Globalization: Trends and Prospects
What is Globalization?
• From a general/macro-perspective
• From a firm perspective
The Growth of World Trade and World Output
180
160
World
Trade 140
120
World
Output 100
1982 1986 1990 1994 est
The Shrinking Globe
1500 -1840 1850 - 1930 1950s 1960s
Propeller Jet
Steam locomotives aircraft passenger
Best average speed of horse- average 65 mph. 300 - 400 aircraft, 500
drawn coaches and sailing Steamships average 36 mph. - 700 mph.
ships, 10 mph. mph.
The Changing Pattern of World Output and Trade
The Changing Nature of Global Output
Shares of World Output
65%
Developing
countries† 60
55
50
45
Rich
Industrial 40
Countries
35
1990 2000 2010 2020
forecast †
Changes in the Annual Inflows of Foreign Direct Investment
$bn
Evaluating Globalization
• The essence of globalization is a subordination of human rights,
of labor rights, consumer, environmental rights, democracy
rights, to the imperatives of global trade and investment. This is
world government of the Exxons, by the General Motors, for the
DuPonts (Ralph Nader)
• I think it's helping human rights because what it's doing is it's
giving jobs to people at salary levels that they never would have
had access to before. So in time I think this becomes more self-
corrective (James Robinson, former head of AmEx)
• Asia: Child Labor and 11c an hour (Nike)
Firm-level Benefits of Globalization
• Increase profitability in ways not available to purely
domestic firms:
– greater returns/diversify risk by exploiting core
competencies abroad (domestic market saturation; new
market opportunities)
– realize location economies by rationalizing value chain
• implications for both lower costs & differentiation
through global web of value creating acts
– realize greater experience curve economies
• learning effects in technologically complex tasks &
economies of scale from barriers to entry
Global Standardization Philosophy
• Customer needs and interests are becoming increasingly
homogenous worldwide
• Consumers are willing to sacrifice preferences in product
features for lower prices at higher quality
• Substantial economies of scale in production and marketing
can be achieved by developing standardized marketing
programs
Constraints to Implementing Global
Standardization Strategy
• External
– Governmental and trade restrictions
– Differences in marketing systems
– Nature of competitive structure
– Socio-cultural influences on consumer preferences
• Internal
– Financial and managerial constraints
– Local management motivation and attitudes
Industry Globalization Drivers
MARKET DRIVERS
Industry
Globalization GOVERNMENT DRIVERS
COST DRIVERS
Potential
COMPETITIVE DRIVERS
Globalization Forces: Market Drivers
• Convergence of per capita income, lifestyles and tastes??
• Global Customers due to increased travel and
organizational buying
• Growing global and regional channels
• Increasing number of world brands and global advertising
Strength of Market Globalization Drivers
Civil Aircraft
Automobiles
Toothpaste
OTC Pharmaceuticals
Low High
Globalization Forces: Cost Drivers
• Continuing push for economies of scale (but offset by
flexible manufacturing)
• Accelerating technological innovation
• Increasing cost of product development relative to market
life
• Advances in transportation
• Emergence of newly industrialized countries with
productive capability and low labor costs
Strength of Cost Globalization Drivers
Pharmaceuticals
Computers
Commercial Banking
Soft Drinks
Low High
Globalization Forces: Competitive Drivers
• More countries becoming key competitive battlegrounds
• Rise of new competitors intent on becoming global
• Growth of global networks making countries
interdependent in particular industries
• More companies becoming internationally oriented rather
than nationally centered
• New global alliances
Strength of Competitive Globalization Drivers
Civil Aircraft
Computers
Automobiles
Soft Drinks
Book Publishing
Low High
Globalization Forces: Government Drivers
• Reduction of tariff barriers
• Reduction of non-tariff barriers
• Creation of new trading blocs
• Decline in the role of government as producers and
consumers
• Market liberalization and privatization
• Adoption of common standards
Strength of Government Globalization Drivers
Toothpaste
Soft Drinks
Automobiles
Civil Aircraft
OTC Pharmaceuticals
Low High
The Structure of the Course
The Environment
The Firm
Business
operations: