Introduction
There is no conventional agreement for the term globalization. In economics, it is used to refer to international integration in commodity and labor markets (Bordo, Taylor, & Williamson 2003, p.187). There have been at least two episodes of globalization since the mid 19th century if international integration is taken as a base for the markets. These were the immediate period prior to World War I and the aftermath of World War II according to Baldwin and Martin (1999, p.19). In both cases, there was a relative economic rebalance of the major economies involved. Rapid integration therefore characterizes globalization. Several factors enhance this accelerated integration that leads to globalization of trade. These and a number of opportunities created for the less developed economies in the process are discussed in this paper.
Free trade
Free trade allows companies to sell their goods and services anywhere in the world with very minimal restrictions if any. Nonetheless, free trade has been increasingly been criticized for a number of reasons. In this case, powerful corporations and nations are seen to dictate terms of trade in their own interest. In developing countries, their influences sometimes make elected leaders undertake decisions that are not in the interest of the people. Developing countries that have embraced free trade have benefited from the large market that free trade has provided. In some instances, the countries produce goods that they do not utilize but are nonetheless of higher demand in the developed western markets. Currently, horticultural products are produced in vast quantities in eastern Africa and sold almost entirely in the western markets with Europe being the major market. India is another relatively less developed country that produces far more textile products than its economy requires. Consequently, most of it finds its way into the export market, mainly into the United States. This kind of trade is fundamental in supporting those countries economies through earning of foreign exchange.
The World Trade organization (WTO), consisting of 134 nations is the leading international body that promotes free trade globally (Lipsey & Chrystal, 2007, p. 622). This is through setting up of regulations that international trade adhere to. These rules normally cater for the interest of all the parties concerned with a view to benefiting everyone involved. Its main aim is to achieve equitable global trading thus promoting fair development of all countries. The operations of WTO have also been criticized as sometimes not independent, but heavily influenced by the richer more developed nations. This sometimes leads to the collapse of well intended talks such as the ‘’WTO Doha Development Trade Round’’
Deregulation is a major barrier to free trade. It entails subsidizing industries that cannot fairly compete with others in the same market. While the move ensures continuity of the industries and is sometimes heavily supported by stakeholders, it is nonetheless against fair competition. In fair competition standards, it is a matter of survival for the fittest. Natural market forces are allowed to eliminate businesses that cannot be sustained.
Some of the free trade agreements include the Free Trade Area of the Americas (FTAA), the free trade within the European Union member countries, and the US attempts at free trade agreements with African nations (AGOWA)
Capitalism
Capitalism refers to the buying of goods at relatively lower prices and selling them at higher prices in large proportions making marginally enormous profits. Capitalism takes various forms in any given geographical region. Governments may support certain industries they would wish to succeed, a move termed as state capitalism. Normally, governments do so with a view to protecting industries whose failure my have adverse effects on their economies. Governments expect these companies to be winners after such support. Oligarchic capitalism involves the control of majority of the wealth by a small group of individuals such as royal families that also rule a state or a country. There are also situations in which a majority of major economic activities are carried out by few well established large enterprises and this is referred to as big-firm capitalism. If the significant role of controlling the markets is played by several small innovative firms, then we talk of entrepreneurial capitalism.
When production of capital is measured in time and in profit, companies involved maximize both in order to optimize the profits. This is the ultimate goal of all the parties involved in trade in a capitalism situation. Necessary steps are taken by these institutions to reduce the time for turnover of capital (Porritt 2007, p.11). This is the time it takes from production of a certain good or offering of service to actual realization of profits. This is the basis of operation of multinational companies and their presence is global.
The multinational corporations look for a location that can provide them with the cheapest labor in order to produce a certain amount of good in a specific timeframe. This is attained through several ways for instance, building of a company’s subsidiary in a given region to tap affordable labor. Examples here would include computer firms at the Silicon Valley that have since relocated some of their operations to India. This move is cheaper than having the companies move the vast number of IT expert in Indians to the U.S and awarding them huge remuneration packages due to the high cost of living in the United States. In so doing, the companies significantly reduce the cost of production and therefore increase their profit margins. Should the labor market change, the companies are likely to move their businesses to relatively cheaper areas. Their relationship with the job market is never long-term but in the short-term it suits their intended goals.
Another major reason that guides the operations of multinationals worldwide is the availability of raw materials for production. This makes multinationals to move to any place in which access to raw materials is cheap and affordable so that they produce their goods at a cheaper cost. The textile industry in China is such an example where multinationals have moved in to enjoy both the cheap Chinese labor and the available raw materials.
The location of industries in these countries is greatly beneficial to the developing world. Relative to the developed western nations, developing countries provide cheaper labor which attracts the firms. The industries then provide jobs to the people, in effect increasing their economic status. Although the wages are small compared to those offered by the developed countries, they greatly boost the economies of developing countries by empowering the large poor majority. The cumulative effect is an enhancement of the economy.
Democracy
Democracy for countries involves election of the topmost leaders by the citizens. Since the Second World War, democracy has continued to spread through out the world. To date there are more democratic governments than non democratic ones. Stable democratic governments attract investments. This is because of the security and stability that is provided. Large global businesses tend to invest in relatively stable environments. The increased global democracies provide a wider market to explore and hence increased global presence. South American emerging economies such as Brazil are attractive to investors because of the relative stable democracy they enjoy. Less democratic nations or the other hand may be bearing the risk of being plunged into conflicts. As long as this danger looms, investors stay away to avoid the possible risk (Franzini & Pizzuti 2001, p.159). One country that has been less democratic is Afghanistan. It is falls amongst the world poorest nations together with Somalia.
Regions made up of stable democracies tend to form free trade zones due to the associated benefits. The free trade then promotes globalization. Such blocks also have bargaining powers in the world business arena in as far as their jurisdiction is concerned. The organizations themselves are democratically run. For example, decisions at WTO are made through votes from the member countries each of which has a voting right. If there is a shared interest in trade, the countries make decisions to promote the trade. Businesses come together, spread regionally and finally globally. The fall of the Berlin wall at the end of the error of the Soviet Union is a kind of event that promotes democracy and open societies enhancing globalization of trade.
Most developing nations are becoming more democratic. For African countries that were colonized by Europeans, the error after independence was marked by single party governed governments. Multiparty system of governments has so far picked up and the nations are more democratically governed. This has increased the global markets platform that multinationals can operate on increasing globalization
Internet
Information and Communications Technologies (ICTs) has had a great impact in the way business is conducted in the modern world. Several companies in different sectors have incorporated technology in their operational and strategic management. A key role the internet has performed is allowing for online operations by companies. The companies also perform electronic transactions and cash transfers. In the dynamic world of today, the internet is a fundamental component of most businesses operations. It Increases marketing, revenue growth, and enhance visibility and collaboration. Customer satisfaction and loyalty is also improved in addition to business efficiency and cost saving. Globalization easily occurs in the process of achieving the above as the internet is global. As a way of emphasizing this statement, take a situation of marketing for example. When an enterprise sets up a website or simply advertises online, access to the information is global. Customers interested in the goods or services have the option of electronic money transfer to complete the transaction. Buying of products half a world away is nowadays easy and fast due to technology. Although a company may be located in one place, the internet makes worldwide operations easy. The ICT infrastructure and network access has spread to the entire world making this possible.
The internet has led to the development of another area of business which is selling of information instead of the usual goods or services. Products that are developed for usage with the internet such as some software normally are for global consumption (Eckersley, Harris & Jackson 2003, p. 79). Examples here would include such browser software as Mozilla. Enterprises making such software must be ready to globally distribute them. The transactions for their purchase as afore mentioned are likely to be electronic and instant.
The internet has also helped to change the traditional chain managing sequence for the better. In cases where the workload is tremendously reduced, more jobs are looked for and that leads more business that spread globally (Fanzini & Pizzuti 2001, p. 67). The effectiveness of the internet in different languages and cultural settings makes it a tool for globalization. This makes online information globally understood.
In the developing countries the internet has provided economical, educational and social opportunities. The setting up of online based companies has created jobs to many people in the industry. These include online forex trading companies, those in web design and maintenance industry, together with online marketing. There are also those who operate internet cyber cafes, and the internet providers. Increased sale in computers has also resulted from increased internet access. Those in the computer business in the developing worlds therefore have experienced increased profits. On the educational front, the internet has connected the developing world academics to better educational materials they hardly accessed before. For example, some professors whom rarely got access to educational journals in their developing countries now have the chance to get the latest editions on the same day they are uploaded online. Universities that offer online degrees have made them accessible and affordable to students in the developing countries. These students would not easily afford the entire fee package at the campuses (inclusive of accommodation and the rest in developed countries). The social aspects of the internet include the social networking sites like facebook and online dating agencies. There are also sites for jobseekers and just about almost every other social issue.
Popular culture
Culture refers to the way of life of an individual or group(s) of people in a society (Scott 1997, p. 75). It encompasses languages, arts, spirituality, social activities, and sciences among others. Popular cultures are mostly found in the entertainment industry. These include music, and videos, among others. Worldwide television networks reach global audiences. Business strategies such as advertisements on these channels are global. When this happens, customers, hail from all corners of the world. Operations of a business are then not limited to a specific geographical area. Businesses invest in popular culture related ventures because of the huge market it provide. If well tapped huge profits are likely to be realized.
In the developing countries the globalization of movies and music has influenced the natives’ culture. Artist in these countries strive to produce products that can gain global audience. Those who manage to break into the international markets reap substantially monetary gains. Sale of such products in the developing world provides business opportunities to the entrepreneurs who undertake to venture into such businesses.
Conclusion
With the technological advancements of today, globalization is almost inevitable. A majority of the large companies have gone multinational to explore the large markets available worldwide. The market trends and political adjustments that take place forces the markets to be global. Other factors that lead to globalization of trade include free trade, capitalism, democracy, the internet and popular culture. Each of these factors has contributed to some component of enhancement of this and the combined effect; the globalization of trade. Both the developed and developing countries benefit from globalization of trade. The major opportunity that arises from this for the developing countries is job creation. There are others such as more access to education that applies only to a minority. A major disadvantage of global trade is that a problem in one area causes huge impact in the entire global scene. Such was the case with the financial systems of the United States that affected the world financial markets. Some countries have not recovered to date.
Reference
Baldwin, R. & Martin, P., 1999, Globalization: a new phenomenon. London: Edward Elgar
Bordo, M, Taylor, M, & Williamson, J., 2003, Globalization in historical perspective. London: University of Chicago Press.
Eckersley, P, Harris, L, & Jackson, J., 2003, E-business fundamentals. Kentucky: Routledge.
Fanzini, M, & Pizzuti, R., 2001, Globalization: institutions and social cohesion. Heidelberg: Springer.
Lipsey, G, & Chrystal, K., 2007, Economics.11th Ed. Oxford: Oxford University.
Porritt, J., 2007, Capitalism as if the world matters. (2nd Ed). Trowbridge: Earthscan.
Scott, A., 1997, The limits of globalization: cases and arguments. London: Taylor & Francis.