One important benefit of globalisation
Globalisation in general means the effort of a company moving into other territories (outside the national boarders of a country) to sell its goods and services to increase profits as a result of expansion. Globalisation incorporates both opportunities and risks which change the way businesses are managed worldwide. It brings about a well-diversified portfolio for such a company. This is because the company is guarding itself from huge losses in case of economic uncertainty.
Significant gain in one company can cover for the losses made in another company. By this, the globalise company would experience constant cost pressure which entice them to continuously produce and improve on its activities. Major companies like Nestle, Shell, Nokia, Ford and Toyota among others have gone global because of the benefits mentioned above. Currently, more and more entities are merging to become supra-multinationals. Companies become more interested in going global once their value goes a little higher than those of the developing countries.
Most of these countries globalises via legitimate causes whilst others are just followers. This gives the reason why some companies become leaders in the global economy with others becoming bankrupt. In fact, there are many other advantages that are enjoyed when a company goes global, such as increase in efficiency, increase in foreign direct investment and increase in national income. However, there are certain disadvantages associated with it such as unemployment and exploit on developing countries; these can be seen in the following paragraphs below.
This assignment would further discuss on some of the benefits and challenges One important benefit of globalisation is that it create a market that promote efficiency through competition and division of labour and functions such as the specialization that allows people and economies to focus on what they do best. It means that they can have access to increase efficiency of foreign investment; this was one of the reasons why General Motors recently spent $750 million to build a Buick assembly plant in China ( Roston & Fonda, 2002).
Globalisation also helps to increase the national income of the countries under discussion. This is because; when the foreign countries enter the territory, they bring in foreign currency which in a way helps to boom the economy. More so, workers; both local and foreign gets the opportunity to work for such a company. These workers pay taxes to the government which intern increases the national income (Roston & Fonda, 2002). The foreign workers also pay a lot of money to just to acquire the permit to work in the country.
Hence the gross domestic would increase and the country would be seen in the international setting as an up-and-coming country (Ghosh, 2001). This can help attract other companies into the country and the country can also be able to easily borrow funds from the international monetary funds (IMF) if needs be. Foreign direct investment (FDI) is a main advantage of globalization affecting the world economy. When a company goes global, it will make the world a small place for the company.
It also helps to reduce the unemployment rate of that particular country. The quality and quantity of the product and services also increases. China’s leaders are making a huge bet: that their 1. 3 million people will gain more and better new jobs from the opening of foreign markets” and “as an estimated 10 million peasants leave their land to search new job opportunities in the cities”(Roston & Fonda, 2002). The world trade is becoming more integrated due to globalization; including the developing countries that gain benefits from it.
Those developing countries, especially in Asia, have their per capita incomes moving higher towards those of the industrialised countries since 1970. This has contributed towards the increased world trade share from 19% in 1971 to 29% in 1999 (IMF, 2002). This makes the global market an attractive place for companies to invest. Having found out some of the advantages of globalization there some disadvantages that hinder the smooth process of globalization in developing countries.
High performing economy due to globalization brings about increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out for the cheapest labour among others (Clark & Wallace, 2002). As a result of this not all the developing countries will be able to benefit fully from globalization. COCA COLA opened the subsidiary company in China and employed the nationals not only because of providing employment, but also to exploit the labour force.
This is partly because the workers are unskilled. All these developing countries provide the cheapest labour to each multinationals, but only can get back exploitation, although the production cost in developing countries is quit low, the product selling price is same in both developing and development countries. It means the people live in developing countries have to pay more for the same product than the people from development countries depend on the difference living standard and income level.
Because of the lack of the foreign exchange reserve in developing countries, all of them can not protect their economic system during the economy crisis period, and also would affect other developing countries. 1997 Asian economic crisis started at Thailand which is a developing country and only few months later it swept all the eastern Asian countries especially in the developing countries, such as Malaysia, China, South Koran, Vietnam, Indonesia and Philippine, the influences have persisted until now. Many developing countries are at a competitive disadvantage in the context of rapid globalization.
Many countries have weak economic, legal, and political institutions, making them vulnerable to high levels of corruption, insecurity, and conflict. That in turns makes them unattractive for domestic or foreign investment. Further, weak institutions often mean weak capacity to participate in new organizations of global governance. In fact, the gap between the wealthy North and much of the poor South is likely to increase in the years ahead, despite some development success stories (Clark & Wallace, 2002).
There is no proof of a direct relationship between globalization and unemployment levels in the industrialized countries and the causes for the emergence of unemployment in the industrialized countries is the much higher wage level in comparison to newly industrializing or developing countries. Moreover, western industrialized countries would have to reduce wages and accept a loss in prosperity if they are to remain competitive to avoid unemployment (Clark & Wallace, 2002). By this, it will explain the differences between countries’ wage levels on the basis of differences in the generation and the use of technology.
The better a country is able to produce economically exploitable knowledge or to absorb it from external sources and use it efficiently for product and process innovation, the higher its wage level. Therefore, the industrialized countries must reduce their wages in order to remain competitive and also to recognize the dynamics of global economic competition. From the statement we know FDI provide a lot of job to people. So, it will reduce the unemployment rate. Besides that, FDI will help develop a country and improve the free trade.
When they implement free trade, then they can import and export the goods more freedom. “By 2005 China’s share of world exports will reach 6. 8%, almost twice its percentage in 1995. Its shares of world imports will also nearly double over same period, to 6. 6%, and US will be fighting to huge new demand” (Roston & Fonda, 2002). Free trade will let the trading more advance. So, those will effects the world economy. On the other hand, the products quality become an important when the FDI.
It is because producers have many competitors, so they will improve their quality of product and services to compare with their competitors. In most cases, the developed countries use the tool of globalisation to dump their expired or unwanted products. They bring expired products to a county under the pretext of supporting globalisation but in actual sense dumping their unwanted goods. The victim country is always at the loosing side. This is because the country cannot reject the product once it has been imported into the country. This would bring diseases, problems and other unexpected problems.
In conclusion, having highlighted on the issues of globalisation, it can be concluded the even though there are some problems associated to its implementation like the exploitation of labour force among others, its advantages far outweighs the disadvantages. This is because it provides employments to the citizens of that particular country. The company directors who globalises also hedges themselves against future uncertainties. This promotes FDI’s and also makes the entire world an integrated place to live in. Hence the benefits of globalisation cannot be overemphasised enough.
In fact what needs to be noted is that, the idea of globalisation is a perfect idea but it the way the developed nations use it to exploit the underdeveloped ones that is not justified. Therefore, if the government can find effective ways to control the aggressive companies who seek to overuse the characteristics of globalisation, it will be an effective tool to improve economic development. On the other hand if the government remain unconcern abut the issues concerning globalisation, not only will the developed countries use it to exploit the under-developed ones, but also they would use it to politicised a notion.
Clark B. and Wallace J. (2002) Global connections: Canadian and world issues. Toronto, Prentice Hall, pp. 200-213.
Ghosh S. R. (2001) Reverse Linkages: The Growing Importance of Developing Countries [Internet].
Available from: ;http://www.worldbank.org/fandd/english/0396/articles/0100396.htm; [Accessed 28 September, 2004]
IMF (2002) Globalization: Threat or Opportunity? [Internet]. Available from:;http://www.imf.org/external/np/exr/ib/2000/041200.htm#top; [Accessed 29 September, 2004]
Roston E. ; Fonda D. (2002) ‘China’s New Party’, Time, 28th January, p.39-43.