Q. Explain how changes in technology have contributed towards globalization of markets and of production?
People are more connected to each other than they were a few decades ago. Goods and services produced in one part of the world are increasingly available in all parts of the world and international travel is more frequent. This is called "globalization."
It is a process in which people, companies and governments of different nations interact and integrate. It is a trend in which economies integrate to form a global economic system. (Hill, 2009)
There are two modes to globalization:
1. The globalization of Markets
2. The globalization of Production
The globalization of markets is the merging of different and explicit markets into one enormous marketplace. (Hill, 2009)
The globalization of production is using of services and goods from various locations around the globe to take benefit from the variation in cost and quality in factors of production e.g. labor, land and capital. (Hill, 2009)
Many institutions have been formulated to help manage, regulate and police the phenomena of globalization and to promote the establishment of transnational treaties for global trade. A few are as follows:
1. The WTO (World Trade Organization)
2. The IMF (International Monetary Fund)
3. The World Bank
4. The UN (United Nations)
These institutions act on an international level to regulate and tackle any problems that the different countries, companies and individual may face when undergoing globalization e.g. The IMF provides monetary services and acts as a last resort for the members in financial distress.
Now the question is how instead of what. How does globalization happen? What drives globalization? There are many drivers or rather changes that result in globalization. Generally, there are two macro drivers of globalization (contributors, 2010). These are:
1. The declining trade and investment barriers between countries
2. Changes in technology
The lower barriers to trade and investments allow firms to base production at the most favorable location for a particular product or service. This allows a firm to design a product in one country, produce its components in another other country, and then export the finished product internationally. These lowered barriers have facilitated the globalization of production lowering the cost for labor, land and capital (Christos Pitelis, 2000).
The technological changes are not just limited to the automation of the production line but it also includes the advancement in infrastructure and connectivity. The most important innovation has been the microprocessors. The global communications have also been transformed by advancements in satellite and optical fiber technologies. The rapid growth of the internet is the latest expression of this development. Improvements have also occurred in the field of transportation technology resulting in the development of commercial jet aircraft, which has reduced the time for transit this means New York is closer to Tokyo now than ever.
Globalization is not only resulting from declining trade barriers or changes in technology but upon scrutinizing two other factors come into play. These are Foreign Direct Investment (FDI) and increasing international trade.
Globalization is not a straight line event rather it has been maturing from many decades and the implications of this phenomenon are being strongly felt now. This has been going on since the 1960's. In the 1960's the US dominated the globe's economy and the international trade picture and it also led the front when it came to FDI, similarly the US multinationals ranked high in international business (Hill, 2009). This has all changed due to globalization and other countries, firms and individuals have risen to compete in the global market place (Levitt, 1984).
Much has changed in the demographics of the world when looking at world GDP and trade. China did not have a share in the worlds output in 1963, now has 11.5 % of the GDP in 2007 and 7.2% of the worlds export in 2006. This shows the tremendous effect of globalization in the current world marketplace. China in 2008 was listed as the 3rd largest Economy based on Nominal GDP. The share of world output generated by third-world countries has steadily increased since the 1960's. There also has been a persistent growth in cross-border flow of FDI and it does not come as a surprise that China has been the largest receiver of FDI (Hill, 2009). When looking at the percentage share of total FDI from 1980 to 2006, the developing economies have had a boost from 2% in 1980 to around 14% in 2006 whereas the US had an enormous 40% share of FDI in 1980 which now has almost reduced by fifty percent to 23% in 2006 (Luo & Tung, 2007).
There are many facets to globalization and on a closer look there is the multinational enterprise. A multinational enterprise (MNE) is a type of business which has operations in two or more countries. A multinational enterprise can also be referred to as an International Corporation. MNE's have powerful influence over local as well as the global economies and play an important role in international relations and globalization.
In the past the western market was closed for many economies but that trend has changed and many markets have opened up for the western market to invest in. The collapse of communism in Eastern Europe has created a host opportunities for export and investment. The biggest opportunity emerged in China due to economic developed even with the continuing communist control. Also the change in democracy and the free market reforms in Latin America have also given a possibility for investment from foreign investors.
Going over all what globalization has to offer, a question comes to one's mind that a shift towards a global marketplace a good thing? There many views on this particular question. Many experts believe that globalization is helping prosperity by providing more jobs, lower prices of labor, materials, land and thus resulting in more profitability. Whereas other experts suggest that globalization is not beneficial as managers who are managing transnational and multinational organizations have to take into account a lot more factors as compared to stereotypical administrators (Hill, 2009). Managing an international business differs from a typical business in four notable areas:
1. Differences in countries require companies to employ different practices in different countries.
2. Administrators face greater and complex range of problems.
3. Companies have to follow the different limits imposed by different governments in countries and have to work within those limits.
4. International business requires converting funds and is very susceptible to fluctuations in the exchange rate.
To overcome these insights about managing international organizations managers have to use un-structured solutions and practices that may require additional resources in terms of labor, capital and land. This brings us to our next thought, why so many experts against what globalization have to offer.
Globalization has occasionally been regarded as a solution to problems like underdevelopment, malnutrition and violation of human rights, and important human rights institutions have been set up and incorporated into the global human rights regime (Anon., 2010). Governments are finding it increasingly difficult to violate their citizens' human rights without attracting the interest of the media as a result of developed telecommunications and global interdependence. Indeed, overall human rights practices have improved worldwide during the last decade or so. However, this improvement has neither been universal nor linear.
Globalizationi.e.the growing integration of countries and markets all over the world is one of the major rationales of the contemporary world order. International agencies for the protection of human rights are now more developed while an emergent global civil society facilitates the platform for appeal of citizens repressed by their own states (Anon., 2010) and assaults on basic human rights continue, and the very obliteration of borders and promotion of transnational actors that had originally sponsored the global human rights régime may also createnewsources of human rights negligence. Even as they are more widely propagated and recognized, rights of individuals still depend increasingly on an entire range of actors and forces - from the multinationals to the missionaries.
Unelected global establishments like the World Bank, international peacekeepers or environmental NGOs managing protected areas progressively direct the lives of powerless citizen of economies that are weak (Anon., 2010).
We've talked about what globalization is, what the key component drivers of globalization are, how it affects the production process. In doing so we've talked about the MNC's (MNE's) and also how the demographics have changed since globalization started. This also has provided us with a picture of how managers who are working for transnational organization take into account different factors for their, planning, organizing and leading decisions. Advancement in technology did not globalize the production and marketplace but it has increased the momentum of globalization manifolds. Although globalization is widely considered as a positive phenomenon but as always everything has its virtues and vices.
Anon., 2010. International Labor Organization. [Online] Available at: http://www.ilo.org/ [Accessed 27 February 2010].
Christos Pitelis, R.S., 2000. The nature of the transnational firm. Routledge.
contributors, W., 2010. Multinational corporation. [Online] Available at: http://en.wikipedia.org/w/index.php?title=Multinational_corporation&oldid=345942736 [Accessed 27 February 2010].
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Luo, Y. & Tung, R.L., 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, pp.38, 481-498.
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