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International Business Environment Assignment 1

Title:- Drivers of Globalization

Submitted to: Mr. Mahesh Chandra Joshi

Submitted by: Group - S Samveg Jain RQ3702B24 Rahul Arora - RQ3702B19 Arvinder Singh Virdi RQ3701 Shiwanee Rao RQ3701 Section SPQ09

Contents
CONTENTS..........................................................................................................2 INTRODUCTION TO GLOBALIZATION.....................................................................1 DRIVERS OF GLOBALIZATION ..............................................................................2 REASONS/BENEFITS OF GLOBALIZATION..............................................................3 TRADE.....................................................................................................................................4 ENVIRONMENT ............................................................................................................................5 INVESTMENT...............................................................................................................................6 TECHNOLOGY .............................................................................................................................7 CULTURE...................................................................................................................................8 INTERNATIONAL MONETARY FUND.......................................................................................................8 INTERNATIONAL LAW......................................................................................................................9 REFERENCES......................................................................................................9

Introduction to Globalization
Globalization is a process of interaction and integration among the people, companies, and governments of different nations. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world. Globalization is not new, though. For thousands of years, people and corporations have been buying from and selling to each other in lands at great distances, such as through the famed Silk Road across Central Asia that connected China and Europe during the Middle Ages. Likewise, for centuries, people and corporations have invested in enterprises in other countries. In fact, many of the features of the current wave of globalization are similar to those prevailing before the outbreak of the First World War in 1914. But policy and technological developments of the past few decades have spurred increases in cross-border trade, investment, and migration so large that many observers believe the world has entered a qualitatively new phase in its economic development. Since 1950, for example, the volume of world trade has increased by 20 times, and from just 1997 to 1999 flows of foreign investment nearly doubled, from $468 billion to $827 billion. This current wave of globalization has been driven by policies that have opened economies domestically and internationally. In the years since the Second World War, and especially during the past two decades, many governments have adopted free-market economic systems, vastly increasing their own productive potential and creating myriad new opportunities for international trade and investment. Governments also have negotiated dramatic reductions in barriers to commerce and have established international agreements to promote trade in goods, services, and investment. Taking advantage of new opportunities in foreign markets, corporations have built foreign factories and established production and marketing arrangements with foreign partners. A defining feature of globalization, therefore, is an international industrial and financial business structure.

Technology has been the other principal driver of globalization. Advances in information technology, in particular, have dramatically transformed economic life. Information technologies have given all sorts of individual economic actors such as consumers, investors, businesses, valuable new tools for identifying and pursuing economic opportunities, including faster and more informed analyses of economic trends around the world, easy transfers of assets, and collaboration with far-flung partners. Proponents of globalization argue that it allows poor countries and their citizens to develop economically and raise their standards of living, while opponents of globalization claim that the creation of an unfettered international free market has benefited multinational corporations in the Western world at the expense of local enterprises, local cultures, and common people. Resistance to globalization has therefore taken shape both at a popular and at a governmental level as people and governments try to manage the flow of capital, labor, goods, and ideas that constitute the current wave of globalization.

Drivers of Globalization
The media and almost every book on globalization and international business speak about different drivers of globalization and they can basically be separated into five different groups: Technological drivers Technology shaped and set the foundation for modern globalization. Innovations in the transportation technology revolutionized the industry. The most important developments among these are the commercial jet aircraft and the concept of containerization in the late 1970s and 1980s. Inventions in the area of microprocessors and telecommunications enabled highly effective computing and communication at a low-cost level. Finally the rapid growth of the Internet is the latest technological driver that created global e-business and e-commerce. Political drivers

Liberalized trading rules and deregulated markets lead to lowered tariffs and allowed foreign direct investments in almost all over the world. The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing opening and privatization in Eastern Europe are only some examples of latest developments. Market drivers As domestic markets become more and more saturated, the opportunities for growth are limited and global expanding is a way most organizations choose to overcome this situation. Common customer needs and the opportunity to use global marketing channels and transfer marketing to some extent are also incentives to choose internationalization. Cost drivers Sourcing efficiency and costs vary from country to country and global firms can take advantage of this fact. Other cost drivers to globalization are the opportunity to build global scale economies and the high product development costs nowadays. Competitive drivers With the global market, global inter-firm competition increases and organizations are forced to play international. Strong interdependences among countries and high two way trades and FDI actions also support this driver.

Reasons/benefits of Globalization
There are some reasons/benefits of globalization that act as the drivers as well. These can be categorized as follows:

Trade. Environment.
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Development. Investment. Technology. Culture. The IMF and the World Bank. International Law.

Trade
The tremendous growth of international trade over the past several decades has been both a primary cause and effect of globalization. The volume of world trade has increased twenty-seven fold from $296 billion to more than $8 trillion in 2005.1 Although international trade experienced a contraction of 12.2 percent in 2009the steepest decline since World War IItrade is again on the upswing. As a result of international trade, consumers around the world enjoy a broader selection of products than they would if they only had access to domestically made products. Also, in response to the ever-growing flow of goods, services and capital, a whole host of U.S. government agencies and international institutions has been established to help manage these rapidly-developing trends. Although increased international trade has spurred tremendous economic growth across the globe, raising incomes, creating jobs, reducing prices, and increasing workers earning power, trade can also bring about economic, political, and social disruption. Since the global economy is so interconnected, when large economies suffer recessions, the effects are felt around the world. When trade decreases, jobs and businesses are lost. In the same way that globalization can be a boon for international trade; it can also have devastating effects.

Environment
Environmental problems are now being seen as of international concern, not just national interest, such as protection of the oceans and the atmosphere from pollution. The environment is now considered the "common heritage of mankind," and environmental problems are increasingly the subject of international efforts because of their cross-border effects and the impossibility that just one or a few nations can solve these problems on their own. People have questioned the need for rigorous environmental protection, however, on scientific, economic, and sovereignty grounds. Critics of environmental protection argue that alleged dangers, such as global warming, have been exaggerated and the economic harm from regulation of natural resources has been minimized, in pursuit of a radical, anti-capitalist agenda. They argue that too much regulation is both unnecessary and ultimately harmful because it keeps people poor by preventing the competitive use of their resources. In contrast, advocates of environmental protection say that unregulated economic activity has led to environmental destruction and must be slowed, and they say that their critics are uniformed and pursuing their own agenda of unfettered capitalist expansion. Environmental protection can entail a drag on economic growth in the short-term. Industries that have to adjust to environmental regulations face disruption and higher costs, harming their competitive position. The link between the environment and economic development may be more complex than that, however. In fact, in many ways, protecting the environment and promoting economic
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growth are complementary goals. Poverty in developing countries is a leading cause of environmental degradation. Boosting economic growth may be an effective tool to promote protection of the environment. This is the idea behind the sustainable development movement, which seeks to advance economic opportunities for poorer nations in environmentally friendly ways. Year 2004 2005 2006 2007 2008 2009 Deforestation Deforestation Deforestation (sq. mi) 10, 588 7,276 5,447 4,453 4,621 2,881 (sq. km) 27, 423 18,846 14,109 11,523 11,968 7,464 change (%) 9% -31% - 49% -47% -47% -73%

Development
One of the reasons for attention to development is the stark divide between rich and poor countries. The United Nations Development Program (UNDP) each year rates countries' development according to its Human Development Index (HDI), a mix of factors intended to measure citizens' access to health, education, and a decent standard of living. In the 2010 Human Development Index, the top five countries were Norway, Australia, New Zealand, United States and Ireland. The bottom five countries of the Index were Zimbabwe, Congo, Niger, Burundi, and Mozambique. Globalization helps developing countries get access to the important resources and helps in improving the standard of living of the people.

Investment
International investment is a powerful force in propelling the world toward closer economic integration. Investment can alter entire methods of production through transfers of knowledge, technology, and management techniques, and thereby can initiate much more change than the simple trading of goods. Over the past years, foreign investment has grown at a significantly
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more rapid pace than either international trade or world economic production generally. In fact, foreign direct investment in the United States in 2009 equaled roughly $143 billion (down from its peak $325 billion in 2008). The tremendous growth in levels of foreign direct investment is a recent phenomenon and is one of the most powerful effects and causes of globalization. In 1982, the global total of FDI flows was $57 billion. By the year 2007, FDI flows reached $1.5 trillion, breaking the record established in 2000 nearly 30 times the level 25 years earlier. (Due to the recent global financial and economic crisis, however, FDI flows have decreased to an estimated $1.12 trillion in 2010.) But as with many of the other aspects of globalization, foreign investment is raising many new questions about economic, cultural, and political relationships around the world. Flows of investment and the rules which govern or fail to govern it can have profound impacts upon such diverse issues as economic development, environmental protection, labor standards, and economic and political stability. At the same time, focusing entirely inward on domestic production to limit foreign investment and international interaction is largely detrimental to one's economy. For some nations, this has manifested itself in import substitution industrialization (ISI), which refers to an international economic and trade policy based on the belief that a nation should reduce its dependency on foreign investment and goods by domestic production of industrial goods.

Technology
Information Technology (IT) is a driving factor in the process of globalization. Improvements in the early 1990s in computer hardware, software, and telecommunications greatly increased peoples ability to access information and economic potential. These advances have facilitated efficiency gains in all sectors of the economy. IT drives the innovative use of resources to promote new products and ideas, across nations and cultures, regardless of geographic location. Creating efficient and effective channels to exchange information, IT has been the catalyst for global integration. Products based upon, or enhanced by, information technology are used in nearly every aspect of life in contemporary industrial societies. The spread of IT and its applications has been extraordinarily rapid. Just 30 years ago, for example, the use of desktop
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personal computers was still limited to a fairly small number of technologically advanced people. The overwhelming majority of people still produced documents with typewriters, which permitted no manipulation of text and offered no storage.

Culture
Thinking about globalization in the broadest possible terms, there are three principal ways that globalization can be seen to have an impact on global culture. These occur through: The development of a new culture of the globally connected professionals and especially business elites. The proliferation of pop culture which many critics complain is primarily American. The diffusion of beliefs and values about broader issues such as human rights and other social mores.

International Monetary Fund


The IMF would be aimed at stabilizing global financial markets and national currencies by providing the resources to establish secure monetary policy and exchange rate regimes, while the World Bank would rebuild Europe by facilitating investment in reconstruction and development. Although intended to benefit the global economy and contribute to world peace, the World Bank and the IMF, collectively referred to as international financial institutions (IFIs), have become primary targets of the anti-globalization movement. In many countries, they are resented and are viewed as imposing Western-style capitalism on developing countries without regard to the social effects. The IFIs are pillars of globalization. Designed to help manage the international financial system, they have taken on major roles as drivers of closer economic integration of all of the world's countries, from the advanced to the least developed. They have provided funds and advice to assist countries with their economic development and policy-making. At the same time, they are subject to criticism on many levelsfor intrusiveness into the economic and political sovereignty of nations dependent on their aid, lack of transparency, and impact of their policies on societies and the environment.

International Law
A vast network of international law and dozens of international organizations make globalization possible. Treaties and other types of agreements among countries set rules for international trade and finance such as the GATT, foster cooperation on protecting the environment such as the Kyoto Protocol, and establish basic human rights such as the International Covenant on Civil and Political Rights. Meanwhile, among many international organizations, the United Nations facilitates international diplomacy, the World Health Organization coordinates international public health and protection, and the International Labor Organization monitors and fosters workers rights around the world. The scope and authority of international law have thus expanded dramatically during the era of globalization. Historically, international law addressed only relations between states in certain limited areas (such as war and diplomacy) and was dependent on the sovereignty and territorial boundaries of distinct countries. But globalization has changed international law in numerous ways. For example, as globalization has accelerated, international law has become a vehicle for states to cooperate regarding new areas of international relations, many of them requiring states to rethink the previous notions of the inviolable sovereign state. The continued growth of international law is even more remarkable in this sense, since states, having undoubtedly weighed the costs and benefits of the loss of this valuable sovereignty, have still chosen to continue the growth of international law. Because of the need for enhanced international cooperation, globalization has therefore given new meanings to classic issues. Questions of the authority of a country within its own borders that is, its state sovereignty the role of the individual in the international community of nation-states, and the authority of international organizations, have all evolved in light of the forces of globalization.

References
Wikipedia.org Imf.org Globalpolicy.org
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