Impact of Globalization on Industries: Comparison of Fashion and Pharmaceutical Industries - Term Paper Example

 Impact of Globalization on Industries- Comparison of Fashion and Pharmaceutical Industries 1. Introduction Globalization is a broad concept and it has been defined in many ways by different authors. According to Freedman(1999 ,p 156) and Woods(2000,p78), globalization means “various quantitative and qualitative developments ranging from a dramatic increase in international transactions, especially in finance, to the international and spatial reorganization of production, the global harmonization of tastes and standards, liberalization, deregulation, privatization, the arrival of new information technologies, the global diffusion of information, values, and ideas, massive population transfers, trends towards a universal world culture, the spread of a worldwide preference for democracy, and the erosion of the nation state”. Globalization has different dimensions like economic, cultural, political and environmental. It has different impacts on different industries with varying intensities based on these different dimensions. In this essay, the impact of globalization on fashion and pharmaceutical industries are examined and compared. This is to examine the differing intensities with which globalization affects these two industries. In the next two sections, the different impacts of globalization on fashion and pharmaceutical industries are discussed separately. In the last section, the impact of globalization on both these industries is compared and conclusions are made. 2. Impact of Globalization on Fashion Industry The most important elements of fashion industry are textile, clothing or apparel and footwear industries. It also includes food, housing, music, automobiles, perfumery and beauty products. According to Davis (1992), one main distinguishing feature of fashion industry is its ability to differentiate between different social classes or otherwise called social differentiation. For example, the most fashionable items are always very expensive and can be purchased by the upper class while the middle class goes for cheaper items. This made it necessary to produce the fashionable items in cheaper price in the fashion industry to achieve the selling target (Graham et al, 2006). Globalization affects fashion industry through the production, distribution and marketing channels. One main impact of globalization is to keep the people informed and updated on each and every new trend in the fashion industry through old and new media like radio, television, newspapers, internet, mobile phones etc. Consequently, now there is a tendency for imitating Western fashion all over the world replacing the traditional clothing in each nation. For example to highlight secularism, a ban has been imposed on women wearing headscarfs in France by considering wearing headscarf as a traditional religious symbol. The government considered wearing headscarf adversely affecting the immigrants to assimilate into the Western culture, which is called cultural assimilation (Huntington, 1997). This cultural assimilation is an important impact of globalization in fashion industry. The updating of new trends in the fashion industry was based on the economies of scale approach. This is intended to obtain new trends in fashion to all markets at appropriate times and at the correct prices for reducing the total production costs. The need for reducing production costs has resulted in the tendency among the developed nations to outsource production to developing nations like China where the production will be cheaper. This has adversely affected the local business in developed nations and violates the economies of scale principle. The local industries got affected badly because of this outsourcing of production and many of them were not able to continue operating consequently. Eg: producing a brand, t-shirt in Western China where no minimum wage regulations are there instead of producing it in Australia for reducing the production cost. In this case, achieving high profit margin in Australia is very difficult compared to that in China (Purdy, 2000). Globalization has changed this phenomenon however by reducing the transportation and communication costs and thereby increasing the accessibility of people to new fashions all over the world. This has also increased the speed of production in fashion compared to the olden days. The modern communication tools like internet forums have enabled the development and spreading of new technological innovations, which has increased the effectiveness of production in all nations. Globalization has thus resulted in more exchange of ideas and information regarding the availability of textile fabrics and production, which has also resulted in a rise in the demand for products. The consequence of all these was the brand names monopolizing the fashion industry and the spread of individualistic attitude instead of post materialistic especially among the middle classes. Base on these global conditions, the trends in fashion industry were to tempt the individuals for self-improvement instead of accepting them as they are. The most visible example of this can be seen from the growing trend of becoming thin models as the ideals of female beauty. This has proved to be anatomically more correct and has several psychological and physiological impacts. However, the negative side is that this has created by the pressure among female models for becoming thin models (Collins, 1997). The merits of globalization in fashion industry can be considered as the shift in the trends among the middle class from buying outsourced products under the influence of post materialistic ideologies to buy more locally produced ones. However, the problem is that the population of middle class is seen to be decreasing compared to the other groups. In addition to these, another impact of globalization was the shift in the production from developing to developed nations to go with the principle of economies of scale mostly under the influence of new and old media all over the world. However, this cannot be considered as a favourable trend especially under the scenario of the present economic crisis (Graham et al, 2006). According to Abarnathy et al (2003), the globalization of textile and clothing industry is not a new one and its history can be traced back to even the twelfth century. According to this study, in the earlier days the globalization was concerned with movement of labour and capital across nations based on comparative factor costs and productivities for labour, capital and other inputs between nations and their impact on product costs, changes in international exchange rates, quotas and tariffs. In the present scenario, the movement of labour and capital is based on some other aspects of distribution in addition to these like lean retailing, product proliferation, onshore and offshore outsourcing. The Multi Fibre Arrangement that has been existing in the textile industry for many years ended in 2005 with the decision of all WTO members to eliminate all quotas on textiles. China after accessing WTO in 2002 became a quota free nation in the WTO in the same year. The overall picture in the fashion industry thus shows that globalization has resulted in falling transportation and communication costs .This has significantly affected the growth of the markets in the industry .The concept of lean retailing has developed combining reduced transportation and communication costs as well as new technical innovations. The main problem however with the lean retailing is that it has enhanced the pricing pressures (Abarnathy et al, 2003). As a part of globalization process, the quotas on textiles also were removed with effect from 2005. 3. Impact of Globalization on Pharmaceutical Industry In the case of pharmaceutical industry, globalization has its effect through the combination of technological and economic dimensions (SickBlog, 2009). The focus of this industry is to research, develop and distribute drugs. Globalization process affects the industry through three major segments namely production, research and development and marketing. In the present era of globalization, it is reported in many studies that big companies in the industry, which were once in their better times, are now in difficult stages mainly due to inefficient Research and Development (R&D)(Dufala,2007;Pouw,2008 etc). The established companies are reported to have failed in producing new items into the market mainly due to the rising R&D costs. For example, Pfizer, which was the fourth largest multinational pharmaceutical corporation in the world, is now facing very bad time with a 10-year market exclusivity granted to new drugs. Globalization has resulted in enhanced availability of information, which has changed the role of doctors (Dufala, 2007). For example, in the case of patients who have information from internet, the decisions made by doctors are found to be questionable. Thus, the enhanced availability of information has affected the value chain in pharmaceuticals. It has also made the regulatory agencies to be more cautious. Thus, globalization process has affected the marketing by shifting towards patients. As a consequence of globalization, the generic markets are reported to be growing by taking advantage of the market exclusivity of original drugs and producing in low cost places for eg: Ranbaxi and Teva. In addition to these two developments, may small biotechnology companies face problems due to the difficulty in financing the projects in these companies (Dufala, 2007). All the developments as a part of globalization process have resulted in enhancing competition in the industry while it has not increased pressures for restructuring unlike other industries. Contract Research Organizations (CROs) have prominent role because of globalization process (Shuchman, 2007). The globalization has resulted in increased mergers and acquisitions of the CROs. Examples of CRO s are Pharmaceutical Product Development (PPD), Quintiles, Parexel, Kendle and Covance. The CROs are technologically very innovative and makes se of new business concepts. Thus, it can be seen that CROs were the main actors who were able to utilize the benefits of globalization .At the same time big pharmaceutical companies were not able to do so. It is argued that globalization has improved the conditions of developing nations by improving access to medication by joining organizations like World Trade Organization (WTO). This has been enabled through compulsory licensing or by importing cheaper versions of drugs before the expiry of patents (Slick Blog, 2009). On the other hand, it is argued that the Trade Related Aspects of Intellectual Property Rights (TRIPS), which increases the scope, duration and coverage of the industrial patents of the WTO members, has marginalized the traditional knowledge of local people. Moreover, it has been argued that the growth and development of the domestic pharmaceutical companies are adversely affected by TRIPS (Pouw, 2008). However, exceptional cases are the Indian pharmaceutical companies like Ranbaxi and When Cipla, which have obtained significant growth and expanded their operations. It is also argued that globalization has adversely affected the developing nations through some other ways. In spite of the TRIPS having clause that exempts nations suffering from diseases like AIDS from patent observation, nations like America opposed this through international law suits .Thus many developing nations like South Africa were left in a difficult situation (Slick Blog, 2009). Hence, it is argued that TRIPS has supported in establishing the dominance of some big pharmaceutical companies and rising their presence worldwide (Pouw, 2008). The pharmaceutical industry has fond out the solution for this by outsourcing the production and research and development process as a part of the globalization process. These were intended to make them more cost effective in response to their rising costs. However studies have shown that these costs have been overestimated(Sampath,2005) .For example, the average cost of developing a pharmaceutical drug includes the costs of borrowing money to finance the R&D process and the marketing costs of the product in addition to the costs of R&D. This has overestimated the total R&D costs. In addition to these, as a part of the globalization process, the big pharmaceutical companies are forced to perform many human trials with their new drugs before releasing them to the market. However, the main problem with this is that most consumers are reported not to be willing to participate in this process. For example, the consumers were not willing to participate in the phase three trial of Macugen, the eye disease drug by Pfizer (Shah, 2006). It is argued that the reforms as a part of the globalization process has resulted in a national ruin by the developing nations through opening of markets and through the loans provided by IMF and World Bank attached with stringent conditions (Harvey, 2005). Globalization has also affected the marketing process in pharmaceutical industry through preventing the direct to consumer marketing in most countries and promoting advertisement through global media. This type of advertisement through global media is reported to have created distorted images of health and diseases (Petryna and Kleinman, 2006).For example, the diseases like AIDS , are picturized as incurable by these advertisements which has resulted in the marginalization of many developing nations. Moreover, most of the advertisements have been related to allergic diseases rather than the real health crises. This has resulted in creating distorted images of many diseases and medicines. Overall, it is reported that the globalization process has increased the profits in pharmaceutical industry through reducing R&D and production costs. This has necessitated the need for sustainable capital, which has resulted in the mergers of big pharmaceutical companies. Thus, the big pharmaceutical companies have started monopolizing the industry leaving the developing nations to be exploited for cheap labour and drug testing (Pouw, 2008,). The outsourcing process, which is supposed to offset the rising costs in the industry, is reported to have negative implications as discussed here. The public private partnerships, where the governments and big companies work together for resolving health crises, however are expected to bring many advantages for the developing nations (Bull and McNeill, 2007). 4. Conclusion In this essay, the impact of globalization on two industries the fashion industry and pharmaceutical industry are discussed. In the case of fashion industry, the globalization impacts are through the combination of cultural, technological and economic dimensions. In the case of pharmaceutical industries, the impact is through a combination of cultural and economic dimensions. In the case of both the industries, globalization has resulted in decreasing the transportation and communication costs. Moreover, it enhances the availability of information through the world media. In the case of fashion industry, these have resulted in a shift from using the outsourced products by the middle class to more locally produced items based on the economies of scale principle. This has resulted in shifting labour from developing to developed nations .Though this is intended to make the production in a more cost effective manner, it is not obtained to be favourable in the present economic condition. The impact of globalization has affected the production, distribution and marketing sides of this industry. The increased availability of information had its impact through the cultural dimension of globalization in the case of fashion industry. The positive impacts of globalization in this industry include aspects like enhancing the speed of production, reducing time lag between production and delivery and creating an individualistic approach necessitating the need for self-improvement. At the same time, negative impacts include the shifting of labour from developed to developing nations. In the case of pharmaceutical industry, the focus is on the research and development of drugs in addition to its production. Hence, globalization affects this industry through three channels production, research and development as well as marketing unlike the fashion industry. The reduction in transportation and communication costs had its economic and technological impacts. Though this has helped in reducing the production and R&D costs, this had created dominance for the big pharmaceutical corporations. The enhanced availability of information made the public more aware of the adverse effects of drugs and hence made the decisions of doctors in some cases questionable .This can be considered as a positive aspect of globalization in the industry. At the same time, the enhanced communication through worldwide media has created distorted images in the minds of public regarding many diseases and the concept of health itself. Thigh the globalization process has increased the profitability of the industry; this has resulted in the monopoly of multinational giants in the industry. This has adversely affected the domestic pharmaceutical companies with only a very few exceptions. In the case of pharmaceutical industry, globalization process ahs resulted in creating prominent role for third party players like the CROs unlike the fashion industry. Many big companies who were earlier profitable got adversely affected due to the rising production and R&D costs. Outsourcing which was fond as a solution to this had many negative cultural and economic effects. However, compared to the fashion industry the effects of outsourcing were not so intense in the pharmaceutical industry, which can be understood from the discussion. In the case of fashion industry, Quotas and tariffs were eliminated on textiles as a part of the decision of WTO members. In the case of pharmaceutical industries, TRIPS agreement was aimed to assist the developing nations by increasing the access to medication for developing nations. At the same time, TRIPS was obtained to leave the developing nations in difficult situation by marginalizing them in many cases. In the case of fashion industry, the globalization process has resulted in increasing competition and restructuring of the industry with a shift of labour from developing to developed nations. However, in the case of pharmaceutical industry, though globalization ahs resulted in enhanced competition, it has not resulted in the restructuring of the entire industry. Rather, it has created the emergence of the third party players, the CROs that made use of new business concepts and technological innovations. The above discussion thus shows that globalization process has affected both the fashion and pharmaceutical industries but through different intensities. The dimensions of globalization through which it affects both the industries are also little bit different. In the case of similar dimensions of globalization also, the intensities of impacts are different for both the industries depending on the nature and structure of both the industries. Globalization affects both the industries through different channels in spite of the similarities. Hence, it can be concluded that industry specific factors play important role in determining the intensity of the impact of globalization on each industry. The discussion above thus shows that industry specific studies are more relevant in examining the impact of globalization. Though globalization has both positive and negative impacts on industry performance, a generalized picture cannot be obtained in this regard. Macro studies may conceal many factors regarding the impact of globalization as is clear from the discussion above. References Abarnathy F H ,JT Dunlop, Janice H. Hammond, and D Weil (2003): “Globalization in the Apparel and Textile Industries:What is New and What is Not?”,in Martin Kenney and Richard Florida eds., Locating Global Advantage: Industry Dynamics in a Globalizing Economy ,Palo Alto, CA: Stanford University Press. Bull, B and D McNeill(2007): “Development Issues in Global Governance: Public-Private Partnerships and Market Multilateralism”. New York: Routledge. Collins, J. L(1997) “The Emergence of a 21st century Apparel Industry” in Threads Chicago: The University of Chicago Press. Davis F(1992): “Fashion, Culture and Identity”, Chicago: university of Chicago Press. Dufala,V (2007): “Globalisation in Pharmaceutical Industry and Clinical Trials”, www.alphapharma.eu/Assesment_MBA_Globalisation_Patras_web_version.pdf. Accessed February 16 2010. Friedman, T. (1999). “The lexus and the olive tree: understanding globalization”. New York: Farrar. Graham C, CBehrens and Cheng (2006): “ Fashion and Globalization by Interconnected” http://www.socsci.flinders.edu.au/global/glob1002/2006book/interconnected.pdf, Accessed February 16 2010. Harvey, D(2005). “A Brief History of Neoliberalism”. Oxford: Oxford University Press, 2005 Huntington, S P(1997). “The Clash of Civilization and the Remaking of the World Order”. Simon and Schuster. Petryna, A and A Kleinman(2006). "The Pharmaceutical Nexus." Global Pharmaceuticals: Ethics, Markets, Practices. Eds. Adriana Petryna, Andrew Lakoff and Arthur Kleinman. Durham: Duke University Press. Pouw A(2008) : “The Globalization of the Pharmaceutical Industry”, http://college.usc.edu/colt/downloads/Pouw_Welch_Essay.pdf, Accessed Febrary 16 2010. Purdy, D(2000): “The Tyranny Of Excellence”, John Hopkins UniversityPress. Woods N (2000): “The Political Economy of Globalization”. New York: St Martins Press Sampath, P G(2005):.“Regulating Bioprospecting: Institutions for Drug Research, Access, and Benefit-Sharing”. United Nations: United Nations University Press.. Shah, S(2006) “The Body Hunters: Testing New Drugs on the World’s Poorest Patients”. New York: The New Press, 2006. Shuchman M(2007),: “Commercializing Clinical Trials – Risks and Benefits of the CRO Boom, New England”Journal of Medicine, Vol. 357, No. 14, 1365-1368 Slick Blog(2009) : “The effects of Globalization on the Pharmaceutical Industry”, http://slickblog.wordpress.com/2008/01/16/the-effects-of-globalisation-on-the-pharmaceutical-industry/, Accessed Febrray 16 2010. Read More