introduction and The Different Facets of Globalization and their Manifestations

Introduction

The process of Globalisation is an inevitable phenomenon in human history which has been bringing the world closer since the time of early trade and exploration, through the exchange of goods, products, information, jobs, knowledge and culture.

What is unique is the emergence of a modern form of Globalisation in recent decades, aided by the pace and scope of global integration resulting from unmatched advancements and reduction in the cost of technology, communications, science, transport and industry.

Markets have become more interwoven and the production process has been made more efficient by the option to create ‘world products,’ i.e. products whose components are made in different locations around the world. Also, the ability to ship information and products easily and cheaply from one country to the next and to locate the manufacturing process where labour and work processes are less expensive has changed the pattern of production and consumption across the world.

Meaning

Globalisation is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Put in simple terms, Globalization refers to processes that promote world-wide exchanges of national and cultural resources. Advances in transportation and telecommunications infrastructure, including the rise of the Internet, are major factors in globalization, generating further interdependence of economic, and cultural activities.

Though several scholars place the origins of globalization in modern times, others trace its history long before the European age of discovery and voyages to the New World. Some even trace the origins to the third millennium BCE. Since the beginning of the 20th century, the pace of globalization has intensified at a rapid rate, especially during the Post Cold War era.

The term globalization has been in increasing use since the mid-1980s and especially since the mid-1990s. In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge. Further, environmental challenges such as climate change, cross-boundary water and air pollution, and over-fishing of the ocean are linked with globalization. Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment.

Globalisation can be defined as the process of change, increasing interconnectedness and interdependence among countries and economies, bringing the world closer through better world-wide communication, transport and trade links. This process is changing the world dramatically and quickly, affecting economic, social, political and cultural aspects of life.

Definitions

OCED Defines Globalisation as

“The geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution, and the cross-border networking of companies, for example through joint ventures and the sharing of assets”

International Monetary Fund defines Globalisation as “The process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies”

The Different Facets of Globalization and their Manifestations

Globalization is manifested in four interrelated developments:

The increase in the international exchange of goods and services, and despite all the restrictions therein, the movement of human resources;

The internalization of production and real investments;

The increased integration of financial markets;

The relative high degree of policy convergence among countries.

The statistical evidence on these developments is truly impressive. In the trade area, the ratio of international trade to the GDP of practically all countries has more than doubled over the last two decades. Trade has substantially outpaced the growth of the GDP in all but very few years over the past twenty five years. A major new phenomenon is the size of services in total trade, in particular financial services.

World trade grew at a real per annum rate of 5.5% in 1958-1994. In the following decade, 1995-2004, it registered an annual real growth of 6.3%. This is well above the average growth of the GDP in the same periods. For individual countries, even the large and relatively closed ones, the trend is the same. For example, in the US; trade went from a mere 9% of the US, GDP in 1970 to more than 23% in 2003. In the small European countries and most of the small developing countries, trade has gone up from levels in the range of 40-50% of the GDP in 1970 to levels in the range of 80-90% in 2003. The increased importance of trade relative to the GDP, is particularly striking in the developing countries. The twenty developing countries classified by an UNCTAD paper as the most dynamic, have increased their share in total world exports from 9.5% in 1980 to 24.3% in 1998; this is all the more impressive in view of the large growth of exports.

In the exchange of human resources, the movement of labour across international borders, legally or illegally, together with the growth of immigration from poor to rich countries has reached such levels that immigration has become an explosive political issue an all the recent political campaigns of western Europe. Even in the US, a traditional country of immigration, the increased scale of economic immigration is beginning to be a standard feature of political campaigns and is heavily exploited by politicians in quest of electoral gains.

In investment cum production area, the internationalization of production is currently manifest in the phenomenal increase of Foreign Direct Investment (FDI) in the US, in Europe, and in some twenty or so developing countries, led by china. For example, china has experienced investment inflows reaching 7.9% of the GDP in 1993 and 8.1 in 2003. This has taken place against the backdrop of real annual growth of china’s GDP of 8-9%. In some smaller economies, like Malaysia, these inflows has reached a high of 14.6% of the GDP in 1993. After dipping in 1997 and 1998, net inflows bounced back, but have not resumed a steady pace of growth after 2001. There is also a growing subcontracting of production and a spreading of production facilities by transactional firms.

In the finance arena, business have increased their resources to international sources as testified by the increased volume of floatation of foreign bond; the increased issuance of international bonds in the Euro markets, and increased international lending in direct and indirect forms. Moreover, big companies have substantially increased their stock listings on the various public exchanges.

The financial institutions, led by banks, have become truly international not only in do9ng international financing like their predecessors have done since the nineteenth century, but in addition, by locating in various countries through some times outright establishment of acquisition of local banks.

On both the assets and liability sides of their balance sheets, banking is now international: loans and deposits are denominated in different currencies originating from and going to different points of the globe.

Just as telling perhaps but more a typical, is the increased convergence of economic policies of governments. This is the result of several factors: the complete triumph of the liberal model has narrowed the scope of choice in economic policies. All countries want to be seen pursuing the right policy model.

The second factor is the emulate–thy-competitor syndrome; countries match the concession and benefits given by their competitors to foreign investors and trans-national firms in order not to suffer a comparative disadvantage.

The third reason is the relative the short time the world has had to fashion policies based on some variation on the orthodox liberal model. The policy convergence however, is stronger among smaller economies than the big ones, because the big economies quite frequently pursue policies dictated by short term expediencies.

The spotty results of the Government controlled model, already cleared in the 1980’s and collapse of the socialist economics in 1989, have brought about an almost universal acceptance of liberal and open market organisation and a semi consensus on economic policies. A rather extreme version emerged in the so called “Washington Consenses”. This was so called after the meeting in Washington of economists with views concordant with those of the IMF and World Bank as to what model of economic policy to follow. Notwithstanding the challenge to this consensus by various other economists, there is a wide convergence of views today on what are bad policies and a spectrum of accord on what are good ones.

Dimensions of Globalization

Globalization encompasses the following:

Doing, or planning to expand, business globally.

Giving up the distinction between domestic market and foreign market and developing a global outlook on business.

Locating the production and other physical facilities on a consideration of the global dynamics, irrespective of national considerations.

Basing product development and product planning on the global market considerations.

Global sourcing of factors of production, i.e., raw materials, components, machinery, technology, finance, etc., are obtained from the best source anywhere in the world.

Global orientation of organizational structure and management culture.