Topic 1 - Introduction to Globalization

Week 1

Understanding of GLOBALIZATION

The word Globalization has brought about different views and explanations however, when discussing this term, Globalization simply means that the world has become integrated or intertwined together economically, socially, politically, and culturally.

F. Cherunilam (2009) Globalization encompasses the following;

• Doing, or planning to expand, business globally.
• Giving up the distinction between the domestic market and foreign market and developing a global outlook of the business.
• Locating the production and other physical facilities on a consideration of the global business dynamics, irrespective of national considerations.
• Basing product development and production planning on the global market considerations.
• Global sourcing of factors of production, i.e. raw materials, components, machinery/technology, finance etc. are obtained from the best source anywhere in the world.
• Global orientation of organizational structure and management culture.

 

Technology, Transportation, Communication and Science – The means for Globalization

Advances in Science & Technology - look around you today and you will noticed how new technology and products has transformed the livelihood of people. Discovery of new drugs and medicine has enabled people to live longer.

Transportation- The mode of transports has changed over time. Today you will see large aeroplanes that can carry over two hundred passengers and cargoes from one continent to the next within 24 hours. Ships and tankers are carrying large number and volume of cargoes from one port to another in large containers. These means of transportation has allowed for the following;

• Businesses to easily cross national boundaries
• Businesses are becoming more productive and competitive
• Companies become more competitive
• Rising of quality standard of product and services
• Rising in world living standard

Communication– Information technology has allowed for easy communication across international boundaries.




Export of Papua New Guinea LNG to the world
Source: pnglng.com

Advantages and Disadvantages of GLOBALIZATION

Advantages

• Companies/ businesses from developing countries are venturing into foreign countries and taking advantages of low labour cost
• Companies/businesses providing influx of cash/investment into developing countries

Disadvantages

• As large corporation invest or take over many off shore business it sometime leads to certain power pressure imposed on local government thus creating a modern for of colonization.
• Unemployment created in original countries due to corporation seeking low cost labour.
• Risks and dangers of epidemic diseases spreading due to easy accessibility of transportation and labour mobilization.

GLOBALIZATION- What to do

Individuals, Companies/Businesses and Government can do the following;

 

• Use a more Balanced Approach by taking appropriate steps to deal with matters relating to the Financial or Economic gain versus Socio-cultural, Political or ecological concern of the world.

Global or International Marketing

Global Marketing and International Marketing sometimes are expressed interchangeably therefore, in our lectures both terms will be used during discussion and lectures.

— According to the American Marketing Association (AMA) "international marketing is the multinational process of planning and executing the conception, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.”

Kotler (2003) Marketing is typically seen as the task of creating, promoting, and delivering goods and services to consumers and businesses. Marketers are skilled in stimulating demand for a company’s product.

In contrast to the definition of marketing only the word multinational has been added. In simple words international marketing is the application of marketing principles across national boundaries. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term.

• International marketing occurs when a business directs its products and services toward consumers in more than one country.
• International marketing (IM) or global marketing refers to Marketing carried out by companies overseas or across national borderlines.

Strategies used to compete in International Markets

• Firm marketing practices across international boundaries
• including market identification and targeting
• entry mode selection
• —extension of marketing mix

Determinants of Global Marketing;-

• Standardized approach to world markets.
• Similarities in process and systems Focuses upon sameness
• Focus on similarities in consumers and segments.

Why Choose to Explore Foreign Markets.

• In response to unsolicited orders from consumers in those markets
• Seek to export & establish business
• Seek new markets when domestic market saturated
• To make quick profit
• Spread corporate risks and undesirable domestic situation

Factors for Considerations - Global Marketing.

• Language barriers
• Ideals
• Customs & Cultures in the market they are approaching.

Above factors if not approach carefully can be the main cause of failure or success.

Marketers must be willing to educate themselves thoroughly on the particular countries they choose to enter and must understand the potential benefits and risks of decisions for going abroad.

Some Factors Referring to the term Global Marketing:

• Global/transnational marketing focuses upon leveraging a company's assets
• Experience and products globally
• Adapting to what is truly unique and different in each country
• Global marketing refers to marketing activities coordinated and integrated across multiple country markets

Historical Dimension

• We can trace multinational trading back to early 16^th century when Egyptian, Babylonian, Phoenician merchants traded wool, spices, corals, jewelry, pearls and slaves.
• Their port of trade was a meeting place of foreign traders, not necessarily on the coast, but also, often on the great rivers, intersection of highways, deserts and mountains.
• The port of trade offer and guaranteed neutrality and safety and most of these ports continued to flourish. Similarly, social, political and commercial structures continue to develop and evolve over time through the Mediterranean, Pacific and African coast.
• The colonial monopolies dominated the world trade until the end of the eighteen century.

The Industrial Revolution saw the collapse of the mercantile doctrine and saw the emergence of free trade. The Nineteenth Century saw the introduction of new technology especially in England, with factory system replacing the cottage industry throughout Europe.

With the introduction of new technology, nations and government changed their protectionist attitude towards free trade between nations. During the Nineteenth and early Twentieth Centuries, the world trade tripled. Trade patterns changed which brought about the beginning of direct investments by industrial nations in their colonies such as Africa, Latin America and Asia. The colonies provided the much needed raw material and other resources for their factories back home.

The Fiftiessaw the rapid grow of international business due to three major forces;

 

• Environmental forces
• Technological Trends
• Communications and Transport – The time taken to transport goods as well as the cost has fallen considerably over recent decades. This has been due to the use of containerization, larger vessels, improved waterside efficiency and rationalization of shipping services.
• Growth process of business enterprises (expansion)

The Technological Environment –After World War 2:

• Demand patterns shaped by multitudes of products and processes.
• New business opportunities being created.
• Technological superiority by the US taking over from Europe (After 2 world wars)
• Western Europe and Japan closing the gap by borrowing from US technology.
• Continue Research and Development
• It was not until the 1950s that business practitioners and academics began to develop an increased interest in the issues of international/global marketing.
• Among these were economists; Assael, Atkinson, Wells, the Farquhar brothers and others.
• Thoughts seem to develop through the merging of two distinct intellectual perspectives and bodies of knowledge as their attention crossed on the same phenomenon.
• Economic discipline
• Marketing discipline

Modern international marketing, however, can arguably be traced to the 1920s, when liberal international trading was halted by worldwide isolationism and increase barrier to trade by the US (Smooth-Hawley Tariff Act of 1930)

• Other countries throughout the world imposed similar tariffs in response to the US actions and by 1932 the volume of world trade fell by more than 40 percent.
• The protectionist activities continued throughout the 1930s and many say these measures contributed immensely towards the great depression which was deeper and more widespread than any other depression in modern history.

Great Depression and World War II

Strengthen political will to end protectionist policies and to limit government interference in international trade.
By 1944 representative countries attending the Bretton Woods Conference established the basic organizational setting for the post war economy, designed to further macroeconomic stability.
From this conference, a framework arose creating three organization:
The International Trade Organization (ITO)

The World Bank (WB)
The International Monetary Fund (IMF)

Commercial policy provisions that were originally included in the ITO agreement was later incorporated into the General Agreement on Tariffs and Trade (GATT)
1947 - 23 countries agreed to a set of tariff reductions codified in GATT.
April 1994 - GATT officially ended
1995- World Trade Organization (WTO) established.
main function has been to resolve trade disputes
Developed procedures for handling trade disputes

1960s and 1970s

• Saw world trading patterns changing with new markets opened
• United States remained dominant player in international trade
• Other less develop countries began to manufacture their own product
• United State became more reliant on imported goods and became dependency on world trade
• 1980s, Central and Eastern European markets opened with the dissolution of the Soviet Union
• 1990s, world trade began with China, South America and the Middle East
• United Sates, Japan and Europe account for 85 percent of world trade
• Several factors have also contributed to the growth of the international economy post World War II. The principal forces have been the development of economic blocs like the:
• European Union (EU)
• The "economic pillars"- the World Bank (or International Bank for Reconstruction and Development to give its full name)
• The International Monetary Fund (IMF)
• The evolution of the World Trade Organization from the original General Agreement on Tariffs and Trade (GATT).

SOURCE:
International Business 3^rd Edition P. Subba Rao
Marketing Management Textbook by Phillip Kotler
International Business Environment by Francis Cherunilam
International Economics (McGraw Hill International Editions) Miltiades Chacholoades