How Globalization Transformed The Business Structures


Globalization has many definitions depending on how it is been referenced. According to the International Monetary Fund (IMF), Globalization is the process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies (UK Parliament, 2009). Adrian Wood (1998) highlighted globalization as the result of the falling of barriers to international economic trade, particularly between developed and developing countries. Krishn G, (2006) termed globalization as the integration of economies of the world through uninhibited trade and financial flows. These definitions highlight the key aspects of globalization which is the reduction or elimination of policy barriers and the need for economical growth. Over the last two decades the push for globalization has always been an important subject for economic growth. The mid-1980's marked the increase in capital flow among the industrial and developing countries triggering the start of financial globalization (Eswar S. et al, 2003). This mostly has been fueled by the advances made in technological developments as well as the increase in trade and investment, making globalization to be widely embraced as a positive force. A powerful force which has no doubt shaped the post-war world. Studies have shown that transportation and communication in the private sector and reduced policy barriers to trade and investment in the public sector have been the driving tools behind globalization (Jeffrey F. et al, 2006).

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No doubt globalization has had an enormous impact on the way businesses operate, as studies have shown. Modern-day businesses are now able to operate across international borders which have resulted in the flow of goods, services and labor. Globalization has the potential to benefit both the industrial and the emerging countries. For the developing countries it provides a means through which poverty can be reduced. This in turn could provide potential opportunities for developed countries with new markets for investment. To meet the demand of such changed, businesses have had to develop new strategies in response to the push for globalization.

Drivers of Globalization

According to the Department for Business Enterprise & Regulatory Reform (2008), globalization has mainly been driven and facilitated by the following factors:

The adoption of more open economic policies has seen an increase in international trade in goods and services, and cross-border flows of both capital and labor. The emergence of developing, low-wage economies has seen countries like China and India becoming one of the world's economic powers.

Advances made in Technology especially in field of Information and Communications Technology (ICT) - which has sharply lowered transport and communications costs and has increased the tradability of goods and services.

Adoption of more open economic policies

As Simmons B, (2004) pointed out, the spread of liberal economic ideas and policies throughout the world have been for the past three decades, one of the most important developments on a world stage. Since the end of the Second World War (WWII) many countries have progressed to a more open approach with other countries. According to Fujita M, (2001) recent studies have shown that countries have moved to adopt the open economic policies to promote their domestic economic efficiency and productivity, and provide an environment that is export and foreign investment friendly. Studies have also suggested that the more open economies tend to grow faster. Alongside the benefit of economic growth associated with the adoption of the open door policy, consumers are also exposed to the benefit of having an increase in choice of goods and services as a result of lower import and export prices. For many organizations, this reason has been the forefront for the global expansion of their business to meet the ever growing demand of consumers. Before free trade boom, companies once exported and imported through agents or distributors, but as a result of globalization many organizations have had to establish their own offices in foreign markets. In the last two decades more companies have expanded their business structures to niche markets as more trade agreements between countries remain steadily on the increase. The open door policy has also lead to the increase in air travel destinations around the globe making those destinations more accessible to businesses.

The recent years has seen an increase in mergers and acquisitions between companies from different countries, especially between companies from industrial nations and those from developing economies as a result of globalization. According to the Office of National Statistics, mergers and acquisitions involving UK companies with cross border companies rose to its highest level of 681 in 1989 initially from 431 in 1987. This has been on a steady level till 2009 which shows its lowest figures of 118. The impact of such mergers and acquisitions has lead to changes in the organization's design, structure and processes particularly with respect to employment and other labor issues. Globalization has also brought about an increase in the outsourcing of non-core services to companies in low-wage economies. The division of labor has seen a raise in developing world countries such as India and China specializing as providers of low cost labor and commodities while the developed countries such as the USA and the EU concentrate on the skills needed to develop high-value goods and services.

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This has led to an increase in the development of manufacturing facilities in locations with low labor costs, and the evolution of global sourcing of information technology (IT) and other non-manufacturing business processes and functions. These have enabled businesses to operate almost all their business activities on a global scale, with a high degree of virtualization. Many companies have generated substantial savings as a result of out-sourcing some of their services by transferring the activities to other companies in more low-cost economies. Out-sourcing gives the business a better position to achieve its financial goals because it is able to purchase only the Services it requires at any given time. As side from the financial benefit, out-sourcing arrangement with an external supplier has shown to better enhance the company's ability to carry-out transformational changes and achieve its non-financial business objectives. Globalization and the benefit of out-sourcing as studies have shown means businesses can now better respond to market pressures and opportunities in order to take advantage of new opportunities and markets.

Advances made in Technology

The technological revolution of internet has made globalization even more possible by providing the technological infrastructure for global economy. The last decade has seen a major growth in the number of people using the Internet and the impact this has on businesses. According to the Office for National Statistics (2009), 18.31 million UK households in 2009 have access to the Internet which reflects an increase of 1.85 million households since 2008. Before the development of the Internet, information and data were stored and transmitted in separate systems. Today most of these systems now converging onto the Internet. This development has changed the way organizations carry out their business operations which has influenced the organization in terms of profitability, competitiveness and growth. The availability of new communication technologies such as wireless and mobile technologies (laptops, Blackberry, Smart-phone and wireless networks) mean that business workers and customers are no longer restricted to operating from just one location. This gives both employees and customers the ability to communicate with the organization either on the move or in another remote location. The adoption of Internet related technologies has been driven by the increase in external pressure, customer needs and expectation as well as actions by competitors (Stansfield M. et al, 2003).

The Internet has quickly spreading through all functions of the economic and social domains. Organizations are using the internet's strategic building blocks of distributed access to valuable information, quick communication, and boundary-defying connectivity to exploit current resources and capabilities and to explore new e-commerce business opportunities (Organization for Economic Co-operation and Development, 2008). Developments in financial sector policies coupled with the globalization and advances made in technology has enabled banks to reduce operations and transactions cost by giving the customers the facilities to interact with the bank via the internet; E-banking, rather than with a human being. Internet banking has become the prime tool for customers of commercial banks. Centeno (2004) pointed out that speed, convenience of remote access and all round availability are the main motivation factors for the consumers to use internet banking. Centeno (2004) also argued that Internet banking is one of the many remote distribution channels deployed by banks over the last two decades, as substitute to branch and call centers to interact with their customers. Electronic payment debit/credit card, Internet banking and mobile banking are examples of channels and technologies used by banks. The services provided by banks on the Internet have evolved from simple display of account information to a full range of banking services. Customers can now access on the almost all the services accessible at the branch or by phone over the Internet. E-banking technology allows banks to offer to its customers new added value services which can only be available online such as e-mail alerts, electronic transactions and real-time statement which increase the benefits and interest of the service.

In the retail industry the issues of technology usage by customers have become critical in an attempt to exploit the boom in electronic transactions. Electronic shopping incorporates many of the same characteristics as real shopping. For example a help button on the web-page of the online shopping site replaces the sales clerk's friendly advice and service. The layout of the physical store becomes substituted for drop-down menus, product indices, and search features in the online shopping site.

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As organizations become more global, co-workers and collaborators are no longer housed down the hall from each other (Elizabeth S.V, et al, 1999). The growing concerns about climate change have lead to a growing trend among firms to replace business meeting trips with high-end web-based video-conferencing. Video-web conferencing is used to conduct live meetings, training, or presentations via the Internet. Video-conferencing technology provides a huge opportunity for organizations to help the environment by replacing unnecessary face-to-face meetings with online ones. Video meetings allow participants to be seen and heard by one another and in some systems make possible sharing of data-files and applications. This technology provides support for geographically dispersed work groups in developing and maintaining working relationships and achieving common goals (Qureshi and Zigurs, 2001). The use for videoconferencing has been viewed as an alternative for business travel, even though; studies (Daly-Jones et al., 1997 & Egido, 1988) have suggested that, the effectiveness of the various modes of communication remains a fundamental issue. Studies such as that of Daft and Lengel (1984) also argued that the need for face-to-face meetings to transmit equivocal information and receive immediate feedback is an absolute necessity in accomplishing their business objectives. However, videoconferencing permits many of the same features as the face-to-face meeting. In video-meetings, participants can be seen and heard by one another, and some systems make possible sharing of data-files and applications. According to Egido (1988) the results of earlier laboratory-based and field studies indicated that video conferencing is most used for regularly occurring meetings aimed toward the presentation or exchange of neutral information between colleagues in different locations. Studies suggest that business which uses videoconferencing view it as an effective, time saving and cost effective substitute to business travel for face-to-face meetings (Roy & Filiatrault, 1998). Denstadli (2004) argued that time saving can be viewed as one of the most convincing reason for implementing the use of videoconferencing in an organization. Some studies have shown that the potential benefit of saving time often outweighs the cost savings offered by video-conferencing (Sloane, 1984). An employee travelling for an external face-to-face meeting must invest a lot of time either in flying or driving there or both. On the other hand, meeting conducted via videoconferencing eliminates the added waste time, allowing the participating employee save valuable time.