1. Executive summary
Globalization is a phenomenon that has become one of the key management issues of the beginning of the 21st century. Globalization presents both opportunities and threats: opportunities in the sense of economic abundance, freedom of political expression and cultural diversity; threats in the form of economic insecurity, political instability and cultural decay. The development of globalization is not an isolated historical event, but also is the latest phase in the evolution of international business and the integration of the world economy. One global trading influences all the organization of different sizes, from micro-firms to multi-national corporations, accompanying both good and bad results.
2. Terms of reference and procedure
Globalization is treated as a process that is beneficial- a key to future world economic development. It is inevitable and irreversible. As it has become key issues of management, finding out more about globalization is one of our academic purposes. The main ways of producing this report are researching from relative texts, reports and web sites.
Globalization, the ‘big idea’ of the late twentieth century, lacks precise definition. Nonetheless, carrying different connotations for different people, it’s believed that there is a broadening, deepening and speeding up of world-wide interconnectedness in all aspects of life, from the cultural to the criminal, the financial to the environmental. More than this, the world is being moulded, by economic and technological forces, into a shared economic and political arena.
Globalization could significantly expand plenty of opportunities in parts of trade, international investment, and technological advances, but it could also expand a lot of risks all around the world.
‘In the developing world, poverty continues to increase in absolute terms, and the gap between ‘successful?and ‘unsuccessful?countries is widening. In the industrialized world, unemployment has reaches levels not witness since the 1930s and, in some countries, income inequalities are wider than at any time this century.?
It is hard to say whether globalization is good or bad, depending on focused issues. Following we will talk about the development of globalization and how it affects organizations of all sizes.
4.1 The Development of Globalization
4.1.1 The Development of Globalization
The original and continuing fundamental of economic globalization is trade. Since World War II, the global trade has increased significantly. The composition of global trade has altered greatly. Many industrialized countries of the West were involved in ‘free trade? they started a process of removing barriers to the free flow of goods, services and capital between nations. In that situation, more trading partnership have been established. Under GATT (General Agreement on Tariffs and Trade) eight rounds of trade agreements between 130 nations were conducted to lower barriers to trade. Last round (Uruguay Round) resulted in the creation of The World Trade Organization (WTO) to police international trade. All these things declined barriers to trade and increased technological capabilities.
Lowering trade barriers made globalization possible and changing technology made it a reality. The sharp growth of the internet and World Wide Web has provided a means to rapidly communicate with international markets.
‘Improvements in transportation technology including jet transport, temperature controlled containerized shipping, and coordinated ship-rail-truck systems have made firms better able to respond to international customer demands. Notice the world is getting smaller.?(2001, http://www-biz.aum.edu/jclark/305/Chpt_1.htm, accessed 10/01/02)
The development of technology creates new international business opportunities. In its turn, globalization affects technological change. Access to international markets enables firms to recoup higher costs of developing new technologies. As a consequence of these trends, the new environment offers more opportunities to modern commerce. But is also more complex and competitive than a generation ago.
Following is a diagram for illuminating the development of globalization. (Data from Waters Malcolm, 1998, P159)
4.1.2 What is Globalization?
In very single instance, the word ‘globalization?seems to have a different meaning. Nevertheless, ‘most commentators would identify two fundamental elements: an ever accelerating pace of international economic integration combined with rapid population growth and improved education levels in developing countries.?(Wes Marina, 1996, P1)
At a business level, globalization is thought when companies decide to take part in the emerging global economy and establish themselves in foreign markets. First they will adapt their products or services to the new markets. Then, they might take advantage of the Internet revolution and establish multilingual corporate web sites or even as an e-business.
A well- balance definition of globalization is provided in a report on a symposium on the globalization of industry organized by the OECD industry Committee (1994,P191), held in December 1993. The symposium comprised government officials and corporate officers brought together to discuss globalization. The group of representatives agreed that the key elements of globalization are:
?The organization of production on an international scale, enabling firms to establish a presence in major foreign markets, gain efficiencies and customize products for local markets.
?The acquisition of inputs and supporting services from around the world, enabling firms to exploit the specialization of many countries and minimize costs.
?The formation of cross- border alliances and joint ventures with other companies, enabling firms to combine assets, share costs and enter new markets.
4.2 How It Affects Organizations of All Sizes
Today, globalization is a major driver that has impact on nearly every business. Operating a business in different countries means different cultures, political systems, economic systems, legal systems, and different levels of economic development. The internationalization of markets for sales and purchasing at least indirectly influences every business. All of these will impact the firm’s ability to direct business. As a result, management within an international environment is very complex. There are thousands of organizations by different sizes in the world, how are they affected by globalization?
4.2.1 Small and Medium-Sized Enterprises (SMEs)
Small and Medium Enterprises (SMEs) are an important and integral part of the national economy. Though globalization and IT are creating new opportunities for them, they are also faced with many difficult challenges. SMEs play a crucial role in economic and social development. They need to be strengthened in order to sustain and develop.
In Larry Downes?article Beyond Porter, he says that technological progress in logistics and distribution enables nearly every business to buy, sell and cooperate on a global scale. Similarly, customers have the chance to compare prices globally in order to find the best offer. As a result, even smaller and local businesses have to see themselves in a global context, even if they do not intend to launch their own import or export activities. Doubtless, a major strength for many SMEs is their close customer contact and their ability to maintain close customer relationships.
The contribution of SMEs is important in economic growth, job creation, local development and social cohesion. ‘Dynamic SME sector is important for restructuring economies and combating poverty. It is important to avoid simply picking up other country’s schemes for adoption without understanding the background of it, may fail. Therefore, customizing those schemes to fit their own context, their own conditions and situations, is essential.?(R.M.P.Hewaliyanage, 2001, http://www.isbc2001.org/home/RMP%20Hewaliyanage.pdf, accessed 10/01/02)
There are numerous advantages and disadvantages in relation to globalization as SMEs:
1. For those SMEs depending on a limited number of people, they may be stable and have long-term thinking, perspectives. In addition, they have high identification with the business and high commitment. So there is no pressure for them for thinking about short-term success. On the other hand, they may have difficulties to adapt corporate culture to new situations and challenges. In this kind of firms, owners and managers are often the same persons. To be honest, the owners are usually limited to the experiences and the knowledge. It is not good for the development of the firms.
2. For those simple structures?SMEs, they may have high flexibility and adaptability. And the communication and cooperation within the organization may cross functionally. So they will have a good relationship between employees and managers. Nevertheless, in many cases, they are not suitable for the complex planning and implementing of international activities.
3. For those small size SMEs, their basics are for specialization, so they may often successful with niche strategies. On the contrast, in terms of financial methods and manpower, they have limited resources. For instance, their spending for market research and market entry take a much higher proportion of total spending in SMEs than in larger businesses. They may be lack of internationally experienced employees and have limited number of staff to take on additional tasks.
The SMEs need to make effort in order to be successful in economic globalization.
The owners and managers of SMEs ought to be convinced that exporting international markets is a strategically important step for the businesses long-term development. Only then, they will be able to overcome the numerous risks and problems, which accompany internationalization of a business. Furthermore, to make an SME or any business a global business requires an openness to change among the owners and the management team. So the heads of the firm must have international exposure and acquire experience in overseas?markets and cultures. Finally, every SME has to understand that internationalization of a business involves a process of great change. This change requires taking risks, opening up the firm’s culture and a great capacity to learn.
4.2.2 Multi- national Enterprises (MNEs)
The main focus for many hopes and fears about economic globalization is the MNE (Multi-National Enterprise). The MNE seems Janus, the two-faced symbol of globalization. ‘For critics of capitalism they are the vehicles by which intolerable and inhuman practices of exploitation are spread across the globe, and for its friends they are the virtuous sources of investment, technology transfer and the upgrading of the labour force.?(Waters Malcolm, 1998, P79)
Generally speaking, the headquaters of the MNE are in the home country, but the operations are in the others. Usually they have three common characteristics: ‘I) They must respond to many different environments. II) Strength of MNE’s come from their ability to pool resources. III) Organizational structure and culture is important for planning and controlling resources.?(1999, http://www.qub.ac.uk/mgt/staff/siobhaine/sem2.pdf., accessed 11/01/02) IV) These multi-national firms offer a standardized product world-wide, they attempt to create a standardization of tastes and preferences, like Coca-Cola and McDonalds.
So why the large firms would like to become MNEs. Except huge profits, there are some reasons. First, becoming international companies can avoid over reliance on home base. Moreover, it is undoubtedly that there are many opportunities in overseas and less competitions. The less costs of labour and resource might be another reason.
The expansion of world trade has not been lost on companies catering to mass consumer markets. Indeed, corporate executives have long been advised that: ‘The globalization of markets is at hand?(Levitt 1983 P92). Today the world’s 500 largest MNEs, based in the United States, the European Union, and Japan. They account for more than 90% of the world’s volume of FDI and about half of world trade. Yet these MNEs are not really “global.” Most of them are intra-regional, rather than inter- regional.
For example, the American fast food operator, McDonald’s, for example, faces huge competitions at home market that is expanding by less than 5 per cent a year and in which it already has 90,000 outlets. The only possibility for increased profitability is globalization. This it is doing- two-thirds of the outlets it opens each year are now outside the USA where only two-thirds of all its restaurants are now located. It is also engaged in transferring its management culture to regional centers, for example, to Hong Kong for expansion into China. (The Economist 13/11/93 P69-70)
A classical example of a ‘villainous?MNE might be General Motors but only about a third of its assets and a third of its sales are outside the USA (and most of these are in first-world Canada, Europe and Australia). Perhaps a more appropriate example of a ‘true?multi-national might be the Swiss-Swedish engineering group, Asea Brown Boveri or the Dutch Electronics firm, Philips, each of which have over 85 per cent of their sales outside their country of origin. (Waters Malcolm, 1998, P76, data from Emmott 1993 P6)
Boeing might be the best aircraft company in the world. Boeing gains from their excellence. This is considered a global web of suppliers. ‘In the production of its 777, Boeing’s latest commercial airliner contains 132,500 major component parts that are produced around the world by 545 suppliers. Countries represented in the production include Japan, Singapore and Italy. Boeing also gains potential access to the markets where these supplier relationships exist.?(2001, http://www-biz.aum.edu/jclark/305/Chpt_1.htm, accessed 10/01/02)
From all the evidences mentioned above, we can realize that globalization has gone through a long historical development and economic and technological evolutions. In additional, it presents both positive and negative results on different sizes of organizations.