Home/Essays Examples/Economics/Globalization and International Trade Management

Globalization and International Trade Management

Globalization in simple terms means changing the local or regional phenomenon into global phenomenon. In such a scenario people in different parts are united together in economic, political, social and even technological aspects of life. Quite often this term is used to refer to the process of integrating different nations with their economies coming together through trade, cash flows, foreign investment and many other economic aspects. Supply chain refers to all the processes that a product from the manufacturer or a service goes through before reaching its destination who in this case is the intended consumer or customer. It is important to note that globalization is not a new phenomenon in the world (Fawcett,2007)

Globalization started long time ago with the ancestors of man for instance ancient explores left central Africa and arrived in the Mediterranean around 100,000 years ago. Another group stepped in Asia around 50,000 years ago and they are very significant because they were the first explorers in the world and they traveled and gained experiences in other parts. These people migrated when there were no boarders at all and they were involved in trade. Most of the early globalisers were traders, soldiers, preachers and those who sought for adventure. Some of the early globalisers include people like Alexander the great, Genghis and Christian missionaries.

European traders are in history for exploring Asia in search of new food stuffs to feed their populations. Evidence is there in support of the fact that globalization has occurred in the world. This evidence comes in the form of the increased trade in the world to about 50 times from around 1950.There has also been an increase in global production to about 6.5 times. There is also evidence of 60,000 companies operating away from their home markets through affiliates. (Wei, S., and Y. Wu ,2002)

Supply chain management is a broad terms which refers to the systematic strategic and coordination of traditional business functions within a particular company or companies within the supply chain. This is all geared towards improvements of the company or the entire supply chain. In terms of logistics, supply chain management can also be defined in terms of all the networks and logistics and all the activities undertaken by individuals or companies who are part and parcel of the supply chain.

The promotion of globalization was initially based on comparative advantage, an economic principle which advocates for free movement of goods and services across borders without government interference. Over time business environment and landscape has undergone changes because of a number of forces. Global business is different from the traditional domestic business in a number of ways. First of all, politics cannot meddle in such business and therefore there is no political interference with the markets whatsoever.

Therefore globalization has seen politics out of international trade. One good thing about global business is that the reach of the markets can be extended through alliances with the trade partners. Through alliances much can be gained in terms of technology, the know-how, security and even financial resources. Most of the developing nations have benefited from these alliances that come up due to globalization and international trade.(Fawcett,2007)

Globalization is one of the main causes for the change in the business landscape.

The empowering of the consumer has made him have more say in the phenomenon.

Technology has also contributed significantly to the change. There has also been notable power shift in the supply chain hence affecting operations and overall service delivery to the consumer.

Globalization is a world wide phenomenon; it is quite often viewed only in the context of economics. In its broadest sense globalization affects crosscutting lifetime choices of people in all countries. It includes democracy, human rights, and international commitments to reduce poverty and induce economic development in many developing countries of the world. Globalization increases the volume of international trade especially for developing countries. This paper will focus on the impact globalization has had on international trade and the supply chain. To begin with, it is vital to mention that the world economy has become so much integrated and interdependent and this has contributed by accelerating the change towards globalization. (Gundlach, Erich and Peter ,1996),

In the world the national economies have become so isolated due to the following factors.

  • With globalization cross boarder barriers to trade have been greatly reduced and international trade has been enhanced.
  • Various nations have reduced regulations on trade.
  • The time and geographic distances have been reduced as a result of globalization.
  • The impact from culture of various nations undergoing change has been minimal.

Globalization has impacted in a number of ways on international trade and supply chain management. Most economists believe that the net effects of globalization are positive.

In most countries globalization is evident in three dimensions. The first dimension is the economic dimension whereby goods, services and even technologies take flows in large numbers. Political dimension takes into account the free movement of ideologies and perceptions. Social globalization is characterized by free flow of ideas.(Christopher,2005)

Transportation

Transportation is a very important aspect of supply chain.

As countries undergo globalization transportation is made easy between countries.

With all the countries in a global economy there is need to send out what a country can produce and at the same time gain what is not available in the country. There is also the need to be more efficient in the production of commodities and services.

Therefore one can argue that globalization has led to the development and improvement of transport system between the countries who are involved in international trade. (Gundlach, Erich and Peter Nunnenkamp, 1996)

Air transport between the partner countries has been greatly improved.

Globalization has led to improvement of three very important aspects of transport.

Infrastructure

Development and establishment of transport systems, routes, terminals and many other components develop because they are essential to facilitate international trade.

Transport environment is also essential to facilitate international trade with things such as politics, foreign policy, regulations and even customer preferences.

Transport services

This includes all the activities that passenger and freight go through while engaging in international trade. This includes activities such as insurance, marketing, logistics and finance. Globalization has seen the establishment of all these aspects in the partner countries. Looked at from an economic point of view, the key force behind that is driving the complex effects of globalization on trade is liberalization.

Globalization puts emphasis on the need for trading among member countries to work towards opening up their markets and that trade in goods and services. They say that it should be “borderless.” It has also been observed that a significant part of the world and a large numbers of countries are now effectively getting involved in the processes of integration and globalization. (Benarroch, Michael and James 1999),

Globalization has brought about an expansion of Foreign Direct investment which is very important for economic integrations. World trade has grown faster than the global gross national product. But unfortunately Africa has been left behind in this trade such that it cannot produce more than 2%of the world’s exports. On multinational companies, globalization has led to rapid expansion of some of these rich companies.

The trend is moving towards other major regions in the world. With the expansion of these companies the supply chain has experienced growth due to the trend towards better products and quality service delivery. The rich companies recruit the best personnel to work in their supply chains and this has positively impacted on the companies. As a result of globalization there has been an increasing trend towards trade in production components.

Both the developed and underdeveloped countries benefit from this relationship. Developed countries have opened up new markets for their manufacturing industries in most of the developing nations. The reasons propelling this move can be looked at from ready markets and raw materials perspective. Some host countries go as far a exempting these multinational companies from tax and reduce the tariffs on goods. (Fawcett, 2007)

As a result of this firm most of the developing countries have benefited so much in terms of employment opportunities for the populations. Besides creation of employment opportunities, the developed countries have contributed significantly to the introduction of new technologies to the developed countries. Technologies have been transferred in developing countries in a number of ways for instance through training of the employees.

Globalization however has negatively impacted on the local industry. For instance we have in some underdeveloped countries unfair trading arrangements whereby the majorities are enslaved while the few minorities are benefiting. Local manufacturing firms cannot compete against international importers. This is because the large international importers already enjoy economies of large-scale production. They therefore force the small firms in developing countries out of business once they get into the market. Some of the firms end up in bankrupts if they don’t get assistance from outside. (Scheve and Slaughter, 2002).

Supply chain management has also been influenced by globalization. As globalization continues nations develop the need to identify appropriate partners and establish good working relationships in their supply chains so as to achieve future success. (Coyle, 2003)

Globalization has led to changes in supply chain designs. For instance there have been notable improvements in creation of successful alliances within the supply chain. It means that the chain is managed better and improvement in resource utilization within the chain. The customer in the supply chain has benefited because of globalization. (Slaughter, Matthew, Phillip, 1997),

This is evident in the improvement of the products and even reduction in costs. The consumers have also experienced responsiveness of the products to their demands because of successful alliances between supply chains. When you look at technology transfer it is important to note that globalization indeed has brought new technology especially to the developing world. The new global technologies in the developing world have transformed international trade in these countries. Technology coming with globalization has also improved supply chain management. For instance advertising has greatly been transformed by the use of the internet.

Customers can shop for goods and services easily using various company websites. Manufacturers can closely monitor trends in consumption of their products using technology. Technology has improved all the procedures and processes that products go through before reaching the user. If it is production technology has led to faster and thus increased output of production. Acquisition of raw materials has also been improved for instance movement of cargo through cargo handling companies has facilitated better resource management (Rodrik 1997)

New technologies have also led to change in the way products are handled for instance when you look at packaging you will realize that companies have evolved with better methods of packaging that suits the consumer. Globalization has also influenced storage of commodities. Companies handling highly perishable goods do not incur costs due to spoilage. This is because of improved methods of storage for. A good example can be taken from the flower handling companies.

Globalization has also contributed to the enhancement of security systems within the trade partners. Security for trade routes to prevent piracy has been prioritized by various nations and this means a lot to the promotion of trade within the globe. Globalization has influenced trends in the demand for certain products in the global market. Exports such as coffee and tea from developing countries are greatly influenced by trends in globalization and outsourcing.

Companies which have invested in supply chain management have achieved positive results as a result of globalization.With the traditional methods of processing, companies were experiencing shortcomings and limitations for instance shortages of skilled labor and inconsistencies in the stores. There were also issues with food security and maximum utilization of the available retail space. Product utilization with the correct prescriptions was also an issue encountered by those companies that used traditional methods.

But with globalization these limitations were overcome. This is because globalization is characterized by partnerships where companies gain a lot through developed state of the art infrastructure, utilize the latest technology and leave space for future expansion of their processing capabilities. With such developments there has been notable reduction in the time frame between order and delivery of goods. Delays have been reduced and this has contributed to the efficiency of the supply chain. Such organizations have experienced advantages of globalization and the new technologies associated with it. (Coyle, 2003)

In terms of marketing the speed has increased and especially when new products are developed, the message gets to the customer within a very short time. Therefore within a short duration a new product can become well known in the market and this means the demand is expected to be increased than with use of traditional methods. Globalization comes with a lot of creativity and innovation. In the supply chain this means that there will be variety in terms of products and range so as to meet the different consumer demographics. Partnerships in international trade brings into the developing world better and superior minds that bring about innovation and creativity. Companies come up with unique products that have never existed as a result of this. Food security has been a major concern for all nations in the world. (Coyle, 2003)

All nations work together I international trade so as to get what they lack in terms of food exports to address the problem of food security. With the coming of globalization food security is no longer a problem to many nations in the global market. When a country is faced with acute food shortage for instance countries from Africa the west comes to their aid with imports of food to alleviate disasters such as floods, war and famine.

Storage is yet another important aspect which has been enhanced by international trade and globalization. The cost of setting up new stores has been reduced with globalization. The labor used in stores has also been minimized besides proper utilization of space within the stores. This has contributed to more profits since the labor costs in the stores are channeled elsewhere. The efficiency in the stores has brought so many good implications in the manufacturing sector.

For instance accidents in store as the processing and storage is undertaken have been substantially reduced. This has been achieved through proper safety policies that cater for the needs of the employees. While at work, employees are assured of adequate security as a result of those policies that came with globalization. Companies such as those handling meat have continued to experience high flexibility in packaging and distribution of their products as a result of the change from the traditional methods of processing.

However it is also essential to point out that even though globalization has brought so many things in the world it is characterized by a number of shortcomings. First of all there has been loss of revenues from the parent nations as companies move and establish in other regions of the world. Nations also lose in terms of technocrats and experts who go out to develop other countries within the trade alliances.(Ballou,2004)

According to Rodrik (1997), Jobs are moving from wealthy nations like the USA and moving from the low paying economies like in the underdeveloped third world. Trade liberation has impacted negatively on labour laws and labor environments. The manufactures are moving to the developing countries which are characterized with weaker labour laws and business environment. There are also issues with regard to the sovereignty of states for instance there is interference from foreigners just because they want to protect their economic interests. To add on this, globalization has contributed to the increase of the spread of so many diseases like HIV/AIDS.

War and terrorism has also been propagated through globalization. So many wastes are generated and the world has been so much polluted due to globalization. With the improvement of technologies, the computer era has seen the evolution of computer viruses which are a big threat to businesses all over the global market.

In conclusion I can make it clear that all these factors affect international trade and supply chain management. Therefore globalization has contributed substantially to the development of international trade and the supply chain management although a few shortcomings that sends the wrong message. As much as the world embraces the positive side of globalization care should be taken especially on policies that lead to underdevelopment of some regions in the world.

References

Fawcett, S. E.; Ellram, L. M. and Ogden, J. A. 2007. Supply chain management: From vision to implementation. Upper Saddle River, NJ.: Pearson.

Ballou, R. H. (2004) Business Logistics/Supply Chain Management. Upper Saddle River, NJ: Pearson.

Christopher, M. (2005) Logistics and supply chain management (3rd. Edition). Harlow: Pearson Education Ltd.

Coyle, J. J.; Bardi, E. J. and Langley, C. J. (2003) The management of business logistics. A supply chain perspective (7th. Edition). Mason, Ohio: Thompson Learning.

Slaughter, Matthew J. and Phillip Swagel (1997), “The Effect of Globalization on Wages in the Advanced Economies”, International Monetary Fund Staff Studies for the World Economic Outlook. Web.

Gundlach, Erich and Peter Nunnenkamp (1996), “Some Consequences of Globalization for Developing Countries”, Kiel Working Paper 756, Institut fur Weltwirtschaft.

Benarroch, Michael and James D. Gaisford (1999), “Economies of Scale, International Capital Mobility, and North-South Inequality”, Review of International Economics.

Rodrik, R. (1997). Has Globalization Gone Too Far? Washington D.C.: Institute for International Studies.

Scheve, K. and M. Slaughter (2002). “Economic Insecurity and the Globalization of Production,” NBER Working Paper 9339.

Wei, S., and Y. Wu (2002). “Globalization and Inequality Without Differences in Data Definitions, Legal System, and Other Institutions, International Monetary Fund mimeo.