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Financial Effects of Globalization Cause and Effect Essay


Due to globalization and increased competition in the field of business, international investment has gained popularity as a way of increasing sales. Many firms both large and small have found that to increase demand of their products as well as enjoy economies of scale, they have to invest in various foreign countries.

Besides increasing choices that are available to consumers nowadays, international trade has enhanced efficiency in production thereby improving the quality of products. It should be noted that globalization has financial implications while international partnerships have both strengths and weaknesses.

Globalization has led to the emergence of financial markets that are effective worldwide. As a result, access to external sources of finance by both corporations and nations has been enhanced. Though this is good because investments have been increased due to availability of funds, it has also led to increased liability.

Nowadays, the proportions of foreign stocks and foreign liabilities in gross domestic product have highly increased (Bhargava, 2006). On the same note, globalization has led to emergence, growth and spread of other financial intermediaries besides traditional banks. Other than increasing innovation in the financial sector, emergence of financial intermediaries has also increased flow of finance from one area to the other.

Similarly, due to globalization and increased flow of money, nations have found it difficult to control fluctuations in their economy. Consequently, global imbalances can easily affect financial stability of a given nation thus affecting prices, interest rates and even exchange rates (Goldin & Reinert, 2007).

Moreover, globalization has increased the flow of capital among different states. As a result, there has been increased foreign direct investment as well as labor relocation leading to increased remittances. It should be noted that policies by various governments cannot be implemented without taking into account finance from foreign sources.

On the same note, globalization has led to emergence of global partnerships which have been able to achieve much due to various strengths. Firstly, international partnerships are able to exploit economies of scale due to their increased level of operation. As a result, they are able to offer competitive prices in the market thus gaining competitive advantage (Prasad, Rogoff, Wei, & Kose, 2003).

Similarly, international partnerships can access cheap inputs thus they are enable to increase their profits. Additionally, international partnerships have been known to be ahead in terms of technological advancements. This enables them to increase their efficiency and hence competitive advantage.

Moreover, international partnerships can benefit from professional expertise because they combine talents from various regions thus bringing about ingenuity (Prasad et al., 2003).

On the other hand, international partnerships have a number of weaknesses. Due to their complex management nature, international partnerships usually take a lot of time before they can implement some policies. Consequently, they are not able to react appropriately to the highly dynamic business environment (Bhargava, 2006). It should be noted that all managers need to agree before any policy can be implemented.

Sometimes it is hard for the managers to agree and opportunities are lost while managers are debating on which action to take. On the same note, partners come from different parts of the world and usually have different interests.

As a result, conflict of interests is inevitable (Prasad et al., 2003). Lastly, there are occasions when interests of sponsors differ from those of other partners, especially for non-governmental organizations. This leads to delay and even stagnation of projects due to lack of funds.

References

Bhargava, V. K. (2006). Global Issues for Global Citizens: An Introduction to Key Development Challenges. Washington: World Bank Publications.

Goldin, I., & Reinert, K. A. (2007). Globalization for Development: Trade, Finance, Aid Migration, and Policy. Washington: World Bank Publications.

Prasad, E. S., Rogoff, K., Wei, S., & Kose, A. (2003). Effects of Financial Globalization on Developing Countries: Some Empirical Evidence. Washington: International Monetary Fund.

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IvyPanda. (2019, June 18). Financial Effects of Globalization. Retrieved from https://ivypanda.com/essays/financial-effects-of-globalization/

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"Financial Effects of Globalization." IvyPanda, 18 June 2019, ivypanda.com/essays/financial-effects-of-globalization/.

1. IvyPanda. "Financial Effects of Globalization." June 18, 2019. https://ivypanda.com/essays/financial-effects-of-globalization/.


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IvyPanda. "Financial Effects of Globalization." June 18, 2019. https://ivypanda.com/essays/financial-effects-of-globalization/.

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IvyPanda. 2019. "Financial Effects of Globalization." June 18, 2019. https://ivypanda.com/essays/financial-effects-of-globalization/.

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IvyPanda. (2019) 'Financial Effects of Globalization'. 18 June.

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