globalization and the new sustainability framework (1)

5/27/2018 Globalization and the New Sustainability Framework (1)

Globalisation and the new sustainability framework:

firm-level consequences, challenges and opportunities'

Mirza Bahor, FM&MM

Business Environment, dr. Sabina Silajdzic

Words:2500 (without the 1st and last page) Sarajevo


1. Introduction

Sustainable globalization is an imperative not an optionDr.Ruzanna Tarverdyan,The Geneva Consensus Foundation

The goal of this essay is to show what are the consequences arising from globalization and the

new sustainability framework, as well as to observe and point out the challenges and

opportunities that are faced on the firm level.

Sustainable globalization presents one of the greatest challenges of the modern world. At the

same time it is the greatest opportunity of our life time. By challenge we mean the need to

create a positive environment for globalization with respect to natural and cultural diversity.

Beside this being a challenge it is also a massive opportunity for developing business to catch

up on this trend and grab their share in the global market. (Axelrod, Harmon, Russell, 2008.)

Globalization is defined as the rapid expansion and integration of business activities across

borders in response to dramatic technology and government policy changes in the latter part of

the 20th

century. (Sullivan, 2002, p.235) Different national economic systems throughout the

world are connected by international trade, investment and capital flows. Globalization

changes the way people approach doing business in the world, on an international level. On the

firm level, business have a major opportunity to become a part of the international trade which

brings many benefits.

In this paper my focus will be on sustainable globalization and I will try to address this from two

different angles, that is, opportunities and challenges.

In the first part I write about the globalization and how the new sustainability framework

affected doing business on a firm-level. What are the positive and negative consequences of

this trend?

In the second part, I explain the challenges firms face and the opportunities from which they

can benefit.

At the end I will try to conclude how exactly globalization affects firms, is it a positive or

negative trend, are the opportunities greater than the challenges and consequences the firms

will face.


2. Globalization and its consequences

For example, in the center of globalization is international trade. It allows countries and firms to

prosper not only in the national market but also on the global market and it is a major factor for

economic growth. But, at the same time, many small countries, and with it its firms, are left out

of it because rich countries and multinational firms have taken these markets over and blocked

their access. The benefits of this principle are not evenly distributed. Globalization should take

into account the short-term and long-term impacts of a firms actions on a global level of which

all humans are a part.

According to areport byBoston Consulting Group the most important trend is the global

wealth distribution. According to the report, the worlds millionaires represent 0.9 per cent of

the worlds population but control 39 per cent of the worlds wealth, up from 37 per cent in

2009. Their wealth now totals $47.4-trillion in investible wealth, up from $41.8-trillion in 2009.(Robert Frank, Wall Street Journal, 2011) Differences between the poor and rich in developing

countries are also increasing, although the income of the poor is increasing. This is because the

rich are getting richer faster than the poor.

Business sustainability is closely linked to economic stability and growth of the market. If one of

your buyers or suppliers found themselves in difficult economic conditions, it could have an

impact on your business. This is even more apparent as globalization links businesses that

operate under totally different circumstances in different countries. Contrastingly, growth in

certain global markets can increase your options and provide new business opportunities.

(Zollinger, 2007)

The global exchange of specific goods, services and means of production today has led to a

worldwide increase of prosperity. In the past ten years, the production of goods and services

increased by 45% according to the World Bank. During the same period, growth in developing

countries was faster than ever before. (Zollinger, 2007)

The positive effects can be observed in reduction of poverty throughout the world, but at the

same time a growing unequal income distribution is spotted. On the other hand, in sub-Saharan

Africa, the number of poor people has increased by almost 60 million, although the percentage

decreased from 47% to 41% (1990-2004).Differences in income are increasing worldwide. If the

world were one country, then the richest 20% of the world population would have more than

three quarters of worldwide income, while the poorest 40% would have 5% -the so called

Champaign glass effect(UNDP, Human Development Report 2005).


Globalization has led to growing competition across the globe. There are beneficial aspects that

increase production and efficiency. Competition and increasing market space can lead to

specialization and an improved division of labor. Trade gains also accrue to a wider array of

actors, which include individuals, firms, nations, trading blocs, and entire regions. Competition

thus, has relative gains for all parties, with the potential for increased production, output, andhigher wage levels and living standards, thereby improving human welfare and standards of

living. (Garth le Pere, 2007)

For the firms this has brought an entire array of opportunities, especially with the division of

labor and specialization which made the products and services delivered by the firms even

more competitive in the context of their impact and efficiency on a global market.

Another positive side is the emergence of opportunities to borrow from abroad, thus making

financing of companies ventures even easier.

All these positive consequences also bring a great danger in the form of sustaining the

globalizationhow to contain the effects of globalization so that they do not jeopardize the

wellbeing of future generations? How can globalization and its positive effects on prosperity,

particularly in developing and transition countries, be saved? How can its evident effect on

prosperity be protected from the consequences of social disparities?

3. Challenges and opportunities

3.1 Challenges of globalization

The advance of globalization has not been a smooth process. Globalization poses four major

challenges that will have to be addressed by governments, firms, and civil society.

One is to ensure that the benefits of globalization extend to all countries. The second is to deal with the fear that globalization leads to instability, which is

particularly marked in the developing world.

The third challenge is to address the very real fear in the industrial world that increasedglobal competition will lead inexorably to a race to the bottom in wages, labor rights,

and employment practices.

And finally, globalization and all of the complicated problems related to it must not beused as excuses to avoid searching for new ways to cooperate in the overall interest of

countries and people. (Sewell, 1998)


I have partially discussed these challenges in the previous chapter and now I am going to

elaborate in more details.

Critics of globalization warn of a destructive race to the bottom, as big firms are forced to

weaken labor and environmental standards to compete with less-regulated producers in

developing nations. This theory rests on the assumption that lower standards give small firms a

significant advantage in attracting global capital and gaining export markets at the expense of

more developed companies.

The OECD (Organization for Economic Co-operation and Development) has found that, in

practice, a lack of core labor standards plays no significant role in attracting foreign investment

or in enhancing export performance. The OECD did find strong evidence that there is a positive

association over time between sustained trade reforms and improvements in core standards.

(OECD, A Study of Core Workers Rights and International Trade, 1996, p. 1213)

To put it simple, trade liberalization encourages higher standards and the race to the bottom

is in fact a race to the top. Multinational companies tend to impose higher standards on their

overseas production plants than those prevailing in local markets. This way they are raising

average standards in the host country. Free trade and domestic liberalization are the best ways

to encourage higher standards.

Another challenge of globalization is the increasing gap between the rich and poor. For example

we will take the region of sub-Saharan Africa.

Since 1976, the regions share in world trade has fallen from 3 percent to slightly more than 1

percent in the 1990s. While the flow of foreign direct investment to undeveloped countries has

risen dramatically in the 1990s, sub-Saharan Africa has been almost entirely overlooked. (OECD,

Policy) But this is not a random event. This region is falling behind the rest of the world in

economic growth in significant part because its markets remain among the most closed in the

world. Poor infrastructure, high taxes, subsidies, lack of laws and regulations make it pretty

hard for a firm to achieve anything on the domestic market, let alone on the global level. Those

African nations that have implemented more open, stable, and market-friendly policies in the

last decadesuch as Uganda, Botswana, and Mauritiushave achieved growth rates exceeding

those of the advanced nations. In their Economic Freedom of the World: 1997 Annual Report,

Gwartney and Lawson found strong empirical evidence linking growth rates to economic

freedom. The authors found that each quintile of greater economic freedom corresponded with

faster growth and higher per-capita GDP (Gwartney, Lawson (1997). Economic Freedom of the

World: 1997 Annual Report)


To conclude, there is nothing in the process of globalization that causes this gap to expand, in

fact the access to capital, new technology, and larger markets should make it easier for firms to

become more competitive on both national and global markets.

The low cost of offshore workers have enticed corporations to move production to foreign

countries. The laid off unskilled workers are forced into the service sector where wages and

benefits are low, but turnover is high. This has contributed to the widening economic gap

between skilled and unskilled workers. The loss of these jobs has also contributed greatly to

the slow decline of the middle class which is a major factor in the increasing economic

inequality. The surplus in cheap labor coupled with an ever growing number of companies in

transition has caused a weakening of labor unions. Unions lose their effectiveness when their

membership begins to decline. As a result unions hold less power over corporations that are

able to easily replace workers, often for lower wages, and have the option to not offer

unionized jobs anymore. The critics of globalization typically emphasize that globalization is a

process that is mediated according to corporate interests, and typically raise the possibility of

alternative global institutions and policies, which they believe address the moral claims of poor

and working classes throughout the globe. (Fathima Habeeb, Globalisation, its challenges and

advantages, 2009)

3.2 Opportunities of globalization

Phil Lawn defined economic globalisation as the integration of many national economies intoone single economy through free trade and free capital movement. Like the first phase of

globalisation, the second phase has been characterised by rapid advances in communications

and transportation technology, travel and trade; and by a greater consciousness of the world as

a single place, highlighted by global environmental concerns, more widespread demands for

participatory democracy, concerns about a race to the bottom in labour standards and wages

and increased class stratification between and within countries.

Economic globalization has provided new opportunities for those with capital to increase it,

creating greater concentration of wealth in the hands of minority elites. Most international

trade and investment takes place within the triad of the US, EU and Japan, and it is the

multinational corporations based in these countries which have benefited the most from the

free trade rules enforced by the WTO.


International financial institutions and organizations like the OECD have pushed the idea that

globalization is an engine of world growth in economic terms. They continue to promote it as

a means of economic development for the poorest countries. In its 2002 report, Globalization,

Growth and Poverty, the World Bank implies that integration with the global economy has been

the main cause of the rapid economic growth and poverty reduction seen in those developingcountries with the highest increase in ratio of trade to GDP between the 1970s and the 1990s.

These countries the Bank calls new globalizers. On the back of the cover report, Joseph

Stiglitz claims that the battle is... to enable more poor countries to integrate into the world

economy in ways that reduce, not increase, inequality and poverty.A key characteristic of the

process of globalization is the accelerating integration of all markets, domestic and foreign.

There are no longer any "safe" domestic markets, where firms are protected from competitors

by tariff walls.

The advancement of technology and its increased availability has emerged as a significant result

of the processes of globalization. Not only has technological advancement enabled greater

communication between individuals, corporations and whole nations, but it has also enabled

travel and transport to become extremely fast and efficient.

Jobs are being created as business opportunities increase with the reduction of trade barriers

and the decentralization of production to take advantage of benefits specific to the location of

their facilities (e.g., low-cost unskilled and skilled labor). Other developments are the

subcontracting of activities by companies, greater specialization and new forms of work

organization.

3. Conclusion

As everything else in the world, globalization has its positive and negative sides. There are many

potentially positive aspects of globalization, if it is pursued for the common good, not just for

the benefit of a few. Today globalization has led to the opening up of the national boundaries

to international trade and global competition. Developments linked with globalization have

opened up boundless possibilities for human development, enormous new opportunities and

enhanced the quality of life for many people in the third world countries. We need to affirm thepositive side of this development and make use of the many opportunities it offers for our

development. Globalization has several advantages on the economic, cultural, technological,

social and some other fronts.


While some economists and politicians approve these developments, many people look at this

process with much apprehension. They look at the global village as an order or mechanism for

greater economic exploitation and political oppression. While some corporations have

tremendous economic advantages, others have become more and more dependent. The main

players in the present process of globalization are the international companies of powerfulnations. The multinationals and other institutions with the help of the state control all

development processes.

To many of us globalization sounds like a great idea. One may be forgiven for thinking that

globalization would bring about the end of narrow nationalism and the reckless pursuit of

commercial and economic interests. A whole array of multilateral institutions and the prevailing

media have been fostering the notion that globalization is the way of the future and the there

can be no return to the old order. In fact, even though we may not have realized it, we are

already part of the globalization process. It is thus natural to ask what the future holds for us.

In conclusion, globalization is a serious issue that affects all nations on the world. Researchers

should analyze this process carefully so as to prevent the negative impacts. It is important to

note that the force behind globalization cannot be stopped. It is therefore essential that all

nations create a healthy environment and by that encourage their firms to use all the

opportunities which lie before them and overcome the challenges of globalization.


Sources:

John F. Preble, Toward a Framework for Achieving a Sustainable Globalization, 2010 Jean L. Pyle and Robert Forrant,Globalization, Universities and Issues of Sustainable

Human Development,2002 Ruzanna Tarverdyan, Sustainable Globalization is an Imperative Not an Option, 2013 Sandra Bhatasara,Journal of Global Citizenship & Equity Education, Vol 1, 2011 Garth le Pere, The Positive and Negative Consequences of Globalization, 2007 Hurst E. Charles, Social Inequality: Forms, Causes, and consequences Zollinger Urs, The Effects of Globalization on Sustainable Development and the

Challenges to Global Governance, 2007

John Sewell, Human Rights Dialogue, 1998 OECD, Trade, Employment and Labor Standards: A Study of Core Workers Rights and

International Trade (Paris: OECD, 1996) William Cline, Trade and Income Distribution: The Debate and New Evidence, Internet
http://www.researchgate.net/researcher/80442212_JOHN_F_PREBLE/http://www.elgaronline.com/abstract/184064835X.xmlhttp://www.elgaronline.com/abstract/184064835X.xmlhttp://www.elgaronline.com/abstract/184064835X.xmlhttp://www.elgaronline.com/abstract/184064835X.xmlhttp://www.researchgate.net/researcher/80442212_JOHN_F_PREBLE/

globalization and the new sustainability framework (1)

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