ECONOMIC CONSEQUENCES OF GLOBALIZATION ON TELECOMMUNICATION INDUSTRY Essay
ECONOMIC CONSEQUENCES OF GLOBALIZATION ON TELECOMMUNICATION INDUSTRY
While discussing the topics of trade, development and political economy, globalization is often discussed. In general, globalization means a process in which world economies become highly integrated, leading to a global economy and highly global economic policymaking, through international agencies such as the World Trade Organization (Todaro & Smith, 2006). Since late 1980s, the increasing globalization in the manufacturing sector and service sector has also globalized the telecommunication industry. A large number of telecom companies are expanding rapidly from their home countries to other countries in order to increase their customer base and their sales, off course. Globalization has with it many challenges and economic benefits too. For many economists, globalization can cause serious troubles in the whole world, such as inequality is accentuated, environmental degradation, and dominance of rich countries etc. But at the same time proponents of globalization are of the view that globalization leads to the rapid growth of knowledge and innovation and improved living standards.
ECONOMIC ANALYSIS OF GLOBALIZATION
How globalization occurred or which forces gave birth to this phenomenon? The three chief economic and financial indicators that led to globalization are: The international trade of goods and services, the widening and freeing of trade has led to globalization to increase at a rapid pace. The greater flow of capital because of growth of global capital markets. Globalization of financial sector is the most influential aspect of economic globalization. The greater movement of people around the globe has also contributed to rapidly growing globalization, breaking down cultural barriers. Globalization means integration of different markets in the global economy.
Globalization may occur in different markets such as financial markets, commodity markets and even in the service sector (Scholte, 2000). Producers and consumers and national economies as a whole benefit from the process of globalization. For example, economies may benefit from specializing themselves in particular products in which they have comparative advantage. Firms may become cost competitive through globalization by accessing to cheap raw materials from other countries. Similarly, benefit of economies of scale is achieved through access to large markets and higher demand for products, thus reducing average production cost of the firm. Large multinationals are the main carriers of economic globalization. They are globally aligning their production and resources according to the principle of profit maximization.
GLOBALIZATION OF TELECOMMUNICATION INDUSTRY- CASE OF VODAFONE Initially telecommunication industry was owned and controlled by state-owned national telecommunication companies. But with the passage of time, innovation in technology and globalization has transformed the nature of telecommunication industry. Globalization has opened up markets and brought competition in this sector. National telecommunication companies were being privatized and the industry deregulated to make it competitive. All over the world, the multinational companies have become the main vehicle for accelerating globalization. Vodafone, a British multinational telecommunication company, is the world’s leading telecommunication having significant existence in Europe, United States, Middle East, Asia Pacific and Africa.
It is one of the most rapidly flourishing global companies, which started as a holder of one of the first two mobile communications licenses in the UK and now it’s a dominant global brand. (Ibbott, 2007) provides a view that Vodafone created a social network that was involved in mergers and acquisitions and deployment of a global network of mobile technology that serves a proportionate mobile customer base of 198.6 million in 2006. Ibbott (2007) explained what really globalization means as “A global company is one that permits its local operations to act in the image of the market locally and yet can act in a truly homogeneous way with respect to the supply and provision of its core products and services” Vodafone is a global company as its sourcing and supply chain activities are transferred to be entirely global for the major part of its investment, while services remain local (Ibbott, 2007). Globalization does not mean to open operations and branches in other countries but to make its operations global, not directed by the head office located in the parent country.
CONSEQUENCES OF GLOBALIZATION ON TELECOMMUNICATION INDUSTRY- CASE OF VODAFONE Globalization has become a vital aspect of the global economy and strongly influences the comparative advantage of economies. (Salvatore, 2004) examined the effect of globalization on the comparative advantage of Europe for several goods and concluded that Europe has a comparative disadvantage in telecommunication with respect to Japan, United States and Dynamic Asian countries. The degree of globalization is a significant element in examining the international competitiveness of economies.
Large multinational corporations are enjoying the benefits of globalization, the most. Almost 50 percent of total profits of Vodafone came from foreign sales, i.e. Asia Pacific and Middle East region. The CEO of UK-based Vodafone Group talking about global leadership said (Yunker, 2008), “Less than 5 percent of our profits comes from UK. We have had to fundamentally redesign this company as a global company. We are a highly consumer-centric company. In Germany, we feel German. In Italy, we feel Italian. In Spain, we feel Spanish. In India, we feel Indians.”
Vodafone has experienced fall-out in Japan in 2005. It released “Converged-Handset” mobile phones in December 2005 in 13 countries concurrently, including Japan. Being, one of the world’s largest global companies, it did so without taking into account the domestic environment of each country. In this way they incurred great loss in both, number of subscribers and profits. The company lost 200,000 subscribers in the first few months of the year and profits declined by 15.4 percent (Fackler & Belson, 2005). Customers also got many troubles like; lack of functions, the expensive bills and bad signals. Thus it failed to introduce same technologies in different countries. In order to regain its position in the market, they offered such services which are being provided by their competitors such as; low prices, flat monthly bills for calls and emails. Hence market competition forced Vodafone to survive in the market by competing with the same products at same rates as its competitors are offering.
Due to globalization, consumer became more aware of their decisions. They take their decisions by taking into account their ethical and environmental concerns. This new dimension poses pressure on industries to improve their business through new public initiatives and laws. Likewise, increased global competition put serious pressure on Vodafone to evaluate its CSR policy and ethical stance.
When globalization reached its pace and mergers and acquisitions among firms take place, multinational companies get authority to hire and fire their workers (Carlson, 2002). This was happened in Motorola, when they fired their 3000 workers on 2000 by shutting down their plant in Scotland. Similarly, in 2009, Vodafone restructured its business model, in order to save costs and to accommodate more customers-facing roles. Around 400 workers were made jobless from its headquarters or being deployed to some other places. Hence, it is being proven over the years that in large multinational organizations, large number of workers have been made jobless, thus, creating a sense of insecurity among workers. Taking into account the fact that globalization may also have adverse impact on workers; The European Globalization Adjustment Fund (EGF) has been established.
The EGF aimed to support redundant workers, mainly in the areas where globalization has adversely affected the workers. The European Globalization Adjustment Fund has been established under Regulation (EC) No 1927/2006 of the European Parliament and of the Council of 20 December 2006. It has an annual budget of EUR 500 million to assist worker for their employment.
EVALUATION AND CONCLUSION
The growing integration of the economies has been a heated debate all around the world over the last two decades. The consequences of globalization and its various dimensions have been widely debated and examined by academics, politicians, policymakers, and even the private sector. According to the United Nations Development Program, Human Development Report, 1999 “Globalization is shaping a new era of interaction among economies and people. It is increasing the interaction between people across national boundaries, in economy, technology, in culture and in governance. But it is also splitting production processes, labor markets, political entities and societies. So, while globalization has positive and dynamic aspects, it has also negative, disruptive, marginalizing aspects.” Critics of globalization argue that globalization is detrimental to economic growth, such as it increases income inequality among nations, economic instability may arise, workers are being exploited and governments become unable to raise taxes, on the other hand, the advocates of globalization are of the view that it brings higher rate of sustainable economic growth and improved living standards. In a study from the Centre of Economic Policy Research by European Policy Advisors, while analyzing the economic impact of globalization, it was found that the true benefits of globalization overweigh the costs associated with it.
Similarly globalization has been affecting the telecommunication sector too. Due to increasing globalization, the telecommunication policy all around the world has widened their cross-border implications as compared to the past. According to the analysis of (Siochru, 2004), media and telecommunication sectors are the leading sectors in facilitating globalization. The globalization of financial transactions and manufacturing products is due to globalization of media and telecommunication sectors.
1.Carlson, B. A., 2002. Job Losses, Multinational and Globalization: The Anatomy of Disempowerment. Santiago: United Nations Publications. 2.Fackler, M. & Belson, K., 2005. A Major Backfire in Japan Deflates Vodafone’s One-Size-Fits-All Strategy. [Online] Available at: