Globalization was the catchphrase of the 1990s, and there is no indication that it will fade in the twenty-first century. Globalization is defined as the expansion of commerce and investment, as well as the expansion of multinational enterprises and the integration of economies around the world. According to Punnett (2004), the concept of globalization is built on a few fundamental premises:
- International communication and travel have become easier and faster as a result of technological advancements.
- The world has become smaller as communication and travel have improved.
- People are more aware of events occurring outside of their home nation and are more likely to travel to other countries as a result of a smaller world.
- A better understanding of global options results from increased exposure and travel.
- Increases in international commerce and investment, as well as the number of enterprises operating across national borders, resulting from a better awareness of prospects.
As a result of these advances, the world’s economy is becoming more intertwined.
- Markets, supplies, investors, locations, partners, and competitors can all be found everywhere in the world, and managers must be aware of this. Successful firms will seize opportunities wherever they arise and be ready to weather storms. In this climate, successful managers must be able to see similarities and differences across national borders to capitalize on opportunities and mitigate risks.
- The proliferation of many brands and services around the world exemplifies the globalization of business. Japanese electronics and automobiles, for example, are widely used in Asia, Europe, and North America, whereas autos, entertainment, and financial services from the United States are also widely used in Asia, Europe, and North America. Furthermore, businesses have become transnational or multinational, meaning they are headquartered in one country but have activities in other countries.
For example, Honda, founded in Japan, has the largest single factory in the United States, while Coca-Cola, based in the United States, has operations in France and Belgium, with abroad sales accounting for about 80% of the company’s revenues.
- There were reasons to believe that globalization was working in the early 1990s. The economic success of Singapore, the rapid economic growth of the Asian Tigers (as the fast-growing Asian countries were dubbed), the industrialization of countries like Brazil and Mexico, and a slew of other positive economic events around the world all suggested that the effects of globalization were good for development in both rich and poor countries. During the 1990s, the United States enjoyed one of its longest periods of expansion, and much was said about a “new economy” based on globalization that was resilient to economic shocks and recession.
- Unfortunately, this quick expansion did not come without costs. The World Trade Organization sessions in Seattle were a disaster, with anti-globalization groups protesting on many fronts—from animal rights to environmental concerns, poverty relief, and American job creation. Because they represent such different and frequently contradictory viewpoints, anti-globalization forces have yet to congeal into a coherent whole. However, the ferocity with which they protested demonstrates that globalization is not a cure for the world’s issues. In addition, in the late 1990s, the Asian Tigers suffered significant economic reverses. Argentina’s economy, which had been one of the stars of the 1990s, fell in 2002 when the country’s currency could no longer keep up with the US dollar.
- Further issues arose in the economies of the Triad. For much of the second half of the twentieth century, the Triad of Japan, Europe, and the United States controlled international trade and investment. In the late 1990s, the Japanese economy entered a severe period of deflation and recession, and in 2001, both the European and American economies took a downward turn. The Triad’s economic predicament, in turn, harmed the rest of the world. The September 11th terrorist strikes in the United States aggravated an already dire economic position.
- Managers must consider the benefits and drawbacks of globalization while designing an acceptable global strategy. A global strategy must be considered in the context of both global and domestic developments.
- International strategy is a complete management technique that enables businesses to function and compete effectively beyond national borders. While top executives often design global strategies, they rely on all levels of management to successfully implement these plans.
- Companies utilize a variety of approaches to achieve the objectives of these strategies. Some corporations, for example, make alliances with businesses in other nations, others purchase businesses in other countries, and still, others produce products, services, and marketing campaigns aimed at clients in other countries. Some basic aspects of international strategies are similar to domestic strategies in that businesses must decide what products or services to sell, where and how to sell them, where and how they will produce or provide them, and how they will compete with other businesses in the industry to achieve their objectives.
- Other details that rarely, if ever, come into play in the native market must be considered when developing international strategy. Cultural, geographic, and political distinctions are the source of these other areas of concern. As a result, in a domestic market, a company only needs to develop a strategy based on known governmental regulations, one language (generally), and one currency, whereas in the global market, it must consider and plan for various levels and types of governmental regulation, multiple currencies, and multiple languages.
- The most recent wave of U.S. corporate globalization began in the 1980s when corporations realized that focusing just on the home market would result in stagnant sales and profits and that emerging economies offered numerous prospects for expansion. Part of the impetus for globalization was the loss of market share to multinational firms from other nations, particularly those from Japan, in the 1970s. Initially, these American businesses attempted to imitate their Japanese counterparts by instituting Japanese-style management structures and quality circles.
- Following the adaptation of these practices to meet the needs of American businesses and regaining market share, these businesses began to expand into new markets to spur growth, enable resource acquisition (often at a lower cost), and gain a competitive advantage through greater economies of scale.
- The globalization of American businesses has not been without its critics and worries. Companies in the United States have been accused of exporting employment, exploiting child labor, and contributing to poverty. Demonstrations and consumer boycotts have preceded these accusations. Companies in the United States aren’t the only ones who have been harmed. Companies in the rest of the industrialized world, like those in the United States, have gone global, with occasionally bad effects.
- Interestingly, there has been a surge in multinational companies from emerging and transitional nations in the late twentieth and early twenty-first centuries, and this tendency is projected to continue. Companies from Southeast Asia, India, South Africa, and Latin America, to name a few countries and regions, are making their mark around the world through exports and investment.
Types of Global Business Activities
Trade, investment, strategic alliances, and licensing or franchising are four various strategies for businesses to globalize or operate in multiple nations. Automobiles and electronics are examples of tangible commodities that companies may choose to exchange (merchandise exports and imports). Companies may also choose to trade intangible things like financial or legal services (service exports and imports).
Various types of overseas investments might help companies break into the global market. Foreign direct investments allow firms to control enterprises and assets in other nations. Companies may also choose to make portfolio investments by purchasing the stock of companies in other countries to obtain control of them.
Forming strategic alliances with companies in other nations is another approach for enterprises to tap into the global market. While strategic alliances can take various forms, some allow each firm to get access to the other’s home market and sell their products as being associated with the well-known host company. This type of international commerce also allows a corporation to avoid some of the challenges of internationalization, such as varying political, regulatory, and social environments. Because it is familiar with these challenges, the home firm can assist the global company in addressing and overcoming them.
Finally, businesses might enter the foreign market either by licensing or franchising. In exchange for royalties, a firm grants another company the right to utilize its brand names, trademarks, copyrights, or patents. In contrast, franchising is when a corporation agrees to let a company in another nation utilize its name and methods of operation in exchange for royalties.
In general, a company’s international strategy is developed in conjunction with its overall plan, which covers both domestic and international activities. There are four factors of strategy to consider: (1) scope of operations, (2) resource allocation, (3) competitive advantage, and (4) synergy. The first component includes the geographical locations of potential operations (countries and regions), as well as potential markets or niches in various geographies. Managers must choose the markets that offer the organization the best prospects because companies have limited resources and different locations offer varied advantages.
The second part of the global strategy focuses on how to best utilize corporate resources to compete successfully in the target markets. This part of the strategic planning process also determines the relative value of various company operations and bases resource allocation on that relevance. A corporation might opt to allocate resources based on product lines or geographical areas, for example.
Many businesses are increasingly outsourcing a large portion of their activities to other countries. If you make a call to inquire about your credit card, for example, you could be speaking with someone in India or Mexico. Similarly, manufacturers frequently outsource production to countries with cheap labor costs. Concerns about ethical issues like slave and child labor have prompted firms to outsource under strict conditions—offshore production may be subject to surprise visits and searches, and outsourced facilities must meet particular requirements.