Globalization and Its Impact on Business - Essay Example

Globalization and Its Impact on Business Defining globalization The ‘International Monetary Fund’ (1997:15) defines globalization as “the growing economic interdependence of countries worldwide through the increasing volume and variety of ‘cross border’ transactions in goods and services and of international capital flow and also through the more rapid and widespread diffusion of technology” Moreover, Kwanashie (1998: 3) defined globalization as “a process of integrating economic decision-making such as the consumption, investment and saving process all across the world. It is a process of creating a global market in which increasingly all nations are forced to participate”. Hirst and Peters (1996), define Globalization as ‘as simply another adjective to describe cross-border relations between countries’. Globalization or industrialization illustrates the development in global exchange and the consequent inter-reliance between the nations where ‘the principle entities are national economies’ to a ‘stronger’ version of the global financial system in which, ‘distinct national economies’ are included into the global system by means of trade international trade routes and business (Hirst and Peters, 1996). ‘Globalization’ also entails ‘a process of removing government-imposed restrictions on movements between countries in order to create an “open”, “borderless” world economy’ (Scholte 2000). Thus we see that globalization can be elucidated as ‘An open economic system’, with policies of ‘Non-discrimination’ in business and trade practices between countries, thereby producing ‘Global brands’, (for example, coca cola and McDonald’s) and ‘Global structures’ of companies which were initially local or national. Globalization then is a process of trade, business and communication between the people, companies, and governments of different nation as a result of which people all over the world are inter connected to each other. There is a monetary as well as literary exchange benefiting the global economy because goods and services manufactured in one part of the world are available to the rest of the world. This also results in an improved frequency in international travel and there is extensive communication globally. Globalization can be therefore called international integration (Noam Chomsky, 2006) and can be explained as a practice by means of which the world community are unified into a distinct social order and operate collectively in a process which merges financial, technical, socio-cultural and political forces. (Sheila L. Croucher, 2004) The Driving factors of Globalization are reduction in travel costs at a global level, liberalization in trade policies, and the high rate of growth in Information technology. Globalization originates with the discovery and migration of the New World which is elucidated by Thomas L. Friedman, in his book, ‘The World Is Flat’, where he “examines the impact of the ‘flattening’ of the globe”, or an international ‘flattening’ of competition in businesses facilitated by escalating global inter-connectedness. Friedman debates that globalized business and trade practices including outsourcing, off-shoring, supply-chaining, and economic, technological, and political forces have misused the face of the business world eternally (Friedman T. L., 2008). Business globalization refers to a company’s undertaking of sales and assets across international borders and the resulting flow of capital, goods, services, and labor. Coca-Cola is a good example of a company that has successfully cultivated its international business, with more than 70 percent of its income originating from non-U.S. sources. The various tactics that Coca-Coca uses to achieve this include developing a global consumer market, establishing transnational corporations to reduce production costs, product branding and positioning, competition-based pricing, and more. Effects of globalization on business Cheap offshore production Offshore Production entails the fabrication of goods in a foreign country for import to the domestic market. One of the major effects of globalization is the cheap offshore production which enables the business companies to generate higher profits. An excellent example of offshore production is the ‘Barbie doll’. When the ‘Barbie doll’ initially staged onto the consumer rack in 1959, no one anticipated her to be an icon of international outsourcing. Ever since, Barbie has developed into a multi-billion-dollar a year industry, with global sales and production. Barbie’s parent company, Mattel Inc., approximates that three Barbie dolls are sold each second per day. Barbie’s hair and plastic are manufactured in Taiwan and Japan, her body casts are fabricated in America, her assembling is done in Indonesia and Malaysia; and her clothes are fabricated in China. Thus Barbie is an exemplar of the global outsourcing path many business companies are pursuing as a result of which offshore business firms are profiting substantially. The global impact of this outsourcing has been a clustering, of smaller business units specializing in diverse but interrelated segment of assembly in an industry. Like the Barbie doll illustrates, this agglomeration has resulted from globalization, which has great economic impacts. This study Agglomeration, Opportunism, sheds new light on the effects of globalization on the global industry. Reduced transport costs Globalization plays a substantial role in the businesses of multinational corporations enabling them to augment profits emerging from larger trade in goods and services along with the liberated flow of monetary resources.  Globalization results in expansion and improvement of transportation including containerizations. Improved containerization and transportation along with a reduction in the expenditure of transportation of diverse goods and services all over the globe enable the businesses to reduce prices and bring them to international levels. Globalization has enabled the de-regulation of international financial business markets and has resulted in the elimination of investment control in several countries. The direct outcome of this is the heralding of financial business markets in developed and emergent nations thereby facilitating ‘foreign direct investment’ impacting the liberated flow of capital internationally. Avoidance of import protection: Globalization aids numerous businesses that are inclined to evade tax and non-tariff hurdles to provide themselves with more viable access to rapidly developing economies including the emerging markets. Globalization facilitates the easy movement of goods, capital and technological information around the world, positively impacting numerous related businesses enabling them to distribute their operations according to the countries’ relative benefit resulting in a momentous amplification in the number of business firms that ‘locate, source and sell’ globally. (Geoff Riley, 2006) Virtual communication- Changing Business Trends Globalization has changed the concept of communication in the world of business. Today, an intelligent business premises “provides a responsible, effective and supportive intelligent [technological] environment within which the organization can achieve its business objectives” (Worthington 1997, 16). This perception of an intellectual milieu or ‘intelligent’ business buildings further leads to the idea of a “virtual” or “logistical” city. The global business community desires and plans for amenities and technology that sustain the effective or logistical city. Today, the main drivers of the successful businesses are information, communication, and technology, and global business planners are drifting away from “property focused buildings to being business service providers” (Worthington 1997, 4). A majority of businesses have eliminated and disposed facilities that no longer meet “knowledge age” and globalization needs. The process of reorganization entails having minimum staff. As Worthington (1997) pointed, that the “essence” of the new business workplace comprises of a working place, networked by technology and a suitable technology well incorporated with the business operation, sustaining and augmenting performance. Globalization has changed substantially the business premises needs and requirements of the novel businesses of today which necessitate the additional inclusion of video conferencing, fax and e-mail services, secure computer networks, and other assistance necessary to run a business. Standardization of logistics The implications of globalization in businesses and the assimilated compound creation of product promotion involve logistics strategies which are relatively far-reaching pertaining to both business organizations and IT applications. Enhanced perception of the dynamics of business with particular inclination to logistics enables the business managers to foresee the future needs in business policy and decision making. Complying with modern business conditions, where procurement, manufacture, retailing, and delivery are conducted at a global level, easing of import and export operations plays a significant role in the improvement of business competitiveness. Therefore, globalization has resulted in the development and regularity of logistics as a basic business requirement. Global marketing Globalization marketing through the Internet has created unparalleled prospects for undersized and medium businesses globally, traditionally where competition is severe. To benefit from these prospects, businesses are form partnerships or, more specifically, planned agreements. For instance, if you structure a deal with an American business partner who takes the products and distribute them through his network, thereby saving tremendous money for marketing. Another business tactic for global marketing is by providing the business enterprise with access to technology based internet tools. These types of ‘strategic alliances’ benefit the big as well as the small business units. Globalization practices have now created a new importance for international brands. There is an increased brand awareness globally thereby enabling business organizations to buy and sell brands as per their convenience. For instance the Ford Company sold it component business for one and a half billion dollars. Simultaneously, it also spent nine billion dollars in buying several brands of its choice including the jaguar and the Volvo. This globalized business activity has further resulted in superior specialization of manufacture such as the Hewlett Packard Company. There is also a greater scope for outsourcing products which now even include soaps and medicines. Another excellent example is the successful marketing and branding of the global drink ‘Coca-Cola’. Coca-cola is an American manufacturer and vendor of non alcoholic beverage. The marketing success of the global company stems from the company’s marketing strategy to make their product seem more tempting than the competitors. Product branding these soft drinks includes the use trademarks, logo, and slogan fro which the company spends millions of dollars every year in order to strengthen and improve the consumer responsiveness. The strong brand image of coca-cola enables the business organization to charge slightly more than its rivals, without a reduction in its market share and this is known as competition based pricing a pricing strategy adopted by the company in view of its global presence in the market. The term ‘globalization’ has been employed by economists ever since 1981 but its conception did not get realized to its full potential until the latter part of the 1990s. The foremost theories and estimation of globalization were first elucidated by an American industrialist who later became a minister, Charles Taze Russell, who was the first person to invent the phrase ‘corporate giants’ in the year 1897 (Chomsky N., 2006). The earliest era of globalization set its rapid pace during the 19th century with the development of international trade among the Europeans, the European colonies, and America. Globalization came to be accepted as a business trend in the 17th century with the establishment of the East India Company of Dutch, which is generally illustrated as the first ‘multinational corporation’. The effects of the Globalization phenomenon came to be more visible than ever before, in the 19th century, an era of rapid expansion in international business and investment, between the Europe, their colonies, and the United States. Globalization affects the businesses of the world in several ways. Globalization also termed as Industrialization initiates the surfacing of international manufacturing markets thereby enabling a wide-ranging access to an entire choice of foreign products for consumers and companies, which not only include goods but most importantly services, which may be technological or otherwise. The unending progression of expanding the boundaries of business markets from national to international grounds is the result of the massive development and prospects in the international markets. Bearing in mind the identified and the unidentified potential risks Supervising and administering these markets necessitates comparatively complex and strategic planning (Van R. Wood, Kim R. Robertson, 2000). Research and study in the domain of globalization indicate that economic integrations have been the major contributors to economic development after the Second World War (Czincota and Ronkainen, 2004). Only some years ago, globalization implied a gradual worldwide launch of a product by a large globally recognized company, in contrast to nowadays when there is tremendous participation by smaller companies (who may not be global players) in launching refined and stylish products at an international level. This fact has resulted in exerting considerable pressure on all companies worldwide to innovate and develop novel products or alternately improve the existing ones, sometimes by even bringing about reductions in their prices by the removal of cost elements, order to be in the race for a substantial share in the international markets (Bradley 1999). The effects of increased global integration are Regional Economic Agreements, Converging Needs and Wants, Improvements in Communication and Transportation Technology, Technology Advances, Pressure to Cut Costs, Global Economic Growth and Opportunities for Leverage (Keegan and Green,1997). Regional economic agreements. According to Czincota and Ronkainen (2004), Keegan and Green, (1997) and Wild, Wild and Han (2003), economical integrations exist in four major forms. Countries or even regions are engaged in numerous integrations which are highlighted below. A Free trade is the least restraining and free form of integration, among nations in which Goods and services can be easily bought and sold among member countries with the help of the Custom union in which the members the union consent to do away with obstacles in trade and also institute general trade policies with nations who are not members of the union. Thus a Common market is one in which all kinds of goods and services together with labor, funds and technology are freely exchanged among countries that are members and limitations on immigration and international investments are removed. The Economic union is a union of members of countries across borders, in which there is integration of economic policies among the countries that are members which also entails the harmonization of monetary policies, taxation and government spending (ibid). Converging needs and wants implies the unification of market needs for example, the need for soft drinks and cigarettes in companies. An improvement in communication and transportation technology implies the elimination of distance barriers in the course of development and improvement of both communication and transport which generally takes place by Technology advances which implies that there are no cultural restrictions preventing the improvement and use of technology because as soon as a certain technology is developed it can be utilized and functional worldwide. There is a Pressure to cut costs on a company when new products require major investments. Leveraging is an activity which benefits a company by carrying out business in more than one country, and the four important types of leverage are Experience transfers, Scale economies, Resource utilization and Global strategy. Since the previous few years globalization has matured due to innumerable market factors and forces which have been forcing the progress forward which include not only the market but also the variables related to marketing. The primary forces which proved instrumental in contributing to the progress of the global economy are the chief syndicates such as the ‘European Union’ (EU) and the ‘World Bank’ or ‘International Bank for Reconstruction and Development’, the ‘International Monetary Fund’ (IMF) and the evolution of the ‘World Trade Organization’ from the initial ‘General Agreement on Tariffs and Trade’ (GATT). Lately, the World Bank has been playing an extremely dynamic function in the renovation and progress of emergent national financial systems. (Smith, 1990) More visible effects such as prompt infrastructure and technological communications like air transportation and electronic data transmission and technology have minimized the world thereby enabling substantial reductions in expenditure and time and with the penetration of television, the news of the happenings all over the world spreads rapidly causing the aspiration intensity to augment spectacularly. Leagues such as the ‘European Union’ (EU), ‘ASEAN’, the ‘North American Free Trade Agreement’ (NAFTA) with the USA, Canada and Mexico has been influential in creating global market prospects and challenges and bring not only economic but also social advantages due to which newer countries are constantly endeavoring to connect to these blocs (Terpstra, 1987). Likewise, the disintegrations of the old communalist blocs have generated fresh prospects for organization in their struggle to enter the new markets mounting from the ruins. The process of Globalization has no doubt augmented the emergence of international financial markets and providing better access to external business financing for corporate, national and international borrowers. There is a constant emergence of a global common market, based on the freedom of exchange of goods and capital, due to which the businesses have to be on the lookout for newer means and ways to attract and retain customers. Globalization also prompts the businesses to cut their prices or to neutralize them because of the existence of competition in all the sectors of the industry. The advertising world is flourishing as a result of this global phenomenon as they have to incessantly devise newer means to remind the customers about their brands. Branding additionally creates a sense of value and reputation of the product which gains popularity and competition at an international level. Globalization has resulted in the creation of a world government for regulating the business relationships between countries. (Stipo, Francesco. Website: ) Development of a international businesses relating to global telecommunications infrastructure are now thriving and the companies which prominently figured as national players have now become global giants by way of mergers and deals, enabling them to expand their businesses globally, for example the Vodafone Hutch merger. There has been a steady development of the businesses of the world due to globalization, and the progression in Information Technology (IT). These enhancements are leading to amplification in the business of goods and services internationally, which has consequently caused an increase in not only investments of businesses but also competition between them (Jones, 1994,Mazrui, 2001; Adeboye, 2002; Kiely, 2005). Economic globalization results in global inter-reliance and the current scenario is that countries and businesses are now more co-dependent than ever historically. The current configuration of the global economy is such that mobility of resources around the world is encouraging the business growth at a global level. Besides globalization indirectly too affects businesses as there is a direct effect it has on jobs in many crucial manners. In some businesses it has produced more jobs, while in some, there has been a reduction. Globalization no longer necessarily requires a business to own a physical presence in terms of either owning production plants or land in other countries, or even exports and imports. For instance, economic activity can be shifted abroad by the processes of licensing and franchising which only needs information and finance to cross borders. And increasingly we are seeing many examples of joint-ventures between businesses in different countries e.g. businesses working together in research and development projects. Thus globalization is the name which implies the exchange of information and money constantly and rapidly thereby connecting people and businesses globally. The main drivers of globalization are trade and investments and technology. Technology plays a considerable part in driving globalization as well. Some exemplars explaining this comprise of the internet and World Wide Web, transportation, and communication (Hill, 2002). Development in transportation, telecommunication and computerization has slashed the costs and increase the ease and speed with transmitting of information, people and goods. Globalization effects businesses both nationally as well as internationally greatly due to these factors and the prospects in outsourcing. Globalization in the form of amplified assimilation by means of trade and investment is an important reason why much progress has been made in the businesses of the world economies thereby substantially reducing paucity and international dissimilarity over the past few years. There is much progress to be made yet on the global front to eliminate the veils of poverty and strife in the poorer nations of the world. Comprehending the contemporary status of globalization is crucial for setting the track for the future. For all the countries to obtain the complete advantages of globalization it is necessary to construct a plane playing turf so that there are no discrepancies in the process of advancement of businesses and through them the entire mankind who are supported by them directly or indirectly. References Bradley F., 1999, International marketing strategy, 3rd edition. Czincota M.R.,and Ronkainen I.A., 2004, International marketing, 7th edition. Friedman,Thomas L. "The Dell Theory of Conflict Prevention." Boston: Bedford, St. Martins, 2008. International Monetary Fund’, 1997 Keegan W.J., and Green M.C., 1997, Principles of global marketing. Kwanashie, M. ‘The Concept and Process of Globalization” Central Bank of Nigeria Economic and Financial Review, 1998. Noam Chomsky, ‘The Washington Post’, March 24, 2006 Riley G., ‘Treasury Report on Global Economic Challenges, 2006. Scholte, J. A. (2000) Globalization. A critical introduction Sheila L. Croucher. Globalization and Belonging: The Politics of Identity a Changing World. Rowman & Littlefield. (2004). Smith, P., 1990, International Marketing. University of Hull, MBA Notes. Stipo, Francesco. World Federalist Manifesto. Guide to Political Globalization, Terpstra V., 1987 International Marketing, 4th Ed. The Dryden Press. Van R. Wood, Kim R. Robertson, 2000 Wild J.J., Wild K.L., and Han C.Y., 2003, International business, 2nd edition. ZNet, Corporate Globalization, Korea and International Affairs, Noam Chomsky interviewed by Sun Woo Lee, Monthly JoongAng, 22 February 2006 Read More