A Globalized Economy

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Globalization is not only a concept of economic but also it is social, cultural and political developments that is a multidimensional way. In economic terms it is noteworthy that these three dimensions of globalization: trade globalization, financial globalization and the globalization of production. The globalization of production refers to the tendency among firms to source goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital). By doing so, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. For example the Boeing Company’s commercial ,the 777, airliners. It includes 132500 important component parts which are produced by 545 suppliers around the world. 8 Japanese suppliers make components for the fuselage, and wings; a supplier in Singapore makes the doors for the nose landing gear; 3 suppliers in Italy manufacture wing flaps; and it continues ‘’ Globalization of production has a lot of benefits. The first one is access lower-cost workers. Global production activities allow companies to reduce overall production costs through access to low-cost labor. For decades, companies located their factories in low-wage nations to churn out all kinds of goods, including toys, small appliances, inexpensive electronics, and textiles. Yet whereas moving production to low-cost locales traditionally meant production of goods almost exclusively, it increasingly applies to the production of services such as accounting and research. Although most services must be produced where they are consumed, some services can be performed at remote locations where labor costs are lower. And the second one is access technical expertise. Companies also produce goods and services abroad to benefit from technical know-how. And the last one is access production inputs. Globalization of production allows companies to access resources that are unavailable or more costly at home. The quest for natural resources draws many companies into international markets. Japan, for example, is a small, densely populated island nation with very few natural resources of its own—especially forests. ’’ (The Globalization of Production and the Changing Benefits of Conquest Journal of Conflict ResolutionOctober 199943:646-670) Management has a big importance in International Business. Nowadays, firms are looking for high skilled managers who have got skill to manage on the entire world. Because firms do not want to produce for just their people. Firms have started to mergent with each other to earn a lot of money, to reduce costs, to make more profit. So if the firms are managed well by high-skilled management then these collaborations will survive longer. Also a firm managed well, has a huge capital and reputation. For example Koç Company is managed by high-skill managers and as we know Koç Company is the biggest company in Turkey then others also in terms of globalization of production. ANSWER 2 Culture is the most important concept in International Business. Production is determined according to people’s needs. When we look at production in the countries have cultural differences, many countries demand different production from each other. Especially, differences between Western culture and Eastern Culture obviously indicate in terms of International Business. Basis issue in Turkey, pork does not eaten by Turkish people. That’s why Islam Culture banned it. So companies which produce pork and production of pork do not want to produce or run a factory etc. First, Geert Hofstede who is Dutch academist studied on cultural differences and organization cultural. He examined the countries on the axis of power distance, individualism/collectivism, masculinity/feminity, uncertainty avoidance, long term/ short term. Power distance emphasis on the relationship size of the weak in society, with a strong. He divided the power distance in high power distance and low power distance. High power distance is seen in Asian countries. They accept those poor and not question authority. Obey the hierarchy. Low power distance is seen in European countries. Where the countries exist low power distance, weak people expect more democratic and egalitarian relationships. And the second one is individualism/collectivism. Individualism, the size is how they define themselves members of the culture is interested. In collectivism, people in collectivist cultures tend to describe themselves as a part of their families or their communities feel important. Third one is masculinity/feminity. It distributions of roles between genders. In masculine culture individuals keep in the forefront power and success. But in feminine culture, individuals keep in the forefront happiness and peace rather than power and success. Fourth one is uncertainty avoidance. In high uncertainty avoidance society, individuals want more clear rules. Moreover in low uncertainty avoidance society, rules are flexible do not bother individuals. And the last one is long term/short term orientation. Long-term, values of thrift and perseverance. Short-term, values of respect for tradition, fulfilling social obligations saving ‘face’. Second, Kluckhohn and Strodtbeck developed a cultural orientations framework that identified six issues, with variations in each one: relation to nature, relationships among people, mode of human activity, belief about basic human nature, orientation to time, and use of space. Kluckhohn-Strodbeck and Hoftstede frameworks are very convenient to understand subcultural in terms of International Business perspective. If the frameworks use efficiently, international firms can provide to keep in touch with their employees more easily. Every person in the company can communicate with the other persons and this situation has a most important for business productivity. ANSWER 3 Political economy was the original term used for studying production and trade, and their relations with law,custom, and government, as well as with the distribution of national income and wealth. It has a big importance in economic developments. Because countries always connect with each other. Their laws, their governmental works determine the trade and trade determine the economic developments. For example, Turkey is not trading with Armenia right now. Political issues do not allow that. So their customs gates are closed and there is no trade or any relationship between Turkey and Armenia. There are four corporate social responsibilities; “ Human Rights
  • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
  • Principle 2:make sure that they are not complicit in human rights abuses. ”(https://www.unglobalcompact.org/aboutthegc/TheTenprinciples/index.html)
For example, 10 workers who lost their lives because of falling from scaffolding construction which is running from Torunlar GYO in Mecidiyeköy,Ä°stanbul as a result of violation of human rights. “ Labour
  • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
  • Principle 4: the elimination of all forms of forced and compulsory labour;
  • Principle 5: the effective abolition of child labour; and
  • Principle 6: the elimination of discrimination in respect of employment and occupation. “ (https://www.unglobalcompact.org/aboutthegc/TheTenprinciples/index.html)
For example, In Turkey, Soma Maden Ä°ÅŸletmeciliÄŸi did not improve labor conditons and it did not care human rights. Therefore 301 mine labors died. There was no life room and labors were not informed very well about their jobs. Soma Maden Ä°ÅŸletmeciliÄŸi’s managers arrested by the government and its reputation decreased in business area. “ Environment
  • Principle 7: Businesses should support a precautionary approach to environmental challenges;
  • Principle 8: undertake initiatives to promote greater environmental responsibility; and
  • Principle 9: encourage the development and diffusion of environmentally friendly technologies. ” (https://www.unglobalcompact.org/aboutthegc/TheTenprinciples/index.html)
For example, Before 3 months, more than 1 million people with public pressure created by the campaign supported by the LEGO decided not to renew the agreement with Shell at the end of this period. Greenpeace 3 months ago, Shell's Arctic as a call to global signature campaign to end its partnership with Lego because of the oil drilling. Greenpeace thought that they made the right decision in order to reach the LEGO and they need to find better partners to bring toys our children. “ Anti-Corruption
  • Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. ” (https://www.unglobalcompact.org/aboutthegc/TheTenprinciples/index.html)
For example, Halk Bank’s manager rank off by using his position then Halk Bank share’s values decreased in Business Area and its relationship with other international banks broke down. ANSWER 4 Economic transition is a technique given name to the economies in transition from economy is controlled by the government (planned economy) to free economy. In short, the theory of the transition from socialism to capitalism. This discipline largely focuses on the transformation of the former socialist countries packages implemented by the government, a practical way how the transition to a market mechanism that focuses on the issues should be followed. Countries with economies in transition make the transition to an environment where free markets determine the price rather than a central organization in the process of economic liberalization. This process removes trade barriers, privatization of public institutions and organizations and is also made in trade liberalization. Countries in transition can face several obstacles:
  • First, is a lack of managerial expertise. Central planners had little need for management skills in areas such as strategy, production, distribution, or advertising. But the gap between managers from the former communist nations and Western nations is narrowing.
  • Second, is a capital shortage. Transition is expensive and requires funding to develop a telecommunications and infrastructure system, to set up financial institutions, and to educate people in market economics.
  • Third, are cultural changes. Transition causes cultural change and replaces dependence on the government with greater emphasis on individuals. Cuts are often needed in welfare, unemployment benefits, and guaranteed government jobs.
  • Fourth, is environmental degradation. Economic and social policies of former communist governments were often disastrous for the natural environment.
Russia’s experience with communism began in 1917 and for 75 years the government controlled all aspects of the economy. Ordinary citizens have suffered during Russia’s transition, although some Russians retained their jobs in newly privatized businesses. Several challenges lie ahead for Russia: First, managers must improve their skills in every facet of management practice. Second, political instability and nationalism need to be better controlled and the nation’s nuclear weapons need to be secured. Third, the imprisonment of some well-known business leaders means that distrust characterizes relations between the government and business. Some state-owned enterprise in China and converted into collective government that privatization of some state enterprises in future has made an explanation. Some state enterprises to be sold to employees by partially privatized and foreign businesses over about 300 domestic and foreign capital markets has been listed for sale. Russia is experiencing the collapse of output compared with output growth in China, the authors " the difference in output performance due to the structural conditions that initial " they argued with (Griffin, 1999:40). ANSWER 5 “ Economist Michael Porter, a Harvard University professor and advisor for both the public and private sectors, first defined national competitive advantage (NCA) in his 1990 book ‘The Competitive Advantage of Nations.’ Also known as the Porter Competitive Advantage, NCA is basically an evaluation of how competitively a nation participates in international markets. Porter offers a diamond-shaped diagram to outline the framework of four key factors that can modify four ingredients to become more competitive. The four ingredients are the availability of resources, the information used in deciding which opportunities to pursue for the company, the goals of individuals in companies, and the innovation and investment pressure on companies. ” (http://internationalrelationsonline.com/national-competitive-advantage-theory/) In 1930s, Eli Heckerscher and Bertil Ohlin developed Factor Proportions Theory based on countries’ production’s factors to address comparative advantage theory’s deficiency. The Heckscher-Ohlin theory is called the theory because of the names of these economists. Factor Proportions Theory based on a simple and rational thought. Supported idea can be summarize in this theory that: according to Hecksher-Ohlin Theory a country which have rich factors of production, acquires comparative advantages in goods that production requires factors intensively, i.e. produce them more cheaply, and he specializes in the area. If a country is relatively more labor intensive in this country have the labor-intensive goods produced more cheaply. In countries with capital factors such as more intense than that of the capital-intensive goods should be produced cheaply. Factor Proportions Theory assumes that factors of production are homogeneous. A skill of workers actually varies between countries. Because everyone has received different training and has acquired different experiences. Exercises and training require capital expenses that have not capital criterion. If the theory of factor proportions remain valid if different groups of workers and take into account the capital investment made to educate these groups. For example, if a country's export industries, such as scientists and engineers trained staff can say for developing countries exporting to these countries use their abundant factor of production. The exports of developing countries, unskilled workers are covered. These differences among worker’s skills require more international specialization to produce specific good in different countries. For example, a company continued research work in countries where the population is highly educated and management activities that can perform production activities in countries where there are unskilled and cheap labor. When the same product produced by different methods, such as labor-intensive or capital-intensive factor proportions analysis becomes more complex. For example, relatively low cost of labor in Canada is the Canadian wheat can produce more abundant capital with capital intensive method. By contrast, India's cheap labor wheat production using fewer machines due to abundant labor intensive methods would prefer to perform with. As a result, comparing the cost of managers in each region, to minimize costs must determine the method of production.
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