The Effects of Globalization and Foreign Direct Investment Essay

The Effects of Globalization and Foreign Direct Investment - Essay Example This has served many companies in producing cheaper goods by taking use of the low cost of labor and machineries involved, from different countries. The other side of globalization that is also prominent is the decline in product quality, by outsourcing cheaper equipments and low cost of the unskilled labor (Pragmatic Outsourcing, 2012). Employing the trend of globalization has increased significantly in the industrial sector of the European countries. The increase in population and global competition has narrowed the profit margin of many industries and has ignited the need of producing more volume of products, to beat other competitors (Isidro, 2011). Hence, many European industries utilize the cheap labor, fuel and low government taxes of under developed nations to produce bulk quantity of their products within the limited budget for it. A flashback of the European industries would lead to the fact that globalization started from the textile industry in the early 20th century and then it was adopted in electronics, furniture and books publishing sectors (Blass, 2005). With the change in policy by Markets in Financial Instruments Directive (MiFID) of trade tariffs and eradicating the concentration rule in Europe, monopolization in industrial sectors was broken to a great extent. It allowed several new companies to enter into the corporate market and intensify the business competition (Blass, 2005). In this respect, the Italian footwear industry is considered to have gone through considerable changes in its managerial and production strategies, by implying globalization in its system. Historical trade data of Italy suggest that its footwear sector that has a prominent contribution in its overall GDP and has a high impact on the international footwear market (Milan, 2010). However, present market position and sales figures present a different scenario of prominence of the Italy’s footwear industry. Pressure of the international market and emerging entrants has forced Italy’s footwear industry to delocalize their resources, which has resulted in losing their distinct image. The vertical integration methodology of these industries was replaced with a global supply chain network, which resulted in less flexibility and control over the finished product. This paper aims to provide hypotheses of the effect of globalization on Italian footwear, based on the understanding and evaluation of sales figures and current standing in national and international market. The will use the academic and theoretical data to compare other footwear industries with the Italian, to justify the hypothesis presented (Larch, 2005). Theoretical Overview The pattern followed in the Italian footwear industry involves foreign direct investment in the production cycle. Since, Italy footwear sector is largely delocalized several of its resources are involved in production and designing is being outsourced (Amighini & Rabellotti, 2003). This brings the ownership of foreign investors in different production units carried out in other countries. One essential thing to consider is the formation of several business groups, which is the result of market fragmentation. Such business groups act as the middle man between the actual producer and the company been outsourced. Therefore, there are