Challenges facing the Mauritian economy due to globalization

Challenges facing the Mauritian economy due to globalization Government Drivers -Government in almost all developed countries over the world have promoted free trade and reduced trade barriers and the European Union has also liberalised capital flows in 1992 which has contributed towards globalisation. Furthermore, there has been a decline in the role of government as producers and consumers and large private firms have been seeking a physical presence in many major countries. It has truly transforming itself, slowly, into a Global system of governance, not so much by the use of raw independent power, but through the consensus of its most powerful members, and key players, increasingly multinational Corporations and International financial institutions, both formal and informal. This trend would continue, slowly almost imperceptibly to most Americans, though not to the world at large. In the past decade there has been also increasing participation of China and India in the global economy which has added towards globalisation. 5 Competitive Drivers is the fourth factor that has contributed towards globalisation. Analysts hold that globalisation has a multi-causal dynamic involving the interrelation of several forces such as growth of global networks making countries interdependent in particular industries that they are becoming universally centred rather than nationally centred. For instance, in UK the personal savings of its citizen are now internationally diversified, making them less dependent upon the future success of Britain. Instead, the UK citizens are amassing shares in the developing countries. 6 Global Aspect of Globalisation in the Current World Globalisation is a historical process rather than political or economical. It is the result of human innovation and technological progress. Globalisation has shown the increasing integration of economics around the world. It has taken a greater aspect in the world particularly, through trade and financial flows. Globalisation has covered the broader culture, politics and environmental dimensions of globalization. Today, globalization is well known topic across the world. The word has taken a common term. It is referred as the extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity_ village markets, urban industries or financial centers. Global markets promote efficiency through competition and the division of labour _ the specialization that allows people and economies to focus on what they do best. Global market offer greater opportunity for common people also to tap into more and larger markets around the world. In the global market, people can access more capital flows, technology, cheaper imports and larger export markets. Today, commerce and finance are more developed and deeply integrated in global world. The global era has raised many questions related to social, political and workers. Does globalization harm workers interest? Many theoreticians dont believe in this question. However, this is right question. Globalisation is the parallel world between the rich and the poor. Capitalist globalization is always very harmful for workers. In global world, only big giant can survive. Globalisation has given the theory of third world countries also. In the financial world globalization is known as the basic elements of periodic crisis of an inevitable consequence of globalization. National Sovereignty question is also related to the globalization question. In the financial market national sovereignty is never followed however, the question always has taken place in political era. Questions: What are the factors that have contributed towards globalization? (10) How globalization is influencing the business culture? (10) According to you what are the impact of globalization on the Mauritian Economy. (20) What are the factors that have contributed towards globalization? (10) There are four main factors that have contributed towards globalisation. These can be listed as follows: Cost Drivers is one aspect which has led towards globalisation. At the heart of globalisation lies the rapid decrease in transportation cost and revolution in information technology. The cost of moving products around the world has significantly reduced over the last decades. Furthermore, capitalists have also contributed towards globalisation since they allow production facilities to be located wherever costs are lowest and profits greatest. Furthermore, global accounting practices enable prices and taxes to be calculated in ways that raise profits. Global connections like telecommunications and electronic finance create major opportunities for profit making. Finally, emergences of newly industrialised countries like China and India with productive capability and low labour costs are establishing in foreign markets. Market Forces is another factor that has contributed towards globalisation. The world trade and investment have grown rapidly, with many attractive market places opening up in China, India and Eastern Europe and elsewhere thus leading to the growth of global companies. Transnational corporations have begun to behave as global customers and establishing world brands, for instance, McDonald, Gap and Wal Mart have become globally prominent as a result of great marketing prowess. Organisations are also developing global advertising as Reebok, for example, to launch its Instapump sneakers has used the same advertising compaign in 140 countries. Furthermore, people are travelling more in the last two decades and they are becoming aware of different prices and quality of goods over the world and their lifestyles and tastes are changing accordingly. Many markets are also globalising for instance, as some tastes become universal to young people; we can see the same designer jeans and leather jackets in virtually all countries. Government Drivers -Government in almost all developed countries over the world have promoted free trade and reduced trade barriers and the European Union has also liberalised capital flows in 1992 which has contributed towards globalisation. Furthermore, there has been a decline in the role of government as producers and consumers and large private firms have been seeking a physical presence in many major countries. It has truly transforming itself, slowly, into a Global system of governance, not so much by the use of raw independent power, but through the consensus of its most powerful members, and key players, increasingly multinational Corporations and International financial institutions, both formal and informal. This trend would continue, slowly almost imperceptibly to most Americans, though not to the world at large. In the past decade there has been also increasing participation of China and India in the global economy which has added towards globalisation. Competitive Drivers is the fourth factor that has contributed towards globalisation. Analysts hold that globalisation has a multi-causal dynamic involving the interrelation of several forces such as growth of global networks making countries interdependent in particular industries that they are becoming universally centred rather than nationally centred. For instance, in UK the personal savings of its citizen are now internationally diversified, making them less dependent upon the future success of Britain. Instead, the UK citizens are amassing shares in the developing countries. Finally, it can be said that today no country can remain in isolation and has to take part in the global economy where people from all countries will become more integrated and aware of common interests and shared humanity. 2. How globalization is influencing the business culture? (10) Culture and globalisation are two different concepts. According to David (2002), from the culture point of view, globalisation is the process of harmonizing different culture and beliefs. It can also be said that cultural globalisation have accelerated again late in this century, after almost 50 years of regression. More and more, countries are now integrated into a single global marketplace through trade, finance, production, and a dense web of international treaties and institutions. Globalization is a sword with two blades for the business culture and this can be discussed as follows. Some critics argue that globalization really means Americanization as more people around the world are exposed to the American culture and lifestyle in the food they eat, the stores they shop, and television shows and movies they watch, the more they lose their individual cultural identities. Moreover, Mauritian teens watch TV series Hannah Motana and ask their parents for westernized clothes and schools bags of pictures of Hannah Montana. Some consider such imported culture a danger, since it may replace the local culture, causing reduction in diversity. Globalisation is also influencing schools. Schools work on culture to improve the sociological bases in agreement with the technological advancement. Therefore there has been an obvious move from lecture-based activities towards more student-centred activities as teaching and learning styles are changing. Under such a circumstance, schools need to go for the cooperative, collaborative, participatory, integrative and inclusive processes and approaches of learning and school organisation. For instance, in Mauritius our children have to attain standard of knowledge, skills and competence as is the case in leading countries of the world so that they are able to keep pace in the globalised economy. At Primary and secondary level, new textbooks have been designed so that learners are aware of the changes in the world. Besides, changes have been made in the primary books itself as more emphasis has been put on ICT and tourism sectors rather than agricultural sectors. Furthermore, cultural products with widely recognized icons are shared globally. For example, American companies like Mc Donalds are very flexible and adapt to different cultures as its menu in Bombay and Delhi do not have beef in it. Worldwide fads and pop culture such as Pokà ©mon, Sudoku, Numa Numa, Origami, Idol series, YouTube, Orkut, Facebook, and MySpace are accessible to all those who have Internet or Television around the world. It is also subjective to say that globalization is bad, or vice versa. For one thing, it helped to highlight a nations culture, draw on the strong points of other cultures and contribute the cultural diversity in the business world. It can also be said that it is because of globalisation that consumption in the world has increased exponentially which requires an infinite number of resources. Since consumption demands exceed what the earth is able to restore, very soon the earth would be too small to meet the basic needs. Governments and businesses talk so much about safeguarding, saving the environment; and at the same time, invent, develop and produce the very things that destroy the environment. Ultimately it can be said that up to now globalisation has helped the business sector more than the people. Only the capitalists acquire the wealth generated by globalization whereas the mass populations have to work harder. With globalisation, teenagers tend to neglect their culture and education to concentrate on the new register globalisation has brought along through media as media persuade them to consume some products they do not really need to succeed in life 3. According to you what are the impact of globalization on the Mauritian Economy. According to the Financial Times Special Report March 2009, Mauritius enjoys the second most improved economy over the past years. Mauritius has also one of the highest standards of living in Africa. Globalisation has opened the door to many benefits for the Mauritian Economy. It has promoted open societies and open economies and encouraged a freer exchange of goods, ideas and knowledge, create employment, have more quality goods but on the other hand, economic performance has also suffered, resulting from its loss of preferential access to the EU sugar and textile markets. Globalisation is a mixed blessing for the Mauritian Economy. Benefits of the impact of globalisation on the Mauritian Economy can be listed as follows: Create Employment Large investment of foreign capital has created job opportunities in the IT/BPO sector that has benefitted unemployed persons. Even unskilled persons have been able to get gainful employment. Furthermore, the number of companies in the IT/BPO sector has increased from less than 100 in 2004 to over 400 in 2010 with the industry employing around 18,000 professionals from world over in Mauritius. In the past four years, its IT/BPO industry has sustained an annual growth rate of 25 percent and the sector has generated revenues of 5.7 percent of GDP, according to Board of Investment, Mauritius. In the global competitiveness Index 2008-09 of World Economic Forum, Mauritius is ranked 57th in the list of 134 nations.  Another sector which has benefited from globalisation in Mauritius is the tourism sector. About 17,111 people are employed in the tourism sector, 65 percent of these in the hotel industry in February 2010. The forecast tourist arrival in 2015 is 2 million which eventually wil l create more employment for Mauritian people. Improvement in living Standard With lifting of quantity restrictions on imports and reduction in import duties, Mauritian customers are getting quality goods at reasonable prices. One example is the Chinese electronic goods- which are both better quality and low priced, have flooded the Mauritian markets. The availability of imported quality goods at low rates has lead to improvement of living standards of Mauritian people. Even common people are enjoying goods and services that were beyond their reach earlier. Political Politically, globalisation has brought Mauritius with more nations into the decision-making process on international issues. For instance, Mauritius is a member of different international organizations namely the Indian Ocean Commission (IOC), the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC) and World Trade Organisation (WTO). This has led to better understanding of philosophies by people of different cultures. Furthermore, there are diplomatic ties between Mauritius and European countries, African countries, India and China. For instance, political ties between China and Mauritius date back to 1972. In his recent visit to Mauritius the prime minister of China has signed an economic and trade co-operation agreement with Mauritius worth about $9 million, including a $6 million grant and $3 million interest-free loan. The two governments are relying on this promising trend to further strengthen the ties in cultural exchange, education and tourism between the two countries. The Mauritian government paired up with the Chinese government invests in the construction of commercial, residential and leisure facilities in order to become an international center with a global expatriate population similar to countries such as Dubai, Malta and Singapore. The Shanxi Tianli Enterprises business park the is the largest ever injection of foreign cash into Mauritius that is around $750 millions. Given the problems in other areas of the economy, this project could partly contribute either directly or indirectly to reduction of the unemployment problem and could also generate economic growth. Drawbacks of the impact of globalization on the Mauritian Economy can be listed as follows: Weak labor unions The surplus in cheap labour together with an ever growing number of companies in transition has caused a weakening of labour unions in Textile factories in Mauritius. Unions in Mauritius do not have the same value as their membership begins to decline. As a result unions hold less power over Textile companies that are able to easily replace Mauritian workers with Bangladeshi or Chinese workers, often for lower wages, and have the option to not offer unionised jobs anymore. Even large companies are employing Indian software engineers on contract basis than local professionals due to lower costs. Interestingly, Mauritius has been making intensive use of imported labour from China and India. The number of foreigners working in large establishments in Mauritius has been increasing continuously since 1990. More consumption than saving With globalisation, the world of international business has progressed at a fast pace and a new standard has been created. But foreign companies often employ unfair means to get hold over the market. They offer better bargains, gifts, and spend huge sums of advertisement and publicity. Wide advertising of consumer goods, together with easy loan facilities encourage Mauritian people to spend rather than saving their money. Furthermore, markets for automobiles and computer systems are increasing drastically over the past decades. With finance companies ready to offer soft loans, Mauritian people are buying such goods not because of any real need but only as a status symbol. It can be said that Mauritian people are leading a materialistic lifestyle and see consumption as the path to prosperity. For instance, the savings had fallen to 18.3% in 2009 from 22.7% in 2008 and this has cause concern for the GDP growth as well as for the inflation rate. Deficit in Balance of Payments Besides Mauritius is facing a deficit in its current accounts in the balance of payment as published by the Bank of Mauritius fiscal year 2007-08. Mauritius are importing more goods and services from Asian countries rather than exporting. Sugar production averages 650,000 per year and was exported to the European Union at preferential rates through the ACP/EU Sugar protocol and Special Preferential Sugar (SPS). However, the EU has decided to remove the preferential rates in 2008. This cut had translated into lower earnings of approximately 4 billion rupees. Mauritian sugar producers are finding it difficult to compete on the international market because their production costs are much higher than the world market price. In fact their cost of production is twice that of the most efficient ACP suppliers, and even higher when compared to Brazilian prices. Coupled with the above the elimination in December 2004 of the global quotas on clothing under the Multi-Fibre Arrangement has expose d the local textile sector to competition from other exporting countries, including those in Asia and South America as they are producing at lower costs. Conclusion To conclude we can say, the long-term challenges facing Mauritian economy due to globalization are daunting. The local agricultural and manufacturing industries are lagging behind and there is a fear that globalisation may one day wipe out the sectors. Thus, Mauritius may become dependent on foreign countries.