What is Globalization?
Globalization, or globalisation, is the process of interaction and integration among people, companies, and governments worldwide. Globalisation is today affecting every industry. The companies are growing as transnational companies. These transnational companies are using the local innovative technology, knowledge and available resources of other countries and selling their products in the local markets hence increasing their scope of profits. Companies are outsourcing the manufacturing of parts to countries where they can be made finest and much cheaper than their own country. Outsourcing is done by companies to make production easier and efficient. Outsourcing can save both time and money. The time and money saved can be spent on other key areas like innovative car designs & assembly and hence make the production more efficient and companies can get better outputs and more profits.
This increase in global interactions has caused a growth in international trade and the exchange of ideas and culture. So what is Globalization? Well, Globalization is primarily an economic process of interaction and integration that is associated with social and cultural aspects. However, conflicts and diplomacy are also large parts of the history of globalization, and of modern globalization.
The growing flexibility in production is a force behind the increasing benefits of trading these days. It is anyways difficult to maintain world-class excellence in all areas for a manufacturer that assembles thousands of components, each of which may be technologically complex and also having requirement of in time production.
Globalization Definition
If you are still wondering what is Globalization? or need the Globalization definition then here it is:
Globalization is the spread of products, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe fostered through free trade. On one hand, globalization has created new jobs and economic growth through the cross-border flow of goods, capital, and labor. On the other hand, this growth and job creation is not distributed evenly across industries or countries.
These are all part of Globalisation:
- Merger & Aquisition (M & A)
- Strategic Alliance
- Outsourcing and connection with international suppliers
- Joint ventures
- FDI (foreign Direct Investments)
These can be describes as:-
The companies have now understood that it is more beneficial for them to purchase material from other specialist suppliers rather than making it of their own or setting up a production plant in other country or acquiring local distribution centre in other country. These are the reasons companies are becoming more interested in integration strategies such as joint ventures, asset ownership, strategic or formal alliances, franchising and long-term relationships with preferred supplier. The business strategies like enterprise extension, collaboration, partnerships and virtual integration are evolved due to the above behaviours
Globalisation Examples
Example of Globalization: SAB acquired Narang breweries, SAB acquired Philip Morris making it second largest brewery in the world.
Today most of the companies in attempt to go global; establish their production plant in some other country mainly developing countries where market is growing and demand is ever increasing. This gives them more flexibility in working methods, human workforce with lower wages, ease of taxes and major other resources and in return companies are investing huge amount of money in these countries. It is interesting to see that in the fear of losing foreign investors, the government of developing countries compete with each other and deregulate their policies accordingly to attract foreign Direct Investments (FDI’s).
Actually firms Trans- nationalize for profits and market growth and increase their share in market. Size of new market may attract industry to get more profit especially in developing nations. The firms Trans-nationalize mostly through M&A (Merger and Acquisition) which is the less risky method in which firms can take advantage of already functioning business firm instead of starting all from scratch (Peter Dicken, 2007).
Globalization Example 2: Indian market has 54 breweries and its market is growing. United breweries is one such famous brand in this market. UB adopted strategy of M & A and acquired 51% of Inertia industries. This gives a boost to the profits and increased its variety of productions. Also, by acquiring a local company it became easier for UB to produce more amount without much difficulties.
Hence, As a result of M&A or moving the production plants to overseas companies have been able to increase their global productions.
This means that companies are using already established production plants in other countries by making strategic alliance with that company who owns the production plant. In this way companies merge with other companies to get hold into international market.
Globalization Example 3: Indian market has 54 breweries and its market is growing. United Breweries is one such famous brand in this market. The company wants to make Strategic alliance with some international Brewery to become competent in the market by offering 26 % of its equity which attracted lot of international brands to it.
Approaches to entry for main international markets and differences in approaching developed and developing international markets.
Today in the world of Globalisation, most of the companies in attempt to go global; establish their production plant in some other country mainly developing countries where market is growing and demand is ever increasing. This gives them more flexibility in working methods, human workforce with lower wages, ease of taxes and major other resources and in return companies are investing huge amount of money in these countries. It is interesting to see that in the fear of losing foreign investors, the government of developing countries compete with each other and deregulate their policies accordingly to attract foreign Direct Investments (FDI’s).
If you are still wondering what is Globalization, there here are some more examples for you:
Globalization Example: UB adopted strategy of M & A and acquired 51% of Inertia industries. This gives a boost to the profits and increased its variety of productions. Also, by acquiring a local company it became easier for UB to produce more amount without much difficulties.
This means that companies are using already established production plants in other countries by making strategic alliance with that company who owns the production plant. In this way companies merge with other companies to get hold into international market.
the strategy of market orientation using the techniques of adaptation or local adaptation argue that while basic human needs may be similar everywhere, standardization may not be the word as differences in cultural and other environmental factors significantly influence the buying pattern of people in different countries.
An industry is global when it can achieve a competitive advantage from being global. This still relates to the economic approach regarding globalisation and is related to trade advantages associated with efficiency and low cost labour. In some way, this definition could also be related to capital and labour flows. There is also a further approach to Porter’s work, which focuses on co-ordination and configuration. This suggests that firms may wish to disperse their activities over the world and co-ordinate their activities respectively. This explanation gives further support to the
Advantages of Globalisation
Competitive advantage and disadvantage of the company in international context, and strategic orientations to be competitive in overseas market.
If you want to know the answer to the question what is Globalisation then it is vital to understand the competitive advantages of Globalisation.
Competitive advantage is not only obtained by a quality product an attractive packaging but also by various marketing strategies and globalisation techniques. SAB got this Competitive advantage by acquiring other local companies on other nations and acquiring their abilities to diversify their business and get a Competitive advantage in the market.
- An industry in which a firm’s competitive advantage depends on economies of scale and economies of scope gained across markets
(A global industry can be defined as:- An industry in which firms must compete in all world markets of that product in order to survive . Global markets are international markets where products are largely standardised.)
For Competitive advantage in Globalisation, companies need to have :-
- Centralised control
- Taking advantage of customer needs and wants across international borders
- Locating their value adding activities where they can achieve the greatest competitive advantage
- Integrating and co-ordinating activities across borders
- global companies has advantages in developing nations in terms of Lower costs, Co-ordination of activities, chap labour and Faster product development
Promoting development requires creating a friendly business climate and making resources available for social and economic needs. This calls for greater coherence between the national and international visions of trade and development, which means that financial, monetary and technology policy coordination at the international level should create an environment that allows national development strategies to succeed.
The opportunity for company to sustain competitive advantage is determined by its capabilities of two kinds – distinctive capabilities and reproducible capabilities – and their unique combination to achieve synergy.
distinctive capabilities – the characteristics of company which cannot be replicated by competitors, or can only be replicated with great difficulty – are the basis of your sustainable competitive advantage. Distinctive capabilities can be of many kinds: patents, exclusive licenses, strong brands, effective leadership, teamwork, or tacit knowledge.
Disadvantages can be lack of knowledge of target overseas market, lack of resources, lack of suppliers in overseas where products id to be sold and inability to manage resources, inventories and human workforce. Lack of marketing and lack of globalisation strategies to be competent in market like strategic alliances, supplier relations. Finally lack of quality of product or inability of product to capture overseas market may be because of lack of appropriate marketing or not enough resources.
Globalization Example : in given case, Foster and Millers withdraw – lost millions of dollars and sold its breweries due to lack of competitiveness in market.
Impact of Globalisation or Implementation
Company’s ability to diversify the business into related or non-related beverage products.
Diversification is a form of growth marketing strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in. At the corporate level, it is generally[clarification needed] and it is also very interesting entering a promising business outside of the scope of the existing business unit.
Horizontal diversification:-
The company adds new products or services that are technologically or commercially unrelated (but not always) to current products, but which may appeal to current customers. In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability. In other words, this strategy tends to increase the firm’s dependence on certain market segments. For example company was making note books earlier now they are also entering into pen market through its new product
Globalization Example: SAB acquired Narang breweries, SAB acquired Philip Morris making it second largest brewery in the world.
As seen in the case, SAB diversified it sbusiness by acquiring local companies in other developing nations which also gave them a platform to sell their own products. Hence diversifying the business.
A global company can grow by investing in a growing market which gives them profitable business. Further various strategies are adopted by companies to grow:-
acquiring local distribution centre in other country. These are the reasons companies are becoming more interested in integration strategies such as joint ventures, asset ownership, strategic or formal alliances, franchising and long-term relationships with preferred supplier. The business strategies like enterprise extension, collaboration, partnerships and virtual integration are evolved due to the above behaviours. foreign Direct Investments (FDI’s) – invest money directly on into a growing market most probably in a developing nation
This means that companies are using already established production plants in other countries by making strategic alliance with that company who owns the production plant. In this way companies merge with other companies to get hold into international market. Ex: UB adopted strategy of M & A and acquired 51% of Inertia industries. This gives a boost to the profits and increased its variety of productions. Also, by acquiring a local company it became easier for UB to produce more amount without much difficulties.
The companies have now understood that it is more beneficial for them to purchase material from other specialist suppliers rather than making it of their own or setting up a production plant in other country or acquiring local distribution centre in other country. These are the reasons companies are becoming more interested in integration strategies such as joint ventures, asset ownership, strategic or formal alliances, franchising and long-term relationships with preferred supplier. The business strategies like enterprise extension, collaboration, partnerships and virtual integration are evolved due to the above behaviours
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