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Extent of Global Economy. Effects of Globalization

Introduction

Globalization is a key driver in the 21st century. The term ‘globalization’ is common in the media public domain. Many people try to understand not only the effects of globalization on their lives, but also opportunities that come with globalization. The term globalization is used in normative and descriptive manner. It is used to refer to the process of internalization and increased interdependence between nations (Rodrik, 1997, p. 89). Through globalization, national borders become less importance. In the normative view, the effect of liberalization and increased interdependence are considered. Although globalization is used with reference to economy, it has political, cultural and technological implication. It is the means by which economies, regional and cultures integrate. Through this process global communication and trade have been enhanced greatly by facilitating direct foreign investment, global market and sharing of technology. The process of globalization is motivated by various factors that are; political, social-cultural, technological and biological factors.

Global economy

The impact of globalization is mostly felt in the entire economy. Global economy is used to refer to the integrated world economy as a result of globalization. The main features in global economy are unrestricted movement of good and services and internationalization of labor. In global economy an organization is not affected by just the factors within its national borders, but also factors in other nations that it trades with. (Rodrik, 1997, p. 79). Global economy predicts increased inter-connection of national economies which facilitate more free movement of capital and investment across countries. Global economy cannot be understood effectively on its own. IThus it is paramount first to understand globalization in order to comprehend the impact of global economy. Generally globalization can be taken to mean amalgamation of production and consumption across all markets on the globe.

Many countries in the worldwide appreciate a globalized economy. This is because globalization is believed to have positive effect not only on individual country participating in global economic activity, but also on global economy in general (Aliber and Click, 1993, p. 37). It is strongly believed that globalization would help to solve many social economical problems in the world. Most political and economical decisions in the recent past are made on global scale. Unlike in the past, global considerations now have become more important in almost all nations worldwide. Each country views itself as part of the globe. This is because it is clear that global issues have direct or indirect effects on a country’s economy. In the same way, individual country understand that anything that happens within its borders have implications to other countries. As part of the globe, each country tries to do anything possible to benefit from the globalization phenomenon. Apart from competition between nations, globalization has brought about more cooperation. Since nations have been highly integrated through globalization, anything that affects one country also has effects on other countries. Thus globalization has brought a state where problems are not just viewed as national problems, but as a global problem. For instance, there has been a lot of cooperation on environmental and security issues across the world. Environmental problems are not longer viewed national or regional problem, but as global problems that have direct or indirect impact on each and every country. International security has been another area of great cooperation between nations. Security threats are no longer viewed from national or regional perspective, but at global level.

Global economy is an integrated market for all goods and serviced produced and marketed worldwide. It enables any individual in any nation trade globally anywhere in the world. Thus, domestic producers get opportunity to expand their market niche depending on global demand. Equally, domestic consumers are able to choose products they wish to purchase from a wide range of local and international products (Rodrik, 1997, p. 71). For efficiency, global economy tends to rationalize prices for products globally. For instance, in the global economy the cost of a computer in the UK may be equivalent in the US, China or Ghana. World Trade Organization (WTO) has played a very significant role in facilitating globalization of the economy. There has been a reduction in the level of quotas and tariffs. This has enhanced easy flow of goods and services to facilitate global trade. Similarly multinational or transnational companies are as a result of globalization. These companies have played a very important role in facilitating globalization. Consequently, globalization have contributed highly to growth of multinational companies by provision of global market and facilitating Direct Foreign Investment. Globalization created large market for these companies thus stimulating growth. Globalization has also facilitated spread of technology. It has enabled countries in the third world to tap technology from the first word countries such as US and Japan (Rodrik, 1997, p. 91). This has enabled technology to be easily accessible to majority and especially the third word countries which have enabled them perform very well internationally.

Effects of globalization

Globalization has both positive and negative effects. Global economy has enabled availability of variety of products to consumers. The global economy has allowed organization to participate in trade in any nation. This has allowed consumers to have a variety of products to choose from, thus leading to better fulfillment of their needs. Globalization creates wider market for goods and services. Organizations participating in global trade thus enjoy economies of large scale due to expanded market. Consequently, globalization has helped in reducing cost of production due to mass production leading to reduction in prices. This is beneficial both to producers and consumers. This is because producers are able to produce in masses, reducing cost and thus increasing profit. Consumers on the other hand benefit from reduced prices and wide variety of products to choose from. In general globalization increase world productivity, thus helping to raise income and improve standards of living at global level.

Despite of the various positive impact of globalization, it is have some negative effect. One of its major shortcomings is that it promotes inequality in the world. Globalization leads to integration of domestic markets. Thus restrictions to free trade are minimized. Although this enables consumers to access variety of products, services and at a low price, it brings unfair competition to organizations in less developed countries. Globalization has been very significant in growth of multinational companies. Although some multinational companies have registered exponential growth due to larger market and low cost of production in some countries, these companies however, come from a few countries; thus promoting inequality. Inequality is evident in some less developed economies such as China, India and Brazil. Despite of significant economic development witnessed in these countries, the effect of economic improvement is not felt at low levels. Consequently, these countries have a wide gap between the rich and the poor (Birdsall, 2003, para. 7).

Global economy has affected job market greatly. Global economy has facilitated many unemployed people from the third world countries secure jobs. Multinational companies that are more responsible for global economy do every thing possible to minimize cost. Due to the low production cost in the third word countries and China associated with cheap labor, many firms in the developed countries are shifting their production to less developed countries or to China. Reduction of cost of production through relocating labor intensive activities to less developed and developing countries has enabled many organizations to grow very fast (Murphy, 2004, para. 8). For example, most computer chips are manufactured in China before then exported to US for designing. After design, the chips can be used in the manufacturing of Japanese computers which are then traded globally. Although this process lead to more job opportunities in third world and less developed countries, it lead to loss of employment opportunities developed countries. In developed countries, the move to relocate some production activities to other countries has raised major debates as some take it as an exploitation of workers in third world countries, while others complain as it increases unemployment in developed countries.

Globalization and global economy has been accused for introduction of foreign cultures in some places. Culture is one element that has been affected highly by globalization (Cooper, 2004, para. 7). Improved transportation system, and advancement in communication technology have increased the pace for globalization. Interactions between individuals from different culture have an impact on a country’s culture. For instance an example of a cultural change as a result of globalization has been increase in consumerism. Global economy has motivated organizations to engage in aggressive competition for market. As a result, there has been increase in the number of manufactured product. The prices for these productions also reduce because of increased competition. Availability of variety of products and reduction of prices has led to a culture of consumerism across the world. Individual across the globe tend to buy manufactured products even when they do not require them (Quelch and Deshpande, 2004, para. 56). Global economy has led to more interaction between individuals from different cultural background. Although it helps in international understanding, unfavorable culture may be introduced in the process. One of the major effects of globalization on culture is marginalization of some cultures. Dominant cultures in the world have overshadowed other cultures.

Although globalization comes with some negative effect, it generally its benefits outweighs its demerits. Apart from facilitating availability of goods and services in the world, globalization has allowed greater cooperation between nations on various issues. Through globalization, nations can be able to cooperate in addressing global issue such as global warming, environmental degradation and climatic change in a more effective manner (Juan, 2010, p.3). Global economy has made the world appear smaller. This enables greater interactions that promote understanding between different people globally. Through interaction people are able to overcome their stereotypes against other people of different nations. Better understanding enables people to work together more harmoniously. This implies that nations are able to cooperate easily as they fight common challenges such as racism diseases and others.

Multinational Organizations and globalization

Multinational enterprises can be taken to represent globalization. There is unprecedented growth of multinational enterprises in the world. The twentieth century was marked by companies growing from national lever to huge international companies. Multinational companies have large control of world economy. For instance, two hundred of the world’s largest private companies have a turnover of about a third of world’s Gross Domestic Product (GDP). Globalization has created new business environment. With the growth of globalization, multinational enterprises will be of great influence to world decisions. Firms that engage in multinational transactions must do so very strategically so that to compete well in the ever changing global business environment.

The concept of multinational enterprises is not a new phenomenon in the world. Before 1980, there were still some multinational enterprises with majority being Americans’. However, after 1980 multinational companies started to emerge in other areas such as Asia and Europe. Japanese multinational companies are some of multinational companies that have become very dominant worldwide. Multinational companies from various countries operate in most countries. Currently, American, Japanese, Canadians, British, German and Arab countries’ multinational enterprises have great influence to international trade.

Defining a multinational company is a bit challenging. The fact that multinational companies have changed significantly over the last twenty years makes a distinctive definition not easy to come up with. Various economists offer different definitions for multinationals. These various definitions result from the many perspectives through which a multinational can be viewed. However, a definition of multinational company can be developed by comparing it to a national company (Rugman, 1982, p. 31). A national company is a company that’s operates in a single country and does not have direct foreign investment to other foreign countries. Multinational enterprises are characterized with high capital base, cross cultural management and high network of supplies.

Relationship between Communication, Transportation and globalization

Globalized economy is highly facilitated by good communication and transportation infrastructure. There has been great improvement in transport system across the world. Fast and efficient means of transport have increased great interest in travel. Improvement of air travel has a very important role in globalization. The cost of air travel has dropped significantly over the last few years due to improvement in air craft technology. Reduction in cost of air travel and general increase in income have allowed many people to afford foreign travel. The numbers of travels per year have been increasing consistently in the last decade. Both business and leisure travel have increased over time (Rodrigue, 2010, para.6). The increase in the number of travels has impacted globalization indirectly. It has translated to increase trade and also promoted environmental degradation. Improvement in transportation system contributed highly to increase in tourism activities in the world. Through leisure and business tourism, people from different nations and cultural backgrounds are able to interact. Consequently, people from different background are able to understand each other helping them to get along easily and in the process promote globalization.

Growth in global economy calls for effective transport system. Increase in the number of freights globally shows the significance of international transportation in supporting global economy. There has been increased pressure on international transportation system to support increased volumes of freight. Global economy has led to demand for goods and services over long distances. Thus, international transportation system has to support movement of these goods and services over longer distances. Global economy would not have been possible without a good transport system that can allow transportation of large quantities of freight and passengers (Robertson, 1992, p. 69). Technical improvements have allowed the system to be faster and more efficient. Apart from containerization, there are other few improvements that have led to growing mobility of freight. Containers and appropriate transport system have led to efficiency of global distribution. Most of the cargo transported in the global economy is in fact containerized. Transportation can thus be said as an enabling factor to international trade. Improvement in transportation system in not necessarily the cause to global economy but played a very significant role in promoting global market. Despite of improvement in transport system, there is still pressure due to increased global trade.

Global Economic Crisis

The world is currently recovering from the aftermath of a financial crisis that is thought to be the worst financial crisis since the great depression. Although in the negative way, the financial crisis reveals how the world economies are interdependent. Anything affecting the economy in one area has direct or indirect impact in another region. This financial crisis that started about 2006 has affected many areas of the economy. Everybody in the world either from developed countries or developing countries felt the effect of the crisis in one way or the other (Precheter, 2008, para. 7). There have been many debates on the causes of this crisis and why the crisis had to happen. Some opinions hold that there was conspiracy, while others see the main cause as negligence from financial regulators. There have been various financial crises in the world. In many of these crises, there were evident causes that had motivated the crises. The causes of global financial crisis in highly interrelated. The first step towards preventing future financial crises is to understand global trend and ensure the proper financial standard are put in place.

The current financial crisis is among the worst and widespread financial crises in the world. The crisis started in United States of America in late 2006 or early 2007, and then spread to other parts of the world. Global economic interdependence is the main reason that allowed the financial crisis to spread to other parts of the world in a relatively short time. From United States, the financial crisis was felt in Europe and then other parts of the world. The crisis led to fall of major world companies leading to many people loosing jobs and their source of income (Shah, 2009, para. 6). Faced with tough financial problems, many companies opted to reduce the number of their employees while other stopped most of their operations. Due to the financial crisis, buying capacity of most people reduced leading to bad business environment. Also, as a result of the crisis prices of essential commodities such as food stuffs shot up leading to a food crisis.

The global financial crisis is highly associated with the fall of global housing bubble. As most financial institutions were associated with housing bubble, the collapse had severe effect to the institutions (Shiller, 2008, p.69). Collapse of housing bubble led to securities that were associated to real estates to drop. The sudden drop of values of real estate securities, especially in United States, had severe effect to financial institutions that offered mortgage or that had invested in real estate securities. The high risk assumed by financial institutions in offering mortgaged led to huge financial losses as a result of sudden fall of housing bubble. This further shows how we live in a global economy

Conclusion

Globalization has high impact on social, cultural and economical development in the 21st century. Globalization is used to refer to the process of internalization and increased interdependence between nations. Through globalization, national borders become less importance. Globalization has social, political, cultural and economical implication. Global market is the resultant market as a result of integration of national markets. Global market has led to increase in multinational companies, increase in range of product, reduction on prices for product and general improvement in world economy. Technological advancement and improvement in transportation and communication systems have contributed highly to rapid globalization. Globalization implies that issue affecting one region of the world can easily spread to other regions. The recent global financial crisis is an evidence of the interdependence between countries. This crisis that first started in the US easily spread to almost every part of the world. Therefore it is true that we are living in a global economy.

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