Abbottabad University of Science& Technology

Captain Akaash Rabbani Shaheed Road, Tehsil Havelian, District Abbottabad, Khyber Pakhtunkhwa, Pakistan.
Ph: +92 (992) 402 117, Web: www.aust.edu.pk

HANDOUT - 01
Subject International Business (BBA-483)
Class BBA-VIII (3 Cr. Hrs)
Course Instructor Muhammad Zulqarnain Safdar

Globalization
(Meaning and its Importance, Advantages & Disadvantages, and Its Impact on
Pakistan Economy)

What is Globalization? - Meaning and its Importance

We often hear the word globalization in many contexts and repeated frequently as a concept to
denote more trade, foreign companies and even the ongoing economic crisis. Before we launch
into a full-fledged review of the term and its various manifestations, it is important to consider
what exactly we mean when we say globalization.

Globalization is the free movement of goods, services and people across the world in a
seamless and integrated manner. Globalization can be thought of to be the result of the
opening up of the global economy and the concomitant increase in trade between nations. In
other words, when countries that were hitherto closed to trade and foreign investment open
up their economies and go global, the result is an increasing interconnectedness and
integration of the economies of the world. This is a brief introduction to globalization.
Further, globalization can also mean that countries liberalize their import protocols and
welcome foreign investment into sectors that are the mainstays of its economy. What this
means is that countries become magnets for attracting global capital by opening up their
economies to multinational corporations.

Further, globalization also means that countries liberalize their visa rules and procedures so as
to permit the free flow of people from country to country. Moreover, globalization results in
freeing up the unproductive sectors to investment and the productive sectors to export related
activities resulting in a win-win situation for the economies of the world.

Globalization is grounded in the theory of comparative advantage which states that countries
that are good at producing a particular good are better off exporting it to countries that are less
efficient at producing that good. Conversely, the latter country can then export the goods that
it produces in an efficient manner to the former country which might be deficient in the same.
The underlying assumption here is that not all countries are good at producing all sorts of goods
and hence they benefit by trading with each other. Further, because of the wage differential

Department of Management Sciences, Abbottabad University of Science & Technology AUST

 Abbottabad University of Science& Technology
Captain Akaash Rabbani Shaheed Road, Tehsil Havelian, District Abbottabad, Khyber Pakhtunkhwa, Pakistan.
Ph: +92 (992) 402 117, Web: www.aust.edu.pk

and the way in which different countries are endowed with different resources, countries stand
to gain by trading with each other.

Globalization also means that countries of the world subscribe to the rules and procedures of
the WTO or the World Trade Organization that oversees the terms and conditions of trade
between countries. There are other world bodies like the UN and several arbitration bodies
where countries agree in principle to observe the policies of free trade and non-discriminatory
trade policies when they open up their economies.

Advantages of Globalisation:

The following are some of the important advantages of globalisation for a developing country
like India:
(i) Globalisation helps to boost the long run average growth rate of the economy of the country
through:
(a) Improvement in the allocative efficiency of resources.
(b) Increase in labour productivity; and
(c) Reduction in capital-output ratio.
(ii) Globalisation paves the way for removing inefficiency in production system. Prolonged
protective scenario in the absence of globalisation makes the production system careless about
cost effectiveness which can be attained by following the policy of globalisation.
(iii) Globalisation attracts entry of foreign capital along with foreign updated technology which
improves the quality of production.
(iv) Globalisation usually restructure production and trade pattern favouring labour-intensive
goods and labour-intensive techniques as well as expansion of trade in services.
(v) In a globalized scenario, domestic industries of developing country become conscious about
price reduction and quality improvement to their products so as to face foreign competition.
(vi) Globalisation discourages uneconomic import substitution and favour cheaper imports of
capital goods which reduces capital-output ratio in manufacturing industries. Cost effectiveness
and price reduction of manufactured commodities will improve the terms of trade in favour of
agriculture.
(vii) Globalisation facilitates consumer goods industries to expand faster to meet growing
demand for these consumer goods which would result faster expansion of employment
opportunities over a period of time. This would result trickledown effect to reduce the
proportion of population living below the poverty line
(viii) Globalisation enhances the efficiency of the banking insurance and financial sectors with
the opening up to those areas to foreign capital, foreign banks and insurance companies.

Disadvantages of Globalisation:

Globalisation has its disadvantages also.

Department of Management Sciences, Abbottabad University of Science & Technology AUST
 Abbottabad University of Science& Technology
Captain Akaash Rabbani Shaheed Road, Tehsil Havelian, District Abbottabad, Khyber Pakhtunkhwa, Pakistan.
Ph: +92 (992) 402 117, Web: www.aust.edu.pk

The following are some of these disadvantages:

(i) Globalisation paves the way for redistribution of economic power at the world level leading
to domination by economically powerful nations over the poor nations.
(ii) Globalisation usually results greater increase in imports than increase in exports leading to
growing trade deficit and balance of payments problem.
(iii) Although globalisation promote the idea that technological change and increase in
productivity would lead to more jobs and higher wages but during the last few years, such
technological changes occurring in some developing countries have resulted more loss of jobs
than they have created leading to fall in employment growth rates.
(iv) Globalisation has alerted the village and small-scale industries and sounded death-knell to it
as they cannot withstand the competition arising from well-organized MNCs.
(v) Globalisation has been showing down the process to poverty reduction in some developing
and underdeveloped countries of the world and thereby enhances the problem of inequality.
(vi) Globalisation is also posing as a threat to agriculture in developing and underdeveloped
countries of the world. As with the WTO trading provisions, agricultural commodities market of
poor and developing countries will be flooded farm goods from countries at a rate much lower
than that indigenous farm products leading to a death-blow to many farmers.
(vii) Implementation of globalisation principle becoming harder in many industrially developed
democratic countries to ask its people to bear the pains and uncertainties of structural
adjustment with the hope of getting benefits in future.

Globalisation And Its Impact on Pakistan

Globalization has had serious impact on Pakistan’s economy, politics, society, law and religion.
Like many other developing countries, Pakistan is experiencing both positive and negative
effects of the globalization.

Every Society has its own culture and way of life. It is established by the group of people who
live together and adhere to some principles in their society. Pakistan has a rich and unique
culture that has preserved established traditions throughout history. Many cultural practices,
food, monuments and shrines were inherited from the rule of Muslim Mughal and Afghan
Emperors.

The national dress of Pakistan is Shalwar Qameez, but cultural globalisation is having impact on
the dressing of Men and Women. Wearing T-shirts, sunglasses, long shoes and jackets is not a
part of Pakistan’s culture. People are becoming more conscious about their dressing styles and
Fashion.

Now, they see if a fashion is suitable for them or not. Women have become more brand
conscious. The trend of wearing western clothes like jeans and shirts is increasing in women.

Department of Management Sciences, Abbottabad University of Science & Technology AUST

 Abbottabad University of Science& Technology
Captain Akaash Rabbani Shaheed Road, Tehsil Havelian, District Abbottabad, Khyber Pakhtunkhwa, Pakistan.
Ph: +92 (992) 402 117, Web: www.aust.edu.pk

Pakistan has its own deep rooted desi cuisine but as a result of globalization, fast food culture is
widespread in Pakistan. International Food Chains such as KFC, Mc Donald’s, Pizza Hut,
Hardeesetc. can be easily located on the corners of streets, Airports, Malls, Shopping Centers,
schools and Gas stations. In Pakistan, first fast-food chain was opened in 1997, that was KFC
and just after a year, Mc Donald’s opened in 1998. There is no looking back since then.
Pakistani people love to eat inter-continental and Chinese cuisines. Pakistani cuisine is also
being recognized due to globalized world.

The variety of Pakistani Music ranges from diverse provincial folk music and traditional styles
such as Qawwali and Ghazal Gayaki to modern forms fusing traditional and western music, such
as synchronization of Qawwali and western music by the world renowned Nusrat Fateh Ali
Khan. Various American, European, and Asian Television channels and films are available
alongside state owned PTV and other privately owned channels. People have wide variety to
choose, what they like to listen and watch. They have access to latest movie and music releases,
making it more competitive for the Pakistan’s Movie and Music industry.

Economic globalization has provided opportunities for developing countries, that it expands the
size of their markets for export and attract foreign capital, which aids development. Foreign
investment is a conducive to a transfer of technologies and knowhow, which increases
productivity.

Another positive effect of globalization is greater competition among firms, which benefits
consumers who have access to products at increasingly lower prices. Those who gain most from
free trade in both developed and developing countries are very often poorest since they can
buy good at more affordable prices, and therefore have a higher standard of living.

In this way, free trade can be seen as an indirect way to reduce poverty. Pakistan liberalised its
economy as a part of adjustment, but Pakistan’s trade expansion has not been as spectacular as
some of the fast globalizers. Pakistan’s exports, merchandize exports, have not kept pace with
that of the rest of the world.

Pakistan is facing challenges due to rise in competitive conditions, so the industry has to be
improved to compete with foreign competitors.

Trade sector is lead to growth because trade barriers are reduced by globalization.
Manufacturing industry is growing now exports are more in manufacturing industry. The
communication technology revolution also brought life to the economy of Pakistan. Now this
sector is growing fast and taking part in economic development.

For winner of the process, Globalization becomes an integrating phenomenon, one that brings
together markets, ideas, individuals, goods and services and communication. For the losers, it
Department of Management Sciences, Abbottabad University of Science & Technology AUST
 Abbottabad University of Science& Technology
Captain Akaash Rabbani Shaheed Road, Tehsil Havelian, District Abbottabad, Khyber Pakhtunkhwa, Pakistan.
Ph: +92 (992) 402 117, Web: www.aust.edu.pk

can be a marginalizing phenomenon. Just as the winners come closer to each other they
become more distant from losers.
Pakistan is right now an example of hybrid society as a result of globalization, trying to find its
balance between Islamisation and modernism. Globalisation has tremendously changed the
dressing, cuisine, cultural values, purchasing power and socio-economic system of Pakistan.

Department of Management Sciences, Abbottabad University of Science & Technology AUST