The Main Drivers Stimulating Globalisation Essay Example for Free

The Main Drivers Stimulating Globalisation Essay The following essay looks at the main drivers stimulating globalisation and how they impact on global strategies. Globalisation is about the increased interaction and linking of world societies and there economies. The world economy is now more closely linked than ever through global markets and the global organisation of the production of goods and services. â€Å"Globalisation is a process in which the world appears to be converging economically, politically and culturally. Globalisation is seen by many as a fundamental change where national borders become irrelevant, a process accelerated by development in information and communications technology. † (Needle, 2004) The first and probably the most important driver stimulating globalisation is the triumph of economic neo-liberalism with regards to changes in government policies. Neo liberalism is a set of economic policies that have become widespread over the past 25 years or so. These economic policies have on the whole been looking at reducing barriers to the movement of goods, services and capital across national borders. Many people believe the most important being the reduction of government created barriers to trade such as tariffs and quotas(GATT/WTO) which in the past would have minimised and stifled international trade. These changes in government policy interventions saw an increase in the moving from government controlled systems/business’s to privately run business’s that are run for profit which really kick started competition within the market. Due to these reductions in barriers to trade and tariffs business’s can look at the world as one big global market, they can export and import goods for a minimum cost, they can base production at a location to optimise production and therefore lowering costs(greater economies of scale) and they also have a greater access to cheaper raw materials in order to become more cost efficient. Another driver is the vast and growing spread of international governance and regulations, this being vaster regulations across many countries . This move from shallow to deep integration has seen regulations become more standardised across a variety of countries, has lowered barriers and resulted in more cross border activity. A linked world economy has been made much easier by the agreement on global standards , there are many global and regional organisations such as the UN,WTO and the EU that have contributed to this process of standardisation. If we take the EU this is a political economic community of 27 member states located in Europe. The EU has created a single market through the standardisation of systems and laws which apply in all member states, this guarantees the freedom of movement of people, goods services and capital. These type of policies and regulations have really drove globalisation as it is now easier to trade in different countries, source materials, get funding and recruit people from these countries as workers. This can lead to companies maximising production as they have a greater amount of skilled labour to choose from. They can also cut costs as they can recruit and pay foreign workers at minimum levels. The regulation of laws on things such as product quality has also had a great effect. Organisations can now buy materials from certain countries cheaply knowing they have to be of a certain quality dictated by EU law, this makes the market more accessible and global. The emergence of worldwide financial markets and better access to external financing has had an impact on globalisation. The additional trade and investment generated by globalisation required a greater financial mobility which was helped by the removal of restrictions on the movement of capital through banking, stock markets and the WTO. This made it easier for companies to source financial backing anywhere in the world making the idea of trading internationally far more appealing to many organisations. In addition to consumer goods financial goods such as foreign exchange, shares and insurance are now also traded globally. New stock exchanges have been created and emerged around the world in order to meet this expansion of global trade in the financial sector. It has been thought that much of the cross border activity that occurs now is flows of financial capital. Although this is good for investors and means companies can get funding and investment from throughout the world so much easier now it also has its drawbacks and can lead to a crisis within economies. This was highlighted in the financial crisis that hit Asia in 1997, Asia as an economy was growing which attracted many investors to invest money within various area of the Asian economy at that time. When the economy slowed and there was rumour of a crisis many investors withdrew leaving the economy and many business’s in financial ruin. Technological advancements and innovations have effected globalisation as the world now has become a smaller place, things are now readily available and accessible throughout the world wherever you are. The world economy is now networked electronically through innovations in transport particularly in air travel and communications. People and businesses can now contact each other quickly and efficiently throughout the world through the internet, e-mail, telephones etc so wherever the company is situated they can contact each other at minimum costs. Advancements in transportation have had a major influence on companies going global. They can now transport goods and bring in raw material from all over the world quickly, efficiently and at a minimum cost. This is down to transportation speed and the ability to get access to quicker methods of transport now than in the past. Aeroplanes can now transport goods anywhere in the world quickly and cost effectively. In the past companies could only source and get goods locally as these methods of transport weren’t available or feasible. We can see that such developments in transport and communications have made the movement of people, goods, money and services much easier and have really been a major influence in globalisation and its attractiveness. The final driver of globalisation is social and cultural convergence there is now an increased circulation of people of all nations around the world due to there being fewer restrictions on travel etc. People want and will search for global products as everything is now more accessible. There has been a change in individual tastes and preferences which are in the direction of favouring greater choice in the range and origin of goods and services. This is attractive for firms as they no there are potentially profitable international markets that want there products. There has also been a change in cultures there has been a growth in cross-cultures. People have the desire to enjoy foreign products and ideas, adopt new technology and have a real desire to participate in a world culture. This has lead to a change in peoples values, collectivism is being replaced by individualism in many countries, they are changing more from traditional societies to more modern ones which increases demand for international products from other countries. There are various types of strategies that an organisation can implement that are also influenced by the main drivers stimulating globalisation. The first and most simple would be a home replication strategy this is when a firm takes the strengths of the business and looks to replicate that in the international markets that they want to move into. This strategy is usually more popular with smaller business that target a niche market, they look to expand into other markets and target niche markets within that market. The multi domestic strategy which is the strategy most firms take assumes that consumers needs and wants differ from country to country. To become competitive in these markets they tailor there product and operations to suit that country. The power within the organisation is de-centralized to strategic business units in each country and power is given within these business units to managers to make decisions in that particular country. The main driver behind this strategy is the varying cultures between countries in the world. It would not make sense to sell certain products in countries that have strong feelings against the product and will not purchase it. The best way to become competitive in these markets is to differentiate your product within that country. E. g. McDonalds not selling beef in India as they do not eat beef and selling chicken instead is a prime example of a multi-domestic strategy. The Global strategy is based upon the idea that consumers want the same things wherever they are in the world. Within this strategy the organisations products and services are the same across all markets throughout the world. This design is based upon the worldwide centralisation of decision making and control at the headquarters of the organisation. It is the head office of these companies that make all the key decisions regarding production, marketing etc and tell the head of the strategic business unit in each country what to do, the only decisions they make are with regards to the legal side of the country the company are doing business in to make sure they are working within the law. If done well this strategy can allow the organisation to achieve economies of scale. The main drawback within the strategy is it is not flexible to local markets and is very difficult to respond to changes within the local market because of how centralised it is. The transnational strategy is when the organisation tries to achieve both a global efficiency and an ability to respond to local market needs . This can be difficult to achieve because there is a real emphasis on the strong central control of the organisation as well as coordinating the activities to achieve efficiency and being responsive to the local market. An example of this local responsiveness with global efficiencies would be a car manufacturer manufacturing cars for the left hand side and right hand side drivers. They create a uniform product e. g. body of car created then tailored to specific market depending on what side of the road you drive on. As we can see there are many drivers that stimulate globalisation and also many strategies that can be taken but when going global there are also many things that need to be taken into consideration when deciding on a strategy. Trade blocs need to be considered as they influence the ease of access to particular markets and influence costs of trading in different regions of the world e. g. EU, NAFTA. This may be a hindrance due to added cost of setting up and blocs on trading but if you were to locate within a trading bloc this could help reduce long term trading costs and be a beneficial strategy e. g. Japanese companies building plants in the UK to help overcome exposure to the common external tariffs. Economic factors need to be considered such as tax systems, financial markets- can capital be raised and easily moved within that area. Prices of things such as oil and petrol will influence decisions as transportation costs will be effected by this. Interest rates and exchange rates might also play a factor in influencing strategy as they effect costs making it less or more feasible to move into that market. Social factors may also be relevant such as religious considerations and the appropriateness of selling your product in there country e. g. selling alcohol in a Muslim country may not be a good strategy. Also ethical and cultural issues should be taken into account when thinking of setting up in various countries as many cultures will not except certain products. Other factors such as capability of the workforce in certain countries will need to be considered as if the appropriate skilled labour isn’t available in that country it may not be a worthwhile option. The access to technology can have a major influence on global business strategy such as access to the internet, pc ownership, sales technology, processing payments and sales is this technology available and easy to use, compatibility of technologies used e. . accounting systems and language differences may also have an impact on strategy. From this essay we can see there are many drivers that have stimulated globalisation over past decades. These drivers have had a major impact on strategies that are taken by organisations. It is important for an organisation when going global to look at all the factors involved and imp lement the correct strategy in order for them to be successful.