Business Globalisation - Factors of Acceleration of Globalisation - Essay Example

Business Globalisation Introduction Globalisation is a concept that has rapidly taken off over the of the past twenty years or so. The purpose of this paper is to, with special reference to production and market globalisation; carefully discuss five factors that have accelerated this process in the past two decades. Throughout the process, examples will be provided for ease of understanding. Factors that Drive Globalisation Some sources say that there are four, while others say that there are five major factors that drive globalisation. In order to include the most possible information on this topic, the five proposed market drivers for globalisation will be covered in addition to the one with four (Yip's Framework). These include market drivers, cost drivers, technological drivers, government or political drivers, and competitive drivers. Each of these will each be explained in detail in the following paragraphs (Campbell, Stonehouse, and Houston, 2002). Market Drivers There are two popular frameworks that cover the basic concepts of the drivers of globalisation. One of these is particularly relevant and will be covered here. One of the frameworks is Yip's Framework, and the other one of the frameworks is Porter's Framework. The one that will be covered in the context of this assignment is Yip's Framework, which covers four drivers of globalisation (Campbell, Stonehouse, and Houston, 2002). Yip's Framework: The Four Drivers of Globalisation Yip did not believe in the two extremes that companies were either global or not global. Instead, he believed that all organizations were combinations of the two, each one being more of one than the other. His framework-or outline-allows an observer to determine specifically which parts of an organization are global and which parts have different aspects on a local level. If an organization wishes to evaluate their global strategy, analyzing Yip's Framework can play a crucial role (Campbell, Stonehouse, and Houston, 2002).. Yip argued that, "A global strategy will be global in many respects, but may also include features that are locally oriented. To achieve the benefits of globalization, the managers of a worldwide business need to recognize when industry conditions provide the opportunity to use global strategy levers (Campbell, Stonehouse, and Houston, 2002)." According to Yip, there are four drivers that that determine the extent of globalisation: market drivers, cost drivers, government drivers, and competitive drivers (Campbell, Stonehouse, and Houston, 2002). Market Globalisation Drivers The first driver of globalisation to take a look at is market drivers. "As domestic markets become more and more saturated, the opportunities for growth are limited and global expanding is a way most organizations choose to overcome this situation. Common customer needs and the opportunity to use global marketing channels and transfer marketing to some extent are also incentives to choose internationalization" (Bauernfeind, 2005, pg. 1). Market drivers have resulted in the convergence of per capita income among industrialized nations; take a look at the exchange rates across the globe for example. There has also been a convergence of lifestyles and tastes. People are demanding more high quality products and services than they ever have before, and they want them at the cheapest price, which seriously creates a problem for businesses that are attempting to make a profit. Organisations are beginning to behave as global customers. When organizations spread their operations to other countries, they have to look at finding suppliers in those areas in order to minimize their costs. There has been a notable increase in travel creating global consumers. This can perhaps be attributed to the astronomical increase in communication that came along with the growing popularity of the Internet. Regional and global channels have grown to astronomical proportions. This can be attributed once again to the growth in worldwide communication, as well as the growth of global selling, which has led to reduced costs making this indeed possible. World brands have been established. This is because so many companies now have moved some, if not all, of their operations oversees. Look at Abercrombie and Fitch for example. This particular company is widely known to be an American brand that has recently spread to the United Kingdom and is now trying to expand to even more countries such as Japan and other popular global markets. Finally, there has been a push to develop global advertising. This should be a breeze with the onset of easy global communication. One drawback may be that there tends to be price markups when companies operate in global territory. "The degree of globalization of a market will depend upon the extent to which there are common customer needs, global customers, global distribution channels, transferable marketing and lead countries. It is not simply a case of a market being global or not global. Managers must establish which, if any, aspects of their market are global" (Campbell, Stonehouse, and Houston, 2002). With regard to market drivers, there is more specific description that can be made. With common customer needs, " In markets where customer needs are essentially the same across the world, globalization is thought to be an attractive strategy because a business can offer a relatively standardized product across a series of markets" (Butterworth-Heinemann, 2006, pg. 115). With global customers, "If customers themselves operate globally, then again there is an incentive for the companies that supply them to operate on a similar scale (Butterworth-Heinemann, 2006, pg. 115). With global distribution channels, "If channels of distribution are themselves global, then it is much easier for companies that sell through those channels to operate globally" (Butterworth-Heinemann, 2006, pg. 115). With transferable marketing, "If marketing campaigns developed in one country are easily transferred to other countries, then global operations are much easier to implement (Butterworth-Heinemann, 2006, pg. 116). Political or Government Drivers The next driver of globalisation that will be discussed is political or governmental drivers. Reduction of tariff and non-tariff barriers occurred thanks to market deregulation and relaxed rules regarding trading. These reductions also allowed for direct investments of a foreign nature to occur worldwide. "The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing opening and privatization in Eastern Europe are only some examples of latest developments" (Bauernfeind, 2005, pg. 1). These were previously state-dominant economies, but globalization has allowed the economies to expand astronomically. There has also been a shift to open market economies from closed communist system in Eastern Europe and increasing participation of China and India in the global economy. This is because individuals and companies in those areas of the world have now realized how they can cash in on the globalisation boom. "Since the Second World War many governments have taken individual and collective action to reduce barriers to global trade" (Campbell, Stonehouse, and Houston, 2002). These include favourable trade policies, compatible technical standards and common marketing regulations, government-owned competitors and customers, and host government concerns. "Government drivers to globalization refer to any aspects of government or public policy that make it easy (or difficult) for foreign firms to operate in a domestic market. Most commonly, government drivers are the presence or absence of restrictions on market entry, or the presence of regulatory systems which restrict what foreign entrants may do" (Butterworth & Heinemann, 2006, pg. 116). Cost Drivers The next driver of globalization to be discussed is cost drivers. "Sourcing efficiency and costs vary from country to country and global firms can take advantage of this fact. Other cost drivers to globalization are the opportunity to build global scale economies and the high product development costs nowadays" (Bauernfeind, 2005, pg. 1). There are other cost drivers that should be included in this category. First of all, there is a continuing push for economies of scale. This is when the output increases, yet the cost per unit decreases. Since there are often price markups when a company goes global, this is a big deal. There is also sizeable and accelerating technological innovation. Everything from communication systems to state-of-the-art computer systems have made almost anything possible in the blink of an eye. People can produce professional documents in mere minutes, cutting production time of many services to a fraction. Advances in transportation have also taken place. A lot of this can be attributed to technology. For example, airlines have cashed in on the latest technology to organize their flight plans and make as much profit as possible. The emergence of newly industralised countries with productive capability and low labour costs has occurred. Some of these nations were formally third world countries. As time passes, they have managed to acquire enough technology to organize and streamline their lives in ways never before seen. Finally, there has been an increase in the cost of product development relative to market life. This is when a product's popularity goes away before the breakeven point or the point of a sizeable profit has been reached. This can be reduced with proper market research. "Cost globalization drivers include global scale economies, steep experience curve effects, sourcing efficiencies, favorable logistics, differences in country costs (including exchange rates), high product development costs, and rapidly changing technology" (Campbell, Stonehouse, and Houston, 2002). "Cost drivers are concerned with the extent to which expansion globally can enable a firm to reduce its costs. Most commonly, cost drivers are associated with economies of scale-the cost savings that are associated with expanding the scale of operations. Such cost savings are often thought to be relatively important in the service sector, including financial services. However, cost savings may arise in other ways, most obviously through access to lower-cost resources" (Butterworth and Heinemann, 2006, pg. 116). Competitive Drivers The last driver of globalization that will be discussed is competitive drivers. "With the global market, global inter-firm competition increases and organizations are forced to "play" international. Strong interdependences among countries and high two-way trades and FDI actions also support this driver" (Bauernfeind, 2007). Other competitive drivers need to be taken into consideration. First of all, there is a continuing increase in the level of world trade. Once again, a global communication ability has made this possible. There is also an increased ownership of corporations by foreign acquires. This is natural expectation, as not only one country is globalizing, but all with the capabilities and the desires are trying to do so as well. A rise of new competitors intent upon becoming global competitors has occurred, which can be attributed to the same reason. Everyone wants to be number one and make as much profit as possible. There has been a growth of global networks making countries interdependence in particular industries. Sometimes companies have to share and make partnerships in order to enjoy the latest technological innovations and to create the most mutually beneficial partnerships possible. More companies are becoming globally centered rather than nationally centered. This is perhaps a fad, or it may be because companies are finally realizing how big the global marketplace is and how high their profits can sail if they cash in on it and take their share. Finally, there has been an increased formation of global strategic alliances. This can, once again, be attributed to the fact that sometimes companies have to share and make partnerships in order to enjoy the latest technological innovations and to create the most mutually beneficial partnerships possible. "Global competition in an industry will become more intense when "there is a high level of import and export activity between countries; the competitors in the industry are widely spread (they will often be in different countries); the economies of the countries involved are interdependent; and competitors in the industry are already globalized" (Campbell, Stonehouse, and Houston, 2002, pg. 265). "Competition drivers relate to a range of factors associated with the nature and level of competition in different markets. A move into an international market might be prompted by the entry of a competitor into the home market. Equally, the entry of a competitor into a new market might create an incentive for a company to follow suit in order to maintain some degree of competitive parity" (Butterworth and Heinemann, 2006, pg. 117). Technological/Technology Drivers The first driver of globalisation that will be discussed is technological drivers. This driver does not appear in Yip's Framework, but does appear in other models that discuss drivers of globalisation (Campbell, Stonehouse, and Houston, 2002). New and continuously advancing technological innovations have set the stage for globalisation to occur. This is mainly because communication that was never before possible is possible today. Certain developments in the transportation industry were significant in this category, including the commercial jet aircraft and the 1970s-80s technology of containerisation. Following those technological advances, new types of microprocessors and telecommunications devices and equipment were invented and made it able for organizations to communicate at a low cost. The latest technological driver of globalisation is the Internet. It brings with it not only worldwide communication, but also e-business and e-commerce (Bauernfeind, 2005). "Technology drivers are in many respects closely related to cost drivers-at least in a financial services context. Developments in information and communications technology have supported internationalization by facilitating global distribution and supporting outsourcing for a range of business process (Butterworth & Heinemann, 2006, pg. 116). Conclusion The purpose of this assignment has been to, with special reference to production and market globalisation; carefully discuss five factors that have accelerated this process in the past two decades. Throughout the process, examples will be provided for ease of understanding. It is important to thoroughly understand globalization because of the hold it has on today's world. A vast majority of companies are facing it, considering it, or must commit themselves to it in order to survive into today's highly competitive marketplace. Having a thorough knowledge of the drivers of globalisation will aid them tremendously in having the proper knowledge needed to expand into the global marketplace. References Bauernfeind, M. (2005). Drivers of globalization: Integration of theories and models. Georgia State University. Business and society; the globalization of work. (2007). Manila Bulletin. Campbell, D.; G. Stonehouse; and B. Houston. (2002). Business & Economics. Casey, M.A. (2002). How to think about globalization. First Things: A Monthly Journal of Religion and Public Life. Ennen, C. And N. Waite. (2006). Financial services marketing: An international guide to principles and practice. Butterworth-Heinemann. Globalization. (2006). 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