How Globalization Affects Developed Countries

The phenomenon of globalization began in a primitive form when humans first settled into different areas of the world; however, it has shown a rather steady and rapid progress in recent times and has become an international dynamic which, due to technological advancements, has increased in speed and scale, so that countries in all five continents have been affected and engaged.

What Is Globalization?

Globalization is defined as a process that, based on international strategies, aims to expand business operations on a worldwide level, and was precipitated by the facilitation of global communications due to technological advancements, and socioeconomic, political and environmental developments.

The goal of globalization is to provide organizations a superior competitive position with lower operating costs, to gain greater numbers of products, services and consumers. This approach to competition is gained via diversification of resources, the creation and development of new investment opportunities by opening up additional markets, and accessing new raw materials and resources. Diversification of resources is a business strategy that increases the variety of business products and services within various organizations. Diversification strengthens institutions by lowering organizational risk factors, spreading interests in different areas, taking advantage of market opportunities, and acquiring companies both horizontal and vertical in nature.

Industrialized or developed nations are specific countries with a high level of economic development and meet certain socioeconomic criteria based on economic theory, such as gross domestic product (GDP), industrialization and human development index (HDI) as defined by the International Monetary Fund (IMF), the United Nations (UN) and the World Trade Organization (WTO). Using these definitions, some industrialized countries are: United Kingdom, Belgium, Denmark, Finland, France, Germany, Japan, Luxembourg, Norway, Sweden, Switzerland and the United States.

Components of Globalization

The components of globalization include GDP, industrialization and the Human Development Index (HDI). The GDP is the market value of all finished goods and services produced within a country's borders in a year, and serves as a measure of a country's overall economic output. Industrialization is a process which, driven by technological innovation, effectuates social change and economic development by transforming a country into a modernized industrial, or developed nation. The Human Development Index comprises three components: a country's population's life expectancy, knowledge and education measured by the adult literacy, and income.

The degree to which an organization is globalized and diversified has bearing on the strategies that it uses to pursue greater development and investment opportunities.

The Economic Impact on Developed Nations

Globalization compels businesses to adapt to different strategies based on new ideological trends that try to balance rights and interests of both the individual and the community as a whole. This change enables businesses to compete worldwide and also signifies a dramatic change for business leaders, labor and management by legitimately accepting the participation of workers and government in developing and implementing company policies and strategies. Risk reduction via diversification can be accomplished through company involvement with international financial institutions and partnering with both local and multinational businesses.

SEE: Evaluating Country Risk For International Investing

Globalization brings reorganization at the international, national and sub-national levels. Specifically, it brings the reorganization of production, international trade and the integration of financial markets. This affects capitalist economic and social relations, via multilateralism and microeconomic phenomena, such as business competitiveness, at the global level. The transformation of production systems affects the class structure, the labor process, the application of technology and the structure and organization of capital. Globalization is now seen as marginalizing the less educated and low-skilled workers. Business expansion will no longer automatically imply increased employment. Additionally, it can cause high remuneration of capital, due to its higher mobility compared to labor.

The phenomenon seems to be driven by three major forces: globalization of all product and financial markets, technology and deregulation. Globalization of product and financial markets refers to an increased economic integration in specialization and economies of scale, which will result in greater trade in financial services through both capital flows and cross-border entry activity. The technology factor, specifically telecommunication and information availability, has facilitated remote delivery and provided new access and distribution channels, while revamping industrial structures for financial services by allowing entry of non-bank entities, such as telecoms and utilities.
Deregulation pertains to the liberalization of capital account and financial services in products, markets and geographic locations. It integrates banks by offering a broad array of services, allows entry of new providers, and increases multinational presence in many markets and more cross-border activities.

In a global economy, power is the ability of a company to command both tangible and intangible assets that create customer loyalty, regardless of location. Independent of size or geographic location, a company can meet global standards and tap into global networks, thrive and act as a world class thinker, maker and trader, by using its greatest assets: its concepts, competence and connections.

Beneficial Effects

Some economists have a positive outlook regarding the net effects of globalization on economic growth. These effects have been analyzed over the years by several studies attempting to measure the impact of globalization on various nations' economies using variables such as trade, capital flows and their openness, GDP per capita, foreign direct investment (FDI) and more. These studies examined the effects of several components of globalization on growth using time series cross sectional data on trade, FDI and portfolio investment. Although they provide an analysis of individual components of globalization on economic growth, some of the results are inconclusive or even contradictory. However, overall, the findings of those studies seem to be supportive of the economists' positive position, instead of the one held by the public and non-economist view.

Trade among nations via the use of comparative advantage promotes growth, which is attributed to a strong correlation between the openness to trade flows and the affect on economic growth and economic performance. Additionally there is a strong positive relation between capital flows and their impact on economic growth.

Foreign Direct Investment's impact on economic growth has had a positive growth effect in wealthy countries and an increase in trade and FDI, resulting in higher growth rates. Empirical research examining the effects of several components of globalization on growth, using time series and cross sectional data on trade, FDI and portfolio investment, found that a country tends to have a lower degree of globalization if it generates higher revenues from trade taxes. Further evidence indicates that there is a positive growth-effect in countries that are sufficiently rich, as are most of the developed nations.

The World Bank reports that integration with global capital markets can lead to disastrous effects, without sound domestic financial systems in place. Furthermore, globalized countries have lower increases in government outlays and taxes, and lower levels of corruption in their governments.

One of the potential benefits of globalization is to provide opportunities for reducing macroeconomic volatility on output and consumption via diversification of risk

Harmful Effects

Non-economists and the wide public expect the costs associated with globalization to outweigh the benefits, especially in the short-run. Less wealthy countries from those among the industrialized nations may not have the same highly-accentuated beneficial effect from globalization as more wealthy countries, measured by GDP per capita etc. Although free trade increases opportunities for international trade, it also increases the risk of failure for smaller companies that cannot compete globally. Additionally, free trade may drive up production and labor costs, including higher wages for more skilled workforce, which again can lead to outsourcing of jobs from countries with higher wages.
Domestic industries in some countries may be endangered due to comparative or absolute advantage of other countries in specific industries. Another possible danger and harmful effect is the overuse and abuse of natural resources to meet new higher demands in the production of goods.

The Bottom Line

One of the major potential benefits of globalization is to provide opportunities for reducing macroeconomic volatility on output and consumption via diversification of risk. The overall evidence of the globalization effect on macroeconomic volatility of output indicates that although direct effects are ambiguous in theoretical models, financial integration helps in a nation's production base diversification, and leads to an increase in specialization of production. However, the specialization of production, based on the concept of comparative advantage, can also lead to higher volatility in specific industries within an economy and society of a nation. As time passes, successful companies, independent of size, will be the ones that are part of the global economy.

SEE: What Is The World Trade Organization?

By Nicolas Pologeorgis

Source:http://www.investopedia.com/articles/economics/10/globalization-developed-countries.asp

For Singapore, globalization is still the future, despite ‘dark shift’ to protectionism

Roslan Rahman | AFP | Getty Images

A Singapore Mass Rapid Transit (SMRT) train plies along a line at the Jurong East interchange (back R) in Singapore on July 18, 2016.

Singapore has planted a fresh flag to promote global trade - in stark contrast to what it sees as a "dark shift" toward protectionism in other developed markets.

The city-state's Committee on the Future Economy (CFE) on Thursday released its long-awaited report on how the island-nation will address challenges from stagnant economic growth as key industries, such as trade and commodities, suffered from a slowdown and digital disruption.

The CFE was set up last year to develop strategies to prepare the workforce for economic and social challenges, including digital disruption and an aging population.

The 30-member committee was co-chaired by Finance Minister Heng Swee Keat and Minister for Trade and Industry S. Iswaran, and included cabinet ministers, members of parliament and business leaders. The report will form the basis for Singapore's upcoming budget statement later this month.

Singapore, despite being less than a quarter of the size of the state of Rhode Island, often punches well above its weight diplomatically and can help to set the rhetorical tone for the region. It is Southeast Asia's only country with developed nation status.

But the city-state has long hung its hat on openness to global trade and among the various challenges to the country's economy, the delayed CFE report honed in on recent political developments in the U.S. and Europe.

"Most worryingly, the world saw a dark shift in mood away from globalization in 2016. It no longer seems certain we are on an inexorable course towards greater globalization, stronger multilateral institutions and a more connected world," the report said.

Roslan Rahman | AFP | Getty Images

People use their phones while taking the Mass Rapid Transit (MRT) train in Singapore.

"Instead, we saw nativist politics and protectionist economics growing in strength and influence in Europe and the U.S. The anti-globalization trend will undermine international trade, hurting all economies, but particularly small open ones like Singapore, with two-thirds of our gross domestic product (GDP) generated by external demand."

That followed U.S. President Donald Trump's decision last month to formally pull the U.S. out of the Trans-Pacific Partnership (TPP), which would have created a 12-country Pacific rim free-trade bloc, including Singapore. The TPP, which was negotiated during President Barack Obama's term in office, hadn't yet been voted on or ratified by Congress.

Trump also signalled he planned to renegotiate the North American Free Trade Agreement (NAFTA), enacted in 1994, which eliminated most tariffs between Mexico, the U.S. and Canada.

Following a referendum last year, the U.K. has also moved to exit the European Union trade bloc and in France, nationalist National Front party leader Marine Le Pen, who is opposed to the EU and globalization, has advanced in election polls.

Singapore's CFE, however, said the city-state's future remain focused on developing international ties, although the report placed great emphasis on regional ties as important for future economic growth.

       
"We must resist the threat of rising protectionism. Singapore must continue to work with like-minded partners," the report said, including "less traditional" ones.

"The U.S. and Europe continue to have innovative companies and people, whom we can work with. We also see strong potential in many Asian markets – in particular Southeast Asia, China and India – as well as in emerging markets farther afield," the report said.

It particularly cited the opportunities from the rise of the middle class and urbanization in Asia.

"We cannot know which industries will succeed," the report said. "What we do know is that Singapore must stay open to trade, talent and ideas and build deep capabilities."

The report offered seven strategies, some of which were previously announced efforts.

One strategy was to continue to work to reduce trade barriers and tariffs, as well as to build further "innovation alliances."

That included tie-ups between universities and foreign and domestic start-ups as well as opportunities for Singaporean students to study overseas. The report also advocated for greater market research across the region, to deepen specialized knowledge of markets.

        

The report cited existing industrial and business parks the city-state's companies have been developing in India, Indonesia and Vietnam, as well as township projects in China.

In what could represent a cultural shift for Singapore's strong emphasis on education, the report advocated moving away from "the pursuit of the highest possible academic qualifications early in life" and toward life-long learning and retraining approaches.

The report also targeted increasing commercialization of the government's investments in research and development.

The CFE also advocated continuing Singapore's efforts to become a start-up hub in the region, aiming to encourage partnerships between small and large enterprises and improve access to venture capital.

It particularly advised increasing digitization and encouraging it among small businesses. Singapore already has been a global leader in moving government functions online. Going further, the CFE advised developing data analytics and cyber security industries and data science programs.

The CFE also advised greater digital connection with other economies as well as greater infrastructure connections. It cited the continued expansion of the city-state's airport as well as other projects, including a high-speed rail between the city-state and Kuala Lumpur, the capital of Malaysia, its neighbour to the north.

Developing "exportable capabilities," such as research on self-driving vehicles and water technologies, were also cited.

By Leslie Shaffer | Yen Nee Lee

Source:  http://www.cnbc.com/2017/02/09/for-singapore-globalization-is-still-the-future-despite-dark-shift-to-protectionism.html

Ride ManpowerGroup as the Nature of Global Workforce Changes

Many politicians and economists lament the increasing use of temporary labor, seeing it as a disenfranchisement of workers and a threat to the middle class. Temps tend to work for less pay and without benefits or workplace protections.

However, you should seek to profit from trends even if they're not pretty -- and like it or not, the rise of the lower-wage "temp" is now a permanent part of economic reality.

The one stock that's best positioned to benefit from this inexorable transformation of the labor force is ManpowerGroup(MAN - Get Report) , a third-party staffing agency. The stock has been on a tear all year and should continue to outperform into 2016 and beyond. What's more, MAN is a compelling value at current prices.

Spawned by globalization, greater reliance on outsourcing to developing nations, and the pressure of corporate downsizing, increasing numbers of jobs are shifting from permanent to temporary. And temp labor isn't just the province of discount retailers such as Walmart Stores. Major blue chip companies such as General Electric, which have enormous global reach, are making temp labor a common practice.

Temps are in booming demand in both developed and developing countries, as companies strive for labor flexibility during a recovery that's uneven and vulnerable to setbacks.

Uncertainty over the requirements of Obamacare's health insurance coverage also is prompting many companies, particularly smaller ones, to get around the health reform law by resorting to temporary workers. Temps sometimes get health insurance, but usually that expensive benefit is only given to full timers.

The U.S. Bureau of Labor Statistics (BLS) reports that temporary workers currently account for about 70% of the nation's new jobs, compared to about 30% for full-time jobs.

The average duration of employment with a staffing firm currently is about 12 weeks. Temps also tend to work fewer than 35 hours a week, defined by BLS as part-time employment.

Since the Great Recession ended in June 2009, the number of temporary workers in the U.S. has skyrocketed more than 50% to nearly three million, the highest number on record.

 MAN data by YCharts 

As a staffing agency, ManpowerGroup is in the sweet spot to benefit from these labor conditions. With a market cap of $6.5 billion and 26,000 employees around the world, Milwaukee-based ManpowerGroup specializes in human resources and IT but fills a wide range of positions.

IT is the granddaddy of outsourced staffing functions and continues to provide ManpowerGroup with huge opportunities for growth, because of the ready ability to reap savings and streamline operations that are digital in nature.

Health care and human resources are additional growth drivers for ManpowerGroup. Obamacare's requirement for more Americans to receive primary care coverage, combined with an aging population, will fuel the need for temporary health care workers, as well as human resources experts who can interpret the massive and complex law.

On October 21, ManpowerGroup released earnings before the market's opening bell that beat expectations, reporting third-quarter fiscal 2015 earnings of $123.9 million, for earnings per share (EPS) of $1.61. Adjusted for non-recurring costs, EPS hit $1.86. The results topped Wall Street's consensus forecast of $1.55.

Manpower shares have risen nearly 30% year to date; the stock has soared 42% over the last 12 months, with plenty of upside left. If you're looking to profit from an unstoppable trend that affects millions of workers around the world, this stock does the job.

Looking for other bargain-priced, often ignored plays on the globalization of the economy? Click here for a free list of hot stocks that any value investor should love.

By John Persinos 

Source: http://www.thestreet.com/story/13332791/1/ride-manpowergroup-as-the-nature-of-global-workforce-changes.html