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Globalization: The Impact on International Trade & Technology

B. Nelson Santiago
EAR-Q Corporation
October 5, 2007
In-Focus Magazine, 2007

In a world that consistently reinvents itself on all levels, from Politics, Health and even sports, why
would business be any different? Although "Globalization" is a fairly new word, we have only recently
begun to better understand the word, which in turn has created a roadway to continue to only grasp the
concept of its connotation.
In an ever-shrinking world with ever-evolving technology and Foreign Policies, Globalization has
finally matured past what was once known as an "Emerging Trend" to what we have now accepted as a
Business Reality. From back in WWII, having definitive signs of a simultaneous impact on world
societies, Globalization has existed in trends throughout history.
The impact on International Trade & Technology by Globalization is felt likewise, globally. A need for
full-bodied infrastructure in support of global initiatives is not unique to the U.S. John Youngbeck,
founder and Executive Director of, The Foundation for Global Mobility Statement states, China is
embarking upon a massive plan to update its road and rail network to allow it to continue to be the
global export juggernaut it is. According to the World Bank, China is responding because of
competitive issues. Currently, 20% of the price of products in China is attributable to logistics costs vs.
10% in the U.S. And the U.S. is pouring money into Chinese infrastructure. The World Bank estimates
U.S. interests will invest up to $4.25 B in Bejing infrastructure alone, improvements needed to support
the 08 Olympics and beyond. In India, new affluence is spawning congestion in metro areas while 40%
of rural areas do not have access to "all weather roads". Infrastructure is not keeping up. The promise
of new prosperity in the Subcontinent may be headed for a roadblock. Infrastructure development and
investment is increasing keyed to environmental compliance in the Western world and this is spreading
to the East."
With more recent global concerns like the War on Terror, regulation, trade-policy, governance and nearshore security solutions are mission-critical in establishing a superior foundation for the future of
Globalization. According to Jackie Zelman, Director of the The Johnson A. Edosomwan Leadership
Institute & The Information Technology Executive Institute of the University of Miami, our future
generations are well on their way in their preparedness for the demands of Globalization on
International Trade & Technology and our global economy. She says, "As for the future, its inhabitants
will be "digital natives". a phrase coined by Marc Prensky, author of Digital Games-Based Learning.
These are people who have grown up totally immersed in technology and are now graduating from
schools and universities and entering the workforce. They are avid consumers and early adapters of

new technologies. They are able to create relationships among people and information quickly and
fearlessly. They are already impacting the workplace and business. They do not require the same type
of training that new employees have needed in the past and their buying patterns are beginning to
dictate product success or failure in the marketplace."
Our Forefather laid the groundwork for us today in the form of guidance and policy like that of the
Declaration of Independence and the Treaty of Paris of 1783. In our exploration of new treaties and
foreign trade and policy, it will be imperative for us to understand a global need and impact analysis of
International Trade & Technology. How ironic that in a month where we celebrate our independence,
we address a business reality that sheds independence and encourages collaboration.
Accepted Paper Series
Santiago, B. Nelson, Globalization: The Impact on International Trade & Technology (October 5, 2007). In-Focus
Magazine, 2007. Available at SSRN:

The Impact of Globalization, Trade

Agreements and Emerging Trade Blocs on
U.S. Industry

As we enter into the 21st century, a new era is approaching at warp speed that is
affecting virtually every aspect of our lives. As a result, many economic assumptions
no longer seem to apply yet new realities still need to be defined. These
ambiguities are causing us to question our business tactics and reassess our
Ushered in with this new era are dynamic trends toward globalization, the
proliferation of trade agreements and the resulting emergence of competing trade
blocs that are taking us by storm. They affect every nation, every level of industry,
and virtually every business. Keeping up with these changes is extremely difficult.
And basing decisions on old assumptions undoubtedly will lead to undesirable

The Trend Toward Globalization

Every country in the world is touched by the globalization trend. In order to survive in the 21st century, companies in every
industry are taking steps to expand internationally through trade and investment. And those companies that do not recognize
this trend will likely become a fatality of globalization.
For many years, the United States enormous internal market has more than satisfied the needs of U.S. industry. But today,
this is no longer the case. The world is quickly becoming economically integrated, forcing unprecedented changes at every
level of industry. As a result, U.S. companies, small and large, are facing record levels of foreign competition. Consequently,
for companies to survive and remain competitive in this environment, it takes more than a quality product at an attractive
price. Today, it requires international expansion.
A primary economic goal of the United States is to maintain a high and rising standard of living. To achieve this, the United
States, which accounts for only 4 percent of the worlds population, must sell and to the other 96 percent. Many U.S. firms
have come to understand this and are developing strategies designed to support worldwide exportation and investment. In
fact, in just the last decade, the number of companies exporting especially small and medium-size companies has
increased significantly. According to President Clinton, Exports now account for almost one-third of real U.S. economic
growth and are expected to grow faster than overall economic activity for the remainder of this decade.

U.S. Trade and Investment Is Rising

From 1988 through 1997, U.S. exports of goods and services increased from $430.2 billion to $932.3 billion, an increase of
117 percent. In 1997, the Office of Economic Affairs, Executive Office of the President, reported that U.S. exports of goods and
services supported 12 million American jobs. Predictions indicate that by the year 2000, exports will support 16 million jobs.
In fact, the number of export-related jobs has grown six times faster than total U.S. employment. Whats more, according to
the Office of the Chief Economist, Office of International Macroeconomic Analysis, Department of Commerce, workers in
jobs supported directly by exports are paid 20% higher than the average national wage. Workers in jobs supported directly in
high-technology industries are paid 34% more. And workers in jobs supported both directly and indirectly by exports are paid
13% more.
The non-traditional export of services also will become a major generator of economic growth in the future for many U.S.
sectors. Typically, services now account for 60 to 70 percent of gross domestic product (GDP) for industrial members of the
Organization for Economic Co-operation and Development (OECD). And because services are not yet internationally traded
on a large scale, the benefit to their trade balances is not yet evident. Currently, international trade in services is growing at a
faster rate than trade in goods, almost 13 percent faster from 1985 through 1996. As this trend continues, service exports will

have a greater and greater positive impact on a companys and countrys trade balance.
There is no doubt that companies that export generally fare better than companies that do not. According to a report
published by the Institute for International Economics and The Manufacturing Institute, research organizations based in
Washington, D.C., manufacturing companies involved in exporting:
Are larger than non-exporting companieson average four times larger in employment and six times larger in sales;
Adopt new technologies more frequently than non-exporting companies;
Have an advantage in avoiding plant shutdowns compared to non-exporting companies of the same industry, size, and
capital intensity;
Had an average annual failure rate of only 3 percent, as compared to 9 percent for non-exporters, during an 11-year period;
Avoided employment shrinkage to a greater extent than other similar manufacturing companies during an 11-year period.

Globalization is Affecting Business in Every Country

Many companies in foreign countries already have been affected by globalization. For example, approximately 30 percent of
Canadian gross national product (GNP) is dependent on exports. Hence, in order for Canada to maintain its high standard of
living, Canadian companies must operate on economies of scale that necessitate larger markets than are provided by its
domestic population base of only 27 million. As a result, Canadian exports are of extreme importance to Canadian companies
and to the overall well-being of the Canadian economy. Very simply, many Canadian companies must export or go out of
Companies in many other areas of the world, especially Belgium and Hong Kong, also have small domestic markets and need
to export to maintain their high standards of living. In many cases, what is exported are actually imports to which value has
been added by some means.
For the first time, in 1996, world merchandise exports exceeded $5 trillion. According to the World Trade Organization
(WTO), the United States was the leader, with 11.8 percent of world merchandise export share. However, on a per capita
basis, the United States ranked low as compared to other developed countries. Germany was second with 9.9 percent;
followed by Japan with 7.9 percent; France with 5.5 percent; the United Kingdom with 4.9 percent; Italy with 4.8 percent;
Canada with 3.8 percent; and the Netherlands with 3.8 percent. Interestingly, in ninth place was Hong Kong with 3.4 percent
of world export market share; in 11th place was China with 2.9 percent, a country with a massive population compared to
Hong Kong.

The Proliferation of Trade Agreements and the Emergence of Trade Blocs

With the proliferation of trade agreements, which are resulting in the emergence of competing trade blocs, businesses are
striving to gain secure access to foreign markets, and in turn, are achieving a higher degree of economic security and

In The Spotlight

Success Selling Globally Requires Cultural Localization

The U.S.- Canada Trade Relationship Continues To Grow as New Opportunities Emerge
Free Trade: FAQ and Talking Points
Trade and Investment: FAQ and Talking Points
Since 1992, major agreements, such the North American Free Trade Agreement, as well as 200 other lesser-known trade
agreements, have been negotiated with the United States. They are responsible for substantially reducing foreign trade
barriers, allowing U.S. companies to export more of their products. Numerous other trade agreements that have acted as
building blocks in the establishment of trade blocs have been negotiated that do not include the United States. These

include the Central American Common Market, the Asia-Pacific Economic Cooperation Forum, the Arab League, the Andean
Pact, the Economic Community of West Africa, the Association of Southeast Asian Nations, and the East Asia Economic
Caucus, to name a few.
Most trade agreements owe their success, at least in part, to prior reductions in trade barriers between the parties to the
agreement. For example, integration and cooperation in the iron, steel, coal, and nuclear energy sectors set a precedent for
Western Europe to tear down barriers in other sectors. The U.S.-Canada Free Trade Agreement was preceded in 1965 by the
Automotive Products Trade Act, which allowed duty-free trade between the United States and Canada in almost all motor
vehicles and parts. The progeny of these agreements more internationally competitive industries have made business
and government leaders in participating countries aware of the benefits derived by the elimination of trade barriers.
But trade agreements have affected more than just trade barriers; they have had a major impact on trade and investment
worldwide. In fact, they are responsible for shaping business relationships among companies across the globe.
Today, the three largest trade blocs include the European Union, chiefly involving West European countries and spreading
eastward; the North American Free Trade Agreement, among Canada, the United States and Mexico and spreading south;
and an informal bloc in East Asia, currently dominated by Japan, but soon to be dominated by China. Based on past trade
patterns and policies, and anticipated policies, these blocs will continue to develop, gaining increased strength and influence.

The European Union

The European Union (EU) now encompasses 15 countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Many other countries are
waiting for full membership. Turkey applied in 1987; Cyprus and Malta applied in 1990; Switzerland applied in 1992; and
Hungary and Poland applied in 1994. Six countries applied in 1995: Romania, Slovakia, Latvia, Estonia, Lithuania, and
Bulgaria. And, the Czech Republic applied for membership in 1996. As the EU expands, it will continue to gain greater
economic and political strength, in addition to an enhanced level of global competitiveness. Thus, should all Eastern
European countries eventually become members of the EU, its numbers of consumers would swell to 850 million to 900
In 1997, U.S. exports to Western Europe exceeded $155 billion, up by more than 32 percent from 1990, and far exceeded
exports to Eastern Europe, which barely reached $7.7 billion. U.S. direct investment throughout Europe has outpaced
exports, and reached almost $365 billion in 1995, an increase of 54.6 percent since 1991. In fact, according to an Arthur
Andersen report on international investment, Europe was the worlds largest recipient of foreign investment in 1995.

East Asia
In recent years, trade among East Asian nations has increased at a much faster pace than trade outside the region. Through
the development of several trade agreements such as the Association of Southeast Asian Nations (ASEAN), comprised of
Malaysia, the Philippines, Singapore, Thailand, Brunei, and Indonesia the region is becoming more trade-cohesive.
However, economic integration is primarily influenced by Japanese investment in the region, creating an informal trade bloc.
Even considering the Asian financial crisis that began in 1997, which will no doubt have a massive impact on regional
developments and world growth, many predict that Asia will still become the worlds dominant region in the next decade.
Prior to the Asian financial crisis, many Asian economies were growing at the fastest rates in the world. However, as the
region emerges from the crisis, its purchasing power will again increase at favorable rates and provide a plethora of export
and investment opportunities. According to a report published by the Asian Development Bank, A modest recovery is
expected in the affected economies in 1999, but recovery to pre-GDP growth rates and per capita income levels will take a

number of years. The report predicted that the Asian Development Banks 35 developing member countries would see
average GDP growth decline to 4 percent, as compared to 6.1 percent in 1997. Yet, growth is expected to recover to
approximately 5.1 percent in 1999.
Many U.S. companies that have watched Asian economic developments closely over the last decade do not appear to be
dissuaded. Thus, many are positioning themselves to take advantage of new opportunities, while establishing new strategies
to mitigate risks caused by the economic crisis.

The Americas
The North American Free Trade Agreement (NAFTA) was implemented on January 1, 1994, creating a trade area of 360
million consumers and ensuring secure markets for U.S., Canadian and Mexican products. One of the primary goals of
NAFTA is to encourage expansion of business partnerships to promote greater efficiency, and to counter fierce competition
from the Far East and Europe. So far, NAFTA appears to be working.
Since the Agreements implementation, there has been a proliferation of joint ventures and strategic alliances between U.S.
and Mexican companies. Already strong ties with Canada also have prospered. The benefits derived from this teamwork will
continue to make the United States, Canada and Mexico more globally competitive at a time when regional trade alliances are
becoming increasingly important in the world economy.
For the first time in 1997, Mexico followed Canada as the United States second largest export destination, pushing Japan into
third place. And the coming Free Trade Agreement of the Americas (FTAA) in which all the benefits given to Mexico and
Canada under NAFTA will be extended to the rest of Central and South America will further increase cooperation among
nations in the Western Hemisphere. Such an agreement will make the Americas one of the largest trading areas in the world,
with a population of 750 million consumers, and combined gross domestic product of more than $9 trillion.

Production Sharing In the Americas

Production sharing occurs when various aspects of an article's manufacture are performed in more than one country. U.S.
companies regard this as an important tool allowing them to improve the relative price competitiveness of their products,
help them keep higher wage jobs in the United States, and provide an important market for U.S. exports of components.
The growth in U.S. production sharing imports (primarily under HS 9802.00.80) in 1994 resulted mainly from larger
shipments of motor vehicles and parts, televisions, and other electronic products from Mexico; apparel from the Caribbean
Basin and Mexico; and semiconductors from Southeast Asia. Today, a production sharing shift is underway with more
foreign assembly moving to Latin America and away from East Asia.
U.S. textile manufacturers are one group that illustrates the benefits from closer economic integration with Latin America
and cooperation in production sharing. As such, the United States is one of the worlds largest and most efficient producers of
textile mill products. However, over the years, textile manufacturers output has dropped, primarily due to a reduction in
apparel production in the United States the single largest market for the textile industry. East Asian producers of apparel
have become major suppliers to the United States. Unfortunately for U.S. textile producers, the East Asians source their
textiles in East Asia, not in the United States.
In an attempt to sustain remaining domestic market share, U.S. apparel producers have expanded their production-sharing
operations in Mexico and the Caribbean benefiting from the lower wages and tariff preferences. This activity also benefits
the U.S. textile industry. Under a free trade agreement of the Americas, more U.S.-controlled apparel production will move to
Latin America from East Asia. U.S. textile mills will likely supply Latin apparel producers, where as Asian producers will
continue to source their textiles in Asia. Importantly, a free trade agreement of the Americas will secure Latin American

market share for U.S. firms vis-a-vis European and Asian firms.
Within each of the worlds trade blocs, small and large, free trade will continue to become more entrenched. Future trade
between blocs is not so clear. Many fear that individual blocs will become inwardly focused and protectionist. Even if
protectionism does not emerge outright, trade diversion could have a similar effect. Trade diversion occurs when members of
a trade group buy more goods from each other due to the elimination of internal trade barriers, and displace non-member
goods. For manufacturers and distributors, foreign market share may be at risk.
Should the EU or the Asian emerging bloc turn inward and establish protectionist measures, U.S. firms could be at a
disadvantage. Or through trade diversion, its possible that EU and Asian bloc members will purchase more goods from their
own blocs at the expense of non-member firms. However, provided the EU or Asia does not look inward and establish
protectionist measures, a more economically viable Europe and Asia could result in more U.S. imports. Further integration
among EU members, for example, creating one set of standards and regulations, could make the export and investment
process less complex for outsiders.

Action Is Required By Government Agencies Interested in Attracting Investment

Many U.S. manufacturers, small and large, have taken steps to expand internationally. However, many have not and need
to or face stiffer competition for shrinking market share. In an effort to remain competitive, many U.S. firms will need to
engage in production sharing. And many state and local governments that have not developed a strategy to accommodate
these changes quickly will need to do so.
With the understanding that developing countries will continue to compete for low-technology, labor-intensive jobs, the
Canadian government has shrewdly positioned Canadian industry to compete well into the next century. It has identified and
shifted resources to industries where it has a competitive edge and created investment policies to suit the needs of its target
market: manufacturers of high-technology goods.
Many U.S. state and local governments should heed Canada's policy direction, which has been responsible for attracting the
type of investment that will help make Canada and its workers competitive for years to come. If not, highly sought after
foreign investment that is vital to creating high-paying U.S. jobs will float to more attractive locations.

This article appeared in U.S. Sites and Development, 1998

How Globalization Affects Developed Countries

By Nicolas Pologeorgis
The phenomenon of globalization began in a primitive form when humans first settled into different
areas of the world; however, it has shown a rather steady and rapid progress in recent times and has
become an international dynamic which, due to technological advancements, has increased in speed

and scale, so that countries in all five continents have been affected and engaged.
What Is Globalization?
Globalization is defined as a process that, based on international strategies, aims to expand business
operations on a worldwide level, and was precipitated by the facilitation of global communications due
to technological advancements, and socioeconomic, political and environmental developments.
The goal of globalization is to provide organizations a superior competitive position with
lower operating costs, to gain greater numbers of products, services and consumers. This approach to
competition is gained via diversification of resources, the creation and development of new investment
opportunities by opening up additional markets, and accessing new raw materials and
resources. Diversification of resources is a business strategy that increases the variety of business
products and services within various organizations. Diversification strengthens institutions by lowering
organizational risk factors, spreading interests in different areas, taking advantage of market
opportunities, and acquiring companies both horizontaland vertical in nature.
Industrialized or developed nations are specific countries with a high level of economic development
and meet certain socioeconomic criteria based on economic theory, such as gross domestic
product (GDP), industrialization andhuman development index (HDI) as defined by the International
Monetary Fund (IMF), the United Nations (UN) and the World Trade Organization(WTO). Using these
definitions, some industrialized countries in 2012 are: Austria, United Kingdom, Belgium, Denmark,
Finland, France, Germany, Japan, Luxembourg, Norway, Sweden, Switzerland and the United States.
SEE: What Is The World Trade Organization?
Components of Globalization
The components of globalization include GDP, industrialization and the Human Development Index
(HDI). The GDP is the market value of all finished goods and services produced within a country's
borders in a year, and serves as a measure of a country's overall economic output. Industrialization is a
process which, driven by technological innovation, effectuates social change and economic
development by transforming a country into a modernized industrial, or developed nation. The Human
Development Index comprises three components: a country's population's life expectancy, knowledge
and education measured by the adult literacy, and income.
The degree to which an organization is globalized and diversified has bearing on the strategies that it
uses to pursue greater development and investment opportunities.
The Economic Impact on Developed Nations
Globalization compels businesses to adapt to different strategies based on new ideological trends that
try to balance rights and interests of both the individual and the community as a whole. This change
enables businesses to compete worldwide and also signifies a dramatic change for business leaders,
labor and management by legitimately accepting the participation of workers and government in
developing and implementing company policies and strategies. Risk reduction via diversification can
be accomplished through company involvement with international financial institutions and partnering
with both local and multinational businesses.
SEE: Evaluating Country Risk For International Investing
Globalization brings reorganization at the international, national and sub-national levels. Specifically, it
brings the reorganization of production, international trade and the integration of financial markets.
This affects capitalist economic and social relations, via multilateralism
and microeconomicphenomena, such as business competitiveness, at the global level. The
transformation of production systems affects the class structure, the labor process, the application of
technology and the structure and organization of capital. Globalization is now seen as marginalizing the

less educated and low-skilled workers. Business expansion will no longer automatically imply
increased employment. Additionally, it can cause high remuneration of capital, due to its higher
mobility compared to labor.

The phenomenon seems to be driven by three major forces: globalization of all product and financial
markets, technology andderegulation. Globalization of product and financial markets refers to an
increased economic integration in specialization andeconomies of scale, which will result in greater
trade in financial services through both capital flows and cross-border entry activity. The technology
factor, specifically telecommunication and information availability, has facilitated remote delivery and
provided new access and distribution channels, while revamping industrial structures for financial
services by allowing entry of non-bank entities, such as telecoms and utilities.
Deregulation pertains to the liberalization of capital account and financial services in products, markets
and geographic locations. It integrates banks by offering a broad array of services, allows entry of new
providers, and increases multinational presence in many markets and more cross-border activities.
In a global economy, power is the ability of a company to command both tangible and intangible assets
that create customer loyalty, regardless of location. Independent of size or geographic location, a
company can meet global standards and tap into global networks, thrive and act as a world class
thinker, maker and trader, by using its greatest assets: its concepts, competence and connections.
Beneficial Effects
Some economists have a positive outlook regarding the net effects of globalization on economic
growth. These effects have been analyzed over the years by several studies attempting to measure the
impact of globalization on various nations' economies using variables such as trade, capital flows and
their openness, GDP per capita, foreign direct investment (FDI) and more. These studies examined the
effects of several components of globalization on growth using time series cross sectional data on trade,
FDI and portfolio investment. Although they provide an analysis of individual components of
globalization on economic growth, some of the results are inconclusive or even contradictory.
However, overall, the findings of those studies seem to be supportive of the economists' positive
position, instead of the one held by the public and non-economist view.
Trade among nations via the use of comparative advantage promotes growth, which is attributed to a
strong correlation between the openness to trade flows and the affect on economic growth and
economic performance. Additionally there is a strong positive relation between capital flows and their
impact on economic growth.

Foreign Direct Investment's impact on economic growth has had a positive growth effect in wealthy
countries and an increase in trade and FDI, resulting in higher growth rates. Empirical research
examining the effects of several components of globalization on growth, using time series and cross
sectional data on trade, FDI and portfolio investment, found that a country tends to have a lower degree
of globalization if it generates higher revenues from trade taxes. Further evidence indicates that there is
a positive growth-effect in countries that are sufficiently rich, as are most of the developed nations.
The World Bank reports that integration with global capital markets can lead to disastrous effects,
without sound domestic financial systems in place. Furthermore, globalized countries have lower
increases in government outlays and taxes, and lower levels of corruption in their governments.
One of the potential benefits of globalization is to provide opportunities for reducing macroeconomic
volatility on output and consumption via diversification of risk.
Harmful Effects
Non-economists and the wide public expect the costs associated with globalization to outweigh the
benefits, especially in the short-run. Less wealthy countries from those among the industrialized
nations may not have the same highly-accentuated beneficial effect from globalization as more wealthy
countries, measured by GDP per capita etc. Although free trade increases opportunities for international
trade, it also increases the risk of failure for smaller companies that cannot compete globally.
Additionally, free trade may drive up production and labor costs, including higher wages for more
skilled workforce.
Domestic industries in some countries may be endangered due to comparative or absolute advantage of
other countries in specific industries. Another possible danger and harmful effect is the overuse and
abuse of natural resources to meet new higher demands in the production of goods.
SEE: The Globalization Debate
The Bottom Line
One of the major potential benefits of globalization is to provide opportunities for reducing
macroeconomic volatility on output and consumption via diversification of risk. The overall evidence
of the globalization effect on macroeconomic volatility of output indicates that although direct effects
are ambiguous in theoretical models, financial integration helps in a nation's production base
diversification, and leads to an increase in specialization of production. However, the specialization of
production, based on the concept of comparative advantage, can also lead to higher volatility in specific
industries within an economy and society of a nation. As time passes, successful companies,
independent of size, will be the ones that are part of the global economy.