What is Globalization?

The term "globalization" has acquired considerable emotive force. Some view it as a process that is beneficial—a key to future world economic development—and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress. This brief offers an overview of some aspects of globalization and aims to identify ways in which countries can tap the gains of this process, while remaining realistic about its potential and its risks.

Although nations historically retained absolute control over the products, people, and capital crossing their borders, economies are becoming increasingly intertwined. The greater interdependence that globalization is causing means an increasingly freer flow of goods, services, money, people, and ideas across national borders.

Globalization has been defined as, “ the process by which markets and production in different countries are becoming increasingly interdependent due to dynamics of trade in goods and services and the flow of capital and technology”. Rising ratio of trade to output increased foreign investment, international joint ventures, inter-firm agreements, reduced trade barriers, open and liberal trade are some of the major characteristics of this process. Rising ratio of world trade to world output can be viewed as an indicator of globalisation.

Economic "globalization" is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows.

For developing counties, it means integration with the world economy. In economic terms, globalization refers to the process of integration of world into one huge market. Such unification calls for the removal of all trade barriers among countries. Even political and geographical barriers become irrelevant.

The term sometimes also refers to the movement of people (labour) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization that are not covered here. At its most basic, there is nothing mysterious about globalization. The term has come into common usage since the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactions—both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity—village markets, urban industries, or financial centres. Markets promote efficiency through competition and the division of labour—the specialization that allows people and economies to focus on what they do best. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so.

As its definition implies, globalization involves much more than the expansion of trade and investment among nations. Globalization embraces concepts and theories from political science, sociology, anthropology, and philosophy as well as economics. As such, it is not a term exclusively reserved for multinational corporations and international financial institutions. Nor is globalization the exclusive domain of those with only altruistic or moral intentions.

In fact, globalization has been described as going well beyond the links that bind corporations, traders, financiers, and central bankers. It provides a conduit not only for ideas but also for processes of coordination and cooperation used by terrorists, politicians, religious leaders, anti-globalization activists, and bureaucrats alike.

Globalization started during mid-70s in the developed countries in the twentieth century and since 1990the world has moved towards globalization in a big way. Globalization has evolved out of the golden period of capitalism i.e. 1940-1975. Globalization has challenged the nation state territorial sovereignty, the institutional autonomy shrinking the concepts of space and time. With the collapse of socialism in the central and east European countries during 1990s of which China just managed to escape the world has moved towards defining values of universalism set out in universal declaration of human rights and in setting development goals in the UN conferences on environment population, social development women and human settlement.

As we know in a feudal society, there is land-based economy with localised production and consumption. Religion has a rigid control over every occupation. Infrastructure like roads, transport, means of communication are very primary like horse or bullock cart.

The capitalist society on the other hand has market-based economy with centralised government and higher technology. The dominant value of capitalist society is freedom. Production, trade and consumption are complex and there is emergence of industrial society with two distinct classes: Capitalist Class who own the productive resources and industrial labour who has nothing except his/her own labour to sell.

Electricity, nuclear energy and electronics lead to the advancement of capitalist society towards post-industrial society. The use of computers and electronics transformed post-industrial society into post capitalist society which is also called a “knowledge economy”. Globalization is essentially a product of technological advancement.

Stanley Hoffman identifies three types of globalization- economic, cultural and political. Origin of globalization involves economic factors with trade and financial liberalization; simultaneously emerging cosmopolitan culture, universalisation and westernization. There are four dimensions involved in the formulation and implementation of the policies towards globalization:                                         

(i)        the neo-liberals want that the market force should determine the course of globalization;

(ii)       the reformists put the public policy at the agenda;

(iii)      the radicals want to de-globalize or to bring the society to pre-global status-quo-ante;

(iv)      finally, the revolutionaries try to take globalization to the post capitalist stage.

For our purposes, this discussion focuses on the business implications of globalization. Two areas of business in which globalization is having profound effects are the globalization of markets and production. Globalization of markets refers to convergence in buyer preferences in markets around the world. This trend is occurring in many product categories, including consumer goods, industrial products, and business services.

But we are more concerned with economic and business globalization.

Economic globalization refers to the process by which an increasing share of economic activity in the world is taking place between people from different countries rather than within the same country. It encompasses international trade (export and import), foreign direct investment, portfolio investment and immigration.

Global products and global competition characterize many industries and markets, including semiconductors (Intel, Philips), aircraft (Airbus, Boeing), construction equipment (Caterpillar, Mitsubishi), autos (Honda, Volkswagen), financial services (Citicorp, HSBC), air travel (Lufthansa, Air Arabia, Singapore Airlines), accounting services (Ernst & Young, KPMG), consumer goods (Patanjali, Procter & Gamble, Unilever), and fast food (KFC, McDonald’s). The globalization of markets is important to international business because of the benefits it offers companies.

Let’s now look briefly at each of these benefits.  A company which has gone global is called a Multinational (MNC) or a Transnational (TNC).  An MNC is, therefore, one that, by operating in more than one country, gains through Research and Development, leading to substantial production, marketing and financial advantages in its costs and reputation that are not available to purely domestic competitors. The global company views the world as one market, minimize the importance of national boundaries, raises capital and markets, wherever it can do the job best. Globalization encompasses the following:

• It is a conglomerate of multiple units (located in different parts of the globe) but all linked by common ownership.

• Giving up the distinction between the domestic market and foreign market and developing a global outlook of the business.

• Multiple units draw on a common pool of resources such as money, credit, information, patents, trade names and control systems.

• Locating the production and other physical facilities on a consideration of the global business dynamics, irrespective of national considerations.

• The units respond to some common strategy

• Global sourcing of factors of productions, i.e. raw materials, components, machinery/ technology, finance etc., are obtained from best the best source anywhere in the world.

Companies which have adopted a global outlook stop “thinking of themselves as national marketers who venture abroad and start thinking of themselves as global marketers. Nestle international is an example of an enterprises that has become multinational. It sells its products in most countries and manufactures in many. Besides managers and shareholders are from many nations. 

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