According to some writers, the world is becoming flat in terms of creating equal opportunities, in all fields, among all countries. They argue that information between countries is no longer limited and that all countries receive the same information leading to an equally competitive world among the rich and poor countries. According to the proponents of globalization, the world of isolated nations is dying off and letting the new world of globalization in. The truth is, the world is way too far from globalization and what we have right now among how the people, companies and states interact is a taste of how real globalization could be.
The globalization supporters who think the world is all open right now use the investment knows no boundaries theory to support their argument. If we look at the few cities which dominate the worlds financial activities, - Frankfurt, Hong Kong, London, new York- they are well connected but looking at the data between 2003 through to 2005, less than 10% of the of their capital generation come from foreign direct investment (FDI). This simply shows that the presumed internalization is not real (Ghemawat 2011). All the activities carried either within the cities or across the cities are all locally connected. The 10 percent presumption is a data calculation that shows that the internalization of any activity would be somewhere closer to 10 percent. If the world was really facing globalization, the internalization would be expected to be way much higher than 10 percent. Actually, the capital formation generated from FDI in a globalized world would be around 90%. However, the investment is directly opposite the speculations presented because the domestic fixed investment all around the world is more than 90. The 10 percentile presumption shows that there is no proper globalization and people are not ready to give the wealth they have accumulated to other countries. The level of communication may have increased but internalization associated with migration, telephone calls, management research, education, private charitable giving, patenting, stock investment and trade as compared to gross domestic product all stand at 10 percent. The data collected from 2003 to 2005 shows that the world is only semi-globalized because barriers between countries still exist and the globalization proponents are feeding people exaggerated information about internalization.
Figure 1: The Ten Percent Presumption
Source: Ghemarat, P. (2007). Why the world isnt flat. Foreign Policy, Mar/Apr (159), p. 56.
The truth is, the cost of communication has decreased and even new methods to improve communication between countries have been developed but the proponents are making a lot of exaggerations by asserting that this decrease in communication cost will eliminate the effects of distance. Although the border barriers have been reduced, lets not assume that they have disappeared. According to Pankaj Ghemawat (2007, p.75) one reason why globalization wont work is the fact that the efforts being made to bring about global integration are more focused on international standardization. The focus is identifying similarities from one place to another but they forget to look at the differences in the cross-border regions. The strategies for globalization tend to overlook the cultural, political, geographical and economic factors which highly influence the process of globalization (Ghemawat 2007, p.75). The four create a distance between different countries and they form the CAGE model. Cultural distance which includes differences in religious beliefs, languages and social norms. Political distance which is mostly the government hindrance to foreign competition by introducing tariffs and reducing imports. Geographical distance between countries. For any business to deal with the distance problem, they need to adapt, overcome and exploit it. Economical distance is the differences in terms of rich and poor countries. Ghemawat argues that, only regional blocks can beat the distance limitation of globalization. For example, the European Union which is a regional trade block. Ghemawat carried out research and found that only between 5-15 % of a countries income is from FDI and that more than 90% of all calls, web usage and investments are domestic and he supports this with the 10 percent presumption data. According to all the facts provided by Ghemawat, the world is still round and globalization is way too small and not as exaggerated by some writers.
Facing the facts of geographical, political, cultural and economic difference, I agree with Ghemawat that attaining a globalized world is way too difficult. Other limitations which I think pose a great deal of limitation to globalization are the people as they wouldnt want the money they have worked so hard for to go to another country. For example, India is a poor country and the people are struggling to raise their country economical level. After they achieve this, they cannot agree to maybe offer a trade deals with countries such as America unless for materials they dont have. This only limits globalization. Another example of failing globalization is the trade between USA and Canada. For every 5 transactions made within Canada, only one is done between Canada and USA. This shows that the country boundaries affect globalization.
In conclusion, the globalization proponents are describing a world that doesnt exist or that may someday exist. The truth is, globalization right now is totally fragile and the limitations hindering it are still there. For any companies investing in cross-boahjnmn rders, they need strategies which lie within learning, knowledge and sustainability. This way, the companies will find a way to deal with the globalization limitations.
Pankan Ghemawat. Why the world isnt flat. http://foreignpolicy.com/2009/10/14/why-the-world-isnt-flat/Top of Form
Ghemawat, Pankaj. World 3.0: Global Prosperity and How to Achieve It. Boston, Mass: Harvard Business Review Press, 2011. Print.
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