Economic globalization is the increasing interdependence of world economies because of growth in the scale of cross-border tradeoff commodities and services, an increase in the flow of international capital, rapid and wide spread of technological innovations (Shangquan 2000). Economic globalization is a reflection of continued expansion and mutual integration of market frontiers, which is an irreversible trend of economic development on a global scale. One of the contributing factors that characterize growth of economic globalization is the rapid and significant growth of information in all areas of productive activities and markets (Akram et al 2011). Rapid and relevant innovations in science and technologies have resulted in the creation of an environment in which market economic system spreads across the world. Through the market economic systems, it has become possible for the development of cross-border division of labor, which has been able to penetrate down to the level of production chains within varied levels of enterprise in different world economies (Akram et al 2011). The main objective of this study is to assess economic globalization in terms of its advantages and disadvantages, growth, foreign direct investment, cross border movement, culture and political, technology, case study on tools of economic globalization such as privatization, foreign investment and franchising.
Advantages and disadvantages of economic globalization
Economic globalization provides a platform for an increase in the level of economic integration among different economies through developments in science and technology. Technological advancements on the global platform have contributed to a reduction in the cost of communication and transportation (Akram et al 2011). This has made economic globalization possible considering that a reduction in ocean shipping cost and the telecommunication cost has resulted in a reduction in the cost of international investments and trade hence making possible for the organization and coordination of global production. For instance, globalization enabled the production of Ford’s Lyman car in different countries depending of their level of technological development, levels of expertise and available resource (Shangquan 2000). The car was designed in Germany, the pump in the United States, engine in Australia and the gearing system in Korea. This was an indication that technological development, which is an integral part of economic globalization made it possible for different countries to pool their resources in the realization of a common goal (Shangquan 2000). Furthermore, through the development of networking based economy it has become possible to develop a large group of shadow enterprises. This was considered a major advantage of economic globalization because it made the concept of distance and national boundaries for certain economic activities relatively meaningless.
The technological advancements contribute to growth of economies through economic globalization because it facilitates the creation of market-oriented reforms in different economies (Akram et al 2011). This is considered an advantage because technological innovations developed as an essential ingredient of economic globalization are institutional driving forces. Under the framework of the World Trade Organization, economic globalization has enabled different economies to eliminate or cut down their not-tariff and tariff barriers (Akram et al 2011). This has allowed more countries to open their capital and current accounts, which are considered as major stimulants of development in trade and investments. Furthermore, through economic globalization, there has been a transition of formerly centralized and planned economies to market economies. This transition has facilitated the integration of world economies in ways that enhance corporation and economic development (Shangquan 2000).
Economic globalization has resulted in the creation of employment opportunities in different countries, which is essential in improving the life standard of different populations while at the same time contributing to a growth in gross domestic product (GDP) (Shangquan 2000). Multinational Corporations (MNCs) are considered as the most essential contributors to an increase in employment opportunities and growth of economies. This is because MNCs have become the main carriers of economic globalization (Shangquan 2000). These enterprises are engaged in global organization of production and allocation of resources in accordance with the principle of profit maximization. The global reshaping and expansion of MNCs have been significant in the development of macroeconomic mechanisms that define economic operations of different world economies.
Economic globalization especially in the financial sector has become the most influential factor of economic development on a global scale. Through economic globalization, it became possible for the development of international finance, which was formed, with the objective of serving the needs of international trade and investment activities (Akram et al 2011). Numerous developments that characterized economic globalization led to the independence of international finance. Since 1970s, globalization of finance has enhanced cross-border flow of financial resource with an increase in cross-border transaction of bonds and stocks of different countries hence contributing to an increase in their GDPs. Economic globalization has enabled gradual growth in the value of average daily transactions of foreign exchanges (Shangquan 2000).
Economic globalization is considered advantageous to the growth of world economies because it connotes the process of global industrial readjustment and restructuring. Technological development and an increase in income levels contribute to industrial development in different countries (Shangquan 2000). Throughout the 21st century, developed countries have been able to use economic globalization as a tool for the development of knowledge economy. Through cross-country shifts, it has become possible for countries to share Knowledge on mechanization and automation of the production process hence necessitating surplus productivity. Furthermore, economic globalization while necessitating industrial development has enhanced competition at the international market among industrial enterprises from different countries (Shangquan 2000). This is considered an advantage of economic globalization because to ensure that they improve on their positioning on the international market, domestic and international enterprises have resulted to economic initiatives such as mergers and acquisitions, which has resulted in tides of industrial restructuring (Akram et al 2011).
Economic globalization, which is essential in the development and industrialization of economies, has facilitated the development of agreements that define trade relations between countries. Through international organizations such as The World Trade Organization, countries have been able to show their level of determination by speeding up reforms in their economic systems. Economic globalization is considered a win-win situation for countries because of an increase in the amount of goods and services exported to different counties while at the same time boosting economic growth through an increase in market share in different countries through initiatives such as foreign direct investment (Shangquan 2000).
Economic globalization facilitates the development of free trade. This is however considered harmful to developing economies because they often struggle to establish fair competition with developed economies. Inasmuch free trade, which advocated for the establishment of liberal markets and a reduction or elimination of tariffs, free trade benefits developed countries more. According to the infantry industry argument, industries in developing economies need protection of free trade to ensure their development. However, tariff protection propelled by developed nations on essential products such as agriculture is harmful to the initiatives by developing countries to ensure economic prosperity through the acceptance of economic globalization (Shangquan 2000).
Economic globalization is sometimes characterized by environmental disadvantages. This is because through economic integration and industrialization, economic globalization increases the use of non-renewable resources, which are essential in the production of commodities. An additional environmental cost is that industrialization and the use of fossil fuel energy in the production process contributes to increased pollution and global warming (Akram et al 2011). Multinational corporations often use economic globalization in advancing their interest by outsourcing production to economies where environmental laws are less strict. From this perspective it is possible to argue that failure by economies to develop sufficient laws in the regulating the activities of multinational corporations (Akram et al 2011).
Economic globalization facilitates the elimination of tariffs and customs across borders. This has been considered as major contributor to labor drain in developing countries. Highly skilled and proficient professionals in developing countries seek better economic opportunities in developed countries (Akram et al 2011). This makes it relatively difficult for developing countries to engage in meaningful economic development initiatives because of lack of sufficient labor to engage in economic activities. Furthermore, the labor drain that characterizes economies in developing countries can be used in explaining the absence of effective laws and regulations governing economic globalization in developing countries. Economic globalization enables free movement of labor across borders. Developing counties find it relatively difficult to hold on to their highly skilled workface who are attracted to developed economies by higher wages and better working conditions (Akram et al 2011).
Economic globalization is also an essential contributor to cultural erosion especially in developed countries whose economic culture is defined by the need to protect their markets from erosion by dominant economies. Economic globalization has resulted in increased cultural and economic hegemony (Akram et al 2011). The integration of economies contributes to merging of markets hence less cultural diversity. This means that word economies have to adopt policies and cultural attributes that are considered dominant and operational in the market. Economies that fail to adopt the most dominant culture are often perceived as opposed to the culture of economic globalization.
Tax competition and tax avoidance are also considered as major disadvantage of economic globalization. MNCs such as Coca Cola can set up offices in countries such as Bermuda that are characterized with very low rates of corporation tax and then channel their profits through these subsidiaries (Shangquan 2000). For such MNCs invest in such countries means that they submit limited taxes in countries where they do most of their business activities. Such investment initiatives by MNCs are considered unfair to domestic companies who cannot use the same tax avoidance mechanism in advancing their interests. Economic globalization has necessitated an increase in the mobility of capital. This means that for developing countries to ensure an increase in foreign investments they have to offer lower corporation tax. Encouraging lower corporation taxation is considered disadvantageous o economic development because it leads to an increase in other areas of taxation hence damaging to domestic companies and the local pollution in such countries (Shangquan 2000).
Tools of economic globalization
Foreign direct investment
Foreign direct investment when considered in relation to economic developments is one of the primary motor of globalization. This is because with the prevailing trends of globalization trade and investments are not only increasing in a complementary manner but also as inseparable sides of globalization (Leitao 2012). Foreign direct investment facilitates the process of international division of labor and it takes advantage of the international trade opportunities, which is characterized by an increase in the mobility of factors of production. Foreign direct investment is therefore a representation of the most effective mechanism of diffusing the productive expertise and capital on the global platform (Leitao 2012). Through the implementation of foreign direct investment as an economic policy, a country has the ability of releasing a large percentage of untapped production of developing and emerging economies. Foreign direct investment also facilitates opening of new markets for high value added commodities and services of industrialized economies which are essential in the generation of high-income employment opportunities (Leitao 2012).
Foreign direct investment is characterized by majority of aspects of investment policies, which are considered as essential components already contained in the guidelines provided by the World Trade Organization. These guidelines provide detailed rules governing the treatments of MNCs operating within the territory of a country (Leitao 2012). These include the rules that govern trade in services, intellectual property protection and agreements that deal with trade related investments measures. These include commitments by WTO member states to ensure that their policies are in agreement with the international investment policy (Leitao 2012).
For foreign direct investment to be effective with regard to economic globalization there is need for economies to abide by the international agreements that promote and protect domestic and foreign investment. This can be facilitated by an increase in interest in bilateral investment treatise. Through a proliferation of these treaties, countries have been able to enhance their foreign investment policies by developing international rules for business as a way of integrating issues of trade and investment. Different countries use foreign direct investment (Leitao 2012).
From the perspective of economic globalization, franchising is an expansion technique used by brands seeking opportunities in unexplored markets. Firms that franchise align their activities to this strategy of globalization when their domestic markets are saturated (Alon and Welsh 2002). Franchising is an expansion process characterized by the identification of economic opportunities in different countries. The process of franchising can be smooth and easy when operated in accordance with the infrastructure of simplicity, streamlined operations, and replications (Alon and Welsh 2002). This is because the business processes that wok in one location having a high probability of working in another location. Franchising with regard to economic globalization operates in the understanding that the liberalization of international markets especially those with untapped resources provide a platform of effectiveness and efficiency for franchisors especially upon consideration of the commodities, business culture, and services (Alon and Welsh 2002).
The challenge for franchisors seeking to explain their businesses into emerging markets is the ability to establish and begin profitable business operations. This explains why it is important that prior to franchising, the franchisor must consider essential markers such as the demand that exists, for the products or services they offer, the initial cost of entry, logistical issues and the probability of profitability. Effective franchising occurs after the franchisor evaluates the GDP per capita of the country of interest, population statistics, and the general health of the country’s economy. It is also important for the franchisor to consider economic policies that define foreign trade in such countries. This is because international expansion laws vary in different countries. The process of licensing a franchise also varies in different countries and this explains the needs for in-depth research by a franchiser before investing in any economy (Alon and Welsh 2002).
Effective franchising occurs when the franchisor aligns its business initiatives with the prevailing culture in the country of interest. According to one school of thought, franchising is effective when a company is not fist but close to second in entering an international market. This approach ensures that another franchisor engages in essential investment in market research of its competitors, products, and services (Alon and Welsh 2002).
An essential element in successful international franchising is the identification of the right business partner. This is a vital component in the long-term profitability and success of the franchisor. By aligning operations with the most viable business partners, it is possible for the franchisor to develop strategies of aligning operations with the prevailing political, cultural, legal, and social factors (Alon and Welsh 2002).
When perceived about economic globalization privatization is an essential component of structural development programs that was initiated in both developed and developing countries. The objective of the structural reform programs was to realize enhanced microeconomic efficiency while fostering economic growth (Sheshinski & Calva 2003). Furthermore, privatization was also considered as an approach that would facilitate a reduction in the requirements for public sector borrowing by eliminating unnecessary subsidies. Privatization when perceived with regard to microeconomic theory presents the notion that incentive and contacting challenges enhance the creation of inefficiencies because of public ownership considering that the management of state owned companies often pursue objectives that are aligned to the prevailing political climate (Sheshinski & Calva 2003). This is different from private companies, which operate with the objective of realizing profits. Some of the factors necessitating privatization include limited monitoring and evaluation mechanisms (Sheshinski & Calva 2003).
Privatization is considered as a beneficial approach for economies because it allows governments to raise financial resources through short-term initiatives while eliminating the need of providing public subsidies to enterprises that were previously publicly owed. The assumption that privatization entails financial gain emanates from the understanding that companies often perform better when subsidies are eliminated and the governance structure is geared towards profit making. Furthermore, through privatization, it is possible for companies to develop from deficits to surpluses and this enables governments to not only eliminate subsidies but also begin the process of tax collection from the privatized companies (Sheshinski & Calva 2003).
When privatization is conducted through mixed sales and public offering it increases the level of stock market capitalization, which is essential in ensuring the development of the financial sectors of different economies. Privatization has the ability of mobilizing financial resources, and ensuring reallocation of credit to more productive initiatives. Inasmuch as privatization of public enterprises reduces the aggregate level of employment in the short term due to elimination of redundant workforce, in the medium and long term it reduces unemployment by increasing economic growth rate (Sheshinski & Calva 2003).
Economic globalization is a reflection of continued expansion and mutual integration of market frontiers, which is an irreversible trend of economic development on a global scale. One of the contributing factors that characterize growth of economic globalization is the rapid and significant growth of information in all areas of productive activities and markets. Technological advancements contribute to growth of economies through economic globalization. This is because it facilitates the creation of market-oriented reforms in different economies, which is considered an advantage because technological innovations developed as an essential ingredient of economic globalization are institutional driving forces. Franchising, privatization, and foreign direct investment when considered in relation to economic developments are part of the primary motor of globalization. This is because with the prevailing trends of globalization trade and investments there is an increase in an integration of economies