International Business Environment: About the merits of globalisation, the role of WTO in world trade, emerging and transition economies (China and Eastern Europe) and trade liberalisation
Analyse the merits of globalisation in terms of their benefits to countries?
It is said that ‘Trade Liberalisation is generally supported by governments’, but many barriers still exist. Discuss why this is the case?
In context of emerging economies (i.e. China) or transition economies (i.e. Eastern Europe), explain how they can benefit from foreign direct investment (FDI)?
Critically evaluate the role of the WTO within world trade and international competition?
Question 1: Analyse the merits of globalisation in terms of their benefits to countries?
In the following analysis, the author will define and discuss the role of globalisation in today’s constantly changing environment as well as the effects on countries by applying the relevant theory.
Nowadays, we live in a world of global business where “markets are larger, more complex, and more closely integrated than ever before” (Walker et al, 2003). The horizon of business operations has widened up and many large organizations are not rooted anymore in one country or society but operate truly global.
Globalisation is defined by Morrison (2002) as “multidimensional processes which are leading to broader and deeper integration between countries and peoples”, providing new opportunities but also uncertainties. It can be pointed out that large corporations appear as the driving force behind this development as the opening of markets allow them to produce and operate in foreign countries. This emergence results in an interrelation or linkage of economic, social, cultural and technological factors in our ‘borderless, global marketplace’ (Morrison, 2002). The term ‘globalisation’ expresses a tendency towards an integration of the world economy, whereby “the core concept is that the world tends to become one entity” (Rihhei, 1999, cited by Bitzenis, 2004). Therefore, form an economical perspective, “it represents the strengthening of a universal conscience rather than a nation state conscience” (Bitzenis, 2004). Due to the liberalisation of trade and the growing foreign direct investment (FDI), countries strive to develop a uniform economic environment in order to make economic transactions more flexible and accessible.
In the following, the author outlines the benefits but also the negative effects of globalisation, whereas it must be considered that benefits for one country might have a negative effect on other countries.
The IMF, the World Bank and the WTO are the most influencing organisations behind the globalisation process and are held responsible for the policy reforms that the developing countries had to implement as part of structural adjustment programs. Even though, opponents still argue against these dictated reforms, it had a quite positive effect on the economies of most countries. China and India for example, experienced a strong economic growth and consequently “a large portion of their poor population was lifted out of poverty” (Bigman, 2001). Theorists emphasise, that due to trade liberalisation and the integration with the global economy, poverty can be reduced. Furthermore, developing countries can obtain a lot of opportunities from the flow of FDI and other positive effects of globalisation. Through the transfer of advanced technologies and the specialisation in goods and services, in which countries have a comparative advantage, the productivity can grow more quickly. Therefore, living standards can rise and unemployment will be reduced. (Dollar, 2001)
Global competition leads, especially for western countries, to a protection against inflation, as cheap imports will always “keeps a lid on prices, so inflation is less likely to derail economic growth”. (Business Week Online, 2000) The global market convergence and cost advantages, which arise from standardisation of products, are further benefits of globalisation. The world’s population grows towards homogeneity with simplifying global campaigns and selling strategies, for a global customer. Global competition enables the customer to profit from a fair and low cost range of products. Countries have the ability to attract investors with their low-labour costs and incentives them to locate their manufacturing plants in their countries. (O’Higgins, 2003)
On the other hand, there are also negative aspects concerning globalisation. Due to stiff competition and the opening of markets, especially developed countries suffer from companies’ outsourcing of production or services, which profit from the low-labour costs in developing countries. Germany massive job destruction, for example, illustrates the negative impact of globalisation on the labour market. German based corporations relocate its production, due to the heightened international competition and lower required wages, to the former Eastern bloc and Asia. (Bloch, 1998) Apart from unemployment in the developed countries, Weisbrot (2002) argues that the economic slow-down (according to the rate of growth in per capita) in the low-income countries is accompanied by social adversity.
Opponents of globalisation stress that global corporations have too much control and power in the world but even if there might be some validity to that, nations still have the power to control a corporation’s action. The accuse globalisation benefits the rich countries at the expense of poor countries can be proved wrong, as there are many more factors than income inequality. Giddens (2001, cited by Quintero, 2001) argues that “factors such as education, health care and women’s rights” must be taken into consideration as well, when talking about globalisation’s effects on poorer countries.
Summarising, it can be said that the benefits of globalisation always depend on the point of view from which it is looked at. During the past decades, globalisation brought about enormous changes which encompass a lot of opportunities but also threats, uncertainties and risks. Even though there exist always opponents on any topic, the author thinks globalisation can, according to the successful development of many countries, be seen as a positive appearance in today’s world.
Bigman, D. (2001). The Pros and Cons of Globalization for Developing Countries – A Review of the Theoretical Issues and the Empirical Debate. pp. 27 - 79
Bitzenis, A. (2004). Is globalization consistent with the accumulation of FDI inflows in the Balkan countries? - European Business Review. Vol. 16. No. 4. pp. 406 – 425
Bloch, B. (1998). Globalisation’s assault on the labour market: a German perspective. European Business Review. Vol. 98. No.1. pp. 13 - 24
Business Week Online (2000). The Pros and Cons of Globalization
Dollar, D. (2001). Globalization, Inequality and Poverty since 1980. Development and Research Group, World Bank
Morrison, J. (2002). The International Business Environment. Hampshire: Palgrave
O’Higgins, E. R. E. (2003) Global Strategies – contradictions and consequences. Part 2: Global business means global responsibilities. Corporate Governance. Vol. 3 No. 3. pp. 51 - 66
Quintero, A. (2001). Debating the pros and cons of globalization – Berkeleyan. www.berkeley.edu
Walker, D., Walker, T. and Schmitz, J. (2003). The Guide to Cross-Cultural Success: Doing Business Internationally. USA: McGraw-Hill
Weisbrot, M. (2002). “Why globalization fails to deliver” – The Observer. Vol. July. p.28