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What is Globalisation? – Page 2 of 5

I would like to turn to a number of key factors that are influencing the trend towards globalisation and then to assess the implications for marketers and marketing.

Key factors

The key interlinked factors influencing the tendency towards globalisation are as follows.

* GATT and the WTO
* Structural shift in the world economy
* Integration and operational velocity of financial markets
* Diffusion of computer-based technologies and information systems
* The “agile� corporation
* Competitiveness based on supply chains

GATT and the WTO

The main objective of the General Agreement on Tariffs and Trade (GATT) and The World Trade Organisation (WTO) is to reduce physical and administrative barriers to international trade. What is generally overlooked is that the activity of these two organisations has often been to prevent the consequences of rational economic behaviour rather than to facilitate them.

Economics is about optimal allocation of resources: it is not about issues such as equal opportunity and social fairness. This is not to claim that somehow the latter do not count: it is simply a statement to prevent us using economics in a corrupt manner to justify desirable social outcomes. That is where GATT in its time and nowadays the WTO operate.

Economics treats individuals, even societies, as factors of production or assets. Whereas other factors/assets can be amortised and disposed of at will, very few of us would advocate the same for human assets. The USA labour market is more flexible than its counterparts in Europe. This happens for historical, social and legal reasons. The fact is that these differences account to some degree for decisions on location of production and the product/money flows that result from this are not to do with physical trade in the products in question (an exchange function) but with the creation of an optimal balance of competitive advantage and resource flexibility in conditions of less than 100% predictability. Therefore one further main function of GATT and WTO is to prevent the major social and political disruptions that could occur in the event of a totally free market in all factors of production. WTO has the powers to create the borderless world: its big challenge is to minimise the negative social effects of the transition.

Structural shift in the world economy

The USA has stagnated; Japan continues its slump that commenced some 10 years ago; Germany has become the “sick man� of Europe: the “Asian Tigers� are roaring less noisily than in the recent past. China marches on, but at lower velocity than in recent years. Where is the structural shift taking us? The answer is to be found in (a) increasingly integrated economic institutions that characterise late capitalism and (b) greater interactivity found in supply chains.

Where organisations integrate across borders they contribute to several economies simultane-ously. This has potentially positive and negative dimensions from the point of view of national governments. This is pointed out clearly and analysed humanely by Nobel prize-winning economist Joseph Stiglitz (Stiglitz 2002). The increase in “connectedness�, he argues, has given rise to the need for a new type of social, political and legal regime that takes into account the dangers of a widening of the gap between the ‘haves’ and ‘have nots’. The basic point made here is not that there is something economically unjust about globalisation, but that its processes give unscrupulous human beings and interest groups at all levels of society new spheres of opportunity. Politicians and law-makers are simply not up to speed with the reality of 21st-century economics and I.T., but are in many cases either slow on the uptake or amorally self-seeking.

Sticking with the economic and business dimensions, we have a new set of consequences of decisions. These decisions bring into sharper focus the basic laws of economics as they relate to optimal utilisation of resources. Markets may not work perfectly; but they do work in accordance with principles that can be easily understood. Therefore in an increasingly connected world, decisions on interest rates taken in Washington, London, Tokyo, Berlin, etc can have a significant economic effect. Where, for example, manufacture of unsophisticated consumer goods has declined in developed countries, a decision to cut interest rates will stimulate consumption for goods produced in China and elsewhere in the Asian region. This accounts to some extent for the continued high level of growth in GDP in China – it is buoyed up by demand in the developed world, particularly the USA. The impact on measures such as the trade balance is clear.

The implications are that firms operating in the developed world now need to view their operations in a different light. For example, the future for a company manufacturing, say, automobiles in Western Europe is not too good if such a company is vertically integrated in Western Europe whereas it could be fine for a company that is headquartered in Western Europe and sources the elements of the total supply chain that contribute to its finished product from the location that is best suited to that activity. This could involve R&D and final assembly in, say, Munich or Stuttgart and buying-in components and sub-assemblies from Eastern Europe – or anywhere else, for that matter. This inevitable structural shift gives rise to two strategically significant phenomena.

1.New technologies of logistics and supply chain management are simultaneously catalysing the trend of globalisation and decoupling value creation from the locus of decision-making.
2.Competitiveness and hence marketing focus are gradually moving from product-versus-product to supply chain-versus-supply chain.

There is a further aspect of globalisation, which manifests itself in the social as well as in the economic/business dimensions. Prowess in harnessing the core competencies of globalisation on the part of a number of firms has seen the relative strengthening of countries where knowledge capture and utilisation has been high.

Take two contrasting examples. The emergence of Nokia in Finland has seen (a) the rise of clusters and chains of telecommunications- and IT-related firms as collaborators and suppliers and (b) the establishment of Finnish research institutions as world-class. Similarly the initial rationale for inward investment in electronics and pharmaceuticals in Ireland was access to low labour cost and gaining a foothold in the European Economic Area. This has given rise to the establishment of world-class operations (a) up and down these and other sectors’ supply chains; (b) in international and global logistics companies grown out of traditional transport and freight forwarding firms; and (c) in high-class research and training institutions whose work enhances Ireland Inc as a whole.

This entry was posted on Friday, May 5th, 2006 at 8:24 am and is filed under Articles, International Market Research. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.