The Link between Globalization and Economic Crisis

The Link between Globalization and Economic Crisis
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Abstract
The current economic crisis has been felt by many countries across the world. There has not been a worse economic crisis since the great depression. Largely, this was triggered by an explosion of financial products mainly in the U.S. and spread fast in other parts of the world. This raises the question as to the importance of the globalization process and the interdependence of states. This research paper postulates that the process of globalization has played a major role in the spread of economic crisis the latter, which has also affected globalization by making states to focus more on national interests as compared with international affairs.
The Link between Globalization and Economic Crisis
Introduction
Since the year 2007, the world has been locked in economic crisis with major economies going through a deep recession. Globalization has been instrumental in the said economic crisis. Understandably, the globalization process has interconnected repercussions and affects political, economic, social and technological facets of the world (Leiser, Benita & Bourgeois-Gironde, 2016). On one extreme, globalization is one of the major causes of the spread of the economic crisis with the epicenter been the US economy. The crisis spread to the rest of the world due to states’ interdependence. On the other extreme, the global economic crisis has raised concerns regarding the level of globalization and its importance. During the first years of the crisis, most states were concerned with their national interests and had little to think about international interests (Danner, Danner & Bavaresco, 2017). This raises the question as to whether the economic crisis has weakened the process globalization. Globalization process and the ensuing economic crisis have been topics of great interest among researchers today. While they are often analyzed independently, the two phenomena are closely related, which begs the questions as to their linkage. This paper seeks to argue that globalization plays a major role in orchestrating global economic crisis.
The international financial and trade market suffered during the recession and the situation was worsened in the recent 2007-2008 global financial crisis that followed. Consumer spending has remained sluggish and this has limited the capacity of food and beverage companies, including hotels and restaurants, to increase their prices. Challenges continue to persist despite the fact that measured growth is experienced in a number of markets (Marginean & Orastean, 2011). Managers are forced to jungle between enhancing customer satisfaction by employing an appropriate number of highly qualified personnel, while at the same time cutting on operational costs to ensure that the establishment remains profitable. High commodity prices have had a huge impact on the ability of food and beverage operations to remain profitable.Globalization has changed the way people do business as technology advances and increased movement of people bring consumers from diverse geographical backgrounds into contact with products and services from other parts of the world. This enhances exposure to different cultures, races, and ethnic influences. Over the past few decades, several countries have signed bilateral trade agreements and regional trade agreements resulting in regionalization of international markets (Marginean & Orastean, 2011). As a result, there have been increased global economic dependencies, interrelationships, interdependency, and integration. This has resulted in a global economic boom driven by competitive advantages and specialization of countries based on technological, industrial, political, economic, and demographic forces thereby occasioning homogenous market systems.
Technology is effective in enhancing globalization and forms the basic driver of modern globalization. Technology drives globalization because of innovations in technology such as aircrafts, telecommunication, and microprocessors. These inventions ease communication and maintain computation at low cost. The internet is the latest of technological inventions driving globalization to a new level where global e-business and e-commerce has grown rapidly. Most of the countries seek a global market in order to achieve economies of scale as they become specific to a niche market through differentiation in a commodity market (Danner, Danner & Bavaresco, 2017). As technological global skills develop, more companies need to tap into the technological knowledge of different countries to combine it with new technology in order to improve their products and remain competitive. Subsequently, it is vital for global companies to stay current and access new developments by forging relationships with dominant foreign supplies instead of being dependent on local companies exclusively. Globally located companies can engage in technological sharing and inter-film collaborations.
In recent years, communication and transportation costs have reduced due to globalization shaping global operation strategies of multinational companies in technological advancement and effective mass customization in global markets. More so, multinational companies are knowledgeable about diffusion of technological knowledge and global location. There has been increased technology sharing as well as inter-firm collaborations alongside global location research and development facilities. Countries contribute to globalization by deregulating markets and liberalizing trading rules which lead to lower tariffs and allow for direct foreign investment in most parts of the world. Additionally, according to Tuga (2014) who refers to political drivers as political or macroeconomic forces of globalization pointing that regions take advantage of trade agreements which influence decision to globalize operations. Additionally, imposition of trade protection mechanisms such as tariffs, technical standards, trigger price mechanisms, health regulations, local content requirements and procurement policies, influence where a company may choose to locate global operations in order to make the most of its supply chain.
Research classifies different factors as drivers of globalization for instance, according to Leiser, Benita and Bourgeois (2016) drivers of globalization include changing economic paradigm that is from demand management to neo-liberalism, finance and capital spread, diffusion of information and communications technology, social and cultural convergence and the extension of international and global governance. According to Tuga (2014) there are four factors that drive globalization, including competitiveness, market, governance and cost. No force can stop or halt the process of globalization because it operates like the force of nature. There are factors that determine the spread of globalization or drivers of globalization. Various avenues facilitate the process of globalization are in groups, including technological, political, and marketing factors.Globalization is brought about by countries need to establish a presence in foreign markets to capitalize on demand from foreign countries and to recoup domestic demand lost to imports from foreign markets (Danner, Danner & Bavaresco, 2017). Moreover, enterprises have a need to build a global presence in order to minimize foreign threats existing in the domestic market by balancing competition. Forces that drive globalization affect different industries and products or services in varying degrees.
Globalization is one of the major causes of the spread of the economic crisis around the world.Globalization processes have fueled economic growth through financial markets, technology, trade liberation and FDI. While there have been benefits associated with the process of globalization, there are strong negative effects of the process. In essence, the economic crisis that hit the world in 2008 was largely fueled by the process of globalization. Whilst the crisis started in the US, it was most felt in European countries. The crisis was marked by negative GDP, especially among the European countries. As the global financial crisis unfolded, many economies were affected through financial and trade channels. The financial crisis largely affected both external positions and government finances as a result of the decline in the price of and demand for mortgages and oil (Tuga, 2014). During the same period, speculative capital inflows underwent some reversals which in turn affected investors’ confidence and tightened liquidity conditions. The collapse of Lehman Brothers and the ensuing deleveraging and shortage in global liquidity further exacerbated the situation. Still and as compared with other countries, European countries experienced a huge effect.
The process of globalization has helped increase world trade as well as financial integration.An economic shock from one state easily spreads to other countries due to increased trade and financial integration (Tuga, 2014). Notably the process of globalization and trade liberalization are interconnected with the global economic crisis and are systematic and have a profound effect on the process of globalization. Arguably, trade liberalization and the associated financial integration promoted the growth of asset backed securities as was the case with the US economy prior to the crisis. It is important to note that many of the foreign investors in the US came from Europe particularly Europe...