Impact of Globalization on Employment and Trade

Introduction

The adoption of national economies into a global economic system remains one of the most important developments of the recent centuries. This process of adoption has materialized in a remarkable growth in trade between countries. One of the notable aftermaths of the several centuries of technological development is that the world has become more connected than ever in virtually all aspects, including trade. Globalization is the term used to portray the growing interdependence of the world’s cultures, economies, and populations, which is brought about by cross-border trade in goods and services, flows of investment, technology, people, and information. The impact of globalization on employment has been a significant area of study. Over many centuries, countries have built economic partnerships to make these movements possible. In the present day global economic system, countries exchange both final products just as much as they exchange intermediate inputs. This has created a wide network of economic activities that cover the whole world. But according to Harrison (2013), in most of the continents, Europe particularly, the interconnected business activities don’t seem to have brought equal opportunities to member countries especially as it concerns participating companies. This paper seeks to review and analyze the different management approaches that can be effectively applicable with view to changes in global trade policies. Glenfarclas Distillery is cited as an example under the prevailing circumstances surrounding the UK’s exit from the European Union.

Globalization and Its Impact on Trade

Globalization thrives, mainly, on unbreached trade agreements reached by the member countries. In recent years, there have been a series of events within the European Union that continually influenced a need for the nullification of certain binding agreements. On the 23rd day of June 2016, the United Kingdom (UK) voted to leave the European Union (EU) (Bickerton 2018). There was a referendum and the result was that 17.4 million people, which represented 51.9% of the voters voted to leave EU while 16.1 million people that represented 18.1% of the voters voted to remain (Bickerton 2018). Consequently, in the month of March 2017, the government of the United Kingdom invoked Article 50 of the European Union Treaty. What this means is that, upon the UK’s exit from the European Union, there will be a number of charges that will be introduced in the affected countries (Tetlow 2018). These charges will have negative impacts on the supposed progress of different businesses and citizen because indigenous UK businesses will now have to pay extra charges from what was obtainable in EU countries (Tetlow 2018). While the UK government will do the same against EU citizens and their businesses, located in the UK, there might not be any direct support for private businesses of UK origin that operate in EU countries (Bickerton 2018).

Glenfarclas Distillery: A Case Study

Following the contemporary market drive, there are numerous UK companies that also operate internationally, mostly within the EU region. One of such companies is Glenfarclas. Glenfarclas Distillery has its origin in Ballindalloch, Scotland but operates in many European countries including Germany, France and Spain. Beyond the European Bothers, they also operate in USA and Taiwan. With the foreseeable new charges that will be imposed on companies like Glenfarclas in the EU countries, a good approach to business management requires that they explore other markets to enable them make up for whatever constraints that this new change brings upon their business operation.

On the other hand, any of such internal policies that seek to charge foreign businesses more than they charge local contents of similar products will directly impact positvely on the growth of the said local businesses. Following this logic, it means, therefore, that Glenfarclas will likely enjoy greater growth locally when such policies are fully implemented because paying lower charges to the UK government will give them competitive advantage over foreign businesses of similar nature. However, the UK markets alone may not be enough to fill for what might be lost through higher charges in other European Union Member-Countries because just as UK government may increases their charges on Foreign businesses, so will other EU countries increase theirs against UK businesses. In consideration of the above changes, it becomes the responsibility of the international business development manager to research deep towards exploring other business avanues in a manner that will create room for business expansion.

Glenfarclas Distillery produces products that are largely consumed in countries other than Europeans contries. The 2015 Glenfarclas Distillery financial report indicates some levels of growth in comparison to the previous years but this trend did not continue beyond 2017, possibly because of the Brexit issues that started gaining ground in 2016. For instance, the operational profit recorded the same year in the North America was £1,448m and that of Europe was £804m. In the subsequent years, the profits delined slightly following a drift in the companies operational policies.

Employment Impacts of Globalization: Trade and FDI

Notably, a significant economic impact of international trade is the type of people they type of environment attracts. According to the theory of the relative comparative advantages, both trade and FDI should take advantage of the abundance of labour. in DCs and so trigger a trend of specialization in domestic labour-intensive activities and so involve an expansion in local employment. However, contrary to this Heckscher-Ohlin (HO) prediction, the analysis of the recent literature supports the conclusion that the employment impact of increasing trade is not necessarily positive for a developing country. In particular, a relaxation of the hypothesis of homogeneous production functions across different countries allows for either the possibility of multiple equilibria (Grossman and Helpman, 1991), or for quite differentiated employment trends in the evolutionary “catching-up” models (Cimoli and Dosi, 1995). In fact, when “total factor productivity” increases in the DCs as a consequence of globalization, the employment enhancing competitive effect has to be compared with the direct labour-saving effect of the imported technologies (Kathuria, 2001). In other words, in a developing country, the final employment impact of increasing trade depends on the interaction between productivity growth and output growth both in traded goods sectors and in non-traded sectors. The final outcome cannot be assessed a priori for different reasons. On the one hand, export may involve a demand-led economic and employment growth, but - on the other hand – import may displace previously protected domestic firms, inducing labour redundancy.

Moreover, in the presence of supply constraints (lack of infrastructures, scarcity of skilled labour, under investment, inefficient labour market), even in the exporting sectors productivity growth may exceed output growth, to the detriment of job creation. Finally, domestic sheltered sectors (such as agriculture, public administration, construction, non-traded service) may act as labour sinks, often implying hidden unemployment and underemployment in the informal labour market (Fosu, 2004). Shifting our focus from trade to FDI inflows, when a developing country opens its borders to foreign capital, FDIs generate positive employment impacts both directly and indirectly through job creation within suppliers and retailers and also a tertiary employment effect through generating additional incomes and so increasing aggregate demand (Lall, 2004). Yet, all these positive employment effects of “greenfield” FDI have to be compared with the possible crowding-out of non-competitive and previously sheltered domestic firms (implying bankruptcies and job losses); with the possible labour-saving effects of the new technologies brought about by multinational firms; and with the possible reduction in employment associated with FDI operating through Mergers and Acquisitions (M&A). In fact, both imports and inward FDI may imply a “crowding out” of domestic production (especially formerly protected nascent industries; think, for instance, to the case of large urban state-owned firms in China, (Rawski, 2002). This job displacement effect can be further amplified when FDI inflows are accompanied by financial liberalization and consequent increases in the interest rate, in turn leading to shrinking domestic investments (Berg and Taylor, 2001). Since the overall employment impact of trade and FDI is uncertain from a theoretical point of view, it is important to collect data on these relationships and to empirically investigate the direct and indirect effects of globalization on the domestic employment of a globalizing DC. Matusz and Tarr (1999) survey the studies carried out before 1995 on the impact of globalization on employment in DCs. Comparing the level of employment before and after trade liberalization the authors conclude that trade and FDI liberalization has been beneficial for labour except in the transition countries of Eastern Europe. Ghose (2003) analyses the relationship between trade liberalization and manufacturing employment. He highlights that - although increasing trade and FDI have been relevant only in a small bunch of newly industrialized countries - for those countries the growth of trade in manufactured products has implied a large positive effect on manufacturing employment. More evidence has been collected at the national level mostly for the manufacturing sector. It draws a contrasted picture of the effect of globalization. In successfully integrating DCs, the employment effects of trade liberalization has been mixed (mostly negative) in Latin UK (Revenga, 1997) whereas they seem globally positive in Asian countries (Orbeta, 2002).

Indeed, the theoretical issues and the empirical evidence discussed in Lee and Vivarelli (2004) lead to the conclusion that the employment impact of trade and FDI is country and sector specific and that the HO theorem is actually rejected in most cases. For instance, Lall (2004) observes that – while there is a clear evidence that several DCs have exhibited export and employment growth as a consequence of opening to trade and FDI (UNIDO, 2002) – doubts can be cast about the belief that globalization should always benefit employment growth within a DC; indeed, different “national absorptive capacities in terms of institutional setting, labour skills, technological capabilities and competitiveness of domestic firms – can amplify the positive employment impact of globalization, while institutional mismatches between the market, the organisations and the government (Shafaeddin, 2005) and lack of local capabilities can severely jeopardize the potential for economic and employment growth In this framework, Gros (2004) notes that opening to trade implies both an increase in value added and in labour productivity and so that the employment impact cannot be predicted a priori; empirically, the best results in terms of employment growth happen to be within the “non globalizing” DCs (basically because of a lack of any improvement in labour productivity) and in the “slowly globalizing” DCs which are characterised by a labour friendly balance between output and productivity trends.

Conclusion

Finally, Spiezia (2004) studies the employment impact of trade on the manufacturing sector. By comparing labour intensities of exported, imported and non-trade goods the author concludes that in 21 out of 39 sampled DCs an increase in the volume of trade resulted in an increase in employment; however, in the second group of 18 countries, increased integration produced a reduction in employment (in contrast with the HO theorem). As far as FDI is concerned, the author finds out that the impact of FDI on employment is increasing with per-capita income, resulting not significant for lowincome DCs. Scientifically we can conclude that sectoral structure is not sufficient to explain regional development, even though sectors do have an influence on regions' potentials. It seems that segments of production (notably through the related levels of qualification) are more decisive, but that in general a more generic approach such as the one proposed by evolutionary economic geography would be more appropriate to understand regional dynamism. It is also important to note that impacts can be very different between GVA and employment.

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