MGMT20144 Management Business Context Master of Business Administration (MBA) School of Business and Law MGMT20144 Management Business Context Unit 10 Globalization and Emerging New Worlds Introduction The term globalization is now used by the general public in everyday communication as well as by specialist writers and commentators in virtually every sphere of life. Indeed, it has developed as a field of study in its own right. As its use spreads across discipline areas and languages, the term globalization continues to mystify people who try to understand its true meaning. It seems to mean different things to different people. There are those who see this much discussed phenomenon and credit it with lifting hundreds of millions of people out of poverty. There are also those who, much fewer in number, who who see it as part of an imperialist conspiracy to re-colonize the world using free trade and global economic institutions. While those adopting the former perspective might regard it as providing solutions to a considerable number of the worlds problem, many of those who adopt the latter view consider globalization as a source to manipulate and control outcomes in favor of powerful corporations. This unit touches on issues that will be covered in greater detail in courses such as MRKT20052 Advanced Marketing Management in which the issue of global markets and global products and brands will be discussed similarly in MGMT20133 Strategic Business Management the themes of globalization and localization and choices for the firm in strategy regarding competing in a global market will be considered. Finally, ethics and sustainability aspects are paramount when considering the potential processes of globalization and outcomes, therefore a course such as MGMT20134 Business Ethics and Sustainability will necessarily have some consideration of globalization as a topic. Learning objectives This unit has the following learning objectives: ⦁ To understand the concept of Globalization and how it has impacted upon the operations of the contemporary business organization. ⦁ Examine the arguments around the level of globalization evident in the world and consider the degree of global product and service reach and the capacity for local service and product sustainability. ⦁ Consider both the opportunities and threats that globalization poses and the initiatives managers need to develop to effectively deal with the challenges and issues that these bring. ⦁ Recognize the potential new world influences in global markets, institutions, and systems brought about by globalization. ⦁ Apply knowledge and skills gained from this unit towards resolving business challenges and issues. ⦁ Globalization Hill (2009, 2015) argues that globalization has made countries and companies interdependent. To illustrate this point, he uses the example of ‘a Brazilian [who] might drive to work in a car designed in Germany that was assembled in Mexico by DaimlerChrysler from components made in the United States and Japan that were fabricated from Korean steel and Malaysian rubber’. The example goes on to highlight other interconnections and the interdependence of producers and consumers. This reading defines globalization as ‘the shift toward a more integrated and interdependent world economy’ (Hill, 2009, 2015). To better understand this phenomenon, two particularly important facets of globalization are identified in this reading: The globalization of markets and the globalization of production. The globalization of markets is defined by Hill (2009, 2015) as ‘the merging of historically distinct and separate national markets into one huge global marketplace’. As barriers to trade and investment between countries are coming down, the volume of global trade has been increasing (Hill, 2009, 2015). This increase in global trade has been accompanied by a convergence in consumer tastes and preferences across national boundaries, thus creating global markets for many famous-brand products (Hill, 2009, 2015). The globalization of production is defined by Hill (2009) as ‘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 (such as labour, energy, land, and capital’. This has in turn been facilitated by the removal of barriers to investment as well as cross-border trade. Over the past two decades, there has been a sharp increase in foreign direct investment by multinational companies in developing countries such as Mexico, China and India to set up manufacturing facilities there to take advantage of lower labour costs in those countries (Hill, 2009, 2015). A significant proportion of the goods produced in these countries use components sourced from other parts of the world and are exported across the globe (Hill, 2009). The Boeing 777, one of Boeing’s most successful commercial jet airliners in the global market is a true global product. Some eight Japanese suppliers build parts for the fuselage, doors, and wings; a supplier in Singapore makes the doors for the nose landing gear; a further three suppliers in Italy manufacture wing flaps; and so forth. In total, some 30 percent of the Boeing 777, by value, is built by foreign companies (Hill, 2009). Similar views on Globalization are held by Peng (2014) and Ahlstrom and Bruton (2010) who describe Globalization in terms of increased integration of countries and peoples and increased trade, investment and cultural exchange between nations. Clearly the key aspects of Globalization are greater cultural and market based interactions aimed at mutual benefit. It is difficult to ascribe a single reason for the spread of globalization. There are a number of historical developments and institutions that have contributed toward creating conditions for globalization. Your guided reading for this unit discusses a number of global institutions that have come into existence since the end of World War II to manage, regulate and police the global marketplace. These include the World Trade Organization, the World Bank, the International Monetary Fund and the United Nations. These and other international organizations and financial institutions together constitute what is sometimes referred to as the ‘architecture’ of globalization, although this term is not used in your guided reading (Hill, 2009). One interesting thing about the multilateral international institutions is that no country is forced to join them. On the contrary, these institutions were created by voluntary agreement between nation states. For example, the most important aim of the World Trade Organization (WTO) is to persuade its members to lower barriers to cross-border trade and investment. Yet many countries had to wait for years to be able to join this organization or its precursor, the GATT. Some others, including Russia, have still not been able to join because they have not complied with the tough entry requirements that demand a strict timetable for the removal of tariff and non-tariff barriers by the applicant state (Hill & Hult, 2016). Your guided reading then examines the main drivers of globalization. In addition to declining trade and investment barriers, the most significant driver is technological change, which includes the invention of the microprocessor and the subsequent revolution in the information and telecommunications industries (Hill, 2009). The invention of the Internet, especially the World Wide Web and its ever-expanding use as a communication tool and source of information, is also one of the main drivers (Ahlstrom & Burton, 2010; Hill, 2009). One of the most interesting phenomena in the recent past has been a dramatic change in the demographics of the global economy. The United States’ role as the world’s dominant economy is being challenged by the emergence of the European Union as a single market and the rise of China and India as future economic superpowers. The United States has become what is often described as a post-industrial society, with a declining share of the world’s industrial output (Hill, 2009; Hill & Hult, 2016), while China has become the factory to the world. Hill (2009) also examines the impact of globalization on jobs and incomes in both developing and developed countries. This is, of course, a very contentious subject. For example, those workers in China or India who have benefited from increased job opportunities and higher wages as a result of globalization have no reason to complain. But workers in the automobile industry in the US or the textile, clothing and footwear (TCF) industries in Australia, who have lost their jobs because the goods they produce can’t compete with cheaper imported products, blame globalization for their declining living standards. Hill (2009) briefly reviews the challenges of managing in the global marketplace. However, this discussion largely focuses on the differences between domestic business and international business rather than elaborating on management issues that are a direct result of globalization. The Globalization Debate Globalization – The World is Flat There are two prevalent perspectives on globalization. Firstly, the proposition that globalization is prevalent and growing as presented by Thomas Friedman. Friedman a journalist bases his proposition on the growth of global products and markets the reach that technology, particularly the internet allows to have individuals personally connect globally, which he refers to as globalization era 3.0. He proposes that the world is flat and that we are more globally connected than ever before. Friedman identifies the first globalization era, globalization 1.0 as at the country (nation) level with countries reaching out in trade to other countries in the world from 1492 (discovery of the Americas) to the early 1800’s (beginning of global arbitrage where products in one market eg tobacco, spices in the Americas could be bought then sold in another market Europe for a higher price so long as the price differential is maintained before the final sale transaction). The next era, globalization 2.0 involved Companies or Corporations trading after the demise of the British East India Company. This lasted until 2000 at which point Friedman contends globalization 3.0 at the individual level began in earnest with significant power and choice at the individual level driven by the internet and e-commerce options for consumers and suppliers across the globe. Globalization – Globaloney – no evidence for the claimed high extent of globalization A contrary view that globalization is not at the heightened levels claimed by Friedman and others. Some of who have ventured that global trade interactions in some categories are at a staggering 85% and upwards. Ghemawat has used international economic and trade data to make his case. Pankaj Ghemawat, is a professor of strategic management and Anselmo Rubiralta Chair of Global Strategy at IESE Business School at the University of Navarra in Barcelona, in his book World 3.0: Global Prosperity and How to Achieve It he makes the case for a world that is less integrated and far from globalized. According to Ghemawat, only 10 to 25 percent of economic activity is truly international. He argues that most of that is regionally focused rather than truly global. One can easily see that regional trade agreements such as the EU or ASEAN would account for a considerable value of this trade. Ghemawat also presents the following data that illustrates the very low levels of global interactions and exchanges in the global market. The following are percentages of global activity as a total of all activity in each category: ⦁ International mail: 1% of all mail ⦁ International telephone calling minutes: less than 2% of all calls ⦁ International Internet traffic: 17% to 18% ⦁ Foreign-owned patents: 15% of all patents ⦁ Exports as a percentage of GDP: 26% ⦁ Stock-market equity owned by foreign investors: 20% ⦁ First-generation immigrants: 3% . As Ghemawat frankly notes, 90% of the world’s people will never leave their birth country. This points to a global populace that will have a limited participation in any broad notion of globalization. The activity presented below is designed to aid your thinking through issues associated with the the arguments for globalization and the impacts of globalization on nations, societies and businesses generally. Required Reading References: Ahlstrom, D. & Burton, G. D. 2010. International Management, Cengage Learning, Mason, OH, U.S.A. Friedman, T. 2007. The World is Flat: A brief history of the 21st century, Release 3.0, Picador, New York, N.Y. Ghemawat, P. 2011. World 3.0: Global Prosperity and How to Achieve It. Harvard Business School Publishing, Boston, M.A. Hill, C.W. 2009. International Business: Competing in the Global Marketplace, McGraw Hill, New York, N.Y. Hill, C.W. 2015. International Business: Competing in the Global Marketplace, 10th Edn. McGraw Hill, New York, N.Y. Hill, C.W. & Hult, G.T.M. 2016. Global Business Today, 9th Edn. McGraw Hill, New York, N.Y. Peng, M.W. 2016. Global Business, 4th Edn. Cengage Learning, Mason, OH, U.S.A.