Globalization has allowed the freer movement of goods, services and even ideas throughout the world. It does not refer only to trade but to communication as well. New media and technology has allowed people to transcend barriers in communicating to one another. Communication and even delivery of certain services can be done in real time no matter how distant the countries of the client and the service provider are. Globalization also had an effect of liberating consumers. Quality goods from all over the world are available to consumers at lower cost. These are some of the positive impacts of globalization.
Globalization also has its sinister side. A problem in one country could reverberate around the world almost as instantaneously as one communicates using new media and technology. The financial crisis in the US quickly became a global crisis as major financial institutions collapsed. It affected not only industries in some countries but entire economies. Some countries have even gone bankrupt.
Off-shoring and Outsourcing
Globalization has opened new opportunities for many companies especially in the area of off-shoring and outsourcing. Multinational companies have long been off-shoring operations even before the age of globalization. The difference then from today is that certain off-shore manufacturing operations in foreign countries are not intended to be sold in those countries. Rather, the products are to be sold in the mother country of the company.
Outsourcing seems to be a very new development. It came about as a result of developments in new media and technology. Technology todays allows certain business processes and operations to be done elsewhere in the world yet seem that such operations are being done in the home office. Such is the case with call center and customer service outsourcing. The service is actually being done abroad but the customer is under the impression that it is being done locally.
Outsourcing has been blamed by laborers in some countries as one of the causes of unemployment in some countries. Interestingly, as early as 2003, some economists have already predicted the problems that may arise as a result of globalization and outsourcing . Some countries—Germany in particular—were quick enough to respond and thus prepare for future developments, thus shielding itself from the effects of the world financial crisis .
Carl Steidtmann in his 2003 Deloitte research paper says that outsourcing could actually be good for an economy. At the same time, he says that employment protection (or setting high minimum wages for that matter) can be bad. He argues that protecting employment can actually be destroying job opportunities. Employment protection and high minimum wages can make a country’s labor market uncompetitive. It is less productive compared to those in other countries at a given cost. When the cost of wages has gone beyond viable limits, companies would either off-shore or out source. Entire industries could shut down With operations transferred elsewhere, local job opportunities are lost in the process.
In Europe, where employment protection laws have been in place for a long time, has had higher employment rates than in the US where no similar employment protection laws are in place. In his 2003 paper, Steidtmann rightfully predicted that European will suffer great disadvantages in the future as a result of these employment protection policies. Indeed, the world economic crisis accelerated and accentuated the occurrence of the problem.
There is a positive side to outsourcing even from the perspective the country outsourcing its services. For one thing, it helps keep local industries afloat and competitive. While the process may result in some unemployment, the overall impact to the entire economy may be positive. After all, a company would continue to have contributions to an economy as long as it is surviving and profitable. Outsourced services could yield much higher output which in turn would further increase a company’s or an industry’s contribution to an economy. Maintaining operations in a country can only be viable if the local market can support the company or industry. This can happen if there are no external competitors or product alternatives or substitutes. Otherwise, the industry would shrink if not totally collapse and thus lead to further unemployment.
Off-shoring and outsourcing need also to be viewed at the other end of the process. It certainly has a positive effect on the country that accepts or offers outsourcing services. For one thing, off-shoring and outsourcing help create employment in the host country. In addition, there is technology and knowledge transfer.
Labor and Wages
Competitiveness can be one positive impact of globalization on local industries. Companies will be forced to improve the quality of their products and efficiency of production and at the same time lower prices. It is a tough challenge for many companies. Multinational companies have long been global in their perspective and are thus competitive in this area. Many companies—or industries in some countries—fail because of one key problem high wages.
In Greece, for instance, unemployment soared as the economic crisis ensued. Workers in that country have been used to enjoying government subsidies. They receive a lot of benefits that the government pays for. Unfortunately, the country’s labor force had become uncompetitive in the world market. Their wages are so high relative to those in other countries or even Germany. As a result, multinational and even local companies off-shored entire operations or outsourced certain services to remain viable. So there were fewer and fewer jobs in the country. The government eventually ran out of money to support welfare and labor benefits. With the government almost bankrupt, the high wages and large benefits Greek workers enjoyed ended in nothing.
Greece’s economy is continuing to go into a downward spiral. The higher the unemployment rate, the lower the taxes that the government can collect. The higher the unemployment, the higher too are the welfare costs for the government. Without any source of income, borrowing is the only resort that the government could have. Unfortunately, when the government failed in fulfilling its obligations, no one wants to lend money to it anymore. Thus, the collapse of the Greek economy.
The issue of wages and employment protection has been the subject of debate and many researches. On one hand, there is truly the matter of protecting laborers and helping them maintain a decent standard of living. On the other hand, there is the matter of profitability and competitiveness for the companies. In a global environment, competition could come from anywhere outside a country’s borders and not just from within. So local companies will have to act globally even if they operate only locally. They may have to off-shore or outsource.
Globalization should not be blamed for this situation however. After all, not all countries suffered the same fate as Greece. It is the lack of preparation and competitiveness for globalization that are the culprits. The experience of Germany is in stark contrast to that of Greece.
Germany is one country that survived and even grew during the world financial crisis. It averted problems because it prepared itself long before the crisis erupted. Germany’s government negotiated with its laborers to keep wages down or even reduce these. As a result, business operations stayed in the country. Industries were thus able to support the labor force and the government. The country continues to export its products rather than import them.
Minimum wage and employment protection policies are among those things that need to be reviewed in the light of globalization and the world financial crisis. Certain principles that worked in periods of prosperity and stability may not apply today. Conditions or developments in other countries—lower wages and higher education and skill level for instance—will inevitably have some impact to the internal conditions of a country.
Conclusion
Regardless of whether people want it or not, the process of globalization can neither be stopped nor reversed. The only way a country can avoid its effect or impact is to shut itself up the way North Korea had to tragic consequences. Trading with other countries even before the age of globalization has offered many advantages. For sure, globalization would have its ill and positive effects as anyone could see with what happened to the world as a result of the financial crisis that started in the US. Unfortunately, no country can escape the consequences of globalization; every country will just have to be aware and be prepared. Competitiveness is key to survive a globalized environment.
Works Cited
Acemoglu, Daron and James A. Robinson. Why Nations Fail: The Origins of Power, Prosperity and Poverty. New York: Crown Publishers, 2012. Kindle.
Artoni, Roberto, et al. "Employment Protection Systems and Welfare State Models: A Comparative Study." n.d. PDF, Web. 28 Feb 2013.
New York Times. "Economic Crisis and Market Upheavals." The New York Times 28 Feb 2013. Web. 28 Feb 2013.
Rajan, Ramkishen S and Sadhana Srivastava. "Global Outsourcing of Services: Issues and Implications." Harvard Asia Pacific Review 9.1 (2007). PDF, Web. 28 Feb 2013.
Steidtmann, Carl. "The Macroeconomic Case for Outsourcing." 2003. PDF, Web. 28 Feb 2013.
Stockhammer, Englebert. "Peripheral Europe’s Debt and German Wages: The Role of Wage Policy in the Euro Area." Kingston University, 2011. PDF, Web. 28 Feb 2013.
Weill, Peter. "An Insider'sView on the Greek Situation." Wealth Management Researh (2011). Web. 28 Feb 2013.
