This brings me to my next key driver of market globalization and that is the shift of economic attention from MEDC’s to LEDC’s. Over the last 30 years there has been a dynamic shift in the production of secondary goods in particular, being made in LEDC’s. Four countries in particular which are producing and expanding their economy in rapid succession, mainly due to the secondary sector are the ‘BRIC countries’ (Brazil, Russia, India and China). Today, the BRIC countries are major drivers of growth in the world economy boosting both global supply and demand with many of their industries tightly integrated into the global supply chain. This had lead to an increase in imports and exports to support the acceleration of expansion these countries are achieving, and because of companies outsourcing there, as it costs them less to produce products. This combined with intense competition from global competitors will increase efficient productivity while also driving down consumer prices and as a result will lead to higher consumer spending and higher GDP and a richer nation. This would allow governments to focus their attention on increasing standards of living and fighting negative factors like corruption, it could also focus on increasing its workforce further by investing in education and training. However the negative side to this is that if a country(s) economic activity is closely inter-connected with a large economy and it were to crash then the FDI which they solely rely on will dry up and result in a struggle to cope. This factor will continue to accelerate globalization because even thought the predominant LEDC’s have now been occupied by multinational enterprises there are still some countries that have been left out like Africa and southern American countries which will also no-doubt ably be gobbled up into being used for its cheap labour, scarce workers rights and over keen governments.
My next point will cover the important but controversial issue of ‘national culture’ which businesses face with expansion into other countries. One of the vital factors a company will have to consider when they internationalise is the new culture they are about to operate in. This could mean changing marketing, human resource management (HRM), the product itself, or the management styles. There are two ways a firm could approach this complex issue either by ‘The Convergence perspective’ (Kerr 1960; Levitt 1983) which suggests that a brand or company will be ‘accepted’ by the country and the way the business is run in terms of management practices, slots in with the national culture. Brands such as Coca-Cola, Nokia and Nike have standardised products and/or practices which can be used no matter which country they operate in. ‘The Divergence perspective’ suggest that it’s not so easy to transfer brands across to different countries and companies may face conflict with management practices because of national cultural differences. Companies can look to see if there are significant cultural differences or similarities by referring to Geert Hofsted’s Cultural Dimensions or Fons Trompenaars’s expansion of Hofsted’s model. One of the most famous examples of this is was the early stages of Eurodisney (an American/Canadian company) where the French customers were not happy about wine being unavailable in the Park and the employee turnover was very high. It wasn’t until a French CEO was appointed that things began to turn around and implications were made to ease the national and business cultural clash. I believe this conflict-ridden issue will undoubtedly slow down the effect of globalization as it makes firms hesitant about setting up in countries with cultural differences. However as seen with the Eurodisney example it is still possible to work around these providing you have a flexibility to cross over to a polycentric perspective from an ethnocentric one.
The next driver which I will talk about which again is linked with the previous point, is the expansion and continuous improvement of the technology and the World Wide Web. Due to the massive switch from LEDCs to MEDCs as mentioned previously, it has been critical that LEDCs come to speed with the high demand of products which has been placed upon them against other more developed competitors. In order to do this, countries must invest heavily in technological advances as developing their economic and social infrastructures is a key to attract business and technology assists this process. This can be extremely difficult if the country has financial troubles and so must turn to the World Bank (WB) or International Monetary Fund (IMF) for financial aid. This very often means removing all barriers to trade attracting investors from the west which in a way is what they want, however there are IMF clauses which if something goes wrong for the MNE/investor they can bail out and are even given compensation for the losses they sustained. Although this may seem positive as it encourages more investment of more uncertain ventures in LEDCs it can however be catastrophic as investors can pull out at any sign of a downturn in the economy and as a result the economy can collapse as the country discarded protectionist measures and trade barriers and has nothing to stabilize the economy. The internet has contributed massively to the growth of globalization revolutionizing the way we shop by making it easy and ‘lightening-quick’ to communicate with someone anywhere in the world and at any time, it has enabled companies to put their entire catalogue on the Web and create a virtual showroom. “The creation of the internet and the pursuit of e-commerce has made cyberspace the marketplace” (Brooks 2004 pg 433). The internet-driven economy has allowed less developed economies to try and compete in the world market via e-commerce however they may overlook the issue that the internet is not safe and never has been. With hackers and viruses that can attack your computer at anytime, these dangers can be a massive risk to both consumers and businesses, that’s why it’s essential appropriate precautions are taken to reduce or eradicate these threats. The Organization for Economic Co-operation and Development (OECD) argues that computer networks that support e-commerce should be secure and reliable and globalization requires and will continue to require the connection of the world’s banking and financial systems. “...e-commerce lies at the very heart of the future of globalization.” ().
The internet therefore will defiantly continue to contribute to the growth of market globalization and providing LDCs become ‘e-ready’ by building and sticking to the acronym ‘DIALECT’ provided by the OECD which consists of Digital Infrastructure, Access, Literacy, Entrepreneurship, Content, and Trust , they will become more prepared for demands which will become a much more dominant way of business over the future however security issues must not be underestimated. I feel advances in the pace of technological change are always increasing and therefore globalization will increase also as there is a correlation between the two.
Throughout my investigation I have demonstrated the importance of certain factors contributing to market globalization. It is however, very hard to put an exact figure to show the extent of how beneficial trade and FDI has been to the worlds economic growth, but undeniably the factors mentioned have all been part of a cycle, each one helping to stimulate economic growth in certain ways. I do believe that to an extent trading blocs and FDI are mutually supporting on one another, as opening up markets to free trade has encouraged more FDI than it would have if it had not been liberalized. Nevertheless trading blocs and FDI cannot improve global economic growth by itself. The benefits of trading blocs and FDI to particular sectors of the industry will rely not only on their theoretical comparative advantage (i.e. China’s) but also on countries abilities to restructure and upgrade operations through innovation, technological improvements and market experience to take advantage of market opportunities. All factors such as industrial output, increased productivity and efficiency within industries, high consumer saving, early consumption and government policies have all been impacted on by Globalization and so has the outcome of global economic growth. Globalization has the potential to continue its rapid growth in the foreseeable future. The factors that have propelled growth over the past 30 years are still in place. The world’s economy is still a long way from a fully ‘mature’ status, where growth rates start to tail off but as long as Globalized countries maintain an open attitude towards foreign investment and invest heavily in infrastructure, innovation and other capital, it will continue to grow rapidly.
References
I. Brooks, J. Weatherston, G.Wilkinson (2004) ‘The International Business Environment’ Prentice Hall, Pg. 124
B. Parker (1998), ”Globalization & Business Practice: Managing Across Boundaries” Vol. 1, pg 468.
Organization for Economic Co-operation & Development -
Bledstrategicforum.org -www.bledstrategicforum.org/uploads/Otvoritveni%20govor%20ministra
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Bibliography
The effects of IMF programs on Economic Growth – Adam Przeworski and James Raymond Vreeland – Elsevier 2000.
Globalization and metropolitan expansion: residential strategies and livelihoods in Caracas and its perhiphery – Miguel Lacabana – Environment and Urbanization, Vol 15, No.1 pg. 69-89 2003
www.bbc.co.uk
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