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Global HRM

Notes  The World Bank which promotes economic development.
 The United Nations (UN) which maintains international peace and security, develops
friendly relations among nations, cooperates in solving international problems and
promotes respect for human rights, and is a centre for harmonising the actions of nations.
However, free trade can have a negative and significant impact on local industries. Many local
organisations are only able to compete against international organisations due to the trade
barriers put in place by their government. When these barriers are removed and the market is
flooded with cheaper, superior or even equal products compared to those being produced
locally, the domestic businesses are unable to compete. This can lead to business closures,
unemployment and reduced demand.

4.2.2 Globalisation of Investment

 International trade occurs when a firm exports goods or services to consumers in another
country.

 Foreign direct investment (FDI) occurs when a firm invests resources in business activities
outside its home country.
 During the 1920s and 1930s, many nations erected barriers to international trade and FDI
to protect domestic industries from foreign competition.
 After World War II, advanced Western countries began removing trade and investment
barriers.
 Under GATT (the forerunner of the WTO), over 100 nations negotiated further decreases in
tariffs and made significant progress on a number of non-tariff issues.

 Under the WTO, a mechanism now exists for dispute resolution and the enforcement of
trade laws, and there is a push to cut tariffs on industrial goods, services, and agricultural
products.

 Lower trade barriers enable companies to view the world as a single market and establish
production activities in optimal locations around the globe.

 This has led to an acceleration in the volume of world trade and investment since the early
1980s.
The World Trade Organisation (WTO) was established in 1995 to supervise and encourage
international free trade. It assists countries with the formation of free trade agreements and
aims to stimulate economic growth. The WTO does not force any countries into free trade
agreements. It only acts as a mediator during negotiations instigated by the countries involved.
Free trade is an especially important issue for the world’s developing economies. They are often
able to produce products at a lower cost than in other countries, and the income they earn from
exports allows their economies to grow rapidly and improves the living standards of the
population. It also provides them with access to technology and expertise from the developed
world that would otherwise take years to develop.
From a global perspective, it is clear that the benefits of free trade are significant for consumers
and organisations. Whilst some industries move to capitalise on the cheap labour in the
developing world, new industries with a focus on innovation and technology are created. The
increase in free trade around the world will continue to drive growth in the global economy
into the future.

With globalisation of markets, well-managed companies have moved from emphasis on
customising items to offering globally standardised products that are advanced, functional,

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