads to the reduction of trade barriers and foreign investments allowing the penetration of international companies in the domestic market. Unification of nations allows for the development of communication and computing technologies that will enhance the transmission and reception of information across international borders. The linking of networking infrastructure and globalization has permitted small business to compete on the international platform due to high speed data transfer and provision of similar opportunities to businesses regardless of size. The international business climate has recognized the growth opportunities, economic benefits, and technological advancement presented by globalization (Katerina & Aneta, 2014).
Globalization is being viewed as a contributing factor in the permeation of people from different regions of the world with similar standards of lifestyle, healthcare opportunities, purchasing power, and educational qualification. This unification of socio-economic opportunities is presented by exchange of cultures, increased tourism, and enhanced living standards. Global distribution channels have made it possible for business and individuals to project their market expectations beyond the borders of their nation (Štros, Coner, & Bukovinski, 2014). Globalization has contributed significantly in the reduction of international market expenses by encouraging economies of scales. Trade liberalization has led to elimination of market price fixing and coercion by domestic companies. International companies have made it possible for American customers to buy goods at the same price as an individual in Britain minimum shipment costs. Lastly, globalization has leveled the playing field with regard to competitive advantage by providing businesses (regardless of niche and operating cost) with unlimited market opportunities to target, reach, and secure customers (Štros, Coner, & Bukovinski, 2014).
Various nations across the world are developing new strategies and techniques to aid in the management of globalization. Offensive management techniques are the most popular because the countries are able to facilitate globalization on their own terms; thereby forcing other nations to conform to their set standards and demands (Abdelal & Meunier, 2010). Defensive management techniques are not as popular but ensure that negative implications and pressure associated with globalization do not disrupt or handicap the business landscape of a country. These globalization management techniques and strategies are normally enacted in the form of policies devised by governments. The most notable policy-based strategies adopted by countries are commissioning of regulatory powers to shape globalization (e.g. agencies and courts) and the redistribution of costs and benefits associated with globalization (Abdelal & Meunier, 2010).
There are several arguments that are normally raised against globalization from a socio-economic standpoint. Globalization is viewed to benefit the wealthy and harm the financial wellbeing of poorer members of society. The idea that globalization promotes free trade is challenged by the fact that a significant number of countries demand the payment of Value Added Taxes (VATs) that are as high 22% (Collins, 2017). Globalization is considered to create employment issues because jobs are outsourced to lower cost countries. For instance, a significant number of telecommunication related jobs in the USA have been outsourced by Indian companies. As a result of this, numerous workers are faced with pay-cuts because their employers can export jobs to low cost nation. This situation in the US labor market has created fear in the lower and middle class workers who possess limited professional skills and academic qualifications. Globalization also allows multi-national organization to take advantage of tax havens in other countries thus permitting them to under report income or completely avoid taxes. In addition, multi-national businesses are normally implicated of social unfairness, unfavorable work conditions, inadequate benefit packages, and slave labor wages (Collins, 2017).
Moreover, globalization has resulted in the creation of extremely powerful multinational corporations that have considerable influence on global political. As such, there is fear that corporations will rule the world because they control the commercial activities of various nations. Globalization has promoted the rapid copying and theft of proprietary technology because of fast and unrestricted transmission of information. Anti-globalists argue that globalization has actually worsened financial inequalities across and within several nations between 1960 and 1998 (Collins, 2017). Moreover, globalization has been blamed for the permeation of communicable disease across the world. For instance, HIV/AIDS has been transmitted by travelers to remote communities found in different parts of the world. Globalization is viewed to result in the negation of safety standards resulting in the exploitation of labor: especially with regard to child and prison workers. The socio-economic ramifications of globalization have resulted in the downfall of safety net programs and social welfare schemes like Medicaid and Social Security (Collins, 2017).
Conclusion
It is true that there both positive and negative consequences associated with globalization. As such, there is need to manage the negative attributes of globalization; in spite of the overpowering positive implication of globalization. Globalization is therefore considered to have a beneficial impact on business because it promotes sharing of technology, betterment of international trade, and stabilization of local markets. Globalization encourages the sharing of different types of technologies between countries making the delivery of services and products considerably better. International trade is made easier because countries establish feasible economic and political relationships through globalization. As a result of increased international trade countries are able to gain foreign currency and increase exports to other countries. Globalization stabilizes domestic markets by correcting the prices of services and products demand by seller. Globalization allows for the most realistic prices to dominate across the world limiting the exploitation of consumers at the hands of sellers and manufacturers.
References
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