International Business: Globalization – The Commerce subject detailed notes with practice tests are very useful for Assistant Professor / UGC NET / JRF and other competitive exams preparation.
Globalization has been happening since the beginning of human civilization that enhances global interconnectivity. It can be defined as a process rather than an outcome. It primarily is an interchange of economic, social, cultural, political, technological attributes that takes place between societies when different societies come into contact with each other. It has been defined as a modern idea by Marx and Saint Simon.
Globalization
1. According to Henderson (1999), globalization is fully internationally integrated markets subject to
(a) The free movement of goods, services, labour and capital resulting in a single market in inputs and outputs, and
(b) Foreign companies are treated as par with national companies—economically speaking there are no foreigners.
2. Meghnad Desai (2004) – globalization is the growing reciprocal interdependence and integration of various economies around the globe.
3. Keniichi Ohmae coined the phrase “the borderless world” in context of globalization.
4. Richard O’Brian (1992) – globalization is a general progression from the domestic to the global.
5. Pieterse (2001) calls the contemporary globalization as accelerated globalization.
6. T. Evans defines globalization as the ‘space-time compression’.
The followings points are important for an organization if it is interested in globalization.
1. Trade
2. Capital Movements
3. Human Resource/Movement of People
4. Employment Laws
5. Spread of Knowledge
6. Culture
7. Corporate Social Responsibility
8. Terminology
| Strategic Globalism | Geopolitics, NATO |
| Corporate Globalism | International Banks, MNCs, TNCs |
| Economic and Financial Global Management | International Financial Institutions, WTO, G-7 |
| Developmental Globalism | World Bank, UNDP, etc. |
| Environment Globalism | Earth Summit, UNFCCC, UNCED |
| Media Globalism | Reuters, BBC |
| Anti-Globalism | Protectionism, Regionalism, Isolated Economies |
| Religious Globalism | Ulemma politics, Vatican |
| Feminist Globalism | Sisterhood is Global |
| Consumer Globalism | Mc Donaldization |
Globalization may Occur at Different Levels
1. Specific Country Level: This refers to economic and social integration of an economy with rest of the world. It takes into account macroeconomic indicators such as trade, FDI, FPIs and royalty payments linked with technology transfer. WTO also helps in the process.
2. Specific Industry Level: Globalization refers to the degree to which a company’s competitive position within that industry in one country is interdependent with that in another country. The more global an industry, the greater is the advantage that a company can derive from leveraging technology, manufacturing progress, brand names and/or capital across countries. The athletic footwear industry, for example, is dominated by Nike, Reebok and Adidas. There has been increasing globalization of the pharmaceutical industry.
3. Specific Company Level: This sees how a company has expanded its revenue and asset base across countries and engages in cross border flows of capital, goods and know-how across subsidiaries. Toyota, IBM, Microsoft, Samsung, Apple are good examples of highly globalized companies. Key indicators of the globalization of a company are international dispersion of sales revenues and asset base, inter-firm trade in intermediate and finalised goods, and inter-firm flows of technology.
The Five Stages of Globalization
1. Market Entry: The companies enter new countries by making use of business models that are familiar with what they deploy in their home markets.
2. Product Specialization: Here, a company transfers the full production process of a particular product to a single, low-cost location and exports the goods to various consumer markets. The different locations begin to specialise in different products or components and trade in finished goods.
3. Value Chain Disaggregation: The companies start to disaggregate the production process and focus each activity in the most advantageous location. Individual components of a single product might be manufactured in several different locations and assembled into final products elsewhere.
4. Value Chain Reengineering: The companies seek to further increase their cost savings by reengineering their processes to suit local market conditions, notably by substituting lower-cost labour for capital.
5. The Creation of New Markets: Here, the focus is on market expansion. Significantly, the value of new revenues generated in this last stage is often greater than the value of cost savings in the other stages.
New Markets
Growing global markets in services—banking, insurance and transport.
1. New financial markets that are deregulated, globally linked, working around the clock, with action at a distance in real time, with new instruments such as derivatives.
2. Deregulation of anti-trust laws and proliferation of mergers and acquisitions.
3. Global consumer markets with global brands
Market Globalization
This entails the decline in barriers to selling in countries other than the home country. It becomes easier for companies to begin selling products internationally, since lower tariffs keep consumer prices lower and fewer restrictions make it easier for a company to enter a foreign market. The companies must understand the culture the target countries and develop their market strategies accordingly.
Levitt Thesis: Levitt in his work ‘The Globalization of Markets’ argued that advances in communication and transportation, and worldwide travels have created ‘homogenized’ world markets. The same product is available in USA, Japan, EU, India, etc.
Production Globalization
Production globalization is the sourcing of materials and services from other countries to gain advantage from price differences in different nations. The company might procure material and components from multiple countries and then assemble the product in yet other international location to reduce cost of production. This is done in order to reduce prices to consumer. It also impacts jobs, since production may shift from one country to another, thus from developed nations to less developed nations with lower wage rates.
Drivers of Globalization
Four trends lie at the core of these developments.
1. Market Drivers: There is a shift from a ‘planning’ mentality to a ‘market’ mentality in due course of time.
2. Cost Drivers: The economic centre of gravity is shifting from the developed to the developing countries. Economic liberalization promotes competition, efficiency, innovation, new capital investment and faster economic growth. There is slow growth in home markets of developed economies. Virtually growth has to come from developing nations.
(a) Push for economics of scale
(b) Advances in transportation
(c) Emergence of newly industrialised countries with productive capability and low labour costs
3. Technology Drivers: Technological advances are constantly improving communication; Technology drivers are also shifting to developing nations such as China.
4. Competition Factors: The opening of borders to trade, investment and technology transfers not only creates new market opportunities for companies but also enables competitors from abroad to enter their home markets. The result is that globalization has now become a self-acceleration process.
5. Government Drivers
(a) Reduction on tariffs and other trade barriers
(b) Privatization of industry in many parts of the world
(c) Creation of trading blocks (i.e., EU)
Scope and Importance of International Business
Main Concepts and Types of Business Environment
Business Environment and International Business : The Basics of Business Environment