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PSTUDY UNIT 1: GLOBALISATION AND INTERNATIONAL BUSINESSEXPLAIN THE PHENOMENON OF GLOBALISATION
Globalisation is the integration as well as the interaction of companies, people and governments
worldwide. Due to advances in transportation and communication technology, globalisation has
advanced. Globalisation is mainly referenced in terms of economic interactions and integration;
however, conflict and diplomacy are also part of the history as well as present globalisation.
Economic globalisation involves the economic resources of capital, technology and data along with
goods and services. Transportation and communication advancements have been major contributing
factors to globalisation and have encouraged and resulted in interdependence of economic and
cultural activities. The advances in transportation can be seen in the steam train, steamships, jet
planes and container ships. Advances in communication can be seen with examples such as the
internet, mobile phones and e-mail. Many feel that globalisation started in modern times; however,
this depends on perspective. For some, globalisation started with the colonies and the slave trade.
The creation of the British East India Company in 1600, the Dutch East India Company in 1602 and
the Portuguese East India Company in 1628 resulted in a platform being created for modern
globalisation. There is argument from scholars however, that globalisation only really started in the
19th century, as already discussed, with advances in transport and communications. These
advances, as argued, then brought about the reality of the convergence theory, especially evident in
Europe and Asia. The 1820s was when large-scale globalisation began. Globalisation quickly gained
traction in the late 19th century and early 20th century. Globalisation as a term was established in
the 1970s. In 2000, the International Monetary Fund (IMF) identified four main aspects of
globalisation namely capital and investment movements, migration and movement of people, trade
and transaction and dissemination of knowledge. The globalisation process affects and is affected by
business and work organisations, economics, socio-cultural resources, and the natural environment.
Globalisation is commonly divided into three major areas which are economic globalisation, cultural
globalisation, and political globalisation.
Perspectives: Sociological – slavery, socio-political incursion; Business – advent of MNCs; Economic –
combination of scarce global resources
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,IDENTIFY THE TYPES AND DRIVERS OF GLOBALISATION
The impact of globalisation can be placed into two broad categories: Product Globalisation and
Market Globalisation.
Production Globalisation: Is the sourcing of materials and services from other countries to gain an
advantage from price differences in different nations. Companies may purchase materials and
components from multiple countries and then assemble the product in yet another location to
reduce the costs of production. This change should lead to lower prices for consumers since
products cost less to produce. It also impacts jobs since production can shift from one country to
another. Usually from more developed countries to less developed countries with lower average
wage rates. Cost reduction, relocation near actual or potential markets, closer to major suppliers,
closer to major competitors.
Market Globalisation: Is the decline in barriers to selling in countries other than the home country.
This change makes it easier for companies to sell in other countries. Lower tariffs keep consumer
prices lower, fewer restrictions when crossing boarders makes it easier for a company to enter a
foreign market. It means that companies must consider other cultures when developing their
business strategies and potentially adjust their product and marketing messages if they are not
appropriate in the target country.
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,CLARIFY THE IMPLICATIONS OF GLOBALISATION FOR INTERNATIONAL BUSINESS
The primary effects of globalisation include:
Distributed operations: companies may locate facilities in multiple countries. There are many
reasons to spread out operations including reduced labour or production costs in the country where
the plant is located. Reduced distribution costs (locating a plant near to the customers).
Location: companies may locate their firms in new places to reduce labour and production costs and
to take advantage of free trade zones (a geographic area where goods may be landed, stored,
handled, manufactured, or reconfigured, and re-exported under specific customs regulation and
generally not subject to customs duty – good can travel freely between countries and no tariffs are
charged when the goods are crossing the boarders – keeps process lower).
Increasing complexity results from the above processes.
THE PROS OF GLOBALISATION:
Globalisation has caused a shift in First World countries from industrial and goods based economies
to service based economies. Countries would not trade between each other and existed in a private
bubble. Everything a country consumed would have to be produced by the country itself. This meant
that countries would have to produce their own goods. However, as trade and globalisation
increased certain countries would specialise in the production of goods and some would specialise in
the production of services. Globalisation benefits first world countries as they are able to sell more
products to the emerging third world countries. Money then returns to the companies in the
developed countries. Globalisation means that businesses have more customers across most of the
world and so more opportunity to make a profit.
Globalisation means there is more trade between countries, this changes the product selection
available to consumers in countries and so consumers have a larger selection to choose from.
- Improved access to technology and improved healthcare felt most in developing countries.
- Greater understanding and knowledge of many countries cultures.
- Investment into developing countries’ economies.
- Greater range and access to different products.
- Increased production for company’s due to greater demand.
- Larger market range.
- Job creation due to location specific advantages. Creation of meaningful and sustainable
jobs in some offshore locations that were previously unattractive for location production facilities.
This further reduced household poverty levels in these locations.
- Countries benefitting from other countries specialities.
- Cheaper products due to the reduction of costs.
- Advancement of transport technology has made it faster, safer and cheaper (and more
comfortable) to travel across the globe.
1. There is a greater market for product and services to be distributed to.
2. The consumer of the product or service will benefit.
3. The business will benefit.
4. Globalisation can improve business relationships between countries in different aspects.
5. The quality of product/service can improve by working in more competitive markets.
6. Quality of the product will go up and the price will go down.
THE CONS OF GLOBALISATION:
A lot of the protests against globalisation have been directed at the key institutions of globalisation –
The G8, the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation
(WTO).
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, Businesses in the third world countries have to compete with these large conglomerates and as
these large conglomerates have a comparative advantage due to the economies of scale, the smaller
local businesses find it hard to compete. As a result these local businesses are not profitable as they
have to charge higher prices (resulting in fewer customers) than the global businesses. In the end
these smaller local businesses can’t survive.
More trade between countries, changing the product selection available to consumers in countries,
also results in countries losing their identities.
- Outsourcing of services to other countries.
- Possible increase in unemployment due to the pressures created by international
competition necessitating the relocation of production facilities of the MNC. Through this jobs have
been created in some locations while the locations being divested from have suffered higher
unemployment rates and the resulting social issues.
- Closure of small businesses.
- Spread of pests and diseases.
- Cheap imports result in domestic businesses struggling for survival as they cannot
complete.
1. Traditional norms and culture may be lost and ignored.
2. Local small business may be overtaken or exploited.
3. It may spread diseases between countries with liberal or no customs and quarantine laws.
4. It may provide a larger market for illegal resources being traded.
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