GLOBAL ECONOMIC CRISIS

The global economic crisis how does it affect international business?



The global economic crisis how does it affect international business?

Introduction

Globalization refers to the growing interdependence of countries resulting from the integration of economies around the world, economic systems, labor, and technologies in the global marketplace. International trade flow is a major element of this integration. Globalization started making timid steps at the end of World War II, and gained momentum in the last two decades. Main factors allowing the more rapid global integration were advances in technological development that have lowered the costs of transportation and communication, liberalization of trade and capital markets assisted by the support of governments and different organizations, and positive political changes worldwide, such as the end of the “cold war”.

The benefits of globalization are accompanied by several risks and challenges for the countries involved in the process. Balancing costs and benefits of increasing international business among different countries and is the key to increasing worldwide welfare. Economic globalization accelerates international trade, international investment, and immigration in relation to one nation domestic product, national investment, and population growth. This is possible due to a more uniform distribution of the global demand and supply. Soubbotina (2000) indicates that increasing international trade is of utmost importance to the continuance of globalization.

Specialization according to comparative advantage, job creation, technology sharing, profitability increase due to larger markets, and improved political stability are only few of the benefits for increasing trade liberalization. Without international trade, nations would be limited to the goods and services produced within their own borders. A close look at the worldwide imports and exports flow for the last decade shows a healthy increase in international businesses until 2006, when signs of slow down and downward trend were noticed.

In 2007, economic crisis accentuated the decline of the international business. The collapse of consumers spending, credit crisis, and the mismatch between different nations spending and savings were at the base of international trade downward spiral. The negative effect is seen both in the global demand and global supply sides. This introductory part of the paper describes the importance of globalization and the effect of international trade to the process of economic globalization, particularly the globalization of consumption and globalization of production. The remainder of the paper is organized as follows. Worldwide imports and exports trend is supported by the data sourced from the WTO site. Three main factors culpable to the decrease in the international businesses are identified and discussed in detail: economic health of countries involved in the trading process, trade imbalances, and political environment of various countries.

Discussion It is no longer in doubt that the world economy suffers of a severe economic recession. Recent economic crisis was triggered by economic crisis which started in 2007 and accelerated in mid 2008. Economic difficulties caused by dropping assets value have lead to the inability and willingness of the banks to lend money. This in turn affected both the supply side through lowering ...