Challenges in the Era of Globalization - iaabd

Challenges in the Era of Globalization
Edited by Emmanuel Obuah
economy (Hill 2011). The term ‘globalization’ can relate to any of the several levels of aggregation: the
entire world, specific country, a specific industry, a specific company or even a specific line of business
or functional activity within the company (Govindarajan and Gupta 2000).
At a worldwide level, globalization refers to the aggregate level of economic interdependence among the
various countries. At the level of a specific country, globalisation refers to the extent of the inter-linkages
between that particular country’s economy and the rest of the world. At the level of a specific industry,
globalisation refers to the degree to which, within that industry, a company’s competitive position within
one country is interdependent with its competitive position in another country. At the level of a specific
company, globalisation is viewed as a four-dimensional construct with the four dimensions being:
• Globalisation of market presence, meaning the extent to which the company is targeting
customers in all major markets within its industry throughout the world.
• Globalisation of supply chain, which refers to the extent to which the company is accessing
globally most optimal locations for the performance of various activities in its supply chain
• Globalisation of capital base, that refers to the extent to which the company is tapping into
the most optimal sources of capital on a worldwide basis.
• Globalisation on corporate mindset, that refers to the extent to which the corporation as a
collectivity reflects an understanding of diversity across cultures and markets coupled with an
ability to integrate across this diversity.
The notion we get from that detailed description of globalisation is that it’s about doing business abroad.
It is a movement of ideas, lifestyles, and developments that could affect our families, our employment,
and the future of the world (Chareonwongsak, 2002). However, when the Zimbabwe currency became
valueless on the global market, the country’s economy became unsustainable. Apparently globalization
became irrelevant at all levels in this case – the country, industry, and company levels hence the
introduction of dollarization. In other words the country was in a quagmire a situation akin to being
ostracized by the outside world.
Dollarization of the Zimbabwean Economy
In simple terms dollarization is the replacement of a country’s system of currency with the US dollar.
Berg and Borensztein (2000) assert that dollarization is the use of any foreign currency by another
country and is done by most developing as well as transitional economies. Reem Heakal (2010) in his
article in Investopedia, asserts that dollarization is embarked upon as an optimal way to obtain currency
stability as the local currency is pegged to a major convertible currency. However in the Zimbabwean
situation the option was to abandon the local currency in favour of the exclusive use of mainly the US
dollar, South African Rand and the Botswana Pula. Countries that seek full dollarization tend to be
developing or transitional economies, particularly those with high inflation (Heakal, 2010).
Disadvantages of Dollarization (Heakal 2010)
• The country loses its ability to directly influence its economy including its right to administer
monetary policy and any form of exchange regime.
• The central bank also loses its role as the lender of last resort for its banking system.
• Securities must be bought back in US dollars and that has an effect on the country’s current
account.
• Dollarization also damages a nation’s sense of pride since local currency is a symbol of a
sovereign state.
Advantages of Dollarization
• Protection against inflation and devaluation
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