The Role of Business in Globalisation - Term Paper Example

I. Introduction Globalisation is a phenomenon that has made the world one integrated economy. Over the of the years, the marketplace has evolved from being fragmented and bounded by geography and cultures to becoming one homogeneous place. This paper aims to identify the role of business in this phenomenon. As the essence of globalisation centres on the idea that the world has become homogeneous, and consumers are wanting virtually the same thing across the world, it is appropriate to look at businesses and private enterprises as being the pioneers of this phenomenon. This paper aims to critically analyse the role of businesses and private enterprises in globalisation and global sustainability. This paper aims to define the concept of globalisation first, the essence behind the concept of globalisation as well as some functions of companies that have become globalised over the years. Then it delves into the link between capitalism and globalisation, where capitalism has served as the driving force behind the phenomenon, as apparent in the emergence of the concept of multinational companies. From multinational companies, the pressure to integrate a companys resources and operations has resulted in a shift in a strategy that aims for efficiency—the global strategy. The pursuit of this global strategy has resulted in globalisation of many functions and activities of the business. Lastly, trade liberalisation in relation to the lobbying efforts to governments has propelled this phenomenon. The integration of the global economy as a result of globalisation is explored as well. II. Body A. Globalisation defined The changes in the marketplace during the last half century have been more apparent in terms of trade between countries (Schifferes 2007). With the onset of the revolution in information technology, the marketplace has evolved that many business practices have learned to adapt to the changes, therefore creating new ways to businesses as well. With the onset of information technology, the borders between countries that are long defined by their geographical territories and culture have virtually become non-existent because of this new trend (Lagace 2007). This new phenomenon which is called globalisation is founded on the basic concept that the world is one large integrated economy. And the revolution that information technology has brought to the communications and transportation industry has started to support this concept (Lagace 2007). The new integrated global economy is founded on the concept of homogeneity of people across the globe, which leads to a concept of a homogeneous group of consumers that constitute the global market (Emmons 2005). Thus, over the years capitalism has been considered a driving force of this phenomenon. Globalisation is very much apparent in activities of organisations pertaining especially to marketing and production. Globalisation of marketing pertains to the companys marketing activities, especially in terms of consumer behaviour, brand management and marketing communications efforts brought into a global scale in order to cater to the larger global segment that the concept of homogeneity, in relation to globalisation emphasizes (Levitt 1983). The concept of a homogeneous market across the world provides a lot of benefits to a company that aims to pursue the globalisation strategy. Globalisation of production occurs when a company chooses to produce the products it wishes to sell outside its host country by either selling licenses or setting up new plants in other foreign markets, yet is integrated as a major system in its operations across the globe. A globalised supply chain entails a production network across the globe. It is called globalisation of production because the production itself is taken into a greater scope in terms of geographical location. B. Capitalism and globalisation: the role of business as regards the phenomenon Capitalism has been considered the driving force behind this phenomenon called globalisation. Long before the global strategy has become popular, businesses have long expanded to different geographical regions. These efforts have given birth to the concept of multinational corporations. When a companys local market becomes saturated and it is faced with pressures to grow from its shareholders, the company has two options to consider according to the Ansoff matrix: either to pursue market development strategy, where it will offer its current products to new markets, or to employ diversification, which is to offer new products to new markets. When a company is usually faced with issues as regards efficiency and utilising its capacity and grow in terms of more sales, the company must resort to either of these options. If the national market is saturated, the only option is to go outside the national borders (Legace 2007). As companies go and operate in different countries, the incentives to integrate its operations increases in order to achieve efficiency. As the company enters new markets and expand their international operations, it encounters the rising costs to operating in different countries. Thus, by globalising its activities: focusing on the homogeneity of its customers as well as centralising its production, it reaps the benefits of efficiency (Legace 2009). This has given rise to the phenomenon which is known as globalisation. These efforts are the cornerstone of the concept behind globalisation. Businesses or private enterprises are the front runners of this phenomenon (Kolbe 2005). C. From multinational to global companies: some drivers to go global Capitalism has manifested in pursuit of larger sales by different companies over the years. In pursuit of more sales, companies are forced to look for new markets where they can offer their products. Thus, the concept of a company operating in different markets has given birth to the concept of multinational companies. However, as the marketplace becomes more and more sophisticated, companies are forced to shift their strategies from being multinational to being global (Jones 2005). Because of certain drivers, companies are provided with incentives to go global (Passaris 2006), or take advantage of the overall efficiency and economies of scale and scope that globalisation promises. Thus, in order to understand this cause for shift in strategy that global corporations employ, drivers which have propelled the phenomenon of globalisation such as market drivers, competitive drivers and cost drivers need to be explored. When a companys market becomes so much saturated that there is very little room for growth, the companys only choice is to expand to international markets and adopt a global strategy: that is, a standardized approach to doing things (Hout, Porter, & Rudden, 1982). As a company finds convergence in terms of lifestyle and tastes across countries, also due to the increasing development in information technology as well as transportation, the companies reap the benefits of selling the same products to these market (Hollis 2009). In order to sell products, the company has to communicate to these consumers. According to the concept of homogeneity among the global consumers, companies can then communicate with standardized marketing communications efforts across different geographical areas. For example, in the case of Toys R Us entering Japan, it has been found out that Japan along with the United States and Europe is one of the wealthiest market for the leisure products, where consumers are motivated to buy products with established brands, with excellent quality—same insight as the consumers in US and Europe (Sterngold 1991). Companies can spread the costs of its marketing communications efforts across the large number of the global market, thus benefiting from the added efficiency. These forces are most often referred to as market drivers. Apart from the market drivers, competitive drivers also play a key role for companies to resort to globalising their marketing efforts. When a close competitor within a geographic area enters a new market for a plan to globalise, the other companies are prompted to follow in order to benefit as well, and to combat the move of the other competitor (Alexander & Korine, 2009). Because of the interdependencies of the economies being brought by the improvement in communication infrastructures, the success of a company is higher especially by collaborating with strategic alliances and networks. Take for instance the case of Nike versus Reebok: when Nike sensed the growing fitness craze that made many sports enthusiasts a growing market, Reebok joined the market to counter Nikes move (Labaich 1995). If the competitor proves to be successful in the foreign market, the economies of scale will enable this player to grow even in the host country. Thus, the power of the competitor in the host country will grow which could disrupt the current level of the competition. These drivers are even supported by the development in information technology and transportation. As information technology advanced, consumers across the globe are even integrated by the world wide web. This integration and increased interaction enable consumers to share experiences and communicate with each other, which results in a greater convergence. Thus, homogeneity of consumers have become stronger in the process. These developments also impact the competitive situation among various industries. With the speed of information through the Internet, competitive actions become easier for companies to track. Another driver associated with the globalisation of production is coined as the cost driver. The major point behind globalisation is for a company to experience economies of scale as they continue to expand their operations (Malnight 1995). As a companys production or supply chain becomes globalised, the company has for some degree increased its bargaining power against its suppliers. This leads to further lowering down of the costs that are associated with the companys production. With a globalised supply chain, the company can offset the increasing costs to product development relative to market life by simultaneously mass producing a certain product line in order to sell it faster to their respective markets (Yip 1992). Whirlpools globalisation strategy has enabled it to produce different products in various parts of the world through its global production network, and still gain advantage in cost in order to remain competitive in different markets, be it in Germany or Mexico or China (Uchitelle 2005). This is also related with technological and product innovation. As previously mentioned, companies are forced to innovate and shorten their market live which leaves a very high cost to product development. globalisation of production then ensures a larger network of production to support a wider scale distribution. As costs are spread over a greater number of produced units, the cost to research and development is also spread. Therefore, technological innovation provides more benefits, which costs would not have otherwise been offset had the firm have a more limited level of distribution. D. Trade liberalisation: To foreign direct investments A global company is usually faced with a decision as regards the mode for foreign entry into another market. The modes of entry that the company can choose from include: exporting, where a company can sell the goods in other markets while producing the goods in its host country; licensing, where the company can sell the technical know-hows to be used by strategic allies in other countries in order to produce the goods; and foreign direct investments where companies set up a plant in order to produce the good in the foreign market (Johansson and Yip, 1994). The two options, licensing and FDI, pertain to the concept of globalisation of production. One of the bases for the decision as regards the mode of entry of a company in new markets include the political and economic policies within the new geographic market that could impact the company. These policies are usually called as government drivers: when countries open up their economies and adopt policies which are more encouraging to open trade with other countries. They are called government drivers of globalization as they are one of the reasons which have propelled globalization over the last ten years. Governments that shift from a centralized production to a decentralized one provides incentives for foreign companies to participate in the decentralized production in the new geographical market. When governments lower down their tariffs, barriers to entry as regards the local competition is lowered and foreign companies can enter the local industry more freely. It gives a certain amount of incentives to companies—and that is why these political and economic policies serve as one of the driving forces behind globalization. One example is Kodak entering China in 1998 after the tariff has been reduced to 20%, where the company planned to invest $1 billion to upgrade its film-production plant in the country (NYTimes.com 1998). Thus, trade liberalisation over the years in order to facilitate more economic activities between countries is one of the factors that have propelled the onset of globalisation over the years (BERR.gov.uk). As businesses begin to lobby governments in order to craft free trade agreements among countries, trade liberalisation has enabled companies to pursue a global strategy in the process. These agreements such as the the AFTA or Asian Free Trade Agreement and the NAFTA or the North American Free Trade Agreement have lessened the trade barriers and enabled companies to expand their operations in different parts of the world, and integrate their operations into a global one (Jones 2005). E. Integration of the global economy Trade liberalisation helped propel globalisation as barriers between countries have decreased. As more companies resort to foreign direct investments as a mode of entry in a country in order to gain control in the local market, companies are given more leeway to raise funds in the different markets as well. Apart from the globalsation of marketing and production activities of the organisations, its financing activities in different countries have tied the financial system of many markets into one big global economy (BERR.gov.uk). This integration has been where globalisation has been heading towards. Because trade liberalisation is linked to the influx of foreign direct investments in a given country, this policy is tied to economic growth. In pursuit of economic growth, companies open their economies, and in the process becomes integrated into the global economy (Alfaro & Charlton 2007). This collaboration between businesses and governments have resulted into this integration which is the sense of globalisation. III. Conclusion Businesses have definitely played a key role as regards globalisation and global sustainability. Exploring deeper the process that has lead to globalisation, it is very apparent that capitalism and the desire of businesses to operate in new markets, being supported by governments which have agreed to liberalise trade agreements have become the cornerstone of the phenomenon. After the industrial revolution and businesses are confronted with issues of utilising excess capacity in a very saturated national market, they are forced to look for markets elsewhere. These efforts have given birth to the concept of multinational companies, or companies that operate in different countries. As businesses grow their operations in different countries, the larger costs that they incur every time they enter a new market calls for efforts to achieve efficiency by adopting a global strategy. This integration of resources and operations are backed up by the homogeneity of a companys global consumers which enables it to offer virtually the same products in different markets and achieve economies of scale. With the drivers that provide incentives to businesses to shift their strategy from being a multinational company to being a global company, globalisation has become more popular. As trade liberalisation has enabled companies to enter different markets through foreign direct investments in order to gain better control in the local markets where they operate, companies are also given more leeway in terms of raising funds in order to support their global operations. With this, they are able to integrate their operations to the financial system of different countries. With global companies, these efforts have integrated the financial system of different countries into one global economy. Thus, the role of business as regards globalisation and sustainability has been that of an impetus as well as a binding force behind all these. References Alexander, M. & Korine, H. (2008 December). “When you shouldnt go global.” Harvard Business Review. Date accessed: April 29, 2009 from http://web.ebscohost.com/ehost/pdf?vid=1&hid=114&sid=ebbb3d8b-3062-4514-ac0f-cd9af5eb71a8%40sessionmgr107 Alfaro, L. & Charlton, A. 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