Explain what is meant by the term globalisation. Identify and analyse the key drivers of the process of globalisation over the last twenty years. During the mid 1990’s the International Monetary Fund has defined globalisation as: ‘The growing interdependence of countries world-wide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology’ (Turner, 2006).
Over the years, this interdependence of countries worldwide has increased dramatically. An indication of this has been the increase in the number of domestic and foreign strategic alliances by six times during the period 1989-1999 (Nam-Hoon Kang, Organisation for Economic Co-operation and Development, 2001). This change clearly indicates how companies from all over the world interact with each other and form partnerships in response to the phenomenon of globalization.
The main drivers that have helped globalization to expand and deepen over the past years have been technological revolutions such as the widespread use of Internet and the ease of trans-boundary travelling, the creation of international institutions that encourage free trade by removing trade barriers, the establishment of multinational corporations which seek to increase their profits by taking advantage of what globalisation has to offer (Economics for business 5th edition John Sloman p. 498) and last but not least the change of governments’ policies towards deregulation and privatisation (Development in Practice Taylor & Francis p. 24). This study aims to outline and examine these key drivers that made it possible for globalisation to evolve. The study will also focus on the magnitude of the drivers with relation to globalisation. “Globalisation is both a result and a force of modernisation and capitalist expansion, entailing the integration of all economic activity (local, national, and regional) into a ‘global’ market place: that is, a market place that transcends geopolitical borders and is not subject to regulation by nation states. (Development in Practice Taylor & Francis p. 524) Technological revolutions are viewed by many as one of the key drivers of globalisation. (Bradley 1993, Dicken 1992). Firstly, the reduction in transportation costs and the ability to communicate freely and easily due to the advances in technology have caused tourism to rapidly grow over the years (Tourism in the age of globalisation Salah Wahab, Chris Cooper p. 320). Most importantly, not only individual people as passengers were benefited by the lower transportation costs.
In the last half of the twentieth century, the price of transporting products worldwide has fallen dramatically due drops in the cost of air travel, the containerization and increasing ship size (Chrystal, 2007, p. 11). Containers have the ability to move non-fragile goods at the cost of 1% of retail value to any place. In the past years, when the transportation of goods was done through shipping before containers were invented, the cost involved used to be around 10%-20% of retail value. by BCRA) The striking difference in cost indicates the new potential for transfer of goods at increased quantities at a faster and cheaper rate from one place to another. In addition to this, the rapid grow of communications, especially through Internet has added significant strengths to globalization (Economics of globalisation By Partha Gangopadhyay, Manas Chatterji). The Internet has provided a powerful and cheap tool for sharing of information on goods and services through the form of advertising. This helped firms to boost their sales since they can target a bigger range of potential customers at a very low cost.
The trends clearly show a constant increase of Europeans e-commerce sales from 2006 to 2011, reflecting a similar increase in the corporations that are investing in the e-business (ELECTRONIC COMMERCE AND THE GLOBALISATION ERA). Furthermore, internet enables free, fast and easy communication of ordinary people from all around the world which also serves as a factor that promotes globalisation and exchange of views and ideas on new products and services (Economics of globalisation By Partha Gangopadhyay, Manas Chatterji).
In the recent years, technology is undoubtedly an enabling driver of globalisation but the latter is also influenced by economic motives. This actually means that globalisation is also driven by the economic motives of people. These motives have to do with shifting patterns of production and consumption from one place in the world to another (Tourism in the age of globalisation p. 321). More specifically, businesses seek new opportunities to lower their costs, to achieve savings of scale and to establish a competitive global position by gaining a greater global market share (Economics for business 5th edition).
As a result of these motives, the foreign direct investment over the years has increased substantially and inevitably the number of cross-borders mergers and acquisitions has also increased. Corporations are trying to lower production costs by shifting the production to countries with cheap labour as well as to countries with abundant resources such as raw materials. China, India and Eastern Europe have been in the recent years the targets of FDI since they possess a production comparative advantage because of abundant and low wage labour force (By Great Britain: Parliament: House of Commons: Treasury Committee).
Furthermore, the reduction in trade barriers, the lower transportation costs and the development of stock markets, increased the corporations’ ability to trade and invest at a global scale. For example, stock markets have served as mechanisms for important inflow of capital for corporations since they can go public and raise significant capital that can be used for FDI (http://www. globaldesignandbusiness. org). Someone can easily distinguish that while benefiting from what globalisation is offering the corporations are themselves driving the phenomenon through their innovations on technology and their overseas activities.
The corporations’ economic activities, which are mentioned in the previous paragraph, are also related to the trade institutions that are world widely formed. The world trade institutions are associations that aim to the liberalisation of trade and encouragement of transnational economic actions. Such institutions are namely the WTO, NAFTAA and EFTA. These institutions have similar goals ie to increase competition and economic efficiency through the reduction of trade barriers and the governments’ regulations over trade within the members of their organisations.
These organisations are having their members agreeing in reduction of tariffs and other policies (such as antidumping and subsidies) in order to make the governments transparent. The organisations are also setting special committees with the task of making sure that the pre-agreed policies are followed and that no member gets out of line. Because of the establishment of such institutions and the clear increase in their membership with ascending time the world trade has increased dramatically (http://www. wto. org, http://www. nafta-sec-alena. org).
A good indication of that is the fact that the United Kingdom’s imports and exports contribution to its GDP has increased from 45% to 57% over the period of 1950 to 2005 ( Great Britain: Parliament: House of Commons: Treasury Committee). Consequently, as the world institutions become stronger more active and more influential, globalisation is strengthened due to the improved and amplified interactions of corporations and countries as a whole. The governments as the years pass are trying to create a more competitive environment so that they can become attractive for foreign inflows of capital and investment.
Furthermore, they want to minimize the outflows to less regulated countries (Global public policy: governing without government: Wolfgang H. Reinicke p. 15). In order to achieve these goals, they have been converting their policies towards a more economically favourable manner. Inevitably they have been trying to reduce their trade barriers and accelerate economic growth by joining the world trade institutions (e. g. WTO) as well as the free trade blocks such as the E. U and ASEAN. The trading blocs have a large number of objectives that bring the country-members closer to each other.
Some of these objectives demand that the members cannot practise anticompetitive behaviour such as high tariffs, quotas and anti-competitive taxation whereas additionally peace, mutual respect and cultural acknowledgement are also promoted (http://www. aseansec. org, http://europa. eu). Looking at another aspect in the chapter of the governments’ policies that is driving globalisation, someone could identify the remarkable example of the transition countries. The transition countries are suggested to be China, the former Soviet Union, ex-communist Europe countries and third world countries such as India (http://en. ikipedia. org). Over the past 20 years these countries have undergone various economic and political changes that have substantially shifted the countries from the previously central planned economies towards free market economies. As a result liberalisation and privatisation have been encouraged (Privatization in transition countries: By Oleh Havrylyshyn, Donal McGettigan p. 7 and 8). Because of those changes, globalisation has been favoured through its inherent characteristics to become stronger and deeper with modernisation and capitalist expansion. (Taylor &
Francis). Looking back to the key drivers of globalisation we have presented in this study, they have all been relatively important since they are all favouring globalisation correspondingly. It is clear that the technological advances and the governments’ policies and behaviours separately and distinctly are really adding to the increasing pace of globalisation. However, the interesting thing that someone could safely say, it is that these drivers are interrelated which suggests that one driver is driving the other and both of them are driving globalisation. References: 1.
European Business 2nd Edition Debra Johnson Colin Turner p. 59 2. Nam-Hoon Kang, Organisation For Economic Co-Operation And Development, 2001 3. Economics For Business 5th Edition John Sloman p. 498, Development In Practice Taylor & Francis p. 524 4. Tourism In The Age Of Globalisation by Salah Wahab, Chris Cooper (Bradley 1993, Dicken 1992) p. 320-323 5. Economics By Richard G. Lipsey, K. Alec Chrystal p. 11 6. ELECTRONIC COMMERCE AND THE GLOBALISATION ERA by STUPARU, DRAGOS, VASILE, TOMITA (article) 7. Economics of globalisation By Partha Gangopadhyay, Manas Chatterji p. 191-193 8.
Globalisation: prospects and policy responses, fourteenth report of session … By Great Britain: Parliament: House of Commons: Treasury Committee p. 7-12 9. http://www. globaldesignandbusiness. org 10. http://www. wto. org 11. http://www. nafta-sec-alena. org 12. Global public policy: governing without government: Wolfgang H. Reinicke p. 15 13. Privatization in transition countries: By Oleh Havrylyshyn, Donal McGettigan p. 7-8 14. Monetary Policy under Uncertainty Proceedings of the 2007 Money and Banking Seminar – BCRA p. 86 (report) 15. http://www. aseansec. org 16. http://europa. eu 17. http://en. wikipedia. org