Market globalization refers to national and multinational global customers who search the world for suppliers but use the purchased product or service either in one country or in many (Parker 1998). With this is mind I shall go on to identify the key factors of this global phenomenon, highlighting the advantages and disadvantages with appropriate examples to demonstrate. I shall mention in detail how trading blocs, less economically developed countries, the World Trade Organisation, BRIC countries, national culture and the internet all merge with one another and over the past 30 years has caused globalization and whether or not it will continue at this unstoppable pace.
The term ‘globalization’ has been explored by many, leading to a strong debate on the actual meaning of the word. Despite the various views and ideas on it, there seems to be a broad similarity which pops up more times than one, this is that we are constantly surrounded and live in a period of globalization and it is ever growing at a rapid rate. The business definition of globalization is “The convergence of consumer tastes and product designs on a world wide scale and the formation of organisations with global or multinational scale operations” (Brooks 2004 pg 124) however there are more different brands of globalization such as cost globalization, competitive globalization, government globalization, which George Yip (1995) outlines to drive the industry.
As mentioned before globalization refers to ‘increasing global trend towards easier flow of trade’, this was done by increasing the number of countries embracing the free-market ideology which consists of trading goods and service without charging for them i.e. adding Tariffs, quotas, subsidies, etc. Although these types of measures appear to protect a countries economy, it only does so in the short-term as other countries will respond with the same tactic, this results in companies finding it increasingly difficult to export their products so as a consequence world activity falls.
To reduce this outcome the General Agreement on Tariffs and Trade (GATT) was set up in 1946 to reduce tariffs which had been mainly caused due to the two world wars. Although this was set up over 50 years ago, it’s still a relevant point as this was the origin of the World Trade Organization (WTO) which replaced GATT on 1st January 1995. The WTO has a greater global membership, comprising over 151 member countries (27th July 2007 – WTO.com) and has allowed 130 additional arrangements covering both the trade in goods and services causing a massive influx of free trade compared to the 128 GATT members which didn’t include intellectual property, investment and trade in services.
Thanks to the World Trade Organisation corporations have more flexibility to set up overseas as they have reduced trading barriers by creating trading blocs, this however can exclude some countries damaging their exports and therefore it is still possible that some trading blocs have damaged the growth of the world economy. This encourages multinational enterprises (MNEs) to set up in trading bloc countries especially less economically developed ones (LEDC) to exploit low start up costs and labour costs.
As a result this will also encourage more firms to join and so enhances competition and a source of Foreign Direct Investment (FDI) which is pumped into the country, increasing jobs, skilled workforce and contributing to an increased standard of living. However there is also a down side of these multi-million pound organizations becoming involved in an overseas market within a LEDC. Issues of immediate concern include different employment practices where employees get exploited for their labour by being paid below the poverty level (less than $1 a day), where there is little or no control over hours worked, where the concept of holidays do not exist, where there are little or no equal opportunities, where bribery and corruption is predominant and where environmental issues are of low concern and importance.
This brings me to my next key driver of market globalization and that is the shift of economic attention from MEDC’s to LEDC’s. Over the last 30 years there has been a dynamic shift in the production of secondary goods in particular, being made in LEDC’s. Four countries in particular which are producing and expanding their economy in rapid succession, mainly due to the secondary sector are the ‘BRIC countries’ (Brazil, Russia, India and China).
Today, the BRIC countries are major drivers of growth in the world economy boosting both global supply and demand with many of their industries tightly integrated into the global supply chain. This had lead to an increase in imports and exports to support the acceleration of expansion these countries are achieving, and because of companies outsourcing there, as it costs them less to produce products. This combined with intense competition from global competitors will increase efficient productivity while also driving down consumer prices and as a result will lead to higher consumer spending and higher GDP and a richer nation.
This would allow governments to focus their attention on increasing standards of living and fighting negative factors like corruption, it could also focus on increasing its workforce further by investing in education and training. However the negative side to this is that if a country(s) economic activity is closely inter-connected with a large economy and it were to crash then the FDI which they solely rely on will dry up and result in a struggle to cope.
This factor will continue to accelerate globalization because even thought the predominant LEDC’s have now been occupied by multinational enterprises there are still some countries that have been left out like Africa and southern American countries which will also no-doubt ably be gobbled up into being used for its cheap labour, scarce workers rights and over keen governments.
My next point will cover the important but controversial issue of ‘national culture’ which businesses face with expansion into other countries. One of the vital factors a company will have to consider when they internationalise is the new culture they are about to operate in. This could mean changing marketing, human resource management (HRM), the product itself, or the management styles. There are two ways a firm could approach this complex issue either by ‘The Convergence perspective’ (Kerr 1960; Levitt 1983) which suggests that a brand or company will be ‘accepted’ by the country and the way the business is run in terms of management practices, slots in with the national culture. Brands such as Coca-Cola, Nokia and Nike have standardised products and/or practices which can be used no matter which country they operate in.
‘The Divergence perspective’ suggest that it’s not so easy to transfer brands across to different countries and companies may face conflict with management practices because of national cultural differences. Companies can look to see if there are significant cultural differences or similarities by referring to Geert Hofsted’s Cultural Dimensions or Fons Trompenaars’s expansion of Hofsted’s model. One of the most famous examples of this is was the early stages of Eurodisney (an American/Canadian company) where the French customers were not happy about wine being unavailable in the Park and the employee turnover was very high.
It wasn’t until a French CEO was appointed that things began to turn around and implications were made to ease the national and business cultural clash. I believe this conflict-ridden issue will undoubtedly slow down the effect of globalization as it makes firms hesitant about setting up in countries with cultural differences. However as seen with the Eurodisney example it is still possible to work around these providing you have a flexibility to cross over to a polycentric perspective from an ethnocentric one.