Globalization is the integration of people, companies and governments of different nations through the growth of international trade and the flow of money, culture and ideas. Globalization allows lower cost of goods, giving countries opportunity for productive investment in high growth industries in developing countries (Boundless Management). National economies around the world are being integrated, resulting in economic growth and the reduction of poverty in developed and developing economies. There have been three waves of globalization in history. The first wave was the Industrial Revolution, which began in Great Britain around 1760; then moved to Europe, North America and Japan, and ended with WWI. The second wave was Post WWII, in which the economic recovery focused on integration among industrial countries by restoring trade relations, economic growth and stability. The third and current wave of globalization began in the early 1980s and gained momentum throughout the 1990s and into the 21st century.
Technological Innovation
All waves of globalization have been driven by technological innovation. Steam power in the 19th century created railways and steamships. It lowered the cost of moving goods and people and shortened time to travel long distances. Mass production in the 20th century dramatically reduced costs and allowed lowered prices, fueling a consumer boom in consumption. Digital technology in the 21st century allowed people to send information nearly immediately and goods within a few hours or days. This new speed of capital allows time and space to appear to be transcended or collapsed completely (Schirato and Webb). Not only does globalization provide companies with market opportunities, but leads to increased competition. Modern consumers can easily become aware of alternative products (Thourmrungroje). These consumer expectations are directing markets.Adam Smith saw trade as a tool for efficiency because it created competition and led to specialization and the division of labor. The result is economies of scale and lower unit costs of production. Smith laid the groundwork for classical free market economic theory. He developed the concept of division of labor and detailed how self-interest and competition can lead to economic wealth. As competition intensified in the global market, firms began to focus on customers and become market oriented; shifting the balance of power to marketing.
Economist David Ricardo’s theory explains comparative advantage in markets; that it is still profitable to produce what one is best at producing even if someone else is better at it. Comparative advantage measures a product’s cost of production in terms of opportunity cost and can provide an indication of where a country performs relatively in international markets. Comparative advantage has led to the migration of industries especially those which are labor-intensive and where wage rates are high, such as the technology and clothing industry. Governments in developed economies may seek to develop a comparative advantage through education and skills training, especially involving technology which is considered ‘strategic’ in the long-term. Organizations that focus on global, not just national markets, have prospered. Economic integration has greatly increased since the 20th century. Economic integration is trade unification between different states by the partial or full abolishing of customs tariffs on trade (in order to benefit from comparative advantage) taking place within the borders of each state. The European Union and North American Free Trade Area are very integrated. Global competitors have displaced or absorbed local ones. The USA turned its back on free trade in 1929 after the stock market crash, fearing the loss of national jobs, however, the results were devastating. Fortunately, world trade has grown since 1950, fueled by the continued opening of markets around the world. Growth, especially in developed economies, has become erratic since the 2008 recession which caused stagnation in economies of all regions. The principle of free trade has led to the building of market interdependencies. Manufacturing has moved from developed economies to developing nations. Another signifier of global integration; foreign direct investment, has increased greatly. ‘Invisible’ exports; services such as higher education transfers from workers abroad and income earned on overseas investments, have become an important part as well. The principle of global economic development has been the speed of communications and the reduction in the cost of technology.
The relationship between trade, economic efficiency and economic growth and per capita incomes is explained by Adam Smith’s theory of absolute economic advantage. Because jobs and standard of living seem to be closely associated to trade inflows and outflows, there is much debate about why a particular country finds its economic advantages in certain goods and not others. The World Bank presents per capita income data at two levels: nominal and purchasing power parity (PPP). The nominal level is total gross national income divided by mid-year population converted to U.S. dollars at the current exchange rate. PPP is often used as well since some currencies are undervalued against US dollars in order to make their exports more competitive in world markets. Marketers prefer to adopt their concept of PPP when assessing relative wealth.
...(download the rest of the essay above)