Globalization is the process of expanding global preferences in cultural, environmental, political, social and economical issues. The key economic characteristic of globalization is the free movement of goods throughout the world (Schaeffer, p.1).
The world is shrinking rapidly with the advent of faster communication, transportation, and financial flows. Products developed in one country are finding enthusiastic acceptance in other countries. International trade is booming. Since 1969, the number of multinational corporations in the world’s 14 richest countries has more than tripled, from 7,000 to 24,000. Imports of goods and services now account for 24 percent of gross domestic product worldwide, twice the level of 40 years ago. International trade now accounts for a quarter of the United States’ GDP, and between 1996 and 2006, United States exports are expected to increase 51 percent (Alden, 1998).
Today global competition is intensifying. Foreign firms are expanding aggressively into new international markets, and home markets are no longer as rich in opportunity. Few industries are now safe from foreign competition. Although some companies would like to stem the tide of foreign imports through protectionism, in the long run this would only raise the cost of living and protect inefficient domestic firms. The better way for companies to compete is to continuously improve their product at home and expand into foreign markets.
Companies selling in global industries have no choice but to internationalize their operations. A global industry is one in which the competitive positions of firms in given local or national markets are affected by their global positions. A global firm is one that, by operating in more than one country, gains marketing, production, research and development and financial advantages that are not available to purely domestic competitors.
Effects of Globalization
Collapse of commodities market was the outcome of poor economic policies of 1980, which ultimately resulted in debt crisis, as Least Developed Countries had tried to expand commodity production and economic growth and had borrowed large sums of money. Banks then insisted on readjustment of interest rates on new and existing loans and Least Developed Countries agreed. At that moment, globalization compelled them to decline commodity prices. Commodities were the main source of income for Least Developed Countries, so it became more and more difficult for them to reduce or pay their debts, which ultimately caused unemployment in many commodity sectors.
In order to repay their debts, LDC tried to adopt IMF’s Structural Adjustment Program (SAP) to obtain funds from IMF. The strategy behind SAP program was to export more than import and produce hard cash to pay for the imports and direct the surplus towards debts. Although SAP was imposed for the betterment of economic condition of Least Developed Countries, but it did not work as it was planned. SAP created de-industrialization in Least Developed Countries and compelled them to again rely on export of their commodities. Selling of public assets to foreign investors also created unemployment.
Globalization made traders disappears, which in the past, worked as bridge between buyer and seller. Now big companies with shipping and warehousing facilities can buy commodities directly from the farmer. This need more sophisticated technology and human skills, and companies of developed countries have clear advantage in all these respects.
There is a huge digital gap between developed countries and Least Developed Countries. It has been estimated that there are more phones in the New York alone than the whole rural area of Africa and almost 80% of the world population has never made a phone call (World Bank). It has also estimated that there are more Internet Connections in London alone than the whole Africa and only 1% of the Internet users live in Africa, if we exclude South Africa then the number of Internet users is less than 100,000 in whole Africa, which is only .02% of the global Internet content (Africa).
Not all companies need to venture into international markets to survive. For example, most local business need to market well only in the local marketplace. Operating domestically is easier and safer. Managers need not learn another country’s language and laws, deal with volatile currencies, face political and legal uncertainties, or redesign their products to suit different customer needs and expectations. However, companies that operate in global industries, here their strategic positions in specific markets are affected strongly by their overall global positions, must compete on a worldwide basis to succeed.
Thus it can be concluded that although the present information revolution brought fundamental changes in intellectual, social, philosophical and cultural aspects of the world and has transformed the world into a global village but at the same time, globalization had slumped the economies and trade of Least Developed countries as they have to face the crises like collapse of commodity markets, increased debts and SAP.