Advantages And Disadvantages Of Free Trade And Globalization Essay Sample
__ April 2015 (date)
Nowadays it is hardly possible to imagine modern global economy without globalization. It began developing in the second part of XX century and it is still moving forward. Economic globalization and international business has various influences upon the regions and countries, either negative or positive. This essay tries to analyze the advantages and disadvantages of free trade and globalization and identify its influence upon the world’s economy.
The Importance of Globalization
Globalization means people, goods and services’ movement globally. The reason of it is the world economies’ opening and the constant development of trade between states. It occurs when the countries that were closed to investment and foreign trade in the past go global.
Globalization takes place when different regions and countries are looking for the investments outside their borders and simplify their import legislation to penetrate into main sectors of economy. The states start attracting foreign capital and investments by opening up to multinational corporations.
Globalization and Win-Win Conditions
The globalization process contributes to visa regulations’ simplification by the countries causing the easy movement of individuals. Globalization also foresees investments into the sectors with low profitability that means win-win conditions for the participating countries.
The basis of globalization is the comparative advantage, which foresees that the countries that are good at manufacturing of some special product sell it to the countries that have necessity of this product. And vice-versa, the other country may also export the products that it has to the one from which it imports another goods. Moreover, countries and regions can receive benefits from import-export operations between them due to the variety of natural resources and difference in wages. Thus, countries specialize on the manufacturing of certain products.
It is also necessary that countries involved into globalization process follow the WTO’s procedures and rules that establish international trade’s terms and conditions. There are also other bodies and international organizations (for instance, UN) that establish compulsory non-discriminatory and free trade policies that should be followed by the countries while opening their economies to global companies (Managementstudyguide.com).
“Win-win” principle of China. It may be useful to analyze win-win principle on the example of China, as now this country plays a very significant role in the global economy. Chinese government uses the win-win principle to reassure different countries, world groups and other global actors that are impacted by the rise of China. Beijing authorities say that their interaction with China will bring benefits to them as well as to China. According to the principle of win-win, the Beijing authorities explain to international governments, organizations and others that it will cooperate with them in terms of mutual interest and that China is not going to make them act in a way in which they would not normally act.
What has less attention by the officials and media of China and is important in explaining the China’s willingness to undertake risks, commitments and costs related to the international leadership, is the second side of the win-win principle. The formula consists in the fact that China is ready to work with another country in the mutual interest areas, but Beijing is not going to act or accept behavior and policy changes that it would not normally do.
Now many people and scientists pay more attention to the advantages of globalization. However, there are also disadvantages, but most researchers think that they are not as important as the advantages.
Globalization’s advantages include rapid productivity growth in case the country produces goods and services in that it has a comparative advantage; imports and competition worldwide provide a lid on prices’ level, so that the inflation is will most probably not derail the economic growth; living standards usually improve quickly; the country gets new ideas and innovation from abroad; export operations usually bring more revenues than other operations.
As we can read in Manolică and Roman’s research, multinational corporations’ globalization brings a number of advantages, e.g. their own network manufacturing system. The firms try to improve the possibilities available due to some manufacturing factors’ existence that may be used successfully in different countries. They are flexible and make possible modification or quick change of strategies. Due to globalization transnational corporations are provided with the possibility to make accent on the most profitable activities that may bring a positive trend of economic growth in the nearest future (Manolică and Roman).
Many researches consider globalization to be harmful for certain countries. According to Mander, Baker and Korten, the economic globalization’s rules and ideologies, including free trade, deregulation, privatization and structural adjustment, have destroyed the thousands of livelihoods of people, often causing them landless, homeless and hungry, without a basic public services access like medical care, public transport, sanitation, education, fresh water, job training, and etc. Such facts confirm that globalization is not favorable for the poor countries.
Economic globalization, according to the author, is successful solely in making a few global corporations and elites extremely wealthy. From the world’s 100 largest economies, for instance, 52 are now corporations. The UN assumes that the wealth of millionaires will gradually increase by 8% each year. And wealth is not distributed. The regulations contribute to keeping it at the top, removing the wealth redistribution tools from governments and communities, social services and workers protection, domestic industries, the environment and sustainable livelihoods.
There are also several aspects in which benefits have been reached by the Third World countries. However, almost all of them have been in favor of the elites in those countries, and the chief executives of the international companies at the hub of the process; individuals, the earnings of which are now on the astronomical level. The studies confirm that such a gap between top executives and ordinary workers is rapidly increasing.
The Third World countries did not get much benefit from economic globalization. After the significant IMF and World Bank medicines and the policies of WTO, they have understood that globalization is in fact a false promise. The regulations are not elaborated to bring benefit to poor countries, but rather to create benefits to international corporations and developed countries. The researchers ask the question whether the institutions working on globalizing understand what actually they are doing or they just follow an ideological model.
Many scientists now believe that the above-mentioned international organizations clearly know what they do. Their task is removing all obstacles to the free flow of global capital as it searches to open the last markets of the world, locations of natural resources, and cheap workers (in a way that they will be always cheap).
IMF policies of economic globalization as well as the World Bank and the WTO’s actually greatly contribute to the creating of poverty. The demand of free trade is that all members stick to the same economic model, removing changes that can interfere to the smooth activity of major global corporations as they look for new markets, cheap labor and resources. For multinational companies it is effective when the countries are permitted their decisions with regards to the best practices for their people (Mander, Baker and Korten).
Speaking about outsourcing (in this case, transferring the manufacturing process to the countries with cheap labor force) when working with the international contractors, companies should be attentive regarding their risks. Outsourcing helps to reduce costs significantly and make the products compatible on the market; however, some actions of the foreign factories may lead to the harmful effect upon the company reputation and the brand. For example, the Nike Company (sportswear manufacturer) faced an issue when their contractors used child labor in the factories. Around 80% of contractors’ workers in Nike are 18-24 years old females. Nike has contracts with Asian manufacturers for most production kinds, to which it outsources the productions process. Nike’s contract enterprises are located in Vietnam, Indonesia, China, Thailand, etc. The labor right has become one of the most important issues for the company. Nike has established principles for maintenance of standard. For example, after the issue with child labor happened, the company has proclaimed that no employees under the age of 18 years old are permitted to be engaged into footwear, accessories or equipment manufacturing. No one person under the required minimum age is allowed to work for Nike.
It is recommended that multinational corporations study the rules and regulations of the host countries with regards to all issues related to their activity in that countries in order to decrease their risks and ensure smooth manufacturing process.
It is possible to conclude that globalization is extremely important for the economy of the world. Globalization has its advantages and disadvantages, however, nowadays business people and researches speak more about its pros. Globalization make an impact upon countries in terms of culture, social issues, economy, environment, etc. Globalization brings new technologies, innovation to the host countries, decreases unemployment and improves the level of life. On the other hand, it is possible that globalization makes Third World countries even poorer, directing all the incomes to the elite and executives of global corporations.
International companies are among the most important globalization drivers. As they have subsidiaries in the various countries worldwide, these organizations bring benefits to their own economies, cultural integration, other countries’ development, unemployment issues, etc. In general, globalization’s positive effect is obvious now in the whole world.
Hanson, Gordon H. 'The Globalization Of Production'. The National Bureau of Economic Research (2001): n. pag. Web. 2 Apr. 2015.
Lin, Ching-Chieh. 'A Successful Marketing Strategy For Nike Inc.: The Story Behind And Its Analysis'. ttqs.wda.gov.tw (2009): 1-14. Web. 2 Apr. 2015.
Managementstudyguide.com,. 'What Is Globalization ? - Meaning And Its Importance'. Web. 24 Mar. 2015.
Mander, Jerry, Debi Baker, and David Korten. 'Does Globalization Help The Poor?'. UUA Immigration Study Guide 1.3 (2001): n. pag. Web. 22 Mar. 2015.
Manolică, Adriana, and Teodora Roman. 'GLOBALISATION – ADVANTAGES AND DISADVANTAGES FROM THE PERSPECTIVE OF THE MANUFACTURER'. CES Working Papers (2012): 747-756. Web. 24 Mar. 2015.
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