Critical Evaluation of Globalization Process - Term Paper Example

?Introduction Globalization can be defined as the process of integration of international trade. International trade is defined as the form of trade that takes place across national borders. Through international trade, globalization leads to a world economy in which the goods and services that are available in one country are also available in another part of the world. This means that consumers in different parts of the world have access to the same goods and services. This has enhanced standards of living in developing economies. Globalization has enabled companies in the developed economies to seek business opportunities in the developing economies where demand is growing. This business expansion facilitates exchange of technology and expertise so that developing economies can build upon the existing knowledge base. The business expansion creates new business opportunities through economies of scale so that the prices are reduced. This means that economies have more resources to spare in investing in living standards. Critical evaluation Globalization has enabled economies like China and India to join the world economy. By joining the World Trade Organization (WTO), the Chinese government has been able to attract massive amounts of foreign direct investments in its economy. Such success would not have been possible without infrastructure development. Because China has improved infrastructure, companies from the developed economies have established operations in the country. Given China’s massive population, foreign companies can access a very large market which leads to economies of scale. Another advantage of operating in China is that the labour costs are low, so that companies can reduce production costs to a significant extent. This enables them to offer goods and services at significantly lower prices in all parts of the world. This is the international trade which has been facilitated through the process of globalization. The process of globalization has been aided by technological developments. The emergence of the Internet has enabled businesses to coordinate their international operations to a greater extent. The enhanced coordination has also led to cost streamlining. Therefore multinational organizations have been able to create new business opportunities and capitalize upon them to the fullest extent. By creating additional business opportunities, the companies have been able to reduce the competitive threats in their respective industries. According to Porter’s five forces analysis, the competitive threat in an industry is defined by the threat of new entrants, the threat of substitute products, bargaining powers of customers and suppliers and finally, the threat of existing competition (Scholte, 2005). Globalization affects all five forces. The threat of new entrants has been reduced since companies no longer have to be limited to the domestic markets. The threat of substitute products has been reduced because globalization enables companies to offer products and services in markets which previously did not have them. The bargaining power of customers is less of a threat because companies can achieve economies of scale more quickly, so that loss of customers from high prices does not affect profitability. Bargaining power of suppliers is also reduced as multinational companies can offer a lot of business opportunities to the supply chain management companies so that they are willing to offer lower prices. The threat of existing competition is reduced because there are international markets which offer additional demand. This means that for multinational companies, the competition has decreased. However for domestic companies, globalization has increased competition. For example, the domestic companies in developing economies are facing increased competition as multinational companies are entering their markets through globalization. Therefore, while multinational companies are creating new business opportunities through globalization, it has also increased competition in different markets which previously did not have multinational companies operating in them. The pace of globalization has increased because of technological developments. The international subsidiaries of a multinational company are connected through online technology facilitating information sharing. This leads to greater access to market information so that multinational companies can respond to market changes quickly. This increases the efficiency of their operational framework. In the age of globalization, international businesses have been implementing global market segmentation which enables them to identify those markets which have similar demand patterns (Viotti and Kauppi, 2007). The multinational companies can capitalize upon this homogeneity by adopting standardization. Standardization further reduces costs of operations since the same products can be offered in the selected international markets. Standardization reduces the bargaining power of customers since there is less threat of substitute products. As a result the company is in a position to achieve greater economies of scale by reaching the breakeven point earlier. With lowers costs facilitating lower prices, companies can generate larger volumes of business, leading to additional business opportunities. The multinational companies would like to maximize the level of standardization and this is the question of standardization vs. customization which has a direct bearing on the operational cost structure and therefore a company’s ability to generate sufficient business volume (Stiglitz, 2007). Global market segmentation is defined as the process of identifying specific consumer segments across national boundaries exhibiting similar buying behaviour. This enables international businesses to offer similar products and services in the global market place. As a result standardization in the manufacturing process is facilitated. Because the manufacturing process does not have to customize product features for each market, the costs of marketing are reduced. The same products are offered and they are promoted by the same promotional campaigns. This enhances the living standards in the selected markets and becomes feasible because of globalization. The pace of globalization has increased because of advances in communications technology. These advances have allowed international subsidiaries to share strategic information about global market conditions. Because of this enhanced coordination, international businesses have greater scope for creating business opportunities. The improved level of coordination has increased the efficiency in decision-making so that the international businesses are able to respond to market changes quickly. Information-sharing has become one of the key success factors because of the increased level of competition in the international markets, also because of globalization. Globalization has liberated the financial markets, so that international investors can invest their assets in more than one economy. This has increased the amount of investment available for different business sectors in international markets. The international financial market also allows the government of one country to purchase the currency of another country. This has a bearing on the exchange rate which can increase or decrease the international trade between the two countries. Globalization has created worldwide markets where the consumers of one country have access to products which are manufactured in another country. The internet technology has facilitated information-sharing internationally leading to cultural integration. Cultural integration has led to similar buying behaviour which is identified through global market segmentation. Global market segmentation enables multinational companies to capitalize upon the opportunities of globalization to the fullest extent. It facilitates the process of global marketing which creates the additional business opportunities. The process of global marketing has become feasible because of the global marketplace which is the result of globalization. Global marketing creates business opportunities by facilitating cost efficiencies resulting from reduced duplication of efforts. Because the same marketing activities can be transferred across subsidiaries in different countries, there is less duplication of efforts and the result is cost savings which create additional business opportunities (Blanchard, 2005). Global marketing increases competition by offering substitute products in the markets which already had similar products. The competition has a positive effect in terms of enhancing living standards by enhancing the quality of products and services offered. Because of the high competition, companies have to deliver the highest value to the customers in order to get ahead of the competition. Without the increased competition, the companies would not have the same drive to invest in ensuring quality. However, because of the high threat of competitive rivalry in the global marketplace, companies can only survive by delivering real value to the consumers. In this manner the increased competition has a positive effect on living standards. Competing in the global marketplace means that companies have to maintain a very good image in order to get the most customers. Sometimes this involves corporate social responsibility where companies engage in activities like community service in order to enhance the living standards of the local community (McConnell and Brue, 2007). Indirectly this is the effect of globalization. That globalization will continue to have a positive impact on living standards is proven by the increased information sharing which leads to the continuous improvement process. Globalization increases the number of companies operating in a particular market and in this manner increases competition. Competition will continue to increase as a result of globalization driven by cost and quality improvements. Since this is a continuous process, a company operating within the global environment will also have to continuously improve its operational framework in order to keep pace with the competition driven by globalization. The global marketing company will have to seek more and more efficient means of transformation from raw materials to the finished product in order to create cost efficiencies which can lead to a competitive advantage. This means less waste and thus better living standards. In this manner globalization makes it imperative for businesses to improve their techniques continuously and thus create business opportunities by enhancing living standards in the local communities (Mankiw, 2005). Global customers make it possible for companies to offer one product without the additional costs of customization. In this manner the operational framework is standardized regardless of the part of the global marketplace that the company operates in. Because of the unified marketing program in different markets, the same product in different stages of the product life cycle can be introduced to selected markets in order to create additional business opportunities. For example products the demand for which has reached maturity in one market can be introduced to another market in which the demand for those products is in the growth stage. In this manner the life of a product may be extended and thus the manufacturer is in a position to generate more profitability from the same product categories. Products which would have been discontinued if confined to domestic markets have additional business opportunities in the global marketplace. Product diffusion patterns vary from one country to another (Moss, 2005). Some countries are fast adopters of new products while other countries take more time. Therefore global market segmentation can segment different markets based upon whether they are fast adopters or lag countries. This is a new segmentation base which has arisen because of the phenomenon of globalization. Knowledge of this segmentation base enables the global marketer to implement market entry strategies accordingly. This extends the lifecycle of the same product as it is introduced sequentially or simultaneously in different parts of the global marketplace. The internet technology spreads product information throughout the world market so that the countries are ready to purchase those products when they are introduced. This has a learning effect so that global marketing companies have to be image-oriented in order to inspire trust among the consumers. This enhances the living standards by delivering higher quality to the consumers. Conclusion Globalization creates additional business opportunities by creating the global marketplace in which companies can capitalize upon product diffusion patterns to extend the lifecycle of a product. Globalization also increases competition by increasing the number of companies operating in a selected market. All this has a positive impact on living standards as companies strive to deliver more value to the consumers in order to create a competitive advantage. Without globalization, companies would not want to invest in enhancing product quality as there is little or no competition. The global marketplace leads to international trade which increases competition and therefore has a positive impact on living standards. Companies operating in the global marketplace can standardize activities to create a unified marketing programme leading to cost savings and additional business opportunities. In the process, new products are introduced to the benefit of both the international businesses and the local communities. Word count: 2000. References Blanchard, O., 2005. Macroeconomics. London: McGraw Hill/Irwin. McConnell, C. R., and Brue, S. L., 2007. Macroeconomics. London: South western college pub. Moss, D. A., 2005. Concise guide to macroeconomics: what manager, executives, students need to know. London: McGraw Hill/Irwin. Scholte, J. A., 2005. Globalization: a critical introduction. London: Palgrave Macmillan. Stiglitz, J., 2007. Making globalization work. London: W. W. Norton and Company. Viotti, P. R. and Kauppi, M. V., 2007. International relations and world politics. 2nd ed. London: Prentice Hall. Mankiw, N G., 2005. Principles of macroeconomics. London: McGraw Hill/Irwin. Read More