Five Drivers of Globalization and the International Forces - Research Paper Example

Five Drivers of Globalization and the International Forces Introduction The term ‘globalization’ covers broad range of different political, cultural and economic movements and has been capable of becoming of the trendiest buzzwords of modern political as well as academic debate. Globalization refers to combination of economic and societal collaboration via cross country flows of information, ideas, technologies, goods, services, capital, finance and people. The numerous dimensions of cross border coordination can occur in terms of varied factors such as cultural, political, social and economic (GRIN, 2005). According to the standard theory, international trade theory leads to share of resources being consistent with the corporate advantage. This further leads to specialization thereby enhancing the output. The quick progress in the capital market is because of the globalization. Along with the benefits offered by globalization, there are major concerns related to it. The first concern is related to the fact that globalization leads to a more immoral dispersion of income among the countries and within the countries. The second concern is related to loss of national autonomy and the countries are finding it highly complex to pursue independent domestic policies (Rangarajan, 2006). Dell Corporation has been analysed for the purpose of this study. Since last 26 years, Dell has been capable of authorizing countries, communities, customers as well as people all over the globe to make use of the technology so that they can realize their dreams. The company tends to value its customers and thus aims at delivering the products and the services according to the needs and the wants of the customers (Dell, 2012). The main objective of the study is to identify the five main kinds of drivers of globalization in general and the main drivers for Dell Corporation. The paper will try to analyze the international financial and economic forces, physical and environmental forces, international political and legal forces, international socio-cultural and labor forces and international competitive forces and subsequently these forces will be applied to Dell Corporation. Key Drivers of Globalization The five main kinds of drivers that are forcing international firms to the globalization of operations are political, technological, market, cost and competition (Indian Institute of Material Management, 2012). Political Forces There is a trend towards the association and socialization of the global community. Both North American Free Trade Agreement (NAFTA) and European Union present major marketing opportunities for the companies. If the government can reduce barriers of trade as well as foreign investment and can privatize most of the industries in formerly communist nations then globalization can be fostered (Acemoglu & Yared, 2010). Technological Forces With the progress in computers as well as communication technology ideas information can flow across borders. The small companies are capable of competing all over the globe because of the internet as well as communication technology. By making use of internet for the purpose of business exchanges, Business-to-Business (B2B) transaction is providing major savings. Market Forces When the companies tend to globalize, they become global customers. In order to retain their presence in the global markets and expand the consumer base, organizations endeavor to set their trail towards global shores. When the home market saturates, companies seek to operate globally. Cost Forces The management goal is to make use of the economies of scale so that it can reduce unit cost. It is vital for the companies to globalize the product lines so that it can successively attain economies of scale. Production houses can be located in those countries where the cost of production is observed to be less. Competitive Forces Market competition is escalating its force across global marketplace. It has been a major driver for business organizations to move towards foreign business destinations in order to stay abreast of the inevitable competition in their business sectors (Acemoglu & Yared, 2010). Apparent Drivers for Dell It can be mentioned that although all the five factors drive globalization at Dell, the apparent drivers of the company are cost forces as well as political forces to a great extent. The company’s decision regarding where to locate their plants is generally driven by the aspiration to lessen costs and to expand the build-to-order, direct sales model all over the world. It took benefit of the reduction and the elimination of obstacles towards trade and investment to move in regions and sites that best meet its needs. Given the requirement to have production as well as support capabilities in the major markets, the company tends to choose specific locations based upon combination of factors comprising the quality of labor along with its cost. For instance, Dell’s operational unit that is situated in Ireland faces less labor cost than in most of the other member countries of European Union. Dell has in recent times preferred to locate its plant in one of the new EU member states in Eastern Europe where the workers are literate, however cheaper and less strongly unionized in comparison to other EU countries. Competition is the other factor that forces Dell to globalize and hence expand its operations in countries abroad (Oxford University Press, 2010). International Financial and Economic Forces Financial globalization is generally comprehended as the collaboration of a country’s local financial system with international financial markets as well as institutions. Such integration generally requires the support of the government in terms of easing up investments in financial sector as well as the capital sector in the domestic market. Integration is apparent when liberalized economies tend to experience an augment in capital movements between two or more than two countries comprising of active contribution of local borrowers and lenders in global markets and extensive use of international financial intermediaries (Schmukler & Zoido-Lobaton, 2001). There are four main mediators of financial globalization such as governments, investors, financial institutions and borrowers (Schmukler & Zoido-Lobaton, 2001). However, it is to be remembered that governments tend to be the main mediator of financial globalization. They help the companies to globalize by easing up of restrictions on both domestic financial sector as well as capital account of the balance of payments. The borrowers, investors as well as households and firms are also the main intermediaries of financial globalization. When the firms and the individuals are capable of borrowing abroad they can relax their financial restrictions in order to avail easy consumption as well as investment pattern (Imade, 2003). It can be analyzed that Dell Corporation needs to take into consideration the economic as well as financial factors when entering into global markets. Dell can integrate with less developing economies by means of foreign direct investment. It is a well known fact that the companies like Dell would require high level of investment in context of Research & Development (R&D) as well as in the process of manufacturing and therefore this drives the organization to go global. The reason behind this fact is that the scale of investment required in the production of the computer parts becomes quite high so that it becomes quite difficult for a single domestic market to endorse that particular industry. When globalizing, Dell needs to have a proper understanding of the various intermediaries such as government, investors, financial institutions and borrowers. Dell can take help of the several financial institutions in order to make use of the funds and therefore utilize them in the process of production or spend them in other marketing activities abroad. Physical and Environmental Forces The physical as well as environmental forces also tend to have an impact upon globalization. The environmental forces comprise of geographical as well as ecological factors impacting the successful operations of the business. These forces comprise of availability of natural resources, climatic condition, weather, location features and topographical factors among others. Global business is heavily impacted by the characteristics of the natural environment. It has been sought that the differences in the geographical conditions among the markets may at times call for transformation in the marketing mix. It is the geographical and the ecological factors that impact upon the selection of location of certain industries. Furthermore, climatic as well as weather conditions also influence the location of certain industries such as cotton textiles. It is the topographical component that may have an impact on the demand pattern. The weakening of the natural resources, environmental pollution as well as disturbance of the ecological balance creates high concerns for industrial development (Bertucci & Alberti, 2010). The success of Dell Inc abroad is majorly dependent upon the physical and the environmental forces abroad. One of the reasons behind the shift of manufacturing operations can be unfavorable environmental condition in terms of rules and regulations. The other reasons behind the decision to globalize can include favorable climate for the production of computers. When planning to globalize, it is quite significant for Dell to consider weather, topographical factors, location features and availability of the natural resources (Bertucci & Alberti, 2010). International Political and Legal Forces Political forces either at home or abroad are one of the main determinants of success and efficiency of an organization. There is high concern regarding the monopoly business practices and these practices have gained high attention in recent times. The rules and the regulations are enforced by the government by which the business houses tend to operate. For instance, although the United States is considered as a free market economy, the organizations do not have the privilege of total independence from government regulations. Governments can endorse formation of new business by means of tax incentives and subsidies, they can reorganize organizations and they as well have the right to close those organizations that do not comply with the rules and the regulations that have been set by the government. In addition to these, coalition among the governments offers an extra level of difficulty for the organizations possessing noteworthy foreign operations. Since most of the organizations go through a few forms of regulations, in the recent times, the focus is upon deregulation as well as privatization of the industries all over the globe (Bertucci & Alberti, 2010). Dell Inc may aim to globalize because of the liberal government policies abroad. It has been noted that certain governments have removed the trade barriers and taken steps in order to stimulate movement of finance via international organizations such as General Agreements on Tariffs and Trade (GATT) along with the organizations such as World Trade Organization (WTO) which has permitted to set up free trade areas, common markets as well as custom unions. This permits Dell Inc to operate freely in most of the nations of the world. While entering into countries abroad it is also crucial for Dell Inc to consider the tax rates and other regulations that may hamper the effectiveness of the company (Bertucci & Alberti, 2010). Socio-Cultural and Labor Forces It can be stated that the multinational corporations (MNCs) tend to operate in numerous host countries all over the globe and need to deal with variety of political, economic, geographical, technological as well as business contexts. It is a well recognized fact that a host country possesses its own society and culture, even though there are few similarities present between a home country’s culture and a host country’s culture for a business organization’s consideration. Although apparently society as well as culture do not seem to be a vital part of business context, they are considered to be one of the main components in shaping how a business tends to be conducted, the kind of goods and services that is manufactured, the way they are sold along with the creation of industrial and management patterns and the determination of the success and breakdown of a local subsidiary. It is worthy of mentioning the fact that both the society as well as the culture tend to have vital impacts upon the MNCs overseas businesses (Nicholsan & Sahay, 2001). An MNC in order to successfully operate has to be aware of the attitudes, the feelings as well as the opinions of the consumers in the local environment. Dissimilarities in values and attitudes among the management at the parent offices and expatriate manager belonging to the subsidiary or affiliate level, on one hand, and the local managers as well as the employees on the other may create serious operational as well as functional issues. It has been found that these issues arise not since they are individual problems, however because of the significant disparities between societies and cultures. Society and culture tend to mould common attitudes towards the basic aspects of life, such as time, money, output and achievement. All these factors may widely differ across numerous countries and thus lead to contradictory expectations between the management in home office as well as local employees of subsidiaries and affiliates. A few of the social differences may be obvious and others may be comparatively subtle, however equally significant. The international managers may find it difficult to catch on those subtle differences if he/she has not worked with the employees belonging to numerous cultures other than that of the home culture. At times, the cultural differences tend to be larger, however if an expatriate manager makes an attempt to resolve these differences and identify the gaps then in such cases the effectiveness of an organization can be enhanced to a great extent (Nicholsan & Sahay, 2001). When operating globally, it becomes essential for Dell Inc to take into consideration the socio-cultural factors. It needs to have a thorough study of the country in which it intends to operate and the culture of that particular country also needs to be given due emphasis. The managers of Dell must try to narrow the cultural differences while operating globally so that the conflicts can be avoided to a great extent. Furthermore, if Dell is capable of minimizing the cultural differences then the effectiveness of the organization can be enhanced largely. Training is quite important for the expatriate on cross-cultural management. It will help in preparing managers who can effectively handle people of numerous cultures (Nicholsan & Sahay, 2001). Competitive Forces The competitors of the organizations comprise of not only the other companies, which market the similar products, but also all those competitors who tend to compete for the discretionary income of the consumers. Competitive forces have a major impact upon the successful operations of the companies abroad. It is worthy of mentioning the fact that competition in today’s global competitive environment requires an approach to strategic planning that efficiently incorporates a long-term perspective to strategic decision making and resource allocation decisions. In modern global business environment where organizations are supposed to back on new technologies and other competitive capabilities, it becomes complex for the companies to afford large amount of money in one direction only (Guthrie, 2009). It has been observed that most of the countries are becoming a place for competitive battlefields. There has been high intention of the new competitors to go global. The countries are found to be mutually dependent in specific industries because of rising global network. The companies are found to be becoming internationally oriented instead of nationally oriented (Guthrie, 2009). Competition is one of the crucial factors that may impact the successful operations of Dell Inc abroad. It can be analyzed that Dell needs to undertake strategic planning approach when operating in countries abroad. Prior to entering into a specific global market destination it needs to have a thorough analysis of the competitors and thus make its move accordingly. At times, the company may as well decide to operate in countries abroad in order to lower the pressure of competition in the home country. Therefore, Dell Inc. needs to identify if the competition in home market is intense or not and if it would be feasible for it to go global or make local expansion strategies. The expatriate managers of Dell need to have a thorough understanding of the international competition in order to survive in the international market (Guthrie, 2009). Conclusion Most of the companies prefer to globalize because of the benefits operating in the countries abroad. Globalization has been recognized as rising economic mutual dependence of the countries globally via surmounting volume and numerous cross-border transactions in goods and services. It has been found that globalization has introduced new scope for the developing countries. Globalization has helped in enhancement of standard of living of people and has helped in the economic development of the countries as well. However, it has also been found that globalization also has certain harmful impacts. It has thrown new challenges in the form of growing disparity across and within nations, fluctuations in financial markets and has also led to environmental corrosion. The main drivers of globalization are market forces, cost forces, political forces, competition forces and technological forces. These are the factors that force a company to globalize their operations in the short and the long run. It has been apparent from the study that the driving forces to globalization at Dell Inc have been political forces as well as cost forces. When planning to expand its operations in any of the countries abroad, it becomes vital for Dell Inc to consider the socio-cultural, competitive, political-legal factors, natural factors and financial and economic factors. It is through proper understanding of these forces Dell will be capable of succeeding in countries abroad. The productivity and the efficiency of the company will also be enhanced to a great extent by analyzing the factors prior to entering into foreign markets. References Acemoglu, D. & Yared, P. (2010). Trade and militarism: The political limits to globalisation. Retrieved from http://www.voxeu.org/index.php?q=node/4698 Bertucci, G. & Alberti, A. (2010). Globalization and the role of the state: Challenges and perspectives. Retrieved from http://unpan1.un.org/intradoc/groups/public/documents/un/unpan006225.pdf Dell. (2012). About Us. Retrieved from http://content.dell.com/in/en/corp/about-dell.aspx GRIN. (2005). Drivers of globalization: Integration of theories and models. Economics - International Economic Relations. Guthrie, D. (2009). China and globalization: The social, economic and political transformation of Chinese society. United Kingdom: Taylor & Francis. Indian Institute of Material Management. (2012). Globalisation and its effect on SCM. Retrieved from http://www.iimm.org/knowledge_bank/1_globalisation-and-its-effect-scm.htm Imade, L. O. (2003). Globalization (2003). Retrieved from http://globalization.icaap.org/content/v3.1/01_imade.html Nicholsan, B. & Sahay, S. (2001). Some political and cultural issues in the globalisation of software development: case experience from Britain and India. Information and Organisation, 11, 25-43. Oxford University Press. (2010). Chapter one globalisation. Retrieved from http://www.oup.com/uk/orc/bin/9780199213993/hamilton&webster_ch01.pdf Rangarajan, C. (2006). Responding to globalization: India’s answer. Retrieved from http://www.google.co.in/url?sa=t&rct=j&q=%20globalization%20&source=web&cd=11&ved=0CJsBEBYwCg&url=http%3A%2F%2Feac.gov.in%2Faboutus%2Fchspe%2F55GLOBALIZATION%2520AND%2520CHALLENGES%2520BEFORE%2520INDIA-Gen%2520(single%2520space).doc&ei=Nuw5T7jrOo_SrQfgh7DBCA&usg=AFQjCNHrKhxUD2dF0ON9rGC_OG3LKZnHJQ Schmukler, S. L. & Zoido-Lobaton, P. (2001). Financial globalization: Opportunities and challenges for developing countries. Retrieved from http://siteresources.worldbank.org/INTPRRS/Resources/2839_Financial_Globalization-Chapter-May30.pdf Read More