Globalisation And International Relations

Globalisation is ‘the worldwide movement towards economic, financial, trade, and communications integration’. Globalisation opens up local and nationalistic perspectives to a much wider outlook of a world that is connected internationally in order to benefit from free trade of goods, capital, and services across many different borders. There are many benefits to this as well as drawbacks which I will discuss in this essay. Globalisation consists of many different aspects e.g. Foreign Direct Investment, International trade relationships, exchange rates, global domination of certain economies etc.

Globalisation is not restricted to having solely economic impacts but cultural as well and examples of this will also be explored. I will start off the essay by going through the benefits globalisation can have in the forms of FDI, international trade relationships and Multi-national corporations. I will then move on to the drawbacks as I finally convey the cultural impacts it can have before concluding with a summary on everything I have discussed.

A foreign direct investment (FDI) is an investment in` the form of a controlling ownership in a business in one country by an entity based in another country.

Globalisation has allowed these FDI’s to take place much more easily than before. The first reason being that there have been major developments in technology in the past two decades. Companies are able to communicate much more easily with countries allowing companies to invest their assets into another country and this is a huge benefit for the host country. When a company decides to move production to another country this creates many more jobs in the local economy meaning more people in that country will have a higher disposable income.

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This will in turn benefit the economy of that country. Furthermore, the movement of a company into another country also brings more skilled workers who can train other workers allowing for an overall more skilled workforce. New technology may also be introduced by the investing company which could help the host country to develop in other areas. An example of foreign direct investment would be China’s involvement in Africa. 

In sub-Saharan Africa rates of extreme poverty have gone down and growth has been boosted by more than 8%. There have been huge infrastructure developments in many countries where the Chinese has decided to invest, simple things like developing roads and transport routes for movement of goods across borders. A great example of this would be Djibouti road in Ethiopia which provides coastal access to the landlocked country. The Chinese have also boosted the discovery, use and production of renewable energy sources such as windmills, dams etc. As mentioned above workers acquire skills from the Chinese and utilise their newly acquired skills to even open their own businesses. The Chinese also do not bring in their own workers unless there are no locals available to undertake the jobs at hand, lowering unemployment rates as well as decreasing poverty and increasing circulation of income into the economy. Cheap imported goods from china make up a large part of trade allowing people to emerge into the upper middle class.

As many benefits as there are with FDI there are downsides as well. FDI can impact the home country of the company which has decided to invest abroad. Less regulation of the industry elsewhere makes it very tempting for companies to undertake this route meaning less jobs in the home country therefore impacting the economy. Using the Chinese in Africa example drawbacks for the African countries include that natural resources being utilised by the Chinese to improve the infrastructure are vital to many locals who rely on the natural resources as a source of income. There is also the point about the African countries in need, losing control over their economies due to the high levels of involvement with Chinese nationals. The more they contribute to the country the more they feel they are owed. This is bad as any projects the African governments may want to take on in conjunction with the Chinese would be heavily swayed to the terms and conditions that the Chinese set as they are the higher power in these situations. Ethically the problem is posed about whether the Chinese are socially and environmentally responsible.

Now I will talk about MNC’s as well as international trade relationships. Advancements in communications technology has allowed for many trade relationships to be established which prior to the development e-mails and mobile phones would never have existed. International trade relationships are vital for many reasons. Firstly, international relations allow for the development and innovation of telecommunications. The more methods of doing trade and the more effective the communication, the better outcome for the business and in turn the economy. Furthermore, companies involved in international trade can extend their product lifestyles as if their product has reached the end of its life in its domestic country it may be able to succeed elsewhere. 

Disadvantages to international trade include that products from abroad may render local products obsolete causing a loss of income for those local business owners who may have relied on that specific product. International trade also presents cultural complications. Different cultures have different attitudes, standards, and expectations that can create problems for a brand and business. Failing to consider the expectation a different culture may have can lead to mistakes that damage the reputation of the brand and can be very costly to the bottom line. Any step of the sales process could create an offense. Something as simple as inappropriate packaging can be enough to permanently damage a brand’s reputation. At the same time businesses can adapt their product to the local area they are selling in, this is called glocalization. An example of a company doing this would be Coca Cola in Mexico. Coca-Cola invested hugely in area specific advertisements which has now led to the soft drink to be a big part of Mexican culture. The average Mexican now consumes up to 700 cups of coca cola a year.

MNC’s can have huge economic impacts. Many of the benefits of having an MNC in your country are similar to the benefits of FDI e.g. highly skilled workforce, creation of jobs, better technology. As well as this MNC’s can be a very significant source of tax revenue to the host economy. As these companies are huge they can benefit from economies of scale giving them lower production costs and higher profit margins. Drawbacks of MNC’s doing business in other nations would be that they may not feel that they need to meet the host countries expectations of behaving ethically and being socially responsible. As well as this the corporation may actually send any profits/revenues back to their home country instead of reinvesting through the host countries economy, meaning the host country is at expense of the MNC without actually gaining much benefit. The point made about the MNC paying taxes would only be relevant if they didn’t take any tax avoidance measures (which is a thing many companies do). 

Just as with international trade certain MNC’s can bring a range of products which local businesses simply cannot compete with rendering their products obsolete therefore impacting the local economy. There is also the argument about MNC’s reducing cultural diversity as they continue to grow and expand into many areas. As MNC’s such as Apple, Sony or McDonalds are so big, they have the power to influence and pressurise governments into implementing policies or loosening regulation in order to suit their needs and goals as a business. As some countries are desperate for the investment of these huge firms it allows for these reforms and it is not healthy for the local economy. The nations hosting these corporations simply cannot match their size and power resulting in them having little to no power when it comes to negotiations with these MNC’s. An example of an MNC is Apple in China. Apple have an extremely high demand and one way they can cope with this is by outsourcing their production. As well as this it would cost a lot to get the raw materials requires to be imported into America for local production however this way it works out much cheaper. Regulation in China regarding things like minimum wage also allow for big companies to take advantage and maximise profits by reducing costs in any way possible. There are also many examples of MNC’s violating human rights or behaving unethically in this craze to expand globally, such as apple in china where there are many reports of unsatisfactory working conditions as well as underaged workers etc.

Global domination of certain economies is also something that globalisation has contributed to and this is also a point of concern. The two economies being the American and Chinese in particular. The worlds reserve currency is the dollar and the main reason for this is to allow companies that trade internationally to buy and sell products utilising the same currency as payment. The dollar was chosen as it is the most popular currency owned by one of the worlds superpowers, America. The dollar being selected as the worlds reserve currency meant that it has been overvalued for approximately 40 years and as a result the value of the dollar is not affected even if demand exceeds supply or if supply exceeds demand- it stays the same. China and America have a vital trade relationship, one which America relies on heavily to pay off its huge debt. If the true value of the dollar were to set in, there is no doubt that the value of all U.S investments would erode causing inflation to rise.

An overall summary of the benefits of globalisation would be the increased level of free trade and lowered trade barriers, improved levels of communication, growth and development of less economically developed countries and the increased rates of employment. A summary of the drawbacks would be the abuse of power by MNC’s in small nations (as well as things such as tax avoidance), local businesses unable to compete with big organisations, ethical considerations/cultural impacts, foreign companies’ consumption of natural resources etc.

In conclusion globalisation has many benefits and drawbacks, the benefits seeming to favour the big corporations and MNC’s more than the actual countries in need of the benefits (the less economically developed countries, host countries for FDI etc.). Globalisation has brought about many ethical and cultural implications with companies wanting to expand but not wanting to respect the local governments/people’s needs. Without globalisation many countries would struggle to maintain growth and develop as there would be no specialisation, introduction to new technology or training for a higher skilled workforce. There is definitely a lack of equity in terms of the benefits. Without globalisation the growth of many economies that are reliant on the intervention of MNC’s or foreign direct investment, would be slow.