1.0 INTRODUCTION
The framework of this assignment is to introduce the reader to the concept of globalization and its impact on business and people. Part A focuses on business environment in United States of America keeping in view political, economical, socio-cultural and technological aspects, whereas, Part B argues on impact of globalization on people and government policies.
2.0 Globalization
Globalization is one of the most debateable issues. Before we discuss the impact of globalisation on business environment in United States it is important to understand the term ‘globalisation’.
“Globalization refers to the process of reducing barriers between countries and encouraging closer economic, political, and social interaction” (Mittelman:2000:5)
Globalization being, a very broad concept has resulted in integration of political, economical, cultural and technological environments majority of nations. Huge impact can be seen on business environment through outsourcing, tax reduction, foreign direct investment, and free trade. Furthermore, globalization has eliminated the borders of individual nation, rebuilt the economy of every state and has affected many lives.
PART A
3.0 Impact of globalization on business environment in Unites States of America
Globalization has had a huge impact on business environment in the United States. America that used to be once the land of opportunity is currently struggling, from over burden of financial crises and massive layoffs. Businesses are being affected. According to Griffen and Pustay (2007) one eighth of world trade of goods and services occurs in America. Following is a discussion on business environment in respect to political, economical, socio-cultural and technological aspects.
3.1 Political environment
The role of government is very important in protecting national interest and managing economy. Furthermore strikes, civil wars can adversely affect the profitability of business. Undoubtedly, United States of America occupies a unique position in the world economy because of its size and political stability. According to Griffen and Pustay (2007) stable political environment has made America an important recipient of long term foreign investment and Foreigners have invested over $1.6 trillion in U.S. factories, equipments and property. One good example is of Toyota, which employed 38,340 people in North America.
Liberalization of trade policies has completely revolutionized Corporate America.
Free trade hurts domestic firms. Providing protectionist to firms in return hurts consumers. All this is extensively debateable. Where it is seen that companies have benefited with free trade, like Wal-Mart, Star Bucks, Dell, that contributed to billions of revenue, on the same hand a domestic firms are forced out of business. This has resulted in unemployment. Despite of this threat import tariffs have still been reduced. According to Hill (2005) there is evidence that import tariff has cost consumers approximately $223 billion in terms of high prices. Though with lost of jobs, it can not be ignored that they also cost US consumers about $32 billion per year in the form of higher prices. One good example is of sugar industry. Government placed an import tariff, which in return raised the prices of sugar to more than 40 percent as compared to the prices in the rest of the world.
Keeping in view the current situation of America the positive effect that free trade has caused, is quite unappreciable. People might argue that free trade makes businesses vulnerable to exploitation. Some may say that free trade is the only solution to progress in economy. Obama in his speech believes that free trade is the only way American economy can progress and less than 3 percent of jobs have been displaced from import competition or overseas location. (Davis, 2009)
3.2 Economical Environment
It won’t be wrong in saying that; globalization has created a turmoil in economic growth of United States. Since last couple of years America GDP has been decreasing but still it is higher than rest of the world. Where in one hand globalisation has boosted businesses in America, through free trade, on the other hand it has affected employment, mainly due to outsourcing.
According to Hill (2005) “globalization has increased the opportunities for a firm to expand its revenues by selling around the world and reducing its costs by producing in nations where key inputs are cheap.”
Many companies have benefited from free trade. One example is of Wal-Mart. Wal Mart has expanded rapidly and has reported a sale of $218 billion. Due to outsourcing it has been successful in reducing its operating costs, which is passed to consumer with everyday low prices. (Hill,2005). Another example is of Starbucks that has been able to hit the profit to sales of $2.4 billion and revenue of $159.5 million in 2007. (Ghauri & Cateora,2006). Even small business firms in USA has facilitated from globalization of its markets, e.g. Hytech a new york based manufacturer of solar panels that generates 40 percent of its $ 3millions in annual sales from export to five countries, or B&S Aircrafts Alloys, another New York company whose exports account for 40 percent its $8 million annual revenues.(Hill,2005). Boeing outsourcing has helped him to hire the best suppliers in the world. This eventually gives a good quality end product and secondly enabled Boeing to win greater share of total orders for aircraft. (Hill,2005). Despite of all the benefit gained from free trade, Corporate America is sinking. Many firms have been the victim of globalization. For example Dixon Ticonderoga, one of the oldest public company, produces pencils. But its was forced to close its manufacturing house in U.S. due to competition from Chinese firm, that made much low price pencils.(Hill,2005) Outsourcing that has benefited firms, has created unemployment. Due to outsourcing, America is loosing its manufacturing power. Jobs are being displaced to low income areas. One example is of US clothing manufacturer that closed its US operations where it paid workers $9 per hour and, shifted to Honduras where textile workers receive 48 cents per hour. More examples are of Dell, IBM and CITI Group that have also outsourced their jobs to developing countries (Hill,2005). Yet Obama in his speech said that U.S. has still retained its title for number one manufacturer in terms of exports.(Davis,2009)
Unfortunately, is has been reported by NBER that America is under recession since 2007 (Isidore,2008). Brennan(2003) has acknowledged that an increase in circulation of capital leads to inflation. Therefore people are spending less and saving more, this is further adversely affecting business.
Leonhardt (2008) states that the US economy is shrinking at an annual rate of 0.3 percent. The consumers have reduced their spending. Personal consumption has fell at an annual rate of 3.1 percent in the third quarter of last year. The economy did grow 2 percent during first half of last year, helped by tax rebates sent out by the federal government. Large part of economic activity is made of consumer spending. The rest is a combination of business spending, government spending and the net defference between exports and imports.
3.3 Socio-Cultural Effects
Cultural change has been noticed on the supermarket shelves and restaurants. Globalization has caused a sense is different culture especially in south of America. Interethnic dating and marriage is more evident. (Lerda, 2002). With immigration of different cultures to America, the retailers of food and clothing are adapting to different consumer preference. Now at Wal-Mart one can see ready made, chappatees that is a traditional bread of Pakistani food. Still most of the traditional values of Americans are preserved.
3.4 Technological effects
According to Hill (2009) advancement in technologies like internet and WWW has allowed American hospitals to outsource some radiology work to India, where images from MRI scans are read.
The value of web based transactions hit $657 billion in 2000 with the united states accounting for 47 percent of all web based transactions (Hill,2005) The web allows businesses both small and large to expand their global presence. One example is a California based start-up, Cardiac Science, which makes defibrillators and heart monitors. The company has been selling to more than 50 countries and had a revenues of more than $50 million out of which $17.5 million comes from sales from foreign countries. A good percentage of it profits came from ‘hits’ to the company’s website, which according to company’s CEO, “attracts international business people like bees to honey.” The web makes it easier for buyers and sellers to find each other, where ever they maybe located and whatever their size is. (Hill,2005)
This technology has also enabled Dell to outsource its customer service operations to India. When US customers call dell with a service inquiry they are routed to Bangalore in India where English speaking service personnel handle the call.(Hill,2005)
With all the profits it has done to businesses, it has also intruded piracy laws. Music industry in America has been disposed to Music Videos been shown on internet.
PART B
It’s immensely debateable concerning the way globalisation and competition is affecting people. Strong economic growth has been witnessed by many nations due to globalisation. Despite of all this growth, many individuals are now burdened with the reality of credit crunch and financial crises, that has deepened income inequalities (Bolle,2008). It can be argued that international companies engage in harmful competition, and force policies over government to manipulate economies. Furthermore, multinational firms are believed to destroy domestic firms, in order to take advantage of their monopoly powers. Moreover, international firms have been charged with allegations that they export wages from high developed countries to low developing countries, simultaneously increasing the debt of developing countries and exploiting child labour. Above all, it has been widely heard that competition is responsible for huge number of job lost and creates increasing inequality by deepening poverty.
4.0 Competition is harming people
Critics most often argue that an increase in competition, among international companies, is adversely affecting people. Competition has made many international companies to shift their firms from home countries to other countries, where tax and labour policies are weak, leading to outsourcing. Subsequently, outsourcing has resulted in job lost for many people. When a company closes its production house from one place, eventually people working in that factory looses their job. With rising inflation and massive layoffs it is not easy to get a new job. Unfortunately, this eventually leaves them in a poor condition. For instance, due to inception of NAFTA, that has eliminated tariffs and investment restrictions; an American manufacturer can close its production house in the United States and can open one in Mexico. With this some workers are out of work and some gets employed but the one’s who get employed are exploited. This exploitation occurs because the people of the developing country are made to work for longer hours with very less pay as compared to their counterparts in the developed country. Therefore, it is believed that the only gain occurs is to the owner of the companies, and majority of people are victimized. But this cant be true, because if we think far ahead, this gain can not be for long as other companies with competition will do the same in order to cut their prices to make more profit. Subsequently this leads to more competition. And when majority of the companies move their production house to low wage areas, workers will be in demand. With more companies they can have more options for job and can raise their wages, as a result workers in a reaction can demand for more pay. Therefore increase in competition can reversely increase in wages of workers. Simultaneously, even the workers who loose their jobs can still benefit from low prices, resulting from cheap production (Economist: 2001). Swaim and Torres (2005) have also agreed to some extent that globalization is causing off-shoring of jobs due to increase in competition, which is resulting in unemployment. But they also provides with the data that job lost are in low value. In addition to this the authors have added that loosing a job causes anxiety and depression among family members. Deardorff (2003) do acknowledge some criticism concerning globalisation and competition but believes that as long as the corporations compete with each other they would do far more good than harm to the majority of people.
5.0 Threat to domestic markets adversely affecting people
According to Hill (2005) international companies bring threat to domestic market as they come along. Because large multinational companies sometimes have more economic power than the domestic companies due to their size, therefore they have an option to subsidize their costs in the host market and this eventually can force domestic companies out of business. Subsequently, this gives a chance to the international company to monopolize the market. Furthermore, a monopolized market has a benefit to raise the prices, which eventually harms the people, as more spending is required. In addition to all this international companies also adopt the policy of acquiring one or two companies in their host country and then merge them. Therefore, market is monopolized, and subsequently prices are raised and unfortunately people are left with limited choices and high prices. One good example is of Hindustan Lever Ltd., which is a subsidiary of Unilever, in India. Hindustan Lever Ltd has acquired Tata Oil Mills, and its main local rival, Dollops, Kwality and Milkfood. This has resulted in increase in prices. Griffen & Pustay (2005) adds that as small domestic firms are not able to compete with the large multinational companies, as a result they are closed. This results in unemployment. For example, Colgate-Palmolive and Volkswagen, multinational companies, closed some of their factories in Spain, when Spain passed new laws of increasing labour costs.
6.0 Why is their a competition among governments to accommodate International companies?
Despite of all this harm the big question is why developing countries want international companies to come to their countries. Many developing countries are in a opinion that International companies positively affect the economy of the country. Therefore, governments in developing countries involve in competition with other countries to attract the international companies to their country. This competition is forcing government to change their policies through deregulation and privatization. International companies threat the government that they would leave if policies are not being changed in accordance with their demands. Also many multinational corporations hold patents to prevent competitors from arising. The pharmaceutical companies lobby governments of host countries to enforce patent laws, or else they would go to another country. This can deprive the country of some important life saving drugs. For instance Pzifer, an American pharmaceutical company has been lobbying the Indian government to set up a 100 percent subsidy.(www…1)
According to Acampora (2000) third world countries, that are not competent in regulating environmental conditions, and at the same time no strict government laws are obeyed, are easily victimized by large corporations. For example, Texaco, an American oil retail brand, built an oil well in Ecuador. Unfortunately, with a bankrupt government and very low environmental condition, Texaco easily built an oil well in a condition which was not possible to build in the United States. There were no appropriate rules and regulations in Ecuador, so there was no one to point towards Texaco. After some time oil started leaking from the well and the leakage got so terrible that it affected the agriculture land, therefore the local farmers were unable to sustain themselves and started suffering from poverty and starvation.
7.0 Proponents view towards competition
On other hand, proponents like Quinlivan (2008) agree with the idea that competition is not harmful. An increase in competition drives the international companies to make variety of new diversified and low priced products. Furthermore, products are of high quality, as low quality product has a tendency to loose its customer. Additionally, the author signifies the importance of international companies in improving welfare of nations, as it enables the nations to work together and produce commodities efficiently. All this benefit people. A good example is of Sub Saharan Africa, where due to negligible international companies, no sign of improvement can be witnessed and extreme poverty still prevails. Furthermore, author is in the opinion that multinationals are not taking jobs from high to low wage countries, in fact, they tend to preserve high-wage jobs in developed countries. Besides, international companies not only rely on low labour cost, but on other variables like infrastructure, government regulation and most important political stability. In addition to all this during late 90’s, international corporations had eighty-six million employees, out of which nineteen million were in developing countries. Evidence supplied by the World Bank and United Nations strongly suggests that multinational corporations are a key factor in the large improvement in welfare that has occurred in developing countries over the last forty years. When multinational corporations make profits, this does not mean that developing countries are being exploited. Both the multinational corporations and domestic country are better off as the developing country receives jobs, an expanded tax base, and new technologies. Ploeg and Poelhekke (2008) points that even the jobs that are being lost due to off shoring are only a mere fraction. Therefore, accordingly it cannot be truly said that competition is harming people. Also, globalisation has lifted millions of people out of poverty in China and India. According to IMF, millions have stepped far ahead into middle class.(Meredith & Hoppough,2007)
8.0 Conclusion
In conclusion, it appears that globalisation is connecting nations and eliminating the boundaries. Globalisation has turned the economy of United States. Recession has made corporate America decline in respect to growth. While many companies have benefited from free trade, a large number have been a victim of globalisation. It cannot be evaluated at this point that current policies will worsen the economy or will benefit the economy. Advocates to globalisation view it as an opportunity for developing nations for their economic growth, while those in opposition, sees it as a threat to nations sovereignty, environment, and perceives it as a major cause of unemployment and labour exploitation. Some are getting better off and some are being affected adversely. Globalisation is a reality so one should maximise its benefit and minimise its negative points.
References
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Websites
[1] http://members.tripod.com/~INDIA_RESOURCE/globalization.html