Question

Q-1.”Explain the Term Globalization” and discuss the drivers of globalization

Answer 1

Globalization

Globalization is the process by which ideas, goods and services spread throughout the world. In business, the term is often used in an economic context to describe an integrated economy marked by free trade, the free flow of capital and corporate use of foreign labor markets to maximize returns and benefit the common good.

How globalization works

Globalization is driven by the convergence of political, cultural and economic systems that ultimately promote -- and often necessitate -- increased interaction, integration and dependency amongst nations.

The more that disparate regions of the world become intertwined politically, culturally and economically, the more globalized the world becomes.

These international interactions and dependencies are enabled and accelerated by advances in technology, especially in transportation and telecommunications. In general, money, technology, materials and even people flow more swiftly across national boundaries today than they ever have in the past. The flow of knowledge, ideas and cultures is expediated through internet communications.

Types of globalization: Economic, political, cultural

There are three types of globalization:

Economic globalization.This type focuses on the unification and integration of international financial markets, as well as multinational corporations that have a significant influence on international markets.

Political globalization. This type deals mainly with policies designed to facilitate international trade and commerce. It also deals with the institutions that implement these policies, which can include national governments as well as international institutions, such as the International Monetary Fund and the World Trade Organization.

Cultural globalization. This type focuses on the social factors that cause cultures to converge -- such as increased ease of communication and transportation, brought about by technology.

Effects of globalization

The effects of each type of globalization can be felt both locally and globally, and can be observed in interactions at every level of society, from an individual at the micro level to a society at the macro level.

The individual level includes the way international influence affects ordinary people within a nation or region

The community level includes effects to local or regional organizations, businesses and economies.

The institutional level includes effects to multinational corporations, national governments and higher education institutions that have international students. At this level, decisions are made that affect the lower levels.

Drivers of Globalization

The media and almost every book on globalization and international business speak about different drivers of globalization and they can basically be separated into five different groups:

1) Technological drivers

Technology shaped and set the foundation for modern globalization. Innovations in the transportation technology revolutionized the industry. The most important developments among these are the commercial jet aircraft and the concept of containerisation in the late 1970s and 1980s. Inventions in the area of microprocessors and telecommunications enabled highly effective computing and communication at a low-cost level. Finally the rapid growth of the Internet[1] is the latest technological driver that created global e-business and e-commerce.

2) Political drivers

Liberalized trading rules and deregulated markets lead to lowered tariffs and allowed foreign direct investments in almost all over the world. The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing opening and privatization in Eastern Europe are only some examples of latest developments.

3) Market drivers

As domestic markets become more and more saturated, the opportunities for growth are limited and global expanding is a way most organizations choose to overcome this situation. Common customer needs and the opportunity to use global marketing channels and transfer marketing to some extent are also incentives to choose internationalization. (Ferrier, 2004)

4) Cost drivers

Sourcing efficiency and costs vary from country to country and global firms can take advantage of this fact. Other cost drivers to globalization are the opportunity to build global scale economies and the high product development costs nowadays. (Ferrier, 2004)

5) Competitive drivers

With the global market, global inter-firm competition increases and organizations are forced to “play” international. Strong interdepend.