The Benefits of Globalization for Consumers

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There has been unprecedented integration of the world economy in the past two centuries. This trend spurred an exponential increase in foreign direct investment (FDI) and the amount of commodities, capital, and labor that move across the international market (Lindert and Williamson 2003). Between 1950 and 2000, the GDP of amount of goods exported worldwide surged from 6 percent to 20.2 percent (Nayyar 2006, p.142). The flows of FDI increased from $5 billion to $1,493 during the same period (Nayyar 2006). Integration of the world economy has led to wins and losses in some parts and industries of the world economy. Globalization results in both "winners and losers" who arise from specific voluntary situations or larger structural processes. Voluntary winners and losers are described as those that tend to arise from "a competition, interaction, or other event, which often has associated with it specified or implicit rules" (O'Brien and Leichenko 2003, p.90).

Both developed and the outcome of the growing integration of the world economy positively or adversely impacts developing countries, particularly in the contexts of changes in wages, employment, productivity, net income, product variety and quality, and other dimensions (Meschi and Vivarelli 2009). Also, wins or losses of the globalized economy may be felt at the individual, regional, national, and international levels. Some sectors and countries are marginalized and more susceptible to the risks inherent in rapid economic and environmental changes (Nissanke and Thorbecke 2007, p.23). However, many have integrated seamlessly into the global economic system (O'Brien and Leichenko 2003, p.89). Consumers are the winners in the globalized economy because they hugely benefit from the benefits that accrue on integration of the world economy. This paper discusses ways in which consumers benefit or lose from the globalized economy, presents real-life examples of the consequences of globalization, and compare and contrast the effects across different areas.

Benefits of Globalization to Consumers

Increased Access to a Variety of Products and Services

Globalisation has enhanced access to a variety of goods and services. Globalisation manifests through "international trade, international investment, and international finance" (Nayyar 2006, p.138). The trend has made the world economy increasingly open, interdependent, and deeply integrated, consequently scaling up the flow of commodities within and across countries (Maurer and Degain 2012). From 1870 to 1914, there was an exponential growth in the amount of goods, capital, and labor that cross national boundaries largely due to reduced government intervention in economic activity (Nayyar 2006: 139). The phenomenal expansion in international trade and FDI flows in the past two centuries has significantly enhanced access to a large variety of products and services that were affordable to only a few people in the society. Statistics can be justify this observation. The volume of commodities exported into the international market surged from $61 billion to $883 billion for the period stretching from 1975 to 2000 (Nayyar 2006: 141). The share of total commodities exported to the international market in world GDP surged from the record low of 6% in 1950 to 20.2% in 2000. For the period 1975 to 2000, the share surged from 13.6% to 16.7% and 17.5% to 31.2% in industrialized and developing nations, respectively (Nayyar 2006: 141). The trend was consistent in FDI flows with the volume of global FDI soaring from $68 billion to $625 billion between n 1980 and 2000 (Nayyar 2006: 141). These statistics are confirmed by the results of an earlier a longitudinal study which discovered that the world experienced rapid globalization between 1959 and 1996 (Kim and Shin 2002: 445). Results of the empirical analysis indicated that every country that was examined exhibited increased trade with more countries in 1996 compared to 1959.

The rise in international trade flows and FDI have created a worldwide market for both producers and consumers. As a result, consumers enjoy an increased access to goods and services not only of different countries but also of foreign firms producing from their countries. For example, by 1990 22% of all Brazilians owned cars, 56% had television sets and 63% owned refrigerators (Stearns 2006, p.143). The trend is even across the developed world as India reported a 1000% increase in purchases of refrigerators, motor scooters, and care between 1970 and 1987 (Stearns 2006, p.143). Although both industrialised and developing countries experienced an exponential growth in foreign trade and investment, the trend tipped in favour of developed nations. For example, industrialised nations accounted for 82% of FDI inflows in the world economy compared to 16% reported in developing countries (Nayyar 2006, p.147). There are concerns that increased international economic integration spurred consumerism which bred "a new precariousness to material life" (Stearns 2006, p.143). Although the new material life leads to limited saving and considerable consumer debt, it is important to acknowledge that most of the products and services brought about by globalisation are absolutely essential.

Increased Employment Opportunities

Globalisation has increased employment and sages across the country (Lowell and Findlay 2001). Increased integration of the world economy, liberalization of the economic activity, and foreign direct investment create more job opportunities for local consumers (Meschi and Vivarelli 2009). Increased expansion of multinationals into overseas markets helps create jobs in the host country. A growing trade sector implies that a significant percentage of the global labor force today depend on export-related jobs (Erixon 2017). Despite a slowdown in the growth of earnings, there has been a steady increase in real earnings for both among "blue-collar" and "white-collar" workers in the past last decades compared to previous decades (Erixon 2008). This observation is consistent with the findings of a recent European Commission (EU) survey which revealed a steady increase in the number of employment opportunities created by companies exporting their products to markets outside of the EU region (Erixon 2017). According to the survey estimates, the volume of export-related jobs grew from 18.5 million to 31 million between 1995 and 2011, reflecting a 67% growth (Erixon 2017). These statistics clearly indicate that increased integration of the world economy has created more opportunities for workers to move from country to country to market their skills. Although globalization had a mild impact on the distribution of wealth and employment, worldwide integration of markets has expanded the breadth and variety of job opportunities at different levels of education (Spence 2017). Some countries have strict employment regulations and standards requiring foreign investors to employ a certain percentage of its citizens. Increased employment has a greater potential to raise household income particularly by scaling up real wages and lowering the cost of consumption (Erixon 2017) – both of which increase consumer's purchasing power.

However, globalisation results in losses in employment opportunities and depressed wages in industrialised nations in favour of developing countries (Meschi and Vivarelli 2009). In fact, the trend has been "accused of stealing jobs and depressing wages in the developed part of the world" (Erixon 2008, p.2). For example, three decades ago Japaneses firms hugely depended on human capital from the US and Europe to survive (Erixon 2017). The increased demand for employees from the West resulted in a slow growth in real income in America. Also, China's tremendous economic growth and active diplomacy have been perceived to be not only a phenomenon transformation in East Asia but also a serious threat to America's global dominance and the Western-oriented world order (Ikenberry 87, p.23.). China's increasing power and influence in the international scene has been perceived to be a serious threat to the West, particularly a "middle-class squeeze" (Erixon 2008, p.2). Increased international economic integration has instigated "a new interest in emigrating to the West for higher-pay jobs" (Stearns 2006, p.143). These concerns show that although globalization has had a positive impact on employment in some markets, some areas have lost out. For example, the trend has equally threatened job security in particularly in the West and America where multinationals are choosing to expand in foreign markets particularly to exploit cheaper labor (Erixon 2008, p.3). In this case, consumers in developing countries are the winners.

Intensified Competition Resulting Into Lower Prices

Increased integration of the global economy coupled with increased trade liberalization in the past few centuries have spurred increased competition at the local, regional, national and international levels (Goldberg and Pavcnik 2007). Rapid globalization has presented both threat and opportunities to business (Muroyama and Guyford 1988: 86). Notably, increased economic openness, enhanced economic interdependence, and deepened economic integration in the world economy (Nayyar 2006) have homogenized demand across national borders (Muroyama and Guyford 1988: 86). As a consequence, producers of major products and services have become able to employ similar and more aggressive marketing strategies to penetrate both domestic and overseas markets. According to Muroyama and Guyford (1988), both industries and companies that have been previously accustomed to operating in safer and less competitive domestic markets today have been subject to new intense competition from the business they never imagined would expand their operations in their strongholds. Muroyama and Guyford (1988) reiterate that rapid globalization has made the ability to compete fiercely at the global level critical for survival.

The size of a market increases an economy becomes more efficient particularly by promoting specialization of production (O'Brien and Leichenko 2003: 92). As a consequence, high efficiency in production and business processes has become key to conquering overseas markets (Muroyama and Guyford 1988: 87). Inefficient companies and sectors that cannot make products at competitive prices can be outpaced in the short-run by more efficient competitors (O'Brien and Leichenko 2003). Such firms are the losers of globalization and thus, O'Brien and Leichenko (2003) suggest that they need to "adjust to the new competitive environment by increasing their production efficiency, exploiting new niche markets, or finding employment in other sectors" (p.83). Corporations used a variety of strategies to increase their sales volume, grow their market share, and remain competitive in the global markets. For example, many businesses considered FDI through outsourcing manufacturing and selling products to international markets. To enhance their competitive advantage in the international markets, Muroyama and Guyford (1988) identify that "many managers would quickly move any factory anywhere in the world where they could get cheaper or better materials, labor, and vendors, and where laws and governments were more congenial" (p.89). The scholars further point out that a lot of manufacturers are increasingly making parts and establishing subassembly plants overseas and then launch them to the global markets.

Greater efficiency and specialization in production benefit consumers in several ways. First and foremost, consumers buy products and services at a substantially reduced price (Goldberg and Pavcnik 2007). When two or multiple products of different companies share key features, competition often results. Businesses adopt competition-based pricing strategy whereby they set their prices by comparing their product to their competitors and how the competitors charge their products as opposed to relying on their cost and profit objectives. Heidhues and Kıszegi (2008) explain that "consumers' sensitivity to losses in money increases the price responsiveness of demand—and hence the intensity of competition—at higher relative to lower market prices, reducing or eliminating price variation both within and between products" (1245). The authors further point out that "when firms face common stochastic costs, in any symmetric equilibrium the markup is strictly decreasing in cost" (1245). Consistent with this perspective, a research conducted in the US airline industry established that increased competition is inversely related to greater price dispersion and less price dispersion in concentrated markets and competitive markets, respectively (Dai, Liu, and Serfes 2014: 167). Therefore, firms faced with more intense competition in the market are likely to charge lower prices for their products to make more sales.

Second, fierce competition compels firms to enhance the quality of their products. Businesses that are faced with intense competition ensure the quality and availability of their products (Matsa 2011). The risk of switching to competing products incentives firms to invest in product quality. Also, stiff competition has been found to influence companies to disclose the quality of their products (Li 2010: 668). Third, competition increases the variety of goods and services available to consumers (O'Brien and Leichenko 2003: 93). Using data from US manufacturing firms gathered from 1987 to 99, Wiersema and Bowen (2008) illustrate that the globalization of markets and industries coupled by competition from foreign companies statistically explain the scope and degree to which U.S. corporations diversify their product portfolio in the international markets. In some countries, the demand for higher-quality goods by local consumers necessitate imports (Stearns 2006, p.143). Therefore, it is vividly clear that consumers are the winners in all the three cases above because they can access quality and variety of goods at lower prices due to competition arising from globalization.

Conclusion

In conclusion, globalization has benefited consumers in many considerable ways. Majorly, consumers enjoy a large multitude of choice in the market and this influence the quality, prices, and variety of products and services they buy. They increasingly demand high quality and lower prices. Companies need to respond to all these expectations accordingly to reduce the risk of switching to substitute goods, increase their sales volume, and gain more profit and market share. Consumers also have more access to job opportunities both in local and foreign firms. Considering all these benefits, there is no doubt that consumers are the winners in the globalized economy.

Reference

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Erixon, F., 2017. The Economic Benefits of Globalization for Business and Consumers. European Center for International Political Economy.

Goldberg, P.K. and Pavcnik, N., 2007. Distributional effects of globalization in developing countries. Journal of economic Literature, 45(1), pp.39-82.

Heidhues, P. and Kőszegi, B., 2008. Competition and price variation when consumers are loss averse. American Economic Review, 98(4), pp.1245-68.

Ikenberry, G.J., 2008. The rise of China and the future of the West-Can the liberal system survive. Foreign Aff., 87, p.23.

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Matsa, D.A., 2011. Competition and product quality in the supermarket industry. The Quarterly Journal of Economics, 126(3), pp.1539-1591.

Maurer, A. and Degain, C., 2012. Globalization and trade flows: what you see is not what you get!. Journal of international commerce, economics and policy, 3(03), p.1250019.

Meschi, E. and Vivarelli, M., 2009. Trade and income inequality in developing countries. World development, 37(2), pp.287-302.

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O'Brien, K.L. and Leichenko, R.M., 2003. Winners and losers in the context of global change. Annals of the association of American geographers, 93(1), pp.89-103.

Spence, M., 2011. The impact of globalization on income and employment: the downside of integrating markets. Foreign Aff., 90, p.28.

Stearns, P.N., 2006. Consumerism in world history: The global transformation of desire. Routledge.

Wiersema, M.F. and Bowen, H.P., 2008. Corporate diversification: The impact of foreign competition, industry globalization, and product diversification. Strategic Management Journal, 29(2), pp.115-132.

November 13, 2023
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