The Challenges Of The Globalisation Transition Commerce Essay

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There are competing definitions of globalization, some favourable and others less so. From the perspective of business, it is a process of worldwide economic integration. A more broad perspective describes the process through which culture is diffused throughout the world as a result of various forces including trade, travel, and communications. In some cases, the term is often used without clear definition. For example, Ramesh Diwan, professor of economics at Renssalaer Polytechnic Institute, says, "Globalization has become a buzz word." He continues, "Like other similar buzz words, such as sustainable development, it is rarely defined but used to promote arguments favouring business interests." Therefore, an introduction to the topic requires a working definition (Smadja, 1999).

The Turin European Council calls economic globalization one of the major challenges facing the European Union. The Council defines globalization as a process of worldwide economic integration based on three forces:

The liberalization of international trade and capital movements

Accelerating technological process and the advent of the information society

Deregulation through withdrawal of the state from specified areas of economic activity.

Businesses want to know what it means for a company to globalize, and they ask several kinds of questions. First, is there something fundamentally different about doing business globally as compared to established business practices? Second, will globalization require different practices in the future as compared to today? Third, what products and services will firms need as they globalize?

Meanwhile, globalization involves more than economics. Cultural globalization involves the spread of language, products, and customs as people intermingle. In some cases, cultural perspectives literally involve love and gene pools as people from around the world intermarry.

A third facet of globalization involves government and international organizations. Nation states have created supranational organizations such as the European Union and the World Trade Organization. Such organizations, in turn, include new rules of law and international bodies charged with enforcement of those laws. Further, governments of single nations are changing their outlooks as a result of globalization.

Globalization means different things to every nation of the world and cannot be discussed fully in a short essay. Therefore, this discussion provides only an introduction to several facets of globalization. First, the forces behind globalization are outlined. Second, examples of global businesses are given along with discussion of characteristics they share. Third, the results of globalization are discussed. Finally, there is a brief introduction to issues arising from globalization that must be addressed as we enter the 21st century (O'Sullivan, 1998).

The forces Behind Globalization

Business firms want to globalize in order to expand their markets, increase sales, and increase profits. Free trade agreements facilitate those activities and promote economic globalization. Such agreements vary in scope. Some are bilateral such as the U.S.-Canada Free Trade Agreement and the U.S.-Israel Free Trade Agreement. Others are multilateral and regional such as the North American Free Trade Agreement (NAFTA), Mercosur (including Argentina, Brazil, Paraguay, and Uruguay as full members and Chile as an associate member), and the 18-member Asia Pacific Economic Cooperation Group (APEC). The European Union (EU) goes further by creating a supranational government. And the World Trade Organization (WTO) includes more than 120 nations from around the world. These agreements and organizations are facilitating economic integration on a regional and worldwide basis (Smadja, 1999).

Trade agreements facilitate the activities of major companies. For example, Ford Motor Company is working to create a "world car" that can be sold and used throughout the "global village." Trade agreements facilitate distribution systems, franchising, joint ventures, and other cross-border collaborations between and among businesses. Coca-Cola and Pepsi-Cola are sold in hundreds of countries throughout the world. Franchises for McDonald's hamburgers, Pizza Hut, Subway, Burger King, and others carry U.S. trade names as well as U.S.-style fast foods (and fast eating styles) throughout the world.

One of the major forces facilitating such globalization is the expansion of communication systems. During the final decades of the 20th century, the Internet globalized communications. One document can be distributed throughout the world in seconds. Using computer software, that document can be converted quickly to various languages for use almost anywhere in world. Telecommunications systems allow radio and television transmissions to be broadcast throughout the world within seconds. For example, the Cable News Network (CNN), based in the United States, produces 24-hour news broadcasts that can be seen around the world by travelling businesspeople and others. CNN's 24-hour coverage of the Persian Gulf War in 1991 established the network as one that serves global audiences. It is not viewed as "foreign" when it broadcasts to and from countries other than the United States (O'Sullivan, 1998).

Examples of Globalized Businesses

There is no established definition of the "global" business, but it is helpful to look at companies that operate on a worldwide basis to try to identify characteristics that show how their outlook and operations are global. One group of researchers identified and studied how the following large companies are responding to the forces of globalization: Banque National' de Paris; Canon; CSX; Electrolux, JCB; Pirelli; Royal Trust; TNT Express Worldwide; and Waste Management, Inc. That study identified four common characteristics of global companies. First, activities such as marketing, manufacturing, logistics, and research and development are approached based on a holistic, worldwide plan. Second, the global company does not confine itself within boundaries; its headquarters is, ideally, transparent to customers. Third, global business adjusts its business to meet the needs of local customers; cultural diversity and understanding are crucial. Fourth, the company strives to balance an integrated, global system with the need to be sensitive to local needs (Smadja, 1999).

The automobile industry provides excellent examples of the globalization of business. Toyota (a Japanese firm) manufactures its Camry model in the United States. Major U.S. automobile firms have all formed alliances with Asian or European firms. GM is allied with Toyota and Saab; Ford has alliances with Mazda, Jaguar, and Volvo; and Chrysler has joined forces with a European company to become Daimler Chrysler.

The Results of Globalization

Globalization has various effects, some positive and some negative. One effect is that it promotes greater cultural homogeneity. Common demands, common consumer preferences, and large bodies of common information can (sometimes unfortunately) lead to the blending of cultures and the erosion of cultural differences.

A second effect of globalization is that it changes the role of government. For example, as individual nations join the European Union (EU), they give up certain powers of law that previously belonged to individual national governments. As EU nations agree to a common currency (the Euro) and defer to the judgment of the European Court of Justice on matters covered by EU law, they give up certain aspects of individual sovereignty. Yet, at the same time, globalization does not eliminate the need for government. Rather, according to Claude Smadja, managing director of the World Economic Forum, it is forcing governments to redefine their role at the national level. Governments must strive to formulate and implement policies that facilitate economic activity, and they must provide citizens with education and skills needed to function in a global economy. Smadja asserts that governments must strive to provide a counterbalance to the negative effects of globalization-insecurity resulting from an emphasis on speed, flexibility, and permanent change. Governments must work to prevent social instability and political backlash (Smadja, 1999).

A third effect is that increased industrialization resulting from economic globalization leads to environmental pollution. These effects are illustrated by massive environment problems along the U.S./Mexican border. But such problems are found throughout the world, especially in developing nations. As a result, many environmentalists actively oppose trade agreements such as NAFTA and trade organizations such as the WTO and APEC.

A fourth effect is that globalization increases the gap between the rich and the poor. This gap is especially pronounced in Latin America. In the late 1990s, there was a severe food shortage in Argentina, and many Argentinians relied on the government for food supplies. Seventy-eight percent of Brazil's population survived on less than $100 U.S. per month per family (Nandi, and Shahidullah 1998).

Further, globalization causes economic problems in one region of the world to be felt throughout the world. In the late 1990s, there were signs of recession in Latin America, and East Asia suffered from a severe economic downturn. Economic woes in Latin America, Asia, and the economies of other emerging markets affect the economies of nations around the world. As a result, it is said that the pronouncements of the "Group of Seven" do provide a true representation of world economic interests. (The Group of Seven, or G-7, is an economic group that includes the United States, Japan, Germany, France, Great Britain, Canada, and Italy.) Some economists suggest that powers such as Brazil, China, and others deserve representation in world economic summitry.

Looking to the Future

As we look to the future, we face various questions. Are there alternatives to globalization? Perhaps, some commentators, for example, assert that regionalization can and should shift the balance of economic power away from the United States and toward lesser developed economies in Latin America and Asia. Others assert that globalization is an inevitable and irreversible process. If that is true, how can harm resulting from globalization be avoided or minimized? How can the globalization process be used to promote a more even distribution of wealth instead of widening the gap between the rich and the poor? These are challenges that world leaders face as we enter the 21st century. The answers will not be easy (Nandi, and Shahidullah 1998).

Davos & WEF

In contrast to the optimism of emerging markets players, executives here are subdued about growth prospects in the U.S. and Western Europe and concerned about regulatory uncertainty and a growing backlash against big banks.

Western economies have bounced back from the worst of the crisis, but with consumers and governments heavily indebted, they lack the dynamics for a vigorous, self-sustained recovery, in the eyes of CEOs. Indeed, it seems that the restraint of corporate chieftains is a leading factor holding back the recovery. Although bosses are decidedly more confident about the outlook than they were a year ago, the biggest single investment priority of CEOs is increasing cost efficiencies, not expanding capacity, according to a survey of nearly 1,200 CEOs by Pricewaterhouse Coopers. Chief executives expect to add the most jobs this year in Brazil, India and China; the U.K. and U.S. slightly exceed the global average for job-growth expectations, while Western Europe lags behind.

The sluggish economy explains the toughening stance toward banks taken by several governments recently, including President Barack Obama's pledge last week to crack down on banks too big to fail and bar them from proprietary trading and investment in hedge funds. Regulatory reform, therefore, is the other big theme of this year's meeting. Big banks are back in force in Davos after several notable absences in 2009, and among top CEOs only Jamie Dimon of JP Morgan Chase & Co. and Lloyd Blankfein of Goldman Sachs & Co. aren't scheduled to appear. In addition to wooing clients, the bankers are expected to press their case for less draconian regulation and new taxes with the likes of French President Nicolas Sarkozy, the chairman of the U.K.'s Financial Services Authority, Adair Turner, and Lawrence Summers, head of Obama's National Economic Council (Buerkle, 2010).

The banks get little overt sympathy, even in the corporate playground that is Davos. "I don't think there's any question that there need to be fundamental changes" (cited in Buerkle, 2010) in financial regulation, says Dennis Nally, global chairman of PwC. But participants are worried that domestic political pressures will prompt governments to strike out on their own, fracturing the G-20 consensus on bank bailouts and stimulus programs that stanched the financial crisis a year ago.

The worst of the downturn may be behind us, but until politicians and regulators establish clear rules for the future, the recovery is likely to leave everyone unhappy.