Globalization “an unprecedented compression of time and space reflected in the tremendous intensification of social, political, economic, and cultural

Globalization

• “an unprecedented compression of time and space reflected in the tremendous intensification of social, political, economic, and cultural interconnections and interdependencies on a global scale” - Stegler

• The movement towards the expansion of economic and social ties between countries through the spread of corporate institutions and the capitalist philosophy that leads to the shrinking of the world in economic terms. -bized.uk

One way to approach this: think about the world before globalization

• Distance mattered—space often measured in time

• Territorial boundaries more or less kept things in and out

• Society and culture had spatial referents

• Everything had its “place” (literally)

Globalization

• Distance becomes almost irrelevant (the end of distance)

• Boundaries are increasingly permeable.

• Groups and cultures increasingly don’t have a territorial basis (deterritorialization)

• A new kind of non-physical “place” is emerging (supraterritoriality)

In a world of deterritorialization and supraterritoriality:

Globalization Could Involve...

Globalization

• Reflects a business orientation based on the belief that the world is becoming more homogeneous and that distinctions between national markets are not only fading, but for some products, will eventually disappear. As a result, companies need to globalize their international strategy by formulating it across markets to take advantage of underlying market, cost, environmental, and competitive factors.

Globalization of Markets

• Refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market.

Globalization of Markets

Globalization of Production

• Refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production. By doing this, companies hope to lower their overall cost structure or improve quality of functionality of their product offering, thereby allowing them to compete more effectively.

Globalization of Production

• The Lenovo ThinkPadLenovo is a Chinese company. It acquired IBM’s personal computer operations in 2005. The ThinkPad is designed in the US; the case, keyboard, and hard drive are made in Thailand; the display screen and memory in South Korea; the built-in wireless card in Malaysia; and the microprocessor in the US.

Drivers of Globalization

• Political ForcesThere is a trend toward the

unification and socialization of the global community. Preferential trading arrangements, such as the NAFTA and the EU, that group several countries into a single market have presented firms with significant marketing opportunities.

• Technological FactorsAdvances in computers and

communications technology are permitting an increased flow of ideas and information across borders, enabling customers to learn about foreign goods. Cable and satellite TV systems in Europe and Asia, for instance, allow an advertiser to reach numerous countries simultaneously, thus creating regional and sometimes global demand. Global communications networks enable manufacturing personnel to coordinate production and design functions worldwide so that plants in many parts of the world may be working on the same product.

• Market ForcesAs companies globalize, they also

become global customers. Finding the home market saturated

also sends companies into foreign markets.• Cost

Economies of scale to reduce unit costs are always a management goal. One means of achieving them is to globalize product lines to reduce development, production, and inventory costs.

• Competitive ForcesCompetition continues to increase in

intensity. New firms, many from newly industrialized and developing countries, have entered world markets in automobiles, computers, and electronics, for example. Another competitive driving force for globalization is the fact that companies are defending their home markets from competitors by entering the competitors’ home markets to distract them.

Pros - Economic Aspect

• Employees of a transnational corporation may be well paid compared to other workers in the country

• Free trade between nations is established – countries can produce to its strengths and import the goods it needs without the threat of tariffs

• Increased investment in developing countries stimulates their economies

• A wide range of products are available at affordable prices due to free trade

• Sharing of technological innovations is fast and fair

Cons - Economic Aspect• Jobs are being outsourced from

developed countries to less developed countries resulting in higher unemployment

• Transnational corporations may have fewer environmental regulations to follow and can pay lower wages – they can ‘shop around’ for best options

• Corporate headquarters are usually located in the USA or western Europe resulting in resentment in the accumulation of economic power

• Transnational corporations are becoming so large they are beyond the power of smaller governments

• Economies are linked due to trade – economic hardship in one country will more greatly affect other nations

• Cultural identity is lost due to mass use of western consumer products and entertainment

• Profits usually do not stay in developing countries – they are returned to developed world

Pros – Cultural Aspect

• Globalizations of communications sees great quantities of information shared around the world

• The best of cultures can be shared and understood on a global scale

• There is more influx of information between two countries, which do not have anything in common between them

• There is cultural intermingling and each other is trying to know about the other’s cultural preferences and in the process of doing so, we are actually coming across things that we like and in the course of time adopt it

Cons – Cultural Aspect

• A small number of private media companies decided what information is to be shared and shape public opinion through sensationalization (bias)

• Media and entertainment impact is westernizing other cultures

• There are some experts who think that globalization; along with the positive aspects is also leading to the incursion of negatives like communicable diseases and social degeneration

Pros – Political Aspect• Gradually there is a world

power that is being created instead of compartmentalized power sectors. Politics is merging and decisions that are being taken, are actually beneficial for people allover the world

• Since we share financial interests, corporate and governments are trying to sort out ecological problems for each other

• International agreements are working towards trying to protect the environment from pollutants that cause global warming, destroying ecosystems, and increasing acidity levels in seas and oceans

• Communications allow for the message of political freedom tyranny in the for of democracy to spread globally

Cons – Political Aspect

• For nations that are at the receiver’s end are also giving up the reins in the ends of a foreign company which might again lead to a sophisticated form of colonization

Global Economic Systems

Market Economy Command EconomyMixed Economy

Market EconomyExists when private enterprise reserves the

right to own property and monitor the production and distribution of goods and services while the state simply supports competition and efficient practices.

Contains the least restriction as the allocation of resources is roughly determined by the law of demand.

Individuals within the community disclose wants, needs, and desires to which businesses may appropriately respond.

Market EconomyCompetition is fervently encouraged to promote

innovation, economic growth, high quality, and efficiency.

Government may prohibit such things as monopolies or restrictive business practices in order to maintain the integrity of the economy.

Command Economy

Comparable to monopoly in the sense that the organization, in this case, the government, has explicit control over the price and supply of a good or service.

Goods and services offered are not necessarily in response to stated needs but are determined by the theoretical advancement of society.

Businesses are owned by the state to ensure that investments and practices are done in the best interest of the nation despite the often opposing outcomes.

Command Economy

Devoid of private ownership, this economic system creates an environment where little motivation exists to improve customer service or introduce innovative ideas.

Mixed Economy

A combination of market and command economy. This means that while some aspects include private ownership and the freedom and flexibility of the law of demand, other sectors are subject to government planning.

The balance allows competition to strive while the government can extend assistance to individuals or companies.

Mixed Economy

Regulations concerning minimum wage standards, social security, environmental protection, and the advancement of civil rights may raise the standard of living and ensure that those who are elderly, sick, or have limited skills are taken care of.

Ownership of organizations seen as imperative to the nation may be transferred to the state to subsidize costs and allow the firm to flourish.

Economic Performance by Major World Region

Established Economies North America European Union Japan

Emerging Economies Central and Eastern Europe China Other Emerging Markets of Asia India

Developing Economies on the Verge South America Middle East and Central Asia Africa

Economic PerformanceEstablished Economies

North America› One of the four largest trading blocs in the world

Combined purchasing power of U.S., Canada and Mexico approaches $12 trillion

› Free-market-based economy is attractive to private firms

United States› Foreign MNC’s find U.S. a lucrative expansion

market› Foreign firms welcomed as investors in U.S.

market› U.S. firms hold market dominance in many

European markets; gaining market share in Asia

Economic Performance Established Economies

Canada› U.S.’s largest trading partner› Most of the largest foreign-owned Canadian

companies are totally or heavily U.S.-owned› Legal and business environment in Canada is similar

to that in U.S.


Mexico› Strongest Latin American economy› Very strong maquiladora industry› Trade with both Europe and Asia has increased› Now competitive with Asia for the U.S. market

Maquiladora is a factory, the majority of which are located in Mexican border towns, that imports materials and equipment on a duty and tariff-free basis for assembly or manufacturing and re-export.


European Union Ultimate objective

Eliminate all trade barriers among member countriesEmergence of the EU as an operational economic union

A unified Europe could become the largest economic market in terms of purchasing power in the world

Foreign MNCs trying to gain foothold in EU Acquisitions, alliances, cooperative R&D efforts

Economic linkages between the EU and newly emerging Central and Eastern European countriesChallenge is to absorb former communist bloc countries

Financial crises in Greece and Ireland putting pressure on the euro


JapanHuge economic success in 1970s and 1980sMinistry of International Trade and Industry (MITI)Keiretsus

Vertically integrated industriesHoldings provide assistance needed in providing goods

and services to end usersDecade long recession in 1990s

More competition from emerging economiesPoor management decisions

Remains a formidable competitor in the Pacific Rim, North America, and Europe

Economic PerformanceEmerging Economies

Central and Eastern EuropeRussia

Dismantling of price controls and privatizationMembership in International Monetary Fund (IMF)

controlling inflationCrime and political uncertainty

Czech Republic, Hungary, PolandPrivatizationInflationPolitical uncertainty


ChinaReal economic growth of 12 percent in 2007, 9

percent in 2008, and 11.5 percent in 2009Savings glut in corporate sectorVast developmental needsUnemployment concerns

Attractive to investors despite political riskProduct pirating is a major problemCurrency valueGovernment policies favor domestic firms


• South Korea– Chaebols• Very large family-held conglomerates

– Solid economy, moderate growth and inflation, low unemployment

• Hong Kong– Part of People’s Republic of China– Uncertainty about the role the Chinese

government


Singapore Success story Leader and financial center for region

TaiwanProgressed from labor-intensive economy to

one dominated by technologically sophisticated industriesbanking, electricity generation, petroleum refining

and computers


Thailand, Malaysia, Indonesia Large population base Inexpensive laborConsiderable natural resourcesAttractive to outside investors


India Large populationRecent trend of locating software and high

value-added services to this country boosting middle- and upper-class market for goods and services

Attractive to U.S. and British investorswell educated, English speaking, technologically

sophisticated workers

Economic PerformanceDeveloping Economies on the Verge

South AmericaHampered by foreign debt and severe

inflationBut, intercountry trade is increasing

Countries looking to do business with U.S.

Brazil Economy is now flourishing and attracting

investment from MNCsPrivatization and stable government


ChileUncertain future, but helped by trade agreements

ArgentinaAbundant natural resourcesEconomic problems persist


Middle East and Central Asia Large oil reservesHighly unstable geopolitical and religious forcesPlagued by continuing economic problems


AfricaConsiderable natural resourcesAfrican nations remain very poor and undeveloped International trade is not a major sources of

incomePopulace divided into 3,000 tribes that speak

1,000 languages and dialectsMajor political instabilityPoverty, starvation, illiteracy, corruption,

overcrowding among many social problems negatively affecting economic sector

World’s Most Competitive Nations, 2010

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Globalization “an unprecedented compression of time and space reflected in the tremendous intensification of social, political, economic, and cultural