A study into forces causing globalization


Productivity and profit are the keys to management effectiveness. Today's dynamic business arena requires new ways of doing things as well as the diverse business environments. Managers have to find the best employees; the affordable materials and the controllable supply chain; and most importantly - costs saving or in other words: maximize the profitability. When the organization decides to move their business units globally, there will be increasingly level of business planning for global market and trading without boundaries.

For example, there are trends that many organizations would increase their globalization through outsourcing their information systems to low wage countries. With the outsourcing, it could help the organization to get into the new market a lot safer and quicker. An outsourcer can relieve the organization's duality of the fixed cost infrastructure that the financial institution has inherited and turn it into a variable rate service. The advantage of a vendor coming in short term is that the organization does not have to inherit a huge cost. Instead the outsourcer will take the risk and put the cost on its books. This outsourcing model mitigates the organizations' risk by taking away any responsibility that would have of disposing of unneeded assets after the overall conversion is done. This also helped DBS to cut its overall training costs dramatically while adding synergy to its course scheduling, facility arrangement and instructor availability. (Osei-Brysona & Ngwen, 2006) The employers can, then, further reduce their operation cost by most these functions to other low-wages countries. Many companies relocated some of their supportive functions like Call Centers, Data input procedures to out of high wages regions, which is referred as offshoring. The technologies were able to provide flexible and scalable standard information services across the region and supported the organization achieving better economies of scale, reducing unit costs, and becoming a cost-efficient service provider with immediate increase in finance performance.

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There are certainly growing figures for the move of globalization, especially for developed countries. As for developing countries, globalization helps their economy and living standards. However, if wrong globalization strategy was implemented, organization will be suffered from great losses. Therefore, organizations should not just blindly follow their competitors to move globally, as quickly they can, without proper planning. The managers should take note on all the related forces and plan appropriately. Likewise, when a company is adding other regions, multi-cultures, the diversification/integration, overseas knowledge transfer, or staff's new overseas assignments will become new influencing factors. This paper will continue with analyzing different forces and its good or bad implications.

Chapter 2: Why and why not globalization?

Globalization is referred to an organization is increasingly taken place in global market; integrating the economies around the world and trading without boundaries. There are several trigger points to the growing of globalization. Many organizations have experienced or witnessed on financial crisis (or namely tsunami) or bubble economy burst - everywhere in the world. From governments' point of views, they would try all possibilities to save their economies; like in Europe, they have established European Union (EU) together with common currency - euro and used across many European countries. Globalization is something that cannot be avoided and can be very challenging. No matter this is a chance or a risk, organizations can be "upgraded" to multi-national through globalization.

Likewise, population in many developed countries has shown to be declined. For example, "In Japan, the population is estimated to decline to 95 million in 2050 (from the current 120 million)" (Kyodo-News, 2010). If business only kept locally within the country, the domestic demand may not be able to support the individual company in terms of operations and developments.

Other countries, the government would encourage the organizations to relocate their factories outside to the developing rural countries in order to let their own lands not to be polluted and save their environment.

Further to globalize the required supply chain, organizations can eventually lower the production and material costs tremendously. According to Bittner (2006):

It is estimated that 55 percent of all raw material for American manufacturing now is sourced outside the US. This is in comparison to only 10 percent to 12 percent just a few decades ago. Statistics like this highlight the growing importance of globalization.

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In some literatures, globalization would mean laying-off staff and shutting-down factories in developing countries; moving them to poor developed countries in order save cost; diverging the staff by doing business around the globe; and even having more semi-skilled offshore staff instead of full-skilled local staff (Roberts & Hite, 2007). For example, many clothing factories have moved their production lines or the source of materials to Indonesia, Vietnam and China. The living standards are far behind many developed countries. Together with the low wages and less constraint on working hours, these turn out these developing countries attractive to the foreign investors. On the other hand, consumer is expecting companies will lower their products prices due to global competitions.

2.1 Technological

With the use of information communication technology (ICT), financial markets around the world can be integrated within a few sub-regions. This also allows the developing countries' products and services to outreach to other developed countries. Sometimes, it could help the developing countries to live in an advanced technologically environment and compete with the international market (Bankole, Brown, & Osei-Bryson, 2010). Countries can now communicate directly without barrier; and globalization has extended the interdependence of economies around the world through the technologies. Those rural countries can now communicate with the rest of the world electronically. International news broadcasts can be delivered through satellite, Internet and cables.

Domestic companies can have a faster and quicker way to meet their buyers and sellers globally through B2B e-Commerce. The companies can get instant access to thousands and thousands of prospective buyers and suppliers; which give higher opportunity to expand businesses to new customer and suppliers. Designs and schedules can now be shared with suppliers and parts can be delivered with "Just-In-Time". Therefore, administrative cost will be lowered since the supply chain can be integrated to B2B and cover every stage at the selling process including quotation, negotiation, billing and shipment tracking. This reduces the selling cycle, plus lower process cost by automating sales and customer support functions; together with electronic processes through web, paperwork elimination (green peace!). Product cost will be reduced, as price transparency is increase due to the raise of competition among suppliers. Addition to the process, delivery tracking and order approval, there will be enormous time savings from ordering to delivery.

For example, Music, it is now delivered in digital format. Music can be sold either through CD, or download through Internet. This is sure to make our buying habits much closer without boundary through globalization. Patents (invent), copyright (books, Music, movies), intellectual property and trademark (branded products, logos) suppose to protect the author, artist, publisher and scientists to control the use and reproduction of their original works. However, there is copyright issue problem in P2P file sharing, people are now downloading or updating the music on the sharing network without paying those songs. This cause investors not willing to create new music, as the online marketplace is providing the product free of charge. The artists were rewarded absolutely nothing for their products and affect the publishing businesses. Those websites even provide good functionalities like searching, downloading, uploading, file trading and file distribution. The US government has indeed setting-up infringing copyright laws on a huge scale in 2010 and also through the Recording Industry Association of America (RIAA) to take actions. Like Grokster, the owners and operators finally agree to shut down operations to settle the three-year-old piracy case with nation's major record companies, motion picture studios and music publisher in Nov 7, 2010. (Billboard, 2010)

2.2 Social/Financial Markets

With the globalization, transportation business has growth tremendously in the last decade. Trading across regions, exporting/importing various products through ships or flights has helped the individual countries to outreach to the others. Like in Hong Kong, its international airport served up to 40 million passengers annually. (HKIA, 2011) With large number of visitors in/out the countries, this help-out the employment rate by bringing in job opportunities like hiring staff who understand foreign language. The citizens can learn different cultures or living standards from other countries. However, the more the citizens learn from other countries, some governments will receive the pressure for liberalization (some even called it as "American standard").

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However, Scheve & Slaughter (2002) has pointed out that employees will feel insecurity when their companies extended globally. While the job responsibilites have been distributed, the employees may feel their works will eventually send to other countries and get replaced. Especially, those rountine tasks, like data entry or even software programming, are been largely outsources/relocated to China and India. Further to this, privacy and security of information cannot be compromised. The unemployment rate for these workgroups will be increase enormously within the country and labour unions will continue to fight with the local government policy. Some governments may not like the way for conforming to the American standards, since it may cause the loss of original culture. the management has to planned with concerted effort on how the organizations can move toward the globalization state, since globalization involve change of quality, productivity and operation decentralizations.

In additional, the financial markets also become more integrated and globalized throughout the world. Investors and in-country governments are becoming more concerned about financial impacts from other markets, in order to avoid the undesirable destabilized market situation. In fact, the co-movement of the stock markets around the world has already received specific attention in several finance literature which include finance market characteristics for emerging market. For example, Stock synchronicity is one of the important characteristics of the market economies, especially for emerging/developing markets (for example, China). It has been showing that the synchronicity is closely related to economic development and stock market stability for these countries. This also has further implications for asset pricing, noise trader, investors, and even includes the in-country corporate governance mechanisms. The very first article from Morck (2000) has argued that corporate governance mechanisms are more effective when the stock synchronicity is lower. Many literatures have emphasis the use of synchronicity to tracks the stock market together with its measurements. Below Figure 1 & 2 are illustrated that: with the poor investor protection in China (equivalent to emerging market), it discourages informed trading, which, in turn, leads to high synchronicity.

Figure : China Shanghai Composite Index (000001.SS) and Bank of China (601988.SS) comparison during Finance Crisis [Source: Yahoo Finance]

Figure : Citigroup, Inc (C) and Dow Jones index comparison during Finance Crisis [Source: Yahoo Finance]

Gul, Kim, & Qiu (2009) have summarized this behavior into two primary sources:

While many emerging markets have disclosure regulations of similar quality to those in developed markets, these regulations are often not fully enforced.

Corporate ownership structure in emerging markets is well characterized by concentrated ownership by founding family members or government, divergence between cash-flow rights and voting rights, and firm affiliations with large business group via cross shareholdings.

It can be seen that the economy around the world has already been bonded together without barriers. For example, Investment Company in Hong Kong can also buy the stock in United State and Australia. There are quite a number of organizations looking after for regulatory purposes including: APEC (Asia-Pacific Economic Council) , ASEAN (Association of South-East Asian Nations), BINGO (Business International Non-Government Organization), EEC (European Economic Communities), EU (European Union), FAO (Food and Agriculture Organization of the United Nations), INGO (International non-government organization), NAFTA (North American Free Trade Area), OPEC (Organization of Petroleum Exporting Countries), WTO (World Trade Organization)

Many organizations would provide overseas assignments for their staff, in order to oversee their offshore facilities. However, some managers may tend to assume that they know what change means and are relatively confident in their in their individual abilities to acknowledge and interpret it. If the manager is on a foreign assignment managing a foreign workforce, he/she will be managing an ethnically diverse team and facing with a challenge of dealing with people whose cultures, attitudes and aspirations maybe very different from the manager. This is where the ability to explain, predict and control behavior will become very necessary. Today, many citizens pay lots of attention on their human rights and freedoms. They were found to be hesitant to cast aside their cultural, ethnic, racial, gender or religious differences in an organization. Organizations are faced with the reverse problem where they have to be more accommodating of the differences in the workforce. If any organization/management tries to ignore the organizational behavior, it can easily spell disaster. Therefore, organizational behavior needs to be addressed so that employees can work well together and business can run smoothly. Managers are necessary to establish a structure of relationships that dictates how members of an organization work together to achieve the organization's goals; encouraging from managers to employees to do a good job and coordinate individuals and groups so that everyone is working to achieve the organizations goals.

Chapter 3: Apple Ipod City

There is certainly a tremendous growth rate on the Smartphone market. Reference to Cheng (2011), there are increasing number of consumer purchasing smartphone around the world and millions of units were shipped annually.

Figure : Worldwide smartphone market share Source:Canalys (Cheng, 2011)

Globalized the supply chain becomes the natural part for today's expanding consumer markets. Companies are already forced to follow this dynamic needs of the growing markets together with the new consumer segments in the world. (Martich, Monaban, & Chandra, 2008) With the attractive prices and products, this help the company's stocks as well as sales revenue. Therefore, all costing activities are required to idenify, like labour and cost for each task. A list of cost pool will then be setup for each identified activities and based on the activities to develp the cost drivers. These cost drivers include machine hours, direct labor hours, number of setups, number of products, number of purchase orders, number of employees and number of square feet. This is needed for allocating the costs by type of activities, as to assign manufacturing, selling, and general and administrative overhead. When we look at how a Iphone4 is created, it can seen that the design involve chipsets from multiple vendors around the world which was listed below:



Applications Processer




Radio Frequency

Infineon, Intel, Skyworks, TriQuint



Interface &Sensors

Texas, AKM

NOR flash




Figure : Bill of Materials (BOM) Estimate for the 16Gbyte Version of the iPhone4 (Keller, 2010)

In terms of manufacturing, it is a well-known fact that Foxconn International holdings, a large, secretive contract manufacturer, produce the Apple iPod and the iPhone in their China Factories. From recent newspaper, the factory workers were making as low as RMB$900 per month and living together with 200,000 other workers within the plant. The Foxconn's managers are putting all their employees to be "machine" type. Strict rules are setup within the factory. e.g. conversation on the production line is forbidden, bathroom breaks are kept to 10 minutes every two hours. In many people's point of views, Foxconn may be prohibited by the International Labour Organization related to the free of human rights violations. On the contrary, Foxconn does not treated according to the Chinese labour Law even with the investigation by Apple itself (McNulty, 2006). On the other hand, the cheapest possible labour cost does helped a lot on lowering the total product manufacturing cost (Blass, 2006). In fact, Apple is just one of the thousand foreign companies that use China as a outsource facilities to manufacture their final goods. This is pity that the China workers only receive low wages with very long working hours (like 15 hours per day). Ironically, with the increasing competition and low cost expectations from consumers, this make China becomes an attractive place for outsource manufacturing business; as to deliver product at lower prices.

Chapter 4: Conclusion

In order to sustain the competitive advantages, many organizations have no choice but need to move their company globally. Cooperating with the new technologies, the world can be communicated without boundaries around the clock. This also enables the integration of finance markets with different countries. With the free market and world trade, it creates wealth to developing countries from trading together and share experiences. However, it also shares the ideas of promoting democracy, as well as human rights awareness. This may eventually change the whole nation, which government may not be able to foresee.

The most commonly seen globalization is supply chain that has been reaching over several countries and continents. Organization would outsource extensively and grow their business coverage at the same time with the needs of flexibility and better cost structures. With the low cost expectation from consumer, the management has to outsource the production line to other developing countries (like China and India) in order to lower their cost and meet the competitions. When dealing with the unexpected situations (e.g. local labour law), managers have to react quickly and take the right course of corrections. Since other countries' cultures, social, policy and rules are different; this would best to fully understand with detailed plans including risk assessments before taking action.