GLOBALISATION

Definition

            Globalisation is defined as the process of integration of economics across the world through cross-border flow of  factors, products and information.

            It is a way of turning world space into a global village.  A village represents a closely knit community, characterised by a great amount of communication and interaction between the members of the community.  The members of the village usually has a common sense of tastes, preferences, needs, views etc.  The technological and communication revolution which happened in early 1980’s have converted this world into a global village. 
These two factors greatly dismantle/ reduce the barriers of distance and time across the globe causing a steep fall in costs of all products across the globe causing globalisation.  Because of globalisation there is also diffusion, assimilation and cross-border transmission of cultures across the globe.

            The main aim of globalisation is to bring about transnational or global economy.  Transnational economy is achieved by globalising national economies.  The transnational or global economy greatly differs from international economy.  Transnational economy goes beyond nations unhindered by Government restrictions on trade, technology, finance etc.  It is free of trade across national borders.  On the other hand, International economy in characterised by the existence of different national economies.  The relation between these national economics is regulated by the national governments.

            Hence globalisation causes global economy or transnational economy.

            Mazda’s sports car Mx-5 Miata can be cited here as typical example of Global economy.  Mazda’s sports car, Mx-5 Miata, was designed in California, had its Prototype created in England, was assembled in Michigan and Mexico, using advanced electronic components invented in New Jersey and fabricated in Japan, financed from Tokyo and New York and marketed globally.

Stages of Globalisation:

              A firm normally passes through different stages of development before it becomes a truly global corporation.  To start with, a domestic firm starts its international business by exporting.  Later it establishes joint ventures, subsidiaries abroad.  Later from international company it may develop into multi – national firm and finally into a global one.

            Ohmae identifies five different stages in the development of a firm into a global corporation.

First Stage: Domestic company

            The Company starts itself as a domestic company.  Domestic company has a ethnocentric, orientation which has plans of selling its sorplus of production to foreign Countries.  At this stage, the company does not have any focus on international market.  The company at this stage heavily relies on export agent to do international business.

Stage two:

            The company starts to conduct international business of its own.

Stage three:  International Company

            The domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets. It how becomes an international company.

Stage four:  Multi - national or Global company

            The company now establishes its own R and D unit and engineering units abroad. It now has its own complete business system starting from R and D to final marketing of products. At this stage the company has become a Multi-national company.

Stage five:  Transnational company

The company at this stage move completely towards global mode of operation. At this stage the company has to de nationalise its operations and create a new system of values shared by global managers around the globe. True global corporations serve the interests of local customers, not governments. They do not exploit local situations and pump off all the profits gained from business to their home country leaving each local area poorer than before. Instead they invest, they train, they pay taxes, they build up infrastructure and they provide good value to customers in all the countries where they do business. (e. g) IBM Japan, for instance, has provided employment to about 20,000 Japanese and in the 1980’s, has provided three times more tax revenue to the Japanese government than has the Japanese company Fujitsu.

Essential conditions for Globalisation

            There are a number of environmental and organizational pre-requisites for globalisation. They are as follows

1. Business freedom:

            There should not be unnecessary government restrictions which come in the way of globalisation. The government should permit and encourage free flow of trade across the boundaries. This is why the economic liberalisation is regarded as a first step towards facilitating globalisation.

2. Facilities:

            The availability of facilities like finance, technology, finance are very much essential conditions for the growth of a company from domestic to transnational company.

3. Government support:

            Government support encourages globalisation. The government support can manifest in many forms like: removal of unwanted government restrictions, policy and procedural reforms, R and D support, financial support etc.

4. Resources:

            A company if it wants to thrust forward in global market should be resourceful. Resources includes finance, technology, R and D capabilities, managerial expertise, brand image, good will, human resources etc.

5. Competitiveness:

            The competitive advantage of the company is a very important determinant of success in global business. A firm may derive competitive advantage from any one of the following: low costs and price, product quality, product differentiation, technological superiority, after sales service, marketing strength etc.

6. Orientation:  

            A global orientation on the part of the business firms and globalisation strategies are essential for globalisation.

IMPACT OF GLOBALISATION

            Globalisation can have both positive and negative impacts on nations and firms.

Ill- effects of globalisation

A  As a result of globalisation, many MNC’s have established well in local market. As a result of this the activities of domestic companies in greatly affected.

A  The products produced by the MNC’s give more value for money than products produced by domestic companies. Because of this factor, domestic companies are smashed out of competition by the dominance created by MNC’s. as a result, many domestic firms are driven to a situation of having to hand over the majority or complete equity to their foreign partners.

A  In many cases the products produced by these MNC’s companies have completely replaced traditional / indigenous products. This has resulted in the total collapse of traditional crafts and local industries.

A  One of the most common criticisms is that the technology that MNC’s bring in may not be the one suited to the host country  but that suits the objectives of the MNC.

A  Another common criticisms is that MNC’s dump obsolete technology to the developing country.

A  The impact of globalisation have adverse effects in developed countries like USA. As a result of globalizations, American jobs and wages levels are severely affected by the influx of cheap imports and shifting of production to low cost overseas locations.  As a result, unemployment has become very common in USA.

The adverse effect of globalisation in USA is as follows

A  Millions of Americans have last jobs due to imports or production shifts abroad.

A  Unemployment has become common in USA. This is because of the fact that lower level management jobs in USA are now outsourced to India via internet facilities.

A  Most of the MNC’s like Sony, IBM, Philips now have their base in countries like India and China. Both these countries have a rich source of cheap labour which is very technical and efficient. So these transnational giants are planning to have their product developed in India/China at a low cost with the same level of quality delivery which in usually done in their home countries. Hence more service and white collar jobs are slowly moving out of USA to India.

A  As most of the work in USA is outsourced to India, the job market in USA has fallen steadily. The wages in USA job market has hit a rock bottom.

BENEFITS OF GLOBALISATION

1.    Foreign capital, if property utilized, can make substantial  contribution to the economic development of the nation. Example China.

2.    Standard of living can go up as the company earns more from international trade.

3.    Increase of competition from MNC’s will make the domestic companies more quality concious. (Example) many lcal companies in India are forced to go global as part of their survival techniques (Couter – competition strategy) from the attack of MNC’s companies.

4.    The Customers gets more value for money.  They now have more choice to select the best. (For example) The student is requested to enter into a perfume shop and browse through the list of different brand of soaps available in shelf. (More choice of soaps to keep ourselves clean).

5.    ‘Change’ and innovative ideas are very common in International trade.  What is in vogue today may not exist tomorrow.  It becomes obsolete quickly.  Hence continuous improvement of quality of product is a most in international marketing.

6.    More inflow of MNC’s means scope for more job opportunities, increase of salary & wages.

7.    Globalisation also keeps a tight lid on the inflation of prices of various items.  As a result of tough competition, the price of various products is always kept under check due to global competition.

DRIVERS AND RESTRAINERS OF GLOBALISATION

            There are a number of forces which induce and propel globalisation forward.  On the other hand there are also forces which restrain globalisation.  These factors are classified as

Driving factors

            The important forces driving globalisation are as follows:

1.    Liberalisation:  One of the most important factors which have given a great forward thrust to globalisation since the 1980’s is the formation of universal economic policy resulting in liberalisation of economy in many countries.  The immediate result of liberalisation in globalisation of business.  Now many business firms can involve themselves is international trade as the restrictions imposed by various countries is highly restricted under GATT/WTO.

2.    MNC’s:  The companies which have taken a complete advantage of trade liberalisation caused under GATT/WTO are MNC’s (Multi – National Companies).  Sony, Philips, Coco Cola, Pepsi, Procter & Gamble, etc are some famous examples for MNC’s.  These companies combine their resources and objectives to achieve profit in globel market.  According to the world Investment Report 1997, there were about 44,500 MNC’s in the world with nearly 2.77 lakhs foregin collaborations.  Hence MNC’s is an important factor inducing Globalisation.

3.    Technology:  Technology in a powerful driving force of Globalisation.  Once a Technology is developed, it soon becomes available every where in the world.  (for example) A hospital in the USA performs the required diagnostics on patients say an X – ray or MRI or C.T Scan.  These diagnostic tests represent technology in medical field.  In the next three minutes, a radiologists in Bangolore, India receives the scanned images from USA.  He then sends his report to USA.  This is called as teleradiology.  The entire process, from the time the patient was admitted, has taken Just 20 minutes.  The cost of this work is 30% lower in India compared to the USA.  In short, long distance on – line services made possible by the technological developments have given a forward thrust to globalisation.

4.    Transportation and Communication revolutions: Technological revolution in several spheres, like transport and Communication, has given a great impetus to globalisation.  The Microprocessor in computers has created the flow of information from one part of the globe to another not only fast but also cost effective.  It has played a pivotal role in reducing space and time.  It has made world in to a global village.  Microprocessors coupled with satellite, optical fibre, wireless technologies, world wide web have made this ‘World in to a global village.  The consumers/ customers has become more global.  By sitting in front of the computer and logging on to world wide web the consumer can download any type of information from any part of the world.  Flow of information is business.  It determines profit.  Hence technology is a strong driving force for Globalisation.

5.    Product development and efforts:  The immediate impact of increase of Technology is the growth of new products due to innovation.  The fast technology hastens product obsolescence.  This has made many firms to invest heavily on R&D activities with cross – border alliances .  These companies have to stay in business and survive competition.  In order to achieve this, many companies have crossed their borders and have tie – ups to update their products through research and development with foreign companies.  This causes globalisation.

6.    Rising aspirations and wants:  Because of the increasing levels of education and exposure to the media, aspirations of people around the world are rising.  They aspire for everything that can make life more comfortable and satisfying.  If domestic firms are not able to meet the wants, they would naturally turn to the foreign firms  to satisfy their aspirations.  This promotes Globalisation.

7.    World economic trends:  The world economic conditions are changing fast.  There, is a great difference in the growth rates of economies/ markets between developing nations and developed nations.  In developed nations the economies have become stagnant, due to saturation on the otherhand, the developing nations are experiencing tremendous growth rate in various business sector.  Cheap labour, high investment in research and development, improvements in technology are some of the factors which have driven the developing nations towards achieving high growth rate in business.  Hence it is very common for the developing nations to have a strong international trade links with developed nations.  Thus difference in world economies between nation causes gobalisation.

8.    Regional Integration: Nowadays many countries are joining hands together to promote free and fair international trade across the borders.  They are forming separate trade blocks.  European Union and North American Free Trade Agreements are two such classical examples.  This promotes globalisation.

9.    Leverages:  Leverage is simply some type of advantage that a company enjoys by conducting business in more than one country.  A global company can experience three important types of leverages.

a.  Experience transfers:  The experience that a company gains by doing business in one country can be effectively transferred to some other country if the particular company does business on global scale.  This is called experience transfer (For example) Cocacola first developed a strong marketing strategy to tap tea and coffee market in India.   In 2002 it became a success.  From this experience, it then joined hands with Mc Donald’s for marketing hot beverages.  The Georgia Gold brand was thus born and it was first launched in Delhi and Mumbai.  This brand is now available in all Mc Donald’s outlets throughout the country.  The success of this business in hot beverages with Mc Donald’s promoted Coca-cola to enter into ice-tea and cold coffee Marketing business in 2003.

            Another classical example of experience transfer is provided by Hindustan Lever Limited.(HLL).  The occurrence of Iodine Deficiency Diseases (IDD) is very common in developing countries.  This disease can be easily prevented by taking micro quantities of iodine along with salt.  The salt thus produced is called as iodised Salt.  This new concept of iodised salt was produced by HLL in India.  HLL has now successfully introduced the concept of iodised salt to other countries like Kenya and Tanzania.  The experience gained by HLL in marketing iodised salt in India has made the company to successfully market the same product in other African countries.

b. Scale economies:  The art of cutting down the cost of production is called as scale economies.  One major cause for scale economies is technology breakthroughs.  Many companies are now heavily infesting in R&D in an attempt to reduce the cost of production.  They are attempting to produce cheaper and more reliable products. (For example).  The replacement of vaccum tubes by transistors and subsequent development of printed circuit boards greatly reduced the labour cost required to assemble radios, T.V’S and tape recorders.  By these technological changes the cost of production of T.V sets greatly reduced and production of TV sets greatly increased. Philips are producing more than 3 billion TV sets now in order to stay in business.  So to market such huge volume of production of T.V sets, Philips needs global application of business.

c. Resource Utilisation:  Another strength of global company is its resource utilisation.  It can now successfully outsource its resources globally thereby making better utilisation of resources.

Restraining forces On Globalisation

            There are also several factors which restrain Globalisation trend.  They are

1.      External Factors

2.      Internal Factors

1.        External Factors:  These are government policies and controls which prevents cross-border business.

2.        Internal Factors:  These are collection of factors that exists within the organisation that prevents Globalisation.  One such factor is called as management myopia or near sightedness.  The company with an aim to make immediate profit engage itself in short-term plan and target local markets for business.  This is called as management myopia.  This acts against Globalisation of business.