Major Trends in Globalization - Essay Example

 Major Trends in Globalization Introduction Globalization is one of the most influential forces affecting almost every aspect of life. With the emergence of new technologies that dismantled the geographic barriers that separated different countries and regions of the world, the world has become a global village. Today, communication across different parts of the world is possible, easier, cheaper, and convenient. For example, sending an email from the US to China is amazingly easier. With globalization growing, it has affected the business environment significantly. The emergence of large multinational and regional companies operating across many markets across the globe is evidence of the effect of globalization. In fact, many companies are now considering expanding beyond the domestic markets. The globalization phenomenon is real. However, it is important to understand what it really entails and how companies adopt global strategies. Many companies have experienced failure in their globalization strategies because of failing to understand globalization dynamics leading to adoption of poor globalization strategies. The principal purpose of this essay is to explore global strategy. The essay will focus on key elements and dynamics of global strategy, including the definition of global strategy, reasons for adopting the global strategy, how companies globalize, factors affecting the globalization strategy, and major trends in globalization. The essay will be organized into three main sections including the introduction, the body, and the conclusion. The introduction provides an overview of the topic and the structure of the essay. The body of the essay will provide a detailed discussion of the key concepts of the global strategy. This section will be divided into different sub-sections. Finally, the conclusion will provide a summary of the main points discussed in the essay and make concluding remarks. Global Strategy Before defining global strategy, it is important to begin with the understanding of globalization. Globalization may have different definitions depending on what aspects are under consideration (see Arnett, 2002). According to Prakash (2002), globalization has multiple dimensions including economic, political, social, and cultural dimensions. For example, globalization of human resources refers to the globalization of human resource (Rioux, Bernthal & Wellins, 2000). However, globalization from aneconomic perspective refers to the process whereby businesses expand out of their domestic markets to foreign markets (Krishnan, 2009). While this definition of globalization seems simple, the reality is that even economic globalization is a complex phenomenon. As Yeung (2000, p. 267) notes, globalization comprises of an intricate set of power relations and tendencies, which can transform social life completely by introducing a new spatial order. For example, the past economic crises affecting the world show how intricate globalization can be. Although the 2008/2009 crisis emerged from a few countries especially the US, the impact was felt across the world. With the emergence of globalization, many businesses identified new opportunities for growth in foreign markets. Therefore, they moved into foreign markets to tap these opportunities. These companies adopted global strategies. Therefore, the global strategy can be perceived to be the strategy adopted by a company that seeks to expand beyond the domestic market. Just like in globalization, the global strategy does not imply a single strategy. However, the underlying factor is that it represents the strategy used by companies to explore global markets. Different multinational companies have adopted different globalization strategies. These will be explored in detail in another section. In developing a global strategy, companies often take different steps. According to Yip (1989), the global strategy comprises of three steps including development of core strategy, internalization of core strategy, and globalization of international strategy. In the first step, the core strategy forms the basis of a firm’s sustainable competitiveness. This core strategy is developed before a firm actually expands outside the domestic market. In the second step, the firm starts to expand its activities to foreign markets by using an adaptation strategy. The adaptation strategy will be discussed in detail in a different section. In the final step of the global strategy, companies integrate the strategy across the different markets. Based on this conceptualization of global strategy, Yip (1989) identifies five levers that make a global strategy; market participation, product offering, marketing approach, location of value-added activities,and competitive moves (p. 31). Reasons for Business Globalization Since the emergence of globalization, many companies have adopted a global strategy. This trend implies that there are certain factors that are attracting companies to expand globally. There are various potential reasons for business globalization. Different companies will have different reasons for going global. However, some of the reasons are quite universal. It is the prioritization of the reasons that makes the difference between companies. Some of the most cited reasons for business globalization include technological growth, trade liberalization, growing labor mobility, concentration in domestic markets, and growing opportunities in new markets. Technological Growth –the emergence of new technologies has played a major role in the globalization of businesses. One of the main technological developments that have had a significant influence of the growth of globalization is the internet technology. The emergence of the internet technology transformed how people from different parts of the world communicate. Before the internet, real-time communication was quite a challenge because of the costs and barriers that existed. However, the internet resolved these challenges. Businesses could use the internet to communicate with customers across the world. Today, almost every company has a website or other social media platforms. With the internet technology, businesses could expand their business to the regional and global arenas more conveniently. For example, many companies are now using e-commerce by selling their products online (Laudon& Traver, 2007). Apart from the internet technology, other technologies such as telecommunication and transport technologies have also reduced berries to international trade. For example, businesses can now transport goods and labor faster and more conveniently using air transport or electric trains. Moreover, business meetings across company offices across the world can be held virtually using e-conferencing. Technology is at the core of business globalization. Trade Liberalization – trade liberation has also been a major reason for business globalization. There are now many regional trading blocs across the world, which have eliminated any economic barriers that prevented trade between countries (Garrett, 2000). For example, the formation or European Union, African Union, OECD, and Asia-Pacific Economic Cooperation have enhanced international trading because the economic barriers such as high taxation policies have been eliminated or reduced. Although formation of Free Trade Agreements is influenced by multiple factors, the elimination of trade barriers to create open markets to international trade is one of the main factors (Urata, 2002, p. 25). Labor mobility –there has been growing labor mobility since the globalization of production. In fact, Silver (2003) talks of a new phenomenon known as internationalization of labor to imply the current status of labor mobility where the divide between the North and South is almost irrelevant today. Companies have taken advantage of this labor movement to go global because they can source labor from almost anywhere in the world. For example, many multinational companies have entered China because of the cheap labor available there (Zhang, 2001; Ali & Guo, 2005).Many more multinational companies are offshoring and outsourcing labor thanks to the growing labor mobility. Concentration in Domestic Markets – companies also choose to expand to foreign markets because of the growing concentration in their domestic markets. The growing competition in the domestic market could reduce the opportunities for future growth in that market forcing companies to look across the borders for more opportunities for growth. This is evident in the US where blue-chip companies are now looking to foreign markets for sustainable growth because the domestic market is already concentrated (Oakley, 2011). The same trend is also evident in emerging economies such as China and India. Opportunities in Emerging Markets – emerging markets are the new frontiers in business globalization. Emerging markets present numerous opportunities for companies to grow. Some of these opportunities include large market potential, cheap labor, cheap raw materials, and limited competition compared to developed markets. In a recent study to identify the determinants of foreign direct invest in BRIC countries, Ranjan and Agrawal (2011) established that these emerging economic powers had multiple opportunities including macroeconomic stability, infrastructure facilities, large market sizes, cheaper labor costs, and better growth prospects. In another similar study, Jadhav (2012) established that large market size, trade openness, and macroeconomic stability as key drives of foreign investment in BRICS economies. However, the BRICS countries are not the only emerging markets with opportunities that drive foreign investment inflows. Bremmer (2015) identifies seven emerging markets that have significant opportunities for foreign direct investment including Malaysia, Indonesia, Kenya, India, Colombia, Poland, and Mexico. Approaches to Business Globalization When adopting global strategies, companies are confronted with the challenging decision of which approach to use. The two dominant approaches in business globalization are standardization and adaptation. In standardization, companies apply a uniform strategy across all markets (Wind, 1986). The standardization approach is well exemplified by a common marketing strategy. A company using the standardization approach will use the same marketing strategy for all markets including the same product strategy, pricing strategy, promotional strategy, and distribution strategy (Theodosiou&Leonidou, 2003). The adaptation strategy differs from the standardization approach in that it does not apply the uniform approach. Instead, a company treats each foreign country as unique and develops customized strategies for each market. In this approach, a company considers the specific local conditions in different markets and then adapts its strategies to these conditions (Wind, 1986). Companies often consider the advantages and disadvantages of the two approaches when selecting which to apply. The advantages of the standardization approach include the economies of scale and simplicity. Since the company uses a uniform approach, the cost of globalization is much lower than when the company has to adapt the strategies to suit each country. However, the standardization approach is criticized for being over-simplistic and unrealistic in the sense that it negates some critical differences among countries in terms of culture, consumer needs, purchasing power, technological development, and laws (Theodosiou&Leonidou, 2003).The adaptation approach is considered to be appropriate because of addressing these market differences. However, the approach is criticized for being too complex and costly(Wind, 1986). The standardization versus adaptation approaches have been criticized for being problematic. According to Ghemawat (2007), the two approaches are based on assumptions that hide the possibility of other approaches to global strategy. To address this problem, Ghemawat proposed the AAA Triangle. According to this model, multinational companies can choose to use either one or a combination of three approaches in their globalization strategies. The three approaches include aggregation, adaptation, and arbitrage. The aggregate and adaptation approaches are not new in this new model. The only new feature is the arbitrage approach, which entails differences such as when offshoring some critical processes to nations with cheap labor. According to Ghemawat’s AAA Triangle, companies that intend to globalize often consider the prevailing circumstances when selecting the specific strategy to apply. Specifically, Ghemawat (2007) argues that the predominant business expense should be a major factor in determining the appropriate approach to use. The aggregation strategy is more appropriate when a company has more focus on research and development. The adaptation strategy is more appropriate when a company has a significant investment in advertisement. Finally, the arbitrage approach is most appropriate when most of the company expenses are labor expenses. Despite the criterion of business expense for selecting the most appropriate approach to globalization. Ghemawat (2007) also notes that companies should be ready to change their approach to globalization depending on the changing business needs. Apparently, adopting a rigid framework denies multinational companies from exploring the broad range of opportunities available. For example, multinational companies can change from one approach to another or combine several two or the three strategies. For example, a company such as Tata Consultancy Services integrates the arbitration and aggregation strategy in its global operations (Ghemawat, 2007: 1). Factors Affecting Business Globalization The decision to globalize business operations is determined by multiple factors including economic and non-economic factors. Although the potential opportunities and threats are part of the main considerations for most companies, it is important to consider the specific factors to have a clear understanding of potential opportunities and risks. One of the best models for understanding these factors is the PESTEL model. The PESTEL model is an effective model for analyzing new markets for potential opportunities and risks. This model focuses on six elements including political factors, economic factors, sociocultural factors, environmental factors, and legal factors (Yüksel, 2012). Political Factors – political factors represent issues such as political stability, political risks, and government policies. Different countries have different political issues, which affect business operations including foreign businesses. For example, when Google entered the Chinese market, it had to confront the government’s restrictions by adapting its services to be in line with these government policies (CNN Money, 2012). Economic Factors -economic factors include aspects of a country’s economysuch as taxation, cost of production, and economic growth that affect businesses. Different countries have different economic conditions that multinational companies often consider when making decisions regarding globalization of business. According to Chand (2014), economic factors affect the value creation and movement of goods. Socio-cultural Factors – socio-cultural factors include values, norms, and cultures of people from different countries. These factors affect people’s behaviors and attitudes. For example, consumer purchase decisions may be influenced by their cultures. Companies must consider cultural issues when adopting globalization strategies (Leung et al., 2005; Musso & Francioni, 2009). For example, the standardization approach may be appropriate when cultural diversity between the domestic market and the foreign market is low. Technological Factors – technological developments and infrastructure also determines companies’ globalization strategies. Developed countries have better technological infrastructure than developing countries. Therefore, when considering globalization from the developed to the developing countries, multinational companies will consider the available of critical technologies for production, communication, and supply chain management among other critical business activities. Environmental Factors – with the growing concerns over the environmental sustainability and corporate social responsibility, understanding the environmental policies and lows in different countries is also an important factor in the global strategy. Some countries have strict environmental laws such as pollution laws, waste management laws, and land-use policies that will affect a company’s operations. Legal Factors – different countries have different laws and constitutions. Understanding the legal environment in different countries plays a major role in decisions regarding global strategy. For example, the mode of entry that a company chooses to use in entering a foreign market will partly be based on the country’s laws regarding foreign investment avenues (Koch,2001). From the six factors discussed above, there is a clear line separating market factors and non-market factors in the global strategy. The non-market environment comprises of the political, socio-cultural, environmental, legal, and institutional factors. Although these factors are not directly linked to the market factors, they play an important role in the global strategy. Multinational companies should consider the non-market environment as well when developing their global strategies. Ignoring these factors can lead to failure of such global strategies. Major Trends in Globalization One of the major outcomes of globalization has been the emergence of large multinational companies such as Wal-Mart, Samsung, Toyota Motor Corporation, Google, and Boeing. Such multinational companies have become more powerful in that they lead in their respective industries. However, some of the recent trends may change this. For example, there is an ongoing shift in power dynamics from the traditional North-South relationship (Piskurich, 2014). New companies from the emerging markets such as Samsung Electronics are taking over as the global leaders in globalization. Traditional global brand such as Nokia are no longer as strong as they used to be. Additionally, new policies and laws are being developed that will shape the future of global strategy. The association of multinational companies with unethical business practices has necessitated the adoption of new policies and regulations to reduce such risks. This is causing a paradigm shift in multinational companies from profit-orientation to purpose-orientation (Cassandra, 2012). These and other trends will continue to shape globalization in the future. Conclusion Globalization is a complex issue. 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