Globalization is a method of interaction of developing the global economy among all the countries of the world. It is basically the integration of economies with all the economies of the world. The globalization is the process of integrating country’s economy with the world’s economy. Globalization helps in the reducing geographic inequalities by spreading jobs and business opportunities. (Hector Archytas, 2011)
DEFINITION OF FREE TRADE
The term free trade refers to an economic concept involving the selling of products and services without any trade barriers or tariffs across countries. It is basically trading between firms from different countries without any trade barriers or regulations. Most of the countries have started adapting to free trade but a major debate is still there for all the third world countries as whether or not will this help them. (Word Iq, 2010′)
(Source: GDP available from http://www.treasury.gov.au/documents/1396/html/docshell.asp?url=02_east_asia_investment.htm)
EFFECT OF GLOBALIZATION ON EAST ASIAN COUNTRIES
The United Nations Organizations (UNO) declared the year of 1960’s as the era of global development. And it has been four decades now that poverty is reducing and the GDP and the Per capita income rate are increasing. This has been witnessed in most of the countries but the following points lay stress on the effects of globalization on East Asian Countries namely Malaysia, Philippines, Cambodia, China, Japan, Taiwan, Indonesia, Thailand, and Vietnam (Bunker G.)
Malaysia was a very backward country before its independence. It showed interest in globalization after joining the GATT (General Agreement on Tariffs and Trade) and since then Malaysia has been one of the most globalized developing country among all. Malaysia had reduced tariffs on 79% of imports and was gaining more from the increasing manufactured exports. The Gross Domestic Product was rising and there was an increase in the economic liberalization every year.
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Malaysia was incurring trading losses of about RM 53,691 million in 1997 but with the increase in Foreign Direct Investment (FDI) the losses were covered and the manufacturing revenue rose to about RM 80,870 million. But the impact on the pharmaceutical industry was drastic where the price of drugs rose from 6-110% and the availability of new medicines and drugs were controlled. (Mohammed Shakur, 2002)
Globalization has affected the Chinese Economy in different areas such as trade, financial market, economic distribution and the environmental issues. In the past few decades, China has experienced some very good and significant increases in international trading and investments. China has globalized to the Maximum possible extent, that much that each and every country is using products from china. Poverty has been reduced to the maximum in this country, however the economic growth was average from till 2007 8.5% per year but has been rising since then. China joined the World Trade Organizations and increased its Gross Domestic Product and Foreign Direct Investments to about 17% annually since the last 30 years. The Chinese Stock Market provided a new way of investment for both domestic and foreign investors encouraging further economic growth and development. So the most affected country is China which has been booming since the last 30 years. (Peit, 2009)
Previously the human development index was very low and more than 70% of the people were below the poverty line. With the impact of globalization on the country, most of the people have jobs now and are not unemployed. More than 70,000 Filipino men and women are working in Hong Kong. Most of the people are educated and the country’s economic growth has been increasing. (Dass, 2002)
A country like Cambodia has flourished a lot with the increase in globalization. Its timber trade was worth US$130 million in 1998. Cambodia’s economic development basically depends on the export of the clothes and the boom of garment factories. It was given an award for the MOST FAVORED NATION and with this most of the buyers prefer Cambodia. Foreign Direct Investment has been increasing with this and most of the foreign clients prefer Cambodia for its clothing and insist on investing in it. Job opportunities are still a problem but will are getting solved slowly with international education coming in.
Japan was undergoing a recession for the past few years. But with WTO introducing globalization there country has about USD 1 trillion in the public bank for public expenditure. Japan is coming up the most reliable and the most high tech technologies that most of the countries use in today’s world. Most of the countries invest in Japan and these results in the increase in the FDI and increase the PCY of the country. (Dass, 2002)
Taiwan is a country with limited natural resources and in 1960’s a lot FDI was attracted thanks to the improvement of environment. Since then Taiwan has economically developed tremendously. ‘Imports significant amounts of intermediate products through sizeable export growth and trades with China, USA, HK, Japan, Australia the EU & other economies of SE Asia. Greatest exporter was HK in 2002 who accounted for 23.6% of overall exports. GDP growth rate for Apr-Jul the lowest in Asia at ‘2.4% compared to the previous year.’ Not only this, the exports worth USD 433 million in 1964 have risen to USD 130,597 million in 2002 which has created more jobs. (Piet, 2009)
Indonesia is full of precious rain forests and was under threat due of globalization. Globalization leads to the increase in tourism. The rain forests in Indonesia are massive and even the second largest in the world having 500 mammal species. Indonesia has four major religions namely Islam, Christianity, Buddhist and Hinduism. (Rajan S., Rongala S., 2008). People in Indonesia have witnessed economic growth. Globalization has added to the security. The market economy is also rising with people leading a good and a happy life. But however, many employees were tuned out from their respective jobs in order to decrease the company’s cost and this even resulted in high unemployment. Also there were many differences in religions and in order to solve these problems IMF (International Monetary Funds) gave loans so that the Rupiah can be stabilized at a rate and also to pay off the debts. (Dass, 2002)
THAILAND AND VIETNAM
Since 1992, Thailand Government’s policies have been set under IMF agreements. As a result of this, private and government sectors had accumulated millions of US Dollars’ worth of loans. But when the economy started to rise since 1997, there foreign investors started investing more in the country. Now, the country has increasingly high FDI due to the tourism industry. In Vietnam, there is a major boom period in the import and export industry. ‘And there is a growing anxiety in OECD countries’. The government decided to adopt the state-controlled market economy. The shift in the market was deep and the difference in the rich and poor was increasing in the rural as well as the urban areas. ‘The discrepancy between the highest income group and the lowest income group has risen from 5.6 times in 1992 to 7.3 times in 2001. The discrepancy ratio of average living standard between cities and rural areas has increased from 2.3 times in 1994 to 5 times at present.’ But now the country is still rising even with so many ups and downs it is flourishing. (Dass, 2002)
(Source: FDI into East Asia, available from http://220.127.116.11/pub/docu/en/ah/pc/ahpc1999009/ahpc-1999-009-010.htm)
FEW COMMON EFFECTS ON THESE COUNTRIES ARE that the local and the small companies also get a chance to improve quality and their standards when the global companies enter the market and it becomes a win-win and ‘survival of the fittest’ situation. With globalization, all global companies enter different countries and it becomes a situation to attract new talent from the market. In such cases the local companies need more people to work in order to stay in the market. ‘In developing countries, there is often a lack of capital which hinders the growth of domestic companies and hence, employment. In such cases, due to global nature of the businesses, people of developing countries too can obtain gainful employment opportunities. There are a few negative aspects as well of globalization such as people like programmers; bankers have lost their jobs due to the companies outsourcing most of their work to other countries in order to save money. Sometimes instead of making good quality products, it leads to exploitation of workers and in turn cheap and undesirable quality goods are manufactured. Natural problem such as pollution has also been increased with the increase in the amount of factories and industries even in the residential areas. With outsourcing comes a problem of job insecurity which haunts every employee day and night. Though the prediction was that with globalization everyone will get jobs and poverty will reduce however it went the opposite way, the rich become richer and the poor people went poorer.(Buzzle, 2010)
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But the developed countries have lost jobs on account of this movement of jobs to the developing world and hence it is a pinch felt by people in the First World’. Another important impact is the foreign trading. All the domestic companies get a new platform and an opportunity of foreign trading and increasing the quality and capturing more of the market share. There is another major impact of prospering. For example China and India, these two countries were backward but with globalization, the quality has improved and foreign trade has also started and this in turn helps in the labor amount also. There is no need to get any labor from America now. All the employees are highly cultured and possess the same technical knowhow just as the other countries. (Craig Nash, 2008)
EFFECTS OF FREE TRADE ON EAST ASIAN COUNTRIES
East Asian Countries were a relative newcomer to the Free Trade Agreements (FTA) and this explosion was at first started by China, Japan and Korea. They were connected to support the trade production through continuous trade and investment. By 1990, the East Asian economies accounted to more than 23% of the world exports and by the end of 2008 this figure increased to 26%.
Japan was the first one among all the neighbouring countries to have a newly industrialized economy which was then followed by Malaysia, China, Thailand and Vietnam and a high-level firm strategies contributed to a becoming an east Asian global factory.
‘FTAs were not initially part of East Asia’s dynamic growth story and were largely absent from the region prior to the 2000s. Instead, outward-oriented development strategies, high domestic savings rates, the creation of strong infrastructure, and investment in human capital were key domestic policy ingredients. A booming world economy hungry for labour-intensive imports from East Asia, falling tariffs in developed country markets, inflows of trade related foreign direct investment (FDI), generous foreign aid flows, and supplies of inexpensive and productive labour all favoured outward-oriented growth in East Asian economies.'(Kawai M., Wignaraja G., 2010)
Singapore is by far ASEAN’s most active economy according to the number of FTAs and the geographic coverage. It has world class infrastructure, most strategic located economy and the headquarters are full of the world leading Multinational companies and is now heading towards international markets. Malaysia and Thailand are still emerging for regional hubs for automobile and electronics industries. Philippines first bilateral agreement with Japan, took place in 2008. Cambodia, Vietnam, Philippines, and Indonesia have to rely on ASEAN for conducting Foreign Trade agreements. ‘This may reflect weak institutional capacity a lack of technical and administrative resources, and limited leverage to undertake FTA negotiations in poorer economies. As such, the ASEAN framework offers the possibility of pooling scarce capacity and resources.’ (Kawai M., Wignaraja G., 2010)
Free trade has a few positive effects that it helps in increasing healthy competition as with the increase in demand the cost reduces and efficiency increases thus creating monopolies. It also leads to the optimum utilization of resources as all the raw material is used up; high quality raw material is not wasted, hence leading to economic growth as demand and supply change. There is also another important aspect of increased choices as import and export increases and the market gets flooded with numerous options (Benegitof, 2010).
Lastly the government and international relations are well maintained with the frequent free trade relations among them. But there are a few negative effects as well. With this there would a problem of increase in competition among the local companies as they would be competing with all the other international companies in their own market with the same customers. Not only that, this situation in turn leads to a situation of unemployment as the companies would need high skilled labor and technologies to match the other international competition and for this, they would recruit high skilled people and leading to increase in unemployment. Some companies even tend to restructure their operations and the management which is also a time taking and an expensive task. Also in some parts this results in economic underdevelopment as some parts of the nation would get all the high quality products and services but some won’t even get that. These are the major flaws of free trade. (Ehow, 2010)
With the current economic situation that is going on all over the world, it is of utmost importance that countries are exposed to globalization and free trade. The benefits of these can bring about positive changes in countries, not only in East Asia, but all over the world. With the increase of globalization, consumers are also available to new choices and more alternatives for products, creating a satisfied market in these countries (Dlaybay R.).