Globalization is a process adopted by organizations to venture in the international markets. They want to fully utilize their capacities and capabilities by expanding their business and to earn more revenue. Globalization can be considered to be a global assimilation of knowledge, goods, thoughts, technologies, cultures, and manpower. The incessant developments in science and technology have enabled such organizations to achieve their quests in an easy manner.
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The three things that have been the major catalysts in promoting globalization are industrialization, transportation (air-travel, air-cargo, and sea-cargo), and telecommunication (telephone, internet, and fax). While following the footsteps of the successful multinational companies, new companies that want to enter the global market should foresee all the aspects. The world is changing at a high pace and the factors are not the same as before.
The intentions or motives of organizations in opting for globalization and investing in other countries are the same as in their domestic markets. They want more sales and subsequently, more profits. Generally, there are four reasons why organizations want globalization:
- In quest of new markets for their products/services: Organizations go global in order to search for new customers for their products and/or services. There are several products that come into the global markets. Managements of organizations might feel that their products, being superior to those in the international markets, could also be sold in the international market and they might want to take advantage of the opportunities.
- Saturation in the domestic market: There are times when the demand in the domestic market decreases and organizations have surplus products. In other words, the domestic market gets saturated. The reasons of saturation (launching of duplicate products at lower price, new improved versions of the product, etc.) is a different topic altogether. But since the domestic market gets saturated, organizations need to find alternate markets for sustenance.
- Expect higher returns on investments: Especially in the case of high technology products, investments in overseas markets yield more than in the domestic markets. This particular point is supported by Sutherland’s claim that, “The minimum size of market needed to support technological development in certain industries is now larger than the largest national market” (Sutherland, 1998, p. 3).
- To seek cheaper and/or better resources: There are countries where manpower is cheap. On the other hand, there are countries where manpower is very costly. So, in order to reduce the cost of their products, organizations from countries where manpower is costly tend to get their products manufactured in countries where manpower cost is less. Other aspects considered for such a transfer are availability of land and natural resources.
- In quest of building strategic assets: In order to be global, an organization would definitely need the help of other organizations in countries where it plans to start its operations. It is also possible that some new technology (that is unavailable in the domestic market) might be available in those countries and the organization might want to take the advantage of such technology.
Globalization brings with it a lot of good things. Prosperity is achieved quickly and better job opportunities are made available. A wide range of products are made available and that too at lower prices. This means more profits for enterprises as a result of increase in production and sales. But it also brings very serious challenges, for example the demand of highly qualified labor and diminishing demand for other labor profiles. Conversely, globalization has been demonized because it is believed to create a lot of economic inequalities between countries that are already dominant and those that are not.
Challenges of globalization
There are certain factors that can have an impact (negative or positive) on the globalization endeavors of organizations. These factors pertain to the political, economical, social, technological, environmental, and legal aspects. So it is a must for organizations to understand such factors and mould their policies accordingly.
For us to know what impact globalization really brings we have to examine it well. Globalization is defined in different ways. In today’s scenario where organizations are going for globalization, the economic relations have become stronger and they are based on certain ideologies and facts (Catcora et al., 2012).
This brings about neo-liberalism. Neo-liberalism occurs when we have healthy competitions from competent trading partners and this is made possible by putting in place investment friendly conditions. Globalization harmonizes economic conditions across borders. How is this possible? Picture an improvement in communication networks across borders, cheaper transportation costs and formation of supranational bodies like NAFTA and the European Union.
The European countries were greatly affected (in the negative aspect) as a result of the European integration. The reason for this effect was the removal of obstructions that had propelled regular capital, labor, merchandise and a fiscal framework. Social policies such us distributive justice were not catered for and still are not easy to handle. These were left to be dealt with, at a national level.
It would not be wrong to say that the European integration could not put forth an impressive and effective plan to control the emerged integrated market. Due to the taxation policies of various nations, workers as well as firms are attracted to shift their loyalties. As an implication, it is expected that in the absence of competent government in the European context, some member nations will opt to reduce the welfare and tax benefits in order to sustain the competition from other European nations (Hirst & Thompson, 1999, p. 186).
Globalization has exerted influence on European economies, social democracy and welfare states. It has actually minimized the importance of national limits for making financial transactions. It has also pressed on changing the structure of the government, as a result of which the governments have – to attain certain financial goals – modified their political views on governing their respective nations.
It has not been clear what has been the result of forces of globalization as there are different divergent views. Some pundits believe that this kind of a philosophy has forced various nations to enter into a competition to reduce their overall national expenditures and bring about new market-friendly programs that might lead to a gradual end of democracy and recent welfare nations (Garrett & Lange, 1991).
But these impacts vary greatly, depending on the way national states are modeled (Hirst & Thompson, 1999). There is also reliable evidence to show that national growths have been pegged on their specific trajectories and industrial relation institutions (Garrett & Lange, 1991). It is however clear that economic globalization places countries on policy constraints and this pressure is exerted more on small countries whose economies are more vulnerable.
But it is not always true to say that smaller countries are affected more. The three areas of economic policy and intervention contravene this. These are taxation, fiscal spending and industrial policy. Weiss argues that with these three tools, a state has more room for maneuvering than what these constraints hold. She stresses that globalization is not constrained more by size but by the nature and strength of local organizations.
Effect of globalization on the economic policies
In the present scenario of globalization, macroeconomic arrangements are less pertinent since they have constrained access to accomplishing monetary development and lower levels of unemployment, on the grounds that globalization is accompanied by goodies such us change in the level and nature of manufacturing, innovation, abilities, and social capitals.
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Globalization demands a firm and steady supply system in order to achieve a uniform financial growth. Like for instance, these structural reforms were adopted by Denmark relatively early in the 1980’s. Technology policies were initiated and in the mid 80’s structural policies have been the cornerstone of Denmark’s economic policy (Catcora et al., 2012).
The Danish government introduced structural monitoring system which reduced structural unemployment because of its competitiveness. This was incorporated into many other policies including industrial policies. The bigger nations are more prone to the impacts of political independence and macroeconomic arrangements than the smaller ones, such as Denmark, because the smaller nations have limited political independence.
Apart from benefitting the organizations and their countries, globalization has a great positive impact on the global GDP. A World Trade Organization release states that, “Data in real terms show that world gross domestic product (GDP) and world merchandise exports not only move in tandem, but that export growth exceeds GDP growth” (Global poverty rate: Slumdog declines on deepening globalization, 2010, para. 4). The following chart depicts the figures:
Globalization has become an important aspect of business for majority of the multinational companies. New markets keep on emerging and there is a lot of scope in such markets. India and China are two good illustrations of emerging markets. The growth potential in these two countries is massive. More and more companies from the developing world are going for globalization. India’s wireless market boom created history.
Today, mobile phones can be found in most of the households of India. Global companies like Nokia, Samsung, LG, and Apple took advantage of this boom (as mentioned earlier that organizations want to take advantage of the international market). The following chart shows that in the year 2006, Israel, India, and Russia were the forerunners in globalization. It is surprising to note that even a small country like Israel can top the charts. “Its capital inflows soared by 198% to $14.3 billion” (Rometty, 2007).
The case of Denmark
Denmark has been on the upward trend in the twentieth century. Although it is small and rural, Denmark is very prosperous politically, socially and economically. Its economy has been very stable after World War II. Denmark has been taunted for keeping its welfare model and embracing globalization.
Its development and the famous model of ’flexicurity’ have been subjects of admiration by many European politicians (right wing or left wing). Although small in the global economy, Denmark still registered low unemployment in 2008; in the midst of global economic crisis in 2008, Denmark stood shoulder high as a model for preoccupations and issues that trigger true modernity and globalization (Catcora et al., 2012).
Globalization has severely influenced the Danish macroeconomic policy. Denmark is considered to be the trendsetter (1984) in lifting the regulations on the markets and allowing free and unhindered transactions. Denmark is not in the European Monetary Union (EMU) but the Danish exchange rate still goes hand in hand with the Euro. Denmark is thus an informal member of the EMU. Her interest rates are even higher than other European Union members.
Denmark, being free from the European central bank control, can be speculatively attacked. Its autonomy also has less influence on the global economy. Countries such as Britain, Sweden and Italy experienced severe economic impacts that compelled them to accept the common currency, Euro, in the initial years of the 90’s decade. This has never been the case for Denmark. Denmark’s exchange rate is strongly pegged to German Mark and European Euro, giving it a comparative advantage (Catcora et al., 2012).
Denmark is a happy nation because it has tested and proven its ‘flexicurity’ model system. Its high level of welfare system is a competitive advantage. It should not be understood that embracing globalization will influence its welfare system expenses. It is also good to note that globalization twitched its ‘flexicurity’ system and it responded by reinforcing its model.
The tools it innovated responded well to the pressure of globalization. But it is too early to say that a final solution to challenges posed by globalization has been realized in Denmark. The response was a warning finger to its ’flexicurity’ system and this literally means that Denmark is on the edge of transformation and it will need to put more changes to its ’flexicurity’ model in future (Catcora et al., 2012).
Effect of globalization on social policies
Developed countries, over the last decade, appear to have rejected socialist policies. Even with these, social spending on GDP has increased tremendously (Scharpf, 2000). The reason is that it does not, in any way, relate to the influence of globalization. It has not been proven that welfare provisions harm performance. Countries with social welfare have a stronger social capital and social support. In addition, high taxes have not been shown to hamper employment prospects.
Drawbacks of globalization
Apart from the benefits that globalization has, there are certain drawbacks as well. As Newman reports, “Americans associate it with jobs being shipped overseas, falling wages and living standards, and the unsettling rise of China as a world power” (Newman, 2011). Newman is right because in search of lower wages, companies prefer shifting their base to countries where the manpower is cheap. This leaves the citizens of the native countries jobless. Considering the high costs of living in such countries, workers cannot accept lower wages.
Other drawbacks of globalization are:
- Resources that are limited are consumed fast (Appendix 1)
- Carbon dioxide release is more (Appendix 2)
- Worldwide implications are unknown
- Oil prices are increased (Appendix 3)
- Jobs transferred (Appendix 4)
- Funds transferred (Appendix 5)
In today’s era, if companies want to succeed, they will have to reap the benefits of the emerging and promising markets. This will not be possible unless they have some sort of collaboration with foreign companies. It will not be an understatement to say that ‘collaboration’ is the key to success in today’s world of globalization.
Networking technologies will also be an important aspect and will play a pivotal role in the globalization process. But at the same time, globalization is a sort of rough sea. It calls for a lot of collaboration among the political leaders as well with enormous degree of solidarity and equality. In the rough sea of globalization, it remains to be seen whether the recent tremor was handled well or will continue to shake up its social fabric in this rough sea of globalization.
Catcora, P. R., Sullivan M. G., D’Souza, C., Taghian, M., Weerawardena, J., Graham, J. L. (2012). International Marketing, 2nd edition. London: McGraw-Hill.
Garrett, G. & Lange, P. (1991). Political Responses to Interdependence: What’s ‘Left’ for the Left? International Organization, 45(4), 539-564.
Global poverty rate: Slumdog declines on deepening globalization. (2010). Web.
Hirst, P. & Thompson, G. (1999), Globalization in Question – The International Economy and the Possibilities of Governance. Cambridge: Polity Press.
Newman, R. (2011). Why US companies aren’t so American anymore. Web.
Rometty, G. (2007). Globalization “Pandemic” Spreading. Web.
Scharpf, F. W. (2000). Economic Changes, Vulnerabilities, and Institutional Capabilities, in F. W. Scharpf and V. A. Schmidt (eds), Welfare and Work in the Open Economy – Volume I, From Vulnerability to Competitiveness, Oxford: Oxford University Press. p. 21-124.
Sutherland, P. (1998). Managing the international economy in an age of globalization. Web.
Source: Our Finite World. Web.
Source: Our Finite World. Web.
Source: Our Finite World. Web.
Source: Our Finite World. Web.
Source: Our Finite World. Web.