Management Essay

Introduction

The modern world that we live in is considered one big global village. This assertion holds truth because of the fact that the previous barriers to trade and communication have been lifted and in some instances removed in their entirety. In this regard, the modern day organizations find themselves operating in a global arena. In this global arena are the two forces of globalism and regionalism. Arguments abound as to whether the modern businesses are operating under the influence of globalism or regionalism. The paper that follows will argue for the fact that businesses operate in a world of regionalism and not globalism.

According to Steger (2004), globalism cab be taken to refer to a programmatic globalization, which envisions the creation of a borderless world. Globalization on the other hand refers to a tendency by which the world seems to be moving towards global systems in government and commerce. The origin of the phenomenon of globalization can be traced far back in history. However, globalization entered a very new stage during the post-Second World War era. This phenomenon broke down all barriers and caused the world to take the form of a global village. Additionally, globalization led to the deepening of the process of internationalization, which strengthened the territorial dimension of development.

Globalism plays an instrumental role in the growth of the world market, dominating and penetrating the national economies, which end up losing part of their “independence”. Simply put, globalism exerts a domineering effect of the world market over the market structures found in a country. Globalism also tends to promote the dominance of the western-type of consumerism in the countries where its effects are felt. Some form of control may come in to reverse or halt the entire process of globalization and maintain some level of cultural diversity and some degree of territorial control: regionalism is one way by which these changes are met.

There exists an intricate relationship between regionalism and globalization. According to Harders, & Legrenzi (2008), regionalism is a concept in international relations in which member countries express and embrace an identity that shapes their collective action within some form of geographical region. Regionalism is not a new phenomenon; it is thought to have begun in the mid 1950s. A new wave of globalism was witnessed in the late 1980s. This new bout of regional integration is what analysts call new regionalism. The same regional integration that births economically integrated units can be give rise to politically integrated units as well. The European Union is an ensample of a politically integrated unit that arose after the formation of the European Economic Community (EEC), which was entirely an economically integrated entity (Mansfield, & Milner, 1999).

Several definitions of the new regionalism abound. Critics look at the new regionalism as being a threat to the multilateral system, which allows different nations to trade with each other. On the other hand, enthusiasts argue that the new regionalism could form a basis for an improved multilateral system. Selectiveness seems to be the main problem associated with globalization. The benefits emanating from globalization are readily diluted by the conflicts, misery, and violence that accompany it. Therefore, it is important to restate the argument that this paper attempts to support; businesses operate in regionalism not globalism.

The New Regionalism

The new regionalism of the late 1980s differs markedly from the old regionalism of the mid 1950s. For instance, old regionalism was coined around a bipolar Cold War framework, while the new takes shape in a multi-polar world order. Secondly, old regionalism was created and controlled by superpower countries, which sought to exert their influence on less powerful countries. On the other hand, new regionalism emerged simultaneously and it aimed at enabling member countries face and tackle global challenges together. Thirdly, old regionalism was infamous for its protectionism and inward orientated. Conversely, new regionalism is outward oriented and open.

Additionally, the new regionalism comprises of economic, social, cultural, and political aspects. In this construct, political ambitions of coining a sustainable regional coherence and identity happen to be the primary motivation behind new regionalism. Moreover, new regionalism is directly linked to globalization and as thus, proper understanding of the whole construct can only be attained from a global standpoint. Regionalism cannot be described on the basis or within the confines of a single region. Rather it ought to be defined within the context of a world order because of the fact that effects of regionalism on one part of the world would emit ripples that will be felt in the other regions of the world.

Arguably, the rapid spread of regionalism can be said to be the most significant development that has hit the global trade system in recent times. Analysts argue that new regionalism improves the living status of the member countries while at the same time exerting inconsequential effects on the lives of the non-member countries. The world has witnessed rapid growth in the number of signed international economic integration agreements. Economic integration agreements (EIAs) are legal apparatus or instruments that lead to the creation of economically integrated regions. Most EIAs tend to be either preferential or regional in nature and membership. The World Trade Organization (WTO) (2006) has a listing of over 300 regional trade agreements either are in force, under planning or have concluded their negotiations. Interestingly, a majority of these EIAs are said to have been concluded from 1995. This explosion in the number of EIA in the past two decades is what is ably referred to as new regionalism.

The growth of regionalism is supported by Baier and Bergstrand (2004) who base their support on a model that suggests a likely growth in the number of EIAs in the world. EIAs can take the form of a customs union or a free trade area. The European Economic Community is an example of an EIA signed into being by member countries from Europe. This regional trading block birthed the larger European Union (EU). Empirical studies argue on the one hand that domestic factors contribute to the development of new regionalism. In this regard, regional leaders attempt to rescue and safeguard their sovereignty by partaking in a series of international bargains, which enables these minor nation states to leverage themselves against stronger trading nations.

Presently, there are many states and organizations around the world and each of these states are correlated. If these condition or arrangement persists then globalization would be achieved. That is to say, there would be a worldwide economic integration of formally separate economies which come together to form a unitary global economy. This would erode on the gains made by regionalism. Additionally, the failures of different global states and organizations make it difficult or impossible for globalization to be feasible. Modern day business is thought to be more successful when conducted within a regional construct (Baldwin, R. & Jaimovich, 2012).

Reasons why businesses are more regionalised than globalised

Regional businesses are said to be more successful than global businesses because of a myriad of factors. Firstly, regionalism allows businesses to specialize and produce goods and services that they can produce economically. Business success is made possible by the ability of a firm or a group of firms to engage in businesses that they can minimize on the cost of production. Additionally, division of labour is also enabled by regionalism. Different countries constituting a regional economic block can concentrate on the production of the goods and services in which it is well suited (Peng, 2011).

Secondly, regionalism allows businesses to concentrate their efforts on the production of goods and services that are in high demand in their regions. States and organizations in a regional block can produce the goods and services needed to spur economic growth within the region. Additionally, regionalism allows businesses to export the surplus of their production to countries outside their region. In this regard, regionalism allows businesses to contribute to the overall growth of the globe (Cooper and Hughes et al., 2008).

Thirdly, businesses are more regionalised than globalised because of the benefits of regionalisation. Businesses within a region can easily self regulate. This regulation is important as it protects businesses from vices that include price undercutting and selling of substandard goods to consumers. Regionalism also allows businesses to complement each other in the goods and services they are providing. The output from one business can easily become the raw material for another business within the region. This ensures that no output is wasted and the other company does not run short of raw materials (Peng, 2011).

Fourth, businesses are said to be more regionalised than globalised because of the contribution they make to the economic development of the regions where they operate. Most if not all businesses have the corporate social responsibility arm of their firm, which concerns itself with the well being of the communities living around the areas where the firms have their operations. Regionalism ensures that these firms better the livelihood of the people living around their areas of operations. Regionalism is mooted by the fact that it also spurs regional development. The gains made via trade with other regions are ploughed into building and improving infrastructure in the regions where they operate (Cooper and Hughes et al., 2008).

Fifth, modern day is more regionalised than globalised because of the intricacies and costs associated with globalisation. A globalised business is expensive to run and sustain. This is because of the numerous legalities that surround globalised businesses. Additionally, for a business to participate in a global scale, the business must be willing and ready to meet the high transaction and associated costs that accompany such an undertaking. Regionalism on the other hand is not riddled by many bottlenecks that globalised businesses face.

Finally yet importantly, businesses are more regionalised than globalised because of the varying standards that are placed by the global market. The global market requires that goods and services entering the market meet very high quality standards. This does not mean that regionalised businesses settle for mediocre products. What this point is driving at is the fact that the high standards set by the global market are a means by which it prevents the markets from being flooded by products from different regions of the world. Simply put, the global market uses the ridiculously high standard requirement as a barrier for new entrants into the global markets (Cooper and Hughes et al., 2008).

Drivers of regionalism

There has been a renewed vigour in the speed at which regionalism is proceeding. This speed is brought about by the incentives that are readily available for businesses that partake in regionalism. These incentives are aimed at encouraging organizations and states to conclude regional trade agreements with neighbouring industrialised countries that are either developing, or emerging. Lower communication costs, reduction of barriers to trade, technological knowhow, and availability of increased mobile capital facilitates the establishment of production processes in different countries or sites within the same region. Regionalism allows companies to outsource their labour-intensive processes to realise cost advantages (Pomfret, 2011).

Regionalism makes small-organized countries look attractive to foreign investors. These markets have attracted foreign direct investments because of their organization. The growth prospects of businesses found within a regionalised country is spurred by these investments. Businesses also prefer operating under regionalism because of the immense opportunities presented by this form of construct. For instance, it is possible to establish and sustain a free-market policy under regionalism than under globalism. The free market provided under regionalism provides a good impetus for the growth of businesses in developing countries (Pomfret, 2011).

States and organizations prefer regionalism to globalism because of the fact that it reduces their dependence on large global markets whose terms of trade are unfriendly to them. Instead, they prefer to trade with other states and nations found in their regional blocks. Moreover, the cost associated with forging consensus in globalised markets is too high for most businesses. Consequently, businesses evade these costs by keeping off globalised markets and do their trading in the regionalised markets (Pomfret, 2011).

Depth of Integration

States and organizations involved in regionalism do in a variety of intensities. Regional integration can take three main forms that include cooperation, integration, or harmonization. Cooperation is the weakest form of regional integration. It may take the form of states cooperating on a joint development project or on the regulation of exchange rate policy. Harmonization is the next level of integration, which entails a more formalised degree of commitment. This level of integration aims at addressing inconsistencies policy content. States and organizations can harmonize their trade policies, tax policies, and both the legal and regulatory frameworks. The third and final level of regionalism is integration. This is the highest intensity of regionalism. In some instances, the participants at this level might share a common currency. The EEC is an example of a regionally integrated entity (Haegen, & Viñals, 2003).

In conclusion, it is worth noting that businesses are more regionalised than globalised. Both the organizations and the States prefer conducting their businesses under regionalism because of the countless benefits that have been discussed above. Regionalism is said to be more successful than globalism because of the large number of drivers that drive it. Despite the many re-conditions that are levelled against the participants of regionalism, the participants still, prefer it to globalism, which has harsher pre-conditions.

Bibliography

Baier, S.L. & Bergstrand, J.H., 2004. Economic determinants of free trade agreements. Journal of International Economics, 64(1), p.29-63.

Baldwin, R. & Jaimovich, D., 2012. Are Free Trade Agreements contagious? Journal of International Economics, 88(1), p.1-16.

Haegen, P. L. V. D., & Viñals, J. (2003). Regional integration in Europe and Latin America: monetary and financial aspects. Aldershot [u.a.], Ashgate.

Harders, C., & Legrenzi, M. (2008). Beyond regionalism?: regional cooperation, regionalism and regionalization in the Middle East. Aldershot, England, Ashgate Pub. Co.

Mansfield, E.D. & Milner, H.V., 1999. The New Wave of Regionalism. International Organization, 53(3), p.589-627.

Peng, M. W. (2011). Global business. Mason, OH, South Western Cengage Learning.

Pomfret, R. (2011). Regionalism in East Asia: why has it flourished since 2000 and how far will it go? Singapore, World Scientific.

Steger, M. B. (2004). Rethinking globalism. Lanham [u.a.], Rowman & Littlefield.

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