The Major Globalization Processes at Work in Todays World Economy - Coursework Example

An Examination Of The Major Globalization Processes At Work In Today’s World Economy And Their Impact On The International Business Environment Introduction Today, the world has become closer than ever before in terms of information, behaviors, consumption patterns and business dealings. It is a common sight for a Chinese made toy or a Sri Lankan made dress to be in a famous US or European department store racks while to see pricy Rolls Royce gliding along the Shanghai city streets. Coke, MTV, Star Bucks and McDonalds, Nike are some of the global brand icons of globalized market place. It is quite common to see a manager from Germany working in a factory site in China or an American working side by side with Saudi Arabians on a giant chemical refinery project. Similarly, products today are produced with raw-material and labour drawn from different parts of the world (Metthee, 1994). These are the manifestations of the process of globalization at work. Overview of Globalization Globalization generally refers to the “process towards a more integrated and interdependent world economy” (Hill, 2003, p 6). It is reflected in the changes in societies and the world economy that are the result of dramatically increased trade and cultural exchange. The process of globalization also impinges upon the international trade in terms of reduced restrictions on trade and increased freedom of movement in goods, capital and manpower. The developments achieved in transportation industry, telecommunication and IT industry as well as legal and banking systems have facilitated such free movement and the dispersion of the effects of globalization to a high level across remote corners of the world. Globalization vs. Internationalization It is important to note the differentiation between a global enterprise and an international firm. An international firm merely engages in business activities which cross national boundaries or involves itself in businesses in two or more countries. The International organization is firmly rooted within its own nation. Even if they establish manufacturing and other operations in various other countries, the norms, practices, policies and the culture of the head quarters will be applied in to the branch organizations. By contrast the global firm views the whole world as being a nationless, borderless market place where goods, capital and people have to move freely. However, one should not believe that globalization is a process restricted to large multinational firms and transnational alone. An example is G.W. Barth, a coco bean roasting machinery company that had managed to capture 70% of the global market with just over 65 personnel (Holstein, 1991). Market Globalization Globalization can be seen within the perspective of two main components of markets and globalization of production. In the case of globalization of markets, traditional distances and separate markets are increasingly merging in terms of tastes and preferences of consumers in different nations. Even the values and attitudes being held by consumers towards various social outlooks of products are slowly but surely converging as global brands invade even the most isolated markets and tantalize the consumer’s mind with innovative and customized marketing communication messages. The process of market globalization has succeeded to a great degree with international managers juggling the dilemmas of globalized offers with customized localization to tailor make global products to suit local tastes. MacMaharaja with mutton instead of the beef burger served in Indian McDonalds is an example of such customization by global brands (Armstrong and Kotler, 2000). Production Globalization Globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in cost and quality of factors of production. The aim of this is that companies hope to improve upon their quality and functionality while reducing the cost structure, thereby allowing them to compete more effectively (Hill, 2003). The location advantages, the potential for greater value addition, the learning curve advantages etc. all to be considered in making choices on where to source the goods and raw materials for production. For example, even a simple lead pencil is now produced with globalized production. Dixon Ticonderoga, one of the oldest of US public companies held on to their US only raw material for many decades but resorted to globalized production policy in the face of aggressive cheap Chinese competition. Today, the famous Dixon pencils known all over USA are produced in China and marketed globally (Hill, 2003). Major Processes of Globalization Considering the key processes within globalization, slackening of trade and investment barriers and the deepening economic integration are notable ones. Secondly, the vast Foreign Direct Investments taking place across the globe and opening up of economies to facilitate such FDI activities is another major process taking place within globalization. The technical development should also be recognized as a major process in globalization where transportation, IT and telecommunication. Lastly, there is also the human migration as well as outsourcing involved to facilitate the globalization process which is closely aligned with the movement of capital within the global economy (Forsander, 2002). Reduced Trade and Investment Barriers Considering the ongoing process of reduced trade and investment barriers across global economies, World Trade Organization can be granted much recognition for the achievement of such open international trade. Under the compelling guidance of WTO, even orthodox and closed economies such as Saudi Arabia, India and China has emerged from their constricting international trade and FDI policies to be an aggressive part of the globalization. There is greater level of international trade and reduced domestic industry protection in current world, allowing for greater economic interaction as well as lower priced goods to reach the global consumers. This is in fact one of the main arguments proposed by the proponents of globalization. The level of protectionist barriers have come down drastically in countries such as India and this opens up market opportunities of unprecedented scale and volume to be exploited by international firms. According to studies, the response of international firms to the relaxed FDI policies has been massive in India (Nayak & Chakravarti, 2008). WTO’s current agenda is to propel its member nations towards zero duty agreement whereby the foreign trade can maximize its absolute cost advantages. Increased Global FDI Activities Facilitated by the above relaxation of investment policies and restrictions, FDI activities have risen dramatically. In recent decades the process of globalization has drastically increased the level of international collaborations such as International Joint Ventures and multinational operations (Farrell, 2004). During the early part to the later part of the decade, the FDI projects have grown by approximately 11% annually. Such investments fueled the process of globalization and are at the heart of increased cross cultural interactions from negotiation stage to venture implementation and management stages. Deepening Regional Integration Within the process of globalization, one could also note the regional integration taking place, with continuing harmonization of large number of nations within regional groups. The integrations are basically in economic forms but the integrations of the likes of EU encompass further factors than the mere economic merging such as social and cultural integration as well. Free Trade Agreements and regional treaties such as South Asian Association for Regional Cooperation (SAARC), the Latin American Free Trade Association (LAFTA), North American Free Trade Agreement (NAFTA) are few examples of the integration taking place within the globalization process. These treaties and free trade agreements facilitate greater mobility and viability of goods and services transfer between the member countries (Hills, 2003). Along with such regional integration come the deepened ties and relations among members which facilitate greater cooperation. It is also evident that such cooperation also extends beyond regions where different regional blocks are setting up joint councils and other bodies to facilitate what is being termed as “open regionalism. Advances in Technology The major advancements in technology also contribute to a key process within globalization. The wise spread use of the internet, the developments in communications technologies facilitating digital images and multimedia massage transferring has facilitates communications and collaborations between people around the globe. These communication and IT developments have also lent to faster and secure modes of fund transfers between global locations, and allowed the banking and money market to support the ongoing globalization. Speedy and reliable transport methods have reduced lead times and made selection of production locations and markets which are located far away. The developments in legislation are currently gearing itself up to protect the copy rights, patents and intellectual rights of companies engaged in global operations (Hill, 2003). Off-shoring Process An offshoot of the ITC development is the trends in outsourcing which is sweeping the global market. McKinsey & Co, predictions indicate that offshore outsourcing will rise at a staggering rate of 65% over the next few years. The year 2008 saw figures at $147 billion (Marshall, 2003). Among the most active of industries involved in off shoring are the information technology field (IT) where there is now a growing preference for Western countries to offshore outsource their work to some of the prominent offshore destinations such as India, China, Mauritius, Vietnam and Sri Lanka. The prime driver of this trend is the low costs associated with the Asian offshoring destinations supported by good infrastructure and high caliber human resource at low costs. Such outsourcing brings vendors and supplier firms from across the globe together in various business models of outsourcing ranging from direct service supply to onsite collaborations by the Business Process Outsourcing BPO firms. Impact of Globalization Process on Business Having considered the major forces in globalization, it is also important to appreciate the impact which these processes will carry on business international business environment. It should be noted that organizations are not simply affected by the process but they also shape the globalization process. The combined effects of the organizations pursuing varying objectives stimulate, facilitate and sustain and extend the globalization (Weiss, 2000).There are some inherent characteristics resulting from this process which includes the rapid phase of change in the business environment, the large and growing number and diversity of participants, and the increasing complexity of challenges being faced by managers today, especially due to the uncertainty associated with global business. Organizations of all sizes and scales are being affected by the process of globalization and will therefore need to gear up to the challenges posed by the process. Process of economic integration and FDI expansions will increases the opportunities for new markets, yet it requires the producers to produce world class products at cheap costs and sell at even a cheaper price. This drives players in the international business arena as well as domestic market players to be extremely efficient and cost effective in their operations. Globalization also brings in the challenge of having to understand and manage the diversity of ethnic and cultural difference of the global markets and the global work force. Increased migration of workforce and the global collaborations facilitated by developments in ITC and the outsourcing processes will produce a multi cultural global workforce. Global businesses need to revisit their internal policies and strategies in managing diversity in work force. The need for cultural literacy becomes critical and “Cultural expertise is now mentioned as a central competitive factor for corporations. The farther the corporation extends itself and the stranger the operating environment, the more crucial is the cultural competence of the corporation’s key operators” (Forsander, 2002). With the increased integration within countries and regions, and the changing landscape of business fueled by the various in the context of globalized market place, the traditional business models are changing and adapting within the global business environment. Observing some of the organizations that are coping and competing effectively with the globalized environment indicated that adapting and developing hybrid business models may be required, especially in view of the diversity of environmental factors in a global scenario. Another challenge is that organizational success is increasingly being derived from intangibles which the organizations cannot own. The role of intellect and knowledge plays a key role in today’s global success and these can neither be owned nor controlled by organizations. As such traditional business concepts are increasingly becoming redundant in today’s global scenario setting. The types of managerial competencies are also impacted by these processes of globalization. Global managers are being called to exhibit more generalized expertise, teamwork and partnerships skills, contrary to the traditional hierarchical manager’s specialization skills and individual performance. The new era global managers need to multi tasks and be extremely IT savvy. The cultural sensitivity and adaptability are considered the high value currency in the global managerial field. In conclusion, it is clear that a large number of factors are at play within the process of globalization and that these processes individually and in combination impact the global business environment. International managers need to consider these processes and manage such influences on the environment which will in turn affect the individual organisations. Reference. Annika Forsander (2002). Immigration and Economy in the Globalization Process The Case of Finland. Sitra Reports series 20. Armstrong, G. & Kotler, P. Marketing: An Introduction. 5th ed. Singapore: Person Education Inc. 2000. Farrell, D. (2004) ‘Beyond off shoring: assess your company’s global potential’, Harvard Business Review, Vol 82 No 12, pp 82-90. Holstein, W. J. “Why Johann Can Export but Johnny Cant” Business Week. Nov 4. 1991 pp.64- Hill, C.W.L. International Business: Competing in the Global Marketplace. 4th ed. New York: McGraw-Hill. 2003. Metthee, I. 1994. Playing a Large Part, Seattle Post Intelligencer, April 09 p 13. Nayak, A. J., Chakravarti, K. and Rajib, B. (2008) “Globalization Process in India: A Historical Perspective Since Independence, 1947.” South Asian Journal Of Management Vol. 12. Marshall, J. (2003). “Off shoring drive for savings accelerates’, Financial Executives, Vol. 19 No 6, pp52. Weiss, J.W. 2001, Organisational Behavior & Change, 2nd ed., South-Western Collage Publishing, Ohio. Read More