Essay
How integrated, interconnected and interdependent is the global economy? With the use of examples, critically evaluate the current state of globalization worldwide.
Introduction:
Globalization has attained unfathomable heights in the recent decade with prolific improvements noticed in the domain of communication and technology. Therefore, the overlapping of international borders has been a profound result of the promotion of globalization (Baccaro, 2002). The following essay would emphasize the economic factors that are associated with globalization and determine the extent to which the global economy is interconnected, integrated, and interdependent.
The references to the use of FDI as a viable outcome of globalization could be considered significant highlights of this essay that can be useful to address the concerns about the existing state of globalization all over the world (Bessette, 1997). It is essential to consider the global business environment and the other external factors that affect the global financial framework. The primary impact of legal and political macro factors on the extent of integration and interconnectivity in the global economy. The references towards the competitive microenvironment, and internal environment factors would also provide valid insights into the interconnectivity identified in the factors such as marketing differences, HRM, and production based on culture as well as potential highlights towards suppliers, customers, intermediates, and competitors (Cavusgil, Knight & Riesenberger, 2017). The emphasis of the following essay would be directed toward comprehensively understanding the concept of FDI thereby apprehending the necessary details required for understanding the level of integration and interconnectivity in the global economy as a result of globalization.
International business expansion:
As per Elster (1998), the primary concern of international business has been identified in the form of the motivation of organizations to identify and leverage opportunities in international markets. It is imperative to observe that organizations which prefer international business are more likely to follow the rationale of financial gains (Elster, 1998). The requirements of organizations in international markets should be tailored towards an understanding of the economic systems prevalent in those markets. The prominently noticed classifications of economic systems are observed in three types that include the market economy, mixed economy, and the command economy.
According to Ghemawat & Altman (2013), the definition of a market economy could be illustrated in the form of the ownership of the goods and services produced by the country by private entities alongside reflecting on the significant highlight of determining production quantities based on the precedents of supply and demand (Ghemawat & Altman, 2013). The market economy is explicitly associated with democracy highlighting the role of the government in monitoring and promoting free and fair competition among the private ownership of production facilities. The particular reflections on the details of the market economy present an effective representation of the significance of consumers and their purchasing behavior on the identification of supply and demand alongside the quantity of production.
The command economies are identified with particular highlights on the role of the government in determining the quantity and nature of the production of goods and services alongside the planning of the prices for selling them.
As per Hill (2017), the lack of private ownership is also observed as a primary cause for limited incentives for serving consumer needs effectively. A command economy can also be considered a totalitarian economy. The precedents of a mixed economy are identified in the integration of specific elements from the command economy and market economy (Hill, 2017). The notable highlights of the mixed government are also noticed in the role of governments in taking responsibility for the firms that contribute to the national interests through innovative market mechanisms and state intervention. The aspects of a mixed economy could be identified in the form of socialism.
Another prominent highlight to be looked for in the initiatives for promoting international business since the impact of totalitarianism in the political systems observed in command economies. As per Morrison (2011), the command economies indicate profound references to the dominance of the state over the allocation of resources for production (Morrison, 2011). The significance of the control imposed by the state government on the production aspects can be considered as a major impact on the depreciation of living standards. The ownership controls are not vested in producers thereby leading to limited transparency between the government and the producers.
The possibilities for foreign firms to enter these markets are minimal owing to the prevalence of barriers. These political systems generally reflect minimal possibilities for promoting global economic integration. Market economies and democratic political systems are interrelated in the majority of cases and are characterized by favorable opportunities for economic freedom for businesses, market liberalization, and higher transparency between government agencies and financial organizations due to the rule of law, and well-developed legal system. It is also essential to observe the implementation of the rule of law that validates transparency in a market economy through explicit and publicly disclosed, widely respected, and fairly enforced information and legislation (Peng & Meyer, 2016). It is also imperative to observe that there is limited intervention of the government in business activities. The democratic political systems could also be characterized by the limited barriers to the entry of international firms. Furthermore, democratic political systems facilitate higher opportunities for global economic integration.
Therefore the relation between political, legal, and economic systems is identified as a necessary aspect for determining the integration of the global economy. FDI or foreign direct investment can be determined in terms of the total amount of money held by a country in foreign jurisdictions which is known as outflows (Morrison, 2011). Inflows are identified in terms of the total money invested by foreign sources in a country. Another important definition to be noted in the case of illustration of FDI is the stock of FDI which can be defined as the total value of foreign-owned assets at a particular instance of time. The major highlights to be noticed in recent trends in the world economy regarding FDI are the drastic increase in the flow as well as the stock of FDI in the last 35 years.
As per Ghemawat & Altman (2013), the noticeable increase in preferences of business organizations towards free market economies and the democratic political institution is responsible for the promotion of FDI. The examples of specific leading destinations of FDI include advanced economies, as well as emerging economies, which are identified as prominent sources for promoting FDI (Ghemawat & Altman, 2013). The advanced economies observed in examples of Japan, Britain, and European Markets, and Japan are perceived as highly appealing markets for FDI that strengthens the prospects for international business. The recent improvement in the appeal of developing economies and emerging markets as prominent FDI destinations could be considered a major source of proliferating opportunities for international business as well as global economic integration.
Emerging economies such as Mexico, India, Eastern Europe, and China could be considered for easy access to the associated regional markets thereby allowing for limited economic barriers for international businesses. The majority of business investments complemented through FDI are observed in the form of mergers and acquisitions which are also considered as a significant international market entry method (Peng & Meyer, 2016). The advantages of acquisition can be considered the primary reason for their increasing prevalence on the grounds of quicker execution periods and ease of execution and minimal risks about the acquisition of required assets for international business. Acquisitions are also preferred on the grounds of the motivation of organizations towards increasing their efficiency through information exchange and effective training and development in terms of capital transformation, management skills, cultural integration, and technological capabilities.
Conclusion:
The reflection presented in the essay was derived from major research study literature that was also responsible for presenting a feasible insight into the relationship between political, legal, and economic systems. The relationship is particularly considered a major factor that has played a notable role in the promotion of international business since it has also led to the increase in the flow of FDI. The prominent inferences that can be drawn from the reflection on the research study literature suggest the comparison between the costs and benefits associated with the host country and the home country.
The benefits of FDI for the host country are identified in the form of the employment effect, the balance of payments effect, the impact on competition and economic growth, and the resource transfer effect. On the other hand, the host country has to bear costs that can be associated with the possible adverse effects of FDI on competition within the host nation as well balance of payments. Restrictions could also be identified concerning the host country’s perceived loss of autonomy and sovereignty.
The critical reflection on the implementation of mergers and acquisitions could facilitate insights into the fact that firms in the host nation could perceive a drastic loss in control over firm activities and financial integration. Therefore, the role of external factors in promoting international business should also be supported by notable interventions in an internal organizational environment that could lead to prolific opportunities for improving FDI flow. Another formidable cost to the home country is observed as a result of outward FDI in the employment aspects.
The export of jobs is profoundly associated with a home country’s cost with an outflow of FDI and is identified in cases where the home country has higher levels of unemployment. The implications of legal factors are also observed in the case of international business in the form of certain aspects of the legal environment of the host country in the form of differences in contract law. From a personal perspective, it can be stated that emerging and developing economies are more likely to adopt mixed economic systems that would be directed towards the objectives of maintaining control as well as acquiring suitable opportunities for promoting international business. This can be critically reflected upon to find that the opportunities for global economic integration could be validated in the emerging and developed economies albeit with the concerns of government intervention in the planning and producing goods and services for goods and services.
References
Baccaro, L. (2002). The civil society meets the State: A Model of associational democracy.
Bessette, J. M. (1997). The mild voice of Reason: Deliberative Democracy and American national government. University of Chicago Press.
Cavusgil, S.T., Knight, G, and Riesenberger, J. (2017) International Business: The New Realities, 4th Edition, Global Edition, Upper Saddle River, NJ: Prentice Hall (Chapter 2)
Elster, J. (Ed.). (1998). Deliberative democracy (Vol. 1). Cambridge University Press.
Ghemawat, P., & Altman, S. (2013). Depth index of globalization 2013: and the big shift to emerging economies. IESE Business School, University of Navarra. https://www.ghemawat.com/wordpress/wp-content/uploads/2016/07/Depth-Index-of-Globalization_2013-1.pdf
Hill, C. W. and Hult, T. (2018) “Global Business Today”, 10th Ed, McGraw-Hill Irwin: Singapore (Chapter 1)
Hill, C. W. (2017) “International Business: Competing in the Global Marketplace”, 11th Ed, McGraw-Hill Irwin: New York (Chapter 1)
Morrison, J. (2011) “The Global Business Environment: Meeting the Challenges”. 3rd ed. Palgrave:Basingstoke. (Chapter 1)
Peng, M. and Meyer, K. (2016) “International Business”, 2nd Ed, Cengage Learning: London (Chapter 1)
