international business

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Macro Impacts Globalization has impacted the political, economic, social, and cultural aspects of international community members. Political and cultural environments of some nations have become more polarized. While most become more subdued, a few become more extreme. Economic health varies in moderate correlation with the amount of international trade activity in each host country. Social systems have been forced to adapt to a new composition of workers and ethnicities—some without success. Finally, cultural impact has emerged as a focal point in international debate concerning the toll of globalization.

Political Impacts of Globalization Much debate continues over the political effects of globalization. Opponents of globalization claim that globalization has led to widespread government corruption as indicated through the extensive use of bribery. However, one could argue that globalization is not to blame for this political corruption, but these practices were likely preexisting and have only recently gained exposure in the arena of public debate. The results of the 2016 Transparency International’s Annual Corruption

Index ranks countries on their perceived corruptibility.26

Rank Least Corrupt Country Most Corrupt Country

1 Denmark, New Zealand Somalia

2 Finland South Sudan

3 Sweden North Korea

4 Switzerland Syria

The results reveal that nations such as Denmark (1), Australia (13), and the United States (18) are far less accommodating to corrupt practices, whereas Vietnam (113), Russia (131), and Syria (173) are far more tolerant. U.S. managers routinely rank bribery as being an unethical practice. Respondents in some nations find the use of bribes as a critical leveraging tool that facilitates necessary compromise in business exchange.

Proponents of globalization point out the positive influences upon the political environment. An increasing importance of international trade has led nations to establish specific policy departments that deal exclusively with maintaining favorable foreign relations. Overall, this has brought about a much higher increase in global awareness, as well as, legislation to ensure minimum standards in a given level of economic participation. U.S. labor laws have been constructed to prevent domestic companies from employing underage workers—even in foreign countries— which have been estimated to be in excess of 150 million child workers between the ages of five and fourteen. In least developed countries, almost one in four children in this age group are in labor that is detrimental to their personal development and

health.27

Rank Least Corrupt Country Most Corrupt Country

5 Norway Yemen, Sudan, Libya

6 Singapore Afghanistan

7 Netherlands Guinea-Bissau

8 Canada Venezuela, Iraq

9 Germany, Luxembourg,

United Kingdom Angola, Eritrea

10 Australia Republic of Congo, Haiti, Chad, Central

African Republic, Burundi

The multinational company typically views the political landscape in terms of

political risks. Political risks can be classified three ways: transfer, operational, and ownership control.

Each of these variables requires constant monitoring on the part of the firm to ensure that governmental disruptions are kept to a minimum.

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Transfer risk includes the risk of debt consolidation—the debt of a country in a critical financial situation will be rescheduled for repayment over an extended period as a result of an agreement between the countries concerned. This can impair the ability to exchange capital and other real products between countries.

Operational risk can be defined as the risk of monetary losses resulting from inadequate or failed internal processes, people, and systems—or from external events. Losses from external events, such as a natural disaster, which damages a firm’s physical assets, or electrical or telecommunications failures, which disrupt business, are relatively easier to define than losses from internal problems, such as employee fraud and product flaws. These internal and external events can disrupt the day-to-day operations and production of the business.

Ownership control risk includes government policies or actions that inhibit ownership or control of foreign operations. This governmental interference can disrupt the actual ownership of an entity.

Economic Impacts of Globalization The health of a given economy can be measured in part by the number of exports it has relative to the number and economic value of its imports. Economic health is considered negative when a country imports considerably more than it exports. Imported and exported goods must also take into account services provided such as consulting, which are provided along with the physical product. Generally, globalization has increased the market opportunity for countries to undertake both importing and exporting activities, allowing for an infusion of capital from foreign investors. New foreign sources of capital help to create new businesses and increase spending in research and development activities. However, foreign capital can be unsettling in a market with great volatility—either from political or socioeconomic forces. Significant fluctuations in currency exchange rates can reduce the actual value of each dollar that a foreign investor has vested in his or her foreign portfolio, potentially prompting the investor to withdraw from a market entirely. Withdrawals bring negative consequences such as closures and layoffs, leading some to question the appropriate amount of foreign investment leverage required to maintain a healthy economy, while mitigating disruption to domestic ownership.

Social Impacts of Globalization Social implications of globalization are generally integrative. New jobs created by international demand have led to growing populations in urban areas known as urban sprawl. Each new wave of economic activity brings about the inclusion of communities further and further from the city’s center. In many modern economies, businesses focus on greater social responsibility that lead to more investments in benevolent or humanitarian efforts. The world economy’s purchasing power and its benefits can be seen in the international relief provided to victims of the 2010 Earthquake in Japan. The 8.9 magnitude earthquake that struck off of Japan’s coast on March 11, and the tsunami it triggered caused severe damage in the Asia Pacific regions. The surge of water traveled more than three miles inland and reached 30 feet in height. The earthquake and subsequent tsunami killed an estimate of 15,000 people. “It is the nuclear meltdown that the tsunami caused that everyone is talking about and will likely be talking about for years to come.” This almost automatic reaction of benevolence has caused some critics to

question the excessiveness of such benevolence.28 A nation would most likely suffer severe backlash if it were to shun commonly accepted social expectations, whether or not they harmonize with local expectations.

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Cultural Impacts of Globalization A nation’s culture consists of the behaviors and characteristics that are unique to its citizens. Globalization has created what critics refer to as a melting pot or clash of various cultural identities. Sometimes this clash becomes violent, especially as a result of religious tensions and riots in some nations. For the most part, globalization is a unifying act that requires people to work together. The heightened exposure that ensues usually fosters greater appreciation for diversity. As globalization becomes more embedded in daily life, tolerance must continue to increase in order to avoid unnecessary polarization—again reinforcing the notion that globalization is not assimilation.

The astute global business professional understands the driving forces and impacts of globalization on trade. Additionally, he or she has the ability to translate this knowledge into practice. As many have said, “knowledge is power.” In reality, knowledge is potential power; only applied knowledge is power. The following section discusses the application of this knowledge by the global business manager.