Business Environment 3

Globalization and Business

What is the truest definition of Globalization?

Answer: princess Diana's death. Question: How come? Answer: An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car with a Dutch engine, driven by a Belgian who was drunk on Scottish whiskey, followed closely by Italian Paparazzi, on Japanese motorcycles, treated by an American doctor, using Brazilian medicines! And this is sent to you by an American, using Bill Gates technology Which is enjoyed stealing from the Japanese. And you are probably reading this on one of the IBM clones that use Taiwanese-made monitors, assembled by Bangladeshi workers in a Singapore plant, transported by lorries driven by Indians, hijacked by Indonesians, unloaded by Sicilian longshoremen, trucked by Mexican illegal aliens, and finally sold to you. 2

Origin of the term Globalization

The term globalization was formed by adding the suffix ization to the word globalize which is shortened to global. ization is a suffix forming noun denoting the act or process. It suggests that the process has not been completed. It is still incomplete. Globalization implies that globalism is increasing. Global in this case stands is a 3 shorthand for globalism.

Globalism
Globalism is a state of the world involving networks of interdependence at multicontinental distances. The linkages occur through flows and influences of capital and goods, information and ideas and people and forces as well as environmentally and biologically relevant substances. The scope and space of globalism is very large. Globalization thus involves an incomplete process of change of material, nonmaterial, demographic and institutional elements on a global scale. It is difficult to define such ongoing comprehensive and massive changes, 4

Stiglitzs Definition of Globalization

Stiglitz defined globalization in the following manner: Fundamentally, it is the closer integration of countries and the peoples of the world which has been brought about by the enormous reductions of cost of transportation and communication and breaking down of artificial barriers to the flow of goods, services, capital, knowledge and (to a lesser extent) people across borders (Globalization and Its 5 Discontent, p.9)

Main elements of Stiglitzs definition

1.Closer integration of the economies. World exports have grown from just under $1 trillion in 1960 to nearly $10 trillion a year in 2000 annual growth rate being 5.5 per cent. World exports expanded faster than output in this period (3.1%).According to WTO, World exports reached $15.78 trillion in 2008. Between 1970 and 2004, share of world exports in World GDP more than doubled from less than 12.5 to 25 per cent.
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Main elements of Stiglitzs definition 2. Integration of peoples. The share of migrants in total population of developed countries (including migrants from developed and developing countries) increased from 4.4 percent in 1960 to 11.4% in 2005- equivalent to an estimated 112 million persons. Remittances of workers was less than $1 billion in 1970; it was $68.7 billion in 1990 and $443.3 billion in 2008.
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Main elements of definition

3. Integration of capital and financial market. . The average daily turnover on the global foreign exchange market, according to Bank for International Settlements is $3.98 trillion in April 2010compared to 1.7 trillion in 1998.
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Integration of capital and financial markets

Measured as a stack of hundred dollar notes, a million dollar would be eight inches high. A billion dollar would be 8000 inches would be around 666 feet high. A trillion dollar a million million would be over 120 miles high. Daily foreign exchange transactions would be as high as 477 mile stack of $100 bill. 9

4.Reduction in transportation cost

Transportation cost in ships was reduced by containerization. The introduction of the container in 1950s dropped the cost of loading a ship from $5.83 to 15.8 cents and further economies were attained by reduction of loading and unloading time. Bigger ships were used and space was better utilized. Despite increase in fuel prices, shipping became cheaper. The price of air cargo per ton kilometer dropped from $5.87 in 1950 to under $0.3 in 2004.
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5. Change in Communication cost

Three things happened: reduction of time, reduction of cost and reaching a larger population. In 1866 the transatlantic cable was commissioned. Prior to this facility, it would take about seven days to send a message across the Atlantic. With telegraph, it was reduced to ten minutes. The reduction of time by a factor of 1000. Internet has now 11 reduced it zero.

Reduction of Communication cost.

In the 1970s it was expensive to telephone transcontinentally. But in 2000, long distance communication is almost free. The speed of the expansion of internet is amazing. It took forty years for radio to gain an audience of fifty million. It took 15 years to sell fifty million computers. It took only four years to give fifty million internet connection. In 2010, there were 523 million internet users globally. Every seven out of 100 people in the world are linked through broadband internet,
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6.Reduction in barriers to trade

Through multilateral trade negotiations, barriers to trade has been reduced. Since the establishment of GATT (General Agreement on Trade and Tariff), international trade negotiations has resulted in tariff reduction of about 85% till 1995. The Uruguay Round in 1995 achieved one third across the board reduction in tariff. Newly established tariffs are bound and cannot be increased without compensation to other countries.
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Reducing barriers to trade

Many non-tariff barriers such as quotas, discretionary licensing, import bans or voluntary export bans will be eliminated or reduced. WTO has been established to ensure fair trade.

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7.Integration in production of goods and services.

1. MNCs (Multi-national corporations) or TNCs (Transnational Corporation 2. Outsourcing.

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MNCs
A multinational Corporation is defined as a corporation that has its management headquarters in one country known as home country and operates in several other countries known as host countries. The British East India company established on 31st December, 1599 was the first MNC. Such MNCs were used as instruments of imperialism and for extraction of raw materials from colonies to mother countries. They are now the main instruments of Foreign Direct Investment. In the past, they were villains. Now they are hailed as heroes of development.
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2. Outsourcing
Outsourcing involve contracting out of a business function which was previously performed by the business itself. If the contract for the supply of a good or service is made with a supplier outside the country, it is also called offshoring or offshore outsourcing. There are two types of outsourcing: (1) outsourcing of components in manufacturing. This implies that Made in America Cars may be made of nonAmerican components (2) outsourcing of a specific segment of a service e.g. call centers , billing etc.
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Anthony Giddens on Globalization

Stiglitzs definition is mainly confined to economic aspects of globalization. Anthony Giddens, a distinguished sociologist argues, Globalization is not only or primarily, about economic interdependence, but about the transformation of time and space of our lives (The Third Way, 31)
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8.Time Dimension of Globalization

Money markets are open twenty four hours. About $25 billion dollar or 25000 crore dollar is transacted every second. The world today is linked up by 24 hour internet and TV. It shakes up every day pattern of life. It makes life highly competitive.
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Space dimension of Globalization

Three issues: 1. Relevance of nation-states 2. Globalization versus Localization 3. Cultural Conflict

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9.Relevance of nation-states.
The unrestricted power of the State has been curtailed by international institutions (such as WTO , IMF) and agreements. Sovereignty is no longer an all or nothing matter. Sovereign power has to be exercised within constraints. The nation state is too small to solve big international problems and too big to address small local problem. The role of the state has to be redefined in the context of globalization.
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10. Globalization versus Localization

By weakening the existing states, Globalization revives the memories of old local entities. Douglas Kellner talks of Globalization from below and Globalization from above, Globalization from below or localization refers to the ways in which marginalized individuals and social movements resist globalization and seek democratization and social justice. 22

Globalization from above

Globalization from above refers to homogenizing forces of sameness and uniformity. Globalization unfolds a process of standardization in which all states conform to the same rules of the game
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11. Cultural Conflict

The cultural conflict is described by Friedman as The Lexus and the Olive Tree- the first representing modernity and affluence and the second representing roots.

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12. International Institutional Architecture

Global institutions have been created to nurture globalization. UN oversees political entities, IMF supervises financial world, WTO enforces fair trade

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Is Globalization new?
1. Globalization is an ongoing process. It speeded up after the discovery of America. Case studies of Bengali culture Food (chili, potato, tomato, cauliflower etc,) Dress Music Language Environment. Water Hyacinth
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Main issues
1. Difficulties of definition- too large and incomplete 2. Descriptions- twelve major components.

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