STRUCTURES

OF
GLOBALIZATI
ON
GE 5: The Contemporary
World
 The Global Economy
•United Nations defines Economic globalization
as “increasing interdependence of world
economies as a result of the growing
scale of cross-border trade of
commodities and services, flow of
international capital and wide and rapid
spread of technologies.”
•“It reflects the continuing expansion and
mutual integration of market frontiers and is
an irreversible trend for the economic
development in the whole world at the turn of
the millennium. The rapid growing significance
of information in all types of productive
activities and marketization are the two major
driving forces for economic globalization.”
Two Major Driving Forces
for Economic Globalization
1. The rapid growing of information in all types of
productive activities
2. Marketization (A restructuring process that enables
state enterprises to operate as market-oriented firms by
changing the legal environment in which they operate
(20) and can be achieved through reduction of state
subsidies, organizational restructuring of management
such as corporatization, decentralization, and privatization
(21) .
•One manifestations of economic globalization is the
interconnections of various components of production,
where the stages in production takes place in different
location depends on the favorable conditions such as
cheap labor, raw material, skilled labor and market
consumer.
Dimensions of Economic
Globalization
1. The globalization of trade of goods and services
2. The globalization of financial and capital markets
3. The globalization of technology and communication
4. The globalization of production
 Economic Globalization,
Internationalization and Localization

Economic globalization is a functional integration between

internationally dispersed activities which means that it is a
qualitative transformation rather than a quantitative change
while internationalization is an extension of economic
activities between internationally dispersed activities.
Internationalization is a corporate strategy that involves
making products and services as adaptable as possible, so
they can easily enter different national markets. This often
requires the assistance of subject matter experts.
Internationalization is sometimes shortened to "i18n", where
18 represents the number of characters in the word.
 What is Localization?

Localization is the process of adapting a product to a

specific target market. This usually happens after
internationalization has taken place. Where
internationalization develops a product that’s easy to
adapt for many audiences in many different countries,
localization takes that product and makes it highly
relevant for one specific market.
History of Economic
Globalization
Emergence of Global trade
• According to Dennis O. Flynn and
Arturo Giraldez, global trade
emerged in two ways:
•1.) all heavily populated
continents began to exchange
products continuously – both with
each other directly and indirectly
via other continents, and
•2.) did so in values sufficient to
generate lasting impacts on all
trading partners.
Silk Road
In the 16th century world system analysts identify the
origin of modernity and globalization through long
distance trade in the 16th century (25). This best known
example of archaic globalization is the Silk Road, which
started in western China, reached the boundaries of the
Parthian empire, and continued onwards towards Rome
(26). It also connected Asia, Africa, and Europe (27) .
In the 17th and 18th century global economy exists only
in trade and exchange rather than production as the world
export to World GDP did not reach 1 to 2 percent.
In the 19th century the advent of globalization
approaching its modern form is witnessed. A short period
before World War I is referred to as golden age of
globalization characterized by relative peace, free trade,
financial and economic stability (29). Growth in
international exchange of goods accelerated in the second
quarter of the 19th century. Global economy in the 19th
and 20th centuries grew by an average of nearly 4
percent per annum, which is roughly twice as high as
growth in the national incomes of the developed
economies since the late 19th century (30) .
Manila-Acapulco Galleon Trade (1565-
1815)
Global Actors
• Multinational Corporations- it is a business
organization whose activities are located in more than
two countries and is the organizational form that
defines foreign direct investment. This form consists of
a country location where the firm is incorporated and of
the establishment of branches or subsidiaries in foreign
countries (A.A Lazarus, 2001 p. 10197)

• The International Monetary Fund (IMF)- [187

countries] founded at the Bretton Woods Conference in
1944, it is the official organization for securing
international monetary cooperation. It has done useful
work in various fields, such as research and the
publication of statistics and the tendering of monetary
advice to less-developed countries. It has also
conducted valuable consultations with the more
developed countries.
•North Atlantic Treaty Organization or NATO- it is
based on the North Atlantic Treaty, which provides the
organization a framework. The treaty provides that an
armed attack against one or more of NATO`s member
nations shall be considered an attack against them all.
(30 members from North America and Europe)

•World Trade Organization (WTO) [160 members

representing 98 per cent of world trade] , International
Monetary Fund (IMF), and the World Bank
•These three institutions underwrite the basic rules and
regulations of economic, monetary, and trade relations
between countries. Many developing nations have
loosened trade rules under pressure from the IMF and
the World Bank.
Members of NATO
The Bretton Woods System
• The Bretton Woods System was largely influenced by John Maynard
Keynes, a British economist.
• Keynes believed that economic crises occur not when a country does
not have money, but when money is not being spent or not moving.
•Moreover, according to Keynes, when economies slow down,
governments have to reinvigorate markets with infusions of capital.
•The active role of governments in managing spending would serve as
a basis for type of system called global Keynesianism.
•In 1944, delegates at Bretton Woods created two financial
institutions: The International Monetary Fund and World Bank.
Keynesian Economics vs.
Neoliberalism
• With the ideas of John Maynard Keynes being applied in IMF
and World Bank’s strategy, governments poured money into
their economies in order to reinvigorate their respective
economies, although causing inflation. (Keynesian economics)
•Nonetheless, the effectivity of the Keynesian economics was
greatly tested in the 1970’s when prices of oil rose
dramatically due to Organization of Arab Petroleum Exporting
Countries’ (OAPEC) decision to impose an embargo on US and
other countries due to the latter’s support on Israel
(resupplying Israel with needed arms for Yom Kippur War).
• Added with the 1973 and 1974 stock market crash in the US a
phenomenon called “stagflation” happened, wherein economic
growth and employment declined, with sharp inflation of
goods. (prices increased)
• Even with great government spending and intervention on
NEOLIBERALISM
• With the failure of Keynesian economics to remedy the
stagflation that happened in US and other countries in the 1970’s,
a new form of economic thinking was introduced– Neoliberalism.
•According to Investopedia, Neoliberalism can be defined as a
policy model that encompasses both politics and economics and
seeks to transfer the control of economic factors from the public
sector to the private sector.
• It called for the privatization of government-controlled services
like water, power, communications, transport.
• highlighted free markets
INTERNATIONAL
TRADE AND
TRADE POLICIES
International trade is the
exchange of goods, services
and capital across national
borders. It is a multi-million
dollar activity, central to the
Gross Domestic Product (GDP)
of many countries, and it is
the only way for many people
in many countries to acquire
resources (41). In acquiring
products where demand is
inelastic and domestic supply
is inadequate, there is
absence traders, consumers
and suppliers are forced to
 The two key concepts in the
economics of international trade are
specialization and comparative
advantage.
Comparative advantage comes in; so
INTERNATI long as the two countries have different
ONAL relative efficiencies, the two countries
can benefit from trade – the country with
TRADE absolute advantage will still benefit by
AND directing its resources to those goods
where it is most productive and trading
TRADE for the others;
POLICIES specialization refers to this process;
countries as well as individual businesses
can maximize their welfare by
specializing in the production of those
goods where they are most efficient and
enjoy the largest advantages over rivals
(43) .
INTERNATIONAL TRADE
AND TRADE POLICIES
-points for
consideration-1
More affordable products for the
consumer is the result of
competition.
The economy of the world is
affected by the exchange of goods
as dictated by supply and demand,
making goods and services
obtainable which may not be
available globally to consumers.
Trading globally gives consumers
and countries the opportunity to be
exposed to goods and services not
available in their own countries.
 Almost every kind of products can be
found in the international market aside
INTERNATI from services being traded like banking,
ONAL tourism, etc.
Global trade allows wealthy countries
TRADE to use their resources such as labor,
AND technology, or capital more efficiently.
TRADE Because countries are endowed with
POLICIES different assets and natural resources,
some countries may produce the same
-points for good more efficiently and therefore sell
considerati it more cheaply than other countries
(44) .
on-2 Specialization in international trade
happens if a country cannot efficiently
produce an item and obtain it by trading
with another country that can.
Trade policies on the other hand
refer to the regulations and
agreement of foreign countries
(45). It defines standards, goals,
rules, and regulations that pertain
to trade relation between countries
(46). Each country has specific
policies formulated by its officials.
Boosting the nation’s international
trade is the aim of each country.
Taxes imposes on import and
export, inspection, regulations,
tariffs and quotas are all part of
country’s trade policy.
 Tariffs. These are taxes or duties
paid for a particular class of imports
FOCUSES or exports. Imposing taxes on
OF TRADE imported and exported goods is a
POLICY IN right of every country. Heavy tariffs
on imported goods are levied by
INTERNATI some nations for the protection of
ONAL their local industries. The prices of
TRADE-1 imported goods in local markets are
inflated due to high imported taxes
to ensure demand of local products.
FOCUSES OF TRADE POLICY IN
INTERNATIONAL TRADE-2

Trade barriers. These are measures that governments or

public authorities introduce to make imported goods or
services less competitive than locally produced goods and
services (47). They are state-imposed restrictions on trading a
particular product or with a specific nation. It can be linked to
the product, service like technical requirement and it can also
be administrative in nature such as rules and procedures of
transactions. Tariffs, duties, subsidies, embargoes and quotas
are the most common trade barriers.
 Safety. This ensures that imported products
in the country are of high quality. Inspection
regulations laid down by public officials
ensure the safety and quality standards of
imported products.
FOCUSES
OF TRADE Consumer product quality and
POLICY IN standards are primarily governed by the
Consumer Act ("Consumer Act"), which
INTERNATI is a general law on consumer products.
ONAL Food and Drug Administration Act of
2009 (Republic Act No. 9711), which
TRADE-3 amends the Foods, Drugs and Devices
and Cosmetics Act (Republic Act No.
3720) ("FDA Law"), specifically regulates
"health products," which include food
and other consumer products that may
have an effect on health.
 Agencies that have control on
the import and export activities
to ensure safety of goods and
FOCUSES services in the Philippines are:
OF TRADE Department of Trade and
POLICY IN Industry
INTERNATIO Bureau of Customs
NAL TRADE- Other line agencies such as
3 DA, DoH and DENR
 National Trade Policy
This safeguards the best interest of its trade
and citizen.
Bilateral Trade Policy
To regulate the trade and business relations
TYPES between two nations, this policy is formed.
Under the trade agreement the national trade
OF policies of both the nations and their
negotiations are considered while bilateral
TRADE trade policy is being formulated.
International Trade Policy
POLICIES This defines the international trade policy
under their charter like the International
economic organizations, such as Organization
for Economic Cooperation and Development
(OECD), World Trade Organization (WTO) and
International Monetary Fund (IMF).The best
interests of both developed and developing
nations are upheld by the policies.
 In most developed countries where
open market economy prevails, the
international economic
TRADE organizations support free trade
POLICY policies. In the case of developing
nations partially-shielded trade
AND practices are preferred to protect
INTERNATI their local trade industries. The
ONAL following are dependent on
globalization: sound trade policies
ECONOMY for market changes, establishment
of free and fair trade practices and
expansion of possibilities for
booming international trade.
 Global Economy
Outsourcing
Outsourcing is an activity that requires search for a
partner and relation-specific investments that are
governed by incomplete contracts and the extent of
international outsourcing depends on the thickness of the
domestic and foreign market for input suppliers, the
relative cost of searching in each market, the relative cost
of customizing inputs and the nature of the contracting
environment in each country (50).
Subcontracting is a central element of the new economy
(51). It is the practice of assigning part of the obligations
and tasks under a contract to another party known as a
subcontractor and especially prevalent in areas where
complex projects are the norm like construction and
information technology (52) .
Outsourcing is a means of finding a partner with which
a firm can establish a bilateral relationship and having
the partner undertake relationship-specific investments
so that it becomes able to produce goods and services
that fit the firm’s particular needs. Often, the bilateral
relationship is governed by a contract, but even in those
cases the legal document does not ensure that the
partners will conduct the promised activities with the
same care that the firm would use itself if it were to
perform the tasks (53) .