Globalisation Case Study Essay Sample
Globalisation has become a buzz-word for political, economic, sociological and environmental trends that are said to present world-wide challenges. We need to be careful about how the word is used – and why.
Two accounts of globalisation that some of you will have seen before:
“the process that reduces barriers between countries, thereby encouraging closer integration of economic, political and society activity. Economic aspects are the most important.” (Frenkel and Peetz:1998:282)
“Globalisation is a word suitable for a world without illusions, but it is also one that robs us of hope.” (Wiseman:1998:11)
A single definition can be problematic because the word is used in a number of senses and interchangeably with ‘global restructuring’. Broomhill (1995:40) states that “Some might suggest that the term global restructuring has become rather meaningless. For some it is seen as the cause of everything that’s wrong with our economies. For others, the internationalisation (or ‘liberalisation’) of the global economy is seen as the basis of an unprecedented era of growth and prosperity for all economies.”
We might even see that the meaning of globalisation has both material and ideological connotations. Robertson (1992) (cited in Hall and Hartley:1995:71) suggests that it is a concept “that refers both to the compression of the world and the intensification of the consciousness of the world as a whole.” Materially, the world is said to have shrunk and ideologically ideas about globalisation and its effects have become more concentrated, more accessible and more imperative. We need to question the way in which the word is used, whether or not globalisation was inevitable and, indeed, whether or not certain phenomena in our economic, social and work lives are a direct result of globalisation or if globalisation is used as an excuse for other agendas.
A New Phenomenon?
Global trade is not a new phenomenon; it’s been going on for centuries. Nor is the fact that certain countries have always had comparative advantage over others in certain areas of production. Colonising nations such as the English, Dutch and Spaniards exploited the raw materials of their colonies, turned these into manufactured good and sold to other countries – and back to those colonies.
Put simply, international trade can advantage both capital and individual nations, by providing opportunities for specialisation. Countries can take advantage of areas of production where they have a comparative advantage, which in turn leads to differences in the consumption and production structures of economies. The interdependency of different countries and the integration of their economies into ‘the global economy’ are increased.
What has happened in the last 30 years or so has been that international trade has grown faster on average than production. It is the scale and nature of current international developments that distinguish them from the past.
Globalisation is less about the flow of goods and more about the flow of money in a so-called borderless world.
Some observers identify a new trend in the dramatic increase in the international redistribution of ownership that has occurred, particularly since the early 1980s. Flows of foreign direct investment (FDI) have grown more than four times faster than international trade flows. In addition to this, other forms of international investment cooperation such as licensing, off-shore processing and ‘strategic alliances have become more important. FDI by investors based in the European Union, the USA and Japan has become a major vehicle of globalising production patterns.
So, while goods flowing around the world is part of globalisation, it is only part. The distinguishing feature of globalisation is the freer flow of capital. I don’t know what the current figures are, but in 1987 it was estimated that an average of $420 billion crossed the world’s foreign exchanges each date and 90 per cent of this represented financial transactions unrelated to trade or investment.
The impetus for globalisation is essentially that companies want to maximise profits and are faced with various constraints in doing so. Changing or indeed vanishing constraints provide new profit opportunities and require new strategies. One interpretation of globalisation is that it is an entrepreneurial response to a changing environment, while the basic motivation of company behaviour – profit maximisation within constraints – remains unchanged.
There are other factors that have influenced the drive towards globalisation.
1. Increased industrialisation following WWII. Many developing countries in SE Asia in particular are already, or soon will be, industrialised. This catching up has increase the number of suppliers on world markets. By the 1970s Japan embarked on foreign direct investment to recycle its trade profits at the same time as its corporations were structuring on multinational lines. Japan has also rapidly become the world’s largest creditor nation.
2. Reduction of tariff barriers. You might recall that in 1973 PM Whitlam reduced Australian tariffs by 25 per cent and tariff barriers continued to fall through successive conservative and labour governments. Successive GATT rounds have reduced tariff barriers
3. Financial centres of the world economy provide the possibility for 24 hour trading in all sorts of financial assets and the deregulation of other services such as banking and insurance also provide new opportunities for trading ‘services’.
4.At the same time, some of the constraints preventing companies from implementing globalisation strategies have disappeared, the micro-electronic revolution being the most visible and obvious. We have CIM or computer integrated manufacturing and the internet. Transaction and communication costs have fallen, and thus the proximity between buyers and sellers, traditionally considered essential for some services, is less important. It is technological change that allows 24 hour trading on financial markets with relative ease.
5.The development of integrated marks or trading blocs such as the European Union, North American Free Trade agreement between the USA, Canada and Mexico and ASEAN/APEC in our region. The development of an integrated European market, starting with the Common Market in the 1960s has resulted in a potential integrated market larger than the US. The European Union is now the largest owner of international equity capital. The USA, faced with a threat to its economic dominance, has attempted to protect its position by embarking on NAFTA – a comprehensive free trade pact.
Trans-national Corporations and the Demise of the Nation State
As a result of various constraints being lifted, the constraints for firms and, just as importantly, governments, have completely changed. International financial capital flows across national borders almost at will, and so no government can pursue economic policies that do not fit into the international framework set by the major players without risking the devaluation of its currency. No one wants devaluation because this implies a lower standard of living relative to other countries – and possibly absolute decline. In particular, massive capital flows can push exchange rates away from levels that reflect the true competitive relationships among nations if national economic policy or performance diverge in the short run.
Countries have tried to resist external pressures for a short time. In the early 1980s the USA negotiated export restraints with major foreign suppliers to try to limit the decline of domestic industries, including textiles and clothing and automobiles. They also revalued their dollar upwards. This in turn produced trade deficits that turned the USA into the largest debtor nation in the world. The economy became dependent on attracting 10 to 15 billion of foreign capital each month.
The globalisation of production is the result of the complex interaction between TNS operating on a world-wide basis, independent nationals firms seeking international investment cooperation, and national governments trying to influence trade through a combination of trade, industrial and macroeconomic policies. National economic policies will probably suffer under the conditions of globalisation. National governments, in both developing and industrially developed countries will find it increasingly hard to apply policies to protect internationally less competitive domestic production. This is because they run the risk of losing their attractiveness of international production by doing so.
In addition to the effects of multinational corporations in the economic and political senses, there is globalisation in the cultural sense, by way of the mobility and accessibility of ideas and information. McDonalds, Nike, etc.
What Globalisation means for labour.
Globalisation has resulted in an international division of labour achieved through fragmentation of production across countries. We will look at this further, but perhaps it is time to summarise key elements of globalisation.
It can be seen that something very fundamental has happened to the world economy. Not only has economic activity become increasingly
internationalised, it has also become globalised. This is a more advanced and complex process that has three basic elements, each of which has profound implications for local and regional economies and states. The three elements are
“1.An increasingly and very high degree of (a) integration and (b) restructuring within and between transnational corporations and global markets.
2. The result of this process has been the more rapid and dramatic than usual process of structural reorganisation within and between the economies of all capitalist countries.
3.Global restructuring has also produced very significant implications for states – particularly at the local level – as changing patterns of global relationships emerge between transnational capital and governments.” (Dicken:1992, cited in Broomhill:1995:41)
Globalisation and IR
We can see an emerging picture of what globalisation means and that it is a phenomenon that has economic, political, social and cultural consequences. In order to focus on the industrial relations significance, we should return to the “new international division of labour” and ask a question. What are the consequences of globalisation on the international division of labour and on the industrial relations strategies of companies in the international environment?
Remember that it is not only multinational companies that are affected, but national firms that produce in competition with multinationals. Related to this question, what are the consequences for collective groups of workers?
New Industrial Division of Labour
The new international division of labour refers to the relocation of industrial production away from the traditional industrial economies to the so-called Third World. The concept was developed in the 1980s as a response to the relocation of production by trans-national corporations to countries where wages were cheaper. The consequence for Australia is seen to be a process of industrial decline and perhaps de-industrialisation as manufacturing industries are moved offshore to Asia.
NIDL has involved progressive shifts from one country to another. Starting in Hong Kong in the early 1960s, investors moved to South Korea and Taiwan, and then to Singapore in the early 70s. By the mid 1970s, Malaysia and Sri Lanka were favoured places. Later in the 70s, Thailand, Indonesia and the Philippines began attraction trans-national corporations and in the 1980s the TNCs finally made it into China, Pakistan and Bangladesh.
The NIDL is more complex than just a move of firms to lower wage regions. It also involves the role of government in industrialisation, particularly the role of variously titled Free Trade Zones that offer significant incentives to attract foreign investors. The industrialisation process is also dynamic, starting with import substitution industrialisation, to low skilled export oriented industrialisation, followed by more highly skilled EOI. This process explains why the lowest waged areas shift from Hong Kong to Malaysia, to the Philippines to China. (It is said that Barbie is never manufactured in one place for long.) It also explains why countries such as Malaysia are starting to develop human resource development strategies to raise skill levels. They are seeking to attract industries where the human capital of workers is more important than in those industries that were first established there.
There has, of course, not been total deindustrialisation of the traditional industrialised economies, but there has been a shift. There has also been the phenomenon of deindustrialisation of regions within industrialised economies as industries that have sustained towns or rural cities move off-shore.
Effects on Labour Markets
The impact of globalisation on the economies and labour markets in Australia and other countries to be studied in this unit has been dramatic. Some examples are:
• changes in work processes, including a shift to more ‘flexible’ small-scale production processes, have been associated with recognition of skills for some workers and a shift to de-skilled, part-time and casual work for others;
• declining employment in manufacturing, some growth in service industries, but an overall result of high and continuing levels of unemployment in some regions;
• a change in the relationship between paid and unpaid sectors in the economy as the simultaneous impact of increasing labour market participation by women and the reduction in the state’s welfare role crease crises for family structures and women’s unpaid work in the home.
From a theoretical, orthodox economic perspective, globalisation is welfare-improving through a more efficient allocation of sources. There is a shift towards labour-intensive industries in low-wage countries and towards physical and human-capital intensive industries in high-wage countries. New opportunities for production and employment emerge, and the theory has it that incomes rise and standards of living increase. However, more efficient allocation of resources needs structural change. A good example is the clothing industry in Australia, which has been decimated by the removal of tariffs and the competition from low-wage countries.
So, the overall welfare effects of globalisation are in theory positive, but that is not the whole story. It is possible that the gains from a more integrated world economy will not be distribution in equal amounts; some parties may actually lose. This is important, not just from an economic point of view, but also from the point of view of social security, public education and health care. People in countries that have a high standard of living are concerned about how the large competitive forces of the world economy will affect them, and how they can best react to emerging challenges
There have been different effects on wages in developed countries. In European economies – but not the UK – wages of low-skilled workers did not decline relative to high-skilled wages during the 1980s; in fact, in Germany and France they improved. In Japan and the USA the wage gap increased.
But those countries that showed the smaller wage dispersions also showed rising unemployment, especially among low-skilled workers, while the rate of unemployment in Japan and the US has remained largely unchanged.
Developed countries that have more ‘flexible’ wage policies are better able to cope with the effects of globalisation, and their employment rates are better.
High-skilled workers in advanced countries benefit from the integration of the world’s labour market under globalisation, since they face relatively fewer foreign competitors. But low-skilled workers face an almost perfectly elastic supply of low-paid competition around the world. A possible consequence of globalisation is that low skilled workers are confronted with a higher risk of being unemployed, or a relative decline in their wage.
Combine this with the global assembly line. If production can be fragmented and relocated piece by piece to the most attractive locations because of high financial capital mobility and declining transaction and information costs, wages for similar qualifications in different locations will tend to converge. What is the effect on developed countries?
Unions and their responses
These trends and the solutions to some of the problems pose considerable problems for trade unions and workers in industrialised and industrialising countries. The impact of organised labour has been reduced in industrialised countries over two decades, first in the USA and later in Western Europe. While, the problems are different, the trends in Asia, Africa and Latin America are also highly unfavourable.
In East Asia, the problems revolve around rapid industrialisation and the suppression of labour organisations. In Africa, there is a lack of industrialisation; in Latin America there is a problem in adjusting to new ways of developing macro-economic policies.
For unions, the central task is organising the unorganised – not only in poorer parts of the world, but in the out-working and casual sectors of industrialised societies. This can be especially difficult where there are no free trade unions, or their actions are constrained by legislation. However, independent trade unions are growing in number, even in countries such as Indonesia, where organising has proved difficult. The economic miracle of industrialisation is increasingly being challenged by workers in Asia who see the elites thriving and the middle class expand, while the workers suffer. The International Confederation of Free Trade Unions (ICTFU) provides the beginnings of internationalisation, but it does not have strong linkages with the new union movements in Asia.
Associated with the need for an international trade union movement is the development of international labour standards and the role of the International Labour Organisation (ILO). These standards are designed to impose standard protections as a condition of participation in world trade. These ‘social clauses’ are rejected by multinational corporations and some governments as imposing artificial barriers to world trade. Child labour, abuse of trade union officials and the lack of health and safety standards are some of the reasons why international labour standards are being pursued.
Globalisation and Employers
We will now look at the effects of TNC’s industrial relations strategies. It might be said that the TNCs simply have a more complex task than a corporation operating within a single country, in that they have to develop cultural, economic and political awareness of the countries in which they operate.
But what if we look at the broader issues of the effects of their IR strategies on national IR systems? There are three models of industrial organisations, reflecting three major stages of industrial development.
• BritishEmphasis on owner control(proprietary capitalism) • AmericanAccent on the role of management(managerial capitalism) • JapaneseNetwork of firms, financial institutions and state institutions (collective capitalism)
This variant is relatively new and is of most interest for the purposes of examining the current strategies of global capital. Distinguishing features are
• superior impact of enterprise networks;
• flexibilities derived through subcontracting;
• major organisational restructuring, usually by technological innovation.
The ‘Japanese model’ is being copied by other countries including Germany, the USA and to a lesser extent Britain (where the trade unions are vehemently opposed to it.)
Marginson and Sisson (1994) have examined the emerging “Euro-company” and its implications for industrial relations. Multinational companies transform themselves from national subsidiaries into organisations that integrate activities across borders to become transnationals. Their headquarters functions are spread across different countries and this has been the case in Europe where development of the EU has resulted in companies having production, distribution and marketing integrated across Europe.
There have been tentative developments towards new arrangements for IR such as voluntary works councils, a shift towards enterprise level bargaining – challenging the norm of multi-employer, centralised collective bargaining.
These Euro-companies present the following challenges for national systems of industrial relations:
• their ability to coordinate and control industrial relations outcomes across countries; • their ability to develop policies and practices across Europe and to create new company level industrial relations structures; • their development of enterprise-based employment systems that challenge multi-employer bargaining within sectors.
1. The Euro-companies tend to manage by performance rather than task and are assisted by developments in computer and communication technologies. Statistics on unit labour costs, productivity, industrial conflict and numbers employed can be readily compared from location to location and used to punish or reward various sites. There is the potential to extract concessions from labour in different locations.
2. Companies can develop a pan-European approach to managing industrial relations. These might have positive or negative consequences for labour.
3. The strategic business units of the typical large Euro-company are beginning to conflict with systems of multi-employer bargaining that are common in many countries. With multi-employer bargaining, devolution and decentralisation are incompatible. By opting out of the traditional system, larger companies will get the competitive edge by tailoring the terms and conditions of employment to their own requirements. Even if they have not opted out, they can be expected to seek greater flexibility in sector agreements and increased workplace negotiations.
Euro-companies do, however, have to modify their approaches to IR from country to country. For example, there is less scope for transnationals in Germany than there is in the UK, because institutional arrangements are set by statute as are employment practices, wages and conditions. Nevertheless, it can be expected that the transnationals will go shopping in Europe as it has in Asia, particularly in search of cheap labour and concessions on working conditions.
The Euro-companies face pressure for social policy measures to accompany moves towards economic integration – from unions, the European Parliament and the European Commission.