GLOBALIZATION

Source: dreamstime.com

WHAT IS GLOBALIZATION?
These authors and websites defined globalization as:
1. JAMIE GUTTIEREZ – ANG (2018)

The process by which businesses or other organizations develop international

influence or start operating in international scale.

2. MANFRED STEGER (2014)

The expansion and intensification of social relations and consciousness across world-
time and world-space

3. https://youmatter.world/en/definition/definitions-globalization-definition-benefits-effects-
examples/

The speedup of movements and exchanges (of human beings, goods, and services,
capital, technologies or cultural practices) all over the planet. One of the effects of
globalization is that it promotes and increases interactions between different regions
and populations around the globe.

4. https://www.igi-global.com/dictionary/education-literature-development-
responsibility/12284

The worldwide movement toward economic, financial trade, and communications

integration. It usually is envisaged as a lack of trade barriers between nations, which
are moved through free trade agreements throughout the world and between
nation-states. It implies the opening of local and nationalistic perspectives to a
broader outlook of an interconnected and interdependent world with free transfer of
capital, goods, and service across national frontliners, in which investment
opportunities soar.

WHAT ARE THE EFFECTS OF GLOBALIZATION?

Globalization has various aspects which affect the world in several different ways
such as:
1. INDUSTRIAL

Emergence of worldwide production markets and broader access to a range of

foreign products for consumers and companies. Particularly movement of material
and goods between and within national boundaries.

2. FINANCIAL

Emergence of worldwide financial markets and better access to external financing

for borrowers; emergence of under or un-regulated foreign exchange and
speculative markets.

3. ECONOMIC

Realization of a global common market, based on the freedom of exchange of goods

and capital.

4. POLITICAL

Some use "globalization" to mean the creation of a world government, or cartels of

government which regulate the relationships among governments and guarantees
the rights arising from social and economic globalization.

5. LEGAL/ETHICAL

The creation of the international criminal court and international justice movements.
Crime importation and raising awareness of global crime-fighting efforts and
cooperation.

6. COMPETITION

Survival in the new global business market calls for improved productivity and
increased competition. Many industries around the world doing the same thing, so
industries have to upgrade their products and use technology skillfully to compete.

7. CULTURAL

Growth of cross-cultural contacts the desire to increase one's standard of living and
enjoy foreign products and ideas, adopt new technology and practices, and
participate in a "world culture". Some dislike the resulting consumerism and loss of
languages.

8. ECOLOGICAL

The start of global environmental challenges that might be solved with international
cooperation, climate change, cross-boundary water air pollution over-fishing of the
ocean spread of invasive species factories are built in developing countries with less
environmental regulation which may increase pollution.

9. SOCIAL (INTERNATIONAL CULTURAL EXCHANGE)

Increase circulation by people of all nations with fewer restrictions. Spreading of

multiculturalism, and better individual access to cultural diversity through media.

10. TECHNICAL

Development of a global telecommunications infrastructure and greater data flow

even into the world’s most remote areas.

THE GLOBAL ECONOMY

The International Monetary Fund (IMF) defined Economic Globalization as a
historical process, the result of human innovation and technological progress.

• Common to buy
clothing anywhere in
US which has a tag
labeled, ‘Made in
Malaysia, China or Sri
Lanka’
• Simple observation
reminds us that our
consumption of goods
has a strong
international character
• Increasingly true to
speak not only of
national economies but
a larger, highly inter-
connected and
interdependent-
GLOBAL ECONOMY
 ORIGINS OF THE GLOBAL ECONOMY
• Since 1970s world economy hit by
turbulent forces
• Unemployment in western countries
• Traditional industries (iron and steel)
have declined
• LDCs bearing huge financial debts which
threaten drive for development
• Trading tensions have emerged between
industrial countries and the newly
industrializing countries

CAUSES OF THE ABOVE MENTIONED CONDITIONS

• Some argue that continuing OPEC escalation of oil prices through limited production is root
cause
• Had some effect but too simple an answer
• More profound changes in world economic structure were underway before this
• Increasingly growing consensus that world economy has become more volatile, complex
and tightly connected
• Countries affected by what is happening abroad and at larger geographical scale
INTERNATIONALIZATION OF TRADE AND LABOR
• As with Japanese autos, American computers and Taiwanese calculators there is an
emergence of a “new international division of labor”
• Basically a change in geographical pattern of specialization at the global scale-constantly
changing and very dynamic
• Example: movement of textile and shoe production from Indonesia to China

INTERNATIONAL DIVISION OF LABOR

• Division of labor has taken on spatial dimensions- some areas come to specialize in certain
types of economic activity
• At broad scale : industrialized countries ---→ manufactured goods while non-industrialized
countries ---→ raw materials
• However this simple pattern no longer exists
• Now much more complex structure involving fragmentation of many processes and their
geographical relocation on a global scale
FORCES SURROUNDING GLOBAL SYSTEM OF PRODUCTION
These four factors are affecting production patterns:

1. TRANS-NATIONAL OR MULTI-NATIONAL CORPORATIONS (MNCs)

Firms that operate in many nations.

Increasingly these firms have local production points and suppliers that operate
across national boundaries providing and securing labor, capital and other resources
from a variety of places and which have become very powerful and important
influences in the global economy.

SEQUENTIAL MODEL OF TRANS-NATIONAL CORPORATION DEVELOPMENT

Stage I- Serve domestic market only.
Stage II- Export to overseas markets through independent channels (sales agents).
Stage III- Establish sales outlets in overseas markets by acquiring local firm and/or
setting up new facility.
Stage IV- Establish production facility overseas by acquiring local firm and/or setting
up new facility.
2. NATIONAL GOVERNMENT

Through their industrial, trade and foreign policies especially liberalization policies.
Liberalization refers to the way in which policies facilitate transactions (trade and
sales) of a variety of products and services.
Deregulation refers to the easing of taxation, entry and pricing of products or
services dictated by government policy.
Privatization refers to the ownership of former public sector operations and firms by
private corporations and enterprises.

3. ENABLING TECHNOLOGIES

Transport, communications, production and organizational improvements.

Explosion of enhanced transport and communication services such as air cargo,

integrators offering definite time delivery (FedEx and UPS), electronic mail and
electronic data interchange (EDI).

Advanced inventory management such (just-in-time (JIT)) and new systems of

distribution such as third party logistics (3PL).
 Source: T. Hsu, FedEx, 1998.

4. SHIFTS IN MARKET CONDITIONS AND DEMAND

Economic cycles affect markets and production, e.g. the Asian financial crisis.

Dramatic shifts in demand affect over time influence type of good being produced
and production schedules.

Application of new technology can mean product obsolescence.

These changes can be described in part through product life cycle.

Essence of Product Life Cycle is that growth in sales of product follows systematic
path, from initial introduction to market through development, growth, maturity,
decline and obsolescence
 Adapted from: Harrington and Warf (1995) p. 216.

GLOBAL PRODUCTION CHAINS AND NETWORKS

• Production Chain: Materials > Procurement > Transformation > Marketing and Sales
>Distribution > Service
• Definition: Transitionally linked sequence of functions where each stage adds value to the
process of goods and services production
• Two aspects important: coordination and regulation and geographical configuration
• Production chains may be very localized but increasingly are global in scale to take
advantage of international division of labor

KIA AUTOPARTS FLOW

• Assembled in S Korea KIA Sorrento clear example of global supply chain
• Uses 30K parts from all around world
• Parts shipped from places as diverse as Wales and Mexico—but very risky
• War in Iraq and piracy in Malacca Straits
• Demonstrate surprising adaptability due to advance planning, multiple sourcing of parts and
ability to shift routes on short notice
• Communicates regularly with suppliers-at least once a week
• Order several months in advance
• If necessary use air freight instead of sea freight
• Greater demand forced KIA to air freight airbags from Swedish company which makes them
in the U.S.
• Greater expense of trans-Pacific flight better than slowing down production line

Source: www.uky.edu

MARKET INTEGRATION

Source:https://www.pikpng.com/pngvi/bwmJiJ_seamless-online-marketing-integration-
mac-desktop-high-resolution-clipart/
Market integration occurs when prices among different locations or related goods
follow similar patterns over a long period of time. Groups of goods often move
proportionally to each other and when this relation is very clear among different markets it
is said that the markets are integrated.
 Thus, market integration is an indicator that explains how much different markets are
related to each other. A marketer plays the role of an integrator in the sense that he collects
feedback or vital inputs from other channel members and consumers and provides product
solutions to customers by coordinating multiple functions of organization.
Source: https://en.wikipedia.org/wiki/Marketintegration

REASONS FOR MARKET INTEGRATION

1. To remove transaction costs
2. Foster competition
3. Provide better signals for optimal generation and consumption decisions.
4. Improve security of supply.
5. Theoretically one can integrate two markets without interconnection.
Source: http://ecourseonline.iasri.res.in/mod/page/view.php?id=16987

TYPES OF MARKET INTEGRATION AND ITS EFFECT

1. HORIZONTAL INTEGRATION EFFECTS

This occurs when a firm or agency gains control of a. Buying out a competitor in a
other firms or agencies performing similar time bound way to reduce
marketing functions at the same level in the competition
marketing sequence. In this type of integration,
b. Gaining larger share of the
some marketing agencies combine to form a union
market and higher profits
with a view to reducing their effective number and
the extent of actual competition in the market. It is c. Attaining economies of scale
advantageous for the members who join the group.
d. Specializing in the trade

2. VERTICAL INTEGRATION EFFECTS

This occurs when a firm performs more than one a. More profits by taking u
activity in the sequence of the marketing process. It additional functions.
is a linking together of two or more functions in the
b. Risk reduction through
marketing process within a single form or under a
improved market co-
single ownership.
ordination.
c. Improvement in bargaining
This type of integration makes it possible to power and the prospects of
exercise control over both quality and quantity of influencing prices.
the product from the beginning of the production
d. Lowering costs through
process until the product is ready for the consumer.
achieving operational
It reduces the number of middle men in the
marketing channel. efficiency

A. FORWARD INTEGRATION
If a firm assumes another function of marketing
which is closer to the consumption function, it is a
case of forward integration.
Example: Wholeshaler assuming the function of
retailing.

B. BACKWARD INTEGRATION
This involves ownership or a combination of sources
of supply.

Example: When a processing firm assumes the

function of assembling/ purchasing the produce
from the villages.

3. CONGLOMERATION EFFECTS

A combination of agencies or activities not directly a. Risk reduction through

related to each other may, when it operates under a diversification
unified management, be termed a conglomeration.
b. Acquisition of financial
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iew.php?id=16988
c. Empire-building urge
Source:http://ecourseonline.ia
sri.res.in/mod/page/view.php?i
d=169890

DEGREE OF INTEGRATION

1. OWNERSHIP INTEGRATION EXAMPLE

This occurs when all the decisions and A processing firm which buys a wholesale
assets of a firm are completely assumed firm
by another firm.

2. CONTRACT INTEGRATION

This involves an agreement between two Tie up a dhal mill with pulse traders for
firms on certain decisions, while each supply of pulse grains.
firm retains its separate identity.

Source: http://ecourseonline. iasri.res.in/mod/page/view.php?id=16989