Developments that have direct impact on internalization.
Globalization is the greater movement of goods, capital, people, and ideas, due to the increased economic integration which results because of increased trade and investment.
It is also the increased interconnectedness of people and places due to advances of transport, communication, and information technologies that cause political, economic and cultural convergence in the globalization of the economy. (Edward, 2002)
Therefore, it will be precise to note that international trade is marked by globalization. International trade is vital for any country which desires to satisfy the needs of its citizens. Therefore countries have to adopt globalization for the needs of its citizens to be fully met. The term globalization can also be defined by the internalization theory. Internalization is the growing interdependence among national markets of goods, and services. In addition, it is also the growing interdependence in factors which have resulted from the liberalization of trade among nations in goods, and services. Between 1970 and 1980, a series of interacting processes led the way to a new phase in corporations’ internalization. These are the factors which have had a direct impact on internalization. These include: Rapid technological development, Changes in the economic system, global finance boom, a new geopolitical order and the assertion of neo-liberalistic cultural values and competition. (Weidenbaum, 2001)
The development of competition in international trade has a direct impact on internalization. It has become more evident for firms to expand their activities to the international market if they want to maintain their competitive edge. Internalization is vital for multinational companies to conquer the global world in a world where economic integration and liberalization has become prevalent. (United Nations Development Program, 1992). Internalization has also been impacted positively by revolution in communication and market integration. This has made countries to be able to overcome limits in space and become leading players in the globalization process. The growth of most companies in the world, depend on the mergers they form with companies in other countries. (Raskin, 2002)
Internalization has received support from various governments. Stringent regulations and laws involved in exportation and importation have been reviewed. This has made it easier for multinational companies to be able to carry out trade with ease without being exposed to high taxation. Trade agreements institutions such as the IMF (International Monetary Fund) and WTO (World Trade Organization) have been established to be able to encourage internalization. The creation of General Agreement on Tariffs and Trade (GAAT) in 1997, increased liberalization. The government- imposed barriers have been reduced. Managers need to create profitable businesses and generate returns for investors by entering the global markets. This will enable them to be able to compete with international rivals, make investments and find opportunities in a world where extraordinary opportunities and risks coexist. (Litan, 2002)
Another development which has a direct impact on internalization is the change in economy. Many of the major developments shaping the business world are economic in nature. For example, the changing role of the government in managing economic activity, and regulating businesses has affected the internalization status. The other ways in which the economy has impacted on economy are; the creation of the European single currency and the growth of the multinational businesses. Companies cannot afford to ignore the international dimension, what with the increasing globalization of business and the revolution in communications. Multinational companies have been exposed to instantaneous media and information over telephone lines, direct broadcast television, and the internet. This has encouraged the companies to expand to other countries because then, monitoring of their affiliates in other countries would be a bit easier. (Jeffrey, 2005). In conclusion, internalization has had the support of many governments. There is still more work to be done to encourage more multinational companies to go global.
Problems generated by the Political environment in international trade
International trade has faced problems that are generated by various factors. These include: Technological aspects, economical factors, legal issues and finally, the political environment in the countries participating in international trade. Looking at the political aspect deeply, we realize that it has played a major role in thwarting the developments brought about by international trade. The political environment of a country either plays a positive role in its trade relations with other countries or it can stop a country from making trade dealings with other countries. (Litan, 2002). At this point, I am going to discuss the political environment in Mongolia country and Iraq, and the problems that have negatively impacted on the international trade in these two countries, due to the different political environments they have.
To start as off, is Iraq which is a country with great economic instability. It suffers from constant wars and terrorists attacks. This country is so insecure that the international community has kept itself apart and fears to have any trade dealings with it. The country does not have unity, it suffers from instability. The Iraqis, do not have the institutions and resources needed to govern themselves and provide security for their country. The Iraqis have continued to suffer violence at the hand of terrorists and other extremists. Projects have been continually set up to be able to come up with solutions to the problem the country is experiencing. However, Secretarian violence has steadily increased despite meetings among tribal and religious leaders. Political leaders have subsequently delayed meetings called to discuss the matter. Oil production has gone down due to the political violence in the country. Hence, the oil available for the international market has also considerably dropped. The security situation, maintenance deficiencies, and management issues have adversely affected international trade in Iraqi. The country has had to increase the prices of oil to be able to recover the losses it has constantly got. The political instability in the country has really affected its trade relations with other countries. (Jeffrey, 2005)
Mongolia is a land-locked Northeast Asian country bordering Russia and China. The Mongolian economy has been a centrally planned economy under communist rule which prevailed until 1990. The country has had trade dealings with the former Soviet Union. Mongolia has suffered adverse effects in international trade due to sharp drops in GDP growth, hyperinflation, and depreciation of domestic currency as well as shortage of primary goods. All these problems occurred due to sharp economic reforms that were established by the government. Communism did not support the needs of Mongolian citizens. The Mongolian government does not support international trade. The country is land-locked and is denied many benefits that other countries enjoy. The government has not put up policies or a platform that its citizens can exploit in dealing with other countries. The political boundaries of the country are so high and the government has not done anything to make it any better for international trade to thrive in the country.
The Mongolian government has stringent laws that do not favor foreign trade. The taxation system has not yet been revised and it is considered unfavorable by many businesses and companies. The licensing system is also not favorable for the citizens to have any trade relations with other countries. This political environment has considerably contributed to the decline in international trade in the country.
Influence of Technology on the global shift of production
Technology has had a positive effect on the global production as a whole. Different technologies have had a positive impact towards increasing the volume of goods and services produced daily. Rapid development and diffusion of information and communication technology (IT) has a remarkable effect on the global production of goods and services. (Griffiths, 1996)
Information technology has played a great role in fundamentally changing the global dynamics of competition. Products can now reach the market at the right time to the largest segment of a population. This in turn assures more profits which is an incentive to manufactures and producers. A firm can be driven out of business for failing to deliver goods and services to a customer at the right time. An innovation in global operations has been made possible by the Global Production Networks (GPN). This network is of great importance to global corporations such as multinational companies. They help these corporations to sustain their competitiveness, by providing them with access to specialized suppliers at lower costs. Thus, a multinational company is able to produce more goods and services because it is assured of them reaching the market at the right time. (Teece, 1986)
The GPN network acts as a catalyst for the diffusion of international language. This provides new opportunities for local capability formation in lower- cost locations outside a multinational company’s country. This network has provided new opportunities for organizational learning and knowledge exchange across national and organizational boundaries. This makes people understand different cultures of people in other countries. Hence, countries are in a position to understand and know how to deal with other countries when they participate in trade together. This has improved global production immensely.
The internet is also another technology which has improved the global production of goods and services. Placing global production network on the net creates new opportunities for managing global production. (Teece, 1986). Networks are in a position to select good suppliers on a global scale. Thus, the problems of identifying marketing channels are solved. A manufacturing company is made to concentrate on the production of goods and services only.
The internet is a flexible infrastructure that supports information exchange, knowledge sharing, creation and utilization. The internet allows extra networks to be added at any point, creating unlimited opportunities for getting knowledge important in the global production of goods and services. Electronic commerce and internet play a vital role in bringing countries together to create a global economy which is highly networked. Policy makers have sought to maximize the advantages of internet and e-commerce to be able to create a major shift in global production. (Cruz, et al, 2000)
For a major shift in production to occur, technology has to plays a very important role which should not be assumed. Technology has continually improved and this is evidenced by the increase in global production of goods and services. Technology has made it possible for companies to operate within very different environments and yet still maintain their links. Technology knows no national boundaries.
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