Globalization: Good or Bad Essay

A tremendously contentious issue, globalization has been the center if much discusses and has raised a lot of questions. Some have viewed its procedure as helpful, while many others disagree that it produces adverse results and cost. Though, before the questions and apprehensions of globalization, it is essential to decide or rather describe globalization and all which is concerned. Although Ð ° fairly new term, dating to 1980s, globalization has been Ð ° historical process evident for over the last 100 years. Globalization specially encompasses many aspects for example trade, capital movement, stretch of information, movement of people. (Yager 2004) In the broader definition, globalization promotes effectiveness by utilizing each market and nation’s specialization; nonetheless, allowing people and economies to focus on what they do best. Globalization gives opportunity to each nation to access each others markets as well as to capital flow, technology, imports, exports, politics, and culture. However, as some countries continually reap the benefits and flourish others are falling short. (Guillen 2001) With any global process there are definitely risks and consequences to follow. It is certain that globalization led to Ð ° great economical growth but it is obvious that prosperity is not equal. Already advanced countries are the ones who have benefited most by globalization; nevertheless, this is not to say slowly developing countries have not prospered as well. However, the poorest regions such as in Africa and the former Soviet have not been able to keep up with the worldwide phenomenon. Low income countries have not integrated with the global economy because of policies and outside factors beyond their control. These factors are not fault of globalization; however, there has not been much effort to strengthen these countries financial systems. Globalization is lacking processes in which to increase trade and aid to the poorest countries which would help with integration of all countries-rich and poor. Furthermore, there are not only gaps between the rich and poor countries, but among the rich and poor within the countries which are benefiting from globalization. (Gladwin 2002) Comparative advantage and globalization The theory of absolute advantage was originally proposed in 1776 by Adam Smith. Smith’s theory was the first to explain the benefit of free trade. Smith felt that the hand of the market mechanism, rather than government policy, should determine Ð ° countries imports and exports. Free trade is achieved when Ð ° government does not influence trade through quotas or duties. Theory of absolute advantage, â€Å"†¦suggests that Ð ° country should specialize in producing goods in areas where it has an absolute advantage and import goods in areas where other countries have absolute advantages†. (Sherman, Steingard & Fitzgibbons 2002) The theory of comparative advantage, building on Smith’s theory, David Ricardo advanced the intellectual theory for unrestricted free trade by suggesting that†¦Ã¢â‚¬  it makes sense for Ð ° country to specialize in producing those goods that it can produce most efficiently, while buying goods that it can produce relatively less efficiently from other countries even if that means buying goods from other countries that it could produce more efficiently itself†. In short, the theory of comparative advantage suggests that opening Ð ° country to free trade stimulates economic growth. (Guillen 2001) Heckscher-Ohlin theory is Ð ° refined version of the work of Ricardo. Eli Heckscher and Bertil Ohlin, 20th century Swedish economists’ revealed one of the most influential ideas in international economics. (Brown, David, and Hunter 2004) The Heckscher-Ohlin hypothesis has been one of the most significant hypothetical ideas in global economics. The Heckscher-Ohlin theory suggests that the pattern of international trade is determined by endowments. The theory further reveals that, â€Å"†¦ countries will export those goods that make intensive use of locally abundant factors and will import goods that make intensive use of factors that are locally scarce†. (Stasavage 2005) Factors of Globalization The major drivers of globalization are the decline in barriers to the free flow of goods, services, and capital, technological change, communication, information processing, and transportation technologies. Examples of declining trade and investment barriers that will enable the free flow of goods and services can be seen in the reduction of tariffs and legal blocks which have prevented cross country business. (Gladwin 2002) These barriers were lessoned over the past decades facilitated by the collapse of communism in Eastern Europe and the move towards free market economies in China and Latin America. Reduction of these barriers has resulted in the current trend toward the globalization of production and the ability to see the world as Ð ° single market. (Yergin & Stanislaw 2000) Examples of technological change can be seen in the major advances seen in communication, information processing, and transportation technology, including the explosive emergence of the Internet and the World Wide We. Arguably the most important development is that of the microprocessor, which has fueled explosive growth increasing power and reducing costs there by exponentially increasing the amount of information processed by individual and organizations alike. (Guillen 2001) In the past three decades global communication has been enhanced by developments in satellite, optical fiber, wireless technologies, the Internet and the World Wide Web (WWW). Transportation innovations such as the jet aircraft, super-freighters, and the introductions of containerization have simplified shipment from one mode of transportation to the next; thereby increasing the speed and reducing the cost of goods shipped enabling organizations to expand the geographical area to which goods can be shipped. (Osland Dhanda & Yuthas 2002) Pros Productivity To begin with, globalization is creating Ð ° competitive advantage to companies which outsource labor work to cheaper countries hence lowering their costs. In this scenario both countries would be better of since the cheaper country would foreign cash inflows and the outsourcing country would have cheaper costs. (Gladwin 2002) Ð  problem with this practice is creating loss of jobs in the outsourcing country, but that is like saying Ð ° supermarket is laying of specific workers to hire more efficient workers therefore creating joblessness for the laid off workers. The workers will eventually get work in Ð ° field where they have â€Å"comparative advantage† in which is having an advantage among others based on specialization (in the simple sense). (Jepsen 2004) The same applies to Ð ° country as Ð ° whole when unemployment is on the rise; this will probably create Ð ° downward pressure on the cost of employment in the country and therefore having companies going back to hiring locals for the job since they now cost less and would then have the comparative advantage. Ð  second reason why globalization should be supported is that worldwide welfare is increased when each country does what is has Ð ° comparative advantage in, and this should come naturally as each company in Ð ° country individually finds the country to produce in that makes the most economic sense. (Brown, David, and Hunter 2004) This increase in welfare is accomplished because by definition when using comparative advantage each country is working in its specialization therefore each country is producing relatively its highest capacity. One of the greatest evils for the business/economic world is inflation and globalization helps limit inflation and this is due to competition in Ð ° bigger scale (worldwide) rather than just country wide. (Osland Dhanda & Yuthas 2002) Another reason why welfare will increase because of globalization is the fact that countries which have jobs given to them from foreign countries will now have more means to buying products from other countries all over the world therefore increasing the standard of living in all countries involved. Globalization spawns interaction between many different cultures which creates an understanding of populations’ ideologies and values towards one another. (Gladwin 2002) This creates more political stability as misunderstandings are less likely to occur. This can also be Ð ° problem as some extremists might be close minded to interaction and introduction of foreigners into the country which creates Ð ° bit of Ð ° cultural clash and some problems might occur such as revolutions against new policies and, in an extreme situation, war. (Stasavage 2005) Ideas and innovation Although in general globalization is Ð ° positive effect it still has its pitfalls. As previously discussed workers in the outsourcing country loose Ð ° lot of their jobs and unemployment is Ð ° serious problem to every economy. It is been said that one quarter of workers who have lost their jobs to outsourcing would still be unemployed 3 years from the time they were laid-off. (Sherman, Steingard & Fitzgibbons 2002) The workers who have not lost their job will probably be facing survivor syndrome which is the fear of loosing their job after Ð ° huge lay off has made around them and they haven’t been laid-off which has effects on the human’s health(heart problems) and productivity if they think there is no hope and they start lagging of. Exploitation of developing countries by developed countries is one of the major problems of globalization and it exists in two forms. The first type is using the labor force of Ð ° country for an extremely low price, in some cases old woman and very young children were used in the production of various products such as shoes and clothing. (Gladwin 2002) This issue was brought into attention in the late nineties with companies like Nike exploiting young kids to work for close to nothing and in horrid conditions in countries such as Indonesia. The second form of exploitation is when developing countries are forced to sell their products (coffee in the case of Brazil) at Ð ° very low price due to market fluctuations and the desperate need for income. Ð  cut in the production of one product in one part of the world would be highly felt in Ð ° whole different part of the world and that effect is highly substantial in primary products like oil. (Gladwin 2002) Inflation, jobs and outsourcing There are many advantages which Ð ° company could get from outsourcing its distribution functions. Ð  study which has been conducted in 1993 reported that Ð ° company could reduce 9% of its operating costs by outsourcing. When Ð ° company is outsourced its distribution function to world-class provider, it would reduce the cost of this function as the provider would be more efficient and specialist in this function. Also, by outsourcing non-core activities like distribution, Ð ° company could focus on its core activities and increase revenues. . Managers realize that by outsourcing their routine, nonessential operations, they can better focus on the core competencies that truly differentiate them from competitor. (Gladwin 2002) For example, Ericsson one, of the leading companies in the telecommunication industry, wanted to reduce its costs in the supply chain by finding Ð ° solution to its warehouses in Philippines. (Guillen 2001) Ericsson is always trying to reduce costs in different areas of business, this is including, the supply chain so as to save money and focus on Research and development. Therefore, Ericsson turned to Exel. Ericsson has leased the warehousing operation to Exel on Ð ° two years contract. Exel has provided Ð ° flexible service to Ericsson which has resulted in cost saving and made Ericsson concentrate on its core businesses. Before Ericsson has to handle the warehouse operation in-house but it was not the core competencies of the business. (Osland Dhanda & Yuthas 2002) Another advantage of outsourcing is the reduction of the need to invest in non-core business assets such as warehousing and carriers. This will allow the firm to make the capital funds more available for core functions such as research and development in the telecommunication industry. For example, Northern Telecom manufacture enterprise which is operating in 130 countries has outsourced its distribution service to Ryder Dedicated Logistic. The main reason for Northern Telecom to outsource its distribution function, it did not want to invest in non-core activities. (Yergin & Stanislaw 2000) The development and increasing implementation of outsourcing has not been without its problem. The cost escalation and lack of quality of service are two of the more frequent complaints from firms towards the third party, although contractors argue that these problems often stem from firm’s failure to be precise about what they want by outsourcing their distribution service. Clear objectives need to be set by and to achieve this high level of communication and understanding between firm and service provider must be established. (Sherman, Steingard & Fitzgibbons 2002) Cons Jobs loss The risk outsourcing is the impact of outsourcing on those currently responsible for management of the function is fundamental. If the service is outsourced, the management of the provision of the service from within the organization is radically changed from management of Ð ° function to management of the business relationship with Ð ° contractor. The lack of control posed by movement of this function outside of the organization is often seen as the greatest risk of outsourcing. Consequently, it needs to be cautiously planned and managed. In reality, the effect of outsourcing can simply be seen as Ð ° shift in focus from managing Ð ° function to managing Ð ° contractual relationship. Careful planning together with Ð ° contract written to provide for control measures such as performance monitoring, and good contract administration will minimize or negate any lack of control. (Gladwin 2002) Outsourcing now usually includes benefit transfers. Examples are transfers of staff, sale of existing equipment, and/or Ð ° transfer of existing contracts used in the provision of the service. It is common for specialist outsourcing companies to seek Ð ° transfer of existing staff to do the work. An organization can facilitate this process by allowing communication between staff and bidders about options for staff. Many staff views the opportunity to work with an organization that specializes in their field as valuable; others will prefer redeployment or simply Ð ° redundancy. (Gladwin 2002) Sometimes the sale, lease or sublicense of Ð ° site is also involved. It is therefore important that Ð ° complete asset valuation is undertaken as part of the process of defining an organization’s current service and preferred requirements. The organization must know what equipment and other physical property it has, including consumables, what contracts are currently used in the provision of the service and relevant details of those contracts. It is common for specialist outsourcing companies to seek Ð ° transfer of existing staff to do the work. An organization can facilitate this process by allowing communication between staff and bidders about options for staff. All these need to be considering when the company decides to outsource its distribution activities to the external agents. (Jepsen 2004) As noted, there are many advantages for companies who choose outsourcing as Ð ° means of satisfying their logistics need, but just as there are advantages there are also disadvantages. Outsourcing is based upon fundamental principles and, if those are applied at the outset of Ð ° relationship, the parties will most likely have an effective, successful relationship. But if the parties enter into an agreement that is not based on those principles, the result will be an unsatisfactory relationship and, probably, an early termination of the contract. (Karliner 2000)