Forces Driving the Globalisation Process - Research Paper Example

?Introduction The current business environment is wider and more sophisticated than it was a century ago. International trade has expanded with such speed that individual country boarders have lost significance as far as cross-boarder trade is concerned. This trend is termed as globalisation and it intensified right after the World War II when countries realised that the world is just but a small village where interdependence is crucial for survival. Organisations from that time followed suit with many spreading their operations overseas in search of raw materials and markets for their products and services. Today organisations can only ignore the rest of the world at their own peril due to the heightened competition both within and beyond their countries of origin. Operational and competitive strategies of businesses have to factor the globalisation aspect more than ever before. Globalisation therefore requires firms to keep abreast what their competitors are doing, where they are located and which economic, socio-political and technological developments are happening in these locations. Multinational businesses have been facing challenges in their endeavour to venture into various markets worldwide which are slowing down their prospects and the general speed of globalisation. This paper will look into the forces driving globalisation and explain some of the challenges that globalisation presents to multinational businesses. Forces Driving the Globalisation Process Manufacturers and service providers have revolutionised the global market environment in the last 3 decades. This has been facilitated by the fact that organisations have increasingly formed joint ventures and strategic alliances and established foreign subsidiaries. These actions create the concept of process in globalisation since a bigger picture is created which facilitates movement of products and services to markets all over the world. In this respect the world is brought closer together in the name of business thereby qualifying for macroeconomic analysis with a country acting as unit in this analysis. There is wide debate however on whether multinationals are truly global since many still have strategies of reaching for wider markets meaning that they are still globalising. It is therefore important to identify the various forces that drive globalisation. Capital markets liberalisation For globalisation to spread there is need to have free flow of investment beyond the confines of a one country or region. Digitisation of capital offered this opportunity although many countries that adopted it faced numerous start-up challenges. Many Asian countries are among the affected especially in the late 1990s. Serious financial and market crisis ensued in Russia and Argentina in the early 2000s and at this point the IMF was blamed for having faulty policies (Tallman 2010). Those against liberalisation argued that speculators were to take advantage and affect cross country movements. In this respect certain taxes were proposed for example the Chilean and Tobin taxes to control the extent of speculation (Tallman 2010). As much as it is true that liberalisation had its shortcomings and that some nations felt it harder than others, its benefits far outweigh its initial setbacks. One such benefit is the easy access of funds for SMEs and entrepreneurs. It is also true that in many countries banks and financial structures are largely government controlled. However, these governments have been relaxing their muscles due to pressure from inter-country competition in attracting foreign investment. As a result capital markets have been progressively liberalised so as to attract investment and interlink financial markets. The risk though of these practices is currency fluctuations e.g. the dollar as the case is today with the looming crisis in the Middle East and North Africa particularly Libya which is a major oil exporter. Technological forces Technological advancement has affected globalisation process both directly and indirectly. One of the direct effects is the shift from reliance in agricultural based economy to manufacturing based. This trend is more prevalent in developing countries which have realised that their agricultural products are heavily loosing market due to heightened competition from the highly subsidised ones from Europe and the United States. European and American agricultural producers receive an average of 27 percent subsidies which make them sell at relatively lower prices while their products are of higher quality (UNCTAD 2007). Communication and IT have reduced the distance between people from all over the world. This has facilitated easy, quick and cheap ways of conducting business across nations. Access and dissemination of information facilitates innovation which puts organisations at risk of intellectual property theft and obsolescence of their technology. Firms that have gone global should take advantage of this IT advancement and develop better products and services so as to be competitive in the global market and be able to curb intellectual property theft. Internet in particular presents many opportunities but is it important to consider its setbacks in regards to changing business models. There is need to have clear-cut controls in regards to what should be adopted since moving too fast or too slowly have their own consequences. European telecom firms form an example whereby as they were retrenching staff G3 wireless licences bidding was in full force and some were left out in taking up the innovative technology. Mobility of people In the last 2 decades people have been on the move for better jobs and other opportunities in other countries. This trend is to increase as time passes and as globalisation process intensifies. This kind of movement has its roots in the united Germany when the communist bloc collapsed. This trend is not ending any time soon based on a number of factors; one is that many industrialised nations are having an acute problem of aging populations which necessitates the need to seek labour force elsewhere. In contrast developing nations have a surplus of young and well qualified workforce since their systems cannot absorb all of them. Another factor is that these young people are willing to offer their services at relatively lower wages not considering that their skills are globally competitive (Tallman 2010). Another notable feature in the globalisation trend is the increased worldwide travel in relation to business and tourism. Organisations are quite keen in analysing these movements of people as they offer opportunities regarding human resources. This movement also creates room for product diffusion as well as ideas and exchange of culture. All these trends prove that many countries are increasingly tolerant to freedom of labour movement making globalisation an indispensable trend. Mobility of products In the last few decades nations have been working towards removal of trade barriers at regional and global level. WHO and General Agreement on Tariffs and Trade (GATT) are some of the global organisations that have largely contributed towards removal of trade barriers (Tallman 2010). However, barriers still exist since some countries hold protectionism ideals. Countries are not willing to fully open up their markets for fear that the local businesses will collapse and that their cultural identity will be eroded. As much as this is the case with literally all countries the possibility of one being able to sell or buy anything anywhere is fast approaching. Businesses have in turn stationed themselves strategically in order to benefit from the diverse market. It is important to appreciate that these businesses are competitors and this has accelerated competition among multinationals. This trend is putting local businesses at risk of unfair competition from global giants. Competition can also emanate from unlikely quarters since business mobility has also increased. Global cost forces There are a number of concepts that have come up in various industries that have enhanced globalisation. One is total quality management (TQM) which considers overall cost of production and not just direct costs e.g. labour. Organisations have found that quality of training and good product design both translate into huge cuts on overall production cost (Gatignon, Kimberly, Gunther and INSEAD-Wharton Alliance 2004). TQM concentrates resources in preventing faults rather than inspection to find faults. Organisations and in this case manufacturers, quantified the impacts of poorly trained employees and poor product design. In order for organisations to attain high quality production at minimum cost they needed to look for highly skilled workforce and prioritise on quality supplies. Just-In-Time technique was the other concept for manufacturers that aimed at managing production processes to minimise excesses or shortfalls. At the same time production facilities have become quite costly due to the advancement in technology and the need to produce quality products at minimum cost. A good example is a semi-conductor facility in a manufacturing plant which is going for a minimum of $500 million (UNCTAD 2007). These factors have forced organisations to seek economies of scale by concentrating production in a location where labour force is readily available and cheap. When the running costs are minimised then investment in hi-tech facilities can take shape so as to pursue the global market. Various countries also offer different incentives to investment for example subsidies. Firms are therefore going global based on such cost considerations. Decline in transport cost The transport sector is plagued by intense competition which has resulted to decline in transportation cost. Modes of transport have also increased their capacity and efficiency in their fight to win travellers. A good example is the Airbus A380 passenger aircraft that has a capacity of over 600 passengers (Tallman 2010). Such developments are triggered by the need to cater for the expanding number of travellers. Increased capacity and advanced technology have made it possible for production to be centralised and then product delivery is made to all parts of the world. As example is Beetle that is made in Mexico and transported to all parts of the world. This factor is however constantly at risk especially due to intense fluctuations in energy prices particularly oil related products. Nevertheless, low transportation costs coupled with advanced technology enable easy and extensive transportation of products, services and people. Global regulations and harmonisation For organisations that deal internationally harmonisation of regulations is crucial to their success with an example of accounting standards. The new trends in respect to global environmental changes and emission of ozone depleting gases have facilitated emergence of common regulations in regards to these issues. In respect to environmental degradation industrialised countries have for a decade or so tried to draft uniform regulations to control emissions of toxic gases. Organisations doing business in these nations are hugely affected by such regulations both in positive and negative ways (Gatignon et al. 2004). It is important to appreciate that these common regulations reduce chances of uncertainty and establish a level playing ground on a global scale. The same regulations can act as agents to cripple a business in case they result in increased cost of operations e.g. higher taxation. Challenges that Globalisation Presents to Multinational Businesses Shortage of required skills or experience Multinationals establish businesses overseas mostly from developed countries to less developed ones. In order to succeed there is need to hire knowledgeable and experienced personnel from these countries. Such employees are more familiar with the general business environment and would stand to steer the firm better. It is however disappointing that most third world countries have educated people who are inexperienced since there are few firms to employ them after completing college degrees (Stiglitz 2002). As such a multinational has to employ ill-experienced workforce and invest heavily on training. Business environment Many countries in the world are putting measures in place including legislation in order to attract investors. Not all succeed and many are still having quite unfavourable business environments. Crime rates, corruption, unfavourable taxation policies and bad weather among others work towards increasing cost of doing business as a firm has to use resources to shield itself from effects of such situations. Conflict of interest A multinational is a huge firm with enormous resources and its establishment in a country hardly goes unnoticed. As such many parties try to interfere with its operations in order to achieve certain goals. Governments and the general public act as the main interferers (Stiglitz 2002). The governments usually request for stakes in the company’s wealth and impose stringent rules and laws that hinder business growth mainly to protect their local industries. The general public on the other hand go in arms either protesting for not being employed or trying to protect their local firms from competition. In some cases such actions can be quite unfavourable as to force firms to relocate. High cost of labour Multinationals operate in highly professional manner and as such they require to expatriate managers and other crucial personnel from their home countries. Such movement of employees is costly as the firm needs to cater for all their travel arrangements together with other basic necessities like housing. In case many employees need to be expatriated then the organisation will stand to use a great deal of resources to maintain such a workforce in a foreign country. Conclusion The process of globalisation has been in force for centuries but it accelerated only recently owing to a number of factors like advancement in technology, increased mobility of both people and products, increasing liberalisation of capital markets and many others. These factors have made it possible for people from far and wide to enjoy the same products and services since organisations are able to manufacture their goods anywhere and sell them anywhere. This phenomenon of interconnected producer and consumer networks all over the world have facilitated establishment of multinationals. In their operations, multinationals encounter various challenges emanating from the process of globalisation. Some of them relate to shortage of labour, unfriendly business environment and conflict of interest among others. Nevertheless, many have reported consistent profits and general growth indicating that the hurdles are not too much to bear. References Gatignon, H, Kimberly JR, Gunther, RE and INSEAD-Wharton Alliance 2004, The INSEAD-Wharton Alliance on globalizing: Strategies for building successful global businesses, Cambridge University Press. Stiglitz, JE 2002, Globalisation and its discontents, penguin Books, London. Tallman, S 2010, Global strategy, John Wiley and Sons. UNCTAD 2007, World investment report: Transnational corporations, extractive industries and development, United Nations Conference on Trade and Development, United Nations, New York and Geneva. Read More