Chapter 8 – GLOBALIZATION

GLOBALIZATION
A fundamental shift is occurring in the World economy. We are rapidly moving from a
world in which national economies were relatively self-contained entities, isolated from each other
by barriers to cross border trade and investment; by distance, time zones, and language and by
national differences in Govt., regulation, culture and business systems –And we are moving
towards a world in which barriers to cross- border trade and investment are tumbling, perceived
distance is shrinking due to advances in transportation and telecommunication technology,
material culture is starting to look similar the world over and national economies are merging into
an inter dependent global economic system. The process by which this is happening is currently
reported as globalization.
International Monetary Fund defines Globalization as “the growing interdependence of
countries worldwide through increasing volume and variety of cross border transactions in goods
and services and of international capital flows and also through the more rapid and wide spread
diffusion of technology”.
Charles U.L. Hill defines globalization as “The shift towards a more integrated and
interdependent World Economy. Globalization has two main components-the globalization of
markets and Globalization of production.”
Interdependence and integration of individual countries of the World may be called as
Globalization. Thus, globalization integrates not only economies but also societies.

Types of Globalization
 Political Globalization. Refers to the amount of political co-operation that exist between
different countries Adoption of uniform policies world-wide Trade agreements
 Social Globalization. Refers to the sharing of ideas and information between and through
different country
 Economic Globalization. Refers to the interconnectedness of economies through trade
and the exchange of resources Corporation becoming multinational.
Key Factors of Globalization
 Globalization of Market. The expansion and access of business to all over the world to
reach the needs of the costumers internationally. Example: McDonald’s, Coca Cola, Pepsi
 Globalization of Production. Sourcing of material and services from other countries to
gain advantages from price differences in different nation. Example:
Honda- who is Making spare parts in china, assembling the product in Pakistan and design
the product engine in Japan.
Drivers of Globalization
 Decline trade and Investment Barriers
 Technological Change
 Other drivers
Decline trade and Investment Barriers
1. International Trade. Occurs when a firm export goods or services to consumers in other
country.
2. FDI (Foreign Direct Investment). Occurs when a firm invests resources in business
activities outside its home country.
Technological Change
 Microprocessor. Due to invention of microprocessor after WW II, many changes occur
in globalization. This include satellite, optic fiber, wireless communication as well as the
internet, the worldwide web and the possibilities of e-commerce
 Telecommunication. Technology that sends information over distance

 Internet. Rapid growth of internet is the latest technological driver that created global e-
business and e-commerce by using WWW you can easily purchase and sale anything in
the world
 Transportation. Technology Improvement in transportation technology in air, sea, and
rail system to accelerate the globalization activities also decline in transportation cost and
less time needed to travel from one place to another.
Other Drivers
 Market Drivers. Many consumers of goods and services are now universally available, no
matter one’s geographic location or social setting. Now-a-days we are easily purchase any
brand product due to globalization of market.
 Cost Drivers. Sourcing efficiency and cost differ country to country and global firms can
take advantage of this fact. Like Honda Company manufactured his product with the help
of three countries the china, Pakistan and Japan.
 Competitive Drivers. With the global market, global inter-firm competition increase and
organization are force to "play" international. Due to competition between countries os
industries everyone Make his product different and more reliable as compare to others.
 Political Drivers. Unrealized trading rules and deregulate market lead to lower tariffs and
allow foreign direct investment in almost all over the world. It is only due to liberalization
political Environment of a country.
Policy and Issues in Globalization
Issues in Globalization
- Loss of Unique Culture
- Corporate profit before worker’s right
- Threat to religious belief and morality
- Threat to contemporary culture
Policy in Globalization
Anti-Globalization crusades refer to the processes or actions taken by some actors (a state
or its people) in order to demonstrate its sovereignty and practice democratic decision making.
This has led to the formation of various movements concerned primarily with the negative impacts
of globalization in developing countries.
Their concerns range from issues like democracy, national sovereignty, and the
exploitation of workers. Some of these anti-globalization movements include Global Justice
Movement, Anti-Corporate Globalization Movement, Alter-Globalization Movement, and
Counter-Globalization. The various anti-globalization groups fight against damages to the planet
in terms of the perceived unsustainable harm done to the biosphere as well as the perceived human
costs like poverty, inequality, miscegenation, injustice, and the erosion of traditional cultures,
which occur because of transformation related to globalization. Meanwhile, the critiques of
globalization.
A. EMERGING GLOBAL ECONOMY
The decades of the 1980s and 1990s brought transitions in the political, economic,
technological, and environmental arenas. Some of these changes continue to reshape our work and
non-work lives, much as the early Industrial Revolution did during the mid-1800s. This revolution
is fueling increased globalization.
Globalization has made a big world smaller. Globalization affects trade, finance,
production, communications, and technological change. When we look at the world map, we need
to think about how this global community of people and nations is being systematically drawn
closer together.
Global Economy
- The global economy is the world economy or the worldwide economy.
- It is all the economies of the world, which we consider together as one economic
system. Simply, it is one giant entity.
- Also the system of trade and industry across the world that has emerged due to
globalization. In other words, the way in which countries’ economies have been
developing to operate collectively as one system.
- Refers to the interconnected worldwide economic activities that take place between
multiple countries.
Characteristics Comprises global economy
- Globalization: Globalization describes a process by which national and regional
economies, societies, and cultures have become integrated through the global network
of trade, communication, immigration, and transportation. These developments led to
the advent of the global economy. Due to the global economy and globalization,
domestic economies have become cohesive, leading to an improvement in their
performances.
- International trade: International trade is considered an impact of globalization. It refers
to the exchange of goods and services between different countries, and it has helped
countries to specialize in products that they have a comparative advantage in. This is
an economic theory that refers to an economy's ability to produce goods and services
at a lower opportunity cost than its trade partners.
- International finance: Money can be transferred at a faster rate between countries
compared to goods, services, and people; making international finance one of the
primary features of a global economy. International finance consists of topics like
currency exchange rates and monetary policy.
- Global investment: This refers to an investment strategy that is not constrained by
geographical boundaries. Global investment mainly takes place via foreign direct
investment (FDI).
Who controls the global economy?
Many people think that the global economy is controlled by governments of the largest
economies in the world, but this a common misconception. Although governments do hold power
over countries’ economies, the big banks and large corporations control and essentially fund
these governments. This means that large financial institutions dominate the global economy.
How does the global economy work?
The functioning of the global economy can be explained through one word —transactions.
International transactions taking place between top economies in the world help in the continuance
of the global economy. These transactions mainly comprise trade-taking place between different
countries. International trade includes the exchange of a variety of products between countries. It
ranges all the way from fruits and foods, to natural oil and weapons.
Benefits of Global Economy
- Providing a foundation for worldwide economic growth, with the international
economy set to grow by 4% in 2019
- Encouraging competitiveness between countries in various markets;
- Raising productivity and efficiency across countries;
- Helping in the development of underdeveloped countries by allowing them to import
capital goods (machinery and industrial raw materials) and export primary goods
(natural resources and raw materials).
What are the benefits of global economy?
Free trade: Free trade is an excellent method for countries to exchange goods and services.
It also allows countries to specialize in the production of those goods in which they have a
comparative advantage.
Movement of labor: Increased migration of the labor force is advantageous for the
recipient as well as for the workers. If a country is going through a phase of high
unemployment, workers can look for jobs in other countries. This also helps in reducing
geographical inequality.
Increased economies of scale: The specialization of goods production in most countries
has led to advantageous economic factors such as lower average costs and lower prices for
customers.
Increased investment: Due to the presence of global economy, it has become easier for
countries to attract short-term and long-term investment. Investments in developing
countries go a long way in improving their economies.
Factors affecting global economy
 Natural resources;
 Infrastructure;
 Population;
 Labor;
 Human capital;
 Technology
 Law
B. GLOBALIZATION OF MARKETS
The globalization of markets refers to the merging of historically distinct and separate
national markets into one huge global marketplace. Falling barriers to cross-border trade has made
it easier to sell internationally. It has been argued for some time that the tastes and preferences of
consumers in different nations are beginning to converge on some global norm, thereby helping to
create a global market. Refers to the process of integrating and merging of the distinct world
markets into a single market. This process involves the identification of some common norm,
value, taste, preference and convenience and slowly enables the cultural shift towards the use of
common product or service
Transition from Domestic to International to Global Markets
After a company decides to go international, it must decide the degree of marketing
involvement and commitment it is prepared to make. Generally, a domestic company enters
emerge as an international company through the following stages:
1. No direct foreign marketing
2. Infrequent foreign marketing
 3. Regular foreign marketing
4. International marketing
5. Global marketing

Features of Globalization of Markets

o The distinction of global market is still prevailing even after the globalization of market.
These distinctions require the companies to formulate different strategies for each market.
o Most of the foreign markets are the markets for non-consumer goods like machinery,
equipment, raw material, software etc.
o The global business firms compete with each other frequently in different national
markets including their home markets.
o The size of the company need not to be large to create global market. Even small
companies can create a global market.

Reasons for Globalization of Market

 Large scale industrialization enabled mass production
 To cater to the demand for their product in foreign market
 Companies globalize markets in order to increase their profits and achieve company
goals
 Company in order to reduce the risk diversify the portfolio of countries

C. POLICY ISSUES
• give one's citizens a relevant set of skills through education, and then let them get on with
the job of producing whatever is useful to the world economy.
• requires one to recognize also the increased risks of full exposure to the world economy.

The Policy Challenges of Globalization

Globalization has various impacts on different countries. However, the degree and nature
of the effects largely depends on the roles played by the countries involved. Nonetheless, the
globalization process is faced with the following challenges:
• How to ensure that the benefits of globalization extend to all countries and the parts
therein.
• How to deal with the fear that globalization leads to instability, which is particularly
marked in the developing world.
• How to address the fear in the industrialized world that increased global competition will
lead inexorably to a race to the bottom in wages, labor rights, employment practices, and
the environment.
• How to search for new ways to cooperate in the overall interest of countries and people.
• How to reform the financial sector to absorb the shocks and effects of globalization by
flexibly responding to changes in the financial markets.
• How to formulate appropriate policy responses to globalization processes as to fully
maximize the benefits while minimizing the risks and losses therein.
 • How to maintain state sovereignty in the face of weakening national powers in favor of
international intergovernmental bodies.
• How to guarantee macroeconomic stability embodied in low inflation, appropriate real
exchange rates and prudent fiscal stance. This is a precondition for benefiting from and
sustaining private capital flows.
• How to promote openness to trade and capital flows in order to rationalize and liberalize
exchange and trade regimes in international competition without compromising standards
and dumping.
• How to limit government intervention to areas of genuine market failure and to the
provision of the necessary social and economic infrastructure without compromising
exploitation.

These challenges identified above are issues that if they are not properly addressed, tend to
present the negative effects of globalization on affected countries. Nevertheless, where these
challenges are taken into considerations, globalization will be perceived as beneficial because the
impacts will be positive. Meanwhile, exploring the potential benefits of globalization by any
country can be enhanced through:
a) Implementing policies that make the economies structurally flexible.
b) Diversification of the economy towards production and manufacturing to reduce their
vulnerability to exogenous shocks. These include further reforms in the areas of public
enterprise activities, the labor markets, and the trade regimes.
c) Increasing investment in education, health and research that can help improve
productivity.
d) Improving the effectiveness of public institutions and governance system to guarantee
efficient policy formulation and implementation with respect to globalization processes.
e) Localizing new developmental initiatives adaptable to the socio-economic and political
environment.
f) Furthering regional integration efforts to increase market size, improve the bargaining
power in trade negotiations, and enhance intra-regional trade. This would however require
the harmonization of some socioeconomic policies especially on the mobility of labor and
trade transactions.

D. THE PHILIPPINES AND THE GLOBAL MARKET

The Philippine Department of Trade and Industry is the executive department of the
Philippine Government tasked as the main economic catalyst that enables innovative, competitive,
job generating, inclusive business, and empowers consumers. It acts as catalyst for intensified
private sector activity in order to accelerate and sustain economic growth through comprehensive
industrial growth strategy, progressive and socially responsible trade liberalization and
deregulation programs and policymaking designed for the expansion and diversification of
Philippine trade - both domestic and foreign.
 Technology plays an integral role in keeping such economies afloat. Artificial intelligence,
upskilling work forces, and adding improved professional courses could serve as the ballast from
which countries could build a better future for global trade.
Over half (51%) of respondents for the Philippines believed that global trade will soon be
restored. Three-quarters (76%) strongly believe that international trade will continue to grow in
the next five years. 84% respondents from the Philippines are already in the process of adopting
new technologies.
This is despite the country’s merchandise trade deficit lingering above the $3-billion mark
for the fifth straight month this year in August. Data from the Philippine Statistics Authority
showed that while export growth that month posted its best performance for this year so far, and
was the third straight month of positive performance, import growth also posted the slowest in five
months.
Overseas sales of Philippine goods in August rose by 3.089% year-on-year to $6.163
billion, outstripped by an 11.034% hike in value of inbound foreign goods to $9.677 billion. The
resulting $3.513- billion deficit in trade in goods was 28.393% bigger than the $2.737 billion
recorded last year.
Year to date, exports slowed 2.049% to $44.908 billion while imports grew 15.043% to
$70.911 billion, pushing the merchandise trade gap up 64.668% to $26.003 billion. The
government has projected an export growth target of nine percent for 2018, while imports are
targeted at 10%.
The country is in it for the long haul. In the 2018 Hinrich Foundation Sustainable Trade
Index released, which measured the long-term trade sustainability of 19 Asian economies and the
United States, the Philippines placed 10th, beating out countries like Malaysia and Thailand.
“The Philippines was a top performer among the low-income economies in the 2018 Index,
outperforming the middle-income economies of Malaysia and Thailand in overall scores,” the
Hinrich Foundation wrote on its profile report on the Philippines.
The Hinrich Foundation is a nonprofit organization that undertakes trade-related policy
research and development work in Asia. It commissioned The Economist Intelligence Unit (EIU)
to build the Sustainable Trade Index.
The Index uses 24 indicators to measure 19 economies in Asia and the US across the three
recognized pillars of sustainability: economic growth, social capital, and environmental protection.
It measures the readiness of each economy to participate in global trade in a way that creates
sustainable growth and attracts foreign direct investment, and funding and support from
multilateral development agencies.
In addition, while the country has seen its economic pillar fall by six notches to where it
was in 2016, it was recognized for its improvements on the social capital pillar, particularly
because of an overall stagnation in the area across the region. Its ranking in the social pillar went
up by eight spots from rank 19 in the 2016 report to rank 11 this year.
 The Philippines was also recognized by the report as the most-educated population among
lowincome economies on the index.
“Inequality and political instability are on the rise across the region, a trend that transcends
wealth and development status. The Philippines, however, was one of the few economies to
increase its ranking on the social pillar in 2018,” the report noted.
“The country even outperformed middle-income countries like China, Thailand and
Malaysia on the social pillar, outperforming its income-weighted position to deliver an impressive
social pillar performance.” — Bjorn Biel M. Beltran

Activity #8

A. How globalization affect business?

B. How globalization creates opportunities and challenges for business managers?