What is globalization? What factors contributed to its rise?
Globalization is a process of international integration in the field of economic,finance,trade and communication.It lifted the barriers among nations and paved the way for increased interconnectedness and interdependence of people and countries.
The following are some of the factors that have given rise to globalization:
1.Development of new and advanced technology,rise of satellite connections,internet and web services etc have provided a base for globalisation.
2.The free flow of trade without any restrictions among nations have made business more easier and attractive.Trade transactions among nations have become cheaper providing opportunities for outside markets to establish base in a developing nation.
3.Removal of capital exchange control has made money transactions easier among nations.As a result,a developed nation can easily enter the market of a developing nation in search of better business returns.
4.Changes in the tastes of consumers and their craze to buy foreign goods have opened the path for globalization to occur.
5.New and emerging markets in developing nations and the entry of MNC's have changed the scenario altogether.The markets are now flooded with foreign products leaving very little scope for the local markets to survive.
6.Increased mobility of labour has also paved the way for globalisation.People migrate between nations frequently in search of better job opportunities.
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Globalisation: The way in which the world economy is integrated in the modern world is globalization. Take example of Microsoft. Microsoft is having its headquarters in USA. This company is getting part of its software developed in India and several other countries. And Microsofts software is being used across the world. Another example can be Ford motors based in USA. Ford is having manufacturing plants in Chennai and cars manufactured in Chennai go for sale in other countries. Moreover, company may be getting gear boxes produced in some other country, seat belts from a different country, lights, rear view mirrors in some other nation by some other company. Almost all the components get supplied by various vendors to the Ford motor, which assembles them to make the car.
All these activities help in generating employment opportunities across the world. This in turn affects the world economy. You can think of various activities in the step of final production of a product or a service which take place around the world at different locations. This results in interdependence of national economies around the world.Development of Globalisation:-
Since early history global trade has been connecting mankind in myriad ways. Silk route of early history helped in connecting Asia from the rest of the world. This trade route not only facilitated movement of goods but also movement of people and ideas. If zero traveled from India to rest of the world then western clothes came to India. Nowadays the way we relish eating pizza or noodles, people abroad are big fans of the Indian curry and chicken tikka.
Early phase of globalization involved export of raw material from Asia and import of finished products from Europe. But from mid twentieth century things began to change.
During mid to late twentieth century certain companys became multinationals as they spread their economic activities to various parts of the world.Causes of Globalisation:-
Need of Cost Cutting:-
Suppose a company is having two options to get a particular work done. The first option is to get it done in the home country but cost involved will be higher. Next option is to get it done in a different country at a lesser cost. Obviously any company will prefer the second option. Labour cost and cost of certain raw materials are cheaper in India, Malaysia, China and Taiwan. This results in reduced cost of production, which will result in better profit for the company. So you get a computer with certain parts manufactured in Taiwan or Malaysia, processor manufactured in India and software supplied from USA. The final product may get assembled in the market where it will be ultimately used.
Need to find newer markets:-
If home markets consumer base has purchased a product and needs no more of it or little bit of it, then the company has to plan to increase the business. This can be done by finding newer markets with new consumer base. Especially in todays scenario when India and China constitute about one fourth of the world population, any company which wants to get more business cant ignore these two markets. Try comparing it with your city or village. If vegetables produced in a village can only be sold in that village then it may not find many customers, resulting in low price and may be wastage of vegetables. To get a better price from large customer base the village vegetable grower needs to move to cities.
Stimulus for Globalisation:-
Earlier countries imposed heavy import duties to restrict goods from outside and to promote local industries. These were part of deliberate trade barriers. But WTO (World Trade Organisation) convinced all member nations to reduce trade barriers. WTO believes in unrestricted economic opportunity across the world. In India after 1991, liberalization policies were being followed resulting in MNCs setting up shops in India. The result is for everybody to see. Earlier car meant an Ambassador or a Fiat and two-wheeler meant a Bajaj Scooter or Rajdoot Motorcycle. Now people have various options for car and two wheelers.
Globalisation is not a new phenomena. The world economy has become increasingly interdependent for a long time. However, in recent decades the process of globalisation has accelerated, this is due to a variety of factors, but important ones include improved trade, increased labour and capital mobility and improved technology.
Main Reasons that have caused Globalisation
- Improved transport, making global travel easier. For example, there has been a rapid growth in airtravel, enabling greater movement of people and goods across the globe.
- Containerisation. From 1970, there was a rapid adoption of the steel transport container. This reduced the costs of inter-modal transport making trade cheaper and more efficient.
- Improved technology which makes it easier to communicate and share information around the world. E.g. internet
- Growth of multinational companies with a global presence in many different economies.
- Growth global trading blocks which have reduced national barriers. (e.g. European Union, NAFTA, ASEAN)
- Reduced tariff barriers encouraging global trade. Often this has occurred through the support of the WTO.
- Firms exploiting gains from economies of scale to gain increased specialisation. This is an important feature of new trade theory.
- Growth of global media.
- Global Trade Cycle. Economic growth is global in nature. This means countries are increasingly interconnected. (e.g. recession in one country affects global trade and invariably causes an economic downturn in major trading partners.)
- Financial system increasingly global in nature. When US banks suffered losses due to sub-prime mortgage crisis, it affected all major banks in other countries who had bought financial derivatives from US banks and mortgage companies.
- Improved mobility of capital. In past few decades there has been a general reduction in capital barriers, making it easier for capital to flow between different economies. This has increased the ability for firms to receive finance. It has also increased the global interconnectedness of global financial markets.
- Increased mobility of labour. People are more willing to move between different countries in search for work. Global trade remittances now play a large role in transfers from developed countries to developing countries.
In evaluation I would make the following points:
- It is hard to precisely define globalisation there are different interpretations about what we actually mean, therefore, there are differing factors that explain it.
- Improved technology is undoubtedly very influential in helping globalisation; without technologies such as the internet and global communication it would not have been possible to witness the increased interdependence of coompanies and countries.
- Increased free trade is important. However, there are various trade barriers still in existence and this has not stopped the growth of globalisation.
- Could there be a backlash against globalisation as people look for local alternatives to multinational products? I think this is unlikely as people prefer the security of buying established brand names