Globalization of Business

Practice and Theory

Erdener Kaynak, Abbas J Ali

• Publisher: Routledge
• Year: 2000
• ISBN:
  9781136782534
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Create a successful strategy for competition in the global marketplace!Globalization of Business: Practice and Theory will give executives and business students a current, in-depth look at ways to become globally competitive in today's complex market. This essential guide offers you insight into issues every global businessperson needs to

Chapter 1

The Theory and Practice of Globalization

We are a corporate citizen of Germany, so we are also a corporate citizen wherever we have major plants and investments.

Jurgen E. Schrempp
Chairman of the Board, Daimler-Benz, 1990

Globalization has special meaning within Procter & Gamble. It means that we will continue to change from a United States-based business … into a truly world company. A company that thinks of everything it does … in terms of the entire world.

Edwin Artzt
Chairman and CEO, Procter & Gamble, 1990

As the world becomes smaller, economic boundaries become less and less important.

Jack Schofield
CEO, Airbus—North America

In today’s business environment, most of an organization’s activities are becoming global in nature. Firms across the world have recognized that globalization is a reality that creates unlimited opportunities while intensifying competition and threats. Many organizations, such as Exxon and GM, have been engaged in cross-border activities and functions for several decades. This, however, does not mean that, in the past, these organizations were pursuing globalization as a strategy and a way of life. Pursuing globalization and living it differ from mere involvement in international business activities. The differences are qualitative and include issues of scope, depth, commitment, and orientation. In the past, as Ohmae (1995) has argued, most multinational corporations (MNCs) behaved as extensions of colonial powers. MNCs were able to use their home government’s influence to get concessions from host countries. In the meantime, they were expected to follow the political dictates of their host governments. According to some critics (e.g., Barnet and Cavanagh, 1995; Vernon, 1997), this hindered otherwise normal business relations and gave undue influence to political considerations.

Recent political and business developments (e.g., the abatement of ideological conflicts, the end of the Cold War, the ascension of free market movement, the rise of regionalism) have cultivated new aspects and strengthened business dimensions that have long been ignored or given low priority. Cooperation, alliances, and the need for free movement of goods and capital have profoundly affected business dealings and interactions. More important, the rise of global thinking and practice has made business interests and orientations more necessary than ever.

GLOBALIZATION ASPECTS

Adelman (1997) believes that the globalization of the world economy started about 1600 A.D. Global trade expanded rapidly from 1600 to 1800. Forbes magazine (see Lee and Foster, 1997) indicates that between 1870 and 1910 the free flow of labor was impressive, and capital moved freely among major countries. “National boundaries did not disappear. … But for the first time in history people, money, and goods were able to flow across them quite freely” (p. 88). Forbes declares that Richard Cobden—a nineteenth-century British liberal who dedicated his life to free trade—can be considered the father of globalization because Cobden’s zeal helped set off a worldwide flow of people, capital, and goods similar to the recent world economic situation. In fact, “As Cobden’s version of free trade spread its blessings throughout the world, investment followed it, and so did people” (Lee and Foster, 1997, p. 88). Forbes estimates that in the second half of the nineteenth century, 15 million people crossed the Atlantic to settle in North America. Cobden viewed free movement of trade as the grand panacea that would “serve to inoculate with the healthy and saving taste for civilization all the nations of the world” (quoted in Read, 1968, p. 110). Cobden’s remarks of 1860 seem as applicable today as when he wrote them (see Morley, 1881, p. 343):

It is an economic error to confine our view to the imports or exports of our own country. In the case of England, these are intimately connected with, and dependent upon, the great circulating system of the whole world’s trade. Nobody has fully grasped the bearings of Free Trade, who does not realize what the international aspect of every commercial transaction amounts to; how the conditions of production and exchange in any one country affect, both actually and potentially, the corresponding conditions in every other country. It is not Free Trade between any two countries that is the true aim; but to remove obstacles in the way of the stream of freely exchanging commodities, that ought, like the Oceanus of primitive geography, to encircle the whole habitable world. In this circulating system every tariff is an obstruction, and the free circulation of commodities is in the long run as much impeded by an obstruction at one frontier as at another.

Nevertheless, most scholars seem to agree that the use of the term “globalization” is a recent phenomenon. Robertson (1992), for example, argues that in academic circles globalization was not recognized as a significant concept until the 1980s. Waters (1995) finds that “overall, the number of publications which use the word ‘global’ in their titles have now probably reached five figures, but the procedural term ‘globalization’ is still relatively rare” (p. 2). He acknowledges, however, that globalization is key to understanding the transition of human society into the third millennium. James Laxer (1993) posits that the concept of globalization has arisen at a very particular historical moment—the ascension of the Anglo-Saxon business elite. Despite these various characterizations, there seems to be a general agreement that “globalization,” as a term, began to have wide appeal after McLuhan’s (1960) popularization of the term “global village.”

In the business world there is a consensus, too, that globalization is a recent development. For example, John Pepper (1991), president of Procter & Gamble (P&G) indicates that globalization is still a relatively new concept. These days, he points out, we see comments about it and there is not an annual report of “any self-respecting multinational company that doesn’t talk about globalization as a foundation strategy” (p. 2). Similarly, Merrill Lynch, in its 1997 Annual Review, stated, “Rapid convergence of the global markets is the cumulative result of the potent forces of globalization and deregulation … combined with advances in information technology that demolish time and distance as barriers to doing business” (p. 9). For Richard Grasso (1997, p. 216), chairman and CEO of the New York Stock Exchange, “globalization, perhaps for some … remains a buzzword that suffers from overuse. In fact, we in the financial community have used it for a quarter of a century. But, for us, globalization is no longer a mere buzzword, a utopian vision never to be realized.”

In their quest for an adequate conceptualization and workable terminologies in international business, researchers and practitioners alike have encountered numerous problems. Nevertheless, developments in the behavioral sciences and in general research methodology, coupled with the persistent search for new meanings and perspectives, have enabled scholars and practitioners to overcome many obstacles. Still, in trade and international business, competitiveness and globalization are common. Globalization, in particular, is often misunderstood because the use of the term “globalization” attracts the attention of ordinary citizens and intellectuals alike. In addition, the term has undiminished utility for policymakers and business people who wish to project the image of a cultivated, well-rounded individual.

What complicates the issue even further is that the concept of globalization is not only interdisciplinary, but its utility and aspects have far-reaching implications for the business and policymaking communities at the national and international levels. In addition, the forces that advocate, resist, or are influenced by globalization are numerous and espouse dissimilar orientations, objectives, and strategies. For example, environmentalists, labor unions, social planners, and human rights advocates have expectations, fears, and needs that differ from those of managers and policymakers. Likewise, nongovernment organizations, academic and research institutions, MNCs, and supernational entities (e.g., the European Union) are all involved in the globalization process but follow different paths in pursuing their global goals.

DEFINITION OF GLOBALIZATION

The study of globalization has never been the exclusive concern of any scholarly circle. Unlike cross-cultural or competitiveness studies of the past, globalization studies appeal to a wide range of scholars and practitioners. It is no wonder, then, that different perceptions and approaches have developed for addressing globalization. This diversity accentuates the importance of globalization in the lives of individuals and societies and has contributed to the ever-continuing enrichment and refinement of discourse about it. As the participants and the actors of this discourse are not situated in any particular locality, nation, or field of study, the hope is that the benefits of globalization, both spiritual and material, will reach a wider range of the world’s populations.

Globalization has often been debated in the fields of economics, international relations, management, and sociology. In all these fields, the meaning, approaches to, and consequences of globalization have been given a high priority in the past two decades. Reflection on the definition of globalization in these fields and in business practice is imperative for understanding its scope and foundation. In economics, Harris (1993, p. 755) defines globalization as “the increasing internationalization of the production, distribution, and marketing of goods and services.” Similarly, Rhodes (1996) views globalization as “the functional integration of national economies within the circuits of industrial and financial capital” (p. 161).

Globalization in international relations and politics has become a new area of interest that rivals the well-established traditional political areas. McGrew and Lewis (1992, p. 319) define globalization as “a set of processes which embrace most of the globe or which operate worldwide; the concept therefore has a spatial connotation. … On the other hand it also implies an intensification in the levels of interaction, interconnectedness or interdependence between the states and societies which constitute the world community.” For Naim (1997, p. 5), globalization “represents a profound redefinition of roles, possibilities, and risks around the world that is altering the very nature of international relations and, therefore, the nature of foreign policy.” On the other hand, Boutros-Ghali (1996, p. 87) believes that globalization is creating “a world that is increasingly interconnected in which national boundaries are less important, and it is generating both possibilities and problems.”

In the field of management, globalization has often been used interchangeably with internationalization. For example, Pearce and Robinson used the term internationalization in their 1988 edition, but in 1997 changed it to globalization. Rugman (1997) notes that globalization “means regionalization,” while Lodge (1995, p. 1) provides a more general definition: “Globalization is the process whereby the world’s people are becoming increasingly interconnected in all facets of their lives—cultural, economic, political, technological, and environmental.”

In their treatment of globalization, sociologists place emphasis on the scope and intensity of interactions among people living as a single world entity. Waters (1995) defines globalization as “A social process in which the constraints of geography on social and cultural arrangements recede and in which people become increasingly aware that they are receding” (p. 3). Similarly, Robertson (1992, p. 8) refers to globalization as both the “compression of the world and the intensification of consciousness of the world as a whole.”

For managers, globalization is not only a curiosity, but also an actuality that has to be dealt with on a daily basis. Managers, like scholars, however, are also diverse in their thinking and attitudes toward globalization. Christopher Rodrigues (1994), CEO of Thomas Cook Group, views globalization in a very narrow way—“running a global business from a global center.” Similarly, Richard Grasso (1997, p. 216), chairman and CEO of the New York Stock Exchange, treats globalization as an economic trend: “Global markets when they are realized in their entirety, are the ultimate result of a trend now underway … called globalization.” Peter Hellman (1997, p. 57), president and CEO of TRW, sees globalization as “an opportunity for prosperity that is equal to any in our history. It can be a force for positive change, if we manage it skillfully as an industry.”

Percy Barnevik (1994), CEO of Asea Brown Boveri, goes further in his view of globalization: “What I mean by globalization is not only that you export to other markets and compete with people there—but also that you have a presence in [product] development and indeed, in manufacturing in many markets” (p. 20). Harry Stonecipher (1996), president and CEO of McDonnell Douglas, views globalization as “the whole movement toward a single world economy and a single world society” (p. 251). Previously, Edwin Artzt (1990), chairman and CEO, P&G, provided a more comprehensive definition of globalization in the business world:

Globalization means doing a better job than your competitors at satisfying consumers’ needs and their demand for quality, no matter where they live. It means creating the network and infrastructure to efficiently compete in the increasingly homogeneous worldwide marketplace. Globalization has special meaning with Procter & Gamble. It means that we will continue to change from a United States-based business that sells some of its products in international markets into a truly world company. A company that thinks of everything it does—including the development of products—in terms of the entire world.(p. 1)

The United Nations, on the other hand, defines globalization as a concept that “refers both to an increasing flow of goods and resources across national borders and to the emergence of a complementary set of organizational structures to manage the expanding network of international economic activities and transactions” (UNCTAD, 1997a, p. 70). Many observers, however, consider the emergence of international organizations such as the World Trade Organization and the World Bank as consequences of world interdependence and interconnectedness. It is obvious that in the academic disciplines two major treatments of globalization have emerged. The first considers globalization in terms of internalization and integration of activities and functions on a global basis (economics). The second orientation, generally, views it in terms of an interconnected world and intensification and awareness of the scope of interactions as the constraints of time, geography, and culture recede (international relations, management, and sociology). Practitioners, on the other hand, stress meeting customers’ needs and doing a better job than competitors in the global marketplace. They view globalization as an opportunity to enhance their presence in every significant market in the world.

Building on the academic and practical elements presented, the following definition of globalization is adopted. Globalization is a process that is built on collective understanding of the need to establish a world community that is prosperous and tolerant, and on respect for and equitable treatment of people across the globe. It is a process that enhances and strengthens global understanding and improves the quality and effectiveness of business, professional, and personal interactions through unrestricted access to world commodities, technology, and information. As a concept, globalization is defined as a set of beliefs that foster a sense of connectivity, interdependence, and integration in the world community. It highlights commonalties without overlooking differences, and it extends benefits and responsibilities on a global scale. At the firm level, globalization should mean the ability of a corporation to conduct business across borders in an open market, maximizing organizational benefits, without inflicting social damage or violating the rights of people from other cultures.

The underlying assumption of this definition is that there is an urgent need to rethink globalization, its meaning, and its scope, in terms that convey and capture its spirit and virtue. In today’s business environment, global corporations must stress objectivity in the treatment of issues across the globe and have the courage to confront biases and prejudices. They should not behave like a “colonial entity” that is interested only in making profits and reinvesting them in the “home market.” Global corporations should treat globalization as a view and outlook that broadens and energizes human minds and perspectives. Practically and spiritually, globalization must be an inclusive, rather than an exclusive, endeavor.

It is important, however, to recognize that in the near future financial and trade activities will still be the dominant forces and features of globalization. Nevertheless, it is essential to point out that trade is only one of a myriad of worldwide activities related to globalization. Free movement of capital, goods, and labor and the establishment of a civil society, where cultural and political tolerance are the norm, are the foundations for true globalization.

In other words, the pillars of globalization are open trade and vital civil and legal institutions that uphold individual and group rights while facilitating social and economic integration. The benefits of economic activities, especially international trade, are numerous, including job creation, improving customer welfare, stimulating economic growth, and so on. Nevertheless, limiting globalization only to trade and the profits associated with increasing trade volume does an injustice to growing beliefs and practices that aim at establishing a prosperous and stable world. Globalization is not synonymous wit...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• About the Author
• Preface and Acknowledgments
• Chapter 1. The Theory and Practice of Globalization
• Chapter 2. Global Business Environment
• Chapter 3. Globalization Discourse
• Chapter 4. Globalization Dimensions
• Chapter 5. Globalization and Regionalism
• Chapter 6. Global Corporations
• Chapter 7. Structuring Global Organizations
• Chapter 8. Global Strategies
• Chapter 9. Globalization and Competitiveness
• Chapter 10. Global Managers
• Chapter 11. Global Leadership
• Chapter 12. Global Backlash
• Bibliography
• Index