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 option

Dr.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 a report by Boston 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, and higher 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 globalization how 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 increased global 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 be used 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 the re 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 into one 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 labo ur 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 developing countries 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 the positive 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 powerful nations. 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