Introduction
Globalisation has been seen as an opportunity for international business. Indeed, it has become part and parcel of international business that influences the movement of goods and services and the nature of trade patterns. Globalisation has been associated with the expansion of international business in various regions around the world.
International business relies on globalisation to bring together different cultures, markets, political settings, economic structures, and social elements (Shoham 2011). Despite these benefits, globalisation has serious effects on international business, which outweigh its positive impacts.
Globalisation and International Business
An assessment of the effects of globalisation on international business has mainly focused on its positive impacts. As such, globalisation has been attributed to expansion and growth of the global economy. Trade between nations relies on globalisation to foster international elements of business, such as foreign direct investment. The investment opens business opportunities in various countries across the world.
It also plays an important role in removing the trade barriers, such as tariffs on imports and exports (Joshi 2009). Foreign investment provides marketing opportunities for multinational corporations. Another benefit of globalisation is that it increases consumer’s income by enabling multinational corporations to increase the wage earnings and salaries of different people employed by the firms (Daly 2001).
Globalisation also increases the investment opportunities for investors and business entrepreneurs around the world. Due to globalisation, business entities develop new products to serve new market segments in various countries across the world. Businesses also develop new products to diversify their product lines and serve more consumers in various market segments.
Development of new products has also enabled the consumers to access a wide range of goods and services. Consumers who buy goods from international markets are able to purchase their goods from more than one vendor (Meredith 2000).
Introduction of new technologies is another factor that has greatly contributed to the positive assessment of globalisation in international business. Organisations in the global arena are exposed to new technologies that are developed by different industries.
Such technologies enable organisations to improve the efficiency and effectiveness of business processes. For instance, a business organisation can use new technology to enhance the production process and ensure cost reduction for competitive advantage. The use of technology in production processes is also important in ensuring economies of scale (Sullivan, 2002).
Another positive aspect of globalisation is increased performance of local and international companies due to competition. Globalisation increases competition between firms, thereby increasing business efficiency. Companies trading in international arena develop products that are of high quality with superior features and performance.
Consequently, such initiatives play an important role in attracting more customers and enable an organisation to improve its business processes. Globalisation provides an opportunity for international companies to identify unique points of competition, which can be used in developing products that meet the needs and expectations of the consumers in the market (Daniels, Radebaugh & Sullivan 2007).
Threats of Globalisation
Many people tend to overlook the threats of globalisation international business. Globalisation has been associated with the collapse of the various domestic companies. It has also been attributed to the deterioration of business culture in various regions across the world. In other cases, globalisation has been associated with rising levels of insecurity all over the globe.
For instance, issues, such as terrorism and marine piracy, are subsequent effects of globalisation on international business. It is, therefore, cardinal to highlight the specific threats of globalisation on international business (Clark 1997). The threats outlined are as follows.
Unfair Competition
Unfair competition remains the key threat that affects international business. Many organisations have been phased out of the global market due to intense competition from various companies. Globalisation promotes unfair competition by enabling multinational companies from developed countries to take advantage of the business opportunities in the industry.
Companies from developed countries have efficient technological tools and effective business strategies, which are used to exploit the resources in the business environment. To this end, globalisation promotes the development of well-established companies at the expenses of the less developed organisations.
International companies strive to increase their market share in the emerging markets by offering high quality goods at low prices, hence killing domestic businesses (Daly 2001).
Globalisation also promotes unfair competition through trade policies established by the government of a given country. For instance, in most countries across the word, the government tends to promote the development of local companies. The government provides subsidies and trade incentives to foster the development of domestic companies. Incentives may include tax exemptions and reduced energy cost.
International companies in such countries may be forced to pay higher taxes as compared to the domestic organisations in the same country. Trade policies on imports and exports also encourage unfair competition in international trade. Governments and trade entities in different regions around the world have developed trade policies, which are meant to promote the development of domestic trade.
For instance, some governments facilitate the promotion of export trade by reducing the trade barriers and tariffs on exports. Such initiatives hinder the free movement of goods in the global market. On the other hand, a country that promotes the trade on imports may promote the development of international companies at the expense of the local based organisation.
A country that has adopted such an approach tends to foster mobility of international factors of production, such as labour and capital. Economic development in such countries may be slow due to high levels of unemployment (Sullivan, 2002).
Effects of Free Trade on Emerging Businesses
Businesses emerging in developing countries are at greater risk of failing due to the development of free trade, which is fostered by globalisation. Globalisation has exposed emerging businesses in developing countries to unfair trade practices and policies that are promoted by free trade.
For example, tariff protection policies instituted by developed countries tend to open business opportunities for multinational businesses in developed countries. Most developing countries are mainly importers of the goods that are manufactured by the companies in the developed countries.
On the other hand, the companies in developing countries focus on the production of agricultural and food products that are less competitive compared to the machines and electronics that are manufactured in the developed states.
Moreover, the goods manufactured by the developed countries are not exposed to regulative measures compared to the goods manufactured in those regions. Agricultural goods are regarded as very sensitive and attract low prices as compared to machines and electronics (Daniels, Radebaugh & Sullivan 2007).
Interference with Cultural Diversity
Despite the unanimous positive assessment that globalisation promotes cultural diversity, many people tend to overlook the threats that globalisation imposes on cultural diversity. Globalisation has been associated with dominance of strong cultures over the other. Trade cultures have been found to be influential in determining the development and growth of international trade around the world.
For instance, there is belief that globalisation has greatly contributed to the spread of the western culture across the world. The western culture has been discovered to determine the specific elements of business, such as consumer behaviour and consumption patterns.
The dominance of the western culture has led to the decline of business opportunities. As such, international marketers have not been able to identify diverse elements of various cultures, which can be used to develop different products to serve diverse consumer needs (Clark 1997).
Disparities in consumer characteristics are very important in diversification and development of new markets. The differences between the consumers transcend from their cultural backgrounds.
The western culture has dominated other cultures around the world, hence interfering with the development of new business opportunities. For instance, in the contemporary society, most consumers tend to imitate the western culture on different aspects, such as fashion, lifestyle, and social groupings (Satya 1997).
Global cultural unity among the consumers around the world interferes with the cultural heritage of various people. Cultural heritage determines how various people correspond to issues, such as marketing campaigns and product’s features. Globalisation also increases the gap between the rich and the poor.
For instance, when a multinational corporation shifts its operations from a country where the cost of labour is high to a region where the cost of labour is low, the organisation increases the income in the latter state.
At the same, the company increases the gap between the rich and the poor in the former country due to increased rate of unemployment and income. The disparities between the rich and the poor in the economy also lead to purchasing power, hence affecting the pace of growth.
Environmental Effects
Another threat of globalisation on international business is environmental effects. Globalisation is one of the key factors that have been associated with degradation of the natural environment around the world. The emergence and spread of new technologies around the world have led to increased utilisation of non-renewable resources.
Manufacturing companies around the world use natural resources that are extracted from the environment. The exploitation of such resources leads to environmental pollution and global warming. In other cases, multinational companies tend to take advantage of the loopholes in environmental laws.
For instance, business organisations from the developed countries tend to take advantage of the less strict environmental policies in the developing countries. Effects of environmental degradation such as global warming and the depletion of natural resources have been on the verge of increase due to globalisation.
Companies from the transportation industry, construction sector, mining industry, and the energy sector have been forced to increase their production activities due to increased demand in the global market.
The results of such activities lead to increased environmental costs to the businesses, members of the society, and the government. In this regard, globalisation not only interferes with the sustainability and growth of businesses, but also hinders the development of the world (Held, McGrew, Goldblatt, & Perraton 1999).
Labour Drain
Despite the fact that globalisation fosters labour mobility around the world, it greatly contributes to labour drain the labour market. Labour drain is one of the factors that contribute to unfair competition in international business. Organisations, which have the capability to attract and retain highly skilled labour, are better placed to compete in the global market.
Such organisation offer good pay packages to their employees in order to retain them and attract qualified experts from the market. On other hand, developed countries have been found to attract well trained workers from the developing countries due to good working and living conditions in such countries. Labour drain is therefore another key threat on the development of international business.
Labour drain also leads to unemployment in some countries. For instance, the importation of cheap labour by multinational corporations from developing countries has been blamed for increasing level of unemployment in developed countries. Labour mobility from one country to another also affects the factors in the labour market.
Excess supply of labour in the international labour has been associated with decline in wage rates around the world. Labour demand and supply also impact on the workforce planning strategies employed by organisation. The free movement of labour in the global economy has also weakened the labour sector in various parts of the world.
Globalisation has had a negative influence on the labour unions by denying them the opportunity to protect workers’ rights. In other cases, globalisation has introduced confusion in labour laws due to the disparities in provisions of the labour laws used in different countries across the world.
For example, ILO promotes uniform working hours of 40 hours per week, while labour entities in developing countries tend to promote 45 hours per week with low wage rates as compared to the developed countries (Sullivan, 2002).
Tax Avoidance and Tax Competition
Higher taxes imposed by the governments of various countries around the world have forced organisations in international business to employ tax avoidance and tax competition strategies. Such a move leads to unfair competition between the various companies. For instance, some international organisations establish their businesses where the governments charge low tax rates.
The companies also channel their returns through such countries. This practice has been manifested by multinational companies, such as Google and Facebook. The situation is best manifested by Google, which has been very competitive in the international market as compared to rivals, such as Yahoo and other online organisations.
Amazon has also employed the same strategies establishing its offices in countries like Luxembourg and Bermuda. Tax avoidance and competition tactics do not only hinder the growth of the local based companies, but also interfere with the development of international organisations.
On the other hand, some countries lower corporation taxes for international companies to ensure increased level of capital mobility. Reduced corporation tax may increase the rate of investment in a country. However, it reduces the level of tax income earned by the government.
Risk of Foreign Exchange Fluctuations
Another key threat that affects the development of international trade due to globalisation is fluctuations in foreign exchange rate. Globalisation exposes businesses to the risk of foreign exchange fluctuations, which affect profitability and growth of such companies. International organisations mainly trade in foreign currencies.
For instance, the sales and procurement of different items are conducted in foreign currency, which affects the sales revenues and procurement cost incurred by an organisation. A business organisation in a foreign country may experience great losses when translating its profits from a foreign currency to a local one. High translation costs may reduce the level of profits that are earned by an organisation.
On the other hand, during procurement, an organisation has to convert its local currency to a foreign currency that is accepted by the vendor. Translation cost may therefore increase the cost of procurement, hence increasing the cost of operation and production.
Fluctuations in foreign exchange rate are the key threats to international business. It reduces the level of profitability and raises the cost of doing business globally. The general economic conditions in the global arena also affect the development of international business. In the year 2008, multinational corporations from developed countries were greatly affected by global financial and economic crisis (Clark 1997).
Economic and financial factors, such as interest rate, inflation, and volatility of shares in the share market, have serious effects on international organisations due to unpredictable changes in the global economy.
Higher interest rates in international markets raise the cost of capital acquisition and reduce the pace of trade development. On the other hand, volatility of shares in the stock market also interferes with the profits earned by businesses in the financial sector (Held, McGrew, Goldblatt, & Perraton 1999).
Security Issues
Security factors are also some of the major threats that affect international companies, which stem from globalisation. Despite the fact the globalisation exposes a business to lucrative business opportunities; it also creates avenues of insecurity, which greatly influence the performance and the growth of international business. One of the most common insecurity factors in global trade is terrorism.
There is an increase in the number of terrorist activities because of free movement of goods and people around the world. Terrorists around the world target at developed nations that promote international trade. Marine piracy has also increased following the increase in shipping activities all over the globe. Another element of security that affects international business touches on data security (Sullivan, 2002).
Increasing on the use of computers and Internet is the major cause of data insecurity in global trade. Internet technology creates a framework where various businesses interact to exchange data and ideas for business facilitation.
However, such interactions expose the organisations in international trade to security risk factors, such as fraud, identity theft, and scams. Online fraud is one of the common threats that affect online transactions, such as payment and receipt of goods. Security threats may therefore lead to the loss of financial resources and important data in an organisation (Tabb 2002).
Political Risks
Globalisation also exposes international business to political risk factors which greatly influence the performance of a business. Such factors as political instability, laws, rules and regulations in different countries expose a business to various risks (Held, McGrew, Goldblatt, & Perraton 1999).
Political instability in a country creates disturbances in the business environment where market factors, such as demand and supply, are greatly affected. Moreover, rules and regulations imposed on various businesses and industries in a country also affect the performance of an international business (Sullivan, 2002).
For instance, regulations governing licensing and registration of businesses determine the pace of trade development in a country. Based on these factors, it is therefore important to acknowledge that globalisation is a clear threat to international business (Meredith 2000).
Reference List
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