Globalization of Markets and the Internationalization of the Firm

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Chapter 2 Globalization of Markets and the
Internationalization of the Firm
International Business Strategy Management
the New Realities by Cavusgil, Knight and
Riesenberger
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Globalization of Markets A Macro Concept

• Two mega trends have altered the international
  business landscape globalization and
  technological advances.
• Market globalization refers to the
  interconnectedness of national economies and
  growing interdependence of buyers, producers,
  suppliers, and governments in different
  countries.
• Globalization allows firms to view the world as
  one large marketplace for goods, services,
  capital, labor, and knowledge.

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Globalization Index 2006
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The World Competitiveness Scoreboard 2007
(2006 rankings are in brackets) Source IMD World
Competitiveness Yearbook 2007
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Global Competitiveness Index 2006-2007
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Relationship Between Globalization and Growth in
Per Capita Gross Domestic Product, 1990s
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Phases of Globalization
1st Phase 1830, peaking around 1880Aided by
railroads, ocean transport resulting in the rise
of mass production and growing trade 2nd Phase
1900, peaking late 1920sFueled by electricity
and emergent modern technologies early MNEs 3rd
Phase 1948, peaking around 1970End of WW II
Marshall Plan Gradual reduction of trade
barriers, especially under General Agreement on
Tariffs and Trade (GATT) 4th Phase 1980, peaking
around 1997Fueled by information and
communications technologies. Rapid
liberalization in Emerging Markets
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The Death of Distance
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The Drivers and Consequences of Market
Globalization
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Firms are Compelled to Internationalize

• Firms implement internationalization proactively
  are more successful than those reactively
  engaging.
• E.g., Vodafone has established production and
  marketing operations all around the world. Has
  some 200 million customers in 30 countries.

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Technological Advances as a Driver of Market
Globalization

• Advances in technology provide the means for
  internationalization of firms
• Advances in technology
• Reduces cost of doing international business
• Enables even small firms to go international
• Helps coordinate worldwide activities
• Mitigates geographic distance

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Information Technology

• Cost of computer processing fell by 30 per year
  since late 1980s, and continues to fall.
• Increases productivity across the firm
• Impact of IT on our daily lives has been profound
  laptops, intelligent cell phones, Internet,
  Google, etc.

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Declining Cost of Global Communication and
Growing Number of Internet Users
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Communications Technology

• Especially important. Includes
  telecommunications, satellites, optical fiber,
  wireless technology, and the Internet.
• The Internet, and Internet-dependent systems such
  as intranets, extranets, and e-mail, connect
  millions of people across the globe.
• The Internet opens up the global marketplace to
  all firms, large and small

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Manufacturing and Transportation Technologies

• Revolutionary developments now permit
  manufacturing that is both low-scale and low
  cost, with the support of computer-aided-design
  of products (CAD), robotics, and production lines
  managed and monitored by microprocessor-based
  controls.
• In the 1960s, technological advances have led to
  the development of fuel-efficient jumbo jets,
  giant ocean-going freighters, and containerized
  shipping.
• Thus, the cost of transportation has declined
  substantially, spurring rapid growth in
  international trade.

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Societal Consequences of Market Globalization

• Positive consequences
• More jobs
• Economic development and growing prosperity
• Technology and knowledge transfer
• Negative consequences
• Natural environment
• Disruptive effects in national economies
• Human rights violations abroad (e.g., sweatshops)
• Job losses at home

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Economic Freedom Enhances Income Growth

• In the long run, globalization generally leads
  to
• higher living standards
• more efficient resource usage
• greater access to technology, products, and
  services
• In particular, liberalization of markets appears
  to enhance income levels

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Unintended Consequences of Market Globalization

• Loss of national sovereignty
• Power shifts to MNEs and larger countries
• Offshoring and the flight of jobs
• Dislocation of jobs
• Effect on the poor
• Benefits of globalization are not evenly
  distributed
• Effect on the natural environment
• Effect on national culture
• Loss of national cultural values and identity

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Corporate Social Responsibility

• Over time, governments pass legislation that
  promotes improved environmental conditions.
• In addition, many firms now consider the societal
  consequences of their actions -- Corporate Social
  Responsibilty (CSR)
• Examples Benetton in Italy (clothing), Alcan in
  Canada (aluminum), and Starbucks have attempted
  to embrace practices that protect the
  environment, often at the expense of profits.

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Firm Level Consequences of Market Globalization

• Countless new business opportunities for
  internationalizing firms
• New risks and intense rivalry from foreign
  competitors
• More demanding buyers who source from suppliers
  worldwide
• Greater emphasis on proactive internationalization
  
• Internationalization of firms value chain

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Examples of How Firms Value Chain Activities
Can Be Internationalized
Value Chain Sequence of value adding activities
performed in the course of developing, producing,
marketing, and servicing a product.
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Implications for Management

• Global orchestration of value-chain activities
  (e.g., in order to cut costs, access resources,
  target new markets)
• Exploit knowledge acquired worldwide
• Increase productivity
• Collaborate with foreign partners

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Implications for Managers Acquiring Global
Competence is a Requirement

• Open-mindedness
• Tolerance for ambiguity
• Perceptiveness
• Premium on personal relationships
• Flexibility, adaptability, and self-reliance 
• Good sense of humor
• Warmth in human relationships
• A curious mind