QUESTION: Has globalization had a positive or negative impact on businesses in M

Question

QUESTION:     Has globalization had a positive or negative impact on businesses in Minnesota? Identify at least 3 reasons to support your position.

The impact of globalization on Minnesota's businesses

COLLAPSE

Globalization refers to the process or state of integration in which different countries and people of the world come together using modern technologies. Globalization made it possible to share knowledge, work, technology, idea across the globe.

Globalization positive and negative impact of businesses in Minnesota

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The Minnesota department of employment and economic development of Minnesota Technology Inc. increased sales demands of foreign market and productivity of exports for Minnesota manufacturers and the annual export around $18 billion. In 2003, that was around $10.5 billion. The foreign owned companies invested $13.2 billion in 2001 in gross plant, equipment, and property in Minnesota. Globalization is a concern today as it is attributed to massive social problems in developing nations. The destruction of rain forests, rivers, oceans, and lakes is directly related to the local environmental laws by corporations in developing countries.

The concept of globalization due to the following reasons:

Undermines wages in rich countries: Globalization encourages organizations to transfer jobs to the countries having low labor cost, such as India and China. This creates lack of jobs in the countries having high labor costs, such as the United States and the United Kingdom. This condition undermines the wage in the rich countries, as organizations are able to get jobs done at a lower cost.

Exploits worker in poor countries: Organizations, who choose to outsource jobs, often outsource jobs at a much lower cost to the other countries them the price they have to pay. That is, they do not pay well. For example, the minimum wage in the United States is about $10 per hour. While transferring the same job to India, the organization will not pay even $5 per hour. In this way, it exploits workers in poor countries by paying a price less than they have to pay here in the United States.

Causes economic recession: Economic recession occurs due to Pseudo money. Pseudo money refers to the money that a company or organization shows in balance sheets but does not actually exit in the system. For example, consider a situation in which a United States based company produces products in China and sells them in the United States. What will happen? Initially the company will accumulate wealth as well the Chinese counterpart, but over long term, it will lower the purchasing power of the customers in the United States. This will reduce sales and will further reduce the purchasing power. This cycle continues and ultimately leads to economic recession.

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Explanation / Answer

Globalization is the growing interdependence of the world's people that involves the integration of economies, technologies, and cultures. It is described as the increased movement of people, knowledge and ideas, and goods and money across national borders that have led to the increased interconnectedness among the world. Globalization is often thought of in economic terms, but as we know there are other major components implicated with this idea including economics, politics, and cultures. Some associate globalization with modernization, whereas by others it is perceived that there is an alteration of traditional societies into Western industrial ones. This challenges us into a debate of whether or not globalization is positive or negative.

In the world's perspective some view globalization as being beneficial perceiving it as the key to our future and that our world's economic development is inevitable. It has the potential of making societies richer through trade, and conveys knowledge and understanding to people around the world. Although this is true, others view it with apprehension because they believe that globalization increases inequality within and between nations and jeopardizes living standards to prevent social progress. It is with this argument that there is no simplicity to the idea of globalization. Does globalization exploit poor countries to benefit the rich? I believe that the conditions of globalization will only progress our world and continue to integrate the different systems that will be an advantage to international modernization

globalization impacts our economy in a variety of ways. While there are many positive aspects – such as sales growth arising from larger demand in a global marketplace and lower prices for buyers due to increased competition – there are also potential negative domestic results – such as job losses and decreased wages, production and profits – as we face increasing competition from cheaper labor and production abroad.

Exporting and foreign direct investment contribute significantly to Minnesota’s economy.The state’s exports of agricultural commodities and related food products were valued at $2.2 billion in 20021 and annual state exports of services are estimated at about $6 billion.2 In 2001, foreign-owned companies invested $13.2 billion in gross plant, property and equipment in Minnesota across 796 affiliates employing 108,400 Minnesotans.This issue brief provides background on a few key economic globalization trends and is part of a more extensive study by the Minnesota Department of Employment and Economic Development (DEED) and Minnesota Technology, Inc. (MTI) to examine the impacts (both opportunities and adverse consequences) of these trends on Minnesota businesses. The collaborative study will include background research; roundtable discussions with Minnesota businesses, policymakers and other interested parties; and a survey of Minnesota businesses likely to be affected by key globalization trends.

Controversy and concern over related issues such as environmental, cultural and legal impacts, and international implications of free trade agreements have fueled many public and policy debates. While these discussions are important, they are beyond the scope of this initial study. We will focus on the economic impacts of a few key globalization trends on businesses across major manufacturing and services industries in Minnesota.

Exporting, Import Competition and Outsourcing in Manufacturing :

The opening of international markets through globalization has created many benefits for manufacturers and the domestic economy. Manufacturing exporters have been shown to experience greater sales growth and greater productivity gains; be more capital-intensive; and pay higher wages and salaries than their nonexporting counterparts. A study by the International Trade Administration of the U.S. Department of Commerce showed that 7.0 percent of private sector jobs were directly or indirectly supported by manufactured exports in Minnesota in 1997. Industries that indirectly support manufacturing include insurance, transportation and business services.However, businesses in manufacturing industries facing intense import competition have a different perspective. While increased import competition provides buyers with access to a broader variety of components, final goods and services, sometimes at significantly lower cost, domestic producers of competing products bear the burden of adjustment.

A survey of manufacturers in Greater Minnesota conducted by MTI in January 2003 supports the difficult position of these firms. The survey revealed that many manufacturers in Greater Minnesota were facing increased competition from manufacturing facilities, particularly in China, where labor is cheap and plentiful, and other benefits-related costs, such as health insurance, are lower or not required. The businesses indicated that their sales were being adversely affected and as a result, their employment levels were declining.

According to the Minnesota TAA administrator, the number of workers listed in certified petitions may include both jobs lost due to trade-related reasons (such as increased import competition or shifts in production to another country) and jobs lost due to reasons unrelated to trade. The trend in certified petitions may still provide some guideline as to the industries and geographic areas adversely impacted of globalization on workers

Offshore Outsourcing in Services Occupations

Outsourcing to non-U.S. locations is increasingly being extended to services industries and occupations. Initially, lower-skill jobs (in areas such as call centers and billing and credit card processing) were outsourced to companies in foreign countries. In contrast to the perception by many college-educated U.S. workers that these types of jobs are less desirable, college-educated workers in countries such as India and the Philippines apply for these job opportunities in plentiful numbers. Improvements and the declining costs of telecommunications technology have enabled increasingly seamless and smooth networking between an international contractor of services and a U.S.-based employer. As a result, offshore outsourcing has increasingly affected jobs involving more skill and knowledge that U.S. workers had long considered protected from this globalization trend. Services provided by white-collar professional workers in areas such as IT support, architectural services and engineering are increasingly being hired abroad to take advantage of cost advantages and abundant well-trained labor. The annual supply of new well-educated and English-speaking college graduates, particularly in science-related fields, is significantly higher in countries like India and China than in the United States. The negative impact of this globalization trend on U.S. workers is causing much anxiety in the labor force, labor groups, businesses, and public policymakers. Representatives from businesses of various sizes, industries, and locations throughout the state covered a variety of viewpoints during these roundtable discussions. In total, 13 individuals, including people from Greater Minnesota and a variety of manufacturing and services, attended two roundtable meetings, either in person or via teleconferencing. Roundtable guests highlighted several themes. Original equipment manufacturers (OEMs) – those who produce proprietary products – and contract manufacturers supporting OEMs experience globalization pressures differently. Contract manufacturers – those who supply customized and non-customized products to other businesses on a contractual basis – face stiff competition on cost from foreign competitors, primarily based on wage differences. Some participants suggested that manufacturers in Greater Minnesota face significantly more challenging business positions than their Twin Cities counterparts when examining globalization trends. Specifically, they said they were more affected by factors such as funding cuts to education and retraining programs, a less developed transportation infrastructure, the lower availability of training programs and of skilled labor as people move to the Twin Cities.

Further step:

Next Steps Although background research and the roundtable discussions identified some key issues, a comprehensive understanding of the impacts of key economic globalization trends requires a more thorough assessment of Minnesota businesses’ experiences. Many of these businesses will soon receive a survey asking about the impact of exporting, import competition and outsourcing to non-U.S. locations on their operations, wages and employment levels. The analysis should be completed in early spring.

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