Globalization and World Economic Forum at Davos 2010 - Coursework Example

Globalization and World Economic Forum at Davos Forces Driving Globalization Globalization has resulted in enhanced interdependencies among thenations of unprecedented scale. This augmented interdependence has caused the dismantling of trade barriers and liberalization of markets. The forces of globalization have impacted the nations, the firms and the individuals alike with the prerequisite of liberalization of trade (Awuah, 2009). The seven forces of globalization are; Markets, Production, Culture, Labor, Technology, Environment and Liberalization. Of these factors, the globalization of markets has engaged substantial attention of the firms and the academia. Some markets are highly globalized, while some are not. The scale of market globalization is determined by the extent of globalization of customers, customer needs, distribution channels and marketing strategies of the players in the industry (Stonehouse et al, 2004). The organizations are resorting to global marketing due to three business development trends: Buyers with similar needs proliferating across the world The readiness of the consumers to trade off their specific needs to get better deal such as lower price or better quality Aggressive pursuit of economies of scale by the companies across their value chain (Dornier et al, 1998) The phenomenon of globalization of markets has resulted in both advantages and disadvantages. It has resulted in the convergence in the requirement of features in a product and augmentation of the intensity of B2B and B2C communication. While the aforesaid convergence of product features results in standardization, the enhanced communication will have ramifications on policies pertaining to marketing such as electronic commerce. The increased demand and varieties will require both economies of scale and economies of scope of the firms. The advantages are all the more obvious for global companies, since they can cater to very small segment in one country along with several other similar segments in other countries. This will enable them to attain a scale or harness a technology which is untenable in a single market. The globalization of markets would mitigate risk to a great extent. A cyclical downturn in one market is offset by an upswing in another market. Risk is less inherent in a portfolio of activities across the world rather than in a single or a few local markets. But the effective harnessing of the benefits of globalization would depend on the scale of the companies placing small local companies are at a distinct disadvantage compared with global companies (Mundim et al, 2000). In competing with global companies in attracting resources such as skills, the local companies lose out. They become easy targets for takeover by global companies with deep pockets. The globalization also undermines regional, cultural and linguistic diversity among markets (Lawrence & Weber, 2008). There is a prevalent premise among the economists, political scientists, business school academics and consultants that private sector drives globalization (Julius). Globalization involves substantial interaction among different stakeholders in economic, political, and cultural spheres. When the structures of globalization meet local conditions myriad combinations are formed. The tensions exist between state institutions and forces of globalization due to deterritorialization which limits the power of state institutions. The tensions also exist between social movements or advocacy groups with the forces of globalization. There is an increasing rapport among these social movements and advocacy groups across the borders. Civil society is at the epicenter of tension between deterrtorialized economy and national culture (Mittelman, 2000). World Economic Forum and Davos 2010 The theme of this annual meeting is to improve the state of the world and rethink, redesign and rebuild. This annual meeting was to rethink the business models, financial innovation and risk management. This rethinking is sought to trigger redesign attempts at the institutions at the national and international levels. The aim of redesign is to close the gaps in governance, prevent systemic failures and restore growth. This effort requires common vision, collaborative innovation and public-private partnership to succeed in the long term. The prerequisite would be to rebuild trust. The meeting focused on the following six areas of enquiry: 1. strengthening economic and social welfare 2. mitigating global risks and addressing systemic failures 3. ensuring sustainability 4. enhancing security 5. creating values framework 6. building effective institutions (World Economic Forum, 2010) The mood in the conference was marked by cautious optimism. Business leaders sounded hopeful, the economists highlighted fragility of the economy. The US creativity and innovation filled the arena. The positive signs like rising life expectancy and emergence of personalized medicine made the outlook buoyant. Bankers were looked upon as the cause of downturn. Larry Summers thought that we are having a “statistical recovery but not a human recovery” (cited in Colony 2010). Critical Assessment of Davos 2010 The figures presented at Davos 2010 showed the lackluster state of the global economy. The global recession prevails to a certain extent. The global unemployment augmented by 50 million during recession. In 2009, the fall of US auto industry had ramifications on the other sectors as well. Bankers became major targets of discussion for the role in the crisis. Sustainability became a major issue with 90% of the consumers opting for sustainable goods and services pushing the companies to bear the cost. The annual meeting recognized the advent of digital age with a session on power of social networks. With social networking new business models are emerging in every industry changing the way even physical goods are made and marketed. There is a worldwide increase in the income of women which is expected to be $5.1 trillion by 2013. By earning more and influencing purchase decisions, women have acquired greater power in the market place. There is a greater emphasis on building vibrant business ecosystems that harness a shared foundation of technology and knowledge to accelerate growth and innovation (Tapscott, 2010). The Chinese exuded greater confidence than ever before and flaunted their economic performance. A visible signs of power shifting to east particularly China were clear and loud. Whether this shift will lead to cooperation or confrontation is a question that hovers on the western and American political and business mindscape. The projections were however marked by cautious optimism. After witnessing a decline of 2.2% in 2009, the global economy is expected to grow by 2.7% in 2010 as stated by the World Bank. But this recovery is expected to be fragile. The unemployment crisis will exacerbate before thawing. Deleveraging the debt overhang will be a drag on the growth in GDP. Stephan Roach, Chairman of Morgan Stanley Asia has stated that the bursting of the housing bubble and recession shocks to unemployment will reduce the trend growth in real consumption in the United States to 1.5% to 2% over the next three to five years compared with 4% in the pre-crisis decade. The recovery will be the weakest recovery witnessed so far in the modern era, making the global economy susceptible to double dip recession (Elliott & Schuman, 2010). It also emerged that in spite of globalization and interconnections amongst the economies, the responsibility to find solutions to the abiding problems still lie with nations, firms and financial institutions. (Smale, 2010). A new economic block may emerge stretching from China, Asia Pacific, the Middle East and Africa to Latin America which would dwarf the importance of the USA and Europe. These regions are characterized by substantial investible capital, huge commodity wealth, production capital and enormous demand. The domestic market in these regions would be so huge that it would be relatively unfazed by crisis in the west. In these emerging countries, though a crisis in the west may cause a flutter, it would not grind it to a halt. A testimony to this trend is borne out by the fact that in the last quarter of 2009, though US consumer demand did not rebound, the China’s economy and its exports did. The emerging economies are likely to attract more investment in the ensuing years (Weber, 2010). Recommendations and Conclusion The increasing trend of globalization makes it imperative for the governments to dismantle tariff and non-tariff barriers for the integration of their economy with the global economy. Notwithstanding the threat of multinational company culture on the inherent culture of the country, MNCs need to be offered incentives to invest in their country. The flow of foreign direct investment should be encouraged since this will create employment and enhance knowledge capital of the country. With the social networking proliferating across the globe, there is greater connectivity among people irrespective of their cultural moorings. The governments should exercise fiscal discipline and keep their revenue deficits and balance of payment deficits under check The governments should also minimize their expenditure on defense which could be diverted to building infrastructure for the industry. The government should also enforce regulations to promote greening of business. Indeed, greening was in issue that has dominated the deliberations in Davos. Minimizing carbon footprint and protecting ecology and the environment should top the agenda for the governments. In the areas of basic and applied research, the governments should provide subsidies and tax breaks to the companies and academic institutions. The government should also encourage increased business and academia cooperation in R&D. It is through R&D that new technologies and products can enrich the market. According to Michael Porter the role of the government is to act as a catalyst and challenger to drive firms to raise the bar of performance, stimulate demand, focus on specialized factor creation and encourage competition (Porter, 1990). The government can increase the per capita disposable income by undertaking productive investments which would culminate in market expansion. Building educational institutions, polytechnics and research institutions would improve the factor conditions that would improve competitive advantage of the nation. The government should also build clusters of related and supporting industries to dominate their chosen industries. The domestic demand conditions could be improved by better standard of living and greater disposable income. The individual firms in the country should build capacities to harness economies of scale and economies of scope. They should leverage the sources of comparative advantage resident in their countries. They should strengthen the mechanisms to enhance their intellectual capital. This could be done through training programs and R&D programs. The firms should bridge the academia-business interface to pursue joint programs in research. The firms should also harness the trends of social networking for their e-business. The firms should undertake greening initiatives to clean up non-degradable byproducts of business and also to reduce carbon emission and effluents. The firms which undertake greening initiatives would be favored in the market. The firms should also take cognizance of a greater power of women in purchase decisions due to the increased earning power. The firms should promote strategic alliances and mergers to reach the global scale. The local companies should aim for the global scale through organic growth or takeover and mergers. The multinational companies apart from initiating strategies to increase market share with a view to strengthen the bottom-line, should also allay fears of the local population of being dominated by an alien culture through strengthening local cultural institutions. The firms should make attempts to be global and local at the same time. References Awuah, Gabriel. (2009). The impact of globalization and trade liberalization on competitiveness of firms in less developed countries: a longitudinal study. International Journal of Business Research, http://findarticles.com/p/articles/mi_6773/is_3_9/ai_n39236690/?tag=content;col1FirefoxHTML\Shell\Open\Command accessed on February 15, 2010 Colony, George F.(2010). The Counterintuitive CEO. Forrester. http://blogs.forrester.com/colony/2010/02/davos-2010.html accessed February 15, 2010 Dornier, Philippe-Pierre. Ernst, Ricardo.Fender, Michel. Kouvelis, Panos. (1998) Global Operations and Logistics Text and Cases, John Wiley & Sons.Inc. Elliott, Michael and Schuman, Michael,S. (2010). Seeing Light Through the Gloom in Davos. Time Specials. Jan,20, 2010. http://www.time.com/time/specials/packages/article/0,28804,1955058_1955463_1955425,00.html accessed February 15, 2010 Julius, Deanne. (1997) Globalization and stakeholder conflicts: a corporate perspective. International Affairs. http://www.jstor.org/pss/2624267 accessed February 15, 2010 Mittelman, James,H.(2000). Globalization: captors and captive. Third World Quarterly, Vol. 21, No.6, pp 917-929, 2000 Mundim, Ana, Paula, Freitas. Alessandro, Rossi. Stocchetti, Andrea.(2000). Brazillian Electronic Journal of Electronics. June 26, 2000 Porter, Michael. (1990). The Competitive Advantage of Nations. Free Press Smale, Alison.(2010). Leaders in Davos Admit Drop in Trust, New York Times, January 30, 2010, http://www.nytimes.com/2010/01/31/business/global/31davos.html, Accessed February 15 2010. Stonehouse, George.Campbell, David. Hamill, Jim. Purdie, Tony.(2004) Global and Transnational Business: Strategy and Management, Second Edition,John Wiley & Sons Ltd. May,2009. Tapscott D. Top 10 Themes from 2010 Davos. BusinessWeek Online [serial online]. February 3, 2010;:7. Available from: MasterFILE Premier, Ipswich, MA. Accessed February 15, 2010. Weber, Lawrence. (2008).Business and Society: Stakeholders, Ethics, Public Policy, 12th Edition. The McGraw-Hill Companies Weber, Tim.(2010). Davos 2010: The West accepts India and China as equals, BBC News, January 30, 2010. http://www.mahindra.com/Admin/tmpupload/2-Davos%202010%20-%20An%20Update.pdf accessed February 15, 2010 World Economic Forum. (2010), World Economic Forum, Annual Meeting 2010, Executive Summary. http://www.weforum.org/pdf/AM_2010/AM10ExSummary.pdf accessed February 15, 2010 Read More