Globalization And Its Effects

Globalization basically means the speedup of movements and exchanges (of human beings goods, and services, capital, technologies or cultural practices) all over the world. One of the effects of globalization is that it generates interactions between different regions and populations around the globe.

Globalization through global communications, global markets and global production have promoted by a fourth area of global activity in relation to money. For example, the American dollar, the Japanese yen, Euro and other major national currencies circulate globally. They are being used anywhere on earth and moving electronically and via air transport anywhere in effectively no time. Most bankcards can extract cash in local currency from the thousands of automated teller machines (ATMs) across the world. Also credit cards like Visa, MasterCard and American Express can be used for payments in almost every country in the globe.

POSITIVE EFFECTS IN DEVELOPED COUNTRIES

Global market.

Most successful emerging markets in developed countries are a result of privatization of state owned industries. In order for these industries to increase consumer demand many of them are attempting to expand and extend their value chain to an international level. The impact of globalization on business management is seen by the sudden increase of number of transactions across the borders. In protecting yields and maintaining competitiveness, businesses are continuing to develop a wide range of their footprint as it lowers cost and enjoys economies of scale (Shah A.,2009)

Multinational corporations is a result of globalization. They occupy a central role within the process of globalization as evidenced through global foreign direct investment inflows. Their concentrations within Europe in western economies has led to size constraints, therefore there is a need for new geographical areas to operate whereby they will face a lot of competition in the market. Through this they will enlarge their market and enjoy economies of scale as globalization facilitates time space compression, economies compete at all levels including that of attracting investors (Smith V.A and Omar M.,2005).

Foreign trade

Globalization has created and expanded foreign trade in the world. Things that were only found in developed countries can now be found in other countries across the world. People can now get whatever they want and from any country. Through this developed countries can export their goods to other countries. Countries do business through international trade, whereby they import and export goods across the global. These countries which export goods get comparative advantages. Organizations have been established with a view to control and regulate the trade activities of the countries in the world so to have fair trade. World trade organizations emerged as a powerful international organization capable effectively influencing individual governments to follow international trade rules, copyrights, policies on subsidies, taxes and tariffs. Nations can not break rules without facing economic consequences

The number of nations that are dependent on trade, foreign capital, and the world financial markets increased greatly. Countries engaged in foreign trade enjoy comparative advantage. The post Recardian trade theories predicted that specialization in labor and capital intensive goods would bridge enormous wage gaps between the poor and the rich countries, that is the developing and developed countries, sparing the latter from massive labor immigration (Gerber J., 2002).

Foreign investment

One of the most visible positive effects of globalization in India is the flow of foreign capital. A lot of companies have directly invested in India, by starting production units in India, but what we also need to see is the amount of Foreign Investment Inflow that flows into the developing countries. Indian companies which have been performing well, both in India and off the shores, will attract a lot of foreign investment, and thus pushes up the reserve of foreign exchange available in India. This is also one of the positive effects of globalization in US and other developed countries as developing countries give them a good investment proposition.

Managers’ objectives might not be the same with those of stockholders in some situations. The more complex the corporation the more difficult it is for shareholders to monitor management’s actions whereby it provides the managers more freedom to act in their own self interest at the expense of shareholders. Multinational firms are more complex than national firms. Managers might favor international diversification because it reduces firm specific risk or adds to their prestige. These goals might be of little interest to shareholders. This divergence of interests between shareholders and managers, might reduce the value of m ultinationals relative to domestic firms (Saudagaran S.M.,2002)

Competition

One of the most visible positive effects of globalization is the improved quality of products due to globe competition. Customer service and the ‘customer is the king’ approaches to production have led to improved quality of products and services. As the domestic companies have to fight out foreign competition, they are compelled to raise their standards and customer satisfaction levels in order to survive in the market. Besides, when a global brand enters a new country, it comes in riding on some goodwill, which it has to live up to. This creates competition in the market and a survival of the fittest situation.

NEGATIVE EFFECTS IN DEVELOPED COUNTRIES

JOBS INSECURITY.

In developed countries people have jobs insecurity. People are losing their jobs. Developed nations have outsourced manufacturing and white collar jobs. That means less jobs for their people. This is because the manufacturing work is outsourced to countries where the costs of manufacturing goods and wages are lower than in their countries. They have outsourced to developing countries like China and India. Most people like accountants, programmers, editors and scientists have lost jobs due to outsourcing to cheaper locations like India.

Globalization has led to exploitation of labor. Safety standards are ignored to produce cheap goods. “In practice, however, the recent experience in Latin America has been that many such open-handed multinationals moved their operations to, for example, China or South East Asia because of cost and market considerations”(Piasecki R. and Wolnicki M., 2004).

FLUCTUATION IN PRICES.

Globalization has led to fluctuation in price. Due to increase in competition, developed countries are forced to lower down their prices for their products, this is because other countries like China produce goods at a lower cost that makes goods to be cheaper than the ones produced in developed countries. So, in order for the developed countries to maintain their customers they are forced to reduce prices of their goods. This is a disadvantage to them because it reduces the ability to sustain social welfare in their countries.

POSITIVE EFFECTS IN DEVELOPING COUNTRIES

Poverty alleviation

As far as poverty reduction is concerned, globalization played a role in poverty reduction in developing countries. In deed most developed countries experienced reduction in poverty in the proportion of their living below the poverty line, including fast developing countries like China, India, Vietnam. While other countries like Sub-Saharan Africa registered an opposite trend (Lee E., 2006).

Employment situation

Through globalization, people from different countries are provided with jobs opportunities within the global. It has created the concept of outsourcing. Developed countries prefer to provide work to developing countries where costs are cheap. Work such as customer support, software development, accounting, marketing and insurance are given to developing countries like India. Therefore the country that is given the work enjoys by getting jobs.

It has given an opportunity to invest in the emerging markets and tap up the talent which is available there. In developing countries, there is often a lack of capital which hinders the growth of domestic companies and hence, employment. In such cases, due to global nature of the businesses, people of developing countries too can obtain gainful employment opportunities (Pillai P.,2008).

Technology

This is a powerful force that drives the world toward a converging commonality. It has proletarianized communication, transport, and travel. People from different places everywhere wants all the things they have heard about, seen, or experienced through technology. Organizations through its managements can obtain knowledge from different places in the world that can be used in the organization.

Television and medias played a big role in influencing the perception of the world, from a relatively small national unity and reality, into a global market and international concerns. As multinationals establish subsidiaries in new locations, they transfer know how from the parent to the local operation. Knowledge flows from one unit to another as a whole organization benefits from development activity. One of the ways that organizations use in knowledge transfer is the movement of personnel, which takes place within multinationals. This build up a bank of knowledge about working in different situations with people from different cultures and this represents a stock of knowledge that could be developed and used to benefit the organization (Kamoche, 1997).

Education.

Globalization from the point of view has positive effects as well as negative effects. It has increased the access of higher education example universities and reducing the knowledge gap in developing countries, it equally has negative aspects which can seriously threaten universities in those countries. From point of view it has brought more positive effects to developing countries through increasing access to higher learning institutions. Today you can move in the search of the best educational facilities in the world including developing countries without any hindrance. This is due to increased output from secondary schools, greater participation of women in higher education, a growing private sector demand for graduates, and the exorbitant costs of acquiring education in foreign countries, especially those in the nort (Mohamedbhai G., 2002).

Foreign trade

Despite having negative effects of globalization, it has a good side too. One of the most significant effect it has brought to developing countries is Trade. Before people used to exchange goods for goods or services for services but now people can trade goods for money. This is mostly through International trade whereby people exports and imports goods within countries. Globalization has led to reduction of costs in trade within the globe. It has led to reduction of tax of importation of goods.

According to economic theory, foreign trade is in principle, beneficial to any country engaged. The international division of labor allocates the resources more efficient whereby it increases the economic welfare of all countries engaged in foreign trade in long run (Kaitilia V and Kotilainen M., 2002).

Foreign investment

Foreign investment is a direct result of globalization. Foreign investment is always welcomed as it provides resources, capital and technology to a country that will support economic development of the host country. This improves employment as in direct and indirectly. Increases exports to a country and thereby improves the current account and therefore will help to the repayment of foreign debt. This however has some criticisms for leading to too much foreign control

Developing countries can use general or specific industrial and trade policies to be more or less welcoming to foreign direct investments, capital and foreign tourist services. They can directly and indirectly shape their participation in the economic activities in the globe

NEGATIVE EFFECTS IN DEVELOPING COUNTRIES

Unemployment

Globalization is a blame to world’s unemployment situation though it brought some jobs opportunities. Despite the fact that it brought jobs opportunities to the global but it is still a blame to the current situation. “It ‘s true that global economic integration and increased travel have resulted in increased competitiveness at the national and enterprise levels, forcing producers to find ways to cut costs, improve efficiency, and raise productivity”(Kigundu M.N.,2002).

“The most important factor to determine the level of employment during 1980-2000 was national or regional macroeconomic policies which were implemented and sustained. In addition those countries with liberal macroeconomic reforms, pursued politics promoting flexible labor markets and employment practices, decentralized industrial relations systems, and judicious enforcement of labor. On the other hand, countries with employment laws, regulations, and policies experienced higher level of employment because they were not able to attract and retain as many new jobs”(Kiggundu M.N.,2002).

For example ,Indonesia faced unemployment and poverty that grew to levels not experienced in two decades, health conditions worsened, and the natural environment degraded (Piasecki R and Wolnicki M.,2004)

Western culture.

Globalization has led to the spread of western culture and influence at the expense of local culture in developing countries like Africa. Most people now in developing countries cop what people in developed countries do. So, its like they ignore their own culture and practice western culture ( Goyal K.A., 2006). For example dressing styles and eating habits, language. All these can affect management in one way or another example it can cause misunderstandings because of language barrier.

Trade

Average tariff rates continue to be high in many developing countries, including some that have recently implemented trade reforms. Example,India. Trade policy continues to be an important aspect in globalization at least in some of the lower income developing countries.

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