(New) The Pros of Cons of Globalization: How do they affect the U.S. Economy|International Business

Hello everyone, welcome to Business School 101. After centuries of technological progress and advancements in international cooperation, the world is more connected than ever. But how much has the rise of globalization helped or hurt American businesses, workers, and consumers? In this video, we're going to learn about the pros and cons of globalization regarding the U.S. economy. Let's start with the positive sides of globalization. Pro number one. Globalization provides American consumers more options and better products at lower prices. Global competition in various markets leads to both quality and affordability. As consumers realize that they have a variety of options from all corners of the globe, they will most likely choose to purchase excellent products at affordable prices. For example, if you want to purchase a vehicle in America, you can choose from not only American brands such as Ford, Dodge, and Jeep, but also Japanese brands like Honda, Toyota, and Nissan. Similarly, when you want to get a cell phone, Apple is not your only option. You can also choose from Korean brands such as LG and Samsung. Therefore, globalization offers consumers more options, which requires companies to continuously enhance quality and provide affordable prices if they wish to remain competitive. Pro number two. Globalization helps American companies expand their business overseas. In addition to consumers, American companies also enjoy some benefits from globalization. With the help of globalization, it becomes much easier for companies to explore opportunities abroad that could further expand their foreign business. For example, as the world's largest emerging economy, China has been one of the most important foreign markets for many American companies. For instance, about 20% of Apple's revenue is generated from China. Additionally, two other American-based Fortune 500 companies rely on sales from China even more heavily than Apple does. Texas Instruments, the Dallas-based technology giant, is a leading manufacturer of semiconductors as well as a wide range of integrated circuits. It sells its products directly to electronics manufacturers, most of whom are concentrated in China. According to an August 2020 report from Yahoo Finance, more than 40% of Texas Instruments' revenue comes from China alone. Similarly, China makes up nearly two-thirds of Qualcomm's revenue. As one of the largest manufacturers of wireless technology in the world, most Qualcomm shipments go to factories that assemble smartphones and other products. Because China is home to many of the world's leading smartphone vendors, including Huawei, OnePlus, Xiaomi, and others, most of these companies use Qualcomm chips in their products. Interestingly, only a very small portion of Qualcomm's revenue comes from the American market. In fact, more than 90% of Qualcomm's sales are from foreign markets. So, with the help of globalization, it is easier for American companies to enter foreign markets to continuously increase sales, even if their sales in the domestic market suffer retreat or get saturated. Pro number three. Globalization helps companies lower production costs. Besides expanding their market and increasing sales, American companies can also benefit from globalization by experiencing lower production costs. Globalization allows companies to reduce their overhead by shifting their production operations from high-cost to low-cost countries. The electronics industry is an excellent example that illuminates the impact of globalization on production costs. In 2000, Japan exported the highest volume of cameras to international markets. By 2005, many Japanese camera companies had outsourced their manufacturing processes to Chinese plants, and China had overtaken Japan as the world's biggest camera exporter. During this same period, the production costs of cameras fell between 2% and 5% annually. However, beginning in 2018, many of those camera companies, such as Olympus, moved their plants from China to Vietnam to enjoy lower production costs due to the increasing labor cost in China. For the same reason, some other electronics giants like HP, Dell, GoPro, Samsung, and LG are either planning to relocate or have already moved their productions out of China. Essentially, by changing the source country, companies are able to lower their production costs and gain the competitive advantage. Pro number four. Globalization helps American companies access global talent. Talent management plays a critical role in business strategy since it manages one of the important assets of any company, its people. In order to remain competitive, American companies must retain top-notch employees. With the help of globalization, it becomes easier for companies, especially multinational ones, to locate and recruit first-rate talent from all over the world. This will eventually help the companies continuously develop innovative products and improve performance. America as a country also benefits from globalization by attracting immigrant professionals. Do you know what Tesla, Google, Yahoo, YouTube, Zoom, Pfizer, and Colgate all have in common? They were all founded by immigrants. According to a recent business report from Forbes, around 25% of all entrepreneurs in the U.S. are immigrants. These talented immigrants are not only creating jobs for themselves, but also for millions of ordinary American families. Beside entrepreneurs, immigrant workers in America are also overrepresented among college professors, engineers, computer software developers, mathematicians, nurses, doctors, and dentists. Clearly, skilled immigrants contribute greatly to American society. Although globalization can benefit the world in many different ways, not every industry, company, and individual are able to profit from it equally. Globalization also brings some negative consequences to some specific groups of peoples, companies, and industries. Here are three major negative effects of globalization. Con 1. Some American workers lose out to foreign workers who work cheaper. Some politicians claim that globalization makes many Americans lose their jobs. While that might be true, it is more accurate to say that globalization changes the types of jobs available, but it has little effect on the overall number of jobs in the ever-changing U.S. labor market. That being said, although some workers have directly benefited from expanding global commerce, others have not. Certain manufacturing and industry workers lost out such as those in furniture, apparel, steel, auto parts, and electrical equipment industries located in Tennessee, Michigan, and some other mid-Atlantic states. A widely cited study shows that between 1991 and 2007, lower-wage manufacturing workers within industries that faced import competition experienced large and lasting earnings losses, while higher-wage workers in these industries did not. However, many researchers have suggested that the decline of American manufacturing jobs is not only attributed to outsourcing, but also to the technological revolution and industry transformation. Here is the evidence from the U.S. Bureau of Labor Statistics. As you can see in the charts, the percent of U.S. jobs in manufacturing has steadily declined since the 1940s, which was long before the rise of China, NAFTA, or the WTO. This is mainly because technology has made it easier to produce goods. Indeed, American industrial production is still at historically high levels today, but fewer factory workers are needed to achieve this success. Additionally, manufacturing employment share has also declined because consumers are spending a smaller percent of their incomes on manufactured goods, and more on services which include housing, healthcare, dining out, travel, and legal services. Con 2. Globalization has failed to deliver desired victories in labor rights, human rights, and environmental protection. In theory, globalization is an opportunity to spread values and practices like environmentalism and labor rights throughout the world. In practice, this spread has been slow and imperfect. For example, rather than exporting the labor protections it abides by in the U.S., a company might follow lower standards in developing countries. A classic example of this is Nike's sweatshop in Asia. In 1991, American labor activist Jeffrey Ballinger published a report on Nike's factory practices in Indonesia, exposing a scandal. Below minimum wages, child labor, and appalling conditions likened to a sweatshop or a factory or workshop where employees work long hours for low money in conditions that are hazardous to their health. U.S. college student Jim Keady also delved into Nike's inhumane production practices in the 90s. In his film Behind the Swoosh, Keady exposed how workers who were only paid the U.S. equivalent of $1.25 per day were forced to live in slums near open sewers. They also had to share toilets and bath water with multiple other families. In 1996, Life magazine also ran a report on child labor that included a shocking photo of a 12-year-old Pakistani boy sewing a Nike soccer ball. Actually, sweatshops are still quite common in many developing countries where labor laws are rarely enforced, like Indonesia, India, Thailand, Bangladesh, and Cambodia. In recent years, the labor conditions for those sweatshops have gradually improved due to pressure from both the local government and the mass media. Con 3. Globalization puts more power in the hands of multinational corporations Another criticism leveled at globalization is that it has empowered multinational corporations at the expense of governments and citizens. This reduces state sovereignty and citizens' abilities to hold their leaders accountable for conditions in their countries. This is another reason that labor and environmental protections are harder to enforce than many critics of globalization would like. In addition to having influences in foreign countries, multinational corporations can also persuade American governments through political donations and direct lobbying. For example, large multinational corporations are avid contributors to political campaigns. According to a Bloomberg News analysis of contribution data from the online donation platforms ActBlue and WinRed, of the top 100 donors to federal political candidates during the 2020 election cycle, about half are multinational corporations, while many others are organizations that represent business interests. Now that we know a bit more about the pros and cons of globalization regarding the U.S. economy, let's do a quick review followed by an in-depth discussion. Although globalization can benefit the U.S. economy in many different ways, not every individual, company, and industry are able to profit from it equally. Globalization is like technological progress. Both disrupt some livelihoods while enlarging the economic pie and opening up new and better paying job opportunities in America. Protectionism helps certain groups but at a higher cost for everyone else. For example, one study shows that U.S. tariffs on Chinese tires under President Barack Obama saved 1,200 tire manufacturing jobs, but American consumers paid $900,000 per job saved, and 3,700 retail jobs were lost as tires became more expensive. Similarly, imposing tariffs on steel helps American steel producers, but many more jobs depend on businesses that need some imported steel to make goods that are affordable. Eventually, American consumers end up paying more for foreign goods because of tariffs and more for domestic goods because domestic producers often raise prices in the absence of foreign competition. That damage worsens when trading partners retaliate with their own tariffs on U.S. exports. U.S. agriculture is particularly vulnerable to attack. American economists look at the effects of globalization across the entire economy to weigh the pros and cons. Because they have found the overall payoff is so much greater than the cost to individual workers or groups who have lost out, nearly all economists support having an open global market as opposed to closing it off. As a business professor, I have to admit that globalization does have some costs for certain Americans. However, this is not a reason to bar it, instead we should manage it. Mechanisms can be found to benefit from globalization's gains while making up for the losses of some workers. If we were to study human history, we would understand that no significant change occurs without some short-term cost. What is costly in the long term is preventing market forces from funneling resources to their best use. In my opinion, globalization is an inevitable trend whether we like it or not. Because you still have plenty of time to improve yourself and to prepare for changes, I strongly recommend to college students that you embrace those changes and explore the profitable opportunities from the globalization rather than protesting when it will have no effect whatsoever. In the words of former President Bill Clinton, globalization is not something we can hold off or turn off, it is the economic equivalent of a force of nature, like wind or water. So, how do you think globalization affects the U.S. economy? Please leave your thoughts in a comment below. Thanks for watching and I'll see you next time.