The Concept of Globalization - Case Study Example

Globalisation and the International Business Environment This essay explains the concept of globalisation, identifies and appraises its main drivers,describes its extent and limits, and discusses its impact on business. In addition to the course text, other references on the topic were used and cited when appropriate. Definitions Globalisation and internationalisation are two similar and often confused terms, though the first is used in a wider sense and is gaining in recent usage whilst the second is more specific to firms. Porter (1990, p. 64-65) defined Internationalisation was defined by Porter (1990, p. 64-65) as the opposite of localisation; it is the process of adapting products for use outside the home nation (think steering wheels in cars or Chinese versions of Windows). Firms must internationalise if they want to sell to markets outside their home country, because foreign markets have different cultures, needs and wants, demanding that firms make adjustments to products and services, organisational structures, leadership and people systems, and supply chains, amongst others. In a landmark paper on the topic, Whitley (1994) observed that the post-war internationalisation process of firms was primarily driven by increases in foreign direct investment by transnational (or multinational) enterprises. This led to increased interdependence of the industrialised economies and changes in the world economy with the following characteristics: (1) the establishment of a distinct global system of coordination and competition, (2) the denationalisation of leading firms, and (3) the international standardisation of managerial structures and practices. It can be said that the natural progression from internationalisation to interdependence and greater integration of the world economy resulted in the complex phenomenon that we now call "globalisation". Globalisation is a concept that is best described than defined because of its complexity. A simple definition, like "globalisation is the integration of the world economy, reshaping business, reordering lives, creating social classes, different jobs, unimaginable wealth, and wretched poverty" (Micklethwait and Wooldridge, 2000, p. xvi), would not do justice to the term because it focuses too much on the economic aspect. Globalisation is much more than just money, business, and wealth. As Stiglitz (2002, p. 9-10) described it, globalisation "integrates countries and peoples, their economies and politics, their cultures and fates. It breaks down artificial barriers to the flow of goods, services, capital, knowledge, ideas, and (to a lesser extent) peoples across borders. It creates new institutions that joined with existing ones to work across borders". There are then good and bad sides, so whilst many condemn environmental degradation, corruption of cultures, and the spread of squalor, poverty, misery, and greed, many also praise the improved access to cheaper medicines and food, better living conditions, gradual eradication of poverty, and increased opportunities for millions of people around the globe. Therefore, whilst many consider internationalisation and globalisation as synonymous terms, the former would refer to an outward process where firms adapt to and increase their presence in international markets, whilst the latter can be described simply as its natural integrating result. Globalisation is nothing new, but in its past incarnations, the inability of previous generations to manage its bad side has made it a factor that led to two of the bloodiest wars that mankind has ever experienced. Knowing this background reminds us of what the philosopher Santayana said about learning the lessons of history so that we would not be doomed to repeat it. Main Drivers of Globalisation Like success which has many fathers, globalisation (according to whoever is the author) has many drivers (Yip, 2003; Johnson et al., 2003; Stiglitz, 2002; Micklethwait et al., 2000; Porter, 1990) that we can summarily classify into five groups. These drivers are the key factors that made, and continue to make, the recent wave of globalisation possible. The first is the rise of neo-liberalism, a political-economic ideology that embraces the philosophies of economic liberalism characterised by free markets and small government, values-based principles such as freedom, common good and peace, and a reduction in the intrusion of government. Deregulation, privatisation, labour market reform, and development of competition policies were all consequences of this school of thought. All these led to the reduction of protection available to businesses, the removal of trade barriers between countries, the promotion of efficient production and distribution of world resources, the opening of markets, and encouraged the greater internationalisation of enterprises. The second driver, the internationalisation of business enterprises, proceeded from the first. As the effects of neo-liberalism ravaged the domestic economic landscape, tremendous opportunities arose overseas for these business enterprises: new markets, sources of raw materials, production bases, sources of labour, and financial capital. The collapse of the former communist countries unleashed a dual force of consumers hungry for western products and services and low-cost venues for production. The third driver is the volume of finance and capital resources that were made available, which grew geometrically as wealth accumulated and needed to be invested to take advantage of overseas opportunities, and the speed with which it circulated all over the world. One of the effects of neo-liberalism is that it forced enterprises, especially banks and financial markets, to be more competitive in search of profitable business opportunities. They financed the appetites of firms to grow by investing in new markets, and equally, these same banks happily financed the new markets so they could buy what firms were selling. The fourth driver is information and communications technology (Internet, mobile communications, information technology systems, etc.), which was perhaps one of the main factors in recent years for shrinking the world. Business transactions became faster, communication was easier, and business decisions could be made faster. This allowed firms to distribute and enlarge the bases of their business where it would be most advantageous for them, locating in countries where materials, labour, and proximity to customers provided the best combination of costs and profits. The fifth driver can be characterised as the rise of international governance institutions designed to govern the globalised world, ranging in scope from regional institutions of political, economic, and monetary integration such as the European Union, the World Bank and the IMF, or the World Trade Organisation, which provides a venue for the negotiation of global trade policies. Other institutions such as the United Nations, its offices, and the countless numbers of non-government organisations (NGOs) also played (and continue to play) important roles in the governance of globalisation and its players. All these drivers developed and rose together. None worked in isolation and then decided to get to the globalisation bandwagon. Part of the beauty of globalisation is that its development can be traced to the natural progression of internationalisation. Fortunately for the world, the institutions that were created after the last world war (partly caused by a previous wave of uncontrolled globalisation) continued to function, although not ideally (think IMF policies in Latin America or during the Asian financial crisis), and were "supported" by the growing numbers of NGOs worldwide. In a sense, globalisation created a cycle (virtuous or vicious, depending on one's point of view) where these five drivers reinforce, check and balance each other with the intention that none would dominate. Extent and Limits of Globalisation Globalisation has led to greater integration of the world's economies. It has expanded markets and production, and by intensifying competition amongst enterprises has led to lower prices that are advantageous to a larger share of the world's population. By spreading financial resources faster through investment and employment, globalisation has also contributed to making the standard of living and quality of life better for millions of people around the globe. The spread of technology and expertise contributed to the social and economic benefits arising from the world's integration and its link to one of the tenets of neo-liberal ideology: States that are interdependent have lesser chances of going into war against each other. This means that there are better hopes of peace resulting from globalisation as the international institutions become a substitute for nations and States to iron out differences and disagreements instead of doing so by resorting to violence and war. This is how globalisation contributed to the spread of democracy. Workers also have more opportunities to work in other countries. Wages have increased; there is greater labour market flexibility and improved labour standards as foreign investors are pressured by the societies of their home nations to improve these standards; and, there is also increased wealth and efficiency. Globalisation also improved the exchange of cultural goods, thus enhancing international relations amongst members of the community of nations by improving their understanding of each other. This contributes to the spread of peace. However, the ongoing debate on globalisation shows that whilst there is a good and bright side, there is also a bad and dark side, even in those same areas where benefits have been openly acknowledged. For example, cultural exchange from globalisation is leading to homogeneous world cultures that are marked by the erosion of traditional values and their replacement by materialistic and hedonistic western values. Cultural identities are likewise seen to be disappearing as the youth, the carriers of every nation's culture and traditions, are beginning to look, act, and think like everybody else in the world. Aside from destroying culture, the critics of globalisation note how it destroys the environment, getting governments panicked about potential long-term consequences of allowing foreign investments into the country. Whilst labour opportunities abound, several global firms have taken advantage of weak governments to abuse workers who are mostly content to receive low wages (because in most cases, these are already relatively high by the country's standards), despite the high margins for the goods being produced. Thanks to the work of NGOs and increased social pressure in the home countries of the enterprises, many major improvements have been made. The growing power of international institutions is being criticised for neglecting the national sovereignty of nations to decide what is best for their people. Financial crisis in Asia (1997-1998) and Latin America (1999-2001) highlighted the power that these institutions wield over governments. The rising power of the WTO and its perceived bias against smaller developing countries is becoming a cause for concern amongst critics of globalisation. As bigger, richer, more experienced enterprises branch out from their home countries and begin to compete in the world, it is inevitable that they use their power to get the most they could from governments and from these foreign markets. Its dealings with governments, in some cases steeped in a tradition of corruption, highlight the importance of international governance institutions that can control corrupt practices and lead to firms' ethical degradation. Globalisation does not affect only the economic behaviour of business enterprises, but more importantly their ethical behaviour. Being in a distinct position of advantage (only the good companies have sufficient resources and ability to take risks to globalise), these global companies need a conscience so that they do not annihilate local businesses, destroy and corrupt governments and local cultures, cause irreversible damage to environments, abuse workers and communities, and lead to social unrest that would undermine and eradicate whatever advantages are derived from their presence. Globalisation is like a two-edged sword that can cut misery, poverty, and the people both ways. With the help of a working system of international governance, not necessarily a world government, everyone hopes to avoid the mistakes of the past. Impact on Business Being on the front lines of globalisation, businesses are the most active actor of all: pressured by their own shareholders to maximise share value and by governments to be more competitive, they face another set of pressures internally and similar challenges (at times hostile) in their new environment, often from the local governments, the people, and markets. Globalisation being an end-result of internationalisation already assumes internal changes to the business' structure, processes, leadership and people systems, supply chains, and products and services. These changes are crucial for their products to sell in new markets, and differences in culture challenge these firms to change the way they manage the company when they locate in other countries. As their competitors globalise, the pressure on firms to compete would intensify, increasing the challenge to innovate and continuously find ways to bring down costs, develop more efficient supply chains, and to widen their global network of value creation. As Johnson et al. (2003, 335) pointed out, globalisation "has altered many of the fundamental aspects of the enterprise's understanding of the way its environment operates". Enterprises must develop both defensive and offensive strategies to deal with this challenge. These enterprises can take a defensive stance by being more sensitive to local cultures and the needs of labour markets for better wages and working conditions, presenting a positive image to local governments so as not to attract too much attention, having a code of conduct so that it would be easier to control its corporate behaviour against corrupt local practices, and developing a positive image of a good corporate citizen. These enterprises can also develop offensive strategies such as carrying out the ethical practices of good corporate social responsibility, properly managing the environment, enabling local suppliers to earn decent or even above-average returns instead of squeezing them to get the lowest possible cost, introducing new technologies that would benefit the host nation's human capital, and managing itself well to ensure profitability. Globalisation's economic face is the one most people love to hate, which makes it easy for their critics to forget the benefits and good things that come with it. Being in the front lines, business enterprises and their shareholders have the opportunity to learn from the lessons of history about mankind's experiences of the past to avoid the harsh consequences of greed, the evil fruits of economic domination, and the fact that there are limits to what they can do. Enterprises can motivate greater involvement of the local communities where they have investments so that as many as possible can enjoy the fruits of the work they do. Fortunately, there are enlightened shareholders and functioning international institutions to help them in this task. Globalisation is still a work-in-progress, and each one has to do her or his part to ensure that all the issues are addressed properly. This would require sacrifices from everyone, and it is the extent to which all- who live in this limited space we call the world - are willing to go beyond what is expected that would determine our collective success and how far we can continue to enjoy prosperity and peace. The risks remain high, but our future depends ultimately on each of us doing our part. In this sense, globalisation also integrates our future and our destiny. Reference List Johnson, D. and Turner, C. (2003). International business: Themes and issues in the modern global economy. London: Routledge. Micklethwait, J. and Wooldridge, A. (2000). A future perfect: The challenge and hidden promise of globalization. New York: Crown. Porter, M.E. (1990). The competitive advantage of nations. New York: Free Press. Stiglitz, J.E. (2002). Globalization and its discontents. London: Allen Lane. Whitley, R. (1994). The internationalization of firms and markets: Its significance and institutional structuring. Organization, 1 (1), 101-124. Yip, G. S. (2003). Total global strategy II. New Jersey: Prentice-Hall. Read More