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Asian Success and Global Economy

Individual Assignment

TP018321

Name: Syed Muhammad Asim Student No: TP018321 Assignment title: Individual Assignment Module code: BM036-3.5-3-Asian Success and Global Economy Hand in Date: 18th April 2011 Lecturer¶s name: Jenny Pareira

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Asian Success and Global Economy

Individual Assignment

TP018321

Contents
1.0 Introduction .......................................................................................................................... 2 2.0 Implications of Globalization and Free trade on the East Asian economy .............................. 4 2.1 Positive Impact of Globalization and Free trade on East Asian Economy........................... 4 2.2 Drawbacks of Globalisation and Free trade on East Asian Economy.................................. 6 3.0 Conclusion ............................................................................................................................ 8 4.0 References .......................................................................................................................... 10 Electronic sources ................................................................................................................. 10 Journals................................................................................................................................. 11

Word count = 2530 words only

Question no 1: Managers need to be aware of the effects of globalisation and free trade on both their country and the international economy. Some argued that these two events have significantly help develop a country¶s economy but there are oppositions that claimed that globalisation and free trade do not necessarily lead to economic prosperity. Critically discuss whether globalisation and free trade have been positive forces towards economic development in East Asia.

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Asian Success and Global Economy

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1.0 Introduction
In their journal in the year 2003 ³The sources of East Asian Economic Growth Revisited´ lau and park mentioned that East Asia has been the fastest growing region in the world for the past several decades, the East Asian currency crisis of 1997-1998 notwithstanding. On average, the East Asian developing economies as a group, including China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, has grown at almost eight percent per annum since the 1960s. The notable exception is Philippines, which has only been able to grow at less than half the average rate. According to Rothenberg (2003) Globalization is the acceleration and intensification of interaction and integration among the people, companies and governments of different nations. Now a day¶s going global has become a must for every organization due to the intensified competition going on in the world, globalization philosophy has been adopted by many firms and they have successfully implemented it. For example ³Toy ³R´ Us opening store in Shanghai China (Alan Rose 2006) also Wal-Mart has targeted China, which has long been a major supplier of its products, as a key region for its international store growth. It now has 56 stores in China with about 30,000 employees and plans to open 20 more stores this year (chinadaily, 2006) According to Griswold (2003) Free trade agreement by definition lower barriers to trade between participants, and lowering or eliminating barriers altogether. For example ³ASEAN´ the association of Southeast Asian Nations was created with the purpose of to accelerate the economic growth, social progress and cultural development in the region (Asean 2011) The relationship between the Globalization and Free Trade Area is directly proportional to each other, due to globalization where by businesses going from one country to another to carry out their operations profitably which has been assist by the Free Trade Agreements between the countries, for example Asean members like Malaysia and Singapore, Malaysia exporting water to Singapore (Segal 2004), globalization and free trade agreement occurring at the same time in this case.

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Asian Success and Global Economy

Individual Assignment

TP018321

2.0 Implications of Globalization and Free trade on the East Asian economy
Managers should have the knowledge regarding what is Globalization and Free trade agreement, if a firm wishes to expand and compete on a global level it must do in depth analysis of political, economical, social and technological factors before competing on a global level along with having the right knowledge about if the country they want to expand into has any free trade agreement with their respective country, for example ³a firm from Malaysia wants do to business in Singapore will be benefit from the ASEAN agreement as both the countries are part of it. Having the perfect yet effective insights on Globalization and Free trade agreement would enable the managers to come up with strategies that best would serve the organization in achieving their Vision, and successfully operate outside their country and even within their country. More over in East Asia according to Jung sik kim and Yonghyup (2007) the rise of regional economic trade blocs has reduced trade barriers which has lead to attraction of Foreign investment in recent years to East Asia, China going in agreement with the World Trade Organization and from close economy going for Open Economy which has brought many American companies investing in China and entering the huge target market. Yamin, Mo ad Pervez N.Ghauri (2004) in their articles on ³Rethinking MNE-Emerging Market Relationships: Some Insights from East Asia´ said that Malaysia, Singapore, Indonesia, Korea and other East Asian countries all having favourable foreign direct investment policies which has led to fast economic growth of these countries in recent years. As the government policies encourage the foreign direct investment.

2.1 Positive Impact of Globalization and Free trade on East Asian Economy
Globalization and Free trade has contributed much to the development of East Asian economy (Mo and Ghauri, 2004) as it has promote economic integration like reduction in transport and communication costs, the lowering of trade barriers, and an increasing mobility of capital and labour, along with the free trade agreements of East Asian countries with world trade organizations ³WTO´ or forming the association of Southeast Asian Nations ³ASEAN´ , due to this progress of economic integration an increasing number of consumer goods are being imported and exported from all over the world especially East Asia (Fujita et al, 2008), moreover it has led to the investment from huge Multinational Companies to come to East Asia and operate University College of technology and Innovation Page 4

Asian Success and Global Economy

Individual Assignment

TP018321

their business, companies like Intel, Shell, Google, DuPont and many more have been able to create more job opportunities within the countries, pay taxes to the government, variety of goods and services being experienced by the public in East Asian countries which has led them to high standard of living and also have contributed an increase in Gross domestic Product of these countries relatively, also Anisha Sabhlok (2001) in her pilot micro study on some companies based in Singapore, noted that MNCs in Singapore contributed to the society by adopting the best practices, driving innovation, developing green products and attaining eco-efficiency targets, enlightens MNCs contribute to the country¶s economic and social development. According to the researcher Thomas Sowell (2005) all the people of the world can contribute and those who keep themselves isolated from others will be left behind. This is due to the problem of not being in any kind of trade agreements with other countries or not having to be involved in globalization. Globalization has also made the domestic producers produce more efficiently due to their international specialization and the pressure that comes from foreign competition, which benefits both the economy of the country and the customers as they are able to consume a wide variety of domestic and imported goods at lower prices, taking an example of Malaysia ³fast food industry´ where by people can enjoy KFC or McDonalds and at the same time enjoy their local fast foods as well. More over globalization Increases in environmental protection for example ³ in China MNCs have pledged to Government to bring about more environmental friendly policies´ in response shown by Xinhua, (2011) in an news report on chinadaily the Chinese President Hu Jintao said that China hopes to balance economic and social development with population, resources and the environment, and embark on a path of sustainable development also China will play a constructive role in resolving regional hotspot issues and take an active part in various forms of regional security dialogue and cooperation in order to preserve a regional environment conducive to peace and development in Asia. Abhay Burande in his articles on ³Advantages of globalization´ said it is claimed that globalization increases the economic prosperity and opportunity in the developing world. The civil liberties are enhanced and there is a more efficient use of resources. All the countries involved in the free trade are at a profit. Resulting in lower prices, more employment and a better standard of life in East Asian region, it is feared that some developing regions progress at the expense of other developed regions. However, such doubts are futile as globalization is a University College of technology and Innovation Page 5

Asian Success and Global Economy

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positive-sum chance in which the skills and technologies enable to increase the living standards throughout the world. Liberals look at globalization as an efficient tool to eliminate penury and allow the poor people a firm foothold in the global economy. In two decades from 1981 to 2001, the number of people surviving on $1 or less per day decreased from 1.5 billion to 1.1 billion. Simultaneously, the world population also increased. Thus, the percentage of such people decreased from 40% to 20% in such developing countries like East Asia. Most of the East Asian economies have also benefited from outsourcing done by mostly American companies hence more job opportunity is created. For example ³Malaysia is one of the hosts of Call centres for American and other European companies, leading to a development of Malaysian service sector, as they learn how to communicate, tackle situation, and handle customers also their skill level is developed and polished by foreign companies´ Globalization advocates such as Jeffrey Sachs point to the above average drop in poverty rates in countries, such as China, where globalization has taken a strong foothold, compared to areas less affected by globalization, such as Sub-Saharan Africa, where poverty rates have remained stagnant. Supporters of free trade claims it increases economic prosperity as well as opportunity, especially among developing nations of East Asia, enhances civil liberties and leads to a more efficient allocation of resources. Economic theories of comparative advantage suggest that free trade leads to a more efficient allocation of resources, with all countries involved in the trade benefiting. In general, this leads to lower prices, more employment, higher output and a higher standard of living for those in developing countries.

2.2 Drawbacks of Globalisation and Free trade on East Asian Economy
The critique against globalization such as Marxist analysis, Sheikh Baten, lim and paul in comman argued that: With globalization poorer countries are mostly at disadvantage, countries like Vietnam in East Asia try to save their national markets. The main export of poorer countries is usually agricultural this creates difficulty for them to compete with stronger countries. As the balance of trade is unfavourable due to import is mostly greater than export even the value of goods University College of technology and Innovation Page 6

Asian Success and Global Economy

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TP018321

imported is much higher than that of exported, thus they are not really in a win-win situation. More over exploitation of resources is another issue, where by the stronger industrialized powers has resulted in the exploitation of the people in those nations to become cheap labour, for example ³ Foreign businesses going to China or Vietnam, they benefit from Cheap labour, but the host countries labour suffer as they are paid lower and work overtime. Globalization has also led to spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity in the East Asian countries. Asia has not been able to decouple from developed economies. According to the Andy yee (2010), during 2000-2007, exports as a proportion of Asia¶s GDP increased from 35 per cent to 47 per cent, with three-fifths going to Europe and the US. With most intraregional trade in intermediate goods used to manufacture export products. As Stephen Roach (2010), economist and Chairman of Morgan Stanley Asia, pointed out in his latest book, Asia¶s explosive growth has been based on a µbet¶ upon deep integration with the global economy, which proved unsustainable in face of the global recession. Asia needs to focus on promoting more intraregional trade in final goods by encouraging local demand, East Asia¶s stellar growth performance has led to the decline of absolute poverty since the 1990s. However, inequality of income and consumption has increased significantly since then. About three-quarters of inequality in the region are attributed to inequality within countries. The export-led growth has integrated littoral regions, special economic zones and cities with the global supply chains. In the process, many fault lines, such as the urban-rural divide, regional-ethnic divide and skilledunskilled labor wage gaps developed which may threaten social stability. The phenomenon of migrant workers in China, and the associated debate of hukou reform, is an example. The Bangkok-rural divide in Thailand, which has paralyzed Thailand¶s political system, is another. Globalization has widen the gap of inequality in recent years as unrestricted free trade benefits those with more financial leverage, and has also promote depending on other country to supply for necessary needs for example ³Singapore depends on Malaysia to supply Water´ if in future the two countries go on war Singapore will be heavily affected with no water supply even though Malaysia has signed up contract of providing Singapore water for 100 years, but war is indeed a war´

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Asian Success and Global Economy

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TP018321

According to Poushali Ganguly, there is immense pressure on the employed workers in the MNCs who are uncertain as to business might close and go back to parent country or a third country due to uncertainty in the environment of most of the East Asian countries, for example ³ Indonesia and Thailand unstable political system, high corruption rate in Malaysia. Alassane Ouattara (1998) says that globalization and free trade along with inconsistent macroeconomic policies were the reason for Asian financial crisis in 1997-1998 as in Thailand, where the East Asian crisis was ignited was due to the international investors losing confidence when domestic financial management failed to address the increasingly obvious problems of an overheated economy and a consequently weakening external current account. Had the economy not depended too much on foreign direct investment due to globalization and free trade such crisis would not have triggered.

3.0 Conclusion
The world has seen the polarization of developing countries in the last half-century: one group which succeeded in poverty reduction through sustained growth, and another group which did not. The majority of East Asian countries belong to the first group. Viewed from a long perspective and as a regional phenomenon, there is no denying that East Asia has made impressive strides in income levels, economic equity and social indicators despite frequent wars, crises and stagnation. On the balance, for nearly all the countries of East Asia, globalization has meant faster growth and more prosperity for a larger share of its population than at any other time in their histories. The gross national product (GNP) of APEC economies over the past decade has increased by a third, the number of people living in poverty has fallen by a third, and literacy rates are among the highest in the world, thanks to education expenditures that have risen faster than GNP. The citizens of the emerging economies of the Asia-Pacific region are among the most literate, healthy and prosperous in the developing world. Also Radelet et al. (1997) mentioned that Asia¶s episode of rapid economic growth since the 1960s, as remarkable as it was by historical standards, can be explained in an international comparative context. Special

theories of Asian growth are not necessary. East Asian countries grew faster than the rest of the world for four key reasons: they had substantial potential for catching up (since the entered the 1960s with relatively low incomes), their geography and structural characteristics were by-andUniversity College of technology and Innovation Page 8

Asian Success and Global Economy

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large favourable, demographic changes following World War II worked in favour of more rapid growth, and their economic policies and strategy were conducive to sustained growth. Most importantly, the high performing East Asian countries recognized the imperative of joining the world economy through the promotion of labor-intensive manufactured exports. These

economies promoted exports through a combination of policies, relatively free trade, convertible currencies, and macroeconomic stability and through a set of innovative institutions -- such as export processing zones, duty exemption schemes, and incentive packages for foreign direct investment. Credit has to be given to the effective policies of East Asian policy makers to have such a substantial growth in recent years, and the globalization has done much more good to economic growth of East Asian countries than hurt it, so it can be said that Globalization and Free trade has contributed much to the development of East Asian countries survival before and after financial crisis in 1997 and 1998 and thus should be looked as blessing.

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Asian Success and Global Economy

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4.0 References Electronic sources
Abhay Burande., N.D, Advantages of Globalization [online], Available from http://www.buzzle.com/articles/advantages-of-globalization.html [Accessed on 8th April 2011]

Alan Rose., 2006, Toys "R" Us to open store in China [online], Available from http://www.joystiq.com/2006/09/21/toys-r-us-to-open-store-in-china/ [Accessed on 6th April 2011] Alassane Ouattara., 1998, Globalization, Lessons from the Asian Crisis and Central Bank Policies [online], Available From http://www.imf.org/external/np/speeches/1998/062398a.htm [Accessed on 17th April 2011] Andy Yee., 2010, Asian economic integration? Address domestic inequalities [online], London, University of London, Available from http://www.eastasiaforum.org/2010/08/13/asianeconomic-integration-address-domestic-inequalities/ [Accessed on 4th April 2011] Asean., 2011, Overview [online], Available from http://www.aseansec.org/64.htm [Accessed on 1st April 2011] China Daily., 2006, Wal-Mart plans 20 stores in China [online], Available from http://www.chinadaily.com.cn/bizchina/2006-03/21/content_548509.htm [Accessed on 12th April 2011] Daniel T. Griswold., 2003, Free-Trade Agreements Steppingstones to a More Open World [online], Washington D.C, Cato Institute, Available from http://www.cato.org/pubs/tbp/tbp018.pdf [Accessed on 15th April 2011] Diane Segal., 2004, Singapore¶s Water Trade with Malaysia and Alternatives [online], England, Harvard University, Available from http://www.transboundarywaters.orst.edu/publications/abst_docs/related_research/SegalSingapore-Malaysia%2004.pdf [Accessed on 2nd April 2011] Jeffery Sachs., N.D, The Huffing Ton Post [online], Available from http://www.huffingtonpost.com/jeffrey-sachs [Accessed on 16th April 2011]

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Laurence E. Rotenberg., 2003, Globalization 101 the Three Tensions of Globalization [online], America, The America Forum for Global Education, Available from http://www.globaled.org/issues/176.pdf [Accessed on 1st April 2011] Lawrence J. Lau and Jungsoo Park., 2003, The Sources of East Asian Economic Growth Revisited [online], America, Stanford University, Available from http://www.stanford.edu/~ljlau/RecentWork/RecentWork/030921.pdf [Accessed on 2nd April 2011] Poushali Ganguly., N.D, Pros and Cons of Globalization [online], Available from http://www.buzzle.com/articles/pros-and-cons-of-globalization.html [Accessed on 17th April 2011] Shiekh Baten., N.D, Globalization and the Resistance against It [online], Available from http://www.mukto-mona.com/new_site/mukto-mona/current_affiars/globalization_impact.htm [Accessed on 14th April 2011] Stepehn Roach., 2010, Asian economic integration? Address domestic inequalities [online], London, University of London, Available from http://www.eastasiaforum.org/2010/08/13/asianeconomic-integration-address-domestic-inequalities/ [Accessed on 4th April 2011] Steven Radelet, Jeffrey Sachs and Jong-Wha Lee., 1997, Economic Growth in Asia [online] Available from http://www.cid.harvard.edu/archive/hiid/papers/ecgasia.pdf [Accessed on17th April 2011] Thomas Sowell., 2005, in defense of globalization, free-trade and free-market [online], Available from http://www.globalenvision.org/library/15/723 [Accessed on 3rd April 2011] Xinhua., 2011, Full text of Chinese President Hu Jintao's speech at opening ceremony of Boao Forum (Part 2) [online], Available from http://www.chinadaily.com.cn/xinhua/2011-0415/content_2323056.html [Accessed on 6th April 2011]

Journals
A Dictionary of Marxist Thought., Oxford: Oxford University Press. Lim, Paul J 2001. "Stay Home, Investor, If You Want to Keep Your Money" , U.S. News & World Report, 130:20 Jung Sik Kim and Yonghyup Oh., 2007, Determinants of Intra-FDI Inflows in East Asia: Does Regional Economic Integration Affect Intra-FDI?, 1 (02) pp 25-35 University College of technology and Innovation Page 11

Asian Success and Global Economy

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Sabhlok, Anisha., (2001), The Evolution of Singapore Business: A Case Study Approach. IPS Working Paper No. 10 (Volume 1 and 2). Yamin, Mo and Pervez N. Ghauri (2004), ³Rethinking MNE-Emerging Market Relationships: Some Insights from East Asia,´ in Global Firms and Emerging Markets in the Age of Anxiety. Westport, CT. Praegar Publishers, 251-266

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