The impact of globalisation in the emerging market economies
Globalisation is becoming a normal word in today’s business environment where different countries are integrating with one another. No country can be self sufficient, they depend on one another. It is very common to see different countries moving from their own nations and invest to other country/countries in order to get markets or resources such as cheap labour. Country boundaries are no longer an issue due to advancement in technology.
Globalisation plays a great role on the economical development of different countries in the world especially in the developed countries such as US which has investments in different countries around the global. On the other side of the coin, globalisation has negative impacts on social, cultural, political, technological, environmental as well as economical activities of different countries.
The aim of this essay is to assess the impacts of globalisation on the emerging market economies in a double edged-sword, whether it is an opportunity or a threat for their growth. The essay will therefore focus on; what is emerging market economy, characteristics of emerging market economies, the concept of globalisation, its drivers, the impact of globalisation on emerging economies in terms of economic, socio-cultural, environment, technological as well as political-legal and finally make a conclusion of this discussion.
LIST OF ACRONYMS
FDI - Foreign Direct Investments
LDCs - Less Developed Countries
GDP - Gross Domestic Product
EMEs – Emerging Market Economies
MNC – Multinational Companies
UN – United Nations
IMF – International Monetary Fund
Over the years it has been witnessed that the aspect of social, cultural, political, technological as well as economical activities of different countries integrating with one another has increased at a rapid rate. The practices that are found in the European countries and the United States are now found in practically at any country in the world. This phenomenon is now commonly referred to as globalisation.
Globalisation is not a new phenomenon, for century’s individuals, later companies, institutions and corporations have been trading with each other in locations that are tremendously far from their point of origin. The Asians for example, used the monsoon winds that occurred after a space of six month’s to move from their countries and reach Africa to trade i.e. buy and sell products to the Africans. China and Europe were also connected during the middle ages through the famed Silk Road across Central Asia. This allowed the two parties to invest to one another which were an aspect of globalisation. This depicts the fact that for a long time globalisation was in existence but not recognised as today as globalisation (Jagdish, 2004).
This current situation of the phenomenon of globalisation increasing at a rapid rate has been induced by policies that have opened economies internally (domestically) as well as internationally. One of the main propagators of this was the aftermath of the second world war whereby governments of different countries in the world decided to accept or implement the free market economic system which had an effect on the productive potentials of their countries and generation new opportunities for global trade i.e. the trade was no longer domestic oriented but internationally oriented. This is to say that the policies opened up opportunities for international trade and investments. The Governments have further negotiated the tremendous reductions in barriers to commerce and have established international agreements to promote trade in goods, services, and investments. These have opened up new opportunities in foreign markets and therefore corporations have built foreign factories and established production and marketing arrangements with foreign partners. This is a defining feature of the late trend of globalisation, i.e. it is an international industrial and financial business structure (Jagdish, 1993).
The new opportunities have made other countries that had ceased them to be dominant in the Global economy today. Now more than ever, it is a clear picture that the aspect of globalization has been one of the major contributors to the rise in the economic dominance of many economies such as those in the Asian countries i.e. India, china etc. To date china has now integrated with practically every country around that world. The Chinese corporations have come to be so powerful to the extent that the USA is in debt of more that 10bilion dollars to the Chinese banks. The latter is to say that the phenomenon of globalisation has tremendous impacts on emerging economies.
This essay will therefore focus on discussing the impact of globalisation in the emerging market economies; in so doing, the essay will focus on defining the emerging market economies, characteristics of the emerging markets, defining the concept of globalisation, drivers of globalisation, and effects of globalisation on emerging market economies in terms of its benefits and drawbacks socially, economically, environmentally and technologically and finally make a conclusion of this discussion.
2.0 Definitions and Concepts
2.1 What is Emerging Market Economy?
Emerging market economies are those economies that their economy and industrialisation grow in a rapid pace while experiencing a rapid increase in information efficiency in an environment. These economies are the leaders among developing countries. To be more precise the following are considered to be the leading emerging market economies Brazil, Russia, India, and China, normally referred top as the BRIC countries. The leading one is China due to high growth of its GDP, technology as well as literacy level, about 93.3% of Chinese total population are literate, this became possible since the Chinese government executed its strategy of prioritising education for its people from lower to the higher levels http://en.wikipedia.org.
Discussed below will be the characteristics of emerging market economies.
2.2 The Characteristics of Emerging Economies
The economy of the emerging economies are constantly in transformational process from closed to an open market, trying to stabilise their economic performances for bringing efficiency and transparency in the capital market.
Reform in Exchange Rate System
International Monetary Fund and World Bank assist the Emerging Market Economies in reforming their exchange rate systems in order to reduce flow of domestic capital to foreign economies since there is an increase of local as well as foreign investments in terms of portfolio and direct.
2.2.3 Attractive to Multinational Corporations
The countries in this category are very much on the list of the favourable environments for investment by the MNC because of the ability to provide lower costs of labour and providing a large customer base.
2.2.4 Large Population
The first feature of these economies is the population in their country. The emerging economies have a large number of people in their countries as compared to other countries in the world. In the business terms it means they contain a very large share of the consumer base in their own country. China for example is the most populated country ion the world, and India is also one of the single countries that have many people as almost the entire African continent.
2.2.5 High Gross Domestic Product Growth
These economies have a remarkable rate of growth on their GDP. China has been estimated to have a 10% growth rate in the last decade. This rate makes it the fastest growing economy in the world and in years to come it may have the leading economy in the world above the United States of America. Much of the growth however had been due to receiving Foreign Direct Investments from the Triads (USA, Japan and Europe), thought in the recent years the BRIC group has also been investing in the Triads.
2.2.6 Changes in Living style
The countries with the emerging economies are experiencing an increase in the change in the life style of its population. There is a tremendous change in terms of industrialization, modernisation as well as urbanization. The rural areas are eroding and more cities with tall buildings and many investments are becoming prominent. Some of the wealthiest businesses and business man are found in these emerging economies. Most of the countries populations are more into becoming modern and more urbanised now than years back. Furthermore the standard of living has improved markedly in these emerging economies. Many millions continue to live in poverty but a growing urban middle class provides an expanding market for both domestic products and for imports from abroad.
2.2.7 Volatility of Assets
The world's interest for the assets of the emerging market economies has risen over the past years. The assets of the Emerging economies also tend to become volatile at times, the returns is really worth risking for. The funds of the Emerging economies have also resulted in a much higher percentage of wealth.
2.3 The Concept of Globalisation
Globalisation has been a concept narrated for many years by different scholar’s world wide. Various dimensions come to light when the term globalisation is mentioned. Basically the issue of integration, in terms of the economy, technology, social aspects as well as politics is of highest consideration when one defines globalisation. Globalisation is the system of interaction among the countries of the world in order to develop the global economy.
Some scholars have defined globalisation simply as the process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, culture, political systems, economic development and prosperity, and human physical well-being in societies around the world.
Globalisation has been refers to the integration of economics and societies all over the world. Globalisation involves technological, economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure (Croucher, 2004).
Others however as previously mentioned have defined globalisation as the process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world http://hubpages.com/hub/Definition-of-Globalization
Globalisation attempts to depict the steps by which the networks in the world in terms of communication, transportation and trading cause the linking (integration) of the regional economies, societies, cultures, as well as technologies. At this point in time most of the world is considering the aspect of economic globalisation as one of the single most significant aspect of globalization. With this in mind economic globalization has been separately defined as the linking of economies of different nations to create an international economy via trade, FDIs, Investment cash flows, and the disperse of technology. Globalisation is usually recognized as being driven by the union of the economic, technological, socio-cultural, political, environmental and biological factors.
For the purpose of this essay, we therefore define the term globalization as the rapid increase in the interconnectedness of the different countries economically, socially, politically, technologically as well as environmentally to resemble a single village; the process highly being facilitated by the increase in the information and communication technology.
2.4 Drivers of Globalisation.
There are many issues that have been discussed when it comes to why is there such an enormous increase in globalisation and why many countries are opening their doors to this phenomenon much easily than before. One of the most common explanation to this has been summarized in one common and yet unique sentence. That is “globalisation is inevitable” meaning it will occurs, whether one likes it or not it will happen. Never the less that sentence is too short to provide the core drivers of globalisation but rather only explain that the phenomenon is there to stay. The drivers for globalisation can be put into the following categories:
These drivers are better explained below:
2.4.1 Market Driver
This actually refers to when the companies consider the various markets to invest. The shifting of the policies of the different governments in the world top having a free market economy has in fact lead to businesses that had a market that was limited to one country to have a global market that waits for the specific products or services that they offer. At this point in companies in different parts of the world have to greater accessibility of the different countries world wide. If there was a trend of no free market economy, the phenomenon of globalization would have been accelerating at a vey small pace and the major transformations will not have been recognized. At this point in time there is the merging of national markets into a singular massive global marketplace. To sell internationally is now easier due to falling of barriers on the cross-border trade. A company doesn’t have to be the size of these multinational giants to facilitate and benefit from the globalization of markets (Owens 2008)
2.4.2 Production Cost Driver
This becomes a driver when it occurs that the costs of production in your country is greater than in another country for the same product, hence it becomes more advantageous for you to produce in another country than in your own. It refers to the sourcing of goods and services from locations around the world to take advantage of national differences in the cost and quality of factors of production. The idea is to compete more effectively offering a product with good quality and low cost. Companies consider the various lifestyle of the country before considering the price of the product and services to render. The companies that find themselves in search for international trade opportunities need to take into account the cost implications associated to where they want to invest. For example one might consider producing certain products in Tanzania than in Europe due to cheaper labour costs etc (Owens 2008)
2.4.3 Technology Driver
This actually refers to when there is increasing technology system, transportation, advancing in the level of world trade system. The have been many developments in technology to date and the rate seems unstoppable. These developments or changes in Technological have achieved advances in communication, information processing, and transportation technology, including the Internet and the World Wide Web (www). The most important innovation has been development in the microprocessors after that global communications have been revolutionized by developments in satellite, optical fiber, and wireless technologies, and now the Internet and the World Wide Web. The rapid growth of the internet and the associated World Wide Web is the latest expression of this development. Besides, innovations have occurred in the field of the transportation technology. The development of commercial jet aircraft has reduced the time needed to get from one location to another. Now China is closer to the USA than ever (Owens 2008)
2.4.4 Government Driver
This refers to the reduction of trade tariffs and non trade tariffs, as a result of reducing the role of political policies. As previously mentioned the adoption of the free market economy has essentially causes the fall of barriers to international trade. Now firms are able to view the entire global as its potential market. The lowering of barrier to trade and investments also allows firms to base production at the optimal location for that activity in order to achieve location economies.
A firm might therefore , design a product in one country, create a part/ component parts in two other countries, assemble the product in another country and then export the finished product around the world. The lowering of trade barriers has facilitated the globalisation of production. The evidence also suggests that foreign direct investment is playing an increasing role in the global economy (Croucher, 2004).
2.4.5 Competition Driver
The aspect of better products as a result of competition has actually made the aspect of globalisation an essential part in many economies. The competition among companies ensures that there is a production of high quality products globally (Owens 2008)
3.0 The impact of Globalisation on Emerging Market Economies
Over the years different debates have existed on whether countries should embrace or be opposed to the phenomenon of globalisation. This debate is pioneered by the likely impact the globalisation has on the various economies or countries in the world. There has been an argument that the aspect of globalisation has favoured already the developed countries while continues to exploit the wealth of developing countries. Below therefore is the discussion on the impact of globalisation on the emerging market economies focused on five main categories;
3.1 Economic impact
According to economists, there are a lot of global events connected with globalization and integration. The economy of a nation relies a lot on the business environment that exists. Whether there is high domestic trading or there is a wider range of investments from international companies. Globalisation has enabled the economies of different countries top become integrated. For example, the avenue of international trade now allows countries to have foreign currencies into their economies. Furthermore the aspect of citizens being in one country and owning property in another country is also a reality. The issues of lending has now moved to a whole new level, companies from one country ask for loans from banks in a different country as well as banks of one country can now put branches in other counties which automatically affects the economies. Governments of one nation go and obtain loans from other nations. A typical and yet most amazing scenario is the fact that the American government being in millions of debt to china which is an emerging economy.
No doubt globalisation has increased the foreign direct investments in different nations. At this point in time the Mc Donald’s company of the United States of America had made a record entry to the Russian and Chinese economy when the policies of these countries had allowed room for the free market economy.
The GDP of countries such as china have benefited a lot as a result of globalization. As mentioned earlier china’s GDP has been growing at a rate of 10%, one of the fastest growing rates in the world.
3.2 Socio-cultural Impact
Another notable impact of globalisation has been on the culture of various societies in the world. Globalisation has been seen as a catalyst for change in the cultures of less developed countries to be more like those of the developed nations. More specifically it is seen as an imposition of the pop culture (western culture) to other countries. For example the way in which people talk, act, dress etc has changed over the last few decades. The type of music that people listen to globally has changed; even the morals of certain societies have changed. Years back, it was outrageous for women to wear miniskirts in the streets of Arabic countries, but now this is becoming debatable. Even in African countries some aspects are changing.
Many people are forgoing their heritage for the new living styles which are believed to be more modernized. Now people believe that if you speak your native language and do not know how to speak English, then you are primitive. All these are a result of globalisation. The way in which people communicate has now also changed. People have conversations via the phone and have reduced the more traditional way of communication which was to visit and see each other physically. No longer are people playing sports outside, they rather play video games, watch movies in the house, all these are a result of globalisation. Furthermore there is a change in the type of ownership in the emerging economies.
The aspect of globalisation has introduced a more capitalist system in nations that were primarily involved in communal ownership; the aspect of ownership has become more of individualistic nature. This being the case, there is no longer equal distribution of income among the people of china. This has benefited some of the members who believed that they deserved more for the more work they did but at the same time has created a division among the rich and the poor that was not there in the past.
3.3 Environmental Impact
The environment is more of the less discussed factors at times but is ne of the most important aspect that needs to be considered when looking upon the impacts of globalization. The environment basically refers to every thing that surrounds us. In the globalized world more and more business opportunities have emerged for the different businesses in the world as a consequence the businesses that are engaged in manufacturing and involve the emission of harmful substances have increased h=and have caused a destruction in the ozone layer in different parts of the world. Furthermore, the less developed countries have suffered on the environment as the developed countries have used globalization as a means of dumping harmful products from their countries. There had been a ban on several environmentally harmful products in Europe; as a result, the European companies sold the goods to countries like Tanzania etc to not suffer losses. This was a means of dumping their waste products. On the other hand though, through globalisation, there are now campaigns all over the world that relate to environmentally protection. International; treaties on environmentally friendly productions have been signed by different nations. The reduction in green house emission treaties have been signed by many nations in the world being led by United states of America and China, the most highly polluting countries in the globe.
3.4 Technological Impact
Globalisation has lead to the increase in the spread of technology all over the world. At this point in time, practically all parts of the world are awe-are of the existing technologies every where. The technology that is used in Europe is also used in china and at times even found in Africa. Globalisation has enabled the world to create, modify different technological devices that were founded by some one else in the different part of the globe. The Japanese have been known to modify different technologies that they see existing in the USA. The Chinese are now the ones who imitate all the existing technologies anywhere in the globe. The arena of globalisation has made the latest technologies to exist in every part of the world. Ranging from the latest mobile phones, laptops, video games and all other gadgets, globalisation in one way or the other has ensured that no one is left behind.
3.5 Political-Legal Impact
The last aspect that globalization has impacted is on the issue of political and legal environment. Globalisation has been at the centre in the increased international laws that are in existence, the existence on the global organizations that provide principles across the world. The United Nations (UN), the World Bank (WB), the international monetary fund (IMF) and the like. The increased interconnectedness of different counties has enabled the existence of the organizations to crops cut different countries. For example some of the policies in the less developing countries (LDCs) such as the Structural Adjustment Program have been influenced by the World bank, some have been influenced by the united nations etc. This shows how globalization has impacted the political and legal atmosphere of a nation. Country losses its sovereignty in globalization as it is being scrutinized by the international countries. For example all of the countries are now looking at the policies of china and try to challenge some of the things that it is doing. In so doing, the sovereignty of the country is being lost (Croucher, 2004).
In general, no one can deny the fact that globalisation is inevitable in today’s competitive business environment. The issue is on how the countries take the existence of globalisation. Through in the discussion we saw that there are benefits that are being seen from the existence of the phenomenon, but there are also detrimental effects. All of these depend on the nation and hence the context in which globalisation takes place since each country differs from one another in terms of comparative advantages. There are issues that are related to the loss of a country’s freedom and sovereignty that play a key part on whether to embrace or reject globalisation, nevertheless, globalisation will happen. In a brief overview though one can see that there are many economically related benefits that have been associated with emerging market economies and hence probable cause for the increased acceptance in the phenomenon .The aspects of the expanding sales i.e. where by the emerging economies are having a wider market for its products is a notable reason for the acceptance of globalisation. Now the countries with emerging economies are having the markets in practically in many or any country of the world ranging from Europe to Africa, the Middle East and America. Furthermore, they have now been able to acquire resources such as technology and cheap labour from the various countries that they have invested in. The acceptance in globalisation has also reduced the risks that have been associated with the investment in only their country as there are many fruitful opportunities in other countries.
However, in essay 2 critical assessments on the impact of globalisation to the emerging market economies will be discussed by evaluating the positive and negative impacts in particular the culture (socio-culture), economic, technology and environment of China.
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