What Is Globalization?

Globalization is defined as a process that, based on international strategies, aims to expand

business operations on a worldwide level, and was precipitated by the facilitation of global

communications due to technological advancements, and socioeconomic, political and

environmental developments.

The goal of globalization is to provide organizations a superior competitive

position with lower operating costs, to gain greater numbers of products, services, and

consumers. This approach to competition is gained via diversification of resources, the

creation and development of new investment opportunities by opening up additional markets

and accessing new raw materials and resources. Diversification of resources is a business

strategy that increases the variety of business products and services within various

organizations. Diversification strengthens institutions by lowering organizational risk factors,

spreading interests in different areas, taking advantage of market opportunities, and acquiring

companies both horizontal and vertical in nature.

Industrialized or developed nations are specific countries with a high level of

economic development and meet certain socioeconomic criteria based on economic theory,

such as gross domestic product (GDP), industrialization and human development index

(HDI) as defined by the International Monetary Fund (IMF), the United Nations (UN) and

the World Trade Organization (WTO). Using these definitions, some industrialized countries

are the United Kingdom, Belgium, Denmark, Finland, France, Germany, Japan, Luxembourg,

Norway, Sweden, Switzerland, and the United States.1

Components of Globalization

The components of globalization include GDP, industrialization, and the Human

Development Index (HDI). The GDP is the market value of all finished goods and services
produced within a country's borders in a year and serves as a measure of a country's overall

economic output. Industrialization is a process that, driven by technological innovation,

effectuates social change and economic development by transforming a country into a

modernized industrial, or developed nation. The Human Development Index comprises three

components: a country's population's life expectancy, knowledge and education measured by

the adult literacy, and income

The Economic Impact on Developed Nations

Globalization compels businesses to adapt to different strategies based on new

ideological trends that try to balance the rights and interests of both the individual and the

community as a whole. This change enables businesses to compete worldwide and also

signifies a dramatic change for business leaders, labor, and management by legitimately

accepting the participation of workers and the government in developing and implementing

company policies and strategies. Risk reduction via diversification can be accomplished

through company involvement with international financial institutions and partnering with

both local and multinational businesses.

Globalization brings reorganization at the international, national, and sub-national

levels. Specifically, it brings the reorganization of production, international trade, and the

integration of financial markets. This affects capitalist economic and social relations, via

multilateralism and microeconomic phenomena, such as business competitiveness, at the

global level. The transformation of production systems affects the class structure, the labor

process, the application of technology, and the structure and organization of capital.

Globalization is now seen as marginalizing the less educated and low-skilled workers.

Business expansion will no longer automatically imply increased employment. Additionally,

it can cause a high remuneration of capital, due to its higher mobility compared to labor.
The phenomenon seems to be driven by three major forces: the globalization of all product

and financial markets, technology, and deregulation. Globalization of product and financial

markets refers to an increased economic integration in specialization and economies of scale,

which will result in greater trade in financial services through both capital flows and cross-

border entry activity. The technology factor, specifically telecommunication and information

availability, has facilitated remote delivery and provided new access and distribution

channels, while revamping industrial structures for financial services by allowing entry of

non-bank entities, such as telecoms and utilities.

Deregulation pertains to the liberalization of capital account and financial services in

products, markets, and geographic locations. It integrates banks by offering a broad array of

services, allows entry of new providers, and increases multinational presence in many

markets and more cross-border activities In a global economy, power is the ability of a

company to command both tangible and intangible assets that create customer loyalty,

regardless of location. Independent of size or geographic location, a company can meet

global standards and tap into global networks, thrive and act as a world-class thinker, maker,

and trader, by using its greatest assets: its concepts, competence, and connections.

Beneficial Effects

Some economists have a positive outlook regarding the net effects of globalization on

economic growth. These effects have been analysed over the years by several studies

attempting to measure the impact of globalization on various nations' economies using

variables such as trade, capital flows, and their openness, GDP per capita, foreign direct

investment (FDI), and more. These studies examined the effects of several components of

globalization on growth using time-series cross-sectional data on trade, FDI, and portfolio

investment. Although they provide an analysis of individual components of globalization on

economic growth, some of the results are inconclusive or even contradictory. However,

overall, the findings of those studies seem to be supportive of the economists' positive

position, instead of the one held by the public and non-economist view.3 4 5

Trade among nations via the use of comparative advantage promotes growth, which is

attributed to a strong correlation between the openness to trade flows and the effect on

economic growth and economic performance.6 Additionally, there is a strong positive

relation between capital flows and their impact on economic growth.7

Foreign Direct Investment's impact on economic growth has had a positive growth

effect in wealthy countries and an increase in trade and FDI, resulting in higher growth

rates.8 Empirical research examining the effects of several components of globalization on

growth, using time series and cross-sectional data on trade, FDI and portfolio investment,

found that a country tends to have a lower degree of globalization if it generates higher

revenues from trade taxes. Further evidence indicates that there is a positive growth-effect in

countries that are sufficiently rich, as are most of the developed nations.

The World Bank reports that integration with global capital markets can lead to

disastrous effects, without sound domestic financial systems in place. One of the potential

benefits of globalization is to provide opportunities for reducing macroeconomic volatility on

output and consumption via diversification of risk.

How Globalization Affects Developed Countries

The Bottom Line

One of the major potential benefits of globalization is to provide opportunities for

reducing macroeconomic volatility on output and consumption via diversification of risk. The

overall evidence of the globalization effect on macroeconomic volatility of output indicates

that although direct effects are ambiguous in theoretical models, financial integration helps in

a nation's production base diversification, and leads to an increase in specialization of

production. However, the specialization of production, based on the concept of comparative

advantage, can also lead to higher volatility in specific industries within an economy and

society of a nation. As time passes, successful companies, independent of size, will be the

ones that are part of the global economy.

On the other hand, the concept of “Sustainable Development” which derived mostly

from the 1987 Brundtland Report, is the organizing principle for meeting human

development goals while at the same time sustaining the ability of natural systems to provide

the natural resources and ecosystem services upon which the economy and society depends.

The desirable end result is a state of society where living conditions and resource use

continue to meet human needs without undermining the integrity and stability of the natural

systems.

“As the concept developed, it has shifted to focus more on economic development,

social development and environmental protection for future generations. It has been

suggested that "the term 'sustainability' should be viewed as humanity's target goal of human-

ecosystem equilibrium (homeostasis), while 'sustainable development' refers to the holistic

approach and temporal processes that lead us to the end point of sustainability.” (Shaker,

2015) When we discuss the impact of Globalization in the Sustainable Economic

Development in Developing Countries, we can see that Globalization can create new

opportunities, new ideas, and open new markets that an entrepreneur may have not had in

their home country.

As a result, there are a number of positive elements associated with globalization: The

largest benefits of Globalization to developing nations is that, it creates greater opportunities

for firms in less industrialized countries to tap into more and larger markets around the world

which leads to free trade between countries. Trade barriers on Homegrown industries fall and

gain access to a much wider international market. The growth this generates allows

companies to develop new technologies and produce new products and services.

This leads to more opportunity to capital flows, technology, human resource,

economical imports and larger export markets. It also allows businesses in less industrialized

countries to become part of international production networks and supply chains that are the

main conduits of trade. The positive effect of globalization on economic growth can be

demonstrated through the experience of the East Asian economies and shows that at least

under some circumstance’s globalization decreases poverty.

For example –

The spectacular growth in East Asia, which increased GDP per capita by eightfold

and raised millions of people out of poverty, was based largely on globalization—export-led

growth and closing the technology gap with industrialized countries. (McCubbrey, 2016)

Even though Globalization is mainly considered to be a Positive movement in the 20th

century, it is now the opinion of many experts that it does indeed influence the world in

various negative ways as well.

The growth of international trade has aggravated the income inequalities, both

between and within industrialized and less industrialized nations. Not only that, transnational

corporations increasingly attempt at dominating the Global commerce, which seek to

maximize profits without regard for the development needs of individual countries or the

local populations is another negative impact. The protectionist policies in industrialized

countries prevent many producers in the Third World from accessing export markets and the
volume and volatility of capital flows increases the risks of banking and currency crises,

especially in countries with weak financial institutions.

“Critics of economic integration often point to Latin America as an example where

increased openness to international trade had a negative economic effect. Many governments

in Latin America (e.g. Peru) liberalized imports far more rapidly than in other regions. In

much of Latin America, import liberalization has been credited with increasing the number of

people living below the USD $1 a day poverty line and has perpetuated already existing

inequalities.” (McCubbrey, 2016) But has the Positive Impacts of Globalization have reached

a Sustainable Economic development in the Developing world is yet to be determined.

As it is apparent many of the existing issues which affects the world have yet to be

solved by way of sustainable development. The inflation or unemployment in interdependent

markets cannot be controlled by one state alone and do not stop at national borders as they

continue to grow. So, while economic prosperity is obviously growing, the greatest challenge

of Globalization represents Sustaining the increasing prosperity for all without over-

exploiting the environment and natural resources. If globalization does not succeed in

achieving sustainability in the three dimensions of Economic, Ecological and Social, it will

increasingly come under pressure and thus, so would global governance, which must lay

down the political framework conditions for sustainable globalization.

“Global Governance” is a political process, which is meant to identify and solve the

above-mentioned problems that are beyond the capacities of single states. With current and

emerging global challenges such as financial crisis, increasing poverty, rapid urbanization,

food insecurity, climate change and environmental degradation, a practical understanding of

sustainable development is necessary and urgent especially in developing countries. (World

Economic and Social Survey 2013: Sustainable Development Challenges, 2013)

 Some developing countries such as China have made considerable progress

in relation to achieving the economic dimension of sustainable development through

improving quality of life. But the ideals of sustainable development largely remain a distant

reality across developing countries. Hence, we can conclude by saying that, it has

increasingly become apparent that the effects of globalization on sustainability cannot be

solved by single actors alone, neither public nor private ones, but rather that it would require

effective partnerships of Global Governance.

As the world’s greatest opponent of globalization, China, due to the lack of international

economic order, the influence of globalization on specific countries in different stages of their

development is entirely treated different. Most of the developed countries often benefit from

globalization through their capital, technology, human resources and administrative expertise.

On the other hand, developing countries are on focus mainly on the unfavourable position

where they can benefit from other foreign investment, advanced technologies and

management expertise.

China is benefit from being a fast growing economy. This is mainly occur due to their low

cost of manufacturing and labour. Many Westerns companies have change to use Chinese

labour more extensively. China has been successfully reduced their poverty through their

economic system by mainly focused on increasing openly to trade and foreign investment

with other countries.

Even though China’s political system has been run by the communist party, their approach

and how they form their strategies in order to promote their economic growth and

development has become a bigger player in globalization

The accession of China to the World Trade Organization (WTO) in 2001 has further improve

its economy through the integration into the world economy and furthermore into the

globalization. As the result becoming part of WTO members they are entitled to provide non-

discriminatory treatment to all other members and all foreign individuals. In order to protect

the domestic industries and service providers, the price controls is not to be used in this

purposes. WTO provided regulations to restrict China’s export subsidies on their agriculture

products as they aimed to revise their existing domestic laws and therefore restart their new

legislation in compliance with the agreement. In order for China to optimize their export

structure and fully participate in international trade. China has to agreed to seize the

opportunity under WTO who actively optimist its export structure.

However it does gives China to liberalize its regime in order to integrate in the world

economy and offer more pleasant environment for trade and foreign investment in accordance

with WTO regulations. This is possible to lead to reduce in the level of corruption in political

systems which then pull its index and ranking up as China become more attractive to the

foreign investors and traders

“From 1983 to 1985 China has double-digit GDP growth as it has been accompanied with the

first wave of the foreign investment into China and the development of non-state enterprises.”

“In 1989-1991 The growth start to slow down after the Chinese Government has set the price

reform in 1988 which resulted in panic buying and runaway inflation. The price stability was

achieved by cancelling large fixed investment projects, slowing domestic demand, foreign

investment fell off after the Beijing Massacre of June 1989”

“In Recent year the global economic crisis began to reduce China’s economic growth rate,

the government decided to injected 4 trillion RMB into the economy in form of economic

stimulus package consisting largely of investment in infrastructure and human capital” (4)

As a result of industrialization and increase in infrastructure and investment in China , the

agriculture sector as a percentage of GDP has been dramatically decreased from 29% to 13%

in 1997 to 2003, as the farm that used to do agriculture has been converted into cities and

factories. It might be also that all other industries have been producing much more than the

agriculture industry. This economic growth has been very attractive to the western expansion

market, which later has result in more market-based economy with globalization and

deregulation by the Chinese government. The recent trend growth rate is at average of 9.4 %

over the past decade is 1.7% higher than other countries in Asia. As China is a major

economy in the world, their main competitor which has another major economy is the USA.

Globalization helps China to make a better use of foreign investment to promote the increase

in their industrial construction. As Labour cost in China is very low respectively, it become

very attractive to the foreign investment. The more consumption of labour, the faster they can

speed up the high development of new technological industries, thus China’s industrial can

compete internationally.

Globalization also lead to the increase in the level of trades in China as subject prior to 1978.

China’s trade has been conducted under the system of state where a foreign trade

corporations monopolized all foreign trade. Under the planning regime, import has been

minimized while exports authorized only for the extent to pay for the imports. In the last 20
years, the systems has been changed dramatically and China’s trade has expanded

enormously, the increase in the share of the world trade.

The foreign direct investments and transnational corporations (FDI and TNC’s) have been

increasing very rapidly since the globalization and the opening of the markets and

deregulation by Chinese economy. FDI and TNC encouraged in the modern agricultures, high

tech industries, infrastructure and construction. They focus on the development of the western

regions, and the re-engineering of State Owned Enterprises. Foreign investment capital

became major factor in growth. However, rapid growth has caused some problems such as,

high inflation rates in urban areas which may leading to increasing economic inequalities

between regions and social group.

To Vietnam, since the country began the “Doi Moi” process in 1986, the economy has

gradually integrated into global market. With the guideline “Vietnam is prepared to be a

friend and reliable partner of all countries in the world community, striving for peace,

independence and development.” Vietnam has gradually joined international organizations

and economic institutions as well as cooperated with other countries for mutual development.

“Vietnam re-joined the World Bank (WB), International Monetary Fund (IMF) and Asian

Development Bank (ADB) in 1992 and 1993. The year 1995 saw many significant external

economic events. Vietnam joined the ASEAN and committed to implement the ASEAN Free

Trade Area (AFTA), signed a Cooperative Agreement with the European Union (EU) and

normalized relations with the US and applied for WTO membership. In 1998 Vietnam

officially became a member of the Asia Pacific Economic Cooperation (APEC) Most

significantly, after eleven years of negotiation, in 2007 Vietnam became the official member

of the world trade organization (WTO)-the world’s biggest trade organization. Since then,
Vietnam has entered the largest trade “playground” where every country is equal in both

opportunities and challenges. So, it can be summarized that Vietnam has taken part in the

international integration for over the past twenty years and fully joined in the globalization

process for three years dating from 2007.

Most significantly, after eleven years of negotiation, in 2007 Vietnam became the

official member of the world trade organization (WTO)-the world’s biggest trade

organization. Since then, Vietnam has entered the largest trade “playground” where every

country is equal in both opportunities and challenges. So it can be summarized that Vietnam

has taken part in the international integration for over the past twenty years and fully joined

in the globalization process for three years dating from 2007.

I. Benefits and opportunities of globalization to the Vietnamese economy

Integration deeply into the world market has brought many tangible benefits and

opportunities to the Vietnamese economy.

1. Increasing export revenues

As a result of integrating into the regional and global market, export revenues have

increased continually since 1990, speeded up sine 1995 when Vietnam joined ASEAN and

grew sharply since Vietnam joined WTO in 2007. The growth in export revenues is

illustrated in the following table

The country’s export turnover in 2007 reached US$48 billion, 21.3 percent higher

than 2006’s figure, surpassing the 3.1 percent target set by the government. Vietnam’s key

export items having high export turnovers were seafoods, rice, coffee, vegetables, rubber,

cashew nuts, and pepper. (GSO)

 The second year of WTO membership saw a sharp increase in the country’s export

turnover. Export turnover in 2008 reached US$62 billion, 29.5 percent higher than that in

2007. (GSO)

In 2009 the export turnovers were estimated to be US$56.6 billion, reflecting a drop

of 9.7 percent from 2008.However, it was due to price drops during the economic crisis.

Vietnamese commodities have been exported widely to 150 countries and territories,

with many sectors benefiting from WTO membership including labour-intensive industries

like clothing, footwear and electronics.

An example of quick development in export after joining WTO is textile and garment

industry. Vietnam has become one of the ten largest exporters of textiles and garments in the

world after earning US$7.7 billion from exporting these commodities in 2007. The US

market made up 56 percent of this total turnover, followed by the EU (US$1.45 – 1.65

billion) and Japan (US$700 million.)

2. Rapid increase in foreign direct investment (FDI)

As a WTO member, Vietnam has become an attractive destination for foreign

investors. Registered FDI surged to US$71 billion in 2008, compared with only $12 billion in

2006. Although FDI commitments dropped last year to $21.4 billion as a result of the global

financial crisis, the figure was still at the same level as pre-crisis 2007. (Thanh Nien news)

During the three years of WTO membership, total registered FDI into Vietnam

reached more than $114 billion, 4.5 times higher than the target set for the 2006-2010 period.

Of this, $29.5 billion was disbursed in the five years. (Thanh Nien news)
 The data for FDI into Vietnam over the past 20 years are summarized in the following

table:

3. Increase in enterprises’ awareness, adaptation and performance

Joining WTO means that Vietnam has entered a large “play ground” where Vietnamese

enterprises have to compete with many giant players-big foreign corporations with strong

financial power and experience. Moreover, the reduction of tariffs and non-tariffs measures,

the open of servicing market have made the domestic market more competitive. All these

factors have forced domestic enterprises (both state-owned and private ones) to restructure

and self-improve. Being aware of these challenges, Vietnamese enterprises have invested

money to standardize their operation and products. Thousands of Vietnamese enterprises in

different fields such as textile, transport, service, telecommunication, food production have

met international standards: ISO 9000, ISO 14000. Furthermore, besides traditional markets

such as the US, Japan, they have reached new markets such as Europe, the Middle East, and

Africa. More effort is put on employee training and attraction high quality employees. Some

big Vietnamese enterprises which have strong competitiveness are Co.opmart, Hoang Anh

Gia Lai group, Sai Gon tourist, VNPT. This is also a chance for state-owned enterprises

pending on the Government protection and subsidies restructure their operation. Otherwise

they will be defeated even in the domestic market. So under the competition pressure, the

Vietnam’s enterprises will become more effective and competitive.

4. More favorable legal system for trading activities

Global economic integration and accession to the WTO have given Vietnam a chance to

refine its policy and legal system to be more transparent, sustainable and predictable to be in

line with WTO regulations and to attract more foreign investors. For example, according to

Law on Foreign Investment, there are flexible regulations of establishment “Enterprises with
foreign investment are permitted to change the form of investment, and divide, consolidate or

merge with other enterprises. Existing joint ventures are allowed to transform into wholly-

owned foreign capital enterprises under certain conditions. In addition, there is no obligation

to form a joint venture with a local partner. Foreign investors are entitled to make their own

choice from three forms of investment set forth by the Law on Foreign Investment”. There is

also the reduction of the administrative burden “The duration for investment licensing was

cut from 60 working days to 45 working days for projects under the category of appraisal and

issuance of investment licences, and to 30 working days for projects under the category of

registration for investment licences”

Furthermore, under the Government’s Project 30 to enhance administrative reform, about

5,700 administrative papers at all levels have been under consideration. Duplicate or

unnecessary documents will be abolished. The Prime Minister has proposed a 30 percent

reduction of all legal documents. To enhance administrative procedures Vietnamese

government are developing e-commerce and e-government to create effective links between

administration agencies, businesses and people. (Vov news)

Moreover, as a WTO member, Vietnam is treated as a full WTO membership. Vietnamese

enterprises have a healthy environment for development in foreign markets. If there are trade

disputes, they can be treated under WTO’s Dispute Settlement Mechanism. “Vietnamese

enterprises will be judged by the WTO international court, which means we have more

advantages to protect our rights.” (Ho) For example, the lawsuit is no longer imposed by

domestic laws as the previous “catfish war” case- Vietnam’s tra and basa dumping disputes,

and we can implement some legal retaliating tools within WTO regulations. Vietnam will

have equal status with other countries in the global trade policy-making process and an

opportunity to participate in building a more equal and logical international trade cooperative

framework. Le (2008)