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Globalization and its impact on world economy

Discuss abouts the International Business Environment.

The term globalization can be explained as a process of interaction and integration which takes place between the organizations and governments of the different countries for the purpose of international trade and investment. The concept of globalization has affected world economy at large as the concept of globalization has facilitated the movement of goods, services, resources and technology. Globalization has promoted trade by eliminating the segmentation of market due to national boundaries. It has benefited every economy of the world by promoting more efficient markets, reducing conflicts among the nations, better allocation of the wealth around the world and increase in the level of competition (Abdullah, 2011). It has established a link between the political, economic, social and technological aspects of the different nations. Expansion of the global markets has promoted economic activities related to the exchange of the goods, services and resources. It has played a vital role in removing the cross-border trade barriers and promoting trading in the global market. Globalization has resulted in the growth of the economy of developing nations along with the increase in income (Kuepper, 2017).

Picture of the world economy has changed due to the implementation of the concept of globalization. The impact of globalization can be seen on the every aspect of the economy. World economy represents the different sectors which have got affected due to globalization. Companies have faced challenges as well as gained opportunities due to the globalization. It has encouraged trade at international level which has taken the world towards a borderless world. A wide reach is there for the organizations as they have a world market for operating their operations. Positive as well as negative aspects of globalization have been identified which have affected every economy (Rao, 2013).

With the concept of globalization, there has been a rise in the number of MNCs. Developing economies are attracting the MNCs due to the opportunities available in the developing economies. Multinational companies are in the search of attractive markets which provided better resources at cheaper prices and reducing the cost involved in the operations of the company. Globalization has provided benefit to the companies as well as to the host country. MNCs have played a crucial role for the economy of the developed as well as developing country (Surugiua & Surugiu, 2015).


MNCs not only bring funds or financial resources in the host country but also bring technology, employment opportunities, developing communication, increase in the income level, high-level management and competitiveness. There are few disadvantages associated with the MNCs and these disadvantages include decrease in the investment after decrease in the potential, canalization of the profits and increase in unemployment when MNCs moves towards other countries with better opportunities (Samimi & Jenatabadi, 2014). There are various reasons which are responsible for the emergence of the MNCs. These reasons include minimization of cost, search for the raw material, exploring foreign markets for better growth opportunities and in the search of knowledge (Mottaleba & Kalirajanb, 2010). Borderless trading has promoted MNCs to expand the area of operation. MNCs consider different factors before drawing a decision for expansion of the business in a country. MNCs consider the availability of the resources, workforce and availability of resources at a cheaper cost (Haller, 2016).

Multinational companies (MNCs) and globalization

Foreign direct investment is an important source of finance for every economy. Many countries face challenges due to the lack of the investment which has affected the growth and development process of the economy. Foreign direct investment plays a crucial part for every economy as it increases the flow of investment in a country contributing to the growth of the economy (Bakan & Yildirimci, 2015). There is a direct link between the foreign direct investment and economic growth. Developing economies are adopting foreign direct investment as a measure for increasing the investment in the country. FDI provide support to the country by developing the technology used, better market and development of the knowledge and skills of the human resource (Kardos, 2014).

The role of FDI has increased in every economy as it promotes domestic saving and attainment of a better economic growth rate. In the recent years, FDI has gained much importance due to the various benefits it provides to the host country. FDI ensures better employment opportunities, restructuring of the industrial sector and technological advancements (World Economic Forum, 2013). MNCs have gained success by investing in the developing economies which have provided growth and expansion opportunities to them. The importance of FDI is increasing due to the increasing need of financial support for a country for the development of the economy. MNCs are the investment bodies which invest in the other countries with a motive to gain the advantage of the available opportunities in those countries (Mosia, 2012). For ensuring the execution of operations of MNCs within the legal framework, various rules and regulations have been formulated by the government of every country. Globalization has promoted FDI which has resulted in the growth of the economy. In the year 2015, there was a rise in the flow of FDI by 25 % at the global level (Kukaj & Ahmeti, 2016).

Economic integration can be explained as a position where different companies mutually agree on combining policies related to business, fiscal and monetary. Economic integration took place for the removal of the illegal and unethical practices which can affect the nation. Economic integration of the nations is an important part of globalization. The purpose of economic integration of nations is to ensure that no discriminatory practices are affecting the economy of a nation. Economic integration ensures that fair trade practices are promoted among the different economies of the world. Discriminatory practices have acted as a trade barrier which has affected trade process at large (Borbugulov, 2014).

Foreign direct investment (FDI) and its role in the economy

Separate economies of the different nations are combined together for the purpose of forming a large economic region. There are various benefits of economic integration of nations for the member countries which promotes sustainable development and economic growth (Naveh, et. al., 2012). These benefits include generation of better employment opportunities, trade creation, diversion of trade leading to welfare and political support among the nations. Economic integration of nations have few disadvantages associated with it which include trading blocs which restrict the non-member countries, diversion of trade which affects the non-member countries and affect the national sovereignty (Mwasha, 2015).

The said statement is true as globalisation of business has become more regional than global. In the fast changing environment, businesses are becoming more regional rather than global as international businesses are entering into emerging markets and covering the different markets in a better manner. This regionalization has benefited different companies and enhanced the capabilities of the companies for gaining the advantage of the available resource in the regional areas. Globalization is an important aspect of the economies of the different nations as it has enhanced the process of trade practices among the different nations. Regionalization is an integral part of globalization. The concept of globalization is applied over a country so as to enhance the economic condition of the economy as a whole rather than on an individual region. Regionalization has promoted independence on the regions and eliminating interdependence among the different regions. It has acted as an initial step for the effective implementation of the concept of globalization. It must be promoted for the promotion of the globalized world (Mansfield & Solingen, 2010).


Different regions need to adopt regionalization for coping with the challenges faced due to the globalization. It has prepared the regions for adopting aspects of the global market. It has provided secure market and economic strengths to the different regions. Due to the increase in the area of global market states have faced conditions of disinvestment and reinvestment which create an impact on the economic condition of the nation. Thus, this results in loss of the control of different regions on the economy of the nation. These are the reasons behind the process of more regionalization rather than globalization. For example, North America Free Trade Agreement has been formulated with a motive to stabilization of the political and economic policies of the regions (Collins, 2010).

The world economy is lacking the global unity as different regions faces challenges due to globalization. Different regions of the economy face competition due to the globalization. This rise in the level of competition has affected the growth and expansion of the regional areas. Regionalization has provided safety to the regional areas from the globalization and its adverse impacts on certain regional areas. Regional strategies have enabled nations to compete with other nations in a better manner and performing well at the global level (Heuillard, 2013). It has promoted the structural and economic reforms at the national level. It has prepared the companies to operate at the global level. Conflicts may arise between the regions due to the use of different concepts which must be dealt in an effective manner. For example, Allegro is operating in Poland which is a local or regional e-commerce site. eBay launched in Poland at the regional level for enhancing its customer base but it got shut down after few years. In this case, Allegro has overcome the challenge it has faced due to the global company (Mansfield & Solingen, 2010).

Economic integration and its benefits and disadvantages

It has acted as an alternative platform on which development of norms and practices have taken place. A region is a geographic unit which exists in a social system. There has been a rise in the FDI in the regionalized areas. For example, Wal-Mart is an international organisation and for the purpose of enhancing the coverage of regional areas, its regional President is performing the communication and monitoring role. The motive behind performing this role is to ensure that this is not creating an impact on the resource allocation process and strategies used by the company (Collins, 2010).

Globalization has formed a base for regionalization as globalization has promoted the movement of the resources and technology from one nation to another. Companies are focusing on the regional areas so as to take advantage of the opportunities available to it in the regional areas. It would have been impossible to utilize the resources available in a region without globalization. International organisations or MNCs are moving towards regionalization as they are capable of using the resources available in the regional area in a better manner. Regionalization has enhanced the cooperation and support from the political and economic aspects of the International companies (Heuillard, 2013).

Companies are focusing on thinking regional rather than global. Different regions have different needs and demands which can be met by analysing the regional markets. Different resources are available in different regions of the nation which have motivated to invest in the regions. Regions are the division of the part or area in small segments. International companies are considering regionalization as an opportunity for the effective utilization of the resources available and covering the emerging markets of the different economies. Thus, MNCs must consider regionalization as an important element as it has the potential to enhance the performance of the companies (Heuillard, 2013).

Regionalization has acted as an alternative for the cross-border economic integration and benefited to the MNCs at large level. MNCs are exploring different regions for the expansion of their business and enhancing the efficiency and effectiveness. It has been considered as one of the best solutions adopted by the global business for operating well in the host country. It has supported the process of internationalization as it is considered a process which leads towards globalization (Olayiwola & David, 2013). There are various factors or forces which have helped in the regionalization of the international or global business. These factors determining the choice of regionalization include cost factors, market factors, competitive factors, technological factors, cultural factors, geographical factors and various other factors (Maha, et. al., 2009).

Regionalization as an integral part of globalization

Thus, it can be stated from the above discussion that globalisation of business is more regional than global. Regionalization has promoted cross-border economic integration which has resulted in growth of the economy of both the countries. International companies are locating regional markets for utilising the resources available and expansion of the business. Regionalization is performed on the conscious level and globalization, on the other hand, is performed on an international level. It has led the development of the different regions of the nation.

MNCs are engaging in regionalized international business activities for better utilization of the financial resources available to it and gaining a competitive advantage over the competitors. The process of regionalization and globalization are complimentary to each other. MNCs are focusing on becoming more regional than global as regionalization has provided numerous benefits to the MNCs. Regionalized international business has provided the focus of MNCs on generating better profits. Regionalization has helped in establishing healthy political relationships with the political parties and bilateral trade relationships (Rugman & Oh, 2010).

Regionalized international business practices of the MNCs create an impact on the different strategies of the MNCs including the production strategies, marketing strategies, research and development function, human resource strategies, distribution strategies and legal strategies. MNCs enter those markets where they can reduce the cost involved in the operations for increasing efficiency of the business. There are various other reasons which are responsible for the regionalized international business (Rugman and Oh, 2012). These reasons include reduced cost, availability of resources, emerging markets for the expansion and growth of the business, generation of better revenue, the mobility of capital, freedom of trade, taxation benefits, and enhancement in the technology used and enhancement in the communication process.

The major reason of the investment of MNCs in the other countries is to reduce the cost and avail the resources required for carrying out the activities of the business. The cost of the products and services offered determines the profits of the company and the chances of growth and expansion of the business (Rugman and Oh, 2012). Regionalized international business has contributed towards better utilization of the resources available with the company. The production process of the business is important as it involves the transformation of the raw material and other resources in the goods and services. MNCs are getting engaged in the regionalized international business so as to utilize the resources in a better manner (Guarino, 2010).


Entering a new country by the international business provides a potential market or an emerging market where the company can offer its products and services. Various opportunities are provided to the MNCs operating in the regional area. Emerging markets are being identified and MNCs are entering these emerging markets. Regionalized international business affects the production strategies as the resources are available at cheaper prices which eliminate the additional cost of the MNCs. The opening of new markets ensures the expansion of the MNCs in an effective manner. New markets not only ensure growth and expansion of the MNCs but also ensure implementation of the effective strategies for business development. Businesses are engaged in exploring new markets for expansion and growth of the business. Regionalization has opened the gate of different regional markets for the business (Guarino, 2010).

Bilateral trade relationships can be understood as the economic relationships established between two countries. In this dynamic business environment, it is vital for countries to enter into bilateral trade relationships. It is not possible to restrict the economic activities as these economic activities ensure economic development of the nations.  The concept of globalization has formed a base for the establishment of the bilateral trade relationships between the different nations (Guarino, 2010).

Establishing bilateral trade relationships have helped in establishing trade relationships between the developed countries and developing countries. Bilateral trade relationships have resulted in the development of the economy along with a high growth rate. There are various advantages of bilateral trade relationships which include generation of high employment opportunities, economies of scale, cost benefit and development of the economy. Bilateral trade relationships have led towards the growth of the economy of the developed and developing nations. Enforcement is done of more than 200 bilateral and regional trade agreements. (Economy watch, 2010).

International businesses are operating in the different regions of the host country. Globalization has not only enhanced the trade activities between different nations but also enhances the political relationship between the different nations. This increase in the global trade activities has helped in developing healthy political relationships between the different nations of the world (Economy watch, 2010). It is important for nations to develop a healthy relationship among the nations for promoting fair trade practices. MNCs are investing in the nations where opportunities are visible to them.


For improving the cross-border trade practices and healthy political relationships among the nations, various agreements are prepared. These agreements promote fair trade among the nations and ensure that no discriminatory practices are taking place which affects the interest of a nation. Different countries are coordinating with each other for conducting business operations in a better way. Trade agreements are being entered by the government of different countries for encouraging fair trade among the different nations. Regionalization has enhanced the political relationship between different countries as international companies are complying with the rules and regulations of the regions (Hnát, 2008).  

Thus, from the above discussion, it can be concluded that concept of regionalization and globalization plays crucial role for an economy. Globalization has provided various opportunities to the companies so as to operate on an international level and to cover larger areas. It has enhanced the chances of growth and survival of the companies. Economies of different nations have taken advantage of the concept of globalization as this concept has resulted in growth and development of the different economies of the world. MNCs have utilized this concept for reducing the cost involved in the production process as well availing various resources. Another important concept for the current business environment is FDI. Foreign direct investment has increased as MNCs or international companies are investing in the developing countries for generating better results or outcomes. Regionalization has also increased as MNCs are segmenting different regions for utilizing the resources available in a better manner. Regionalization is an integral part of the concept of globalization which has helped in the development of different regions of the economy. Cross-border trade activities have contributed towards the development of the different economies. Government and various bodies are working for the purpose of ensuring the fair operations of the companies.

References

Abdullah, I., 2011, “Globalization and its Impacts on the World Economic Development”, International Journal of Business and Social Science, Vol. 2 No. 23.

Bakan, S. & Yildirimci, E., 2015, “A Growth Story: Globalisation, Multinational Companies and India”, Journal of Economics and Development Studies, Vol. 3, No. 3, pp. 143-153.

Borbugulov, M., 2014, “Problems of the economic integration of the countries of the Central Asia in the context of globalization”, IEP.

Collins, B., 2010, “Does Regionalism Challenge Globalization or Build Upon It?”, E-International Relations.

Economy watch, 2010, “Bilateral Economic Relations”, Economy watch.

Guarino, P., 2010, “Emerging Markets: Growth, Opportunities and Challenges”, Elementi Consulting.

Haller, A. P., 2016, “Globalisation, Multinational Companies and Emerging Markets”, ECOFORUM, Volume 5, Issue 1 (8).

Heuillard, C., 2013, “Enhancing Trade Relations between Commonwealth Members: the Case of Canadian and Indian bilateral trade”, Publisher Association française des etudes Canadiennes.

Hnát, P., 2008, “Globalization, Multilateralism, Regionalism: from dilemma to multi-dimensionality”, Acta Oeconomica Pragensia, roè.

Kardos, M., 2014, “The Relevance of Foreign Direct Investment for Sustainable Development. Empirical Evidence from European Union”, Procedia Economics and Finance, Volume 15, pp. 1349-1354

Kuepper, J., 2017, “Globalization and Its Impact on Economic Growth”, The Balance.

Kukaj, H. & Ahmeti, F. B., 2016, “The Importance of Foreign Direct Investments on Economic Development in Transitional Countries: A Case Study of Kosovo”, European Scientific Journal March, vol.12, No.7.

Maha, L. G. M., Frunza, R. & Mursa, G., 2009, “Globalization & Regionalization in International Trade”, SSRN.

Mansfield, E. D. and Solingen, E., 2010, “Regionalism”, Annual Review of Political Science.

Mosia, J., 2012, “When is Foreign Direct Investment Beneficial to a Country and When Is It Not? The Case of South Africa”, SAIIA.

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Mwasha, O. N., 2015, “The Benefits of Regional Economic Integration for Developing Countries in Africa: A Case of East African Community (EAC)”, GSIS.

Naveh, M. H., Torosyan, T. & Jalaee, S. A., 2012, “Regional Economic Integration and its Effects on Economic Growth and Economic Welfare”, World Applied Sciences Journal, 17 (10): 1349-1355.

Olayiwola, W. K. & David, O. A. O., 2013, “Economic Integration, Trade Facilitation and Agricultural Exports Performance in Ecowas Member States”, AFDB.

Rao, A., 2013, “4 positive impacts of globalization on world economy”, The Collegian.

Rugman, A. M. & Oh, C. H., 2010, “Does the regional nature of multinationals affect the multinationality and performance relationship?”, International Business Review 19, pp. 479–488.

Rugman, A. M. and Oh, C. H., 2012, “Why the Home Region Matters: Location and Regional Multinationals”, BJM.

Rugman, A. M. and Oh, C. H., 2012, Regional integration and the international strategies of large European firms”, International Business Review 21, pp. 493–507.

Samimi, P. & Jenatabadi, H. S., 2014, “Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities”, PLoS ONE, 9(4)

Surugiua, M. R. & Surugiu, C., 2015, “International Trade, Globalization and Economic Interdependence between European Countries: Implications for Businesses and Marketing Framework”, Procedia Economics and Finance, Volume 32, pp. 131-138.

World Economic Forum, 2013, “Foreign Direct Investment as a Key Driver for Trade, Growth and Prosperity the Case for a Multilateral Agreement on Investment”, World Economic Forum.

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