Saturday, 19 May 2012

The Impact Of Globalisation On The World Stage (Part 2)


Globalisation Under The Microscope: The World Stage



The impact of globalisation is not restricted to the corporate world with its employment relationships. Being a "global' phenomenon, it has implications for world economies by virtue of its components of co-existence, relationships, co-operation and interdependence. These components continually cut across all facets of our way of life, such as via technology and trade, as well as through economic, financial, social and cultural dimensions. This means that a significant crisis originating from an economic super-power such as the United States (U.S) could have far-reaching effects on countries in other continents. To buttress this point - the Global Financial Crisis which escalated in 2008.






The Global Financial Crisis in 2008



World map showing real GDP growth rates for 2009. (Countries in brown were in recession).









According to the Wikipedia website, (whereby significant documentation, papers and statistics were provided and is thus the basis for most of the information provided in this study), the late-2000s financial crisis, also known as the “Global Financial Crisis”, or the "Great Recession", is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.



It resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in numerous evictions, foreclosures and prolonged unemployment. It contributed to the failure of key businesses, declines in consumer wealth estimated in trillions of U.S dollars, and a significant decline in economic activity, leading to a severe global economic recession in 2008.



The financial crisis was stated to have been triggered by a complex interplay of valuation and liquidity problems in the United States' banking system in 2008. The 'bursting' of the U.S housing bubble, which peaked in 2007, caused the values of securities tied to U.S real estate pricing to plummet, damaging financial institutions globally.





Survival tactics


Economies worldwide slowed during the stated period, as credit tightened and international trade declined. Governments and central banks around the world responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts.



Capital injection by governments was made systemically as was the case in the United Kingdom, while various central banks worldwide cut interest rates to help borrowers.




In Nigeria, (after the crisis), subsequent  focus on stricter regulations comprising  global reporting standards and enhanced risk management, has led  market watchers, in recent times, to be optimistic that the Nigerian banking sector will most likely wax stronger as time elapsed. Nevertheless, financial experts have stressed the need for the Central Bank to review all relevant laws relating to the financial sector in order to strengthen its regulatory capacity*.





Causes


Many causes, reasons and explanations for the financial crisis have been suggested, with varying weights assigned by experts.    



Notable however, is the Levin–Coburn Report, issued in 2011 by the United States’ Senate. It found that the crisis was not a natural disaster, but the result of the following:



- High risk, complex financial products;

- Undisclosed conflicts of interest;

- Failure of regulators, the credit rating agencies and the market itself to rein in the excesses of Wall Street.             






Repercussions around the globe


In  my opinion, the 2008 Global Financial Crisis was a perfect example of the 'domino effect' of globalisation.



It highlighted a development whereby a significant crisis in the U.S triggered a global financial meltdown, with disastrous consequences experienced in other parts of the globe, examples of which were the following:





Country  
Impact
Iceland
Involving all three of the country's major banks, which relative to the size of its economy, was the largest banking collapse suffered by any country in economic history.
Cambodia
Whereby growth fell from more than 10% in 2007, to close to zero in 2009).
Kenya
Whereby growth, 7% in 2007, was predicted to reduce to only 3-4% growth in 2009.
Nigeria
Whereby the fall in oil price affected the rate of accumulation of the external reserves. Moreover, declining capital inflows into the economy exacerbated the problem of relatively-high operating costs, occasioned by decaying infrastructure such as power and transportation.
The capital market downturn, as well as divestment by foreign investors, lead to loss of investors' confidence and increase in non-performing loans granted to investors in the stock market. Statistics showed that since banks constituted over 65% of market capitalisation, the consistent decline in the stock market  affected banking stocks more than any other sector*.







Conclusion


An interesting outcome of globalisation is the fairly-new development whereby business communications have espoused a more revolutionary role -  moving away from its conventional task of disseminating information, to a stronger position of impacting the following in an organisation: operational effectiveness, profitability, corporate identity and management of its human resources.



I am convinced that companies in this dynamic era should place greater importance on communications. This is not only due to the practical correlation between an effective  communications strategy  and a healthy corporate image, but also because of the frequently-demanded component of accountability from the public, especially in the wake of corporate scandals.




Indisputably, the impact of globalisation is not only visible in the 'new' employment relationship but has broader implications for our way of life : from the social/cultural/business realms to the economic sphere. Understanding its various interplays is crucial to adapting to often-unpredictable scenarios and remaining relevant, whether as an employee, an organisation or an economy.







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 * Information from The Abuja Enquirer website.


N.B-  Image courtesy of freedigitalphotos.net.







6 comments:

  1. Lucille. Concise and well wriiten can't believe how the impact of the great recession in 2008 is still having an effect on us all. Here in the UK significant effects on housing market, NHS and comissioning of services, redundancy in all sectors, changes in pension plan etc. Keeping morale in the work place can be challenging and difficult in these times... Hopefully good communication can help. Well done. In your short profile is it worth mentioning your language skills e.g French... Will read your full profile next time. Good luck and can't wait for next blog.

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  2. Hi Lucille, great article well written and good market research. What is not clear to me is how countries highlighted in green that show clear GDP growth rate were impacted by the effect of the global financial crisis. What we see in the trend is mainly developing countries in Africa and South America and some parts of Europe appear to be only slightly affected as compared to other parts. There is no specific reason why but we can postulate that maybe there might be a link between the level of trade and economic ties directly to North America as compared to other parts or perhaps the specific internal controls employed in some countries that shield them from the global effect. My point is that globalisation while exhibiting a general effect, shows a gradation in terms of impact specificially depending on some key factors per geographic region.

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  3. Thanks AD for your comment and notable insight. As you an economics expert? :)

    You are right of course - it is not clear why the green sections on the map indicate growth while the others experienced a downturn.

    Like you have suggested, it could be that internal robust fiscal instruments of the 'prosperous' countries and less dependence on trade/economic ties with the US, could have mitigated or even prevented the downward slope that was experienced elsewhere. I do not declare that the article provides definitive answers. (You may want to check external links on Wikipedia for a more thorough analysis).

    However, what I sought to highlight was that the far-reaching effects of the crisis could be 'felt' in regions geographically distant from the US, where the crisis began.

    Nigeria was such an example. Initially we had thought that our economy would escape unscathed. However, as the crisis worsened, our stock market suffered a huge hit; the value of stocks especially in the banking sector plummeted with a lot of Nigerians who had invested in that sector losing a lot of money due to low-performing shares. One could hypothesise that because the US is a significant trade partner, that Nigeria could not have escaped some negative effects of the Global Crisis of 2007-2008.

    I wish to reiterate once again that globalisation might not be the sole driver for the repercussions of the crisis around the globe, but it is my opinion that its impact could be experienced further afield, as I mentioned in the article, because of its components of "co-existence, relationships, co-operation and interdependence". No country can thrive in complete isolation.

    Thanks again for your really interesting comment.

    Do visit again soon :)

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  4. Agreed no country can thrive in isolation, in making decisions one must always be conscious of the impact on globalisation no matter the geographic location there is always an effect. Global market and historical trends must consistently be monitored in order to develop more robust and effective investment strategies.

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  5. Indeed AD!

    Many thanks for your comment.

    Have a nice day!

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