Globalization and its adverse effects A Term Paper Presented to

Dr. Maria Cequena Department of English and Applied Linguistics De La Salle University

In partial fulfilment Of the requirements for ENGLRES 2nd trimester, SY 2011-2012

By Natasha Mae R. Parel Maria Audrey Nicole M. Perez

A wide spectrum of definitions can be found regarding the unprecedented phenomenon that is globalization. Some believe it is the movement of people and knowledge (technology) across international borders (Di Giovanni, J. et al, 2008) while others perceive it as a business strategy that entails doing everything the same way everywhere (Kanter & Dretler, 1998). The inability to give one exact definition to the term can be attributed to its complexity. Globalization includes several aspects as articulated by the Economic Commission for Latin America and the Caribbean. According to the ECLAC (2002), it [globalization] exerts a powerful influence on financial, economic, environmental, political, social, and cultural processes that are global in scope. However, for the purpose of this paper, globalization shall be defined as thus: a strategy for development anchored on rapid integration with the world economy (K.S. & Nagaraj, 2001). The question of when globalization began is under debate. Two schools of thought, namely scepticism and hyperglobalism have contrasting views on globalizations history. Sceptics argue that globalization is nothing new. Ugandan President Museveni (2001) believes that globalization has been present as early as the 1440s. On the other hand, hyperglobalists assert that globalization is a new development in which business activities displace the nationstates power. Whether or not globalization is a recent development, its influence today is vast. We are in the era of globalization. This complex phenomenon is all encompassing; countries from the world over have conformed to the global trend. The phenomenon is underway in numerous countries such as The U.S.A., China, and the Philippines. Perhaps the reason why developed and developing nations alike have been lured into globalization is because of its promising goal. Ultimately, globalization aims to make organizations more competitive, to expand business

operations on a global level, to increase its products, services, and consumers (Pologeorgis, 2010) Although this goal is materializing for some businesses in developed countries, the same cannot be said about local businesses here in the Philippines. This paper aims to prove that although globalization is beneficial to developed countries, it may hinder the growth and developments of SMEs of developing countries. In globalization, business standards for competence improve. For in economic globalization, businesses all around the world would take advantage of the fact that when it is plausible to communicate and transact in a convenient, swift and profitable matter, the need to establish a business is compelling. This will then slowly direct to the strengthening of economic interdependence of national economies. The exporting of businesses all over the world also means the transfer of technology from more advanced countries to less advanced countries which follows the vertical integration of production (Integration and Globalization, 2009), hence these foreign industries will face different kinds of consumers that they have to find new innovative and superb ways to be able to meet a higher standard for these businesses to survive. This is for the reason that consumers from different countries are different from those consumers that these businesses serve from their country of origin. If globalization will be the main contributing factor as to why businesses will proliferate all throughout, then a demand for low-skilled workers to high-skilled workers will increase which will then eventually lead to a decrease in the unemployment rate. With globalization, there is a global market for companies to trade their products and a wider range of options for people, to choose from among the products of different nations. Examples of established foreign

businesses in the Philippines are food corporations, banking businesses and the most popular to date is the BPO (business process outsourcing) or also known as the call center. The call center industry has been very prominent in the Philippines due to its relatively easy-to-get jobs, and was ranked as one of the best job suppliers in the Philippines. This is for the reason that the industry can accommodate anybody just as long as they are college graduates and can speak fluent English. In spite the fact that several local businesses around the Philippines might not have enough sources to be able to keep up with this globalization trend. Several local employers were exposed to the extreme business competition brought by globalization that industrial investments and advancements in labor flexibility is now considered as a must to be able to survive the intense competition and provide superior services (Sibal, 2005). Big local Philippine enterprises have been very flexible on the globalization trend and have adopted cost diminution and efficiency programs in order to last and grow. As for Small local businesses in the Philippines, they see it in a different light, as they small local businesses were not equipped for liberalization that comes with globalization (ECOP 2004, FTA 2003). Agriculture can be considered as one of the small local businesses that are in danger of not being able to keep up with the trend, because as stated earlier, advancement in technology is a must to have a chance to survive, but resources may not be enough knowing that agriculture is not the main concern of the Philippines. If not taken proper consideration, the small local businesses may be thrown-over by bigger industries that are growing even bigger due to globalization. Multi-national corporations will move to less-developed countries or nations to spur direct foreign investment and this will naturally lead to a lot of job opportunities, but the government of the Philippines should consider the reality that all the booming foreign industries

in the Philippines should not be considered as a constant source of income for two major reasons. First, foreign employers mostly own job opportunities brought by globalization. This will ultimately imply that once Filipinos start applying for jobs, they are generally serving foreign businesses and will not completely to substantial benefits for the Philippines economy. And second, foreign businesses brought by globalization take advantage of the countrys export quotas, local markets, and telecommunications and most especially on the countrys low cost on operational labor cost. Many foreign companies reportedly prefer Filipino workers because they are easily trained, industrious, computer literate, English-speaking, and willing to work longer hours at cheaper labor declares, citing the aforecited traits as to why the Philippines continue to attract foreign investors (Philippines an ideal investment site, 2011). The Uruguay Round was the largest negotiation in history, covering almost all trade among 123 countries. It included talks on trade barriers and trade rules. It is a misconception that the purpose of the Uruguay Round was to promote liberalization overall. According to Navyar (1995b), its result was liberalization of those areas which would benefit major countries. Jaramillo (1994) critiqued the Uruguay Round because according to him, the developing countries were merely passive spectators of the decisions adopted. The countries of the third world have been put in a situation in which they already paid the price in accepting the terms in different areas of interest for the industrialized countries without obtaining in exchange satisfactory condition of market access. According to some estimates, the industrialized countries which make up only 20% of the GATT membership will

appropriate 70% of the additional income that will be generated by the implementation of the Uruguay round (Globalization versus development, 2001). From this, it can be said that it is advantageous since it promotes the Philippines as an excellent source for jobs, but when one analyses this, it then shows the dark side of this. Although globalization is largely beneficial to businesses from developed countries, it challenges the Philippine SMEs ability to grow and develop economically. Growth is referred to as the proliferation and expansion of businesses. Given the goal of globalization, it is supposed to help businesses grow. It has done so for more developed countries by stabilizing their economies. However, since the Philippines has embraced globalization, its economy has seen the closure of several small, locally owned businesses, specifically those in the shoe and garments industry. Although introducing more players is supposed to enhance businesses competence, it seems that this strategy is not effective for the local Philippine businesses. In the 1980s, import substitution policies were generally abandoned by the government and in the 1990s trade liberalization gathered speed. These occurrences led to a significant increase in the import of shoes into the country, with China being the leading source of supply. In 2003, China was responsible for more than half of the total value of shoe imports. The NSO (National Statistics Office) was able to gather data about the value of Philippine imports and exports of footwear from 1990 to 2003. in the year 1990, there were about 20,022 imports and 78,001 exports. For 1992, 22,525 imports and 120,993 exports. In 1994, 31,447 imports, and 176,335 exports. In 1996, 48,872 imports and 138,048 exports. For 1998, 52,905 imports and 135,150 exports. For the year 2000, 5,058 imports then 58,448 for the exports. And

finally, for 2003, 50,941 for the imports and 36,233 for the exports (All the data from the NSO are classified under code 53 of the Revised Philippine Standard Commodity Classification). With the given data, it can be inferred that as the globalization trend intensifies through the years, exported products from the Philippines lessen and this is may have caused the decline of the Marikina shoe industry. Local businesses could not keep up with Chinas cheap prices, resulting in the closure of numerous small workshops (Beerepoot, 2008). Another industry affected by intense trade liberalization is the garments industry. Until 2005, the garments sector was directed by international policies under the Multi Fiber Agreements (MFA). To quota holders such as the Philippines, this served as protection from the full force of international competition. The Philippines garments sector has been struggling since the termination of the MFA. Production that was previously outsourced to the country has been transferred to the likes of Cambodia, China, and Vietnam (Beerepoot, 2008). Several reasons can be attributed to why the supposed globalization strategy is not effective for the Philippines. Pereira (2010) believes that the country lacks the capacity to compete with developed countries. According to him, developing countries such as the Philippines have low levels of education, noncohesive societies, weak states, and political elites that are often corrupt and have yet to undertake their capitalist revolutions Aldaba (2008) had a similar sentiment, who stated that there are major limitations hindering the country from being able to globalize, specifically: lack of access to finance, lack of access to technology and skills, unavailability of inputs, and supply chain problems. These have hampered the progression of liberalization and privatization and the Philippine economy is yet to experience macroeconomic stabilization.

On the other hand, development is the promotion and the improvement of living and working conditions. Several issues are entangled regarding how globalization affects development. Due to the changes brought about by globalization, laborers have been robbed of regularization and unionization (Inciong, 2008). With the stated arguments and points above, there is no doubt that although globalization is beneficial to developed countries, it may hinder the growth and development of developing countries such as the Philippines. The Philippines is obviously not yet ready for the changes that the globalization trend can bring because the country cannot meet the high demands of globalization and the Philippines is not at par with other countries that are also being affected by this. For this to be managed, the Philippines should conduct RND programs to improve products. And the government should find ways to fund small local businesses because one of the main contributing factors as to why these small local businesses have shut down is because of lack of resources and these businesses could not keep up with the standard of big foreign businesses.

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