1. Fundamentación del tema
The present topic is part of the Business Communication Learning Unit (UDA, for its acronym in Spanish), which belongs to the sixth semester of the Licenciatura en Contador Público (public accountant). It is important for the student to identify how globalization affects both the national and international economy. It is convenient to read about these subjects in English, as it is one of the most widely used languages worldwide.
2. Objetivo didáctico
Recognize the current importance and impact of globalization on the world economy and the accounting profession to create a framework with the necessary resources.
3. Contenido didáctico
Welcome back, dear student! We are glad that you are here in this new lesson with us. This time we will be addressing the topic of globalization in a foreign language for you to build a frame of reference. In this lesson, we are going to show you these topics:
- The importance of globalization
- Characteristics of globalization
- Growth of globalization
- Opportunities and threats of globalization
- Introducing tariffs and import quotas
- The impact of exchange rate fluctuations
We hope you find this resource useful!
Desarrollo del tema
There are a lot of factors that developed globalization over time, technology being one of the most important. Every time countries engage in transactions, as well as free trade, the introduction of tariffs and quotas, politics, the arts and even sports contribute to globalization.
Nowadays it is common to see brands that are recognized worldwide. It is easier to find products made in other countries such as China, United States and Japan, or not going to faraway. In the immediate context, the world seems so short in our hands because of our cell phone, given that we can even communicate with someone in real-time regardless of whether we are in Mexico and the other person is in Russia.
Globalization is a phenomenon that implies changes in the economy of different countries. Mexico, and even Guanajuato, is a clear example of this, even Guanajuato. Every time that a transnational company comes (more likely in this area are the automotive companies), investments from other countries bring jobs with higher salaries, cause the government to improve infrastructure, produce changes in legislation, families move, and much of the economy grows. This globalization implies cultural exchanges, environmental consequences, higher competitiveness in the market, and opportunities to go to other countries to practice our profession.
1.1 The importance of globalization
In the past, goods and services were produced locally. Nowadays, we have many options when it comes to purchasing a product or service: you can buy from a retailer, a supplier, for different cities, regions, and even countries. Let’s see an example. Not long ago, mobile phones coming from China, such as Huawei or Xiaomi, were barely recognized by Mexican customers, but nowadays, these products are an option to buy. As Chinese phones promise good features with competitive prices, other companies were pushed to develop better features, to be more efficient to try to reach the low prices, to make advertising campaigns, branding to make the customers feel that they belong to a brand. It even caused the government to apply a tariff or quota.
Not only the consumer can get benefits of globalization. A producer can have a better development or market in other countries, examples are the products that are being exported daily, e.g. tons of avocado, tomatoes, corn, electronic components, etc.
1.1.1 Reasons for globalization
The use of information and communication technologies (ICTs) has helped to facilitate international expansion of companies. More efficient methods of communication and international transportation have helped to break down geographical and linguistic barriers.
Many governments have realized the importance of international trade for their economies and have changed their policies to allow foreign investors and companies to establish in their countries. Globalization has economic, social and political implications.
(Fisher, Houghton & Jain, 2018).
We invite you to watch the following video to expand your knowledge about the causes of globalization and the different types of globalization:
1.2 Characteristics of globalization
Today there is greater trade with more cultural, technological, social, and political interaction between countries with fewer barriers and regulations. This makes the world a single market and the economies of different countries depend on each other. This dependency, as well as brand recognition, companies operating in more than one country help the development of the economy and make products and services more accessible anywhere in the world. However, this means that some local consumers or suppliers will struggle and will not have a chance to compete with those big companies
(Fisher, Houghton & Jain, 2018).
1.3 Growth of globalization
Migration and technological improvement are factors that have increased the speed of globalization. Likewise, the development of countries linked by free trade agreements has also contributed to the growth of globalization.
Free trade agreements are considered to be an important way to open foreign markets. Most free trade agreements aim to reduce trade barriers between member countries by creating favorable trade and investment policies. Free trade agreements also help business operations by improving economic and technical cooperation. Countries that wish to trade with each other form a trade and reach a common agreement to lower trade barriers within the member countries. For example, the Asia-Pacific Economic Cooperation (APEC) is an association of 21 countries whose objective is to promote free trade and economic cooperation throughout the Asia-Pacific region.
(Fisher, Houghton & Jain, 2018).
As we can see, free trades are significant representations of globalization. Do you know any free trade agreements in which Mexico takes part?
Currently, Mexico has 12 Free Trade Agreements signed with 46 countries, 32 Agreements for the reciprocal promotion and protection of investments with 33 countries, 9 Limited Scope Agreements within the framework of the Latin American Integration Association (ALADI for its acronym in Spanish) and is a member of the Trans-Pacific Partnership.
(Servicio de Administración Tributaria, 2015).
These are some of them:
- United States–Mexico–Canada Agreement (USMCA)
- Free Trade Agreement between Mexico and the European Union (FTA EU-MX)
In the following video you will find a brief explanation of free trade:
1.4 Opportunities and threats of globalization
As we have already mentioned, globalization has a great impact on the people and the countries involved. People benefit from a wider variety of products available to them at a lower cost. In addition, multiculturalism promotes peace and understanding among people. Globalization is good for countries, as it leads to increased cooperation between them. Lower prices contribute to increased exports and incoming foreign currency.
(Crash Course, 2015).
Attracting foreign investments can help the government achieve its economic objectives, such as lowering employment, increasing economic growth, reducing poverty, etc.
Is globalization an opportunity or a threat? We invite you to watch the following video to answer that question and to learn how globalization can help with poverty:
The following figure shows the opportunities and threats of globalization:
|• Businesses can access more markets, which may lead to an increase in sales.
• Labour may be cheaper in host nations and so businesses can gain from lower cost.
• Due to increased competition, businesses operate more efficiently and reduce costs due to cost-effective innovations and economies of scale.
Reduction in costs will lead to greater profits. They can also offer their products at reduced prices, encouranging sales.
|• Local businesses in the host country may suffer as foreign companies start to sell their products at a cheaper price.
• Exchange rate fluctuations may cause lowering of profits.
• Competition will increase for both local and international businesses.
• The marketing and distribution costs for the international businesses will increase.
Image source: Fisher, Houghton & Jain (2018)
1.5 Introducing tariffs and quotas
We have learned that globalization has good and bad aspects. We have to take risks when globalization comes to a country. Imagine a chinese supplier of components that brings its product to Mexico with cheaper prices; that could affect the decision of consumers to purchase the products of the new supplier, make the companies in Mexico producing those components go bankrupt, increase unemployment. Consequently, the Mexican government may establish tariffs or quotas to help Mexican companies compete with the prices of the supplier from China, avoiding unemployment and not prohibiting the entry of the supplier from China.
We have prepared a presentation for you about the introduction of tariffs and quotas. We invite you to click on the following link:
1.6 The impact of exchange rate fluctuations
The success of international trade depends to a large extent on the exchange rate between currencies.
The main factors affecting exchange rates are demand and supply. If the demand for a currency is high, the exchange rate will rise. For example, if investors from Argentina want to invest in Singapore or buy Singapore’s exports, the demand for the Singapore dollar will rise. This will also affect the value of the Argentine currency, as they will have to change their Argentine peso for Singapore dollars. This will increase the supply of the Argentine peso in the foreign exchange market. This increased supply may lead to a drop in the value of the Argentine peso. Exchange rate changes can have a significant effect on a company in terms of sales, costs, and profits. Fluctuations in the exchange rate affect the levels of exports and imports. This, in turn, can have an impact on the economy as a whole.
(Fisher, Houghton & Jain, 2018).
1.6.1 Effect of depreciation of currency on exporters
A currency is said to depreciate if the value of the currency declines. Let’s see how this is affected through the following figure:
With this subtopic we have come to the conclusion of this lesson. We hope you find this information useful, since globalization is currently part of our lives and it is important to identify its impact on the national and international economy. See you soon in the next lesson. This documentary on globalization may be of interest to you:
Resumen e ideas relevantes
It is important that you keep in mind:
- Globalization is a phenomenon that changes the economy in different countries.
- In the past, goods and services were produced locally. Nowadays, as a consequence of globalization, we have many options when it comes to purchasing a product or service.
- More efficient methods of communication and international transportation have helped to break down geographical and linguistic barriers.
- Many governments have realized the importance of international trade for their economies and have changed their policies to allow foreign investors and companies to establish in their countries.
- Globalization makes the world a single market and the economies of different countries depend on each other.
- Migration and technological improvement are factors that have increased the speed of globalization. Likewise, the development of countries linked by free trade agreements has also contributed to the growth of globalization.
- Free trades are significant representations of globalization.
- If multinationals start to take over the trade in the host country, smaller businesses may stop competing, having to close down. So, governments often try to control the amount of international trade. Two of the main ways they use are tariffs and quotas.
- A tariff is a type of tax that is paid on goods that are imported or exported..
- A quota is a limit in the quantity that can be imported or exported.
Fuentes de consulta
- Crash Course. [CrashCourse]. (27 de noviembre de 2015). Globalization and Trade and Poverty: Crash Course Economics #16 . YouTube. Recuperado de: https://www.youtube.com/watch?v=9MpVjxxpExM
- Fisher, M., Houghton, M. y Jain, V. (2018). Cambridge IGCSE® and O Level Business Studies Coursebook. Cambridge: Cambridge University Press [recurso privado].
- Servicio de Administración Tributaria (SAT). (2015). Tratados y Acuerdos con México. Portal de servicio de aduanas. Recuperado de: http://omawww.sat.gob.mx/aduanasPortal/Paginas/index.html#!/mapaTratado
- Winkelmann, L. y Winkelmann, R. (1998). Tariffs, quotas and terms-of-trade: The case of New Zealand. Journal of International Economics, 46, 313-332. Recuperado de: https://www.econ.uzh.ch/dam/jcr:8cb3368b-a255-44e4-a944-0e7ebeb88de1/tqt.pdf