The term globalization can be defined as a process by which societies, world states, and cultures integrate via a global network of transportation, communication, diplomacy, and trade. It has both positive and negative impacts in all the areas that it touches on, be it economic, social, technological, cultural, political, environmental, health, or any other. Globalization started to have an impact on businesses worldwide in the eighteenth century; however, contemporary globalization kicked off after the end of the Second World War since it’s during that time that leaders felt the urge to open up their national boundaries with the aim of enabling trade and diplomatic relations between nations (History of Globalization, 2010). This study will discuss globalization in Saudi Arabia and its effects.
Globalization and Technology
Technology can be defined as the total of instruments and procedures that aim to dominate nature by transforming the outside material world and is based on action in accordance with scientific knowledge and engineering science (Clarke, 2005, p. 137).
Globalization has had both positive and negative impacts on technology, especially in the communication and transportation industry. Due to advancements in technology, communication and transportation costs have lowered significantly leading to lower costs in information storage and retrieval as well as data processing. Developments in electronics cannot be ignored especially in either the computer and microchip revolutions.
Today, a laptop worth $2000 is more powerful than a mainframe computer whose cost was $10 million about 30 years ago. The Internet, electronic mail, and the World Wide Web are also some technological developments that have resulted from globalization and made communication and access to information easier (intriligator, 2003).
Transaction cost has also lowered significantly due to improved technology, for example, the shipping costs dropped drastically after it was possible for a ship to be loaded by a few dozen longshoremen instead of hundreds of them. Improvement in information technology, precisely telecommunication, has also contributed to lower transaction costs where analog machines have been replaced by digital switching equipment. Digital switching is cheaper, more efficient, and faster compared to electromechanical exchanges used by analog machines. Globalization has therefore made it easier for the world to access this technology and has made business transactions as well as the dissemination of information easier (James, 2002, p. 11).
A company that uses electronic mail to send invoices to its creditors would be categorized as using technology properly. However, if the same technology is used to send emails that are unofficial to friends during business hours that would be a misuse of technology.
Globalization and Economics
With regard to economics, globalization focuses on a number of aspects such as portfolio investment, free flow of capital internationally, cross-border transactions, technology as well as foreign direct investment. Globalization is a driver of economic prosperity and aids proper and efficient resource allocation. This in return results in increased and better quality output, creation of employment, improved standards of living, and reduced prices.
On the other hand, globalization comes in with outsourcing, off-shoring, and brain drain that affect a country’s economy negatively. Globalization has led to freedom in the exchange of capital and goods, hence leading to the creation of a common market globally. This could be termed as a positive impact although it poses a risk in that collapse of one area could have an impact on other areas as well.
Globalization has significantly enhanced efficiency in the production of goods and services, more so because firms can set up operations in locations with low-cost inputs. For example, most developed countries set firms in developing countries where wages are low, health benefits are low and workers are least protected. Globalization has also benefited borrowers through the establishment of worldwide financial markets.
The most significant impact of globalization in world economies is the liberalization of financial markets and easing the modalities of accessing external credit facilities. However, the rapid growth of these worldwide structures led to increased instability of the financial structure globally (Greenspan, 2009).
The following economic conditions of globalization aid successful business. First, trade liberalization enables countries to trade freely with few or no restrictions. When national economies are privatized and liberalized, they are in a better position to trade with each other. Moreover, reduction in transport costs, aversion of tax and non-tax hindrances, promotion of vertical integration, and expansion of product life cycles would all play a major role towards a successful business.
Trends and Developing Markets
Labour Globalization and employment
Developed counties have associated unemployment and job loss with unemployment. Some of the justifying arguments include foreign investment in developing countries by multinationals, which in return has resulted in the creation of jobs in developing countries while rendering the people in developed countries jobless. In addition, domestically produced goods have been replaced with imports from abroad thus rendering labor used in the production of domestically produced goods redundant. Lastly, technology has also played a key role since most of the work that used to be done manually is currently done using machines (International Labour Organization, n.d).
Emerging trends in innovation
In the past, innovation was perceived as the initiative of the western world that was then exported to the developing countries. Generally, it is often viewed as a technological revolution of products that the early adopters try and test before releasing it to the masses or public (Geroski, 2003 cited in Bhatti, 2010). In the emerging markets, Clark (2005, p. 137), describes it as reconfiguration and bundling of products and processes to satisfy needs at reduced costs and economies of scale. With increased innovation, companies are faced with a challenge to re-think their products and distribution systems in order to be creatively competitive.
In addition, western firms have come up with a strategy to deal with the issue through the establishment of research and development centers as well as the adoption of polycentric innovation in emerging countries. Moreover, companies cannot overlook the importance of diversity in the workforce since a company with a diverse workforce has a wealth of ideas, and their potential to be innovative is higher than that of their counterparts (Welfens, 1999).
Globalization and trends in capital markets
Over the last three decades, capital markets in developed countries have grown substantially and experienced a boom in the 1990s. The governments have played a key role in the growth of capital markets through the liberalization of the financial sector. Some of the actions taken in the process of liberalization include; abolishing interest rate controls, directed credit schemes have been scaled down; the stock markets have also been scaled down.
These measures have enabled the market forces to operate freely, increased the use of security markets cross border risk diversification. Financial and technological innovation has helped in the emergence of more financial securities and reduction in transaction costs. The demand side has also played a role in the development of capital markets since investors prefer to buy securities or hold securities instead of bank deposits (Torre and Schmukler, 2007, p. 7).
Effect of Globalization in Saudi Arabia
Saudi Arabia is one of the Middle East countries, with a topography characterized by aridity and vast desolate landscape. The country forms part of the vast Islamic territory that has strongly held its traditions over the years. Culturally, the country has maintained close family ties and traditional practices and has resisted any external pressures resulting from globalization. However, being the most influential state in the Middle East region, the country is slowly embracing modernization resulting from the effects of globalization of technology and economics (Slackman, 2007). Indeed, the country has become one of the global leaders in the world economy, thanks to its rich oil resource.
For many years, Saudi Arabia has been a closed state, governed by the strict and rigid Islamic ‘Shariah’ laws. This sort of governance has not only been blocking the country from adopting emerging global trends but also contributing to a laid-back society. Indeed, the harsh laws have affected almost of sectors of the economy including politics, economic activities, social integration, and diplomatic relations, and so on.
Some of the examples of the impacts of the rigid laws in the country include censorship of journalistic materials from across borders, alienation, and intimidation of women, and blocking external interference on its political affairs among others (Nouraie-Simone, 2005, p. 81). These restrictions have not only served as obstacles to modernization but also have blocked the society from experiencing what is going on in the outside world (Saudi Arabia, 2006). However, with oil becoming a global product, the country is opening up its borders and embracing global marketing, albeit with some political resistance.
Oil is emerging as the leading link between world economies in the global market. This is primarily due to the fact that oil is the catalyst that fuels economic prosperity across the global community; for instance, the transportation and communication industry relies on oil, electricity production is powered by oil, and almost all manufacturing industries would not function unless there is adequate oil as an input.
Currently, due to the increasing demand for oil from all over the world, the country can no longer resist globalization, a situation that has motivated major global leaders such as the United States to exert substantial foreign influence in Saudi oil (Ehteshami, 2007, p. 30). Indeed, the entry of Saudi Arabia into the global market has enhanced competition and diluted the exploitation that existed when the oil industry was monopolized by two Multinationals, Aramco and OPEC (Vitalis, 2006).
The effect of globalization in Saudi Arabia, though triggered by oil, has been felt in almost all other sectors including, transport, textile industry, hospitality industry among others. For instance, the country is currently experiencing quite a number of immigrants seeking investment opportunities, thus creating an increased demand for other commodities. In addition, the entry of the western world into Saudi Arabia is influencing cultural change as the expatriate’s mix with the local community. Moreover, global presence is felt in the country as the traveling community turns out to be tourists and the target market for Saudi artifacts including idols especially in the region of Mecca.
This shows that the country is economically gaining from globalization; indeed, though the country may not have relaxed its strict rules relating to dress code especially requiring women to wear hijab, the outside world has taken the opportunity to exploit the rich Saudi textile industry, with cities like Paris, Taiwan, and London exporting enormous volume of textile to Saudi citizens (Fandy, 2006). Indeed, this trend has seen Saudi Arabia being incorporated into the World Trade Organization as one of the members.
Globalization has had a significant influence in the world of business, to an extent that markets are opening up and competing at a global level. Generally, the trends in globalization have significantly influenced technological advancement, thus enhancing communication and reducing transactional costs in global markets. In addition, globalization is influencing the economic prosperity of world states, more so through the enhancement of capital flow, resource allocation, and trans-border trade. Moreover, the trends in globalization have witnessed a mushrooming of multinational corporations engaging in foreign direct investments, with the developing markets or economies reaping the most benefits (Welfens, 1999, 33).
Globalization in Saudi Arabia was influenced by the rich reserves of oil in the country. External pressures and increasing global demand for oil forced the country to relax its closed-door policy and attracting foreign investors in the country, while at the same time exporting oil to the global economy. This trend has not only placed the country on the global map but also has enhanced economic growth and development, making the country the leader in the Middle East region. Moreover, as much as the country may be willing to retain some of its traditional norms, the lure of the external supply of wealth influenced by the western world may be overwhelmingly appealing to the country.
Globalization of world economies has brought about both positive and negative effects, thus sound policies need to be implemented by world states to ensure that they benefit from the synergies of globalization. Noting that the gap between the poor and rich nations is still wide, policies in education, health, and economic empowerment will go a long way in eradicating poverty in less developed countries. In addition, realizing that the world is becoming a global village, global cooperation will be instrumental in ensuring a level playing ground in the global market, more so considering that some rich and powerful nations may take advantage and exploit the poor nations.
The developed economies and the MNCs should continue with their investment endeavors in developing countries while at the same time offering expertise and market for inputs from these countries; however, they should desist from actions that tend to exploit developing countries. In relation to the effects of globalization on the environment, world environmental stakeholders must act aggressively to curb or reduce greenhouse gas emissions that have continued to adversely affect the world climate.
With globalization becoming inevitable across all world states, Saudi Arabia ought to embrace various policy frameworks that will enable her to compete effectively in the global market. For instance, despite the temptation to keep her traditions, Saudi Arabia should appreciate the dynamics of global integration and international market competition. With this in mind, the use of technology and product differentiation, as well as diversification, will not only lead to achieving a competitive edge but also enhance the penetration of the country in the global arena.
In addition, with the proliferation of immigrants into the country’s cities, both as expatriates and multinational investors, Saudi Arabia should move fast to create an enabling environment through which trade can take place while at the same time enhancing linguistic interchange and training to enhance communication. Moreover, the entry of Saudi Arabia into WTO will act as a platform to launch its presence in the global trade arena, thus the country should take this opportunity to stake its presence in the world.
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