Before I talk about the future of globalization it is first of all important to understand what it truly means. From my research on the topic I feel that the following definition by the IMF is the most accurate. They describe globalization as the “growing economic interdependence of countries worldwide through the increasing volume and a 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”.
Thomas Freeman, author of “The Lexus and the Olive Tree” describes Globalization as the inexorable integration of markets, nation states and technologies to a degree never witnessed before in a way that is enabling individuals, corporations and nation states to reach around the world, farther, faster, deeper and cheaper than ever before. To put it very simply globalization brings many companies and products to very different parts of the world and this is changing the globe that we live in today.
It will also have a huge bearing on the success and downfall of all future economies and the livelihoods of each country’s inhabitants. It is said that Globalization has many facets, the main two being the Globalization of markets and production. The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross trade have made it far easier to sell on an international scale.
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Tastes and preferences are converging on some global norm which is helping to create a global market. Firms are utilizing the trend by offering standardized products worldwide and thus creating a global market. Products such as Coca Cola, Kleenex tissues, Disney toys, IKEA furniture and Sony Playstations are examples of these. The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production, including land, labor and capital.
By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. Companies are taking advantage of modern communications technology, like the Internet, to outsource service activities to low-cost producers in other nations. One such example is how the internet has allowed hospitals in America to outsource some radiology work to India, while U. S. physicians sleep images from MRI scans and the like are read at night and the results are ready in the morning.
This is a very common procedure in which many international companies such as Apple will carry out their R&D work in developed and well educated countries such as the U. S and Ireland. They will then do their basic manufacturing work such as packaging in India where cheap labor is available. It is not just markets and products which globalization affects. It can influence cultures, believes, languages, religions and social trends. China will soon become the number one English speaking country in the world.
Students are currently being prepared for jobs that don’t even exist yet using technologies that haven’t yet been invented. The US is 18 places behind Bermuda in terms of internet connection. Perhaps this further helps to understand why globalization is occurring at such a fast pace. As globalization has increased and more business activity has transcended national borders, institutions have been needed to help manage, regulate and police the global marketplace and to promote the establishment of multinational treaties to govern the global system.
Such institutions include; the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), the International Monetary Fund (IMF), the World Bank and the United Nations (UN). These institutions are vital to the future equality and well being of countries which participate in the ever increasing global economy.
History of Globalization
If we want to fully understand the importance of globalization and its effects on the world’s economy and society now and its potential for the future, it is vital that we study its past and how it has originated.
The history of Globalization is broad and diverse therefore it is only possible to outline some of the main areas. Globalization isn’t just a modern day phenomenon. Trading activities date from the very earliest of civilizations, but it was the Middle Ages in Europe that initiated systematic cross-border trading operations carried out by institutions of a private corporate nature. By the end of the 14th century it is estimated that there were as many as 150 Italian banking companies already operating multinationally.
This is not exactly globalization, it is however international trade. International trade is one of the main concepts behind globalization. Many authors feel that globalization has taken place in three waves. The first wave started in the late 1800s and lasted until the start of the 1900s. It was caused by a combination of falling transport costs and a reduction in tariff barriers. This opened up the possibility of using abundant land countries. People immigrated to these countries and capital was invested in manufacturing in these countries.
The second wave came in the early 19th century and lasted until World War I. Policies such as import tariffs were introduced to increase domestic demand for own products by reducing imports and increase domestic supply by reducing export of capital to other countries The driving force of this period was the United Kingdom and it resulted in the increased relevance of the North Atlantic. The third wave of globalization began with the aftermath of World War II, and it has got a new form during the past two decades.
It sees the world’s economic centre moving eastward, with China and India gaining in size and importance. What is interesting about these – or even alternative – views of globalization is the fact that what appears as a new, yet irresistible force of social change, may actually be a new form of a recurrent historical process, in which organizations (be they the kingdoms, or trading companies of the past, or the multinationals of today’s modern world) play a substantial role.
Drivers of Globalization
The drivers behind Globalization refers what exactly has helped to create and endure the unprecedented growth that globalisation is experiencing at present and in the past. Award winning journalist Hamish McRae says “Business is the main driver of globalization! ” However from my vast research I feel that there are four main business drivers contributing to globalization. Technological: The vast rate at which technology has improved in the late 1990s and early noughties have led to incredible changes in the business environment worldwide.
Digitization, the Internet, and high-speed data networks are dominating the globe. These days, tasks such as drawing up detailed architectural blueprints, slicing and dicing a company's financial disclosures, or designing a revolutionary microprocessor can easily be performed overseas. That's why Intel Inc. (INTC ) and Texas Instruments Inc. are furiously hiring Indian and Chinese engineers, many with graduate degrees, to design chip circuits. Dutch consumer-electronics giant Philips (PHG ) has shifted research and development on most televisions, cell phones, and audio products to Shanghai.
Improvements in transportation technology have enabled firms to better respond to international customer demands. Managers today operate in an environment that offers more opportunities, but is also more complex and competitive than that of a generation ago.
Fall in Trade barriers
After World War II, advanced countries made a commitment to lower barriers to trade and investment. Since 1950, average tariffs have fallen significantly and are now at about 4%. Countries have also been opening markets to FDI.
Lower barriers to trade and investment mean that firms can view the world, rather than a single country, as their market. They can also base production in the optimal location for that activity. (Hill, 2007) 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 freer flow of money across national boundaries.
Internet and Microprocessors
Over the last 30 years, developments in satellite, optical fibre, and wireless technologies and now the internet have revolutionised global communications. Moore’s Laws states that the power of microprocessor technology doubles and its cost of production falls by half every eighteen months. As this happens the cost of global communications plummets, which lowers the costs of coordinating and controlling a global organisation. The World Wide Web is removing constraints of location, scale and time zones.
The internet is changing the way we life every day. There are currently over one million different internet devices. The web makes it easier for buyers and sellers to find each other, wherever they may be located and whatever their size. It allows businesses to, both small and large, to expand their global presence at a lower cost than ever before. Ireland & Globalization The Globalization Index 2010 released by Ernst & Young last year in cooperation with the Economist Intelligence Unit (EIU), showed that Hong Kong embraced the highest level of globalization among 60 largest economies in the world.
Singapore, ranked first in 2009 came third in 2010. Ireland jumped one level, ranking number two in 2010. The Globalization Index measures and tracks the performance of the world’s 60 largest economies in relation to separate indicators in five broad categories: openness to trade; capital movements; exchange of technology and ideas; movement of labour; and cultural integration.
It also confirms that Ireland is forecast to displace the current leader, Hong Kong, to become the most globalised nation in the world by the end of 2011, a position it will retain until at least 2014. Ireland has benefited greatly from globalisation over the last fifteen years. Our low corporation tax, highly skilled & educated workforce, European location and historical ties with the US have led to large influx of multinational companies. The whole country has benefited from globalization. Most people have a friend, relative or close family member working with a multinational company in a pharmaceutical or a computing/IT area.
HP is creating 105 new jobs in Galway. Valeo is creating 100 new jobs as part of a major R&D investment. Accenture will create 100 research jobs in Dublin over the next four years. Intel also signed a US$1. 5m research collaboration deal with Tyndall National Institute in UCC. (Silliconrepublic. com as accessed on 25th February 2010) The Irish Management Institute / National Irish Bank Survey of Multinational Corporations (MNCs) in Ireland for 2010 also revealed that 26% expect to increase employee numbers in 2011, although 22% expect a decrease.
However Ireland’s cost base is still significantly higher than comparable locations despite falls in wages and prices over the last 24 months, according to respondents. Respondents also stressed the importance of maintaining the current corporate tax rate in order to attract new jobs to Ireland. (Breakingnews. ie as accessed on 25th February 2011) Despite these stats, globalization isn’t entirely positive for Ireland. Many Irish companies such as South Western Services have moved part of their operations to lower cost based economies such as Poland.
In the last twenty four hours Eircom have announced future job cuts. Competition from British telecom that has entered the market in recent years has helped to cause this. The Future of globalization I feel that when I discuss the future of globalization it is important to examine the positive and negative aspects that it brings to the world. Globalization has positive effects because it helps produce wealth in underdeveloped countries. Some critics argue that the wealth that it produces seems to end up mostly in the pockets of the rich, instead of the poor.
The idea of globalization as a concept is positive, but more people should be able to benefit from it. Globalization is a major force shaping the world, and it's not a matter of if it will continue. It's a matter of how it will continue. (Suite101. com as accessed on 28th February 2011) Reasons to be positive Many people feel that Globalization helps break the regressive traditions responsible for discriminating against people on the basis of gender, race, or religious beliefs. It is a cure to the intolerant fundamentalism that oppresses millions of the world’s poorest.
Income per capita and social and economic progress has been enjoyed in emerging and developing countries over the past two decades. In the last 20 years, 200 million people have left absolute poverty (defined as living on the equivalent of less than $1 a day. Advances have been achieved in medicine, improved public health policies, and greater food supplies have all helped to lower infant mortality and lengthened life expectancy. In developing countries in the 1950s, 178 children per every 1000 live births died before reaching their first birthday.
By the late 1990s, the infant mortality rate in these countries had declined to 64 per 1000. Life expectancy increased from 44 years in 1960 to 59 years in 1999. (Free-eco. org as accessed on 28th February 2011) With bulletin boards, websites, and email one can see the democratic possibilities of virtually free, instant multimedia communication. Their use of all manner of progressive organisations testifies to their utility in democratic processes. They allow a diversity of alternative or radical voices to be heard.
The people of Egypt and Libya used Facebook and social media to organise protests and voice their opinions on the oppression caused upon them by their ruling dictators. The winners of the great globalization push of the1990s were small states such as New Zealand, Chile, Dubai, Finland, Ireland, the Baltic Republics, Slovenia, and Slovakia. It is felt that globalization has been of great help to emerging markets such as the BRIC countries since the beginning of the noughties. They are also seen as the future countries that globalization will most effect and benefit.
These four countries are among the biggest and fastest growing emerging markets. Goldman Sachs argues that the economic potential of Brazil, Russia, India, and China is such that they could become among the four most dominant economies by the year 2050. These countries hold a combined GDP (PPP) of 15. 435 trillion dollars. On almost every scale, they will be the largest entity on the global stage. Therefore it makes sense for companies and businesses to invest in such strong markets.
It is only possible to see further investment in these emerging markets. These dynamic giants are likely to behave more like traditional big states, and will try to shape globalization rather than simply accept it as an inevitable process. But they also need to project power to compensate for their weaknesses. There are at least three obvious flaws that afflict these big globalizers much more than the small globalizers who had done so well previously. First, a highly populous county must integrate their poor and ill-educated underclass (in China and India mostly rural) as they engage with world markets.
Second, China and Russia have financial systems that lack transparency, while Brazil and India are financially underdeveloped. Thus this puts further integration in the world economy at risk and increasing prospects for a financial crisis. Third, Russia is already facing massive demographic decline and an aging and sickening population and problems with corruption. China faces the near certainty of a Japanese style demographic downturn from the 2040s onward, due to the belated legacy of its one-child policy.
The BRICs were once seen primarily as sources of low-cost production. However, they now present substantial growth opportunities for both multi-national and locally-based companies, and at the same time these countries are also producing a new crop of serious global competitors. In terms of the other more traditional motivations for doing business in the BRICs, China leads in cost reduction and increasing capacity, in second place, India, with its relatively low labour-cost levels, outpaces Brazil and Russia as an expense-reducing destination.
And it is India that ranks highest for accessing a highly skilled talent pool. An overwhelming 71 percent of CEOs in 2006 said their company planned to do business in at least one of the BRIC countries over the next few years. Not surprisingly, 78 percent view China as the most significant market opportunity, followed by India (64 percent), It shouldn’t be a surprise to anyone that India, Brazil and China should pave the way for future globalization. The 25% of India’s population with the highest IQs is greater than the total population of the US.
In Brazil the Economy is growing, the organization of the Olympics and the World Cup is moving forward as planned and driving the economy. Brazil is the clear leader in South America in terms of Foreign Affairs and politics. Although they still have huge challenges ahead (poverty, protection of the Amazon Forest, violence, education, corruption, income distribution), Brazilians are passionate about their country and about their future - which gives them a unique strength to face these issues. China’s GDP measured in purchasing power parity is the second largest in the world after the USA.
China has already taken over Japan and Germany earlier than predicted to become the 2nd largest world economy will soon overtake the USA to become the world’s largest economy. Globalization will also have a major impact on developing countries such as Indonesia who wish to join the BRIC movement. Indonesia is currently projecting 6. 5 percent economic growth. It's a politically stable oil power. the Indonesian government has set its own goal: to lift itself out of "developing world" status and break into the top 10 global economies by 2025.
When the 2008 global recession hit, Indonesia was better prepared better than most. The central bank had built up adequate foreign exchange reserves to cushion against foreign fund outflows and expansionary fiscal policies stoked strong domestic demand. Abundant natural resources, such as palm oil, coal and timber, have also allowed Indonesia to manage the downturn with only a moderate slowdown in economic growth thanks to steady demand from places like China, which is increasingly relying on Indonesia to help meet its growing energy needs.
Investors have since watched Indonesia's recovery with interest. Rapid population growth, a growing middle class, abundant natural resources and low levels of government and household debt give the $690 billion economy - Southeast Asia's largest - an advantage as an investment destination over mature economies such as the United States and Europe. The internet is helping to drive the future of globalization in Indonesia. It is getting cheaper and faster, this has created a huge opportunity for start-ups to grow exponentially.
The good thing is that start-ups don’t have to educate these people on how to go online, because Facebook, Twitter and BlackBerry devices already done this. There are a lot of highly skilled developers out there in Indonesia, and now they are trying to tell the world that they exist. And with rapid exposure either by the online and offline media, more and more new start-ups are created and mostly funded by bootstrapping or as a side-project of an existing company. South Africa is the newest country to join the BRIC, only doing so in the last month.
It is now the BRICS. South Africa, which has a population of 49 million compared with China’s 1. 36 billion, is betting on raising its clout on the world stage by joining BRIC, while strengthening political and trade ties within the bloc. The country accounts for about a third of gross domestic product in sub-Saharan Africa and will offer BRIC members improved access to 1 billion consumers on the continent and mineral resources including oil and platinum. This should enable South Africa to benefit on a larger scale from globalization.
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