3.4.1 Introduction
Globalization, which has become a leading concept in past few decades, affects economy, business life, environment and society in different ways. Almost all corporations are affected by these changes. It has led to free movement of goods, services and capital and has been influential in integrating world economies, culture, technology and governance because it involves transfer of employee mobility, information, the exchange of technology, financial funds flow and geographic arbitrage between different nations. It is important for companies to adapt to this changing scenario, for which it must be aware of different effects of globalization and must learn how to protect itself from some negative effects and how to get opportunities from this situation.
These changes have increased the competition and made corporations more profit oriented than a long term and sustainable company. But corporations being a vital part of society needs to be organized properly and hence arises need of some rules and principles in society and business life for socially responsible behavior.
3.4.2 Effect of Globalization on Economy
- • Competition: Globalization leads to increased competition which can be related to product and service cost and price, target market, technological adaptation, quick response and quick production by companies etc.
• Exchange of Technology: One of the most striking manifestations of globalization is the use of new technologies by entrepreneurial and internationally oriented firms to exploit new business opportunities. Globalization has increased the speed of technology transfer and technological improvement
• Knowledge/ Information Transfer: Information is an expensive and valuable production factor in the current environment. It can be easily transferred and exchanged from one country to another. If a company has a chance to use knowledge and information, it means that it can adapt to this global changing
• Portfolio Investment (Financial fund flows): Globalization has resulted in increased international portfolio investment and financial markets have become increasingly open to international capital flows and hence portfolio investment is one of the major problems of developing economies as it is almost the only way to increase liquidity of their markets and economies by attracting foreign funds. These investments dramatically impact on the financial markets
• Regulation/Deregulation and International Standards: Globalization needs more regulation of the markets and economy which are necessary to protect countries against global risks and crises. When the crisis comes out of one country then it influences other countries with trade channels and fund transfers, which we call the contagion effect. So globalized world has more rules and regulations and international standards than before
• Market Integration: Globalization leads to conversion of many markets and economies into one and the aim of international standards and regulations is also to deregulate all these markets. Integration requires financial markets that are broad, deep, and liquid as market integration also results in increasing competition in the economy
• Qualitative Intellectual Capital Mobility: With increasing global presence of companies across geographies human capital mobility through knowledge and information transfers is important. Thus more skilled, well-educated and movable employees who can adapt quickly to different market conditions are required
• Financial Crisis-Contagion Effect-Global Crisis: Generally financial crises occur due to international funds/capital flows (portfolio investments), lack of proper regulations and standards, complex financial instruments, rapid development of financial markets, asymmetric information and information transfers. The crisis of one country often turns into a global crisis called systemic risk effect