GLOBALIZATION
Globalization: An ongoing process by which regionaleconomies, societies, and cultures have become integrated through a
globe-spanning network of communication and trade.
The term is sometimes used to refer specifically to economic globalization:
The integration of national economies into the international economy through trade, foreign direct
investment, capital flows, migration, and the spread of technology.
Globalization of markets
Globalization of markets refers to the process of integrating and merging of the distinct world markets into a single market.
This process involves the identification ofsome common norm, value, taste, preference and convenience and slowly enables
the cultural shift towards the use of common product or service.
Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, Sony PlayStation video games, McDonald’s
hamburgers, Starbucks coffee, and IKEA furniture are frequently held up as prototypical examples of this trend.
In many global markets, the same firms frequently confront each other as competitors in nation after nation. Coca-Cola’s
rivalry with PepsiCo is a global one, as are the rivalries between Ford and Toyota, Boeing and Airbus, Caterpillar and
Komatsu in earthmoving equipment, General Electric and Rolls Royce in aero engines, and Sony, Nintendo, and Microsoft in
video games. If a firm moves into a nation not currently served by its rivals, many of those rivals are sure to follow to
prevent their competitor from gaining an advantage. As firms follow each other around the world, they bring with them
many of the assets that served them well in other national markets—including their products, operating strategies,
marketing strategies, and brand names—creating some homogeneity across markets. Thus, greater uniformity replaces
diversity. In an increasing number of industries, it is no longer meaningful to talk about “the German market,” “the
American market,” “the Brazilian market,” or “the Japanese market”; for many firms there is only the global market
Features of Globalization of markets
The size of the company need not to be large to create a global market. Even small companies can create a
global market .
The distinction of global market are still prevailing even after the globalization of market. These distinction
require the companies to formulate different strategies for each market.
Most of the foreign markets are the marketsfor nonconsumer goods likemachinery, equipments, raw material,
software etc.
The global business firms compete with each other frequently in different national markets including their
home markets.
Reasons for Globalization of markets
Large scale industrialization enabled mass production.
Company in order to reducethe risk diversify the portfolio of countries.
To cater to the demand for their product in foreign market.
Companies globalize markets in order to increase their profits and achieve company goals.
Globalization of Production
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 like land, labor, and capital.
Companies can
lower their overall cost structure
improve the quality or functionality of their product offering
Consider the Boeing’s 777, a commercial jet airliner. Eight Japanese suppliers make parts for the fuselage, doors, and wings;
a supplier in Singapore makes the doors for the nose landing gear; three suppliers in Italy manufacture wing flaps; and so
on. In total, foreign companies build about 30 percent of the 777, by value. For its most recent jet airliner, the 787, Boeing
has pushed this trend even further, with some 65 percent of the total value of the aircraft scheduled to be outsourced to
foreign companies, 35 percent of which will go to three major Japanese companies.
Reasons for Globalization of Production
Imposition of restrictions on imports by the foreign countries forces the MNC’s to establish manufacturing
facilities in other countries.
Availability of high quality raw materials.
Availability of inputs at low cost in foreign countries.
To reduce the cost of transportation and easy logistic management.
Global Institutions
Institutions are needed to
help manage, regulate, and police the global marketplace
promote the establishment of multinational treaties to govern the global
business system
Examples include
General Agreement on Tariffs and Trade (GATT)
World Trade Organization (WTO)
International Monetary Fund (IMF)
World Bank
United Nations (UN)
Implications for Business
Lower barriers to trade & investment mean firms can
view the world as their market
base production in the optimal location for that activity
Technological change means
lower transportation costs - help create global markets
lower information and communication costs
low-cost global communications networks - help create an electronic global
marketplace
global communication networks and global media - create a worldwide culture,
and a global market for consumer products
Is the shift toward a more integrated and interdependent global economy a good thing?
1. Many experts believe that globalization is promoting greater prosperity in the global
economy, more jobs, and lower prices for goods and services
2. Others feel that globalization is not beneficial
What are the four keys ways that managing an international business (any firm that engages
in international trade or investment) differs from managing a domestic business?
1. Countries' differences require companies to vary their practices country by country
2. Managers face a greater and more complex range of problems
3. International companies must work within the limits imposed by governmental
intervention and the global trading system
4. International transactions require converting funds and being susceptible to exchange
rate changes
Criticisms of globalization
1. Globalization destroys manufacturing jobs in developed nations.
2. Increase in pollution as factories move from developed to undeveloped nations.
3. Globalization shifts economic power away from national governments
4. It widens the gap between rich and poor.
