The economic boom period post globalization era brought in new changes and expanded opportunities in all sectors of business and commerce. Economies witnessed a rapid shift towards knowledge centered growth that focuses on human capital as the most valuable asset in the organization. Global trade increased in response to liberalization policies adopted by governments. In midst of these changing dynamics focus of business establishments were diverted to emerging market economies that offered increased consumerism and huge market potential.
The growing wealth and prosperity in these developing nations capitalizing on the waves of globalization offered attractive markets to foreign investors. Many companies expanded their operations into these new market economies to benefit from increased consumerism. The paper highlights the impacts of globalization and liberalization policies on economic prosperity and growth of consumer markets.
The discussion provides suitable measures that can be adopted to manage growing inequality of wealth and resources and how businesses like CarMax can re-engineer their business strategies to provide effective services to the middle and low income consumers. An overview of the global economic prosperity The market conditions over the last decade have changed dramatically owing to liberalization of economies, globalization and rapid pace in the technology change.
The globalization of markets and technology improvements have led to faster access to information, wider reach of markets, and increasing interconnectivity leading to removal of geographical boundaries. Evolving business climate includes vast transformations in the perception of organizational leadership, managerial functions, and human resource strategy. Corporate management faces more challenges in the form of changing corporate relations and increasing global influences that have set a new pattern in managing people and businesses.
Growing complexities within the business environment has created greater need for knowledge and understanding of the operating environment that affects the profitability and growth of the organization. “In a poll undertaken earlier this year in 34 countries for the BBC World Service, the unchecked pace of globalization and unfair distribution of its benefits and damages emerged as widely shared concerns” (World Economic and Social Survey, 2008). Developed economies are experiencing increased economic insecurity that is an after-effect of the widespread globalization and trade liberalization policies adopted by global economies.
Factors contributing to economic prosperity The growth of business ventures has come a long way from the times when barter system was the accepted mode of trade to an era of multinational growth and investment that defies geographic boundaries. In recent times entrepreneurs are re-engineering their business strategies to accommodate advancing technology and rapid innovation in the field of information technology and e-commerce. Technology has equipped the workforce with speed and accuracy that has enhanced overall productivity and efficiency.
The past few decades have witnessed tremendous splurge in the spending capacity of the people across the globe. Globalization of markets and economies has triggered a booming rise in consumerism. The rising scope and the immense earning potential that the economies provide today have made it easier for the individuals to earn and accumulate wealth. The favorable economic conditions have led to the rise in numbers of wealthy and highly affluent individuals across the globe.
Post globalization period witnessed widespread changes in the global financial markets that have played a significant role in regulating monetary flow across borders. Emerging economies like China and India reaped the benefits of increased inflow of foreign investments in the past few years. Global trade stimulates a country’s development and economic growth, creating additional job opportunities, and better standards of living. Global trade is beneficial for kinds of economies, whether developed or developing.
Producers’ benefit from selling their goods in international markets generating higher revenues and consumers benefit from expanded choices of products available in the market. The past few years have witnessed significant growth in international trade with most of the developing economies adopting trade liberalization policies. The emerging economies of China and India present huge market potential that is spurred by increasing wealth accumulation and increasing potential to spend on consumer goods and services.
Booming market conditions in countries like India and China have made significant impact on the global financial markets. Countries like India are striving to project themselves as viable partners to foreign investors offering service expertise in IT sector, outsourcing industry and product development and designing. The growing supply of knowledge workers in these economies is one of the vital elements that have added to the growth and prosperity of these countries.
“India which is now home to more English speakers (at least 350 million) than the United States and the UK combined, has been particularly successful in this respect, first attracting basic software development, then moving aggressively into customer service and sales through call centres, then expanding into more sophisticated back office functions like accounting and human resources” (Kelly, 2006). Indian software giants TATA, Infosys and Wipro have made a distinctive mark on the country’s economic progress.
Moreover, high economic growth rate triggered by increasing inflow of foreign direct investments into the emerging economies created increasing opportunities for entrepreneurs and skilled employees. Businesses started offering more wages and compensatory benefits to retain their workforce. The growth in wages increased the purchasing power of the people leading to growth in consumerism that fuelled the demand for more products and services in the market. The financial institutions offered attractive loans and credit to consumers to tap the booming market conditions.
“However, increased access of households to credit has meant that consumer spending can increase, even with stagnant incomes, as (rising) levels of indebtedness substitute for (falling) household savings. But as balance sheets adopt smaller margins of safety; the system becomes more and more fragile” (World economic and social survey, 2008). Economic friction and decline Trade in the various service industries assume several types of complexities – the telecommunications sector is driven by the technology, skilled professionals drive the health service providers, and the hotel and restaurant sector is driven by travel and tourism.
E-commerce has also re-defined the conventional trading of services. Outsourcing of jobs and off-shoring contracts are creating a whole new breed of service professionals who lend their expertise to companies across the borders. These developing economies provide cheap labour and easy availability of skilled professionals that lure foreign firms to reap the cost benefits provided through outsourcing of work. India and China are leading in the outsourcing business that has created tremendous job opportunities for the people of these countries in addition to improved standards of living.
However, this is another form of economic exploitation followed by the large multinational companies since the workers get paid reasonably lower compared to international standards and the workers are expected to deliver round the clock for enhanced productivity and efficient customer service requirements. The process of globalization and trade liberalization has opened doors to economic development and growth for emerging and developing economies. These countries have benefited immensely from the unrestricted flow of trade and foreign exchange creating new opportunities and promoting higher standards of living.
However, there is widespread concern regarding the ill effects of the unrestricted economic growth. Corporate globalization is the spread of big business across the globe and market experts feel that “as big business gets bigger, it gets more powerful meaning people and governments have less control over their lives” (Globalisation Issues, 2007). Entrepreneurs seek maximum profit and are least bothered about the social consequences. In face of growing dominance of large multinationals, the smaller companies are struggling to survive and sustain their business.
Large chain stores like Wal-Mart and Starbucks have taken consumers away from small ice-cream vendors, coffee shops, and local grocery stores. Another ill-effect of this unrestricted growth and economic prosperity is visible in concentration of wealth in the hands of few. The gap between rich and poor has increased. Economic activities are pushing resources into the hands of few who already have wealth accumulated, whereas farmers are forced to sell their stocks at low prices to business men who sell them at more than double prices in the big supermarkets.
The current global financial crisis has made a severe impact on all sectors of the economies across the world. The United States sub-prime mortgage crisis has crippled major economic powers causing severe setbacks in economic growth and development. Market prices have soared in the past few months and the financial markets are witnessing one of the most unstable market conditions. Banks and financial institutions are struggling to survive in such challenging economic conditions.
The liquidity crunch has affected the banking sector and financial institutions like Lehman Brothers and Fannie Mae have closed operations as a result. An evaluation of the emergence of the current global financial crisis has led many market experts to believe that this crisis is a result of poor government regulation of banks and financial institutions. A news article in the Telegraph, United Kingdom observes “The G20 leaders blame banks’ excessive leverage and poor risk management, along with inadequate banking regulation, for the current crisis”.
The United States government policies and weak regulatory system is discerned to be the cause behind this global financial turmoil. Inadequate regulation over bank’s lending policies produced an environment of “cheap money and rising asset prices that encouraged speculation” (Telegraph news article, 2008). Global trade can be a powerful mechanism to promote economic prosperity and growth but the negative effects are evident in the way the rules that govern global trade are “rigged in favor of the rich” (Globalisation Issues, 2007).
Recommendations for managing global prosperity Globalization of economies and liberalization of markets have rendered the global markets highly susceptible to global events. Markets have become more volatile as a result of global impacts and this has created the need for changing strategies in business operations and tactful government intervention to insulate the country’s economy from harmful economic effects. Monetary and fiscal policies are highly instrumental in regulating the country’s economy and creating market stability.
A critical aspect of business management today lies in evolving well defined strategies to meet global challenges posed in the form of new opportunities and emerging markets. The developing economies today have emerged as potential contenders for consumer markets and most multinational companies are venturing to extend its operations to these regions in search of higher profits. Advancing technology and lowered cost of telecommunications has opened new channels of business operations and this is visible in the increasing demand for outsourcing of business processing, knowledge processing and legal processing to developing economies.
Countries like China and India have displayed tremendous capacity to generate skills at competitive market rates and as such have become favored destinations for outsourcing activities. The Internet revolution and emerging e-commerce activities are yet another aspect that has thrown new light on business strategy development. Growing number of Internet users worldwide has extended the reach of entrepreneurs finding new ways to reach their potential global clients.
The amount of information available to the consumers through the Internet has created a new group of highly educated and well informed client base who have extensive access to competitive market information such as product prices, range of services available, features and scope of application. This makes marketing of goods and services even more challenging for the entrepreneurs. CarMax, one of the largest retailers of used cars in United States increased its market shares using market expansion strategies that focused on emerging economies of Mexico.
This market expansion strategy added with quality service to customers has contributed to the success of the company. In view of the global economic prosperity and its implications on increasing consumerism across the globe, the company decided to penetrate the markets of Mexico and results were impressive in the form of higher revenue figures in the first few years before the financial crunch hit the market. One of the factors that favored the rise in sales was the global financial crisis. Consumers could not afford new cars and hence the sale of used cars increased.
However, this was only a short term effect. Eventually the company reported nearly 48 percent drop in its quarterly earnings in the year 2008. “Consumers trading down from new to late model used cars usually provides a sales cushion for the likes of CarMax and other secondary market dealer, but rapid price declines of over 15 percent year to year in widely owned gas guzzlers, coupled with much tougher credit, limited home equity and a weaker economy have made the consumer upside down on loans and unable or unwilling to trade into another vehicle” (Smicklas, 2008).
In such adverse economic conditions CarMax should re-devise their business strategies to explore new markets and provide innovative solutions to bring cost advantage over other used cars. The focus should lie on increasing fuel efficiency of the used cars to lure customers into buying. Moreover, new markets having potential consumer base for low cost used car models can improve the company’s market shares.
This would also help in expanding operational base for the company adding the brand value of CarMax in the global market. Corporate entities assume big responsibility in influencing global trade negotiations and promote sustainable development that is based on social and economic progress instead of adopting marginalizing policies that create inequality among classes. International development should not be export-driven, but rather should prioritize uniform economic and social development.
Growth in international trade does have immense benefits for developing countries in terms of increased opportunities and improved lifestyle. India and China has reduced its poverty rates in the past two decades and the economies of both the countries have strengthened considerably. Rising GDPs, increased employment opportunities, increased foreign direct investments and transfer of skills and technology are some of the distinctive benefits of the rising global trade.
“But for all countries to reap the benefits of globalisation, the international community must continue working to reduce distortions in international trade (cutting agricultural subsidies and trade barriers) that favour developed countries and to create a more fair system. ” (Globalisation Issues, 2005) A survey report on the problems of globalisation states, “the world’s most engaged citizens say that while they personally embrace global trade and corporate investment in their homeland, they want their governments to more aggressively crack down on the activities and influence of national and multinational corporations.
” The World Trade Report, 2007 observes that among the greatest challenges that the multilateral trading system faces is how to integrate developing economies into the system in a manner that contributes to their growth and development aspirations. References: 1. Telegraph. 2008. G-20 governments must admit own errors if financial crisis is to end. Accessed on Feb 12th 2009 from http://www. telegraph. co. uk/finance/breakingviewscom/3475910/G-20-governments-must-admit-own-errors-if-financial-crisis-is-to-end.
html 2. The Globalisation Issue, 2005 publication – Accessed on Feb 12th 2009 from http://www. independence. co. uk/publicationslist/157-theproblemofglob. html 3. World Trade Report, 2007 – World Trade Organization – Accessed on Feb 12th 2009 from http://www. wto. org/english/res_e/booksp_e/anrep_e/wtr07-2e_e. pdf 4. United Nations. Department of Economic and Social Affairs. 2008. World economic and social survey 2008 – overcoming economic insecurity. Accessed from British Council Library.