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globalization

Introduction

In this 21st century, the world is becoming more interconnected due to the growth of globalization. Most of the educational institutions are reassessed their mission and responsibilities in education field to compete with other institutions around the world. Information and communication technologies play a vital role in the field of globalization. Recent development in the field of internet and transportation methods made the job easier for firms to operate business globally (Ellis and Williams, 1995). Internationalization and globalization are two vast areas in which transformation is happening from internal expansion to global integration (Jones, 1995). Though many researchers argue that globalization has many advantages however it has negative impacts also. This research explains about the views of globalisation and internationalisation, the concepts which linked dynamically between the two terms and their positive and negative impacts on home countries and host countries. It also mentioned about the different trade theories and economic growth of the countries. This research also covers the different drivers and strategies of globalization as mentioned by Yip and Porter and views of Rangan about globalization.

Globalization and Internationalization

Many authors defined globalization and internationalization in a different manner. They have different views about globalization and internationalization and some suggest that both are same there is no difference between them. Globalization is the process of changing a localized product according to different national audiences (Osarenkhoe, 2009). Internationalization is a process by which organizations can increase their involvement in international business activities (Welch and Luostarinen, 1988). International transactions exist between different countries and their relations are inter-territorial relations whereas global transactions exist within a planetary unit and global relations are trans-territorial relations. By this way global economics differs from international economics and also global politics differs from international politics (Scholte, 2007). According to Mawson (2001), Internationalization and globalization are two goals of economic development for a country. Internationalization is about international trade, international relations, treaties, alliances, etc. and globalization is about global economic integration of many national economies into one global economy through free trade and free capital mobility (Daly, 1999). Due to globalization the shipping industry has been modernized and it made easier to ship the goods in an efficient manner (Wild et al., 2008). Though there were different views exist between these two terms some companies which run their operations globally has succeeded in their attempts. For instance, Apple, worldwide recognized company sells the same iPod models around the world (Jeannet and Hennessey, 1998). Similarly shoe Producer Nike and electronics manufacturer Sony are other few examples who sell their products globally without any changes and sustain in the market (Jeannet and Hennessey, 1998). A company that sells a global but seasonal product like suntan in sun block locations can distribute their products in the northern and southern hemispheres during summer and makes steady their income (Rugman and Collinson, 2006). International trade offers a greater choice while selecting the goods and services. For instance, Finland get cotton from U.S because they cannot grow cotton in their countries due to cold weather at the same time U.S. can get the wood related products from Finland (Wild et al., 2008).

Role of Multinational Enterprises

If a company perform its various operations in different countries and has it’s headquarter in one country they are known as multinational enterprises (MNE’s) (Levy, 2007). Globalization and internationalization are both correlated with multinational enterprises. The contribution from MNE’s is very high in host countries growth by increasing the competition and implementing new technologies (Markusen, 1995). The growth of value chains of MNE operations around the world is to improve the local markets and also to improve the supply chain process for home countries and host countries (Mangan et al., 2008). When any country is politically stable MNE’s would show interest to do investment in that particular country which will increase the Foreign Direct Investment (FDI) and the economic growth of that country (Parker, 1998). Recently off-shore production and outsourcing has great impact in both manufacturing and service sectors which is a new approach to increase the competitiveness globally. “Foreign sourcing can be regarded as manufacturing’s new international economies of scale in a global economy” (Salvatore, 2004). So developing countries like china and India has opened the door for outsourcing and off-shore production to increase their countries economies. Most of the MNE’s are operating their support function offices in developing countries like China and India. For example, operations like payroll processing, customer support, order fulfilments are functioning in developing countries (Ellis and Williams, 1995). Also a global shampoo company can sell identical product around the world by simply changing the design in packaging and for advertising they can simply dub the voice and telecast the advertising in the respective regional languages (Rugman and Collinson, 2006). However one of the Rangan’s seven myths states that any company has money can go global but they should have good reputation in the market. For example, Canon, the copier and camera maker and Dell, low price computer manufacturing company has a good reputation due to the advanced technologies which they are using in their products hence they acquired the market globally. However Whirlpool, the U.S. home appliance company started their operations in Europe but it did not attract the European customers as they attracted in U.S. (Rangan, 2000). Multinationals from developed countries play a vital role in integrating the global economy through globalization however they should involve in promoting human rights, environmental protection, need to eliminate discrimination, and finally should pay the sustainable wages to their employees in the respective host countries (Parker, 1998). Though it has many advantages due to globalization there were some negative impacts also. In some cases developed countries dominate the global market and create unequal relationship between power and information. Due to this unequal trade, poverty and unemployment are increased in poorer countries (Teitel, 2005).

Economic Growth due to Globalization

Due to enormous growth in the international trade, financial transfers and foreign direct investment, the world economy is internationally interconnected (Borensztein, 1998). International trade plays a vital role for the development of poor countries and their integration into the global economy (Crafts, 2004). Due to development of globalization Foreign Direct Investment (FDI) has been increased to ten times in the past 20 years (Sandler, 1997). Globalization eliminates the restrictions on movement of resources between countries and also it minimizes the trade barriers, foreign-exchange restrictions, capital controls and visa requirements (Scholte, 2007). In manufacturing industries outsourcing a job to developing countries has increased the productivity in manufacturing sectors and it has stronger impact in foreign owned establishments (Girma and Gorg, 2004). MNE’s and FDI play a vital role in developing the economy around the world (Markusen, 1995). Globalization and the new emerging technologies are interrelated in improving the economy (Parker, 1998). China has focussed on FDI and at present they are third largest economy in the world however domestic conditions and market size also important for the growth of the economy in a country because political, economic and infrastructure policies are also have big impact for MNE’s in global trade (Markusen and Venables, 1999). During 1990’s China’s trade grew three times faster than the global economy and also between the year 2000 and 2002 their imports and exports rose by 30 percent when the whole world trade was stagnated due to the terrorist attack on world trade centre (WTO, 2003). Though FDI can increase the economic growth of the country however it weakens the codes of labour, health and environmental issues in poorer countries (Sliwa, 2007). Global taxes play a vital role for economic development. A tax on carbon emissions could help in reduce the usage of fossil fuels but a tax on currency trading could increase the instability in the foreign exchange markets (Daly, 1999).

International Trade Theories

International trade can be defined as exchange of goods and services across international borders and it is about application of trade concepts, philosophies, skills and techniques to markets around the world (Jackson, 2008). The trade concepts and philosophies are common in all countries but the approach in which skills and techniques are varied between different market situations by considering environmental, social and cultural differences (Fletcher, 2001). International trade theory explains about product flows between countries which includes both exports and imports (Marin, 1992). International marketing plays a vital role in the process of internationalization. The two factors which are essential in international marketing are push and pull factors. The issues which relates to environmental factors like poor economic conditions, negative demographic trends and regulatory constraints are categorized under push factors. For instance the limited growth opportunities in domestic market will push the company to move out of this market and to concentrate into international markets. The pull factors will attract companies to enter into new markets in overseas (Fletcher, 2001). For example, in 1970 push factors like unhealthy operating conditions and restricted commercial opportunities in the European environment and pull factors like attractive social, economic and regulatory conditions in United States encouraged European companies to do international marketing activities in North America (Fletcher, 2001). So internationalization plays a vital role to perform the international marketing effectively and efficiently. Further in order to support the internationalization concept different trade theories has been developed by different authors and they are as follows:

Mercantilism – European nations developed this theory from 1500s to 1700s.
Absolute Advantage – developed by Adam Smith in 1776.

Comparative Advantage – developed by David Ricardo in 1817.

Factor Proportions Theory – developed by Eli Heckscher and Bertil Ohlin in 1933.

International Product Life Cycle by Raymond Vermon in 1966, 1971

Porter’s Diamond Model

Porter (1985) mentioned about the export and import activities which need to be followed by a country and he integrated some elements to different trade theories.

 

Source: Rugman and Collinson (2006).

Factor Conditions

According to factor proportion theory a country should make use of their resources such as labour force, natural resources, climate, or surface features effectively to export the products to host countries. Porter (1985) suggest that a country should upgrade or adjust its factor conditions and also need to consider advanced factors such as effective skills of different workforce and technological infrastructure. For instance, Netherland’s the largest exporter of flowers has set up research institutes in the field of cultivation, packaging and shipping of flowers. Similarly Japan and U.S. has an advantage in the field of auto production and airplanes respectively. Taiwan and China are the competitors for Japan and US but still lacking due to availability of natural resources, iron ore in their countries however these countries developed their country economy by effective productivity.

Demand Conditions

Porter (1985) states that countries competitive advantage can be strengthened more if there is huge demand for its local goods and services. Sophisticated domestic companies can survive among the competitors. For instance in U.S. consumers helped to open a fast-food industry and once the demand reaches worldwide, U.S. franchisors like McDonald’s and Pizza Hut have entered the market. One of the seven myths of Rangan states that before a company starts a business in overseas market they need to analyze the market demand first whether it is a manufacturing sector or service sector else it would be difficult to sustain (Rangan, 2000). For instance, Blockbuster video, US video rental operator and Sodehxo Alliance, the French in-house catering company has analyzed the market demand also has good reputation started their operations in overseas market and succeed in their attempts.

Related and Supported Industries

According to Porter (1985) supplier should share the relevant information to the producers to maintain their competitive position. For instance, shoe producers in Italy will share their knowledge with leather manufacturers about the information which is relevant to be competitive in the market. By this way each industry can increase their productivity and competitiveness. This type of sharing information is mutually beneficial to both parties.

Firm, Strategy, Structure and Rivalry

Managers are critical source to manufacture products with high quality and to deliver the same to the customers in order to increase the market share of the firms. The different strategies and implementation methods by the managers to meet the above conditions are essential to sustain in the market.

Drivers of Globalization

The factors which set the direction of industry pattern are referred as drivers. According to Yip (1989), the drivers can be classified into four types and they are market, cost, government and competition. These four drivers can be collectively called as PEST analysis.

Market Drivers

It focuses on the current market standard and distribution of goods to customers according to their requirements. For instance some food products have gained international standard and some products have gained national standard like rice and pasta (Jeannet and Hennessey, 1998). Distribution channels needs to taken into account due to the existence of different distribution channels in different nations.

Cost Drivers

The cost for transporting goods to different parts of the world is an important factor. Different economies of scale motivate the firms to attain high volume sales and to spread total costs by reducing costs per unit (Powers and Loyka, 2007). Globalization is an effective tool to utilize the advantages by different scale of economies. Due to globalization competition increases across firms and it motivate each firms to implement some new products in the market which will increase the research and development cost for the respective firms.

Government Drivers

Governments play a vital role to spread liberalization in world trade. Many new products and services are entering into overseas markets but in some cases due to the standard of national market new products become outdated. Social changes depend upon customer choice and their requirements. Recent development in the field of communication, information, travel and transport has greater impact in the field of globalization. Advancement in satellite communication allows information to get transmitted around the globe very fast and cost effective. One of the seven myths of Rangan states that due to the advancement of technologies in software and remote diagnostics distance is not a matter anymore but national culture is significant to run a company in overseas. National culture plays a vital role for a company to maintain a healthy relationship with its customers, local governments, competitors, shareholders and financial institutions (Rangan, 2000). For instance, Lincoln Electric holdings, manufacturer of welding machines and Otis, manufacturer of elevators and lifts are failed in overseas market due to the lack of cultural behaviour.

Competitive Drivers

As firms focus their operations globally competition will increase due to the presence of national markets in the respective countries. In order to compete with each other different firms employs different competitive strategies. For instance, to broaden the scope of food industries globally the importance of local brands and distribution channels are very essential. The entry of new competitors to an industry has greater influence in the field of globalization.

Porter’s Value Chain Analysis

A process of combining primary and secondary activities of a business to increase profit margins by effective manufacturing of goods and services is known as value chain. Porter (1985) explained about the value chain process with the help of the below mentioned diagram. From this diagram he explains about different operations which exist in manufacturing and distributing the goods to the customers. Initially a firm should concentrate on inbound logistical issues like receiving, material handling and storing goods in warehouse activities. Then operational activities will come into play by mixing the estimated quantity of inputs to give the required quantity of outputs after transformation process such as machining, assembling, testing and packaging. Finally a firm should distribute the goods to the customers by through marketing and sales. In order to maintain a good reputation, a company need to perform effective customer service after sales such as repairing the goods, product adjustment, training and parts supply to the customers. The support activities in the value chain will come under human resource management and procurement. MNE’s can use the above mentioned primary and secondary activities to increase the value of the goods and services. IBM is most effective and sophisticated firm in international market and they have implemented these value chain activities in their business as suggested by Porter (1985).

Strategies of Globalization

Setting strategies for a global business requires making choices for a number of levers. According to Yip (1989), the most important steps to develop global strategies are: developing the core strategy for the home country, then internationalizing the core strategy through widespread of international activities and finally integrating the above said two strategies worldwide. As firms increase their product range globally strategic decision making process plays a vital role to sustain in the market. The different strategies needs to consider are:

Market Participation

Low cost supplier will sell their products at lower prices than its competitors and gets more profit margins. To compete with the local rivals firms who run their operations globally need to change price and promoting strategies often (Mintzberg et al., 2003). Also if a company fails to consider factors like religion and sexual values in host countries they will face serious consequences and it may force them to move out of the market.

Value Added Activities

Firms need to consider different distribution channels in respective countries in order to resolve the complexity issues in supply chain activities. Moreover movement of goods across national borders requires more documentation to keep track of supply and demand (Mintzberg et al., 2003). The instability in currency value creates uncertainty of sourcing in supply and demand and firms need to protect themselves from excessive variations in their trading currencies. Firms need to recruit personnel with relevant skills, provide effective training to perform international operations and to integrate different nationalities and cultures within the business (Gronroos, 1999).

Operations

Firms should meet the demands of customers in different regions under different market situations. It involves more complicated organizational structures to manage both the product and geographical scope of the business (Mintzberg et al., 2003). The production and distribution of goods across national markets increases the information and co-ordination requirements to run the business in an efficient and effective manner. Due to the increasing internationalization in manufacturing and services sector increase the competition among the firms worldwide (Reiner, etal., 2008). In order to sustain in this market firms should choose either becoming one of the few large competitors to service the market worldwide or being a small-scale competitor by focussing one or more number of smaller domestic markets.

Conclusion

Globalization and internationalization should be considered as a global activity rather than as an activity of firm’s involvement in overseas country. From the above research it is clear that a firm should critically analyze the above mentioned issues, drivers, strategies which relates to globalization and internationalization before it goes global. Though porter’s four factors are essential to successfully run a business globally, governments and NGO’s play a vital role to increase the economic growth of a country and to increase a standard of living among people through globalization. For instance McKinsey & Company an international agency explained how the government in India could increase GDP growth. In earlier days large firms produced goods mainly in their countries and they exported goods to the world by having most of their wealth in their countries itself to improve the home countries people. But due to the development of globalization companies has taken global perspective about where to operate their production activities. Large and small organizations have started to relocate or outsource their production activities to cost-effective locations (Wild et al., 2008). One of the seven myths of Rangan states that Companies are shifting their operations to developing countries where the labour cost is cheap however managers know very well that in order to run a business successfully unit costs should be lower than wage cost (Rangan, 2000).


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