Globalization to Enhance the Competitive

Globalization

To enhance the competitive advantages of these developing countries, the idea of globalization takes place. The concept of "globalization" is quite simple. The free market must be allowed to function without interference. Governments must remove all barriers that prevent the full and free operation and movement of goods and services, capital, firms and financial institutions across borders (Mohamad, 2002 para 6).

Globalization means that world trade and financial markets are becoming more integrated. But just how far can these developing countries commit to globalization? Their experience in catching up with the advanced economies has been mixed. A larger number of developing countries have made only slow progress or have lost ground. In particular, per capita incomes in Africa have declined relative to the industrial countries and in some countries have declined in absolute terms (http://www.globalizzazione2000.it/developing_countries.htm,2006 para 3).

There are four aspects of globalization - the trade, capital movements, population movement and knowledge spread. All these aspects are important, as this is very significant in classifying whether a country is ready and has big potential for globalization.

Trade: Developing countries as a whole have increased their share of world trade-from 19% in 1971 to 29% in 1999. The composition of what countries export is also important. The strongest rise by far has been in the export of manufactured goods. The share of primary commodities in world exports -- such as food and raw materials -- that are often produced by the poorest countries has declined (http://www.globalizzazione2000.it/developing_countries.htm,2006 para 1).

Capital movements: Direct foreign investment has become the most important category. Both portfolio investment and bank credit rose but they have been more volatile, falling sharply in the wake of the financial crises of the late 1990s (http://www.globalizzazione2000.it/developing_countries.htm,2006 para 2).

Movement of people: Workers move from one country to another partly to find better employment opportunities. The numbers involved are still quite small, but in the period 1965-90, the proportion of labor forces round the world that was foreign born increased by about one-half. We have to take note of the fact that it is from the developing countries where most migration occurs. But the flow of migrants to advanced economies is likely to provide a means through which global wages converge. There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise (http://www.globalizzazione2000.it/developing_countries.htm,2006 para 2).

Spread of knowledge (and technology): Information exchange is an integral, often overlooked, aspect of globalization. For instance, direct foreign investment brings not only an expansion of the physical capital stock, but also technical innovation. More generally, knowledge about production methods, management techniques, export markets and economic policies is available at very low cost, and it represents a highly valuable resource for the developing countries (http://www.globalizzazione2000.it/developing_countries.htm,2006 para 2).

The special case of the economies in transition from planned to market economies -- they too are becoming more integrated with the global economy. The term "transition economy" is losing its usefulness. Some countries (e.g. Poland, Hungary) are converging quite rapidly toward the structure and performance of advanced economies. Others (such as most countries of the former Soviet Union) face long-term structural and institutional issues similar to those faced by developing countries (http://www.globalizzazione2000.it/developing_countries.htm,2004 para 3).

In theory, globalization is supposed to be for the good of all. In reality, the developed countries on behalf of their companies and financial institutions designed this concept. Their main purpose is to overcome the regulations set up by developing countries to promote their domestic economy and local firms which had been marginalized during colonialism. In practice, following these policies can bring country new opportunities for wealth creation. But it also brings new risks that can destroy prosperity -- as what we have seen in East Asia and later in Argentina (Mohamad, 2002 para 11).

A country must carefully choose a combination of policies that best enables it to take the opportunity -- while avoiding the pitfalls. That is a task easier said than done. A country that is still poor or developing may find that it is not wise to jump blindly into complete integration with the world economy, for this may open it up to many risks that can damage its local economy (Mohamad, 2002 para 11).