Possible Gains and Risks of Deeper Globalisation for Guidia before accepting the IMF/WB Recommendations
The following paper examines the impacts of globalisation on developing nations with medium economy such as Guidia. The paper will begin with a brief introduction, the history of Guidia, its socio-economic structure and the manner in which globalisation may influence the economic structure of the country. The paper will critically analyse the economic structure of Guidia with relevance to its business environment, while looking at the advantages and disadvantages that are likely to accrue from globalisation. Management tools used in the study included SWOT analysis and PESTLE analysis, which will assist in the identification of possible gains and risks of deeper globalisation for Guidia before accepting the IMF/WB recommendations.
Globalisation is a current process that has both positive and negative implications to individuals and nations all over the world. However, the process of globalisation may have detrimental effects on many people in the current global economy (Bello 2008), if countries focus on their self-interests instead of social issues. This has made some regions see the possible gains or risks of the process of globalisation. The process of globalisation has been a topic for discussion for many years concerning developed, developing, and less developed nations. Some people view the process of globalisation as the cause of exploitation of the poorer countries, where wealthy countries take advantage of them. This situation has resulted into a wide gap between the developed nations and underdeveloped ones.
The process of globalisation is beneficial because it enhances the economic development by developing nations to continue to develop by transforming the national funds to fund the modernisation. This vital process benefits the rich and the poor. It creates free markets that can make a country grow both economically and socially. According to Hamid and Ghufran (2011), there is evidence that globalisation, as a process, can expand and make a nation achieve higher incomes. All countries have a competitive advantage; hence, this makes it possible for everyone to gain from trade and free market. The process of globalisation assists countries to expand and achieve higher incomes and an increased Gross Domestic Product (GDP). Previous studies demonstrate that nations, which are more globalized, record a higher income increase each year.
The free market economy supports the idea that globalisation has potential benefits, especially for underdeveloped nations. Thus, a potential benefit for a country to be globalised is to provide opportunities that may minimise volatility. The pursuit of producing goods at cheap price encourages international corporations to move their operations to underdeveloped nations. Countries, which are likely to ensure that the citizens` living standards increase and the levels of poverty decrease, embrace the process of globalisation.
This study explores the implications in the economy of Guidia if the country`s government implements the recommendation of IMF and World Bank on globalisation. Guidia is a middle-income nation with an average per capita income of $4000 at market exchange rates. The population of Guidia is approximately 60 million, mostly staying in the urban areas. The government of Guidia has a small natural gas field, and its first export-processing zone specializes in textiles. According to a report by IMF/WB, the government of Guidia was encouraged to engage more into the process of globalisation, which it says, will enhance trade, increase foreign investment, and enhance more knowledge transfer and a faster economic growth.
i. How can globalisation affect the productivity of real wages and real incomes of the people of Guidia?
ii. How can globalisation affect the demands of various individuals and groups of workers in Guidia?
iii. How can globalisation limit the ability of the government of Guidia to take constructive actions on behalf of the work force and disadvantaged groups?
iv. What are the effective policies that may permit Guidia benefit from globalisation?
The general objectives of this study are:
i. To identify and apply the concepts of the process of globalisation with reference to the current trends and changes observed
ii. To analyse trends and changes through the application of appropriate theoretical concepts, perspectives and data with a reference to Guidia
iii. To consider the implications of these trends for the different groups in Guidia, whom these might be and how the changes might be measured
Today, developed, developing and underdeveloped most countries require to be globalised. Globalisation is a concept that enhances new opportunities for economic prosperity (Brown 2009). A larger impact has been seen on the developing nations. However, the process of globalisation has presented both positive and negative effects to most countries. Thus, globalisation has led to various developments in all spheres. Nations that make efforts to separate their economies cannot look down upon the process of globalisation. Currently, nations that develop international economic ties with other nations are globalised, which to some extent, encourages the cooperation between nations on all levels, including economic, political and socio-cultural aspects (Kose, Meredith & Towe 2004). However, there are people who support the process of globalisation, claiming that it improves economic, political and cultural development; hence, it assists in improving the living standards of many individuals (Cohn 2010). In addition, there is another different idea since most nations form the basic elements of a global economic system. As a result, globalisation in the form of increased integration of countries through trade and investment has significantly altered the growth of many economies in a global scale (Danaher 1999). Kose, Meredith and Towe (2004) argued that, there are various components of the process of globalisation. These include the Gross Domestic Product (GDP), Human Development Index (HDI) and industrialization. In the process of acceleration of global integration, some of the countries have done much better than others. Thus, global economic integration, which involves the countries` participation, can be examined in different ways. For instance, a measure of the degree to which a country has absorbed the global stock of technological and other knowledge would be extremely useful (Kose, Meredith & Towe 2004).
Bello (2008) observed that there is substantial evidence that as nations globalise, there are significant benefits that citizens achieve, because of a new system of global economic relations. According to Van der Borght (2000, pg 187), technological advancements and the emergence of international markets led to the creation of multinational companies, which enhanced the international corporation, which is beneficial to the national economies and their growing advantage. However, these opportunities are also associated with risks like those accruing because of volatile capital movements. As such, in the contemporary world, the process of globalisation constitutes a critical motivating factor for the development of both developed and underdeveloped nations. According to Bello (2008), the process is determined by a vibrant economy, characterised by inherent ability to enhance a steady economic growth.
The critical factors to the process of globalisation include technological capabilities that result into proper utilisation of resources (Bello 2008). This is a vital process for attaining technology and generating economic development. Currently, the global economy is linked to large multinational corporations, which substantially reduce the significance of local markets. Currently, the process of globalisation underscores the crucial role of industrial development in reducing the level of marginalisation linked to a greater competition towards markets as well as investments. Considering the fact that economic growth is a regeneration process, underdeveloped countries have been transformed into effective economies for growth and development, with opening their borders to international markets and trade. However, underdeveloped economies need to have availability of goods and services that will stimulate international corporations to expand their businesses.
There are various ways in which globalisation may have negative effects on the people`s lives (Dinicu & Iancu, 2010). Globalisation also has some risks, especially in relation to developing nations. For example, a country with a medium-sized economy, such as Guidia, is less competitive when compared to developed nations, particularly when taking into consideration industries that require high technology. Because of this, developing nations have a challenge of utilising their natural resource base, which is supplied mainly to the developed nations (Devaraj 2011). For instance, globalisation has facilitated the free movement of people and capital ideas, hence making the modern world more homogenous. According to Dinicu and Iancu (2010), this makes the economy of the developed nations grow faster, since there is interaction between different people from different cultural backgrounds. For instance, the process has made many nations adopt western culture and civilisation. On the other hand, globalisation can make the economies of the developing countries poorer.
According to Gomory (2002), markets of developing countries may be rendered insecure due to the proliferation of multinational corporations, while the national firms lose their competitive edge. The worst part of it is the fate of poorer countries despite the increase in capital flows, which shows the inefficiency in the utilisation of capital flows to the productive investment that may lead to industrialisation (Hodgson 2010). Thus, globalisation makes developing countries poorer and makes the developed nations wealthier. Globalisation also affects citizens; particularly when they face the danger of losing their cultural identity, which is being eroded by the western culture. Thus, globalisation has also been criticised to have some risks. For instance, critics of the process of globalisation claim that is driven by the economic power and promotes the erosion of cultural identity due to the emphasis on the western culture and environment (Hodgson 2010). Therefore, citizens may lose their cultural identity because of different groups, whose identity and solidarity focus on race, religion, or ethnicity. There are implications of economic globalisation to many people, which may not be considered legitimate by different schools of thought.
Globalisation may significantly influence international relations between nations. For example, previously isolated nations, such as Saudi Arabia, having a unique culture that made it have a different culture, played a significant role in the gulf region (Hamid & Ghufran 2011). As a result of globalisation, the nation emerged as a global community. The economy of Saudi Arabia depends on gas. This made the nation have a closer national cooperation through foreign assistance and free market, which enhance globalisation in underdeveloped nations. Through foreign investment, business contacts were increased tremendously (Hamid & Ghufran 2011). In addition, the integration of the nation to the global community was a natural process. According to Hamid and Ghufran (2011), this may be compared to the culture of Guidia; it is essential to note that businesspersons in Guidia should establish close relations with other business partners. However, the country may not be in a position to declare its attitude towards the process of globalisation.
This section analyses the PESTLE structure of Guidia, that is, political, economic, social, technological, legal and environmental aspects. To focus on the strengths, challenges, future prospects and risks of doing business in Guidia, the PESTLE segments are supported by the positive and negative outcomes in terms of legal policy, economic, political, technological, and social factors (Hodgson 2010). This is due to high growth rates, cheap labour force, and other vital natural resources such as gas. Guidia has less per capita income, high population, high inflation rates and high unemployment rates. The political aspect provides an understanding of Guidia`s political system. There are various policies relevant to doing business in the country. The economic aspect is concerned with the evolution of Guidia’s economy together with a thorough in-depth analysis of the most crucial macro-economic policies and issues.
The social aspect provides information and analysis of the country’s customer demography based on the distribution of wealth and income, the nature of rural and urban populations and centres with the likelihood of business prosperity. The technological aspect provides information of the country’s level of technology and communication development, policies, outcomes, challenges in policies` implementation, patents and the available opportunities that exist in the Guidia’s business sphere. The legal aspect is concerned with providing information about the country’s legislation, labour laws, judicial structures, tax system, regulations governing investment, and corporate legislation. The environmental aspect provides an understanding of the performance of Guidia’s environmental indicators, policies and laws. Hence, the PESTLE analysis assists in understanding all the factors that govern or affect investment or business environment in order to allow for informed and meaningful decision making when planning to do business.
This analysis is valuable in determining the strengths, weaknesses, opportunities, and threats of performing business in Guidia. The existence of more opportunities and strengths indicates a greater chance for a business to succeed. For instance, Guidia is a country with a large market due to the large population of over 60 million people. Therefore, it is a market of many consumers. Furthermore, Guidia has a large pool of skilled workforce because of the improvements in the education system. A wide range of educational facilities guarantees gain in the educational. Based on technological developments, Guidia’s import of latest machinery and mechanical appliances was improved tremendously. The significant increase is in line with the growth of textile manufacturing industries.
Guidia’s infrastructure is the key weakness for doing business here. Currently, the infrastructural development accounted a meagre percentage of the total national GDP, causing more funds to be allocated to infrastructural development, contributing to financial crisis. On the other hand, poor infrastructure can have negative implications to a business: due to the inadequacy of the transport system the prices of goods became higher and transportation cost has increased. Poor infrastructure resulted to price inflation, making the country lose a lot of money. Therefore, inadequate infrastructure is one of the country’s weaknesses when doing business.
The opportunities presented by the country include low wages in most sectors and regions. The government of Guidia constantly increases the minimum wage of employees in most sectors of the region. However, the minimum wages are fixed through the determination of the level of minimum physical needs, costs of living, and the labour market conditions. Currently, one of the threats that hinder doing business in Guidia is terrorism. Terrorists are responsible for considerable terrorist attacks in the world and affect the developing nations in various ways. Even though, most of the leaders have been arrested, they are still rampant and have radical associates with the ambition to attack western countries. Therefore, SWOT analysis is essential before planning to do business in Guidia. It assists in identification of available opportunities and possible strategies for eliminating the threats.
In many nations, the economic theory continues to predict the aggregate gains from trade, whereas some individuals may see the net gains as too limited to cover the immense losses experienced by the less fortunate citizens. The debate on globalisation has led to various questions concerning the future workforce trends and the policy responses (Kose et al, 2004). Globalisation is a significant factor that influences the low-skilled labour market, thus in order to examine policies for assisting low-skilled workers, it is important to understand the major trends in the development of the global economy. This may show a shift of industrial production that does not involve high technologies from the developing nations to the developed countries. The shift depends on environmental concerns, which are immensely strong among western nations. Moreover, human capital in the developing nations is relatively cheaper when compared to the developed nations.
There are also the dark sides of globalisation that must be considered. A literature review made evident that there are studies that highlight the various aspects of conflicts of globalisation. This may mean that the fulfilment of the vital requirements by the society is negatively influenced by globalisation. Underutilisation of resources by underdeveloped countries is a proof of ineffective provision of people`s basic needs. Globalisation may also increase involuntary immigration to other countries, which may increase the fear of immigrants and racism.
Taking into consideration the above mentioned pros and cons of globalisation, the government should consider the recommendations provided by the IMF/WB report to engage more into globalisation. Globalisation has submerged the potential growth and development of the underdeveloped world by setting rules and establishing principles that contradict the evolutionary era. Globalisation is beneficial since it creates functions to various economies, hence, narrowing the gap between the developed and underdeveloped nations. The process can improve trade, increase foreign investment, enhance more knowledge transfer, and increase economic growth within a country.
The process of globalisation markedly influences the development of the modern economy, utilisation of resources to improve social and economic well-being of a nation. Globalisation provides protection of national economies and can lead to the development of underdeveloped economies. Globalisation determines the business development in a country. Thus, for a country to facilitate the production process and minimise the cost of production, it is vital to be globalised. Developing nations need to construct plants, introduce production facilities and enhance quality standards of production, which might stimulate the economies of developing countries because of the emergence of free trade.