The Globalization Movement Is Still in a Growth Phase - Essay Example

Since the beginning of time humans have looked for ways to unite their activities for the common good. In the 18th century once the civilized world realized the world was not flat, the Europeans embarked on a mission to discover other lands. It is no surprise then that in the 20th century the business world integrated itself and began what is referred to as the globalization movement. Globalization is the integration of economic, political, and cultural systems across the globe (Globalization101, 2008). This paper analyzes analyses studies globalization in the 21st century and global strategic marketing planning. The globalization movement is still in a growth phase since there are lots of areas for improvement and the need for further integration. According to economist Shapiro in order for greater globalization to be reached by the year 2020 economies must embrace globalization and reject regulation and social welfare (Shapiro, 2008). The economies that are more open have a greater chance to succeed, while those that embrace controlling tendencies are doom for failure and will ultimately face hard economic times for its population. The People’s Republic of China is an example of an economy that realized in the 1980’s that the only way the country would succeed was to begin a process to open its market to integrate itself to the rest of the world. Sound investment infrastructure along with economies policies aligned with the globalization movement allowed China to achieve a yearly economic growth of nearly 10% for the last three decades. The globalization movement has been help along a lot by the alliances being form between nation to facilitate trade and reduce or eliminate tariffs. The appearance of different regional free trade zones have been essential to speed up the process of globalization and fostering economic activity between neighboring countries. A free trade zone is bloc of countries with regional proximity that form a treaty among the participating nations to improve the terms and conditions of trade between the nations in order to increase interstate trade. Three examples of free trade zones are the European Union, NAFTA and MERCOSUL. The European Union is one of the oldest agreements form with started in the year 1957. The ideas at the time was to create a single European market that would reduce barriers to allow the free flow of products, services, finances and labor among member countries and to establish policies of trade between non member nations (Kotler, 2002, p.388). The factor that took the EU to higher level of integration was the adoption of a common currency, the Euro, in January 1, 1999. The NAFTA is a free trade agreement between the United States, Mexico and Canada. Mexico being the poorest nation of the three has probable benefited the most by the creation of NAFTA. The MERCOSUL is a trade agreement between the South American nations of Brazil, Argentina, Paraguay, and Uruguay. As globalization continues to expand it is imperative that nations and the private sector place a higher emphasis in transferring wealth and knowledge into the locations in the planet with the greatest needs. The continent of Africa is the region that must be helped since it is the place in our planet that is suffering the most from poverty and illness. In Australia there is a company that has been working on a product that brings a solution to global deforestation and an opportunity for Africa to become the market leader in a billion dollar industry. Papyrus Australia is a company that invented banana-ply paper which is a paper that instead of using wood, utilizes the banana trunk to manufacture paper. Banana trees are a renewable source. Africa has 53% of the cultivation of bananas in the world (Papyrusaustralia, 2008). Innovation was the factor that lead to the patented technology Papyrus Australia Corporation owns. Innovation is a factor that has helped globalization spread across the world. The invention of the television in 1927 by Philo Farnsworth was an innovation that allowed the communication of messages to far distances (Landen, 2008). It revolutionized telecommunications and allowed companies market their products beyond the domestic boundaries. With the ability to reach new audiences many companies increased their production and their excess production was shipped out to other markets a global marketing called exporting. In the 21st century the innovation that took globalization to another level was the internet. The World Wide Web allowed information to be dissipated across the world at fast speed while creating a database that united the world accumulated knowledge. It opens the doors for a new marketing channel with the capability to reach billions of potential customers. The economic era that started at the turn of the century is called the Convergence Age or Broadband Era. The idea of globalization and the potential of reaching millions of customer through the utilization of the internet led to the creation of some ill advice projects that were doomed for failure from its inception. A globalization business case that did not succeed due to its complexity was the Boo.com project. The company was the first firm in the apparel industry with a business platform to become the world first global e-tailer. The company established a physical presence in different international locations to manage their distribution network and from the start its e-store was launched in 18 countries with the capability to transmit their material in seven different languages. The problems this firm included a complicated web interface that did not allow customer to reach their desired destination in an easy manner and huge overhead and monthly marketing expenses. The firm’s income stream never a breakeven point. It is estimated that the company was able to sell over one million dollar in merchandise, but its weekly expenses were more that a million dollar a week due to a large staff of over 450 employees and the establishment of six main offices worldwide (Surrey, 2003). The reason this global project did not succeed included having too large of a scope, attempting to achieve immediate growth without the luxury of a learning curve, extremely high monthly expenses, and a software interface for its website that was not user friendly. Globalization has brought a lot of benefits for the business world, but it has complicated business processes that in the past were more user friendly. In the financial and accounting field the important business task of financial reporting has become more complicated for companies worldwide. The United States utilizes the General Accepted Accounting Principles (GAAP). In the past despite the existence of regional financial standards the GAAP superseded other standards as far as being universally accepted. The tide of global power has changed. The European Union has become a mayor player with its currency the Euro becoming more valuable than the US dollar in the present. The current conversion rate from Euro to Dollar is one Euro is the equivalent of 1.46 dollars (XE, 2008). Europe developed their own financial standard called the International Financial Reporting Standards (IFRS). The financial statements of public companies in the stock market are prepared under IFRS. If an American company wants to register its stock in a European stock market such as the prestigious London Stock Exchange (LSE) they must convert their financial statement from GAAP to IFRS. Europe is promoting other nations to adopt IFRS in order to have common worldwide reporting standards. Globalization has not open many new opportunities for business firms that did not exist in the past. A survey performed by Atridus to senior executives revealed that economic slowdown and increase competition were the key drivers for seeking out opportunities in emerging markets (Two Surveys Reveal Perils and Promise of Globalization, 2008). The current trend is for further globalization in the business world which is being force by the pressures to lower material and labor costs. These are some of the key factors in the manufacturing end, as far as marketing and global sales a company needs to understand what constitutes a sound global strategic marketing plan. The simple desired to expand beyond the domestic market does not justify the move, unless global strategic plan is in place. A global strategic marketing plan starts by evaluation the situation of the company and the risks associated with the move. The firm must have a through understanding of the existence of variables such as foreign exchange, regulations, corruption concerns, political stability, transportation costs, the amount of piracy and violation of copyright material and economic stability of target location among others. The decision to expand beyond the domestic market has to evaluate in terms of how large of global expansion strategy the company can afford. It cost money to maintain an operation oversees and penetration a foreign without knowledge of the culture is extremely risky since the cultural factor determines the viability of acceptance of a product or service. If the fast food chain Burger King attempted to penetrate the Indian marketplace their chances of succeed would be extremely low due to the fact that in this nation the cow is a sacred animal, implying that eating its meat is forbidden. The need of moving outside the domestic market would not be needed if the supply of a firm product was fully covered by its domestic demand. Once a company supply exceeds the domestic capacity to purchase the product the strategic choice is to expand globally. A global expansion does not mean that a company has to make its offering available to the over 200 countries that exist in the globe. A good way to start a global expansion is to choose an initial country to test the marketing capabilities of the firm and to learn about doing business oversees. If a company has a global expansion plan that is too ambitious as far as expecting immediate success in multiple locations at once the likely outcome is what Boo.com face at the beginning of this century which was a total failure. A good option is to start global expansion at a neighboring country which is likely to have a similar type of marketplace as far as customer preferences. For American companies Canada represents this destination. There are several considerations that must be analyzed by the marketing department about the ability of the company’s product or service to gain acceptance at a foreign location. For example is the product offering better in quality and price than the local competitors. Determine if the profit margins in the target market high enough in order to justify the move. The company has to find out if by expanding to other markets can economies of scale be achieved that will improve the cost structure of the firm. Another consideration is determining is the firm’s product requires servicing to the foreign customer and how much it will cost. Some of the points just mention illustrate the necessity to establish a solid global marketing plan before making a global launch. Once a decision is made to go global the next step in the global marketing planning is deciding how to enter the market. There are five market entry strategies which are indirect exporting, direct exporting, licensing, joint ventures, and direct investment (Kotler, 2002, p.390). Exporting is oldest market entry strategy which has been practiced prior to the rise of the globalization movement. Indirect exporting involves a company outsourcing the sales function of the product to an intermediary which has experience distributing product into foreign markets. This strategy represents the lowest risk strategy out of the five. Since an intermediary is hired in the process the profit margin of the company are decreased If a company has the resources, confidence and experience then direct exporting may be a more suitable solution. In direct exporting can increase their profits, but most importantly gain valuable exposure and experience on how to perform business in foreign marketplaces. This experience can help the company achieve further global integration in the long-term. Another marketing entry strategy is licensing. Licensing is a method of foreign operation whereby a firm one country agrees to permit a company in another country to use the manufacturing processing, trademark or know-how or some other skill provided by the licensor (Fao). Licensing agreement allow firms to establish an operation oversees without having to administer the operation, while gaining a benefits from the proceeds of the sales. The capital investments for the licensor are typically low. These types of agreement are very common in the software and music industry. Two potential downfalls of a licensing agreement is that if the terms of the contract are short, the licensee partner may become the competitor and that the domestic firm is not gaining any international marketing experience. The fourth market entry strategy is a joint venture. A joint venture is an arrangement in which two or more companies joint forces to formulate a new firm in which all entities share responsibility over the management and financial responsibilities. For a domestic firm a joint venture is an opportunity to penetrate a market with the assistance of local producer that has the know how of the foreign market. In the past the only way for any company to penetrate the Chinese marketplace was through the joint venture mechanism. The final market entry strategy is direct investment also know as whole-owned subsidiary. This strategy implies a firm establishes itself physically in a new foreign market by themselves. It is a risky strategy, but the one with the potential for the greatest return. An American company that used this strategy effectively to expand oversees is Starbucks Corporation, which currently has over 15,000 stores around the world. Once the global expansion strategy is in place a company needs to decide on the global marketing program it will utilize to send out a message to its new foreign customer base. The simples approach is to utilize a standardized marketing mix which means using the same marketing mix international that they were using domestically. It is the cheapest solution and it work well for homogenous products such as a Coca-Cola soft drink. The flavor of the drink and its popularity worldwide sells itself. On the opposite end is the use of an adapted marketing mix. This marketing program requires the producer to adapt the marketing and advertising of the product or service based on the particular needs of its target locations (Thetimes100). The approach is more expensive, but if there are major cultural differences it has to be used since the domestic message may not be suitable for new markets. Language barriers and interpretation of messages may be one of the reasons to choose marketing program based on adapted marketing mix. The promotion of products internationally is the marketing task that requires the greatest sensitivity as far as the use of specific language, imagery and color selection. For example in Latin American the color purple is associated with death, thus the marketer has be careful with how it is use in its advertisements and packaging (Kotler, 2002, p.397). The price structure of a firm product can change a lot when doing business in different marketplace. Transportation cost can raise the overall price of a product. In other cases where there is intense competition a firm may have to lower its price to be able to compete. Another scenario is that a firm introduces a product that has no other competition in the market, thus in such a case the firm enjoys a type of monopolistic power and can charge a premium for the product. The world has changed for the better and globalization has been the mechanism that has open the door to many new possibilities. There is uncertainty associated with many globalization application since typically nation have been very protective of their own markets and fear that letting other in with hurt the local economies. It has been proven that as general rule opening provides many more benefits than downfalls. The establishment of global enterprises has helped nations realized that it is in the best interest of everyone to open their doors since these firm bring jobs opportunities, new products into the market and help out the local economies once they establish themselves. In the future the globalization movement will continue to break economical and cultural barriers and enhance the quality of life of humanity. References Fao.org. Chapter 7: Market Entry Strategies. Available from [Accessed 1 September 2008]. Globalization101.org (2008). A students guide to globalization. Available from < http://www.globalization101.org/> [Accessed August 31, 2008]. Kotler, P. (2002). Marketing Management (11th ed.). New Jersey: Prentice Hall. Landen, H. (2008). The Birth of Television. Video University Library. Available from [Accessed 31 August 2008]. Papyrusaustralia.com (2008). Available from < http://www.papyrusaustralia.com.au/aspx/home.aspx> [Accessed 1 September 2008]. Shapiro, H. (2008). Economics: Futurecast: How Superpowers, Population, and Globalization Will Change the Way You Live and Work. Futurist. 42.5. p.54. Surrey.ak.uk (2003). Case Study 1 Boo.com: Why did it fail? Available from [Accessed 1 September 2008]. Thetimes100.co.uk. International Marketing. Available from [Accessed 31 August 2008]. Two Surveys Reveal Perils and Promote of Globalization. Managing Imports and Exports. 9. p.1-14. Xe.com (2008). Universal Currency Converter. Available from [Accessed 31 August 2008]. Read More