TOPIC: Globalization

SUBJECT: Business Communication

SUBJECT CODE: MBA2001 (SP/12)

NAME: Raajkumar Sadhasivam

ROLL No: MBA/50039/11

PRESENTED TO: Ms Indrani Basu

CONTENTS

1. Introduction to globalization
i. Definition 1 2 3

ii. Different waves of globalization

iii. Main motivations and drivers for globalization

iv. Features of globalization 2. Globalization and outsourcing

i. Sweatshops 7

3. Advantage of globalization 4. Disadvantage of globalization 5. Conclusion 6. References

7 8 8 9

Introduction to Globalization
The global economy is in the midst of a radical transformation, with far-reaching and fundamental changes in technology, production, and trading patterns. Faster information flows and falling transport costs are breaking down geographical barriers to economic activity. The boundary between what can and cannot be traded is being steadily eroded, and the global market is encompassing ever-greater numbers of goods and services. What is Globalisation? Globalization is an issue that rouses strong emotions among people. The first step in understanding the topic is to define what it means. We are hampered by the reality that there is no one single agreed definition indeed the term globalisation is used in slightly different ways in different contexts by various writers and commentators.

Definition
It refers to the increasing global relationships of culture, people, and economic activity. It is generally used to refer to economic globalization. The global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import fees and the reduction of restrictions on the movement of capital and on investment. Globalisation is essentially a process of deeper international economic integration that involves: 1. A rapid expansion of international trade in goods and services between countries. 2. A huge increase in the value of transfers of financial capital across national boundaries including the expansion of foreign direct investment (FDI) by transnational companies. 3. The internationalization of products and services by large firms. 4. Shifts in production and consumption from country to country. The annual growth in merchandise trade (trade in manufactures, agricultural products, fuels and mining products has consistently out-paced the growth of output. This means that trade

as a share of output in the global economy has continued to increase marking an increase in trade integration within the world economic system. Another way of describing globalisation is to describe it as a process of making the world economy more interdependent. The expansion of trade in goods and services, the huge increase in flows of financial capital across national boundaries and the significant increase in multinational economic activity means that most of the worlds economies are increasingly dependent on each other for their macroeconomic health. Secondly, changes in the structure of company taxation and personal taxation from country to country tends to influence flows of investment and have feedback effects in the long term on national income, employment and wealth.

Different Waves of Globalisation

Globalisation is not new! Indeed there have seen several previous waves of globalisation. Nick Stern, Chief Economist of the World Bank has identified three major stages of globalization:
o

Wave One: Began around 1870 and ended with the descent into global protectionism during the interwar period of the 1920s and 1930s. This period involved rapid growth in international trade driven by economic policies that sought to liberalize flows of goods and people, and by emerging technology, which reduced transport costs. This first wave started the pattern which persisted for over a century of developing countries specializing in primary commodities which they export to the developed countries in return for manufactures. During this wave of globalisation, the level of world trade (defined by the ratio of world exports to GDP) increased from 2 per cent of GDP in 1800 to 10 per cent in 1870, 17 per cent in 1900 and 21 per cent in 1913.

Wave Two: After 1945, there was a second wave of globalization built on a surge in world trade and reconstruction of the world economy. The rapid expansion of trade was supported by the establishment of new international economic institutions. The International Monetary Fund (IMF) was created in 1944 to promote a stable monetary system and so provide a sound basis for multilateral trade, and the World Bank (founded as the International Bank for Reconstruction and Development) to help restore economic activity in the devastated countries of Europe and Asia. Their aim

was to promote lasting multilateral economic co-operation between nations. The General Agreement on Tariffs and Trade (GATT) signed in 1947 provided a framework for progressive mutual reduction in import tariffs.
o

Wave Three: The current wave of globalisation which is demonstrated for example by a sharp rise in the ratio of trade to GDP for many countries and secondly, a sustained increase in capital flows between counties and trade in goods and services.

Main Motivations and Drivers for Globalisation

As the well respected commentator Hamish McRae has argued, Business is the main driver of globalization! The process of globalisation is motivated largely by the desire of multinational corporations to increase profits and also by the motivation of individual national governments to tap into the wider macroeconomic and social benefits that come from greater trade in goods, services and the free flow of financial capital. Among the main drivers of globalisation are the following:
o

Improvements in transportation including containerisation the reduced cost of shipping different goods and services around the global economy helps to bring prices in the country of manufacture closer to prices in the export market, and adds to the process where markets are increasingly similar and genuinely contestable in an international sense. Technological change reducing massively the cost of transmitting and communicating information - sometimes known as the death of distance this is an enormous factor behind the growth of trade in knowledge products using internet technology. Advances in transport technology have lowered the costs, increased the speed and reliability of transporting goods and people extending the geographical reach of firms by making new and growing markets accessible on a cost-effective basis.

De-regulation of global financial markets: The process of deregulation has included the abolition of capital controls in many countries. The opening up of capital markets in developed and developing countries facilitates foreign direct investment and encourages the free flow of money across national boundaries

Differences in tax systems: The desire of multi-national corporations to benefit from lower labour costs and other favourable factor endowments abroad and therefore develop and exploit fresh comparative advantages in production

Avoidance of import protection: Many businesses are influenced by a desire to circumvent tariff and non-tariff barriers erected by regional trading blocs to give themselves more competitive access to fast-growing economies such as those in the emerging markets and in eastern Europe

Economies of scale: Many economists believe that there has been an increase in the estimated minimum efficient scale associated with particular industries. This is linked to technological changes, innovation and invention in many different markets. If the MES is rising this means that the domestic market may be regarded as too small to satisfy the selling needs of these industries. Overseas sales become essential.

The main features of globalization are stated below.

1. Liberalisation:
o

The freedom of the industrialist/businessman to establish industry, trade or commerce either in his country or abroad; free exchange of capital, goods, service and technologies between countries;

2. Free Trade:
o

Free trade between countries; absence of excessive governmental control over trade;

3. Globalization of Economic Activities:

o

Control of economic activities by domestic market and international market; coordination of national economy and world economy;

4. Connectivity:
o

Localities being connected with the world by breaking national boundaries; forging of links between one society and another, and between one country and another through international transmission of knowledge, literature, technology, culture and information.

5. Borderless Globe:
o

Breaking of national barriers and creation of inter- connectedness; the ideal of 'borderless globe' articulated by Kenichi Ohmae.

6. A Composite Process:
o

Integration of nation-states across the world by common economic, commercial, political, cultural and technological ties; creation of a new world order with no national boundaries;

7. A Multi-dimensional Process:
o

Economically, it means opening up of national market, free trade and commerce among nations, and integration of national economies with the world economy. Politically, it means limited powers and functions of state, more rights and freedoms granted to the individual and empowerment of private sector; culturally, it means exchange of cultural values between societies and between nations; and ideologically, it means the spread of liberalism and capitalism.

8. A Top-Down process:
o

Globalization originates from developed countries and the MNCs (multinational corporations) based in them. Technologies, capital, products and services come from them to developing countries. It is for developing countries to accept these things, adapt themselves to them and to be influenced by them.

As a result, the values and norms of developed countries are gradually rooted in developing countries. This leads to the growth of a monoculture - the culture of the north (developed countries) being imposed on the South (developing countries). This involves the erosion and loss of the identity and the cultures of developing countries. Globalization is thus a one-way traffic: it flows from the North to the South.

But this view of globalization has been contested. Some scholars have argued that globalization tends to provoke backlash at the community, local, regional and ethnic levels when the national government fails to resist or counter the invasion of globalization.

In the face of aggression of globalization, the people, in protest against the failure of the national government to defend them, develop or strengthen their allegiance to their community, locality, region or ethnic group. In this process, local identity, regional identity and ethnic identity take root and get strengthened. Thus globalization goes hand in hand with localization, regionalization and multiculturalism.

Globalization and outsourcing

Outsourcing is not a new phenomenon. What and how we outsource really depends on the value chain of the business. In early 1900s, Ford Motor Company used to have complete vertical integration- from raw materials to the assembly line for the production of the Model T cars - to avoid any supply chain issues. The thinking was more command-and-control and having everything less than one corporate hierarchy would give managers address quality and inefficiency issues much better. Well, supply-chain changed that because it became really hard for any organization to remain competitive in all areas of manufacturing. Instead of vertical integration, we now have a supply-chain network consisting of hundreds of suppliers manufacturing tens of thousands of parts. Specialty when combined with efficiency led to better, faster and cheaper products. In the services industry, functions such as legal, accounting and information technology have been outsourced for some time. Add globalization to the mix, these resources are now available in every country. Instead of relying on local service providers, now the whole world is your neighbourhood - pick and choose as you please. READINESS RISKS - If you are just starting out, you will face geopolitical, countryspecific, and socio-economic risks. Not all countries have the legal or infrastructure similar to those of the developed countries. STARTUP RISKS - Once you have identified which country or countries you will be working with, you have to address cultural and language communication barriers. According to Albert Mehrabian, only 7% of the communication is carried out by words (e-mail), 38% by the tone of your voice (talking to another person in the same native language over phone), and 55% by your body language. When you are communicating with someone in Russia via e-mail, there is a lot of room for miscommunication and confusion. You will also have to deal with the contract laws differences as well as intellectual properties laws.

RAMPUP RISKS - If you have come this far, you will now be concerned about knowledge transfer, project specific training, business know how, and the overall understanding of the context which may not be shared by all stakeholders. You will deal with project and program specific risks.

Sweatshops
There is no single definition of what a sweatshop is. The US Department of Labour defines a sweatshop as a factory that violates two or more labour laws, such as those pertaining to wages and benefits, child labour or working hours. In general, a sweatshop can be described as a workplace where workers are subject to extreme exploitation, including the absence of a living wage or benefits, poor working conditions, and arbitrary discipline, such as verbal and physical abuse. Since sweatshop workers are paid less than their daily expenses, they are never able to save any money to improve their lives. They are trapped in an awful cycle of exploitation. Defenders of sweatshops often bring up the fact that even though sweatshops are bad, they at least give people jobs they wouldn't have had otherwise. However, the types of jobs sweatshop workers receive are so bad that they rarely improve their economic situation. How can we end sweatshops? There needs to be full public disclosure. Companies must disclose the treatment and pay of workers and how and where products were made. This disclosure needs to be backed with independent monitoring of working conditions and pay. Violations that are discovered must be corrected in a way that protects workers and their jobs. This includes paying for education for child workers found in factories and paying parents a living wage.

Advantages of Globalization

Increased free trade between nations Increased liquidity of capital allowing investors in developed nations to invest in developing nations

Corporations have greater flexibility to operate across borders Global mass media ties the world together

Increased flow of communications allows vital information to be shared between individuals and corporations around the world

Greater ease and speed of transportation for goods and people Reduction of cultural barriers increases the global village effect Spread of democratic ideals to developed nations Greater interdependence of nation-states Reduction of likelihood of war between developed nations Increases in environmental protection in developed nations.

Disadvantages of globalization

Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labour

Increased likelihood of economic disruptions in one nation effecting all nations Corporate influence of nation-states far exceeds that of civil society organizations and average individuals

Threat that control of world media by a handful of corporations will limit cultural expression

Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage

Greater risk of diseases being transported unintentionally between nations Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity

International bodies like the World Trade Organization infringe on national and individual sovereignty

Conclusion
One cannot deny that globalization has intensified a lot of hidden problems in developing countries and make some situation even worse for them. But the fault is not due to globalization but deficiency in their economy system. To survive in those challenges, developing should make good use of the opportunity and benefits that globalization brings. They should use the tremendous resources and technology, learn from the competitors and complete themselves.

REFERENCES
Manfred B. Steger (2003), Introduction to globalization. GLOBALIZATION: A Very Short Introduction (pp. 1-5). Oxford: Oxford University Press. Smith, T. J., & Weyers, J. Derivatives and other securities. The Journal of Economics, 8(2). Retrieved June 5, 2005, from http://econ.com/ds

Geoff Riley, Eton College, Different Waves of Globalisation. International Economy. Retrieved 2 0 0 6 , from http://tutor2u.net/economics/revision-notes/a2-macro-globalisationintroduction.html