Globalisation is a positive force in the world. Discuss. In recent years, amongst all the claims and counterclaims, the argument over whether globalisation is a positive force or not has become rather controversial. Advocates claim globalisation facilitates economic growth, international financial integration, and cooperation between nations while critics vigorously argue that globalisation leads to a fierce exploitation of the labour class, a disparity between rich and poor, and a concentration of resources.
Peng (2009) has indicated an innovative perception, the pendulum view, in order to emphasize both ups and downs of globalisation. As a pendulum, not only one direction swings, but also the other. The influence of globalisation raises the caution that dominant culture and multinational corporations (MNCs) control the most power which destroys not only local enterprises, but also local cultures and values. Despite the defects mentioned above, regarding the MNCs’ international strategy, it is often said globalisation as a foundation is conducive to the extension of profits.
In this essay, the impact of globalisation on MNCs will be examined and will mainly concentrate on the following forces: market, cost, and efficiency. As the domestic market gradually matures, it is essential for a corporation in developed country to extend its market. The invisible pressure behind this phenomenon originates from keen competition with other companies, especially multinational enterprises possessing a large amount of capital. Gradually, the sum of profits decreases and the stockholders’ grievances escalate. As a result, the board has to search for the solution to mitigate the clash.
Facing this challenge, corporations attempt to sell products to consumers in emerging markets because these potential customers are many times greater than domestic consumers. Moreover, globalization transubstantiates not only the field of market but also the formation of industry. According to Scholte (2005), Globalisation has transformed the constitution of predominant industries. During the late nineteenth century, older heavy industries such as chemicals and oil occupied the entire market. After that, approximately three-fifths enterprises have transferred to the region of finance, information and communications.
In other words, the system of accumulating capital has been converted from merchandise to intangibles since 2000. However, globalisation creates not only advantages but disadvantages. In order to develop market overseas, MNCs utilize advertisement and mess media such as Hollywood movies to spread the value and cultures which might be considered materialistic and capitalistic. For example, McDonald has been accused of not only misleading many young people into believing fast food is beneficial but also destroying the local catering culture.
Therefore, it is often said that cultural destruction is possibly triggered by enterprises, which brings about the steadily eroded local culture and the state of collapse in cultural identity. Despite this, it is undeniable that globalisation still plays a pivotal role of expanding the market and a prerequisite for enterprises to thrive. The ultimate aim of production is ascertaining the location, closest to customers, to achieve the minimization of production costs. Thus, there is a motto for international business to consider where to establish the factory, which is “Location, location, location. Peng (2009) suggested that an ideal location requires not only location-specific advantages, associated with the uniqueness of geographical, but also agglomeration. The former provides the company with the traffic convenience such as Miami, known as the gateway of the Americas connecting North American firms to South American; the latter, clustering economic activities in certain locations to create a pool of specialized labor force, suppliers and purchasers, creates an advantage for a company to reduce costs thereby obtaining maximum of profits. Peng, 2009) In addition, a company attempting to decrease its production costs expands its operations overseas due to the effect of economies of scale. The more enormous the production scale, the lower a producer’s average cost per unit. It is especially influential for those industries without production differentiation, producing certain manufactures such as steel and iron, tires and cars. As a result, they are forced to search for the advantages of cost leadership. In this situation, the advisable solution to the pressure of reducing costs is enhancing the scale of production to lower the fixed costs.
In order to achieve it, enterprises have a tendency to pay the employee’s salary as less as possible, which contributes to exploitation. Consequently, exploitation result in unfavorable working conditions and the unequal distribution of wealth; increasing number of people living below the poverty line can cause social problems such as homelessness. In sum, it is necessary for enterprises to ensure proper working conditions while searching for cost leadership. Considering human resources deficiency, industries should be dedicated to the core business, and outsource the other less important departments or business to boost efficiency.
Globalisation offers enterprises a new category of outsourcing, called offshore outsourcing. Differing from onshore outsourcing, a company utilizes offshore outsourcing for the purpose of decreasing costs and employing experts with high efficiency to economize on the inessential organisations or departments. For example, “IT is outsourced for many reasons, ranging from a bandwagon effect from the subject’s high profile to cost pressures due to competition and economic recession” (Lacity ; Willcocks, 2009, p. 212).
To conquer these obstacles, offshore outsourcing is fully implemented to accumulate data, experts, and intellectual transactions in IT industry. Besides this, in order to promote a company’s efficiency, the high-speed internet as a connecting net is applied for various companies to communicate in the world, which creates low-cost business process outsourcing (BPO). BPO is introduced to those developed countries with high standardization in which a company transfers their non-core business to the countries with lower labor costs.
Through twenty-four hours communication and production, two business-related companies have potential to continue working without cessation, which eventually assists both of them. Despite the advantages mentioned above, in the process of BPO, it is possible that the knowledge could be stolen. If a company’s intellectual property rights are infringed, their competitive strengths might suddenly vanish and it will lose a large number of money. To determine outsourcing or not, enterprises have to consider the importance of the task and how to avoid infringement.
Therefore, it is viable for them to outsource those non-core businesses to enhance efficiency. To conclude, this essay briefly illustrates the effects of globalisation, as a foundation, offering a fundamental basis for market, cost and efficiency. This material foundation attracts enterprises to invest overseas, resulting in an assumption that enterprises can boost profits when they obtain complete qualifications, including multinational market, cost leadership, and high efficiency. However, as a pendulum, globalisation does have negative forces to enterprises, especially local business.
As Peng (2009) commented that “some factions in emerging economies complained against the onslaught of MNEs, which allegedly not only destroy local companies, but also local cultures and values as well as the environment. ”(Peng, 2009, p. 19) Based on these conflicts, the urgent issue for enterprises to face is how to reduce the unfavorable circumstances and, simultaneously, on a global scale, pursue the maximum value through managing the following four tensions: “strategy, people, costs, and risk. ” (Dewhurst, 2012, p. 77)