Perspectives On Globalization and International Business

Chapter 1
Perspectives on globalization and international business
 Management is essentially about getting work done through others.

 This process of management is influenced by various factors.
 One of these factors is globalization.
Globalisation
 Definition: 1.Willcocks(2013)-“Globalisation can be defined as the shift
towards a more intergrated and interdependent world economy.”
2.Mauro Guillen-“Globalisation is the process leading to greater
interdependence and mutual awareness among economic, political
and social units in the world and among the people in the world”
 According to Willcocks(2013), defining globalization has big implications;

how it is explained to the public influences how the idea is received.
 Therefore, the above definitions of globalization imply on the debates of

globalization and other discussions on globalization.
Features of globalization
 Accelerated spread of communication
 Rising power of multinational enterprises
 Eliminating differences between distinctive cultures and identities
 Increasing amounts of cross border trade
 Development of international bodies
 Improvement in ICT
 Rising power of MNEs and growing inequality (Peng and
 Unskilled workers are comparatively lost out Meyer-2011)
“Globalisation is hardly new”-Peng and Meyer(2011)
 The above statement is clearly shown from the waves of
globalization explained by Peng and Meyer(2011).
Waves of globalization
a. 1880-1929 First global economy

b. 1930-1980 Disintergration
c. 1950-1979 Beginning of a new global economy
d. 1979-present New global economy
*Read P&M for more details.
 Accordingly, the process of globalization has been driven out by two

main macro factors. These factors are also known as the drivers or
driving forces of globalization.
Drivers of globalisation
1. Decline in trade and investment barriers since the Second
World war
2. Technological change(Specially introduction of ICT)
 As a result of these forces, there were several changes that occurred,

which in turn supported globalization.
 These changes are the trends towards globalization.
Trends towards globalization(Hill-2010)

1. Changes in world output and world trade
2. FDI(Foreign direct investment)-P&M defines FDI as the
investments in, controlling and managing value added
activities in other countries
3. Types of companies-Increase in international businesses and
MNEs
(P&M defines international business as a firm that engages in
international economic activities or the action of doing
business abroad)
(P&M defines MNEs as firms that engage in FDI and operate in
multiple countries)
4. Change in world order
 Globalization which has resulted by these trends, contributes positively to
businesses.
Benefits of globalization to businesses

1. Companies can work with the forces for globalization and
improve their global performance.
2. Low trade barriers and investment mean that companies can
locate production facilities in the optimal location.And,
production and sales now take place in multiple markets which
create interdependency between countries for goods and
services.
3. Cost of global communication has fallen
4. As a result of improvements in transportation, the time and
cost taken for delivery and exchanging resources has shrunk.
 The benefits of globalization are supported by Willcocks(2013) as follows .

“There is evidence that there have been huge global shifts in the ways in
which business is done but overall the strongest companies are
international, but are also strategically sensitive to localizing products or
services in different markets”
 Also, in the above statement of Willcocks, it is clearly stated that

sometimes strategically localizing is used by the strongest companies.
 This hints that there are several problems of globalization too.

Problems of globalization to businesses
1. Geographical and cultural variances

2. Should expect anti globalization protests(These protests are often
conducted by NGOs like human right activists)
3. Risk of disruptions(These include natural disasters, wars, terrorism in
another country can affect you)
4. Should respond to global changes(Eg: Financial crisis)
5. Low barriers to trade and investment can lead to greater competition and
difficulties for survival
 Therefore, the next key question is “Do low barriers to trade affect
businesses positively or negatively?”
 Consider this quiz in terms of the international trade theories.
 International Trade Theories
1. Mercantilism
-of the 16th century-A country can become better off by
encouraging exports and discouraging imports.(However, the
reality of this is questioned because practically one country
cannot gain from trade without making the others worse off)
-modern mercantilism-A country can benefit from trade
through the use of protectionism.
2. Adam Smith’s Theory of Absolute advantage-A country can

benefit from trade by producing the goods at which it has the
absolute advantage and importing the rest.(Absolute advantage
means being able to produce a product better than other
countries-it is a form of specialization)
3. Ricardo’s Theory of comparative advantage-A country can benefit

from trade by producing goods for which it has a relatively lower
opportunity cost than other countries and to import the rest.
4. Hecksher Ohlin’s Theory-This theory points out that a country’s
comparative advantage is a result of differences in factor
endowments. Accordingly, a country can benefit from
international trade by trading in and out the factor endowments.
5. Porter’s Theory-A country can benefit from free trade if they

trade in and out four main factors (The diamond of competitive
advantage), which are important for obtaining competitive
advantage.
a) Factor endowments/Factors of production
b) Demand
c) Related and supporting industries(industries
producing substitutes and complements)
d) Firm’s strategy, structure and rivalry
 Therefore, there are both people who support globalization and who are
against globalization.
 These arguments of the proponents and critics of globalization are mainly

centred around 4 topics. These are the 4 key globalization debates put
forward by Willcocks(2013).
Globalization debates
1. Jobs and income
 Proponents-1.Free trade prompts countries to specialize
in what they are best at and import the other items. This
results in the whole economy being better off in terms
of able to increase ‘real consumer income’.
2. free trade results in greater job
opportunities because now the economy will be
producing to satisfy its domestic and foreign customers.
3. Top management jobs are paid more and
are in demand even during a recession
 Critics-1.Low skilled jobs command lower salaries

2. Low skilled jobs are more vulnerable to
international competition
2. Labour policies and the environment

 Proponents-1.Environmental regulations and labour
standards will improve with the economic progress
resulting from globalization
 Critics-1. Free trade encourages companies from
developed nations to enter developing nations which
have poor environmental and labour regulations. Thus,
developed nations may exploit the environment and
labour of developing nations.
3. Shifts in Economic power

 Proponents-1.The international bodies formed as a
result of globalization would promote the collective
interests of members.
 Critics-1.The economic power is shifting away from
national governments to international bodies
4. Wealth distribution
 Proponents-1.Naturally due to globalization the gap
between the rich and the poor become narrow.
(But, due to the policies implemented by the
governments, this gap has widened)
 Critics-1. The gap between rich and poor is growing as a
result of globalization because the benefits of
globalization are not shared equally among all countries.
 Based on these debates, it is clear of the several problems caused due to
globalization.
 This has resulted in several trends against globalization.
Trends against globalization
1. Protectionism-P&M defines protectionism as a situation of protecting

domestic firms from imports and encouraging exports.
 Tariffs-specific(fixed charge for each unit) and ad
valorem(proportion of the value of the good)
 Subsidies
 Quotas
 Voluntary Export Restraints(Quotas on trade imposed by the
exporting country at the request of importing countries)
 Local content requirements(Government demands a portion of
production of a product to be done locally)
2. Localisation- Nationalising the production
3. Anti dumping policies
 As a result of these trends towards and against globalization, another key

question arises on the extent of globalization that has taken place and the
extent of its impact.
 This is the central discussion of Ghemawat(2001)”Does Distance Still Matter”
Does Distance Still Matter?

 Hyperglobalists argue that globalization has taken place to greater extent
and is taking place increasingly.
 Friedman(2007)-“Globalisation is accelerating and is flattening the
world so that every nation will eventually be part of the global
market place and production process”(in concern to technological
distance)
- “10 flatteners have shaped globalization and caused
increased homogeneity in the world”
 Sceptists argue that globalization hasn’t really taken place to the extent
that people believe that the world is globalised.
 Dicken(2010)-“quantitative and aggregative evidence
suggests that the world economy was more open and
more intergrated in the half century prior to the first
world war than it is today”
 Ghemawat(2001)-“Companies overestimate the
attractiveness of foreign markets. The true amount of
trade and investment is influenced largely by
geographical and cultural differences”
-“Assuming that global communications and
technologies shrink the world is an incorrect assumption
and a dangerous one”
-“The world is semi globalised”(The CAGE distance
framework in Willcocks is a proof for this)
 Whichever the view out of the above is held, the next quiz to consider is
“Does globalization have any impact on the success or failure of
businesses?”
 According to Peng and Meyer(2011), the success or failure of firms around
the globe are determined by several factors. These factors are categorized
in two main views.
1. Institution Based View-The success or failure of firms
depend on the formal and informal rules of the game
(institutions) ( survival)
- According to this view the success or failure of a firm mainly
depends on the external business environment.
2. Resource based view-The success or failure of a firm
depend on the firm specific internal resources and
capabilities,which help to overcome the ‘liability of
outsidership’(The internal business environment of a
firm mainly affects the success or failure of a firm
because it helps to overcome the lack of familiarity of
the external business environment)

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Chapter 1

Perspectives on globalization and international business

 Management is essentially about getting work done through others.

 According to Willcocks(2013), defining globalization has big implications;

 Therefore, the above definitions of globalization imply on the debates of

a. 1880-1929 First global economy

 Accordingly, the process of globalization has been driven out by two

 As a result of these forces, there were several changes that occurred,

Trends towards globalization(Hill-2010)

Benefits of globalization to businesses

 The benefits of globalization are supported by Willcocks(2013) as follows .

 Also, in the above statement of Willcocks, it is clearly stated that

 This hints that there are several problems of globalization too.

1. Geographical and cultural variances

2. Adam Smith’s Theory of Absolute advantage-A country can

3. Ricardo’s Theory of comparative advantage-A country can benefit

5. Porter’s Theory-A country can benefit from free trade if they

 These arguments of the proponents and critics of globalization are mainly

 Critics-1.Low skilled jobs command lower salaries

2. Labour policies and the environment

3. Shifts in Economic power

 This has resulted in several trends against globalization.

Trends against globalization

1. Protectionism-P&M defines protectionism as a situation of protecting

 As a result of these trends towards and against globalization, another key

 This is the central discussion of Ghemawat(2001)”Does Distance Still Matter”

Does Distance Still Matter?

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