Business as the Main Driver of Globalization - Essay Example

Globalisation Order No. 214578 April 2008 Globalisation Globalisation today means the merging of national markets into one huge global market. Selling to international markets has become easier as barriers to cross-border trade have fallen. An organisation need not have the size of a multinational giant to benefit from the globalisation of markets. In the late 1970s, advances in communications technology and transportation, a shift to market-oriented policies by many countries and a lowering of trade barriers, worldwide altered the structure of global business. Globalisation has improved quality and innovation, has increased global acquisitions, streamlined operations of many organisations and made them foray into strategic partnerships. Globalisation of Production is the sourcing of services and products from various locations across the world to take advantage of the differences in cost and quality other countries offer. A product of good quality and low price is able to compete successfully internationally. A product has to be good to be successful in an international market. It has to satisfy consumer preferences, tastes, legal regulations, and cultural systems of various countries to succeed. Porter (1986) described a global industry as a series of linked domestic industries in which rivals compete against each other on a truly worldwide basis. As Hamish McRae says “Business is the main driver of globalisation!” Globalisation has been accelerated largely by the desire of multinationals to increase profits. National governments also want to reap the economic benefits that come from free trade and the free flow of capital. Many conditions affect globalisation. They can be grouped under four groups 1. Government globalisation drivers Liberalisation of trading rules and deregulated markets has led to lowered tariffs and has made way for foreign direct investments almost all over the world. The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) are some examples of latest developments on this front. The technical and marketing standards of products of countries differ. The variations affect the standardization of a product. The costs required to upgrade technologies may put off global expansion. If businesses of a country are Government owned, outside businesses trying to enter the country may find the regulations that are favourable to the businesses of that country as obstacles. In the previous two decades many governments have adopted free trade policies. Globalisation and international trade is largely dependent on policies that encourage foreign direct investment. The tax regulations also play a key role as multinationals can legitimately transfer their profits to countries that levy least tax liabilities. Prof. Peter Fitzroy feels "Many market based reforms have been put in place, trade barriers have been removed in many countries." 2. Market drivers When domestic markets get saturated growth opportunities are limited. In such a situation most organizations go in for global expansion to overcome this situation. Yip (1995) has put forth the following as market drivers in the changed conditions of todays globalised industry. i. Per capita income converging among industrialized nations (e.g. Japan, Hong Kong) ii. Convergence of lifestyles and tastes iii. Organizations beginning to behave as global customers iv Increasing travel creating global consumers v. Growth of global and regional channels vi. Establishment of world brands vii. Push to develop global advertising 3.Cost drivers Costs vary from country to country and global firms can take advantage of this fact. One cost driver is optimising the scales of operations and going in for cost-saving measures. Countries like China and Malaysia that offer low-labour costs but at the same time are highly productive. Businesses can consider concentrating manufacturing in these areas.  Optimisation of transportation is another cost driver. Advances in technology too affect costs these days. The monetary strains of certain technologies can be reduced if implement on a global scale. In some cases businesses that go in for high product development costs may have to expand so as to recover the costs. According to Ferrier (2004) sourcing efficiency and costs vary from country to country and global firms can take advantage of this fact. Other cost drivers to globalisation are the opportunity to build global scale economies and the high product development costs nowadays. 4. Competitive drivers Global competition has forced organizations to go "international." Morrison and Roth (1992) talk of industries as distinct competitive environments that are differentially interdependent. As trade increases between countries the interaction between competitors also increases. Information of products and services are available easily. While this may be good information for a customer, industry competitors also get to know about businesses operations of other organisations leading to intense rivalries within industries. Competitors from other nations may adopt successful strategies through questionable means. Increasing industry globalisation increases the strength of competitive forces across national borders. Porter (1980) has identified these competitive forces as threat of entry, rivalry among existing firms, pressure from substitute products or services, bargaining power of suppliers and bargaining power of buyers. Businesses operating on a multi-national level to remain competitive globally have to have effective global strategies like transferable products, technologies, and good advertising. A global industry can be defined as “an industry in which a firm’s competitive position in one country is significantly affected by its position in other countries or vice versa” (Makhija, M. et al., 1997). Constant identification and forecasting of the globalisation drivers, is necessary for businesses to strive in a global market. According to Andrew Orsini (2004) "the key is assessing which drivers in conjunction with the business’s available resources optimise the potential and profits of the business." Successful identification and tracking of the drivers will result in reduced costs, improvement in product quality, and customer satisfaction.  The important drivers of acceleration are the political will of the governments and the technology, which links all geographical boundaries. Globalisation largely depends on world economies. Global expansion for businesses largely depends on the economic and trade policies of countries. For instance even a small decrease in import duties will result in a sudden increase in the inflow of capital from other countries. Similarly the taxation laws of a country can dictate the free flow of capital and globalisation of trade. Globalisation is fuelled by the desire to grow. The desire of multinationals to jointly produce and sell their products globally is increasing. Taking advantage of the free trade announced in the past two decades, organisations have formed global collaborations and established production and marketing facilities in the countries of their foreign partners. The Airbus consortium is a perfect example of globalisation. The airbus body is manufactured in Germany, the wings in Britain, its doors are made in Spain and the final product is assembled in France. Globalisation has been driven by policies that have opened economies domestically and internationally. In the past two decades, many governments have increased their productive potential by adopting free-market economic systems. This has also created new opportunities for investment. Corporations have built factories in foreign countries and have entered into partnerships with foreign partners for production and marketing. (What is globalisation ) For Multinationals to operate globally and distribute their operations geographically they should be able to open easily plants, offices, subsidiaries, wherever they are needed. Liberalization that makes the economy more efficient is being taken up everywhere. In the words of John Gray: "The decisive advantage that a multinational company achieves over its rivals comes finally from its capacity to generate new technologies and to deploy effectively and profitably. In turn, this depends to a considerable extent on the ways in which companies enable knowledge to be conserved and generated." (Gray) The other main driver of globalisation in recent times is technology. The advancement in information technology like the Internet and cellular telephony gives access to information, data and personnel across the globe and across time barriers. Reduced transportation costs, open trade regulations and declining communication costs are some other drivers that have accelerated globalisation. In conclusion it can be said, "The true drivers of globalisation are the multinationals themselves as they drive the global trade and exploit technology, government policies, speed of transportation and communication to achieve their utmost desire to grow and have a global presence." (Gabriel Rise) References 1.Ferrier (2004) Retrieved from http://www.grin.com/en/preview/57026.html 2. Fitzroy Peter Living with globalisation Retrieved from http://www.abc.net.au/money/currency/features/feat8.htm 3. Gabriel Rise The Drivers Of Globalisation, Retrieved from http://business.readigg.com/description/16164.html 4. Gray John, Drivers of Change: Globalisation, Technology, and Competition Asian Development Outlook 2003, Retrieved from http://www.adb.org/Documents/Books/ADO/2003/part3_3-1.asp 5. McRae Hamish, Quote retrieved from http://tutor2u.net/economics/revision-notes/a2-macro-globalisation-introduction.html 6. Makhija, M.V., Kim, K. and Williamson, S.D. (1997), Measuring globalisation of Industries using a national industry approach: empirical evidence across five Countries over time, Journal of International Business Studies, fourth quarter, pp. 679-710. 7. Morrison, A.J. and Roth, K. (1992), A taxonomy of business-level strategies in global Industries, Strategic Management Journal, 13, pp. 399-417. 8. Porter, M. E. (1980), “Competitive strategy: techniques for analysing industries and competitors, The Free Press, New York. 9. Porter, M. E. (1986), Changing patterns of international competition, California Management Review, 28, pp. 9-40. 10. Orsini Andrew, (2004) How do industry globalisation drivers affect businesses’ choice of global strategies? Retrieved from www.leidykla.eu/fileadmin/Ekonomika/73/Grazina_Jatuliaviciene__Marija_Kucinskiene.pdf - 11. What is globalisation? Retrieved from http://www.globalization101.org/What_is_Globalization.html 12. Yip G.S. (1995), “Total global strategy: managing for worldwide competitive advantage”, Prentice Hall, Englewood Cliffs. Read More