The Definition and Process of Globalization
Globalization refers to a process of integration between companies, people and government all over the world. It refers to the cost free movement of goods, services and people from one place to other across the world in a very integrated manner. Globalization leads to open up global economy and increase trade relation between countries. It helps in collaboration of trade between countries and creates integration and high interconnections of the economies across the world. It includes foreign investments too. Globalization also means to liberalize the policies related to import and export and welcome foreign investments into different sectors of economy that can be a big part of economy. It means that countries can attract global capitals by opening the economy for everyone like multinational companies. Globalization also includes the liberalization of rules and regulations to permit a movement of people from one country to the other. Globalization helps in boost up the unproductive sectors of the economy by investments and productive sectors by open up export related activities that helps everyone in the world.
There are many ways in which globalization affects domestic economy. The most affected are the local traders, which have to face turbulent competition due to globalization. People prefer international brands instead of domestic products as they have perception that international brands are much better (Zhang, 2014). Most of the people now-a-days prefer imported products due to quality and also the crowd mentality falling in line with the people notions that are doing propaganda of these products. Domestic businesses have to invest so much time and money to promote their products. The imported products are generally the Multi-National Companies having great capital investment all over the world, competing with them is not an easy business. MNC’s are well aware of the local business environment with various studies and experience.
Positive impact of Globalization are-
- Globalization increase free trade opportunities between different countries. Many organizations are now able to invest in other developing countries.
- With the help of globalization, exchanging of information becomes easier. It also leads to increase in the speed of transportation.
- It reduces the chances and possibilities of war between countries (Peng, 2017).
- It helps in reducing cultural barriers as people belong to different cultures started working together and making the whole world ‘A Global village’.
Negative impact of Globalization are-
- It has created job insecurity for a lot of people. People are losing their jobs because of Globalization. Manufacturing work has been transferred to the countries where labor cost is cheap (Lendrum, 2011).
- There are less rules and regulation related to the protection of the environment in underdeveloped countries, so other developed countries can manufacture products in those countries that can provide harm to the environment.
- There is a lot of fluctuation in the process due to Globalization. There is an increase in competition and due to that developed countries are forced to low down the prices of the products as other countries are selling the same product on cheap prices. It leads in reducing the ability to sustain social welfare in some countries (Pe?rez-Llantada, 2012).
Heckscher-Ohlin Theory has a prerequisite that factors of production in various countries differs with respect to their availability and quality. As per this theory, every country is different with each other in respect to the availability of factors of production. This theory mainly aims on two factors of production viz. labor and capital (Cooper, 2014). In two countries model, it says that the countries which are rich in capital will export capital intensive commodity and the countries with are rich in labor will export labor intensive commodity. The selection of products is always according to type of factors that they require as inputs for production purpose (Hill and Hult, 2018). Every country has some competitive advantages for producing a particular kind of product that mainly use the resources that are available in abundance. There are different factors of production that are essential for a production process like material, labor, raw material, resources and technology (Holland, 2007).
Positive and Negative Impacts of Globalization on Domestic Economy
As per this theory, the country where capital is comparatively cheaper and labor is costly is considered as a capital rich country. And the countries that are cheap in labor and costly in capital perspective are known as labor rich country. For example US and England has comparatively more amount of capital yet import of goods is more expensive than the exports. US have a very good advantage of producing the products that uses innovative technology. In case of India and Egypt, labor is very cheap and it produces wheat by using labor or labor intensive techniques of production (Ananthan, Appannaiah and Reddy, 2010).
The International Product cycle theory was discovered by Raymond Vernon in the 1960s to explain the product cycle that basically defines that a product can go through with the exposure of international market. It describes the whole life cycle of a product that includes mature and decline stage due to internationalization (De Toni, 2016). There are three stages in this theory-
- New product introduction- The product life cycle starts with the introduction of a new product. In this stage, firstly a corporation is developed to generate an innovative idea. It targets a small market segment and sales are comparatively low. There are more chances of development of an innovative product in developed nation because they have more disposable income to use on a new product (Sherif and Khalil, 2008).To compensate the effect of low sales, companies will manufacture the products on a local level so that whenever the process issue occurs or a need to modify the product incurs, changes can be easily implemented without high risk and in less timing. When there will an increase in sales, companies start to export the product to other developed countries in order to increase the sales as well as the revenue (Anderson, 2017).
- Product Maturing- It refers to a situation when a company established or created a good demand of the product in developed countries then the manufacturer will need to consider broaden up the production plants in other countries to fulfill the demand of the customers.
- Product Standardization- It is a very good option to export products to less developed countries. Competitive products create saturation in the market that means original purveyor of the losses related to product competitive edge that depends of innovation. As per this, instead of adding new features to the products, the companies should start focusing on low down the cost of product manufacturing.
We can understand this with the help of an example. 3D television is a product that has a high investment and it can be available in homes. It is in an introduction stage whereas the old television sets that occupy a huge space are in decline stage as no one wants to buy it.
Donald Trump, president of United States of America, announced the imposition of tariff on Chinese imports in the recent past. Based on your understanding of the first 3 topics of this unit, (i) what could have been the reason/logic behind such a comment/decision, and (ii) what are the implications of such an intervention on domestic consumers?
US president Donald Trump has announced the imposition if tariff on Chinese imports. He signed a memorandum that could result in imposition of 60 billion US dollar of imports that are done from China as well as the restriction on the investments done by Chinese people in USA. The main reason behind this is that Trump thinks that Beijing is using wrong or unfair trade practices to get an additional advantage in the US that includes lax observation of intellectual law of property. He also had an issue with the size of US trade deficit with China. It has been observed by some economists that US is using so much of Chinese products and it is importing more in comparison to all the exports.
There are different types of implications on domestic consumers due to this intervention. There is an increase in the prices of the products due to the applicability of tariff; indirectly consumers are paying higher prices of the products they purchase. As per the China perspective, the new tariff has created an impact on many industries like vehicles, chemicals, aircraft and soybean. Trump has also warned them that he may also raise some other tariffs on Chinese imports (Business environment, 2009).
This tariff has created a high variation on the prices of different products like electrical appliances, accumulators, batteries and machinery products. There is an import from US of more than one third of these products and a high share of import come from China. So, ultimately new tariffs will create a high inflation on the prices of these products and create a direct impact on buyer. So, it creates an issue for the people who buy this Chinese import in bulk. There is a major impact on vehicles, aerospace, machinery, and construction and energy industries. This created a moderate effect on rubber product like tires, belts and other appliances. In order to resolve this issue, US manufacturer will start import the products from other countries but still it will create a pressure on prices and make manufacturer to make an evaluation again on the supply chains.
References-
Ananthan, B., Appannaiah, H. and Reddy, P. (2010). Business Management. New Delhi: Himalaya Pub. House.
Anderson, D. (2017). Introduction to Management Science. Cengage Textbooks.
Business environment. (2009). Amsterdam: Elsevier/Pergamon Flexible Learning.
Cooper, C. (2014). Business ethics. Chichester, West Sussex: Wiley.
De Toni, A. (2016). International operations management. London: Routledge.
Hill, C. and Hult, G. (2018). International business. New York: McGraw-Hill Education.
Holland, J. (2007). Tools for institutional, political, and social analysis of policy reform. Washington, DC: World Bank.
Lendrum, T. (2011). Building high performance business relationships. Richmond, Vic.: John Wiley.
Peng, M. (2017). Global business. Australia: Cengage Learning.
Pe?rez-Llantada, C. (2012). Scientific discourse and the rhetoric of globalization. London: Continuum International Pub.
Sherif, M. and Khalil, T. (2008). Management of technology innovation and value creation. New Jersey: World Scientific.
Zhang, S. (2014). Impact of Globalization on the Local Press in China. Lexington Books.
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