Globalization is one of the hot issues and mentioned a lot on mass media, newspapers, talk shows …it is said by economists and experts all over the world. However, many people think that globalization is something happening outside, in the world – relating to somewhat macro economies and it doesn’t affect their life. But it is the fact that globalization is representing and invading many aspects of our life. Let’s see from simple things like what you use, eat, watch daily: a mobile phone from Korea, Laptop from Japan, grapes from China or blockbusters from Hollywood USA,… to world issues like increasing unemployment, financial crisis, pollution…..We are talking about globalization. It is defined as a process of integrating economies around the world. Despite controversial perspectives on whether we support or against globalization, it is not denied that this trend has increasingly heavy influence on each country‘s economies and people’s life.
Today, we will look at advantages and disadvantages of globalization from the economic perspective.
B. PRIMARY ADVANTAGES AND DISADVANTAGES
OF GLOBALIZATION FROM AN ECONOMIC PERSPECTIVES
Advantages of Globalization
1. World Wide Market
Globalization allows companies to open their business activities beyond borders easily. Firms organize, source, manufacture, market and conduct other value-adding activities on an international scale. It can be seen that when you visit a super market in Hanoi, you can find variety of goods imported from many countries all over the world from grocery to clothes and high-tech advices and machines. Another example is the expansion of Multinational Corporations which distribute their products in continents and countries. One of the most well-known giants is Coca cola which operates in more than 200 countries. What drives companies to expand their business oversea? That’s because business can seek new markets, access to more customers over the world and enjoy growth opportunities. Coca cola make up 30 % market share of global beverage industry. 70% income is generated from outbound activities.
Globalization brings benefits for not only suppliers, manufacturers but also consumers in general. Thanks to the advantages of economies of scale, the company enables to cut down the product unit so that consumers can buy them with cheaper prices. What’s more, they can have more selections of good with high quality. Nowadays, with the development of internet customers from all over the world can find any kind of products and services through commercial sites like Amazon and easily pay with their credit card or visa.
2. Increased Foreign Direct Investment
Globalization both motivates companies to pursue cross- border business activities and international expansion. Besides exporting products and services to customers located abroad, companies are boosting their international investment through foreign direct investment (FDI). FDI refers to an internationalization strategy in which the company builds a factory or representative office abroad through acquisition of productive assets such as capital, technology, labor, land, plant and equipment. It gives investors partial or full ownership of a productive enterprise delicated to manufacturing, marketing, or research and development activities.
Basically, international investment brings benefits for both investors and the country they invest in. Firms undertake FDI for variety of strategic reasons: take advantages of lower production cost for cheaper labor and raw materials and closer to customers, reducing the transportation cost and seeking outsource opportunities.
For example, companies likes Samsung or Nokia establish their factories in India, China and Vietnam to manufacture and assemble products, taking advantages of low-cost labor and other resources in these countries and then they sell complete products to the world to make large profits.
Through FDI, globalization contributes to reducing poverty and increasing standard of living and helps countries use their resources more effectively. It also is a critical engine for job creation. Transnational companies, aided by large revenues biding the advantages of cheap labor resources, they help resolve unemployment in the country they depart. Wages and benefits of jobs in multinational companies are usually better than those purely completely domestic ones. Besides, the process of investment abroad leads to the transference of advanced technology, experiences and management skills that developing countries can learn.
3. Free Trade
When it comes to economic globalization, we always mention to the concept of trade liberalization in which there are no artificial barriers put in place by government to restrict the flow of goods between trading nations. Volume of goods, services and investments is transferring the national borders very rapidly.
In recent decades, the world economy has witnessed rapid development and operation of powerful international economic links. The process of international economic integration takes place at many different levels, from the linked triangles, quadrangles linked to areas such as the EU, ASEAN, NAFTA, MECOSUR, inter-regional… like APEC, ASEM and global links. In particular, regional connectivity plays an important role. Currently worldwide there are about 24 economic integration organizations large areas with different degree of relationship. And, if inception, GATT only 23 members with regulatory areas mainly in trade in goods and are limited to the tariff issue, by the end of 2005, WTO (organized alternative to formerly GATT) was an organization with nearly 150 members, regulate most areas, aspects of international trade.
It is evidence that most of the bilateral and multilateral economic institutions, especially WTO, are focused to solve the problem through market access commitments on trade liberalization. This is a gradual process of dismantling obstacles to trade, elimination of discrimination, creating equal competition, in order to make the trade on an international scale increasingly free communication through gradual tariff reductions; reducing and eventually eliminating non-tariff barriers, such as import quotas, import licenses, foreign exchange management, import surcharges, and fees and other intangible obstacles; ensure fair competition and non-discrimination.
Multinational companies (MNCs) play an increasingly important role in the world economic relations. As of 2004, there were approximately 63,000 multinational companies with over 800,000 subsidiaries. Multinational companies now dominate more than 80% of international trade, accounting for over 90% of total investment and science and technology achievement in the world. With greater strength, multinational companies expanding influence, maintain and enhance power control in important areas such as finance, technology, services and labor.
4. Mobility of People
Globalization solves labor shortage for developed countries and unemployment for developing countries. In industrialized countries, the population is getting older, creating a demand for labor immigration or outsourcing while poorer countries with young, active populations have an employment supply that these countries can absorb. Nowadays companies are able to seek skilled employees or experts in many parts of the world. In multinational firms we can see people from many cultures working together. We also see that the removal of barriers among countries enable people to access to more employments avaiable in global job markets, allowing greater labour demographic movement.
For customers, the opening of borders encourages people spending more on travel. The development of tourism industry leading to the development of many other services such as: transportation, food, communication, entertainment,….growing GDP for countries.
The process of economic globalization leads to economic barriers which separate countries have been reduced; this has opened up tremendous market opportunities for all countries, which primarily markets import and export.
In the global economy, along with dramatically increased exchange of goods and services as the rapid flows of capital, technology, management experience,… are pushed strongly. Therefore, participation in the process of globalization, countries have tremendous opportunities to attract foreign investment, to get the technology, modern technology, advanced management experience of world, narrowing the gap left behind.
For developing countries, economic globalization has created an opportunity for the country to quickly engage in the international division of labor. Since then forming a rational economic structure, efficiency and competitiveness, shorten the process of modernization. The trend of international division of labor today has shifted from vertical division of labor into horizontally, assigned to detail, according to the manufacturing process. For example, the production of Boeing aircraft in the US have the details are made from nearly 100 different countries.
Disadvantages of Globalization
1. Increase the gap between the rich and the poor
Theoretically, economic globalization is beneficial to all countries. However, in practice the benefits of this process are not divided, it depends on the economic competitiveness of each country. In other words, economic globalization leads to the unequal distribution of opportunities and economic benefits across regions, countries and population groups. So it increases further the status disparities in income and employment with highly educated workers enjoying more opportunities and workers with less education facing declining employment prospects and stagnant incomes. This deepens the gap between rich and poor nations, the rich is getting richer, and the poor become poorer. Currently, developed countries account for only 19% of the world population but hold 71% of the trade volume, assets and services, 58% of foreign direct investment and 91% of people use the Internet.