I consider globalization to be the most significant impactful change occurring in the world. It has become the catalyst for the social, economic, financial, environmental and cultural shifts in recent times. The following is a brief discussion on the advantages and disadvantages of globalization as well as an assessment of the organizational policies fitting for the global business environment.
According to the IMF (International Monetary Fund), “Economic “globalization” is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through the movement of goods, services, and capital across borders. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political, and environmental dimensions of globalization.”(2) Consequently, globalization is a dynamic and long-lasting process, involving the entire world. The future evolution of human society is closely linked to the development of globalization.
In recent times globalization has become a cliché subject, even though it was a phenomenon studied and researched thoroughly in the late 90s and early 2000s, the discussion has subsided. we are now more robustly dealing with its impacts and not on how globalization occurred.
Primary Advantages of globalization.
Increased Standard of Living
Nations with specific resources get to supply that resource and trade it in a global marketplace. In return nations with said resources get direct investment. A core element of globalization is the expansion of world trade through the elimination or reduction of trade barriers, such as import tariffs. Exports, often a source of economic growth for developing nations, stimulate job creation as industries sell beyond their borders. More generally, trade enhances national competitiveness by driving workers to focus on those vocations where they, and their nations, have a competitive advantage.
This increased trade and inflow of capital spent in the right way go toward investment in public goods such as education, healthcare and public infrastructures such as roads and railways. This leads to a rise in the standard of living in countries with emerging markets. “Ernesto Zedillo, the former president of Mexico, has observed that, “In every case where a poor nation has significantly overcome its poverty, this has been achieved while engaging in production for export markets and opening itself to the influx of foreign goods, investment, and technology”(3)
“Capital spent in the right way” – This has been the hurdle most developing nations have had to face. With high rates of corruption, the inflow of capital investment has disproportionately benefited only a small cross-section of society. With investment in infrastructure and education making slow progress, the benefit of the increase in living standards has been slow to trickle down in developing nations. In developed nations, the cost of goods and services have become more affordable, due to labor and services being more affordable to corporations in additional markets.
Access to New Markets
Globalization allows organizations to gain a superior competitive advantage by reaching newer markets not only for consumers but also for partners and suppliers who provide goods and services with lower costs. Greater imports offer consumers a wider variety of goods at lower prices while providing strong incentives for domestic industries to remain competitive. Exports, often a source of economic growth for developing nations, stimulate job creation as industries trade beyond their borders.
More generally, trade enhances national competitiveness by driving workers to focus on those vocations where they, and their nations, have a competitive advantage. Global exports as a share of the global domestic product have increased from 14 percent in 1970 to 24 percent today, (5) and the growth of trade has consistently outpaced growth in global output. In the United States, the ratio of two-way trade and investment income flows as a share of GDP has roughly tripled since the 1960s. Annual global flows of foreign direct investment surged to a record $ 400 billion in 1997, with 37 percent directed to less developed countries (LDCs), up from 7 percent in 1990. (6) In the 1970s, daily foreign exchange transactions averaged $ 10 billion to $ 20 billion; today, the average daily activity has reached more than $ 1.5 trillion. (7)
Globalization enables goods to be produced in different parts of the world. This greater specialization enables lower average costs and lower prices for consumers.
Of course, this can have a negative impact on employment in a country. A nation would need to balance and pivot to meet its competitive needs.
Primary disadvantages of globalization
The impact of globalization on labor affects developed countries and developing countries in two very different ways.
Corporations in developed nations seek to gain a competitive advantage by being cost-effective and outsourcing their labor. This trend contributes to unemployment in unskilled or manufacturing labor and drives down the wages of unskilled workers.
Simultaneously demand for highly skilled labor and their wages have increased due to globalization in the developed nations. “The range of activities now done at home are more skilled-labor intensive, on average, than the set of activities formerly done at home. For this reason, the relative demand for skilled labor at home increases, as occurred in the United States during the 1980s. That increase in demand will increase the relative wage for skilled labor.”(8)
While the demand for cheaper labor in developing nations has contributed to investment and increase in employment, the race to be competitive has led to wages of workers in these nations be very low and, in some cases, break international labor laws with child labor and sweatshops. The conditions for employees at Foxcom, an Apple partner and the scandal with Nike’s chines manufacturers exploitation of child labor are examples of the negative impact in this race for cheap labor.
The advantages held by developed nations have been in the fields of research development, and education. Innovation in technology has traditionally spawned from developed nations while Developing nations have had the advantage of having a bigger labor force, cheaper cost of living that contributes to cheaper labor.
The hurdle met by developed nations in this regard has been adapting to these realities and adjusting the labor force to meet these new challenges. The initiative by the Obama administration to retool coal workers who lost their jobs, with training programs in computer programing is an example of how retooling the labor force could have avoided the negative effects of globalization.
But as we know now, this message was not successfully communicated to the masses and the opposition to this changing trend has led to friction in developed nations.
Globalization has a varied effect on the environment. It creates new opportunities for cooperation that in turn increases trade that generates economic growth. Which in turn, may translate into increased pollution and unsustainable consumption of natural resources.
Furthermore, economic integration strengthens competitive pressures that help consumers by lowering prices, improving service, and increasing choice. But these same pressures constrain national government capacities to regulate these organizations and bend to their will for the return of economic benefit. The financial gains overtake the impact industry is having on the environment in the short-term.
“Without effective international-scale governance, globalization may intensify environmental harms wherever regulatory structures are inadequate’ (9)
A possible silver lining in this scenario could be the unified international cooperation shown in recent times in dealing with global warming and developing renewable energy sources. In the past few years, we have seen considerable growth in the industry of electric automobiles, solar farms and wind farm etc.
Organizational Policies Considerations in Global Business Environment
Now more than in any previous point in history business organizations are engaged in businesses and partnerships throughout the world. It is no longer just an option but a necessity to stay competitive in the global marketplace where competitors reach beyond geographic borders.
Business organization seeking a cost advantage outsource a lot of its business activities to nations with cheaper labor, but most of these organizations don’t consider whether they are primary or support activities, some of these activities create operational and structural risk and in the long run harm the reputation or brand image of the product or service offering. “Organizations need to pay better care at choosing offshoring partners and maintaining quality. However, when corporations begin with the desire to create strategic advantage through offshoring, they commit themselves to transfer complex processes relatively early. Companies would do well to remember that the manner in which they start their offshoring initiatives often determines how they will end. (10)
Many corporate firms have run into difficulties with corruption, abuse of labor and environmental damage, in their quest to be competitive. The business organization of today has to not only focus on the balance sheet but also the benefit to their respective communities as a community partner to achieve sustainability in the long run. “Of course, companies should always adhere to universal ethical principles because, after all, that’s the right thing to do. But one additional reason for businesses to engage in honest practices is that the consequences of failing to do so may be much more harmful to the bottom line than what has traditionally been recognized. Companies that deploy dishonest tactics typically do so as a means of increasing their short-term profits, and in that regard, they might succeed.”(11) But in the long run, the harm that might occur in the public’s eye and to the internal and external image of the company is very harmful and overlooked.
The cultural environment is one of the critical components of a business with an international footprint. The cultural environment is essentially unseen; it has been described as a shared, commonly held body of general beliefs and values of an organization. While an organization has to have their own values and identity, with a multicultural diverse workforce, the business organizations that are global players must be able to successfully navigate the cultures of the nations they are partnering with and markets they are entering in to. This cultural integration has to be in line with the sociopolitical landscape while maintaining the values of the organization itself. Walmart’s expansion into Mexico and the scandal surrounding bribery is a prime example of organization sacrificing organizational values and justifying the actions as a cultural norm.
There are many more aspects and nuances to globalization. I believe the challenges and obstacles we face now are a direct result of globalization. Whether it be climate change, the rise of nationalism, income inequality, or the ripples of a global economy. I believe that globalization occurred on a faster scale and our leaders did not prepare us, communicate or regulate globalization to be able to handle its changes.
The 2008 economic crisis in the USA, the debt crisis in the EU and its effects are a direct result of a global dependent economy. The rise of nationalism, political tensions, and the pushback on immigration are also results of globalization mishandled. While it was inevitable, developed and developing nations have had a hard time dealing with the effects of globalization. As much of a cliché as it is, we need to prepare as a global community to handle these changes.
- “Issues Brief – Globalization: A Brief Overview.” Issues Brief – Globalization: A Brief Overview. N.p., May 2008. Web. 19 Apr. 2015.
- Remarks by former President of Mexico Ernesto Zedillo at the plenary session of the World Economic Forum, Davos, Switzerland, January 28, 2000.
- Figures quoted by Alan Greenspan, chairman, Federal Reserve Board of Governors, “Technology and Trade,” Speech before the Dallas Ambassadors forum, 16 Apr. 1999,http://www.federalreserve.gov/boarddocs/speeches/1999/19990416.htm
- United Nations, World Investment Report: 1998 (hereafter WIR:1998),
- United Nations, Human Development Report: 1999, 25.
- Daniel Griswold. “The Blessings and Challenges of Globalization.” Cato Institute. N.p., 01 Sept. 2000. Web. 19 Apr. 2015.
- Vienna Institute For International Economic Studies, Robert C. Feenstra. “Globalization and Its Impact on Labor.” Global Economy Lecture, 2007 (n.d.): n. pag. 08 Feb. 2008. Web. 19 Apr. 2015.
- Nordstrom, Hakan, and Scott Vaughan. 1999. Trade and Environment. Geneva: World Trade Organization.
- Jitendra V. Singh, and Ravi Aron. “Getting Offshoring Right.” Harvard Business Review. N.p., 01 Dec. 2005. Web. 21 Apr. 2015.
- Robert B. Cialdini, Petia K. Petrova, and Noah J. Goldstein. “The Hidden Costs of Organizational Dishonesty.” MITSloan Management Review (n.d.): n. pag. Web.