Chapter 1
THE STRUCTURES OF GLOBALIZATION
Learning Outcomes: At the end of the chapter, the student should be able to:
1. Define globalization;
2. Analyze the interrelated factors of globalization;
3. Interpret how governments influence competitiveness; and
4. Explain why globalization is uneven based on the three rankings.
The phenomenon of globalization is a fact of life. The daily press is filled with reminders of how the world
organizations have taken on a global focus. International and national news reports frequently mention such
matters as international trade, foreign exchange rates, losers and gainers in the stock market, currency fluctuations
and oil price hike. It is common to read about Japanese companies making way in the United States and European
markets and vice versa. This means that our world is no longer isolated as we are participants in all these global
activities. Our home is filled with global products ranging from gadgets to audio and video equipment including our
mode of dressing and the foods that we consume.
Today, it is not unusual for a global organization with headquarters in Japan, United States, Germany, and United
Kingdom to oversee manufacturing operations in Singapore, India, South Korea, and even in third world countries
such as the Philippines and Indonesia. It is not just large corporations that have a global focus. For instance,
Jollibee has expanded its network in some parts of Asia and the United States.
WHAT GLOBALIZATION MEANS
Generally, the view on globalization is taken primarily as an economic process. It is usually related to global
management and market integration. In the context of economics, it is defined as the recognition by organizations
that business must have a global, not local focus. It refers to a new perspective, or attitude, about relationships
with other people in other nations. Economically, it also refers to the unprecedented scope, shape, number, and
complexity of business relationship conducted across international boundaries. The phenomenon of globalization
according to Stoner et.al. (1995), as cited by Abelos et.al. (2006, pp. 78-81) consists of three interrelated factors—
proximity, location, and attitude. Taken together, these three facets of globalization emphasize the unprecedented
lineup and complexity of relationship that confront the contemporary society.
PROXIMITY
First, organizations now operate in much closer proximity than ever before to a greater number and range of
customers, competitors, suppliers, and government regulators. This proximity, a function of the “shrinking globe,”
is partly a matter of time, as today’s telecommunications technology allows people around the world to share
voice, video, and facsimile information in minutes. The increasing technological and managerial capabilities of
people around the globe are another aspect of proximity. Managers find themselves competing—or even
collaborating—with a new cast of global players. Honda, for example, moved nearly 60 American specialists to
Japan for several years to work with their Japanese counterparts on design for the 1994 Honda Accord (Business
Week, 1993).
To emphasize this new spirit of closer ties and the insignificant of miles in today’s global world, organizations
should treat all clients as “equidistant” from their organizations (Ohmae, 1990).
LOCATION
Second, the location and integration of an organization’s operations across several international boundaries is part
of globalization. For example, Nokia cellular phones are designed and manufactured in Finland and sold worldwide
to customers who use the equipment to connect with anyone. Toyota, Nissan, and Honda operate auto assembly
plants in the United States. Samsung and LG are products of South Korea and both have worldwide distribution
centers. This new organizational scheme is termed transnational management to describe this growing practice of
spreading an organization’s operations across many nations (Barlett and Ghoshal , 1995 as cited by Abelos et al.,
2006, p.79).
ATTITUDE
Third, globalization refers to a new, open attitude about practicing management internationally. This attitude
combines a curiosity about the world outside one’s national borders with a willingness to develop the capabilities
for participating in the global economy. Ohmae (1990) as cited by Abelos, et al., (2006) makes this point clear in
the simple statement, “Nothing is ‘overseas’ anymore.”
In the academe under the new General Education Curriculum, the best scholarly definition of globalization is
provided by Manfred Steger (2014, 184). He described globalization as “the expansion and intensification of social
relations and consciousness across world-time and across world-space. The first key word expansion may refer to
the creation of the international marketplace including the international cultural environment where education,
social institutions, material elements are connected and occur at different levels. We can see these through nongovernmental organizations, international organizations such as those involved in global warming and “Save the
Earth” movements. On the other hand, intensification refers to the expansion, stretching and acceleration of the
networks of the former (Claudio, 2018, 8). For example, the impact of international trade and investment in one
country to another and the foreign policy responses to trade problems have intensified trade relations between
and among countries in the world. When it is accelerated, then there is an export and import promotion efforts
among the global players.
In another view, globalization is defined as the process through which an increasingly flow of ideas, people, goods
and services, technology and capital leads to the integration of economics and societies at a speed unprecedented
in effect and outcomes (as cited by Dannug & Campanilla(2004, p. 81).
(https://www.imf.org/external/np/exr/ib/2w2/031502.htm ).
The above definition is somewhat political and economic in nature. Anthropologist Arjun Appadurai (1996)argues
that there are multiple globalizations and it depends on what is being globalized. It could be an idea, material and
nonmaterial culture. The globalization system which is aptly called the digital age has something to do with the
context, character, content, and conduct of power shaped up with the changing configuration of power of the
individuals, group of individuals, associations, corporations, institutions, and the nation-state (Danug &
Campanilla, p.83). The rest of the chapters of this book will show how these ideas, concepts and principles view
globalization in many areas in economics, politics, and sociology.
GLOBALIZATION AND COMPETITIVENESS
Competitiveness is an idea that applies in a number of different settings. SM Department Store and Robinsons are
competitors for several decades and perhaps have worried about the entry of new players such as Wal-Mart and
Pure Gold on the competitiveness of their prices. If you participate in sports, as a player, your teammates, and
coaches seek competitiveness in relation to your opponents by practicing day after day. Or if you watch the
competitors in your industry, you know that competitiveness has accelerated over the last three decades.
Competitiveness refers to the relative standing of one competitor against other competitors. Competitiveness is
like the game of musical chairs: There are finite numbers of places to sit, and some are more desirable than others.
One organization that has addressed its desire to remain competitive in the global economy is Samsung of South
Korea. To expand its ability to deliver quality products and services in a highly competitive industry of mobile
phones, Samsung has developed a Global Leadership Program, to provide its top managers with a global outlook.
Competitiveness has become a prominent business and government concern in the era of global business as a
contest among nations. Members of the news media routinely talk about the competitiveness of the United States
versus Japan and the United States versus the Pacific Rim. This meaning of competitiveness is part of the new
attitude of globalization described earlier. It is a direct consequence of the unprecedented proximity among
nations in the global market place as defined by the International Monetary Fund or IMF.
RELATIVE STANDING TODAY, LOOKING FORWARD
Competitiveness can refer to a country’s preparedness for future competitive interactions. To be competitive in
this sense is to have a chance to win upcoming contests. Philippine Airlines—tagged as Asia’s first airline—under
the management of Lucio Tan had so far refurbished its business class services and retains the world known
Mabuhay Class (the first airline to offer sky bed in long haul flights) needs to stay competitive against the two Asian
giants—Singapore Airlines and Cathay Pacific Airways to win for a number of industry players who faced higher
airfare and maintenance costs (Abelos, et al., 2006, 80).
Several measures of this criterion are commonly discussed in business and politics circles today. One is the cost of
labor in a country. A commonly cited statistics in the debate about relaxing international trade barriers is the
questionable competitiveness of U.S. labor costs in relation to lower wage rates in other countries such as the
Philippines, Mexico, Vietnam, and Indonesia. This creates some controversy and ethical dilemma for global
managers when companies seeking lower-wage personnel close factories in the United States and move
production facilities to China, Vietnam, Thailand, and the Philippines. Another measure of this criterion is the
education level of a country’s work force. Government representatives who seek to attract new investors in their
economics like to cite literacy rates and skilled training. For example, English proficiency is also a factor in the
workforce for some U.S. companies establishing plants and facilities in other nations. The case of our Filipino
engineers in the tiny State of Qatar is a good example. When the companies evaluated their educational
background, they discovered the lack of two years in the basic education of our engineers prompting the former
CHED Commissioner Dr. Patricia Licuanan to intercede and had to explain the said deficiency to the employers.
Nevertheless, our curriculum now is competitive and at par with the international standards.
HOW GOVERNMENTS INFLUENCE COMPETITIVENESS
These different interpretations of competitiveness are used by government officials around the world who are
aggressively scrambling to adjust to global economy.
It is considered common wisdom that the United States has been slow to recognize and adapt to the globalization
of business. Japan has become the most visible competitor nation although South Korea is heading into the same
direction. For example, although home technology was originally developed and patented in the United States, not
one video cassette recorder has ever been manufactured in this country. Japan now controls the world’s $15
billion market for audio/video market. The Japanese have taken over a large portion of the semiconductor market,
once an American monopoly, and have assumed leadership in the development of new drugs (Porter, 1990 as cited
by Abelos et.al., 2006).
The Japanese do not pose the only challenge to U.S. competitiveness. European products such as Airbus jet
aircrafts are also gaining market shares once firmly held by companies in the United States (Boeing), and Korean
products such as Samsung, LG, Kia, and Hyundai have made major market inroads. Perhaps the most vivid example
of changes in American competitiveness has occurred in the automobile market. Once, virtually all the cars in the
United States were from American manufacturers. Now, every parking lot in the U.S. visibly display cars
manufactured in Japan and South Korea.
According to Young (1995 as cited by Abelos et. al., 2006), the ability of the United States to compete in the world
economy has declined over the past two decades. He concluded that both government and business need to place
a higher priority on international competitiveness. Among specific recommendations, he suggested that
responsibility for formulating international trade policy and encouraging exports (now fragmented among multiple
government agencies) should be unified.
Global managers thus operate in a climate marked by more aggressive government efforts to influence how they
run their organizations. According to Porter (1990), those efforts have influenced global competitiveness.
With striking regularity, firms from one or two nations achieve disproportionate worldwide success in particular
industries. Some national governments seem more stimulating to advancement and progress than others.
Porter traces that success to a significant degree, to the economic climate institutions, and policies attributable to
government actions. With a touch of irony, Porter concludes that in this era of globalization, what happens in a
company’s “home country” is more important than ever (Porter, 1990 as cited by Abelos et.al., 2006, pp.81-82).
A BRIEF MODERN HISTORY OF GLOBALIZATION
International business has existed in some sense since prehistory, when flint banks, ceramics, and other goods
were traded cross great distances. Even during the Roman Empire, traders carried goods to consumers around the
world. However, multinational enterprises—as we know them today—were great rarities until the 19 th century. By
then, U.S. companies like General Electric, International Telephone and Telegraph, and Singer Sewing Machine
Company had started to invest in overseas manufacturing facilities, as had West European companies like Ciba,
Imperial Chemicals, Nestle, Siemens, and Unilever.
THE AFTERMATH OF WORLD WAR II
When World War II ended, the United States was the only major country that had not been devastated by war. The
size of the U.S. economy had almost doubled during the war, and the U.S. dominated the world economically,
politically, and militarily. In this scenario, many U.S. firms started making substantial direct investments in foreign
primary industries such as oil products and mining. Technological development and product design remained
focused on the United States market at home. American-owned multinationals generally viewed the rest of the
world as a source of raw materials, cheap labor, and supplemental markets.
In the mid-1950s, U.S. companies started to make substantial direct investments in foreign manufacturing
facilities. In the 1960s, it was American service firms—banks, insurance companies, marketing consultants, and the
like that expanded overseas. In time, however, as purchasing power increased abroad, especially in Europe and
Japan, their domestic product prospered. Eventually overseas producers expanded beyond their national
boundaries, entering the international marketplace. Although these foreign competitors initially relied on U.S.
technology, lower costs eventually gave them a competitive advantage. Today, they have taken the initiative in
developing and improving technology, and this has furthered their competitiveness (Palmer, 1997 as cited by
Abelos, et.al., 2006, 87-88).
Western Europe’s firms—particularly in such industries as chemicals, electric gear, pharmaceuticals, and tires—
started to respond in the late 1960s by setting up and acquiring U.S. affiliates. So did the giant Japanese trading
companies particularly during the 1980s, when they were trying to circumvent protectionist U.S. legislation that
would cut their access to the American market. To lower their manufacturing costs, Japanese and U.S. companies
also started to invest in facilities in newly developing nations such as the Philippines, Malaysia, Vietnam, and
Thailand.
As a result, international trade and competition have intensified in recent years. More than one-quarter of all the
goods produced in the world now cross international boundaries. While nearly three-quarters of the goods in the
United States face foreign competition (Young, 1995). In this global market, organizations must fight to capture
overseas markets while defending their home markets from foreign competition.
One of the more recent markets to open up to U.S. interests is Vietnam. In a move fraught with emotion and bitter
memories more than two decades old, former President Clinton lifted the 19 year embargo against Vietnam. This
has created a rush among American firms anxious to do business with the 72 million people of Vietnam. Among
more than 30 companies with established representative offices in Vietnam are Digital, Bank America, IBM,
Caterpillar, General Electric, Motorolla, and Phillip Morris. General Motors and Ford recently joined these
companies tapping Vietnam’s educated workforce. The U.S. companies have plenty of competition from other
countries that have a selling head start, such as Australia, Taiwan, France, Hong Kong, and Japan. But a hidden U.S.
advantage is the million or so Vietnamese who have settled in the United States and have already invested in small
business in the south of Vietnam who are likely to do more now that is legal (Fortune, 1994 as cited by Abelos, et
al., 2006, p. 88).
MEASURING GLOBALIZATION
There is no doubt we now live in a global marketplace. In scores of countries around the globe, the same products
and services are available to consumers and organizations. These range from McDonald’s restaurants to Sony
electronic equipment to Nokia and Samsung cellular phones. But ask the average consumers where this global
array of goods comes from and you will hear several answers that reflect differing perceptions. Throughout the
world, McDonald’s is the quintessential American fast-food restaurant, just as the Doc Martens is synonymous
with British youth culture. But for many other product, brands, and companies, the sense of identity with a
particular country is becoming blurred. Which brands are Japanese, or American, or German? Does a Big Mac taste
the same everywhere in the world?
There are many alternatives on how to measure globalization per country in the world. The KOF Swiss Economic
Institute offers a useful ranking into three broad categories as follows:

Economic globalization measures long distance flow of goods, capital, and services as well as information
and perception that accompany market exchanges;
 Social globalization measures the spread of ideas, information, images, and people
 Political globalization measures the diffusion of government policies in terms of the number of embassies
and consulates in a country, membership in international organization, likewise participation of a country
in United Nations peace missions and similar advocates.
Country
Belgium
Netherlands
Switzerland
Sweden
Austria
Denmark
France
United Kingdom
Germany
Finland
Norway
Hungary
Ireland
Canada
Czech Republic
Spain
Portugal
Italy
Luxembourg
Estonia
United States
Slovak Republic
Greece
Singapore
Slovenia
Bulgaria
Australia
Malaysia
Croatia
Globalization Rankings
Table 1.1- Index of Globalization
Index of globalization
90.47
90.24
89.7
88.05
87.91
87.85
87.34
87.23
86.89
85.98
85.81
84.2
83.53
83.45
83.41
83.31
82.21
82.15
82
81.97
81.7
80.74
80.31
80.01
79.76
79.52
79.29
79.28
79.04
Lithuania
Poland
New Zealand
Romania
Malta
Japan
South Korea
78.78
78.72
78
77.88
77.51
77.3
76.67
Source: KOF Index of Globalization; http://globalization.kof.ethz.ch/static/pdf/rankings-2010.pdf and
https://www.statistica.com/ctattistics/268168/g;obalization-index- by country.
Table 1.1 shows the ranking for several countries. In general, most of the countries in higher ranking are affluent
countries or the so called “Global North.” With the exception of Singapore which is situated geographically in the
Global South, the rest are economically well-off. The statistics shows the top 36 nations (among the top 50) in the
globalization index based on the data constructed in 2015. The index is based on three dimension or core sets of
indicators namely economic, social, and political The table also reveals that 28 nations included in the top 36 are
European countries.
Table1. 2- Economic Globalization
Country
Singapore
Ireland
Luxembourg
Netherlands
Malta
Belgium
Estonia
Hungary
Sweden
Austria
Bahrain
Denmark
Czech Republic
Cyprus
Finland
Slovak Republic
Chile
Israel
Portugal
Bulgaria
97.48
93.93
93.57
92.4
92.26
91.94
91.66
90.45
89.42
89.33
89.32
88.58
88.43
87.77
87.33
87.25
87.14
85.15
85.03
84.1
Source: KOF Index of Globalization; http://globalization.kof.ethz.ch/static/pdf/rankings-2010.pdf.
Table 1.2 shows that Singapore is ahead in the ranking in terms of economic globalization. This means,
this city state was able to perform well in terms of capital and services spearheaded by their national
Singapore Airlines and oil refinery and shipping terminals.
Table1. 3
Social Globalization
Country
Switzerland
Austria
Canada
Belgium
94.94
92.77
90.73
90.61
Netherlands
Denmark
United Kingdom
Germany
Sweden
France
Portugal
Norway
Finland
Slovak Republic
Czech Republic
Australia
Spain
Luxembourg
Hungary
Liechtenstein
88.09
88.01
87.06
85.97
85.95
85.84
85.59
85.3
84.89
83.9
83.54
82.96
82.52
81.6
80.79
80.11
Source: KOF Index of Globalization; http://globalization.kof.ethz.ch/static/pdf/rankin-2010.pdf.
Table 1.3 shows the rankings of countries in terms of social globalization. As reflected in the table, it is
dominated by countries in Europe that accounts for 18 of the top slots. Only Canada and Australia made it
to the upper ranking in terms of social globalization where spread of ideas, information, images, and
people are being measured.
Table 1.4
Political Globalization
Country
France
98.44
Italy
98.17
Belgium
98.14
Austria
96.85
Sweden
96.27
Spain
96.14
Netherlands
95.77
Switzerland
96.09
Poland
94.63
Canada
94.4
Portugal
94.36
Germany
94.21
Denmark
93.96
United States
93.85
Egypt
93.39
Argentina
93.38
Greece
93.11
Turkey
93.11
Brazil
92.95
India
92.69
Source: KOF Index of Globalization; http://globalization.koh.ethz.ch/static/pdf/rankings-2010.pdf
Table 1.4 shows the rankings of the countries in terms of political globalization. Again, European countries
dominated the slot with 14 countries occupying the upper positions in terms of political globalization.
Canada, the United States (North America), Egypt (Africa); Brazil (South America); and India (Asia) joined
the upper rankings.
In general, most of the poor countries (not reflected in the table) are out from the top rank of any of the
economic, social and political globalization rankings because these countries have few foreign workers
and relatively low amounts of international communication and contact. They also have relatively low
levels of Internet use, as large segment of the population does not have access to computers or training to
use computers in daily life. Hence, the more globalized an economy, the greater its links with the rest of
the world.
OBE Activities
Activity 1.1
1. Directions
Divide the class into group of five. The group will assign their leader and secretary. The leader will
initiate brainstorming on the definition of globalization according to their perspectives. The
secretary will record and jot down the consensus of the group. Finally, the professor/instructor
will ask the leader to summarize the group’s definition of globalization. The group’s consensus of
globalization should be written on the board in order to facilitate how many of the group’s
members agree on the definition.
Activity 1.2
2. Using the same group, focus on this question: How have you experienced globalization? To
determine this, the secretary will gather the data from the members of the group by writing the
items using this table. Identify the country of origin where the items are manufactured. Label it
as international or local. The leader will evaluate and assess the data. The source will be the
home of each member and personal belongings such as audio/video, gadgets, bags, shoes, etc.
Item/product
3.
Brand name
Country of Origin
The professor/instructor may ask this thought provoking question as part of round table
discussion.
Why is it that despite being tagged once as the text capital of the world and among the top users
of social media (Facebook), the Philippines is not among the countries included in any of the
three rankings of globalization?
Chapter 2
MARKET GLOBALISM
Learning Outcomes: At the end of the chapter, the student should be able to:
1. Describe the changes in the world economy;
2. Identify the three forms of economic system;
3. Distinguish the three forms of economic system;
4. Explain the characteristics of the World Bank rankings; and
5. Explain the principles, ideas, and arguments postulated on the six core claims of market
globalism.
AN OVERVIEW OF THE WORLD ECONOMY
The world economy has changed profoundly since World War II (Drucker, 1986). Perhaps the most
fundamental change is the emergence of global markets; responding to new opportunities, global
competitors have steadily displaced or absorbed local ones. Concurrently, the integration of the world
economy has increased significantly. Economic integration stood at 10 percent at the beginning of the 20 th
century; today, it is approximately 50 percent. Integration is particularly striking in two regions, the
European Union (EU) and the North American Free Trade Area (NAFTA).
Just 30 years ago, the world was far less integrated that it is today(Krugman, 1992). One of the evidences
of the changes that have taken place is the automobile industry. Cars with European nameplates such as
Renault, Citroen, Peugeot, Morris, Volvo, Volkswagon, and others were radically different from the
American Chevrolet, Ford, or Plymouth and from Japanese models such as Toyota or Nissan. These were
local cars built by local companies, mostly destined for local or regional markets. Even today, global and
regional auto companies make cars for their home markets that would not be marketable in North
America, and vice versa. But it is also true today that the world car is a reality for Toyota, Nissan, Honda,
and Ford. Product changes reflect organizational changes as well. The world’s largest automakers have,
for the most part, evolved into global companies. At Ford Motor Company, for example, the change is
reflected in the Ford 2000 restructuring plan. Ford 2000 represents a dramatic change in the way the
company designs and manufactures cars and is just one example of the type of changes that globalization
has brought.
Within the past decade, there have been several remarkable changes in the world economy.
Organizations stand a better chance of achieving success when plans and strategies are based on the new
realities of the changed world economy (Simon & Schuster, 1997).




Capital movements rather than trade have become the driving force of the world economy.
Production has become a source of generating employment.
The world economy dominates the scene. Individual economies play a subordinating role.
The 75-year struggle between capitalism and socialism is largely over.
The first change is the increased volume of capital movements. The dollar value of the world trade is
greater than even before. Trade in goods and services are running at roughly $5.5 trillion per year. But the
London Eurodollar market turns over $400 billion each working day. Overall, foreign exchange
transactions are trading at approximately $1.5 trillion per day worldwide—70 times the volume of world
trade in goods and services (Shapiro, 1995). Global capital movements far exceed the volume of global
merchandise and service trade. Thus explains the bizarre combination of U.S. trade deficits and a
continually rising dollar during the first half of the 1980s. Previously, when a country ran a deficit on its
trade accounts, its currency would depreciate in value. Today, it is capital movements and trade that
determine currency value.
The second change concerns the relationship between productivity and employment. Productivity
continues to grow even if employment in manufacturing remains steady or had declined. Industrial
countries such as the United States and United Kingdom have similar pattern. United Kingdom, which had
tried to maintain blue-collar employment in manufacturing, had lost both production and jobs for their
efforts. Manufacturing is not in decline—it is employment in manufacturing that is in decline.
The third major change is the emergence of the world economy as the dominant economic unit.
Organizations that recognize this change have the greatest chance of success. Those who do not are likely
to experience decline and bankruptcy (in business) or overthrow (in politics). The real secret of the
economic success of Germany and Japan is that business leaders and policymakers focus on the world
economy and world markets. In fact the top priority for government and business in Japan and Germany
has been their respective competitive positions in the world. In contrast, many other countries, even the
United States, have focused on domestic objectives and priorities to the exclusion of their global
competitive position.
The last change is the end of the Cold War. The demise of communism as an economic and political
system can be explained in a specific manner: Communism is not an effective economic system. The
overwhelmingly superior performance of the world’s market economies has given leaders in socialist
countries little choice but to renounce their ideology. A key policy change in such countries has been the
abandonment of futile attempts to manage national economies with a single central plan. This policy
change goes hand in hand with governmental efforts to foster increased public participation in matters of
state by introducing democratic reforms (Brauchli, 1996).
ECONOMIC SYSTEMS
There are three types of economic systems: capitalist, socialist, and mixed. This classification is based on
the dominant method of resource allocation: market allocation, command allocation, and mixed
allocation respectively.
Market Allocation
A market allocation system relies on households and firms to allocate resources. Consumers decide what
goods they desire, and firms determine how much is made. The market system is an economic democracy
where people have the option to buy according to their choice and budget. The role of the state in a
market economy is to promote competition and ensure consumer protection. North America, Western
Europe, and Japan are representative of predominantly market-oriented economies. That is the reason
why these regions account for three-quarters of world output as measured by Gross National Product or
GNP.
Command Allocation
In a command allocation system, the country or nation has broad powers to serve the public interest on
what is appropriate based on their judgment. These powers include deciding which products to make and
how to make them. Consumers are free to spend their money on what is available but government
planners make decisions about what is produced, and therefore, what is available. A hallmark of such
system is government control of entire industries as well as individual enterprises. Because demand
typically exceeds supply, the elements of the marketing mix are not used as strategic variables (Golden, et
al., 1995). There is little reliance on product differentiation, advertising, and promotion; distribution is
handled by the government to cut out “exploitation” by intermediaries. Three of the most populous
countries in the world: China, the former Soviet Union, and India—relied on command allocation systems
for decades. All three countries are now engaged in economic reforms directed in varying degrees shifting
to market allocation systems.
Market reforms and nascent capitalism in many parts of the world are creating opportunities for largescale investments by global companies. Indeed, Coca-Cola returned to India in 1994, two decades after it
was forced out by the government. A new law allowing 100 percent foreign ownership of enterprises
helped pave the way. By contrast, Cuba stands as one of the last bastions of the command allocation
approach.
Mixed Allocation
Mixed allocation stems on the principle that there is no “pure market or command allocation systems
among the world’s economies. It means all market systems have a command sector and all command
systems have a market sector which means they are mixed. The function of the government in modern
market economies varies widely. In Sweden, for example, where two-thirds of all expenditures are
controlled by government, the economic system is more “command” than “market.” The reverse is true in
the United States. Similarly, farmers in most socialist countries are traditionally permitted to offer part of
their production in a free market. China has given considerable freedom to businesses and individuals in
the Guangdong province to operate within a market system. Still, China’s private sector constitutes only 1
to 2 percent of national output (Goldstone, 1995, pp-35-32).
Each year, the Washington D.C.based Heritage Foundation compiles a survey of more than 150 countries
ranked by degree of economic freedom (See table 2.1). A number of key variables are considered such as
trade policy, taxation policy, government consumption of economic output, monetary policy, capital flows
and foreign investment, banking policy, wage and price controls, property rights, regulations, and black
market.
Table 2.1
INDEX OF ECONOMIC FREEDOM
Category
Free
1.
2.
3.
4.
5.
6.
7.
8.
9.
Mostly Free
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
Country
Hong Kong
Singapore
Bahrain
New Zealand
Switzerland
United States
Luxembourg
Taiwan
United Kingdom
Bahamas
Ireland
Australia
Japan
Belgium
Canada
United Arab Emirates
Austria
Chile
Estonia
Czech Republic
Netherlands
Denmark
Finland
Germany
Iceland
South Korea
Norway
Kuwait
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
Mostly Unfree
74.
75.
76.
77.
Malaysia
Panama
Thailand
El Salvador
Sri Lanka
Sweden
France
Italy
Spain
Trinidad & Tobago
Argentina
Barbados
Cyprus
Jamaica
Portugal
Bolivia
Oman
Philippines
Swaziland
Uruguay
Botswana
Jordan
Namibia
Tunisia
Belize
Costa Rica
Guatemala
Israel
Peru
Saudi Arabia
Turkey
Uganda
Western Samoa
Indonesia
Latvia
Malta
Paraguay
Greece
Hungary
South Africa
Benin
Ecuador
Gabon
Morocco
Poland
Colombia
Ghana
Lithuania
Kenya
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
Slovak Republic
Zambia
Mali
Mongolia
Slovenia
Honduras
Papua New Guinea
Djibouti
Fiji
Pakistan
Algeria
Guinea
Lebanon
Mexico
Senegal
Tanzania
Nigeria
Romania
Brazil
Cambodia
Egypt
Ivory Coast
Madagascar
Moldova
Nepal
Cape Verde
Armenia
Dominican Republic
Russia
Burkina Faso
Cameroon
Lesotho
Nicaragua
Venezuela
Gambia
Guyana
Bulgaria
Georgia
Malawi
Ethiopia
India
Niger
Albania
Bangladesh
China
Congo
Croatia
Chad
Mauritania
Ukraine
128.
129.
130.
131.Zimbabwe
Repressed
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
151.
152.
153.
154.
155.
156.
Sierra Leone
Burundi
Suriname
Haiti
Kyrgyzstan
Syria
Belarus
Kazakhstan
Mozambique
Yemen
Sudan
Myanmar
Rwanda
Angola
Azerbaijan
Tajikistan
Turkmenistan
Uzbekistan
Seychelles
Iran
Libya
Somalia
Vietnam
Bosnia
Iraq
Cuba
Laos
North Korea
Source: Bryan T, Johnson, Kim R. Holmes, and Melanie Kirkpatrick, “ Freedom’s Steady March.” The Wall Street
Journal (December 1, 2007) , p. A22.
The rankings form a continuum from ‘free” to “repressed,” with “mostly free” and mostly unfree in
between. Hong Kong and Singapore are ranked first and second in terms of economic freedom; Cuba,
Laos, and North Korea are ranked lowest under repressed category.
There is a high correlation between the degree of economic freedom and the extent to which a nation’s
mixed economy is heavily market oriented. However, the validity of the ranking has been subject to some
debate. For example, author William Greider (1997) has observed that the authoritarian state capitalism
practiced in Singapore deprives the nation’s citizens of free speech, a free press, and free assembly.
Grieder writes, “Singaporeans are comfortably provided for by a harshly autocratic government that
administers paranoid control over press and politics and an effective welfare state that keeps everyone
well housed and fed, but not free.”
WORLD BANK FOUR-CATEGORY SYSTEM
The World Bank has developed a four-category system of classification that uses per capita (GNP) as a
base. Although the income definition for each of the stages is arbitrary, countries within a given category
generally have a number of characteristics in common. Thus, the stages provide a useful basis for global
market segmentation and target marketing. See table 2.2.
Table 2.2
Stages of Market Development
Income Group by
GNP (millions)
Per capita GNP
High-income
$22,629.4
countries
Upper-middle$2,130.3
income countries
Lower-middle$1,506.8
income countries
Low-income
$1,537.1
countries
Source: World Bank Data, 2010.
GNP per capita
$24,754
Percent of World
GNP
81.39
$3,946 to $9,386
7.66
$$766 to $3,035
5.42
463
5.53
Low-Income Countries
Low-income countries have a GNP per capita of less than $766. The characteristics shared by countries at
this income level are:
1. Limited industrialization and a high percentage of the population engaged in agriculture and
subsistence farming
2. High birth rates
3. Low literacy rates
4. Heavy reliance on foreign aid
5. Political instability and unrest
6. Concentration in Africa south of the Sahara
Although more than 50 percent of the world’s population is included in this economic category, many
low-income countries represent limited markets for products. There are exceptions such as the case of
Bangladesh, where per capita GNP is slightly more than $249, a growing garment industry has enjoyed
very satisfactory performance in exports. The dollar value of finished clothing exports recently surpassed
that of jute, tea, and other agricultural exports. Although Bengalis have endured a succession of military
coups and political killings, in recent years the government has managed to make progress in its economic
reform program. For John F. Burns (1997), the reforms will enable Bangladesh to capitalize on its
reputation for intellectual accomplishment and its track record for producing distinguished scholars,
scientists, and doctors.
Many low-income countries have such serious economic, social, and political problems that they
represent very limited opportunities for investment and operations. Some are low-income, no-growth
countries such as Burundi and Rwanda that are beset by one disaster after another. Others were once
growing, relatively stable countries that have become divided by political struggles. The result is declining
income and often considerable danger to residents. As the 20th century draws to a close, Yugoslavia is a
case in point. Countries embroiled in civil wars are dangerous areas; most companies find it risky hence
they avoid them.
Low-Middle-Income Countries
Sometimes, countries that can be assigned to the lower income and lower-middle income categories are
known collectively as less-developed countries (LDCs). This is to indicate a contrast with developing
(upper-middle-income) countries and developed (high-income) countries. Lower-income countries are
those with GNP per capita between $ 766 and $3,035. These countries are typically at relatively early
stages of industrialization. Factories supply a growing domestic market with such items as clothing,
batteries, automobile tires, building materials, and packaged foods. Consumer markets in these countries
are expanding. Countries such as Belarus, Indonesia, and Turkey represent an increasing competitive
threat as they mobilize their relatively cheap—and often highly motivated—labor forces to serve target
markets in the rest of the world. The LDCs in the lower-middle-income category have a major competitive
advantage in mature, standardized, labor-intensive industries such as toy-making and textiles. Indonesia,
the largest noncommunist country in Southeast Asia, is a good example of an LDC on the move. The per
capita GNP has risen from $250 in 1985 to more than $1,000 in 1997. Several factories produce athletic
shoes under contract for Nike.
Upper-Middle-Income Countries
These countries are also known as industrializing or developing countries with a GNP per capita ranging
from $3,036 to $ 9,385. In these countries, the percentage of population engaged in agriculture drops
sharply as people move to the industrial sector and the degree of urbanization increases. Malaysia, Brazil,
Chile, Hungary, and many other countries in this stage are rapidly industrializing. They have rising wages
and high rates of literacy and advanced education but significantly lower wage costs than the advanced
countries. Innovative local companies can become formidable competitors and help contribute to their
nations’ rapid, export-driven economic growth.
Upper middle-income countries that achieve highest rates of economic growth are sometimes referred to
collectively as newly industrializing economies (NIEs). In Hungary and other upper-middle-income
countries, scores of manufacturing companies have received ISO-9000 certification for documenting
compliance with recognized quality standards. The influx of technology, particularly the computer
revolution, creates startling balanced positions of the old and the new in these countries, In Brazil, for
example, grocery distribution companies use sophisticated logistics software to route their trucks;
meanwhile, horse- drawn carts are still a common sight on many roads.
High-Income Countries
High-income countries are also known as advanced, developed, industrialized, or post-industrial
countries. They have GNP per capita above $9,386. With exception of a few oil-rich nations, the countries
in this category reached their present income levels through a process of sustained economic growth.
The United States, Sweden, Japan, United Kingdom, and other advanced, high-income countries are
characterized with an orientation toward the future and the importance of interpersonal relationship in
the functioning of society. Product and market opportunities in a postindustrial society are more heavily
dependent on a new products and innovations than in industrial societies. Ownership levels for basic
products are extremely high.
South Korea occupies a unique position among the big emerging markets in that it is the only one of the
10 to have achieved the status of a high-income country. The most industrialized BEM nation, South Korea
is home to Samsung Electronics, LG Electronics, Goldstar, Daewoo, Hyundai, KIA, and other well-known
global enterprise. Per capita income doubled between 1985 and 1995. It now occupies one of the highest
GNP as of 2017.
Among the high-income countries, the United States, Japan, Germany, France, Britain, Canada, and Italy
are known as the Group of Seven (G-7). Finance ministers, central bankers, and heads of state from the
seven nations have worked together for a quarter of a century in an effort to steer the global economy in
the direction of prosperity and to ensure monetary stability, Whenever a global crises looms—from South
America debt crisis of the 1980s to Russia’s transformation to a market economy in the 1990s—
representatives from the G-7 nations gather and try to coordinate policy. See table 2.3 of the countries
with the largest per capita (GDP)in 2017.
Table 2.3
Gross Domestic Product (GDP) per capita 2017
Ranking and country
1. Luxembourg
2. Switzerland
3. Macao
4. Norway
5. Iceland
6. Ireland
7. Qatar
8. United States
9. Denmark
10. Australia
11. Singapore
12. Sweden
13. Netherlands
14. San Marino
15. Austria
16. Finland
17. Hong Kong
18. Canada
19. Germany
20. Belgium
GDP per capita in 2017 in U.S. Dollars
107,708.22
80,836.66
79,563.56
73,615.15
73,092.2
68,604.38
60,811.86
59,495.34
56,334.61
56,135.42
53,880.13
53,248.14
48,271.67
47,302.15
46,435.93
45,692.89
44,999.31
44,773.26
44,184.45
43,243.3
Source: https: www.statistics.com/statistics/270180/countries-with-largest-gross domestic-product-gdp-per-capita.
Table 2.3 shows the 20 countries with the large (GDP) per capita in 2017. GDP is a strong indicator of a
country’s economic performance and strength. It is measured by the added value of all final goods and
serviced produced and manufactured by a country.
The Six Core Claims of Market Globalism (Manfred B. Steger, 2014, 27-36)
1. Globalization is the Liberalization and Global Integration of Markets
The perspective of this first claim dwells on the vital functions of the free market, on its rationality and
efficiency likewise on its alleged ability to bring about greater social integration and material progress.
This can only be realized in a democratic society that values and protects individual freedom.
There are two established ideologies that play an important role in market. The first is the
libertarian variant of liberalism which is often referred to as neo-liberalism. Neo-liberals see the
importance of free market and free trade although they are more inclined on the latter because the
attitude toward big business has a big impact on the intrusive government action as to policies and
regulations.
This perspective seeks to establish the arguments on what globalization means by interlocking
the two core concepts and linking them to the adjacent ideas of liberty and integration. Globalization is
about the triumph of market over governments. Both proponents and opponents of globalization agree
that the driving force today is markets which are inducing the role of government. On the other hand, in
reality, the size of government has been shrinking relative to the economy almost everywhere.
The driving idea behind globalization is free-market capitalism. This means the more you let
market forces rule and the more you open your economy to free trade and competition, the more
efficient your economy will be. Hence, globalization means the spread of free market capitalism to
virtually every country in the world.
Market globalist view globalization in the following manner:
a. As a natural economic phenomenon whose essential qualities are the liberalization and
integration of global markets
b. The reduction of governmental interference in the economy.
Privatization, free trade, and unfettered capital movements are portrayed as the best and most
natural way for realizing individual liberty and material progress in the world. Market globalists have been
successful because they have persuaded the public that their neo-liberal account of globalization
represents an objective or at least neutral diagnosis rather than a direct contribution to the emergence of
the very conditions it conveys to analyze.
However, their economistic-objectivist representation of globalization detracts from the multidimensional character of the phenomenon. Ecological, cultural, and political dimensions of globalization
are discussed only as subordinate processes dependent on the movements of global markets.
2.
Globalization is Inevitable and Irreversible
The perspective of this claim two is that globalization reflects the spread of irreversible market
forces driven by technological innovations that make the global integration of national economies
inevitable.
The fact that market globalism is almost always intertwined with the deep belief in the ability of
markets to use new technologies to solve social problems far better than any alternative course. Quoting
the former British Prime Minister Margaret Thatcher in the early 1980s, who famously pronounced that
‘there is no alternative’, means that there is no longer existed theoretical and practical alternative to the
expansionist logic of the market. Further, she dared to post alternatives as foolishly relying on
anachronistic, socialist fantasies that betrayed their inability to cope with empirical reality.
Governments, political parties, and social movements had no choice but to ‘adjust’ to the
inevitability of globalization. Their sole remaining task is to coordinate and provide the necessary
facilitation of the integration of national economies in the new global market. This means that States and
interstate systems should, therefore, serve to ensure the smooth working of players in the world market.
Frederick Smith (1999) CEO of FedEx Corporation states that globalization is irreversible.
Globalization is inevitable and inexorable and it is accelerating. Globalization is happening, it is going to
happen. It does not matter whether you like it or not.
In order to survive and prosper, market globalist must adapt to the discipline of the market so they
could easily convince the people. As such, the claim of inevitability serves a number of important political
functions as follows:
a. It neutralizes the challenges of alter-globalist opponents by depoliticizing the public discourse
about globalization: Neo-liberal policies are above politics because they simply carry out what is
ordained by nature.
This view implies that instead of acting according to a set of choices, people merely fulfill world
market laws that demand the elimination of government controls.
b. There is nothing that can be done about the natural movement of economic and technological
forces: political groups ought to comply and make the best of an unalterable situation. Since the
emergence of a world based on the primary of market values reflects the dictates of history,
resistance would be unnatural, irrational, and dangerous.
3.
Nobody is in Charge of Globalization
This perspective focuses on the classical liberal concept of the ‘self-regulating market’. The
semantic link between ‘globalization-market’ and the adjacent idea of ‘no leader’ is simple. Globalization
does not reflect the arbitrary agenda of a particular social class or group of the undisturbed workings of
the market indeed preordained a certain course of history.
Robert Hormats (1998) emphasized that the great beauty of globalization is that no one is in
control. It is not controlled by any individual, any government, and any institution. This is supported by
Thomas Friedman’s (1999) statement that the most basic truth about globalization is no one is in charge
and that the global market today is an Electronic Herd of often anonymous stock, bond and currency
traders and multinational investors.
The questions are: Is it really true that the liberalization and integration of global markets
proceeds outside the realm of human choice? Does globalization, therefore, absolve businesses and
corporations from social responsibility?
4.
Globalization Benefits Everyone
The adjacent idea of ‘benefits for everyone’ is usually unpacked in material terms such as
‘economic growth’ and ‘prosperity’. This perspective is supported by the joint statement of powerful
industrialized nations in 1996 G-7 Summit in Lyons, France:
Economic growth and progress in today’s independent world is bound up with the process of globalization.
Globalization provides great opportunities for the future, not only for our countries, but for all others too. Its
many positive aspects include an unprecedented expansion of investment and trade; the opening up to
international trade of the world’s most populous regions and opportunities for more developing countries to
improve their standards of living; the increasingly rapid dissemination of information, technological
innovation, and the proliferation of skilled jobs.
As John Meehan (1997) puts it, ‘episodic dislocations’ such as mass unemployment and reduced
social services might be ‘necessary in the short run’, but,’ in the long run,’ they will give way to ‘quantum
leaps in productivity’. Hence, market globalist like Meehan justify the real human cost of globalization as
the short-term price of economic liberalization.
5.
Globalization furthers the Spread of Democracy in the World
This claim links ‘globalization’ and ‘market’ to the adjacent concept of ‘democracy’, which also
plays a significant role in liberalism, conservatism, and socialism. Freeden (1996) coined the word
‘Thatcherism’. Globalists tend to treat freedom, free markets, free trade, and democracy as synonymous
terms.
The most obvious strategy by which neo-liberals generate popular support for the relationship of
democracy and the market is by discrediting traditionalism and socialism. The issue with socialism became
a tougher case. In the late 1970s, socialism provided a powerful critique of the elitist, class-based
character of liberal democracy, which, in its view, revealed that a substantive form of democracy had not
been achieved in capitalist societies.
Francis Fukuyama (2000) asserted that there exists a ‘clear correlation’ between a country’s level
of economic development and successful democracy. While globalization and capital development do not
automatically produce democracies, ‘the level of economic development resulting from globalization is
conducive to the creation of complex civil societies with a powerful middle class. It is this class and
societal structure that facilitates democracy.
However, Fukuyama’s argument lies on a limited definition of democracy that emphasizes formal
procedures such as voting.
From the point of view of the critical political economists, the concept of polyarchy differs from
the concept of ‘popular democracy’ because the latter postulates democracy as both a process and a
means to an end- a tool for devolving political and economic power from the hands of elite minorities to
the masses. Whereas polyarchy represents an elitist and regimented model of ‘low intensity’ or ‘formal’
market democracy. This means polyarchies not only limit democratic participation to voting in elections,
but also require that those elected be insulated from popular pressures in order for them to govern
effectively.
Voting in this sense helps to obscure the conditions of inequality reflected in existing
asymmetrical power relations in society. Formal elections actually provide the important function of
legitimizing the rule of dominant elites, hence, making it more difficult for popular movements to
challenge the rule of elites.
The claim that globalization furthers the spread of democracy in the world is largely based on a
narrow, formal procedural understanding of ‘democracy’. In short, Neo-liberal economic globalization and
the strategic promotions of polyarchic regimes in the Third World are two sides of the same ideological
coin. They represent the systemic prerequisites for the legitimation of a full-blown world market.
6.
Finally, claim 6 Globalization requires War on Terror is the neo-conservative commitment to
‘American values’ of freedom, security, and free markets. This is supported by Robert Kaplan (2003)
in his statement that “you also have to have military and economic power behind it, or else your
ideas cannot spread’. This final claim combines the idea of economic globalization with openly
militaristic and nationalistic ideas associated with the American-led global War on Terror. The logic
here is if global terror were no longer a major issue, it would disappear without causing market
globalism to collapse. Hence, this last and final claim is a contingent one and less important than the
five previous claims.
THE INTERNATIONAL ECONOMIC ENVIRONMENT
Economic experts predict that sometime early in the next century, Asia will eclipse North America as the world’s
most powerful region. The region outpaced the growth of the world’s 24 leading industrial economies by more
than six times in 1993, having grown at least four times as fast each year in the 1990s. How can Asia grow at an
average 7 percent (with some economies growing even faster, such as china at 12 percent) when Europe, Japan,
and the United States are growing at an average of only 2 percent? The answer lies in a blend of ingredients that
include the region’s traditional capacity at exporting; its rapid emergence as a market unto itself, and its resulting
attraction to foreign investors.
A conservative assumption is that fully one billion Asians—not much less than the entire population of North
America, South America, and Europe—will be living in households with some consumer-spending power which
means they can buy at least basic goods such as color televisions, refrigerators, and motorbikes. Perhaps, 400
million of these consumers will have disposable incomes, at least equal to the rich-world average in 1993, to spend
on houses, cars, computers, holidays, health care, and education. If this happens, immense investments will be
needed to make it possible: power plants, roads, and airports among other things. Japan’s Long-Term Credit Bank
puts these investment needs at $1 trillion over the next decade.
Many marketers have had to adjust their thinking about Asia. Not long ago, companies such as Hewlett-Packard
viewed Asia as a region with a large supply of labor but little potential for anything else. Today, Hewlett-Packard
maintains a workforce of 13,000 throughout Asia and had sales of $2 billion in 1992 about one-eighth of the
corporate total.
The assessment of a foreign-based market environment should start with the evaluation of economic variables
relating to the size and nature of the markets. Table 2.3 illustrates the size of the global market. The products and
services are mostly produced by the Group of Ten (United States, Britain, France, Germany, Japan, Italy, Canada,
Sweden, Netherlands and Belgium).
Table 2.3
How Big is the Global Market
Product or Service
Auto parts
Size of Market in billion $ dollars
720
Computers
650
Telecommunications
600
Internetworking products and
services
Packaging
470
Cigarettes
295
400
Key Players
Ford (USA), Robert Bosch
(Germany), Denso (Japan), Seiki
(Japan)
IBM (USA); Hewlett-Packard (USA),
Dell (USA)
AT&T (USA), Concert Comm. (USA &
UK), Global (USA, Germany, France)
IBM (USA(, Microsoft (USA), Oracle
(USA); SAP (Germany)
Sealed Air (USD); Crown Cork & Seal
(USA)
Phillip Morris (USA), BAT Industries
(UK), Japan Tobacco (Japan);
Gallaher Group (UK)
150
Microsoft (USA)
Computer software
Major appliances
100 billion
Construction equipment
90
Luxury goods
51
Recorded music
50
Snack foods
32 billion (retail)
Paper tissues and towels
24
Farm equipment
23
Computer Networking equipment
Disposable diapers
Feminine Hygiene(napkins, pads,
liners)
20
10
8
Whirlpool (USA), Electrolux
(Sweden), Bosch (Germany)
Caterpillar (USA), Komatsu (Japan),
Volvo (Sweden)
Giorgio Armani (Italy(, LVMH Group
(France)
Sony (Japan). Warner (USA), EMI
(UK), Seagram (Canada)
Frito-Lay (USA), Keebler (USA),
Nabisco (USA)
Kimberly-Clark (USA), Fort-James
(USA)
John Deere (USA), Case (USA), New
Holland (Netherlands)
Cisco Systems (USA), 3Com (USA)
Procter & gamble (USA)
Procter & Gamble (USA), Kimberly
Clark (USA)
Source: Keegan, W. and Green, S. Global Marketing , 2010
OBE Activities
Directions A: Divide the class into groups (four to five members for each group)
1.
Name products, services and goods that are considered global product using “glocalization”? Present
them in power point by group.
Activity 2.2
Critical-thinking questions
Directions B: Use separate yellow pad for your answers. Rubric for essay activity is provided in the
appendix of this book.
1.
2.
How do you perceive the idea of claim 6 that if global War on Terror turns out to be an
intense engagement, it would become actually more important over time? Recall the 9/11
tragedy, the Gulf War between Iraq and Kuwait. The civil disturbances in Syria, Yemen, and
Libya. If these will continue, would you agree on the premise?
Do you agree with the statement of former British Prime Minister Margaret Thatcher that
‘there is no alternative’ which means governments, the society, politicians, and economists,
have to adjust to the coming or existence of globalization?
Activity 2.3 (To be given as assignment)
Directions C: Browse the Internet and check the list of the Global 500 published in the Fortune
magazine. Choose one company that interests you (preferably operating in the Philippines). Compare
its ranking with the most recent ranking in the last five years of operation. Describe your personal
experience with this global company either dining, shopping, etc., Visit www.fortune.com
References
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Craig, S.C. & Susan Douglas. (1996). “Responding to the challenges of global markets: Change: Complexity,
Competition, and Conscience,” Columbia Journal of World Business 31, no.4 b(Winter, 1996), p.7.
Freeden, M (1996). Ideology: A very short introduction. Oxford, UK: Oxford University Press.
Friedman, T. (1999). The Lexus and the Olive Tree: Understanding Globalization. New York: Farrar, Strauss
and Giroux.
Fukuyama, F. (2000). Economic globalization and culture: A discussion with Dr. Francis Fukuyama (at
http://www.ml.com/wom/forum/global2.html)
Govindaragan, V. & Anil Gupta. ( 1998). “Setting a course for the new global landscape.” Financial Times—
Mastering Global Business, part 1. (January 30, 1998), P.3
Hormatts, R. (1998). PBS interview with Danny Schechter (at http://pbs.org.globalization/hormats 1.html).
Kaplan, RD. (2003). The hard edge of American values. Atlantic Monthly Online, 18 June (at
http://www.the atlantic.com/unbound/interviews/int2003-06-18.html).
Meehan, JJ. (1997). Globalization and technology at work in the bond markets. Speech given in Phoenix
AZ, 1 March (at http://www/bondmarkets com/news/Meehanspeechfinal.html).
Miles, G.L. (1995). “Tailoring a global product.” International Business (March 1995). P. 50.
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Quelch, J.A. & Edward J. Hoff. (1986). “ Customizing global marketing,” Harvard Business Review 64, no.3
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Chapter 3
Governments and Citizens in a Globally Interconnected World of States
Learning Outcomes: At the end of the chapter, the student should be able to:
1. Distinguish nation from state;
2. Identify the elements of the state;
3. Explain the political, legal, and regulatory environments of global states.
4. Explain the impact of political risks on governments;
5. Distinguish Common law, Civil law and Islamic law; and
6. Explain the principles and concepts of bribery and corruption.
The formation of a state is the highest expression of a political act of men conforming to promote their
common interest, advance their common welfare, secure their collective rights, optimize their available
common resources, promote their common heritage, and harness their common potentials for the
general well-being of the citizens (De Leon and De Leon Jr. 2014, 6).
What is a State?
A state is a community of persons, more or less numerous, occupying a definite territory,
possessing an organized government, and enjoying independence from external control.
It is dwelled by people permanently occupying a fixed territory and bound by common-law habits
and customs into one body politics, exercising through the medium of an organized government,
independent sovereignty and control over all persons and things within its boundaries, capable of making
war and peace and entering into international relations with other communities of the globe (De Leon and
De Leon Jr., 2014).
Nation and State
Under international law, state is not equivalent to nation. Nation is defined as people, or
aggregation of men, existing in the form of an organized society, usually inhabiting a distinct portion of
the earth, speaking the same language, using the same customs, possessing historic continuity, and
disguised from other like groups by their racial origin and characteristics, and generally, but not
necessarily, living under the same government and sovereignty (Dannug and Campanilla, 2004).
State is more of a political concept while nation is racial or ethical. However, state and nation are
often used interchangeably. For example, the nations referred to in the United Nations are actually states.
To illustrate, the Arab Nation is not a state but a nation which consists of several states, such as
Kingdom of Saudi Arabia, Yemen, Qatar, Bahrain, Kuwait, Syria, Jordan, Iraq, Iran (although their language
is not Arabic but Farsi, but their geographical location is within the Arab nations) Oman, Lebanon, and
United Arab Emirates. On the other hand, the United States of America is a state and not a nation but it
consists of several nationalities such as Caucasians, Africans, Chinese, Filipinos, Latin Americans, Koreans,
etc.,
Elements of the State
1. People. This is the entire body of those citizens of a state who are invested with political power for
political purposes (Black’s Law Dictionary, 6th edition). It is necessary to the existence of the state.
There can be no functionaries to govern and no subjects to be governed without the people. The
number should be neither too small nor too large. It should be large enough to be self-sufficient and
small enough to be well governed (Martin, 1984). It must be sufficient and number to maintain and
perpetuate itself. A casual gathering of individuals by chance, a group of bandits or a society of
pirates does not constitute people as an element of state (Aruego, 1975; De Leon and De Leon Jr.,
2014).
2. Territory. It is a geographical area under the jurisdiction of another country or sovereign power or
state (Black’s Law Dictionary, 6th edition). It must be a fixed territory which the inhabitants occupy.
Nomadic tribes, who travel from place to place, may not establish a state since they are not
occupying a fixed territory. A state must have a territory sufficient in extent to provide for its
maintenance and growth (Aruego, 1975; De Leon and De Leon Jr., 2014).
There are four modes by which a state can acquire territory. These are by discovery and occupation,
prescription, cession, and subjugation and annexation.
 Discovery and occupation. A state may acquire a territory by discovering a continent, an island or land
with no inhabitants or occupied by uncivilized inhabitants, and thereafter, occupying it by placing it
under its political administration. Discovery without subsequent occupation is not sufficient to
acquire a territory. There is effective occupation when the following are met:
a. That the parties occupying the territory must have been authorized by the state for which they
are acting;
b. That the state must by formal act evidence its intention to acquire sovereignty over the new
territory; and
c. That there must be established within a reasonable time after discovery some government
authority (Public International Law).




3.
The following lands can be the subjects of discovery and occupation: (1) uninhabited lands, (2) lands
inhabited by uncivilized persons, and (3) lands discovered by a state but which it failed to occupy for
unreasonable length of time.
Prescription. It is the mode of acquiring a territory through continuous and undisputed exercise of
sovereignty over it during such period as is necessary to create under the influence of historical
development the general conviction that the present condition of things is in conformity with
international order (Public International Law). Note that the length of time required for the
acquisition of territory by prescription is not definite, although some authorities consider a period of
fifty years as sufficient.
Cession. It is the assignment, transfer, or yielding up of territory by one state or government to
another. Cession may be in the form of sale or donation. For example, for 20 million dollars, the
Spanish government on December 10, 1898 ceded the Philippine archipelago to the United States of
America through the Treaty of Paris.
Subjugation and Annexation. It is a mode of acquiring a territory belonging to a state by occupation
and conquest made by another state in the course of war and by annexation at the end of the war.
Conquest gives the conqueror inchoate title that may be converted into a full title after annexation of
the territory. Conquest and annexation are also called involuntary cession.
Accretion. It is another mode of acquiring territory by addition of portions of soil, either artificial such
as the reclamation area in Manila Bay, or natural by gradual deposition through the operation of
natural causes such as the waves of the ocean.
Government. Government is the totality of authorities which rule a society by prescribing and
carrying out fundamental rules which regulate the freedom of its members. It is composed of the
executive, legislative, judiciary, and administrators with corresponding roles in administering the
affairs of the state (De Leon and De Leon Jr., 2014, 9).
Kinds of Government
 De Jure or Legitimate Government. This is established according to the constitution, and lawfully
entitled to recognition and supremacy and administration of the nation, but which is actually cut off
from power or control. It is a government deemed lawful or deemed rightful or just, but which,
nevertheless, has been supplanted or displaced (Black’s Legal Dictionary, 6 th edition).
 De Facto or Illegitimate Government. A government that maintains itself by a display of force against
the will of the rightful legal government and is successful, at least temporarily, in overturning the
institutions of the rightful government by setting its own in lieu thereof.
There are three kinds of de facto government
1. Government by Revolutions is a government established by the inhabitants who rise in revolt
against and depose the legitimate regime.
2. Government by Secession is a government established by the inhabitants of a state who secede
therefrom without overthrowing its government.
3. Government by Occupation is a government established in the course of war by the invading forces
of one belligerent country in the territory of another belligerent country, the government of which is
also displaced.
4. Sovereignty. It is the supreme, absolute and uncontrollable power by which an independent state is
governed. It is the paramount control of the constitution and the frame of government and its
administration (De Leon and De Leon Jr., 2014, 9).
There are two kinds of sovereignty: Internal and External
Internal is the power to control and direct the internal affairs of a country such as the authority to
enact, execute, and apply laws. Under international laws, internal sovereignty is not a factor in
determining whether an entity is a state.
External is the power of an independent state to control and direct its external affairs such as the
authority to enter into treaties with other states, to wage warm and to receive and send diplomatic
missions.
The Political, Legal, and Regulatory Environments Among States
In May 1998, India stunned the world by conducting nuclear weapon tests. Two weeks later, Pakistan
responded by conducting several tests of its own. Amidst widespread condemnation of the tests, several
major trading partners moved swiftly to impose economic sanctions on India and Pakistan. Japan, the
largest donor nation to both India and Pakistan, froze development grants and new loans. The U.S.
government weighed several options, including cutting off aid from the Agency for International
Development (AID), withholding credits from, the Export-Import Bank and preventing the Overseas
Private Investment Corporation (OPIC) from extending insurance and loans to U.S. firms doing business in
India. Such actions were permitted under the Nuclear Proliferation Prevention Act, a law passed in 1994
that had never been used. Boeing, Enron, and Hughes Network Systems were a few of the U.S. companies
that could be affected if sanctions were imposed.
The world’s response to the nuclear tests in India and Pakistan illustrates that the political, legal, and
regulatory environments can have on international trade and global marketing activities. Each of the
world’s national governments regulates trade and commerce with other countries and attempts to
control the access of outside enterprises to national resources. Every country has its own legal and
regulatory system that affects the operations and activities of the global enterprise, including the global
marketer’s ability to address market opportunities. Laws and regulations constrain the cross-border
movement of products, services, people, money, and technical know-how. Every government should
know that laws and regulations are frequently ambiguous and continually changing.
THE POLITICAL ENVIRONMENT
Globalization in the context of governance takes place within the political environment of governmental
institutions, political parties, and organizations through which a country’s people and rulers exercise
power. Each nation as we know has a political culture, which reflects the relative importance of the
government and legal system and provides a context within which individuals and corporations
understand their relationship to the political system. Hence, every corporations doing business outside its
home country should carefully study the political culture in the target country and analyze salient issues
arising from the political environment. These include the governing party’s attitude toward sovereignty,
political risk, taxes, and seizure of assets.
Nation-States and Sovereignty
Sovereignty, as defined, earlier is supreme and independent political authority. Government actions taken
in the name of sovereignty occur in the context of two important criteria: a country’s stage of
development and the political and economic system in place of the country. Many governments in
developing countries exercise control over their nations’ economic development by passing protectionist
laws and regulations. Their objective is to encourage economic development by protecting emerging or
strategic industries. Government leaders can also engage in cronyism and provide favors for family
members or “political friends.” For example, former Indonesian President Suharto established a national
car program that granted tax breaks and tariff privileges to a company established in South Korea by his
youngest son. The United States, EU, and Japan responded by taking the matter to the World Trade
Organization. Conversely, when many nations reach advanced stages of economic development, their
governments declare that any practice or policy that restraints free trade is illegal. Antitrust laws and
regulations are established to promote fair competition. Advanced country laws often define and preserve
a nation’s social order; laws may extend to political, cultural, and even intellectual activities and social
conduct. In France, for example, laws forbid the use of foreign words such as le weekend or le marketing
in official documents. Also, a French law passed in 1996 requires that at least 40 percent of the songs
played by popular radio stations must be French.
A current global phenomenon is the trend towards privatization, which reduces direct governmental
involvement as a supplier of goods and services in a given economy. In essence, each act of privatization
moves a nation’s economy further in the free-market direction. The trend is clearly evident in Mexico,
where, at one time, the government controlled over 1,000 corporations. By the early 1990s, most had
been sold including the two Mexican Airlines, mines, and banks that posted a sale worth $23 billion.
Privatization in Mexico and elsewhere is evidence that national governments are changing how they
exercise sovereign power.
In Europe, the individual EU countries are giving up the right to have their own currencies, ceding the right
to set their own product standards, and making other sacrifices in exchange for improved market access.
POLITICAL RISK
Political risk is the risk of a change in political environment or government policy that would adversely
affect a company’s ability to operate effectively and profitably. It can deter a company from investing
abroad. When the perceived level of political risk is high, a country will have greater difficulty in attracting
foreign investment. Political forces can drastically change the business environment with little advance
notice. Valuable sources of information include The Economist, Financial Times, and other business
periodicals. A number of organizations such as the Economic Intelligence Unit (EIU), the Geneva-based
Business Environment Risk Intelligence (BERI) and the World Political Risk Group (PRS) specialize in
providing up-to-date political risk reports on individual country markets. The BERI system examines six
internal causes of political risk, two external causes, and two symptoms as illustrated in Table 3.1.
Table 3.1
Categories of Political Risk
Economic Intelligence Unit
War
Social unrest
Orderly political transfer
Politically motivated violence
Business Environment Risk
Intelligence (BERI)
Fractionalization of the political
spectrum
Fractionalization by language,
ethnic, or religious groups
Restrictive or coercive measures
required to retain power
Mentality (xenophobia,
nationalism, corruption,
PRS Group World Political Risk
Forecasts
Political turmoil probability
Equity restrictions
Local operations restrictions
Taxation discrimination
International disputes
Change in government or probusiness orientation
Institutional effectiveness
Bureaucracy
Transparency and fairness
Corruption
Crime
nepotism)
Social conditions (including
population density and wealth
distribution)
Organization and strength of
forces for a radical government
Dependence on or importance to
a major hostile power
Negative influences of regional
political forces
Societal conflict involving
demonstrations, strikes, and
street violence
Instability as perceived by
assassinations and guerrilla war
Repatriation restrictions
Exchange controls
Tariff barriers
Other barriers
Payment delays
Fiscal or monetary expansion
Labor costs, foreign debt
Source: Adapted from Llewellyn D. Howell. The Handbook of Country and Political Risk Analysis, 3rd ed. (Syracuse,
NY, 2008).
Causes of Political Risk
Tension is the fundamental cause of political risk between the residents’ aspirations and goals and the real
conditions at a given time. Whenever the public perceives a wide gap between its aspirations and reality,
there is political risk. In high-income countries, the gap between aspirations and reality in high-income
countries is seldom great enough to generate a significant level of political risk. When political risk is
present in a high-income country, it can be traced to identifiable, long-standing issues in the country, such
as the conflict between the Protestants and Roman Catholics in Northern Ireland.
In lower-and lower-middle-income countries, an economic crisis can trigger political risk, Indonesia is a
prime example. After the rupiah (Indonesian currency) plunged from 2,300 to 18,000 to the U.S. dollar
and then settled at a rate of 10,000 rupiah to the dollar, Indonesia went into a free fall of economic
decline. What had been the most stable country in Southeast Asia overnight became a country where all
trading went off. The incompetence of the government and private sector in Indonesia provoked the
expulsion of President Suharto and ushered in a period of significant risk to foreign investors.
The current political climate in the rest of Central and Eastern Europe is still characterized by varying
degrees of uncertainty. Hungary, Latvia, and Albania represent three different levels of risk. Hungary has
already achieved upper-middle-income status. Latvia, a lower-middle country, is projected to grow slowly.
Albania does not even have economic data available. Diligent attention to risk assessment throughout the
region should be ongoing to determine when the risk has decreased to levels acceptable to management
(Yergin & Gustafon, 1995).
Taxes
Tax is the lifeblood of every government (with the exception of some oil rich countries that do not impose
taxes on their citizens). Governments rely on tax revenue to generate funds necessary for social services,
the military, and other expenditure. Unfortunately, government taxation policies on the sale of goods and
services frequently motivate companies and individuals to profit by not paying taxes. In China, for
example, most imports are subject to high duties, plus a 17 percent value-added tax (VAT). As a result,
significant quantities of oil, cigarettes, photographic films, personal computers, and other products are
smuggled into China. In some instances, customs documents are falsified to undercount goods in
shipment; and the Chinese military has allegedly escorted goods into the country as well. Ironically, global
companies can still profit from the practice. It has been estimated that 90 percent of the foreign cigarettes
sold in Chin are smuggled. For Philip Morris, this means annual sales of $100 to distributors in Hong Kong,
who then smuggle the cigarette across the border (Dunne, Financial Times, May 8, 1997).
Corporate taxation is another issue. The high level of political risk currently evident in Russia can be
attributed in part to excessively high taxes on business operations. High taxes encourage many
enterprises to engage in cash or barter transactions that are off the books and sheltered from the eyes of
tax authorities. This has created a liquidity squeeze that prevents companies from paying wages to
employees. In other words, the impact of this will disappoint employees that can lead to political
instability if there are labor strikes.
Seizure of Assets
The ultimate threat a government can pose toward a company is seizing assets. Expropriation refers to
government action to dispossess a foreign company or investor. Compensation is generally provided,
although not often in the “prompt, effective, and adequate” manner provided for by international
standard. If no compensation is provided, the action is referred to as confiscation (Root, 1994, 154).
International law is generally interpreted as prohibiting any act by a government to take foreign property
without compensation. Nationalization is generally broader in scope than expropriation. It occurs when
the government takes control of some or all of the enterprises in a particular industry. International law
recognizes nationalization as a legitimate exercise of government power, as long as the act “satisfies a
“public purpose” and is accompanied by adequate payment which means it reflect the fair market value
of the said property. South Korea nationalized Kia, the nation’s number three automaker, in the wake of
the Asian currency crisis. In 1998, the Japanese government was debating whether to nationalize the
country’s banking system.
Short of outright expropriation or nationalization is the phrase creeping expropriation which has been
applied to limitations on economic activities of foreign firms in particular countries. These have included
limitations on repatriation of profits, dividends, royalties, and technical assistance fees from local
investments or technology arrangements. Other issues are increased local content requirements, quotas
for hiring local nationals, price controls, and other restrictions affecting return on investment. Global
companies have also suffered discriminatory tariffs and nontariff barriers that limit market entry of certain
industrial and consumer goods, as well as discriminatory laws on patents and trademarks. Intellectual
property restrictions have had the practical effect of eliminating or drastically reducing protection of
pharmaceutical products.
In the mid -70s, Johnson & Johnson and other foreign investors in India had to submit to a host of
government regulations to retain majority equity positions in companies already established. Many of
these rules were later copied in whole or in part by Malaysia, Indonesia, the Philippines, Nigeria, and
Brazil. After 1980, Latin America which experienced debt crisis and low GNP growth, the lawmakers
reversed many of these restrictive and discriminatory laws. The goal was to again attract foreign direct
investment and badly needed Western technology. The end of the Cold War and restructuring of political
allegiances contributed significantly to these changes.
INTERNATIONAL LAW
International law may be defined as the rules and principles that nation-states consider binding upon
themselves. International law pertains to property, trade, immigration, and other areas that have
traditionally been under the jurisdiction of individual nations. International law applies only to the extent
that countries are willing to assume all rights and obligations in these areas. The roots of modern
international law can be traced back to the 17 th-century Peace of Westphalia. Early international law was
concerned with waging war, establishing peace, and other political issues, such as diplomatic recognition
of new national entities and governments. Although elaborate international rules gradually emerged—
such as the status of neutral countries the creation of laws governing commerce proceeded on a state-bystate basis in the 19th century. International law still has the function of upholding order, although in a
broader sense than dealing with problems arising from war. At first, international law was essentially an
amalgam of treaties, covenants, codes, and agreements. As trade grew among nations, order in
commercial affairs assumed increasing importance. The law had originally dealt only with nations as
entities, but a growing body of law rejected the idea that only nations can be subject to international law
(Kelso & Kelso, 1984).
Paralleling the expanding body of international case law in the 20 th century, new international judiciary
organizations have contributed to the creation of an established rule of international law: The Permanent
Court of International Justice (1920-1945); the International Court of Justice (ICJ), the judicial arm of the
United Nations, founded in 1946; and the International Law Commission, established by the United states
in 1947. Disputes arising between nations are issues of public international law, and they may be taken
before the World Court, located in Hague, The Netherlands (Kelso & Kelso, 1984).
The court, whose function is to decide in accordance with international law, such disputes as are
submitted to it, shall apply:
a.
b.
c.
d.
International conventions, whether general or particular , establishing rules expressly
recognized by the contesting states;
International custom, as evidence of a general practice accepted as law;
The general principles of law recognized by civilized nations;
Subject to the provisions of Article 59, judicial decisions, and the teaching of the most highly
qualified publicists of the various nations, as subsidiary means for the determination of rules
of law.
Other sources of modern international law include treaties, international custom, judicial case decisions in
the courts of law of various nations, and scholarly writings. What happens if a nation has allowed a case
against it to be brought before the International Court of Justice and then refuses to accept a judgment
against it? The plaintiff nation can seek recourse through the United Nations Security Council which can
use its full range of powers to enforce the judgment (Kelso & Kelso, 1984).
Common Law and Civil Law
Private international law is the body of law that applies to disputes arising from commercial transactions
between companies of different nations. Laws governing commerce emerged gradually, leading to a
major split in legal systems between various countries (Kelso & Kelso, 1984). The story of law in the
Western world can be traced to two sources: Rome, from which the continental European civil law
tradition originated, and English common law, from which the U.S. legal system originated.
A civil-law country is one in which the legal system reflects the structural concepts and principles of the
Roman Empire in the sixth century.
For complex historical reasons, Roman law was received differently and at vastly different times in various
regions in Europe, and in the 19th century each European country made a new start and adopted its own
set of national private-law codes, for which the Code of Napoleon of 1804 was the prototype. In civil-law
countries, the codes in which private law is cast are formulated in broad general terms and are thought of
as completely comprehensive which means all the inclusive source of authority by reference to which
every disputed case must be referred for decision (Jones, 1975)
In common-law countries, many disputes are decided by reliance on the authority of past judicial
decisions (cases). Although much of contemporary American and English law is legislative in origin, the
law inferred from past judicial decisions is equal in importance to the law set down in codes. Common-law
countries often rely on codification in certain areas.
In common-law countries, companies are legally incorporated by state authority. In civil-law countries,
companies are formed by contract between two or more parties, who are fully liable for the actions of the
company.
The United States, nine of Canada’s 10 provinces, and other former colonies with an Anglo-Saxon history
found their systems on common law. Historically, much of continental Europe was influenced by Roman
law and later, the Napoleonic Code. Asian countries are split: India, Pakistan, Malaysia, Singapore, and
Hong Kong are common-law jurisdictions; Japan, South Korea, Thailand, Vietnam, Taiwan, Indonesia, and
China are civil-law jurisdictions. The legal systems in Scandinavia are mixed, displaying some civil-law
attributes and some common-law attributes. Today, the majority of countries have legal systems based on
civil-law traditions.
In much of central Europe, including Poland, Hungary, and the Czech Republic, the German civil-law
tradition prevails. As a result, banks not only take deposits and make loans but also engage in the buying
and selling of securities. In Eastern Europe—particularly Russia—the United States has had greater
influence. Germany has accused the United States of promoting a system so complex that it requires
legions of lawyers. The U.S. response is that the German system is outdated (Nelson, 2005).
Islamic Law
The legal system in many Middle Eastern countries is identified with the laws of Islam, which are
associated with “the one and only one God, the Almighty.” (Luqmani, Yavas, & Quraeshi, International
Marketing Review 6, no.1 (1989),61-63.) In Islamic law, the Sharia is a comprehensive code governing
Muslim conduct in all areas of life, including business. The code is derived from two sources. First is the
Koran, the Holy Book written in Arabic that is a record of revelation made to the Prophet Muhammad by
Allah. The second source is the Hadith, which is based on the life, sayings, and practices of Muhammad. In
particular, the Hadith spells out the products and practices that are haram (forbidden). The orders and
instructions found in the Koran are analogous to code laws; the guidelines of the Hadith correspond to
common law. Any Westerner doing business in Malaysia or the Middle East should have at least a
minimum rudimentary understanding of Islamic law and its implications for commercial activities.
Brewers, for example, must refrain from advertising beer on billboards or in local-language newspapers.
Bribery and Corruption: Legal and Ethical issues
At the beginning of the 20th century Charles M. Schwab, head of Bethlehem Steel presented a $200,000
diamond and pearl necklace to the mistress of Czar Alexander III’s nephew. In return for that
consideration, Bethlehem Steel won the contract to supply the rails for the Trans-Siberian railroad (Daniel
Pines, California Law Review (January 1994),185).
Today, in the post-Soviet era, Western companies are again being lured by emerging opportunities in
Eastern Europe. Here, as in the Middle East and other parts of the world, they are finding that bribery is a
way of life and that corruption is widespread, and U.S. companies in particular are constrained in their
responses to such a situation by U.S. government policies of the post-Watergate age. Transparency
International annually ranks countries in terms of corruption. Tables 3.1 (Most corrupt) and 3.2 (least
corrupt) reveal the corruption ranking that affects business operation in each country.
Table 3.1 Most Corrupt Countries, 2017
Below are the 10 countries perceived to be the most
corrupt Country
Nigeria
Colombia
Pakistan
Iran
Mexico
Ghana
Angola
Russia
Kenya
Guatemala
Source: Transparency International
Corrupt
Rank
1
2
3
4
5
6
7
8
9
10
Best Countries Overall
Rank
76
55
74
77
31
71
79
26
57
66
Table 3.1 show the countries and their rankings as the most corrupt countries in the world while Table 3.2 shows
the least corrupt countries and their scores. The ranking is based on the level of public sector corruption in 2017,
according to businesspeople, journalists, and civic organizations. Higher-ranked countries tend to have more press
freedom, access to information about public spending, and independent judicial systems.
Countries are given a score out of 100, with those scoring highly being the least corrupt.
Table 3.2-Least Corrupt Countries in the World, 2017
Country
New Zealand
Denmark
Finland
Norway
Switzerland
Singapore
Sweden
Canada
Luxembourg
Netherlands
United Kingdom
Germany
Australia
Hong Kong
Iceland
Austria
Belgium
United States
Ireland
Japan
Rank
1
2
3
3
3
4
4
5
5
5
5
6
7
7
7
8
8
8
9
10
Score/100
89
88
85
85
85
84
84
82
82
82
82
81
77
77
77
75
75
75
74
73
Source: Transparency International, 2018
The existence of bribery as a fact of life in world markets will not change because it is condemned by the
U.S. Congress. In fact, bribery payments are considered a deductible business expense in many European
countries. According to one estimate, the annual price tag for illegal payments by German firms alone is
more than $5 billion. Most global companies are still adopting codes of conduct designed to reduce illegal
activities.
When companies operate abroad in the absence of home-country legal constraints, they face a
continuum of choices concerning company ethics. At one extreme, they can maintain home-country
ethics worldwide with absolutely no adjustment or adaptation to local practice. At the other extreme,
they can abandon any attempt to maintain company ethics and adapt entirely to local conditions and
circumstances as they are perceived by company managers in each local environment. Between these
extremes, one approach that companies may select is to utilize varying degrees of extension of homecountry ethics. Alternatively, they may adapt in varying degrees to local customs and practices (Mason &
Jonquierres, “ Goodbye Mr. 10%,: Financial Times (July 22, 1997) p.13).
In the case of the Philippines, Article II, Section 20 of the State Policies states that “The State recognizes
the indispensable role of the private sector, encourages private enterprise, and provides incentives to
needed investments (Dannug & Campanilla, 204, p. 496). The presence of multinational corporations such
as Nestle, Coca-Cola, Unilever, McDonald, KFC, and many other foreign firms operating in the Philippines
is a testimony that the above state policies works efficiently to investors. Regardless of the corruption
ranking of the Philippines as revealed by Transparency International (2018), (111 out of 180 countries) the
Philippine government is still inviting and attracting investors to do business here in the country.
Balances in Globalization
The globalization system is built around three balances, which overlap and affect one another.
1. Traditional balance between nation-states. Respect to sovereignty of each country is the rule here.
Although the United States is still the dominant superpower, the mandate of the United Nations is
still adhered to protect each country. Disputes, disagreements, and the like are discussed
diplomatically by countries in order to maintain and sustain peace, harmony and stability with one
another.
2. Balance between nation-states and global markets. In reality, there is always imbalance and
inequality (as discussed in the chapter between global divides) between and among nations in terms
of economies. That is why the concept of electronic herd emerged that gathers in key global financial
centers, such as Wall Street, Hong Kong, London, Frankfurt, and Tokyo which can be described as the
“supermarkets.” Emerging supermarkets are Singapore and Seoul. The attitudes and actions of these
Electronic Herd and Supermarkets can have a huge impact on nation-states today, even to the point
of triggering the downfall of governments (cited by Dannug & Campanilla, 2004, 88).
3. Balance between individuals and nation-states. This means that globalization had given every
individual the freedom to move, to choose, to decide what is beneficial to them with no intimidation
or restriction from any authority provided laws and policies are not violated. The individuals in the
age of globalization are actors in a world stage, empowered by their will to create something
rewarding for them and for the society.
The key to continuous improvement in the period of globalization is the direct outcome of the actions of
individuals. With the proper use of technology, individuals can make their own choices because they are
provided the freedom to decide what is rewarding and beneficial to them.
CENTURY PARK SHERATON SAYS, MOVE HEAVEN AND EARTH FOR THE CUSTOMERS
Century Park Sheraton in the corner of Vito Cruz Manila is among the five star hotels in the country that
have withstood the time and crisis in the hotel industry for more than three decades. The hotel, which
employs an estimate of 500 people, claims distinctive facilities, highly personalized services, and
exceptional food and beverages. With average room rates higher than 5,000 pesos or roughly $100 dollar
per night, Century Park realized it must do more than just please its customers in order to succeed. The
hotel known simply as “Sheraton” did what many experts thought no hotel could accomplish: in the mid1990s, Sheraton was facing two 5 star Hotels as direct competitors; Holiday Inn along Roxas Boulevard
and Westin Philippine Plaza, now Sofitel.
While the name “Sheraton” has been synonymous with quality for years, the luxury hotel did not actively
begin its quest for total quality management until 1990. It was then that the CEO told senior managers
that he was not satisfied with the hotel quality. He believed that the only reason the hotel was among
those considered the leading hotel in the industry (together with Manila Hotel, Philippine Plaza and
Manila Intercontinental) was that everyone else was even more unsatisfactory. The CEO then introduced
a total quality initiative grounded in participatory executive leadership, thorough information gathering,
and coordinated planning and execution. A trained, empowered, and committed workforce was another
essential element. All employees learn the company’s “Gold Standards”—the Century Park Sheraton’s
minimum set of standards for premium service.
The CEO and a team of the hotel’s 5 top executives from the senior management quality team which
meets weekly to review performance and set standards. “They spend a lot of time working on ways to
improve our product by talking to as many guests and employees as possible,” reported the corporate
director.
Century Park Sheraton carefully selects and trains its employees to be quality engineers capable of
spotting defects and immediately correcting them. Employees receive 60 hours of annual training on
quality issues. Century Park Management believes that the high-quality personnel reduce costs because
they do the job right the first time. The company reinforces its employee improvement program by
recognizing superior individual performance. Annual raises are tied to the individual’s level of
performance, and work teams share in bonus pools when solutions they recommend for quality issues are
successfully implemented.
Managers empowers employees to “move heaven and earth” to satisfy customers. Whenever a customer
complain or a service problem arises, employees are expected to take immediate corrective action.
Employees have total authority to do what it takes to satisfy customer needs without waiting for
management direction. The Century Park Sheraton gathers quality data on all aspect of a guest’s stay to
determine if the customer’s expectations are being met. The Century Park Sheraton surveys more than
5,000 guests each year to determine where improvements are necessary. Century Park computers
maintain data on the likes and dislikes of more than 8,000 repeat customers.
Together with Manila Hotel, Manila Peninsula, Manila Intercontinental, Philippine Plaza, and Hyatt
Regency, Diamond Hotel, New World Hotel, Century Park earned the industry-best ranking in the five star
category. Survey indicates that 90% of Century Park Sheraton customers rate their stay as a “memorable
visit” exceeding their expectation.
CASE QUESTIONS
1.
2.
3.
How has the Century Park Sheraton Manila emphasized quality?
How has the Century Park benefitted from the quality initiatives?
What else could the Century Park do to improve quality and attract more customers from their
competitors?
OBE Activity 3.2
Directions: Using round table discussion, divide the class into group of five. Each group will appoint their
leader who will also be the spokesperson and a secretary who will collate the perspectives and views of
the group. Then the professor/instructor will mediate on this issue:
1.
Debate on the pros and cons of foreign ownership of media.
Seatwork
Directions: Use yellow pad for your answer. Rubric for this activity is provided at the appendix of this
book.
1.
2.
3.
Discuss sensibly this phrase “The existence of bribery is a fact of life”. In the Philippines, bribery and
corruption is rampant and it goes hand in hand in doing and transacting business both in the
government and public sector. Explain why such acts are being practiced and tolerated.
Based on your observation, what are the possible sources of political risk in the Philippines
particularly to foreign investors?
From your collateral readings, what is your perspective about persona non grata? Cite specific
example where the Philippine government applied this diplomatic action.
References
Abelos, A.V. (2006). Organization and management. Manila: Jade Bookstore/Educational Publishing.
Castells, M. (2000). The rise of the network society (The information age: Economy, society and culture.
Volume 1. New York: Wiley-Blackwell.
Castells, M. (2009). Communication power. Oxford, UK: Oxford University Press.
Dannug, R. & Campanilla,M. (2004). Politics, governance and the new constitution. Quezon City: CE
Publishing.
De Leon, H. & Hector De Leon, Jr. (2014. Textbook on the new Philippine constitution. Quezon City: Rex
Bookstore.
Frieden, JA. (2006). Global capitalism: Its fall and rise in the 21st century. New York: WW Norton.
Friedman, T. (2000). The Lexus and the Olive Tree. 2nd ed. New York: Farrar, Straus and Giroux.
Moravcsik, A. (1994). Why the European strengthen the state: Domestic politics and international
cooperation. Center for European Studies Working Paper, 52 (http:/aei.pitt.edu/9151/)
Prestowitz, C. (2012). Korea as number one. Foreign Policy. 7 June
(http://prestowitz.foreignpolicy.com/posts/2012/06/07/korea-asnumber-one).
Schattle, H. (2008). The practices of global citizenship. Lanham, MD: Rowman and Littlefield.
Tarrow, S. (2005). The new transnational activism. Cambridge: Cambridge University Press.
Chapter 4
The Globalization of Economic Relations
Learning Outcomes: At the end of the chapter, the student should be able to:
1. Define economic globalization;
2. Distinguish globalization from internationalization;
3. Explain the important function of World Trade Organization;
4. Discuss the different kinds of trades;
5. Explain the importance of regional trade organizations and its implication to the member countries;
and
6. Assess the situation of the developing countries in terms of their international trades.
Economic Globalization
Economic globalization is a historical process, the result of human innovation and technological progress.
It refers to the increasing integration of economies around the world, particularly through the movements
of goods, services,
and capital across borders. The term sometimes also refers to the movement of people (labor) and
knowledge (technology) across international borders. (IMF, 2008).
Interconnected Dimensions of Economic Globalization
1. The globalization of trade of goods and services;
2. The globalization of financial and capital markets;
3. The globalization of technology and communication; and
4. The globalization of production.
The globalization of trade of goods and services
When a country exports more than it imports, it runs a trade surplus. When a country imports more than
it exports, it runs a trade deficit. The large trade deficits in the middle and the late 1980s sparked political
controversy that still persist today. Foreign competition hit U.S. markets hard. Less expensive foreign
goods—among them steel, textiles, and automobiles—began driving U.S. manufacturers out of business,
and thousands of jobs were lost in important industries. In more recent times, the outsourcing of software
development to India has caused complaints from white-collar workers.
For hundreds of years, industries in the U.S. have petitioned governments for protection and
societies have debated the pros and cons of free and open trade. For the last century and a half, the
principal argument against protection has been the theory of comparative advantage, the advantage in
the production of goods enjoyed by one country over another when that good can be produced at lower
cost in terms of other goods than it could be in the other country.
The globalization of financial and capital markets
A country enjoys an absolute advantage over another country bin the production of a good if it uses a
fewer resources to produce that good than the other country does. Suppose country A and country B
produce coffee, but A’s climate is more suited to coffee and its labor is more productive. Country A will
produce more coffee per acre than country B and use less labor in growing it and bringing it to market.
Country A enjoys an absolute advantage over country B in the production of coffee. Absolute advantage
in the production of goods enjoyed by one country over another when it uses fewer resources to produce
that goods than the other country does. Trade barriers—also called obstacles to trade—take many forms.
The three most common are tariffs, export subsidies, and quotas. All are forms of protection shielding
some sector of the economy from foreign competition.
A tariff is a tax on imports. The average tariff on imports into the United States is less than .5 percent.
Certain protected items have much higher tariffs. For example, in 2009, former President Obama of the
United States imposed a tariff of 35 % on tire imports from China.
Export subsidies –government payments made to domestic firms to encourage exports—can also act as a
barrier to trade. Farm subsidies remain a part of the international trade landscape today. Many countries
continue to appease their farmers by heavily subsidizing exports of agricultural products. The prevalence
of farm subsidies in the developed world has become a major rallying point for less developed countries
as they strive to compete in the global marketplace.
A quota is a limit on the quantity of imports. Quotas can be mandatory or voluntary, and they may be
legislated or negotiated with foreign governments. The best-known voluntary quota or “voluntary
restraint”, was negotiated with the Japanese government in 1981. Japan agreed to reduce its automobile
exports to the United States by 7.7 %, from the 1980 level of 1.82 million units to 1.68 million units. Many
quotas limit trade around the world today. Perhaps the best-known recent case is the textile quota
imposed by the European Union on import textiles from China in 2005. The EU blocked the entry of
Chinese produced textiles into Europe; as a result, more than 100 million garments piled up in European
ports.
The globalization of technology and communication
Capital is not the only factor of production required to produce output. Labor is equally important. To be
productive, the workforce must be healthy. Health is not the only issue. Basic literacy as well as
specialized training in farm management, for example, can yield high returns to both the individual
worker and the economy. Education has grown to become the largest category of government
expenditure in many developing nations. In part technology transfer and communication have become
part of manpower training in most agricultural countries. This is so because of the belief that human
resources are the ultimate determinant of economic advance.
The globalization of production
Production is the process through which inputs are combined and transformed into output. Production
technology relates inputs to outputs. Specific quantities of inputs are needed to produce any given service
or good. Most outputs can be produced by a number of different techniques. In choosing the most
appropriate technology, firms choose the one that maximize the cost of production. For a firm in an
economy with a plentiful supply of inexpensive labor but not much capital, the optimal method of
production will involve labor-intensive techniques.
Distinction of Globalization from Internationalization
Dicken (2004) distinguished economic globalization from internationalization by stating that the former is
functional integration between internationally dispersed activities while the latter is about the extension
of economic activities of nation states across borders. Hence, economic globalization is more on a
qualitative transformation than just a quantitative change.
Reich (1991) agrees that globalization transforms the national economy into a global one
because for him there will be no national products or technologies, no national corporations, no national
industries. On the other hand, hyper-globalists Ohmae (1995) declared that states ceased to exist as
primary economic organization units in the wake of a global market. People are heavily consuming highly
standardized global products and services produced by global corporations in a borderless world.
On the contrary, Boyer and Drache (1996) admit that globalization is reducing the role of the
nation state as an effective manager of the national economy. For them, the state is the main shelter from
the perverse effects of a free market economy. Therefore, it is misleading to assume that globalization has
brought down the nation state and its policies to an obsolete or irrelevant status; as governments acts as
the midwives of globalization.
Milner and Keohane (1996) support the above notions. They admit that the national economic
policies and the structure of domestic institutions of states are not uniformly influenced by globalization.
New actors such as the United Nations (UN), non-governmental organizations (NGOs)in a manner
produces their new entrants as well in terms of economic globalizations. Transnational corporations
(TNCs) are some of the major players of global economy today. Business analysts say that TNCs are
constantly evolving as they view that while economic integration is becoming more intensive, production
disintegrates due to the outsourcing activity of multinationals (Feenstra, 1998). According to Gereffi
(1999), this move induced to develop the concept of global commodity chains; an idea that reflects upon
the increasing importance of global buyers in a world of dispersed production.
THE WORLD TRADE ORGANIZATION AND GATT
The 50th year of General Agreement on Tariff and Trade or GATT was celebrated in 1997. In 1947, 23
nations, including the United States, signed the General Agreement on Tariffs and Trade (GATT). GATT is a
treaty among 123 nations whose governments agreed, at least in principle, to promote trade among
members. GATT was intended to be a multilateral, global initiative, and GATT negotiators did succeed in
liberalizing world merchandise trade. It was also an organization that had handled more than 300 trade
disputes—many involving food—during its more than half century of existence. GATT itself had no
enforcement power (the losing party in a dispute was entitled to ignore the ruling), and the process of
dealing with disputes sometimes stretched on for years. That is why, some critics referred to GATT as the
“general agreement to talk and talk.”
GATT was based on three principles:



Equal, nondiscriminatory trade treatment for all member nations;
The reduction of tariffs by multilateral negotiation; and
The elimination of import quotas.
Basically, GATT provided a forum for the multilateral negotiation of reduced trade barriers.
Since the Second World War, member nations have completed “rounds” of GATT negotiations to reduce
trade barriers. The eight round of negotiations began in Uruguay in 1986. After seven years of complex
discussions, in 1993 a new agreement was reached by the 128 nations that were by that time members of
GATT. The Uruguay Round agreement took effect on January 1, 1995, and its provisions were phased in
through 2005.
Under this agreement, tariffs on thousands of producers were eliminated or reduced, with overall tariffs
dropping by 33 percent. The agreement also liberalized government rules that in the past impeded the
global market for such services as advertising, legal services, tourist services, and financial services.
Quotas on imported textiles and apparel were phased out and replaced with tariffs. Other provisions
reduced agricultural subsidies paid to farmers and protected intellectual property (parents, trademarks,
and copyrights) against piracy.
The successor to GATT, the World Trade Organization (WTO), came into existence on January 1, 1995.
From its base in Geneva, the WTO provides a forum for trade-related negotiations. The WTO’s staff of
neutral trade experts will also serve as mediators in global trade disputes. The WTO has a Dispute
Settlement Body (DSB) that mediates complaints about unfair trade barriers and other issues between
WTO members. During a 60-day consultation period, parties to a complaint are expected to engage in
good faith negotiations and reach an amicable resolution. In case of failure of negotiations, the
complainant can ask the DSB to appoint a three-member panel of trade experts to hear the case behind
closed doors. The DSB is empowered to act on the panel’s recommendations. The losing party has the
option of turning to a seven-member appellate body. If, after due process, trade policies are found to
violate WTO rules, the country is expected to change those policies. If changes are not forthcoming, the
WTO can authorize trade sanctions against the loser.
One of the WTO’s first major tasks was hosting negotiations on the General Agreement on Trade in
Services, in which 76 signatories made binding market access commitments in banking, securities, and
insurance.
Trade ministers representing the WTO member nations meet annually to work on improving world trade.
At the 1996 meeting in Singapore, agreement was reached concerning tariffs on information technology.
For the year 2000, zero tariffs are now slated for 500 products, ranging from calculators, fax machines,
and CD-ROM drives to computer keyboards and ATM machines. The United States, Canada, and several
Asian countries benefitted the most because they are home for companies that command 80 percent of
world trade in high-tech products, compared with 15 percent share held by Western European
companies. The agreement resulted in lower prices for businesses and consumers, especially in Asia and
Europe, where tariffs had been relatively high (Cooper & Bahree, “Nations Agree to Drop Computer
Tariffs, “The Wall Street Journal (December 13, 1996), A2, A6).
Preferential Trade Agreements
In addition to multilateral initiative of GATT, countries in each of the world’s regions are seeking to lower
barriers to trade within their regions. Historically, when countries entered into preference agreements,
they notified GATT. Between 1947 and 1992, there were 85 agreements that were notified while 77 new
agreements have been added since 1992. Strictly speaking, few of the trade agreements fully conform
with GATT requirements, although none was disallowed. Only Japan, Hong Kong, and South Korea among
the WTO members have not signed preferential trade agreements.
Free Trade Areas
A free trade area (FTA) is formed when two or more countries agree to abolish all internal barriers to
trade among themselves. Countries that belong to a free trade area can do and maintain independent
trade policies with respect to non-FTA countries. A system of certificate of origin is used to avoid trade
diversion in favor of low-tariff members. The system discourages importing goods into the member
country with the lower tariff for transshipment to countries within the area with higher external tariffs;
customs inspectors police the borders between members. The European Economic Area is an example of
a free trade area that includes the 27-nation European Union, Norway, Liechtenstein, and Iceland.
Customs Union
A customs union represents the logical evolution of a free trade area. In addition to eliminating internal
barriers to trade, members of a customs union establish common external barriers. On January 1, 1996,
the European Union and Turkey initiated a customs union in an effort to boost two-way trade above the
current annual level of $20 billion. The arrangement called for elimination of tariffs averaging 14 % that
added $1.5 billion each year to the cost of European goods imported by Turkey.
Common Market
A common market is the next step in the spectrum of economic integration. In addition to the removal of
internal barriers to trade and the establishments of common external barriers, the common market
allows for free movements of factors of production, including labor, capital, and information. Examples
include the Central American Integration System, The Common Market of the South, the Andean
Community and the Association of South East Asian Nations (ASEAN).
North American Free Trade Agreement (NAFTA)
North America, which includes Canada, the United States, and Mexico, represents a distinctive regional
market. The United States is home to more global industry leaders—a total of 162 companies according to
Fortune magazine’s Global 500 ranking. The U.S. companies are the dominant producers in the computer,
software, aerospace, entertainment, medical equipment, and jet engine industry sectors.
In 1988, the United States and Canada signed a free trade agreement (U.S.--Canada Free Trade
Agreement or CFTA). It formally came into existence in 1989. This helps explain the fact that $300 billion
per year in goods and services flows between Canada and the United States—the biggest trading
relationship between any two nations. Canada takes 20 percent of U.S. exports and the United States buys
nearly 80 percent of Canada’s exports. See tables 4.1 and 4.2.
Table 4.1
U.S. Goods Exports Trading Partners
Trading Partner (Export)
1. Canada
2. Mexico
3. Japan
4. Germany
5. United Kingdom
6. Netherlands
7. Taiwan
8. France
9. South Korea
Source: U.S. Bureau of the Census
Percent
154.1
79.8
57.8
49.8
39.0
19.0
18.1
17.7
16.5
Table 4.2
US Good Imports Trading Partners
Trading Partner (Import)
1. Canada
2. Japan
3. Mexico
4. China
5. United Kingdom
6. Taiwan
7. Germany
8. France
9. South Korea
10. Singapore
Percent
174.8
121.9
94.7
71.1
34.7
33.1
26.2
24.0
23.9
18.3
Source: U.S. Bureau of Census
On August 12, 1992, representatives from the United States, Canada, and Mexico concluded negotiations
for the NAFTA. The agreement was approved by both houses of the U.S. Congress and became effective
on January 1, 1994. The result is a free trade area with a combined population of nearly 400 million and a
total GNP of $8.3 trillion. The governments of the three countries pledged to promote economic growth
through tariff reductions and expanded trade and investment. At present, however, there are no common
external tariffs, and restrictions on labor and other factor movements have not been eliminated. The issue
of illegal immigration from Mexico into the United States remains a contentious one. The benefits of
continental free trade will enable all three countries to meet the economic challenges of the decades to
come. The gradual elimination of barriers to the flow of goods, services, and investment, coupled with
strong protection of intellectual property rights (patents, trademarks, and copyrights) , will further benefit
businesses, workers, farmers, and consumers .
Andean Community
The Andean Community, formerly the Andean Pact, was formed in 1969 to accelerate development of
member states Bolivia, Colombia, Ecuador, Peru, and Venezuela through economic and social integration.
Members agreed to lower tariffs on intragroup trade and work together to decide what products each
country should produce. At the same time, foreign goods and companies were kept out as much as
possible.
In 1988, the group members decided to get fresh start. Beginning in 1992, the Andean Pact signatories
agreed to form Latin America’s first operating sub-regional free trade zone. More than 100 million
consumers would be affected by the pact, which abolished all foreign exchange, financial, and fiscal
incentives, and export subsidies at the end of 1992. Common external tariffs were established, marking
the transition to a true custom union. A high-level commission will look into any alleged unfair trade
practices among countries. The new approach seems to be working; for example, Peru now boasts one of
the fastest-growing economies in the region.
Common Market of the South (Mercosur)
In March 1991, the government of Argentina, Brazil, Paraguay, and Uruguay signed the Asuncion Treaty to
form the Common Market of the South (in Spanish, Mercado Comun del Sur, or Mercosur). On August 5,
1994, the presidents of the four countries agreed to begin phasing in tariff reform on January 1, 1995.
Internal tariffs were eliminated, and common external tariffs of up to 20 percent were established.
Ultimately, goods, services and factors of production will move freely throughout the member countries
until such goal is achieved. Mercosur operates as a customs union. About 15 percent of trade, including
advanced electronics and capital goods is not covered by the agreement.
On June 25, 1996 Chile’s president signed an agreement making Chile an associate member of Mercosur
effective October 1. Chile chose not become a full member because it already had lower external tariffs
than the rest of Mercosur; full membership would have required raising them.
ASIA-PACIFIC
With 56 percent of the world’s population, the 23-country Pacific Rim region merits discussion in its own
right. The region accounted for approximately one-third of global income since 1997. Japan’s presence
looms large in the Asia-Pacific region. Population density and geographic isolation are the two crucial
factors that cannot be overstated when discussing Japan. Most of Japan is mountainous that is why the
residential area represents only 3 percent and the industrial area is only 1.4 percent. Still, Japan generates
an astounding 14 percent of the world’s GNP!
South Korea, Taiwan, Singapore, and Hong Kong are sometimes collectively referred to as “tigers” or
newly industrializing economies (NIEs). Fueled by foreign investment and export-driven industrial
development, these four countries have achieved stunning rates of economic growth. Another four
countries—Thailand, Malaysia, Indonesia, and China—were getting close to the point of industrial take-off
prior to the onset of the “Asian flu” in July 1997.
The Association of Southeast Asian Nations
The Association of Southeast Asian Nations (ASEAN) is the flagship preferential trade agreement in the
Asia-Pacific area. ASEAN was established in 1967 as an organization for economic, political, social, and
cultural cooperation among its members. The United States, which at the time was embroiled in the
Vietnam War, played a role in establishing ASEAN with the signing of the Bangkok Declaration. Brunei,
Indonesia, Malaysia, the Philippines, Singapore, and Thailand were the original six members. Vietnam
became the first communist nation in the group when it was admitted to ASEAN in July 1995. Cambodia
and Laos were admitted to the ASEAN at the organization’s 30 th anniversary meeting in July 1997. Burma
(now Myanmar) joined in 1998, following delays related to the country’s internal politics and human
rights record.
Individually and collectively, ASEAN countries are active in regional and global trade. Two-way trade
between the United States and ASEAN totaled $83.8 billion in 1994. There is a growing realization among
ASEAN officials that broad common goals and perceptions are not enough to keep the association alive. A
constant problem is the strict need for consensus among all members before ASEAN proceeds with any
form of cooperative effort. Although the ASEAN members are geographically close, they have been
historically divided in many respects. One of the reasons the association remained in existence is that it
accomplished almost nothing. However, the situation is changing today. In 1994, economic ministers from
the member nations agreed to implement an ASEAN Free Trade Area (AFTA) by 2003 and it is now
working. Under the agreement, tariffs of 20 percent or more will be reduced to no more than 5 percent.
In 1996, intra-ASEAN trade surpassed $70 billion.
Singapore represents a special case among the ASEAN nations. In fewer than three decades, Singapore
has transformed itself from a British colony to a vibrant 240-square-mile industrial power. Singapore has
an extremely efficient infrastructure—the port of Singapore is the world’s second-largest container port
(Hong Kong ranks first)—and a standard of living second only to Japan’s in the region. Singapore’s 4
million citizens have played a critical role in the country’s economic achievements by readily accepting the
notion that “the country with the mist knowledge will win” in global competition. Singapore’s Economic
Development Board has also actively recruited business interest in the nation. The manufacturing
companies that have been attracted to Singapore read like a who’s who of global marketing and include
Hewlett-Packard, IBM, Philips, and Apple Computers; in all, 3,000 companies have operations or
investments in Singapore.
Singapore alone accounts for more than a third of U.S. trading activities with ASEAN countries. U.S.
exports to Singapore in 1994 totaled $13 billion, while imports totaled $15.4 billion. Singapore is closely
tied with its neighbors. More than 32 percent of imports are re-exported to other Asian countries.
Singapore’s effort to fashion a civil society have gained the country some notoriety; crime is nearly
nonexistent because of the government severe treatment of criminals. Some people in the United States
objected after an American youth living in Singapore was sentenced to a canning after being arrested and
convicted of vandalism. Singaporeans believe the United States has given individuals too many liberties,
while imprisoning American society too much freedom.
The European Union
The origins of the European Union can be traced back to the 1958 Treaty of Rome. The six original
members of the European Community, as the group was called then, were Belgium, France, Holland, Italy,
Luxembourg, and West Germany. In 1973, Great Britain, Denmark, and Ireland were admitted, followed
by Greece in 1981 and Spain and Portugal in 1986. Beginning in 1987, the 12 countries that were original
members set about the difficult task of creating a genuine single market in goods, services, and capital.
Adopting the Single European Act by the end of 1992 was a major EC achievement; the Council of
Ministers adopted 282 pieces of legislation and regulations to make the single market a reality.
The objective of the EU member countries is to harmonize national laws and regulations so that goods,
services, people, and eventually money can flow freely across national boundaries. It was on December
31, 1992 that marked the dawn of the new economic era in Europe. This is more than a free trade area,
customs union, or common market came into reality and the citizens of the member countries are now
able to freely cross borders within the union. The EU is encouraging the development of a community
wide labor pool; it is also attempting to shake up Europe’s cartel mentality by handling down rules of
competition patterned after U.S. antitrust law. Improvement to highways and rail networks are now being
coordinated as well.
The European Union (EU) now represents a formidable market size with than 400 million people and a
combined GNP of $ 9 trillion and a 39 percent share of world exports. Even though not all restrictions
have been dropped as envisioned, the well-being of EU members has increased substantially since the
bloc’s formation notwithstanding the exit of Great Britain in 2016.
As of July 13, 2013, there are 28 members of the EU namely: Austria, Belgium, Bulgaria, Croatia, Czech,
Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden,
and United Kingdom. (UK moved out from the EU in the middle of 2016 widely termed as BREXIT).
The 1991 Maastricht Treaty set the stage for the transition from the EMS to an economic and monetary
union (EMU) that includes a European Central Bank and a single European currency known as Euro. In
May 1998, Austria, Belgium, Finland, Ireland, The Netherlands, France, Germany, Italy, Luxembourg,
Portugal, and Spain were chosen as the 11 charter members of the Eurozone. The single currency era,
which officially began on January 1, 1999 is expected to bring many benefits to companies in the euro
zone, such as eliminating costs associated with currency conversion and exchange rate uncertainty. As of
2013, 17 members of euro area (Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Slovakia, and Spain) use the euro
as a common currency. Notably, Denmark and Sweden have opted not to use the common currency, at
least for now. But gone are French Francs, German marks, Italian liras, and other national currencies that
were once used by Eurozone countries.
THE MIDDLE EAST
The Middle East includes 14 countries namely Afghanistan, Bahrain, Iran, Iraq, Israel, Jordan, Kuwait,
Lebanon, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, and the reunified Yemen. Persians and
most Arabs share the same religion, beliefs, and Islamic traditions, making the population 95 percent
Muslim and 5 percent Christian and Jewish.
Despite this apparent homogeneity, diversity exists within each country and within religious groups. The
Middle East does not have a single societal type with a typical belief, behavior, and tradition. Each capital
and major city in the Middle East has a variety of social groups that can be differentiated on the basis of
religion, social class, education, and degree of wealth. Tribal pride and generosity towards guests are
basic beliefs. Authority comes with age, and power is related to family size and seniority. In business
relations, Middle Easterners prefer to act through trusted third parties, and they also prefer oral
communications. In general, Middle Easterners are warm, friendly, and clannish.
Business in the Middle East is driven by the price of oil. Eight of the countries have high oil revenues.
Bahrain, Iraq, Iran, Kuwait, Oman, Qatar, UAE, and Kingdom of Saudi Arabia hold significant world oil
reserves. Oil revenues have widened the gap between poor and rich nations in the Middle East, and the
disparities contribute to political and social instability in the area. Saudi Arabia, a monarchy with more
than 16 million people and 25 percent of the world’s known oil reserves, remains the most important
market in this region.
GULF COOPERATION COUNCIL or GCC
The key regional organization is the Gulf Cooperation Council (GCC) which was established in 1981 in
Riyadh, in May 1981 by Bahrain, Kuwait, Oman, Saudi Arabia, Qatar, and the United Arab Emirates. The
purpose of the GCC is to achieve unity among its members based on their common objectives and their
similar political and cultural identities, which are rooted in Islamic beliefs. Presidency of the council
rotates annually.
Arguably the most important article of the GCC charter is Article 4, which states that the alliance was
formed to strengthen relations among its member countries and to promote cooperation among the
countries’ citizens. The GCC also has a defense planning council that coordinates military cooperation
between member countries. The highest decision-making entity of the GCC is the Supreme Council, which
meets on an annual basis and consists of GCC heads of state. Decisions of the Supreme Council are
adopted by unanimous approval. The Ministerial Council, made up of foreign ministers or other
government officials, meets every three months to implement the decisions of the Supreme Council and
to propose new policy. The administrative arm of the alliance is the office of the Secretariat-General,
which monitors policy implementation and arranges meetings. Some of the most important achievements
of the GCC include the creation of the Peninsula Shield Force, a joint military venture based in Saudi
Arabia, and the signing of an intelligence-sharing pact in 2004.
The GCC provides a means of realizing coordination, integration, and cooperation in all economic, social,
and cultural affairs. Gulf finance ministers drew up an economic cooperation agreement covering
investment, petroleum, the abolition of customs duties, harmonization of banking regulations, and
financial and monetary coordination. GCC committees coordinate trade development in the region,
industrial strategy, agricultural policy, and uniform petroleum policies and prices.
Connection is a key word in conducting business in the Middle East. Those who take time to develop
relationships with key business and government figures are more likely to cut through red tape than those
who don’t. Establishing personal rapport, mutual trust, and respect are essentially the most important
factors leading to a successful business relationship. Decisions are usually not made by correspondence or
telephone. The Arab businessman does business with the individual, not with the company. Most social
customs are based on the Arab male-dominated society. Women are usually not part of the business or
entertainment scene for traditional Muslim Arabs.
Some conversation subjects should be avoided, as they are considered an invasion of privacy (Harris &
Moran, 1991).
1.
2.
3.
4.
Avoid bringing up subjects of business before getting to know your Arab host. This is
considered rude.
It is taboo to ask questions or make comments concerning a man’s wife or female children.
Avoid pursuing the subjects of politics or religion.
Avoid any discussion of Israel.
Economic Cooperation of West African States
The Treaty of Lagos establishing Economic Cooperation of West African States (ECOWAS) was signed in
May 1975 by 15 states with the object of promoting trade, cooperation, and self-reliance in West Africa.
The members are Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali,
Niger, Nigeria, Senegal, Sierra Leone, Mauritania (left 2002), and Togo. In 1980, the member countries
agreed to establish a free trade area for unprocessed agricultural products and handicrafts. Tariffs on
industrial goods were also abolished. By January 1990, tariffs on 25 items manufactured in ECOWAS
member states had been eliminated. The organization installed a computer system to process customs
and trade statistics and to calculate the loss of revenue. In June 1990, ECOWAS adopted measured that
would create a single monetary zone in the region. Despite such achievements, economic development
has occurred unevenly in the region. In recent years, the economies of Benin, Ivory Coast, and Ghana have
performed impressively. On the other hand, Liberia and Sierra Leone are still experiencing political conflict
and economic decline.
South African Development Community (SADC)
In 1992, the SADC superseded the South African Development Coordination Council as a mechanism by
which the region’s black-ruled states could promote trade, cooperation, and economic integration. The
members are Angola, Botswana, Democratic Republic of Congo (formerly Zaire), Lesotho, Malawi,
Madagascar, Mauritius, Mozambique, Namibia, South Africa, Seychelles, Swaziland, Tanzania, Zambia, and
Zimbabwe. The ultimate goal is a fully developed customs union; however, real progress toward
integration has been slow. South Africa joined the community in 1994 representing 75 percent of the
income in the region and 86 percent of intraregional exports.
Organization of the Petroleum Exporting Countries (OPEC)
Organization of the Petroleum Exporting Countries is an intergovernmental organization of oil-exporting
developing nations that coordinates and unifies the petroleum policies of its Member Countries. OPEC
seeks to ensure the stabilization of oil prices in the international oil markets, with a view to eliminating
harmful and unnecessary fluctuations, due regard being given at all times to the interests of oil-producing
nations and to the necessity of securing a steady income for them. Equally important is OPEC’s role in
securing an efficient, economic and regular supply of petroleum to consuming nations and a fair return on
capital to those investing in the petroleum industry.
OPEC was founded on September 14, 1960, the result of a meeting that took place in the Iraqi capital of
Baghdad, attended by the five Founder Members of the Organization: Iran, Iraq, Kuwait, Saudi Arabia and
Venezuela. Once the original agreement for establishing OPEC was signed, it was registered with the
United Nations Secretariat on November 6, 1962, following UN Resolution No. 6363.
Currently, the Organization comprises 15 Member Countries – namely Algeria, Angola, Congo, Ecuador,
Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, State of Qatar, Kingdom of Saudi Arabia,
United Arab Emirates and Venezuela.
The Bretton Woods System
In July 1944, delegates from 44 countries gathered in Bretton Woods, new Hampshire to start negotiations about a
new international monetary regime in the framework of the United Nations Monetary and Financial Conference.
The delegates of the 44 countries maintained to agree on adopting an adjustable peg system, the gold-exchange
standard. The U.S. dollar was the only convertible currency of the time, so the United States committed itself to
sell and purchase gold without restrictions at US$ 35 dollar an ounce. All other participating but non-convertible
currencies were fixed to the U.S dollar. However, it was not only the gold-exchange standard that was the
competing idea on the table that time as British economist , John Maynard Keynes, proposed ambitious reforms
for the post-war era and recommended the creation of an international clearing union, a kind of global bank, along
with the introduction of a new unit of account, the ‘bancor. The proposal was not entertained by the United States
as it insisted on its own plan and branded the British proposal as a serious blow to national sovereignty. John
Keynes argued that when economies slow down, governments have to reinvigorate markets with infusions of
capital. The active role of governments in efficient spending (governance) served as the paradigm for what would
be called a system of global Keynesianism.
Delegates also agreed on the establishment of two international institutions. The International Banks for
Reconstruction and Development (IBRD) became responsible for post-war reconstruction, while the explicit
mandate for the International Monetary Fund (IMF) was to promote international financial cooperation and
buttress international trade. The IMF was expected to safeguard the smooth functioning of the gold-exchange
standard by providing short-term financial assistance in case of temporary balance of payment difficulties.
Developing Countries and International Trade
When the United Nations Conference on Trade and Development (UNCTAD) came into being in 1964, that was the
first major change in the state of affairs of developing nations into international trade as they did not participate
actively in multilateral trade negotiations for a relatively long time. Most of the developing countries did not
manage to integrate into the post World War II trading system successfully because they followed an inwardlooking, import substitution industrialization strategy which did not favor trade openness (Findlay and O’Rourke,
2007).
The aim of UNCTAD was to promote trade and cooperation between the developing and the developed
nations. The following objectives after 1964 were laid down as follows: preferential access to advanced countries’
markets, renegotiating debt, establishing international commodity agreement (to stabilize primary product prices),
providing transfer of technology, and increasing aid substantially (Salvatore, 2007).
The Uruguay Round that took place in 1986 participated by 123 nations changed the behavior of
developing countries as the round was meant to be a grand bargain between developed and developing countries
(Ostry, 2002). The developed countries were expected to open their markets, especially to agricultural and textile
products, whereas the developing countries accepted the new regulation on intellectual property rights and
services. Unfortunately, while developing countries have opened up their service markets, their exports of
agricultural products are still blocked by advanced nations. Sad to say, without the liberalization of agriculture, it is
simply impossible for developing nations to fully integrate into the global economy.
Hertel et.al. (1998) have also acknowledged that Africa is a potential loser of the Uruguay Round. In
reality, developing countries might have easily found themselves on the loser’s side in the short term. Khor (1995)
hence views the WTO as the means by which industrialized countries can gain access to the markets of developing
markets.
Some Key Trade Facts
The following are several important facts relating to international trade:



A trade deficit occurs when imports exceed exports. The United States has a trade deficit in goods. In
2012, U.S. imports of goods exceeded U.S. exports of goods by $ 735 billion.
A trade surplus occurs when exports exceed imports. The United States has a trade surplus in services
such as air transportation services and financial services. In 2012, U.S. exports of services exceeded
U.S. imports of services by $196 billion.
Canada is the United States most important trading partner quantitatively. In 2012 about 20 percent
of U.S. exported goods were sold to Canadians, who in turn provided 15 percent of imported U.S.
goods.




The United States has a sizeable trade deficit with China. In 2012 it was $315 billion and in 2017, it
was $375 billion.
China has become a major international trader, with an estimated $2.05 trillion of exports in 2012.
Other Asian economies—including South Korea, Taiwan and Singapore—are also active in
international trade. Their combined exports exceed those of France, United Kingdom, and Italy.
International trade links world economies. Through trade, changes in economic conditions in one
place on the globe can quickly affect other places.
International trade is often at the center of debates over economic policy, both within the United
States and internationally.
Trade Barriers and Export Subsidies
Tariffs are excise taxes or “duties” on the dollar values or physical quantities of imported goods. They may be
imposed to obtain revenue or to protect domestic firms. A revenue tariff is usually applied to a product that is not
being produced domestically. For example, tin, coffee, or bananas in the case of the United States. Rates on
revenue tariffs tend to be the modest and are designed to provide the federal government with revenue. A
protective tariff is implemented to shield domestic producers from foreign competition. These tariffs impede free
trade by increasing the prices of imported goods and therefore shifting sales toward domestic producers. Although
protective tariffs are usually not high enough to stop the importation of foreign goods, they put foreign producers
at a competitive disadvantage. A tariff on imported auto tires, for example, would make domestic produced tires
more attractive to consumers.
An import quota is a limit on the quantities or total values of specific items that are imported in some period. Once
a quota is filled, further imports of that product are denied. Import quotas are more effective than tariffs in
impeding international trade. With a tariff, a product can go on being imported in large quantities. But with an
import quota, all imports are prohibited once the quota is filled.
An export subsidy consists of a government payment to a domestic product or export goods and is designed to aid
that producer. By reducing production costs, the subsidies enable the domestic firm to charge a lower price and
thus sell more exports in a world market.
Table 4.10
THE WORLD’S BIGGEST ECONOMIES
Rank and Country
1. United States
2. China
3. Japan
4. Germany
5. United Kingdom
6. France
7. India
8. Italy
9. Brazil
10. Canada
In Trillion U.S. Dollars 2017
18 trillion
11
4.4
3.4
2.9
2.4
2.1
1.8
1.8
1.6
2018
20.4
14
5.1
4.2
2.94
2.93
2.85
2.18
2.14
1.8
Source: World Bank and Visual Capitalist, 2015 /https: //www.we forum.org/agenda/2017/03worlds-biggest-economies-in2017/data for 2018 source: IMF
Table 4.10 shows the world’s biggest economies. While the United States is above the ranking, it may not
dominate much longer as China trails the United States by $7 trillion and it’s catching up as China’s economy grew
by 6.7% in 2016 as compared with America’s 1.6% (IMF). China has also overtaken India as the fastest-growing
large economy. The IMF’s World Economic Outlook estimated China’s economy grew at 6.7% in 2016 as compared
with India’s 6.6%.
The McDonaldization of Society
McDonald’s can be found almost everywhere these days in the United States, it is more than a restaurant—it has
become a symbol of American’s way of life. Not only do people around the world associate McDonald’s with the
United States, but, for every home, one poll found that 98 percent of school children identify Ronald McDonald,
making him as well- known as Santa Claus.
Even more important, the organizational principles that underlie McDonald’s are coming to dominate
most societies. Our culture is becoming “McDonaldized” an awkward way of saying that many aspects of life are
modeled on the famous restaurant chain. Parents buy toys at worldwide chain of stores ; people drive in for a tenminute oil change’ face-to-face communication is sliding more and more toward voice mail-e-mail, and junk mail;
more vacations take the form of resort and tour packages; television presents news in the form of ten-second
sound bites; college admission officers size up students they have never met by glancing at their GPA and SAT
scores; and professors assign ghost-written textbooks and evaluate students with tests mass-produced for them by
publishing companies. The list goes on and on.
Basic Principles. What do all these developments have in common? According to George Ritzer (1993; 2003), the
McDonaldization of society involves four basic organizational principles:
1.
2.
3.
4.
Efficiency. Ray Kroc, the marketing genius behind McDonald’s, set out with one goal: to serve a
hamburger, French fries, and milkshake to a customer in 50 seconds or less. In the restaurant, most
customers bus their own trays, or, better still, drive away from the pick-up window taking whatever mess
they make with them. Efficiency is a value virtually without criticism in our society. We tend to think that
anything done quickly is, for that reason alone, good.
Calculability. The first McDonald’s operating manual declared the weight of a regular raw hamburger to
be 1.6 ounces, its size to be 3.875 inches across, and its fat content to be 19%. A slice of cheese weighs
exactly half an ounce, and French fries are cut precisely 9/32 of an inch thick. Think about how many
objects around the home, the workplace, or the campus are designed and mass-produced uniformly
according to a standard plan. Not just our environment but our life experiences—from traveling the
nation’s interests to sitting at home viewing television—are now more deliberately planned than ever
before.
Uniformity and predictability. An individual can walk into a McDonald’s restaurant almost anywhere and
buy the same sandwiches, drinks, and desserts prepared in precisely the same way. Uniformity results
from a highly rational system that specifies every action and leaves nothing to chance.
Control through automation. The most unreliable element in the McDonald’s system is human beings.
People, after all, have good and bad days, sometimes, let their minds wander, or decide to try something
a different way. To minimize the unpredictable human element, McDonald’s has automated their
equipment to cook food at a fixed temperature for set lengths of time. Even the cash register at a
McDonald’s is keyed to pictures of the items, so that ringing up a customer’s order is as simple as
possible.
Similarly, automatic teller machines are replacing banks, highly automated bakeries produced bread with
scarcely any human intervention, and chicken and eggs emerge from automated hatcheries. In
supermarkets, laser scanners are phasing out human checkers. Most of our shopping now occurs in malls,
where everything from temperature and humidity to the kinds of stores and products are subject to
continuous control and supervision (Ide & Cordell, 2004).
OBE Activity 4.1
Directions: Divide the class into groups (three members for each group)
1. Browse the Internet and search for the economy of the following countries. The following group will
be assigned to report the following economy of the ASEAN countries on the basis of their export and
import, products, manufacture, bilateral trades and trade balance and deficits in a given year (the
professor/instructor will assign what particular year will be presented). Each group will be given 5 to 7
minutes to present the report. The data must reveal statistics from the year 2015, 2016 to 2017.
2.
Group 1- Singapore
Group 2- Indonesia
Group 3- Malaysia
Group 4- Vietnam
Group 5- Cambodia
Group 6- Myanmar
Group 7- Laos
Group 8- Thailand
Group 9- The Philippines
Group 10- Brunei
Analyze the data of your given ASEAN country and synthesize the positive points of that particular
country.
Activity 4.2
Directions: Use separate yellow pad for your answers. Refer to the rubric applied on essay activity in the appendix.
1.
2.
Does McDonald’s success outside the United States provide support for Levitt’s view about the global
marketplace?
Do you think a company like McDonald’s is welcome in countries like Syria, Yemen, Somalia, and Libya as
well as Iraq? What about North Korea and Afghanistan? Why or why not?
Activity 4.3 (This is intended for recitation)
1.
2.
Describe your personal experience with McDonald’s and Jollibee as a customer.
As to cost benefit analysis, which would you prefer as your gadget: Samsung, Vivo, Lenovo or local
manufactured phones such as Cherry Mobile, Star Mobile, or My Phone?
References
Czinkota, M. & Ronkainen, I. (2010). International Marketing. Florida: Dryden Press.
Czinkota, MR. (1993). “A national export development strategy for new and growing businesses,” Remarks
delivered to the National Economic Council, Washington, D.C,. August 6, 1993.
Czinkota, M.R., ed. (1988). Improving U.S. competitiveness. Washington, D.C.: Government Printing Office.
Dicken, P. (2004). Global shift: Reshaping the global economic map in the 21 st century. London: SAGE.
Feenstra, RC. (1998). Integration of trade and disintegration of production in the global economy: Journal
of Economic Perspectives 12(4): 31-50.
Findlay, R. & O’Rourke, KH. (2007). Power and plenty: Trade, war, and the world economy in the second
millennium. Princeton, NJ: Princeton University Press.
Gereffi, G. (1999). International trade and industrial upgrading in the apparel commodity chain. Journal of
International Economics 48 (1): 37-70.
Graham, T.R. “Global Trade: War and Peace,” Foreign Policy (Spring 1983): 124-137.
Hertel, TW, Masters WA & Elbeheri, A. (1998). The Uruguay round and Africa: A global, general
equilibrium analysis. Journal of African Economies 7 (2): 208-34.
Khor, M. (1995). The WTO and the South: Implications and recent developments. Third World Network.
Ohmae, K. (1995). The end of the nation-state. The rise of regional economies. New York: Simon and
Schuster Inc.
Ostry, S. (2002). “The Uruguay Round North-South grand bargain: Implications for future negotiations. In
Kennedy DLM and Southwick JD (eds). The political economy of international trade law. Cambridge:
Cambridge University Press.
Milner, H. & Keohane, R. (1996). Internationalization and domestic politics: An introduction. In: Milner,H
& Keohane, R (eds) Internationalization and domestic politics. Cambridge: Cambridge University Press,
pp.3-24.
Salvatore, D. (2007). International economics. Hoboken: John Wiley & Son.
Chapter 5
The Rise of the Global Corporation
Learning Outcomes: At the end of the chapter, the student should be able to:
1. Explain the impact of dealing business with the triad;
2. Identify the competitive strategies of global corporations;
3. Discuss the idea of globalization drivers;
4. Explain how global corporations function;
5. Identify what constitutes a global corporation;
6. Explain the role of international financial institution in the creation of global economy;
7. Identify the attributes of global corporation;
8. Identify the emerging market global corporations; and
9. Explain the relevance of changing regulatory environment to the structure and operation of global
corporations.
Globalization is a business initiative based on the belief that the world is becoming more homogenous and that
distinctions between national markets are not only fading but for some products, will eventually disappear. As a
result, companies need to globalize their international strategy by formulating it across markets to take advantage
of underlying market, cost, environmental, and competitive factors.
Once a firm has made the decision to compete in the global environment, it subjects itself to pressures singlecountry firms often do not experience. Single-country firms normally operate in a relatively homogenous market
for their products and services. Consequently, product design and production can often be fairly standardized,
allowing the firm to achieve economies of scale in production, and deliver a product that appeal to its entire
market. Furthermore, strictly domestic firms typically don’t have to concern themselves with differences in
industry and trade regulations from other countries.
Global corporations, in contrast, often faces a trade-off between seeking competitive advantage through the lower
production costs that global economies of scale allow, and seeking competitive advantage by tailoring the
products to specific national markets—forgoing economies of scale but providing a product more tailored to local
taste. Furthermore, the global firm must determine how to balance the demands and practices in one country with
the demands and practices of other countries. These pressures illustrate the trade-off firms often must make
between national responsiveness, and worldwide integration of activities.
Presence in Key Global Markets
The United States, Japan, and Western Europe account for about half of the world’s total consumption, and they
share certain important economic and demographic conditions such as high income levels, and high GNP values. It
has been argued (Ohmae, 1990) that a firm cannot truly compete on a global scale if it is not present in this “triad.”
If a firm does not have operations in all three areas of the triad, it may not be able to achieve maximum economies
of scale. Furthermore, since the three areas are often the source of technological and product innovations, a firm
not present in all triad areas would have difficulty keeping abreast of technological developments in its industry.
Finally, since the triad accounts for one-half of the world’s consumers (even more in some industries), presence in
the triad is necessary to keep abreast of consumer preferences and changes in consumer trends. Therefore, some
business people have suggested that to remain competitive, multinationals must pursue a “triad strategy.” Of
course, there other arguments about key global markets. For example, China, with a billion people, a rapidly
growing economy, and poorly served customers, is seen by some as a key market in the future (in fact, it is now a
key market as of 2018).
Competitive Strategies of Global Corporations
The worldwide integration and nationally responsive strategies discussed above are closely related to Michael
Porter’s work on competitive strategies (1990). According to Porter, firm’s international or domestic can gain an
advantage over competitors in three ways: by cost leadership, differentiation, or focus. Porter call each of the
three approaches a “generic” competitive strategy.
1.
2.
3.
Cost leadership. The goal of this strategy is to manage well the costs associated with development,
production, and marketing of a product. The firm must be able to gain an advantage by underpricing
competitors, or if the firm can have the option to sell at the same price as competitors but have a higher
profit margin. This strategy requires the firm to take advantage of economies of scale and to vigorously
pursue cost reduction in areas such as overhead, research, and development, service, advertising, and so
on.
Differentiation. This second strategy is based on the firm fielding products that consumers perceive as
different or unique. This uniqueness can be achieved in many ways such as using a distinctive brand name,
by concentrating on providing specific product features, by differentiating themselves on the basis of
after-sales customer service, by providing a higher quality product than competitors, and so forth.
Focus. This has something to do in terms of scope of the firm’s operations. While some product lines
designed to reach a very broad customer base, others focus on much narrower market segments. The
broad-scope companies can compete either on the basis of cost or differentiation. The firms that target a
smaller segment of the market are using a focus strategy.
Globalization Drivers
Both external and internal factors will create the favorable conditions for development of strategy and resource
allocation on a global basis. These factors can be divided into market cost, environmental, and competitive factors.
Market Factors. The world customer today identified by Ernst Dichter more than 30 years ago has gained new
meaning today ( Dichter, 1962 as cited Czinkota & Ronkainen, 1995;2010). For example, Kenichi Ohmae has
identified a new group of consumers emerging in the triad of North America, Europe, and Japan whom marketers
can treat as a single market with the same spending habits (Ohmae, 1995). Approximately over 600 million
consumers have similar educational backgrounds, income levels, life-styles, use of leisure time, and aspirations.
One reason given for the income levels in their demand is a level of purchasing power (ten time greater than that
of LDCs or NICs) that translates into higher diffusion rates (for certain products). Another reason is that developed
infrastructures—ownership of telephones and an abundance of paved roads—lead to attractive markets for other
products. Products can be designed to meet similar demand conditions throughout the triad. These similarities also
enhance the transferability of other marketing elements.
At the same time, channels of distribution are becoming more global; that is, a growing number of
retailers are now showing great flexibility in their strategies for entering geographic markets (Treadgold, 1990).
Some are already world powers (e.g. Benetton and McDonalds), whereas others are pushing aggressive growth.
Also noteworthy are cross-border retail alliances, which expand the presence of retailers to new markets quite
rapidly. The presence of global and regional channels makes it more necessary for the marketer to rationalize
marketing efforts.
Cost Factors. Avoiding cost inefficiencies and duplication of effort are two of the most powerful globalization
drivers. A single-country approach may not be large enough for the local business to achieve all possible
economies of scale and scope as well as synergies, especially given the dramatic changes in the marketplace. For
example, pharmaceuticals, in the 1970s, developing a new drug cost about 16 million dollars and took four years to
develop. The drug could be produced in UK or United States and eventually exported. Now, developing a drug
costs from 250 to 500 million dollars and takes as long as 12 years, with competitive efforts close behind. Only a
global product for a global market can support that much risk (The Wall Street Journal, 1993). Size has become a
major asset, which play partly explains the many mergers and acquisitions (Bristol Myers and Squibb as well as
Smith Kline and Beecham) of the past few years (Business Week, 2000). In the heavily contested consumer-goods
sectors, launching a new brand may cost as much as $100 million, meaning that companies, such as Unilever and
Procter & Gamble, are not going to necessarily spend precious resources on one-country projects.
Environmental Factors. As the world market is going global, government barriers have fallen dramatically in the
last years to further facilitate the globalization of markets and the activities of global corporations with them. For
example, the forces pushing toward a pan-European market are very powerful: The increasing wealth and mobility
of European consumers (favored by the relaxed immigration controls), the accelerating flow of information across
borders, the introduction of new products where local preferences are not well established and the publicity
surrounding the integration process itself all promote globalization. The resulting removal of physical, fiscal, and
technical barriers is indicative of the changes that are taking place around the world on a greater scale.
Competitive Factors. Many global corporations are already dominated by global competitors that are trying to
take advantage of the three sets of factors mentioned earlier. To remain competitive, the company may have to be
the first to do something or to be able to match or preempt competitor’s moves. Products are now introduced,
upgraded, and distributed at rates unimaginable a decade ago. Without a global network, the company may run
the risk of seeing carefully reached ideas picked off by other global players. This is what Procter & Gamble and
Unilever did to Kao’s Attack concentrated detergent which they mimicked and introduced into the United States
and Europe before Kao could react.
Moore and Lewis (2000) contend that global corporations are operating within the environment which are
functionally and organizationally similar from contemporary organizations, having head offices, foreign branch
plants, corporate hierarchies, extraterritorial business law, and with a bit of foreign direct investment and valueadded activity.
Accordingly, global corporations are characterized by the following features:



There is a pattern of equity ownership
There is corporate ownership and management of subsidiaries
There is a relationship of “central” organizational functions to supply and distribution chains.
After World War II, economic recovery and expansion were led overwhelmingly by American corporations
for quite some time until the reentry of Japanese and European corporations onto the global scene that resulted
for what we have come to be viewed as multinational corporations (MNCs). Barnet and Mueller (1974) as cited by
Neubauer (2014) states that the period from the end of World War II to the present can be viewed, as the third
and distinct period in the transformation of the global corporation which so far have been far-reaching and
distinctive, reflecting changes within the broader structural dimensions of globalization.
Functions of Global Corporations
The contemporary global corporation is simultaneously and commonly referred to either as MNC, a transnational
corporation (TNC), an international company, or a global company. The following distinctions offered by Iwan
(2012) are as follows:
 International companies are importers and exporters, typically without investment outside of their
home country.
 Multinational companies have investment in other countries, but do not have coordinated product
offerings in each country. They are more focused on adapting their products and services to each
individual local market.
 Global companies have invested in and are present in many countries. They typically market their
products and services to each individual local market.
 Transnational companies are more complex organizations which have invested in foreign operations,
have a central corporate facility but give decision making, research and development (R&D) and
marketing powers to each individual foreign market.
TNC has been defined by the United Nations Center on Transnational Corporations (UNCTC) as an
‘enterprise that engages in activities which add value (manufacturing, extraction, services, marketing, etc.., ) in
more than one country.
Structural Periods of Global Corporations (Gerrifi. 2005)
1. Investment based globalization (1950-1970)
2. Trade-based globalization (1970-1995)
3. Digital globalization (1995 onwards)
Gerrifi (2005) postulates that the nature of global corporations changes accordingly, being driven in each case
by its evolving purposes and by its extended reach and abilities. Foreign Direct Investment (FDI) needs to be
examined as to its sources and levels because that was the corporate origin of most global corporations. As Hedley
(1999) points out, only European corporations were major investors, to be joined by some American firms in the
1930s. The UN data reflected that the principal turning point of FDI as the major driver of extended global
corporate development was in 1960. In each subsequent decade until the turn of the century, FDI would triple
(Hedley, 1999).
The investment based period was dominated by producer-driven commodity or value chains, which in turn
tended to be dominated by firms characterized by large amounts of concentrated capital focused on large-scale or
capital-intensive manufacturing or extractive industries. The organization of the dominant global firms during this
period was powerfully influenced by the transformation within national economies of the older manufacturing
companies largely influenced by what was viewed as the progressive de-industrialization of those economies
through wide scale off-shoring of labor applications and its related costs.
The progressive shift in the sitting of manufacture transformed the dominant manufacturing firms of these
older developed companies into more fully extended and integrated organizational forms that moved them as
national firms operating internationally which makes them global firms that required extensive corporate
integration of their activities throughout the world.
The trade-based was due to the emergence of Japan as a major producer nation, especially of automobiles
and consumer electronics from the 1970s onward. This brought to the scene new models of effective production
focused especially on quality and regimes of flexible production—which prompted the European firms to rejoin the
global commodity chains. These activities were experienced by US firms as unwelcome challenges to their virtually
unchallenged positions on product design, production efficiency, and quality—and ultimately the ability of these
corporate structure to maintain their accustomed returns on investment. In effect, it resulted into a progressive
reinventing of the American business model, especially the industrial model—a challenge that would dominate the
curricula of US business schools for two decades.
Digital globalization has affected the entire structure of how global corporations operate. The integration of
corporate structure reducing the effects of time and distance especially for services performed within corporate
structures such as design, finance and accounting, advertising and brand development, legal services, inventory
control, etc., These intensive capabilities of control and management at a distance blend many of the
differentiated aspects of products and service based firms. Digitalization is transforming the classic value chain of
manufacturing focused on innovations which:




Product design and innovation are replaced with driving innovation through digital product design
Labor intensive manufacturing is replaced by digitizing the factory shop floor
Supply chain management is replaced by globalizing through digital supply chain management
Marketing sales and services is replaced by digital customization (Capgemini, 2012).
One approach on how global corporation function is to view them as a complex collective activity,
constituting either a global system of corporations or a network of global corporations that as a structure interacts
in complex ways, doing much to constitute the global economic system as a result. The critical period from 1968 to
1998 in which global corporations were developing much of the structure replicated in current operations is an
example as Kentor (2005) examined it.
Emerging Global Corporations (The Boston Consulting Group, 2009 as cited by Steger (2014)
 Basic Element (Russia) is a world leader in alumina production
 Bharat Forge (India) is one of the world’s largest forging companies
 BYD Company (China) is the world’s largest manufacturer of nickel-cadmium batteries
 CEMEX (Mexico) has developed into one of the world’s largest cement products
 China International Marine Containers Group (China) is the world’s largest manufacturing of shipping
containers
 Cosco group (China) is one of the largest shipping companies in the world
 Embraer (Brazil) has surpassed Canada’s Bombardier as the market leader in regional jets
 Galanz group ((China))has a 45 percent share of the European and a 25 percent share of the US
microwave market
 Hisense (China) is the number one supplier of flat-panel TVs to France
 Johnson Electric (China) is the world’s leading manufacturer of small electric motors
 Nemak (Mexico) is one of the world’s leading suppliers of cylinder head and block casings for the
automotive industry
 Sistema (Russia) us a conglomerate with a focus on telecommunications
 Tata Chemicals (India) is an inorganic chemical producer with a significant global market share for
soda ash
 Wipro (India) is the world’s largest third-party engineering services company.
The importance of global corporations in Brazil, India and China (BRICS) to the current and projected
global economy is singular. With 40 percent of the world’s population, the BRICS represent a primary force in both
global production and consumption. Hawksworth and Cookson (2008) predict that middle class consumers in China
and India will grow from some 1.8 billion in 2010 to 3.2 billion in 2020 and 4.9 billion in 2030. The relative import
of their global corporate cultures can be gauged in part by the fact that in 2012 global corporations in China made
up 73 of the largest in Fortune 500 list (CNN Money, 2012), whereas Brazil and India with eight apiece currently
account for a small share of such corporations, emergent markets are projected to account for a doubling of their
share of world trade by 2050 (Ahern, 2011).
While BRICS are host countries to the largest number of global corporations among developing countries,
these corporations are also distributed across other markets areas such as Mexico, Russia, United Arab Emirates,
Turkey and Thailand next in order of frequency (Ahern, 2011). In 2009, China became the leading trade partner of
Brazil, India and South Africa, and Tata of India became the most active investor in sub-Saharan Africa.
Table 5.1
Top Ten Global Corporations in terms of Net Profit
Corporation
Earnings (2017) in billion dollars
1. Walmart Stores (U.S)
$485.9
2. State Grid (China)
315.2
3. Sinopec (China)
$267.5
4. China Natural Petroleum (China)
$ 262.6
5. Toyota Motors (Japan)
$ 254.7
6. Volkswagen (Germany)
$ 240.3
7. Royal Dutch Shell (Netherlands)
$ 240
8. Berkshire Hathaway (US)
$ 223.7
9. Apple (US)
$215.6
10. Exxon Mobile (US)
$205
Source: Fortune List, 2017
The Relevance of the Changing Regulatory Environment to the Structure and Operation of Global Corporations
1. Bilateral trade agreement has brought nations together to negotiate their relative place within emergent
value chains (Naya and Plummer, 2005). An example is the rise of China as a major producer of both
finished products and pre-finished components.
2. Liberalization as a result in part of the transformation of investment codes, trade rules and operating rules
to reduce barriers to global investment and trade. Thus thrust towards liberalization has accounted for
regulatory environments distinctly favorable to corporate investment and value chain developments
across the spectrum of goods and services.
3. The implementation and imposition of corporate social responsibility (CSR) as a self-regulatory pattern
brought global corporations to be more accountable across the range of their many and varied
stakeholders. CSR represents a wide ranging set of proposed governance structures, including rules,
norms, codes of conduct and standards developed largely by the global NGO community (Levy and
Kaplan, 2007).
Operational Decisions of Global Corporations
Operational decisions can be both strategic and tactical. These decisions encompass long term decisions such as
plant locations and size of facilities, as well as day-to-day decisions such as production schedules and delivery
timetables. Global managers, in other words, sometimes take a long-term view and at other times take a shortterm view. Strategic operational decisions may lock a company into a particular arrangement for many years, but
day-to-day operational decisions often need to be made quickly with the needs of the current situation as the
paramount consideration. Hence, there is a dual nature to operational management of global corporations.
Corporate managers in international companies often face another dilemma as well: a trade –off between
a global perspective and a multinational perspective. In thinking from a global perspective, managers consider the
availability and cost of resources around the world in order to choose optimal sites for operations: they think in
terms of unified, globally rationalized operations, in thinking from a multinational perspectives, managers tailor
operations to fit the unique aspects of various locations and adapt company operations to local requirements: they
think in terms of individual, nationally adapted operations.
There are advantages and disadvantages to both the global approach and the multinational one. These
will depend on the individual company, industry and market characteristics, and the available operational
locations. Managers often combine global and local approaches in a variety of ways and through a variety of
operational choices and trade-offs.
Major Concerns of Global Managers
1. Procurement Issues. Procurement involves decisions about the source, timing, and means of obtaining
needed inputs.
2. Production involves the location, type, and coordination of facilities, as well as total quality management.
3. Delivery involves getting the finished product to the customer and logistical networks as they apply to the
entire operational system.
Procurement Issues
In order to provide a product, a firm needs certain inputs, including raw materials, labor, and energy. Managers
have to select the best source for these inputs, decide on the most effective means of obtaining them, and
determine the timing for acquiring them. The firm’s overall objective is to obtain the best inputs from around the
world in order to produce components and products efficiently. The global manager needs to adjust this objective
in light of the constraints of different political and cultural environments. We consider two major issues that
managers face relative to obtaining inputs: the degree of vertical integration that is desirable and the national
origin of inputs and supplies of these inputs (Mendenhall et.al., 2010).
Degree of Integration
The degree of vertical integration depends on the degree to which a firm is its own supplier and market. The focus
on the procurement is in the supplier. In effect, decisions regarding vertical integration are make-versus –buy
decisions. At one extreme, a firm can seek to make all of its own inputs which is also known as backward
integration and be its own supplier; at the other extreme, it can choose to buy virtually all the inputs it needs and
rely on others as suppliers. Partial integration is also possible, with some inputs being bought while others are
made.
From the manager’s perspective, the benefit of making the inputs is the control maintained over them (in
terms of cost, quality, timeliness, and so on).
National Origin
National origin of suppliers can have political and social implications as well. Certain countries may be looked on
unfavorably, and any association with suppliers in those countries can have negative repercussions in other
locations. Consumer boycotts have often been organized against a company’s products because the company uses
inputs originating in a foreign location viewed negatively by consumers.
The procurement decision is further complicated when moving products from one country to another
requires going through additional countries. Each country’s political relationships, regulations, and dependability
have to be taken into account. Even relatively minor problems in an intermediary country can disrupt an otherwise
efficient and effective procurement system.
Timing Issues
Timing of shipments and receipt of supplies are also important considerations. This is essentially an inventory and
stock issue. Companies can choose to maintain varying quantities of needed inputs. The trade-offs are among
shipping costs, carrying costs, and the risks of being out of stock of needed items. These are issues faced by all
companies particularly with those global corporations. International managers find that the situation is more
complex, however, because of border crossings. These can lead to unanticipated delays in transporting products,
and such delays cannot always be factored into the inventory equation.
The auto-industries of Canada and the United States exemplify the potential difficulties of border
crossings. Many U.S. and Canadian auto plants adopted a “just-in-time” inventory system in the late 1980s. This
system relies on suppliers getting parts to the plants just in time to be used by the plant. In essence, the auto
manufacturers do not keep any inventory on hand. This system is cost-efficient, and because of the trade
agreements between Canada and the U.S., parts suppliers in both countries are used, and parts across the Canada
—U.S. border regularly. In 1990, Canadian independent truckers established a blockade of major border crossings
on several occasions to protest Canadian trucking regulations. The result for the auto plants was no just-in-time
delivery of parts, and several were forced to shut down for long hours, or even days in some cases, until delivery
was resumed (Mendenhall et.al., 2010).
Production Issues
Production issues involved the location and type of production facilities as well as coordinating facilities.
Operational Strategies of Global Corporations
1. Location of facilities. Facilities can be located to take advantage of inputs or of markets and can be
concentrated or dispersed.
a. Inputs versus markets. If sources of inputs are relatively close to major markets, then facilities can be
located convenient to both. For many global companies this is not the case because inputs can come
from around the world and markets may be in various parts of the globe. The major factor that
determines the appropriate location of facilities relative to inputs and markets is the case with which
inputs and finished goods can be moved from one location to another. This depends on factors such
as mobility, size and weight, ability to withstand transportation, and need to preserve freshness.
These factors need to be examined relative to inputs as well as to intermediate and finished products
in order to select appropriate locations for production facilities. The following examples illustrate
some of these considerations observed by global companies:






Many products are assembled by unskilled labor in countries where labor costs are low. It is often
difficult to move people around the world and if labor is an important input into a product, facilities
will generally be located close to the source of the needed labor.
The wire, beads, and coils used to produce electronic parts are small and easy to transport around
the world, as are the finished parts. Companies that assemble these parts often have their facilities
located close to labor sources and remote from other inputs and markets.
Precision scientific equipment often cannot be moved once it is assembled because movement can
affect the delicate balance needed for accuracy. Companies that provide such equipment will need to
have at least some facilities located close to their customers.
Produce retains its freshness for only a limited period. Companies that use such produce will tend to
locate their facilities close to the source of supply. Many companies that processed into canned fruit
and vegetables are located in small farming communities where fresh produce can be brought to the
factory within hours of harvest.
Harvesting fresh produce in some developed countries relies on unskilled, low-cost labor, which is
unavailable locally. The growing location cannot be changed easily; therefore, seasonal labor is
brought from other locations in spite of the difficulties associated with moving people.
Automobile companies are smaller and cheaper to transport than completed automobiles.
Components may be produced in a variety of locations to take advantage of local conditions and
shipped to a location close to major markets for assembly.

Precious stones for jewelry must be obtained in locations where they are available. But they may be
shipped to other locations for polishing and setting and to still other locations where the major
markets exist.
2. Concentrated versus Dispersed Facilities
Depending on a firm’s choice of production strategy, the appropriate design for facilities will often differ.
Centralized strategy will call for large, efficient, standardized, and, probably, automated designs.
Concentrated or centralized facilities are more focused on efficiency and standardization. Larger
quantities are produced in these facilities and efficiencies of scale result in a lower per unit cost. It also
allows simplified administrative system. In some ways, centralized strategy is easier to establish and
operate.
On the other hand, dispersed strategy focuses on adaptation and flexibility. Where inputs from suppliers
in different countries vary, or products have to be adapted for different markets, standardization is no
longer an advantage. In this situation, it can be more effective to take advantage of the opportunities
offered by different sources of supply and to cater to the needs of the different markets. Dispersed
strategy can also provide more flexibility because production can be increased or decreased at different
locations as circumstances change. Dispersed strategy means that the company is less dependent on any
one location. In addition, a growing trend appears to be the use of smaller production runs, closer to the
user to allow customization of the product for a particular buyer’s needs.
Distinctive Characteristics of Location
The distinctive characteristics of any location selected need to be considered by global companies prior to
designing the facilities for that location which may be climactic, cultural, physical, or governmental.
 Different climatic conditions can affect the appropriate design of facilities. In the tropics, particularly
in developing countries where air conditioning is expensive and unusual, facilities need to be
designed to take advantage of cooling breezes.
 Different cultural conditions can affect the appropriate design for facilities. In certain Islam countries,
men and women are not permitted to work together, so that facilities have to be designed so that
those tasks done by women are separate from those done by men.
 Different physical characteristics of people have to be taken into account in designing appropriate
facilities. People in the Far East are, on the general, relatively short in comparison to North
Americans. Facilities that are comfortable for North American employees would likely be unsuitable
for employees in the Far East.
 Government regulations can affect the appropriate design of facilities. Some countries require
employers to provide separate toilet facilities for male and female employees. In other locations, this
would be considered wasteful and unnecessary.
Differentiating Goods from Services
The Industrial Revolution of the early 20th century transformed the world from a craft- oriented to an industrial
economy. The industrial economy was devoted to producing physical goods in large quantities whereas the craft
economy had focused on small-scale production. Many people believe that the current Western economy is
postindustrial one, often described as a service economy devoted to providing intangible benefits, or services.
Services are an increasingly important component of the world’s economy, and trade in services increased
dramatically in the last decades of the 20th century. This is particular important to multinational managers because
services are especially subject to the impact of cultural and national variations.
Products are a firm’s salable outputs. They can be anything: screws and bolts, high-tech medical
equipment, beauty products, technical expertise, management services, or energy. A helpful way to differentiate
among so many products is to categorize them as goods or services.
Goods are generally thought of as physical products, while services are intangible products. This
distinction, as well as some of the relationships between the two, is illustrated by the following:



Services often accompany goods. If you buy a home computer, you usually purchase software to go
with it, and you may buy a service contract that agrees to provide you with maintenance and repair
on the machine. The computer is a physical product that you can see and touch; therefore it is a
good. The software and the service contract are intangible services.
Services may compete with goods. You can choose to purchase your own personal computer or you
can pay for a computer service to fill your computer needs.
Some services are by their nature distinct from goods, management consulting services fall into this
category. When you purchase the services of a management consultant, there may be no physical
product associated with the service.
The difference between goods and services is not always clear because they can be closely connected. For
example, computer software is generally thought of as an intangible and thus is a service. But it is often contained
on a disk, which can be thought of as a physical product. In the case of management consultant, a report may be
produced that could be considered a physical product.
Challenges of Globalization
Companies who have tried the global concept have often run into problems with local differences. Especially in the
1980s, global marketing was seen as a standardized marketing effort dictated to the country organizations by
headquarters. Procter & Gamble stumbled badly in the 1980s in Japan when customers there spurned its Pampers
in favor of rival brands. P&Gs diapers were made and sold according to a formula imposed by Cincinnati
headquarters. Japanese consumers found the company’s hard-sell techniques alienating (Business Week, 1991).
Pitfalls that handicap global marketing programs and contribute to their suboptimal performance include marketrelated reasons, such as insufficient research and a tendency to over standardize, as well as internal reasons, such
as inflexibility in planning and implementation.
Market Factors. Should a product be launched on a broader scale without formula research as to regional or local
differences, the result may be failure. An example of this is Lego A/S, the Danish toy manufacturer, which decided
to transfer sales promotional tactics successful in the U.S. market unaltered to other markets, such as Japan. This
promotion included approaches such as “bonus packs” and gift promotions. However, Japanese consumers
considered these promotions wasteful, expensive, and not very appealing (Kashani , 1989). Similarly, AT&T has had
its problems abroad because its models are largely reworked U.S. models. Even after spending $100 million in
adapting its most powerful switch for European markets, its success was limited because phone companies there
prefer smaller switches (AT&T, 1991). Often, the necessary research is conducted only after a product or program
has failed.
Internal Factors. Globalization by design requires a balance between sensitivity to local needs and development of
technologies and concept globally. This means that neither headquarters nor independent country managers can
alone call the shots. If country organizations are not part of the planning process, or if adoption is forced on them
by headquarters, local resistance in the form of the not –invented-here syndrome (NIH) may lead to the demise of
the global program or, worse still, to an overall decline in morale. Subsidiary resistance may stem from resistance
to any idea originating from the outside or from valid concerns about the applicability of a concept to that
particular market. Without local commitment, no global program will survive.
OBE Activity 5.1
Directions: Divide the class into groups ((4 to 5 members for each group)
1. Select a global corporation (refer to the Fortune List on the current year) and select one (preferably with
office or branch in the Philippines) from the top 25 list then present power point about the said
corporation, its worldwide networks, total sales in 3 year period and social responsibility. If there are
diverse products of the corporation, then add them into your presentation. Be sure to present the images
of their identity, brands, product labels, etc.,
Activity 5.2
Directions: See the rubrics in the appendix of the book. Answer the following questions sensibly. Observe the
technical rules of writing a paragraph. Observe the use of transitional words to separate your ideas within a
paragraph.
1.
2.
3.
Both goods and services can be imported or exported. Identify and discuss some of the likely differences
in exporting a good (physical product) versus a service.
Discuss how the Association of Southeast Asian Nations (member countries) is likely to influence decisions
regarding import and export of their products within the region.
Assume you are exporting a perishable product from the Philippines to the United States. Identify the
various options available and discuss the advantages and disadvantages of each.
Activity 5.3 OBE
Directions: This activity is for recitation. The class should be divided into groups, with five members. The members
will decide who will be their leader who will report the consensus of the group after brainstorming and
deliberation of their answers on the following questions listed below. A secretary must take notes on the group
answers.
1.
2.
3.
What is the danger in oversimplifying the globalization approach? Would you agree with the statement
that if something is working in a big way in one market, you better assume it will work in all markets?”
What impact will the fact that products are now introduced, upgraded, and distributed at ever-increasing
speeds have on a company’s decision to globalize?
What factors should be considered when deciding on the location of research and development facilities?
Activity 5.4 –Discussion Questions for recitation
1.
2.
Identify a successful local firm and identify the strengths that have contributed to its success. Discuss
whether these strengths can be employed globally.
Identify a firm that has been successful in international franchising and discuss what factors account for its
success.
References
Czinkota, M.R. & Ronkainen, I.A. (1995; 2010). International marketing. Orlando, USA: The Dryden Press.
Gerrifi, G. Humphrey, J. and Sturgeon, J. (2005). The governance of global value chains. Review of
international political economy 12 (1): 78-104.
Dichter, E. “The World Customer,” Harvard Business Review 40 (July-August 1962): 113-122.
Hedley, RA. (1999). Transnational corporations and their regulations: Issues and strategies. International
Journal of Comparative Sociology XL (2): 215-30.
Iwan, L. (2012). Difference between a global transnational, international and multinational company.
Available at: http://leeiwan.wordpress.com/2007/06/18/difference between -a-global-transnationalinternational-and-multinational-company/accessed 29 December 2012
Hawksworth, J. & Cookson, G. (2008). The world in 2050: Beyond the BRICs: A broader look at emerging
market growth prospects. PricewaterhousesCoopers. March. Available at: http://www.pwc.fi/fifi/fi/julkaisut/tiedostot/world-in-2050.pdf (accessed 13 January , 2014).
Kaplan, C.W. (2007). Management. New York: Palgrave Macmillan.
Kashani, C.V. 1989. International Economics. Nebraska: McGraw Hill Education.
Mendenhall, M. Punnet, B.J. & David Ricks (2010). Global management. Oxford, UK: Blackwell Publishers.
Moore K, & Lewis, D. (2000). Foundations of corporate empire. London: Prentice Hall.
Naya, SF. & Plummer, MG. (2005). The economics of the enterprise for ASEAN initiative. Singapore:
Institute for Southeast Asia Studies.
Neubauer, D. (2011). Education within the knowledge industry. In: Hawkins JN and Jacob WJ (eds) Policy
debates in comparative international and development education. New York: Palgrave Macmillan.
“Nestle: A giant in a hurry,” Business Week, March 22, 1993, 50-54.
Treadgold, A.D. (1990). “The developing internationalism in retailing.” International Journals of Retail and
Distribution Management 18 (1990):4-11.
Vital Statistic: Disputed cost of creating a drug,” The Wall Street Journal, November 9, 1993, B1.
“The Stateless Corporation,” Business Week, May 14, 1990, 98-106.
Chapter 6
Global Politics, Governance and the Globalization in the Asia Pacific and South Asia
Learning Outcomes: At the end of the chapter, the student should be able to:
1. Discuss the distinction of the global south and global north;
2. Explain the success and failures of the global divides;
3. Differentiate regionalization and globalization and;
4. Research on the factors leading to a greater integration of the Asian region.
The Global South
Global interconnectedness accordingly is woven into the fabric of everyday life as it is visible to those observant.
There are Starbucks branches in Melbourne, Manila, New York and New Delhi. These branches have similar
structure, menus, and perhaps ambiance. This sameness represents the cultural homogenization that are being
argued and criticized by those individuals associated with globalization.
The environment where these global corporations are located will tell the difference of how globalization
affects people by geography. In Manila and New Delhi, upon leaving the café, you will see children begging on the
streets, sidewalk vendors selling street foods, bag snatchers (a common sight in Metro Manila) and other
vagabonds looking for their victims.
Walk a little distance, take a ride and you will see the kind of transportation available in the city of Metro
Manila and India as well as some Southeast Asian countries. The façade of newly built condominiums, big shopping
malls, corporate buildings will seemingly attract you at first, but at the background are shantytown where houses
are built from discard plywood and galvanized iron sheets. Of course, they have poor sanitation, inadequate
comfort rooms, the creeks are filled with garbage and overflowing with foul odor emanating in the entire
neighborhood. Children in their dirty clothes are happily running, playing unmindful of what is happening around.
Some of them are child laborers, and their parents are either unemployed or if lucky are employed in the informal
sector as construction worker, casual janitor, cleaners and yes, prostitutes. Their security and safety is also under
question. During the months of March to May, most of the fire that struck Metro Manila usually occurs from those
shanties and squatter areas. This is because of faulty electrical wiring, overloading due to the use of jumper and
unattended candle lights. Sometimes, they are lured by crook politicians during election campaigns promising their
security but that remain as a promise because big time businessman will soon claim the entire area and these poor
fellows have to fight the law enforces against what they call “illegal dismantling” of their shanties. They seek
sometimes the assistance of the NGOs, the CHR but to no avail. They are always under threat of being evicted or
having their shanties demolished to make way for a large commercial development, which will service the city’s
middle class.
These scenarios of people living in shanty like those in New Delhi, India and Metro Manila is very unlikely
in New York. There are poor people in Harlem as well as in other places in the United States, but they do not have
many child laborers. Hence, there is something more glaring about poverty in the global south, and the
north/south divide relative to globalization. This divide tells us that globalization is indeed had created inequality.
While cities in the south have the amenities of McDonalds, KFC, Starbucks, Pizza Hut, and people in the south also
watches NBA games and turn on the CNN, the form of globalization is uneven.
Global Inequality and the Future
All societies past and present are characterized by social differentiation, a process in which people are set apart for
differential treatment by virtue of their statuses, roles, and other social characteristics. The process of social
differentiation does not require that people evaluate certain roles and activities as being more important than
others. Nevertheless, social differentiation sets the stage for social inequality, which is a condition in which people
have unequal access to wealth, power, and prestige. This description fits most of the citizens in the global south.
The nearly 200 nations in the world are part of a global social hierarchy in which some have much greater wealth,
power, and prestige than others. Today, the welfare and life chances of billions of people depend not only on
where they fit in their nation’s class system, but also where there nation ranks in the global system of
stratification.
Based on factors such as Gross Domestic Product (GDP)per capita, import-export ratios, qualify of life, and the
relative strength of military and state institutions, the nations of the world can be divided into three major strata:
the core, the semi-periphery, and the periphery. As with class divisions, boundaries among nation-states in each of
the three strata are “semipermeable”—they can be crossed, but with difficulty (Beeghley, 1989).
Nations that comprise the core are similar to the upper classes in that they receive disproportionate share of the
world’s wealth and surplus production. The core nations are concentrated in the global north namely United
States, Germany, France, Australia, United Kingdom, France, the Scandinavia, and all others with advanced
industrial or post industrial economies. While Singapore, South Korea, and Japan are geographically located in the
global south, they are part of the core because of their economic status and GNP per capita. The core nations are
also the primary base of the world’s banks and investment firms and of 300 or so giant transnational corporations
whose combined assets comprise “roughly a quarter of the productive assets in the world” (Barnet and Cavanaugh,
1994).
The semi-periphery nations such as Saudi Arabia, Brazil, and Taiwan, are comparable to the middle class. They are
moving toward industrialization and a diversified economy, and their moderately strong governments give them a
share of the surplus and some leverage in their dealings with the core nations (Chirot 1997).
The periphery nations, including Haiti, Bangladesh, and Ethiopia resemble the lower and working classes. They are
poor and powerless and derive minimal benefits from their participation in the world economy. Today,
transnational corporations such as Exxon, Siemens, and Toyota are the key players in the global economy. They
provide poor countries with scarce capital, new technology, management skills, and products that are essential for
rapid growth (Sowell, 2003). Although trans- nationals do reinvest some profits locally, a large share of the profits
goes to the core nations. At the same time, land that could have been used to meet people’s subsistence need is
diverted from domestic use to the production of agricultural exports. Because of intensive advertisements that are
invested by the core’s companies such as baby formula, cigarettes, and soft drinks, new and more costly needs are
created that only core nations can fulfill (Kerbo, 2001).
Table 6.1 lists the gross domestic product, per capita income (2017 IMF/World Bank)data of representative
nations in the core, the semi-periphery, and the periphery. As you can see, there is an enormous disparity between
nations at the top of the global stratification system and nations such as Ethiopia and Chad at the bottom. The
global divides of North and South is literally illustrated by the income and wealth.
Table 6.1
Income and Wealth: the World Perspective
Nation
Core Category
Australia
Canada
France
Germany
Japan
Sweden
United Kingdom
United States
Semi-periphery Category
Argentina
Brazil
Colombia
El Salvador
Iran
Iraq
Mexico
Periphery Category
Afghanistan
Bangladesh
Chad
Ethiopia
India
Nicaragua
Nigeria
Sudan
Source: IMF/World Bank
GNP billions of dollars 2017
Per capita Income (2017)in
thousand dollars
59,655
48,466
44,934
50,842
40,849
51,264
44,177
62,152
53,799.9
45,032.1
38,476.7
44,469.9
38,428.1
53,442
39,720.4
59,531.7
20,787
15,500
14,552
8,900
20,000
17,000
18,149
14,402
9,821.4
6,301.6
3,889.3
5,415.2
5,165.7
8,902.8
1,900
4,200
2,400
2,100
7,200
5,800
5,900
4,600
585.9
1516.5
699.9
709
1,939.6
2,221.8
1,968.6
2,898.5
Such disparities in wealth and income have dramatic effects on people’s life chances in both core and periphery
nations. Many people in Bangladesh, Ethiopia, and other periphery nations must try to subsist, educate their
children, and remain healthy on annual income of less than 3,000, under the added burden of extreme
environmental and political instability.
Reasons on Analyzing States and Interstates Inequalities
1. The decolonization process produced states, now recognized as sovereign under the system of
international law promoted by the United Nations. The likelihood of being poor is higher for people who
live in states now considered associated with the global south in regions like Asia, Africa, and the Middle
East. Most of these countries were colonized and they are inadequately represented in global
organizations and the various international banks.
2. Solutions to problems produced by globalization are largely forwarded and articulated on a state level.
The state remains the main mechanism for social transfers, making it the strongest vehicle for social
redistribution. Bello (2006) contends that development in the global south must begin by ‘drawing most
of a country’s financial resources for development from within rather than becoming dependent on
foreign investments and foreign financial markets”. Responding to issues such as global warming requires
global approaches. States are empowered to regulate firms working within their borders. The global
environmental crisis is a reflection of interstate inequality.
3. Even phenomena largely considered transnational are the results of state policies. Acts of
deterritorialization such as labor migration need to be placed in the context of the state. The case of
Filipino OFWs is a good example. The remittances sent by the workers’ abroad boost the domestic
economy and the state economic growth is highly reliant on the remittance which is worth billions of
dollars annually. In this sense, transnational global spheres are already pre-figured by the policies of state
authorities.
Finally, the state will continue to be an important unit of analysis despite the deterritorializing effects of
globalization. This is very evident in the context of the global south because an economically activist state is a
necessary response t forces such as international business, international financial institutions, and foreign state
power—none of which the citizens in the global south can easily influence (Claudio, 2016).
Colonialism: How the Global South Responded
How have the peoples of the global south today responded to colonialism and other linear visions of modernity?
The following are some of the variations (in different degrees):
 Solidarity. The notion of solidarity among colonized states was present from the beginning of anticolonialism. Such solidarities would serve as the foundation for contemporary conceptions of the
global south. Anderson (2007) has shown that resistance against Spanish colonialism in Latin America
and the Philippines benefitted from the increased interaction of political dissidents amidst an early
phase of globalization in the 19th century—a globalization that allowed for the spreading of anarchist
and anti-colonial ideas.
 Socialist internationalism. The Socialist International (the union of socialist parties, which is now
called the social democrats) paved the way for theories that examined the world economic system in
the light of exploitive interactions between core and peripheral economies. According to Lenin, he
mainstreamed that many activists and scholars would use to discuss the Third World
underdevelopment in the 20th century. Lenin through Comintern organized in 1920 the Congress of
the Peoples of the East in Caucasian town of Baku to forge ties with nationalist elites and radical
peasants in their fight against colonialism (Priestland, 2009). These alliances did not translate into
revolutionary victories, and Asian versions of communism would only flourish after the disbandment
of the Comintern (Priestland, 2009). Nonetheless, it paved the way for sustained alliances between
Western Communists and anti-colonial nationalist.


Decolonization. The end of the Second World War was the highpoint of decolonization. The creation
of the United Nations in 1945 paved the way for granting independence of over 80 ex-colonies
countries (United Nations, 2011). International law ceased to formally divide the world into civilized
and uncivilized nations. The enshrinement of the principles of self-determination, postcolonial
nationalisms could justify their causes within the range of international law.
The emergence of the Third World countries. It consisted of non-aligned countries, charting a middle
way between the first and second worlds. The founding moment for this non-aligned movement was
the Asia-African conference held in the Bandung in Indonesia (also known as Bandung Conference) in
1955. This conference brought together delegates from 29 Asian and African countries to forge
economic and cultural cooperation amidst fears of newly emergent forms of colonialism Though the
delegates were politically diverse, their common aims were articulated early on. In Sukarno’s view,
what united the countries of the Third World was not a common identity or culture, but it began as a
common resistance to new forms of colonialism. The following were some of the issues tackled:
o Delegates from Pakistan, Thailand, Lebanon, Ceylon (now Sri Lanka) and the Philippines
objected to the repressive policies of the USSR against Eastern European states and China’s
against Indochina (Vietnam) and Taiwan (Espiritu, 2006).
o Delegates became a generalized condemnation of the aggression of powerful states directed
at weaker ones. Concomitant to this was a discussion of what it meant for Third World
countries to be free.
o The initial configuration of the conference became a vehicle for the mainstreaming of human
rights.
Today, the old language of Third Worldism is no longer tenable. On a narrow empirical level, a tripartite
(First World, Second World and Third World) would no longer exist. The fall of the Berlin Wall dividing
Germany ended the Cold War and paved the way for the withering of the second world. Even remnants of
the Communist bloc like Fidel Castro’s Cuba no longer occupy positions of prominence in struggles against
neo-colonialism. More importantly, the involvement of Third World countries in developmental practices
of the First World has weakened the coherence of Third Worldist attempts to sketch alternatives to
Western capitalism, Berger (2004) argues that by the late 1070s successful capitalist development in East
Asia had displaced Third Worldist idea that the hierarchical character of the world economy was holding
back of the Third World. The same took place in Latin American states, through their oligarchic states,
become complicit in neo-liberalism (Cardoso and Falleto, 1979).
 The emergence of conservative anti-Western nationalism and regionalism. Country like Malaysia
reveal how criticisms of neo-colonialism may turn reactionary (Berger, 2004). For Dirlik (2004), this
hints at the fact that Third Worldism is implicated in a greater project of global modernism. Berger
(2004) explicates the idea below:
I take the view that the notion of a Third World, even in a limited or reinvented form, is intellectually and
conceptually bankrupt, while politically Third Worldism has already lost any relevance or legitimacy it once
had. Challenging neoliberal globalization and post-cold war capitalism means moving beyond territorial
politics of nation-states—a politics to which the Third Worldism is inextricably connected.
Berger (2004) then argues that even a reconceptualization of the Third World as a global south, if it
remains embedded in “territorial politics”, will suffer the same political pitfalls.
The Asia Pacific Region
In addition to differences in language and culture, the variation among states and peoples in this region is
enormous. Some of the world’s most economically developed states are included in this region such as
Japan, South Korea, Singapore, and Taiwan. On the contrary, it includes the highly impoverished countries
such as Cambodia, Laos, and Nepal. It includes the largest and most populous states on the globe such as
China and India with over a billion people each and some of the world’s smallest such as Maldives and
Bhutan. The countries in this region also vary widely according to geography, political systems, historical
experience, and broad demographic characteristics.
The region makes up nearly a third of the world’s land mass and two-thirds of the global
population. As of this writing, the combined economies of the region now generate the largest share of
the global GDP at 35 per cent, compared with Europe (28 percent) and North America (23 percent) Asian
Development Bank, 2012). The 2001 ADB reported that it also accounts for just over a third of total world
exports of merchandise goods up from a quarter.
However, despite the economic growth, there are still millions of people affected by poverty,
hunger, HIV/AIDS, gender equality and other socio-economic problems in the region.
Why Global Powers are Focused on the Asia- Pacific and South Asia Regions
1. The Asia-Pacific and South Asia had emerged over the past decade as a new political force in the
world. This is due to the robust economic growth in China and India and the strategic implications this
brings to regional and global players.
2. Japan still remains a relevant through declining force in the region and the world, and other countries
including the Koreas, Indonesia, Vietnam, and Pakistan all have economic and strategic relevance in
today’s global system.
The United States has implemented a foreign policy shift dubbed as the “Pacific Pivot” committing
more resources and attention to the region. Former Secretary of State Hillary Clinton called this shift from
the “Atlantic Century” to the “Pacific Century”. She notes:
The Asia-Pacific has become a key driver of politics. Stretching from the Indian subcontinent to the
western shores of the Americas, the region spans two oceans—the Pacific and the Indian—that are
increasingly linked by shipping and strategy. It boasts almost half of the world’s population. It includes
many of the key engines of the global economy, as well as the largest emitters of greenhouse gases. It is
home to several of our key allies and important emerging powers like China, India, and Indonesia (Clinton,
2011).
Effects of Globalization in the Region
1. The external phenomenon. From this perspective, globalization can be understood as a process that
transforms the Asia-Pacific and South Asia. On the one hand, it can be seen as a force for good signs
for bringing economic development, political progress, and social and cultural diversity to the region.
Others see the darker effects of globalization including its role in economic underdevelopment and
the uprooting of local tradition and culture. The following are the manifestations and assertions of
externalist view:
o Historical narratives account of the Western “arrival” to the Asia Pacific and South Asia.
According to this view, the technologically and industrially more advanced Western powers
found their way to the region and alternatively prodded and muscled their way to political
and economic dominance. Western superiority at the time existed for a variety of reasons,
ranging from environmental and ecological advantage to other social, political, and/or
cultural characteristics (Diamond, 1998).
o The “first globalization” brought by the colonialism from the 1500s brought enormous, often
devastating changes such as the deep implications for domestic political structures in many
local indigenous polities. A good example of this was the Portuguese invasion of Melaka in
1511 and the subsequent fall of the sultanate, which shifted political and economic dynamics
in Melaka and beyond. Another is the arrival of Ferdinand Magellan in the Visayan region of
the Philippines in 1521 marking the beginning of extended Spanish colonial rule in for over
400 years. The Dutch followed in the 17th century and slowly strengthened their position in
the Dutch East Indies. The British also consolidated their powers in South Asia, Burma, and
o
o
o
o
o
the Malay Peninsula while the French eventually took control of Indo-China in the late 19 th
century.
By the 19th and 20th centuries, movements for nationalism and independence emerged in
many parts of the world including the Asia-Pacific and South Asia. These movements were
also products of the increasingly globalized world. Scholars argue that the roots of national
identity lie in the rise of Western industrialization and capitalism. Anderson (2007) highlights
the global experiences of nationalist leaders such as Jose Rizal who came to imagine
themselves as Filipino after being influenced by life in Spain and elsewhere . He also
highlights how as the idea of nationalism gained stream, it became modular and spread to
other parts of the globe (Anderson, 1991).
World War II marks another way in which the region comes to be at once integrated and
influenced by external forces. The rise of Japan and the outbreak of war in the Pacific theater
after the bombing of Pearl Harbor marked the beginning of the end of Japan’s own imperial
domination in the region. After the war, the region became mired in the emerging politics of
the Cold War. After WWII, concerns about political instability, faltering economic reform,
and the rise of the Communist China all pushed the United States and their occupation to
stress Japan’s economic growth and its incorporation into the world economy (Ikenberry,
2007). This meant opening up American markets to Japanese goods, drawing on the
Japanese market to supply equipment and goods for US armed forces and other aid
programs, and eventually incorporating Japan into the multilateral economic order including
the General Agreement on Tariffs and Trade (Ikenberry, 2007.
Economic globalization and liberalization brought no doubt broad regional effects as well. In
developing countries such as Thailand, Indonesia, and Vietnam, there has been an increase
in informal employment such as self-employment, family workers, and informal enterprise
workers. The Philippines estimates that 18% of its workers are underemployed while in
Indonesia, nearly a quarter of all workers are either unemployed or involuntary
underemployed (Lee, Sangheaon, and Eyraud, 2008). These workers do not have legal
contracts and even in places where they do, observers have raised serious concerns about
working conditions and safety issues at factories that manufacture goods for Western
companies (Yardley, 2012).
Politics too is contributory to globalization. Proponents often argue that liberal and
democratic political values should be interpreted as universal and not exclusively as
Western. In the region, the past three decades have witnessed a substantial fall in
authoritarian regime with a corresponding rise in democratic regimes. This has been
attributed to a number of factors including rising middle classes, a more globally connected
world, and the end of the Cold War (Huntington, 1991).The fall of Suharto regime in
Indonesia is illustrative. Suharto had been in power for over 30 years. When the Asian
Financial crisis brought the country’s economy to its knees, large-scale protests, the flight of
capital, and the lack of international support led Suharto to step down in May 1998. The
financial crisis showed how deeply integrated the economy was in the global financial
system. The demands made by the international financial institutions demonstrated the
growing clout of these global bodies (Robison and Hadiz, 2006). Further, the absence of
international support for Suharto, who had been a staunch anti-communist ally for decades,
illustrated the lack of concern the United States and the West had for the communist threat
in Asia. In this way, the increasingly globalized world had come to weaken Suharto’s position
and ultimately laid the foundation for his ouster.
Finally, one of the most prevalent critiques of globalization has been its effects on ‘culture’.
Critics argue that globalization is leading to cultural homogenization and the destruction of
cultural diversity. The most prominent idea that globalization is a form of cultural
Westernization is summed up in the term “McWorld” (Barber, 2003). The number of
McDonald’s stores in Asia has grown dramatically over the last several decades. As of
January 2018, it operates 36,000 stores in 101 countries. Furthermore, many domestic fast
2.
food chains are also popping up throughout Asia to compete with Western brands, including
Jollibee from the Philippines, California Fried Chicken (CFC) in Indonesia, MOS Burger in
Japan, Jumbo King in India, and so on. There has also been a rapid expansion of
supermarkets in the region. The share of supermarkets in the processed/packaged food
retail food market in 2001 was 33 % in Southeast Asia and 63% in East Asia (Pingali, 2007).
o While much of the McDonaldization thesis has revolved around food, it has also referred to
changing tastes in areas such as music, clothing, television, and film. In this light,
McDonaldization might also be referred to as ‘MTV-ization’ or ‘Hollywoodization’. The point
here is that Western and particularly American cultural trends have spread globally and
increasingly marginalized the way in which local cultural practices are expressed (Banks,
1997).
The region is more of an autonomous agent serving as an engine for globalization. This view shows
important ways in which the region is also influencing and transforming the nature of globalization
itself. Historically, many scholars now argue that the early history of Asia led the global economy only
“falling behind” from the 18th century. Reid (1988) notes that the Europeans did not create the spice
trade. The thriving spice trade in the region and beyond what drew the European powers to the
region. Circumnavigating the globe was a means to find cheaper and faster ways to bring these goods
back to Europe. Spices were already making their way to various parts of the globe, but the
Europeans were interested in cutting out the middleman.
The following are some of the postulates and arguments:
o Some argued that Asia, not the West, was the central global force in the early modern world
economy. It was the site of the world’s most important trade routes and in some places
more technologically advanced than the West in key areas such as science and medicine.
China had a historically unprecedented maritime fleet in the early 15 th century under Admiral
Zeng Ho which travelled within the region and as far as Africa (Levathes, 1997). The rise of
Europeans in the 18th century came only after the colonial powers extracted silver from the
colonies and pried their way into the Asian markets. In that perspective, the re-emergence of
Asia today is seen as a restoration of its traditional dominant position in the global economy
(Frank, 1998).
o Colonialism too has come under a new view recently as scholars have argued that colonies in
the Asia- Pacific and South Asia and elsewhere influenced the West as much as vice versa.
Stoler (2006) argues that colonies were often “laboratories of modernity” where “innovation
in political form, and social imaginary, and in what defined the modern itself, were not
European exports but traveled as often the other way around”. In the Philippines, colonial
policing in the American colony can be understood as a social experiment that transforms
both the Philippine polity as well as the U.S national security state. Practices and
technologies such as counter-insurgency, surveillance, and torture were developed and
perfected in the colonial Philippines before making their way to the core (McCoy and
Scarano, 2009). In the field of medicine and public health, American scientists and physicians
in the Philippines brought back colonial bureaucratic practices and identities to urban health
departments in the United States in the early 20 th century (Anderson, 2006).
o In the post-colonial era, the assertion that the Asia- Pacific and South Asia are mere
beneficiaries (or victims) of globalization is even less tenable. The Japanese development
after the end of WWII and the rise of the Cold War helped bring Japan into the global
economy. What this means is the extent to which Japanese development in the 1950s,
1960s, and 1970s actually shaped and in many ways globalized key parts of the world
economy. Japan as a resource poor nation-state embarked on a massive project to procure
raw materials such as coal and iron to unprecedented economies of scale allowing them to
gain a competitive edge in the global manufacturing market. This has transformed the
market for these materials but also globalized shipping and procurement patterns which
influenced other sectors as well. Furthermore, as Japan’s competitive advantage became
o
o
o
o
o
o
o
visible, other countries modeled their practices on theirs, further deepening the globalized
patterns of procurement and trade blazed by the Japanese. Electronics such as AKAI,
Toshiba, Technics, Pioneer, Sansui, JVC, and Sony found their way into the international
markets.
China can be seen as pursuing a similar pattern of development today. It is one of the
world’s largest importers of basic raw materials such as iron and has surpassed Japan, the
United States, and Europe in steel production. The simple scale of China’s development is
shaping and furthering globalization. In terms of its low wage labor and supply chain
management, China has also had an enormous impact on the availability and consumption
of goods around the globe (Nolan, 2004).
China at this point now surpassed the World Bank in lending to developing countries. The
China Development Band and the China Export Import Bank signed loans of at least US$ 110
billion to other developing country governments and companies in 2009 and 2010,
surpassing the US$ 100.3 billion from mid-2008 to mid-2010 by the International Foreign
institutions (Dyer, Anderlini and Sender, 2011). The implications here are political as well as
economic. Grants and loans made by states can often have economic and political strings
attached as the Japanese experience has shown (Islam, 1991).
India, while varying considerably with China in terms of political and economic systems, has
opened up and emphasized an export-oriented strategy. Textiles and other low wage sectors
have been a key part of the economy, but high value exports such as software development
have also been highly successful. It is also playing a key role in global service provision (call
center) as trends in outsourcing and off-shoring increase (Dossani & Kenney , 2007).
India and China, among others in the region such as Indonesia, the Philippines and Sri Lanka,
have also become a major source of international migrant labor, which is also one of the
fundamental characteristics of the era of globalization. This includes the migration of highly
skilled labor into the high tech industry based in Silicon Valley, which includes a
disproportionate number of immigrants from India and China. Of equal prominence is the
flow of domestic workers to other places in the region, or to the Middle East, Europe, and
the United States. Much of this migration has received international attention because it is
often undocumented and working conditions can be poor, even deadly. Women constitute a
large majority of many countries’ migrant pool including those from Indonesia (79%), the
Philippines (71%) and Sri Lanka (66%) (Kee, Yoshimatu, and Osaki, 2010).
Remittances from migrants have also become a core source of income for many of the
region’s economies. In the Philippines, remittances are now equal to 11 percent of the
entire economy (The Economist, 2010). In 2007 and up to this date, India, China, and the
Philippines were three of the top four recipient states of migrant remittances totaling US$
70 billion (The other country was Mexico) (Kee, Yoshimatu and Osaki, 2010). In other words,
the region is both the source and recipient of the influences of the massive globalization of
migration.
The rise of regional trade arrangements is another broad trend in the region. This
regionalism can be interpreted either as a kind of bulwark to globalization or as compatible
and even pushing forward the process of global economic integration. Proponents view that
regionalism can promote learning, assuage domestic audiences to the benefits of free trade,
and form the institutional framework to scale up from regional cooperation to global
corporation (Lee and Park, 2005).Thus, regionalism can act as a springboard for globalization.
Open regionalism is embodied by Asia- Pacific Economic Cooperation or APEC. Formed in
1989, it includes 21 member economies along the Pacific Rim including East Asian and
Southeast Asian states but also Russia, Peru, Chile, the United States and Canada. APEC has
faced significant challenges in the wake of the 1997 Asian Financial Crisis and the more
recent global economic crisis. However, it continues to push for a vision of regional
cooperation that is consistent with and advances globalization.
o
Finally, the broad area of culture and globalization in the region is to consider. The region is
the source of a wide variety of cultural phenomena that have also spread outward to the
West and the rest of the world. “Hello Kitty” created in Japan has become a massive global
success. Anime and other entertainment products from Japan has become a regional and
global phenomenon including Pokemon, Mario Brothers, Astroboy, and Power Rangers,
among others. This is to be understood as the spread of a kawaii or “cute” culture, or what
have some called ‘Pink Globalization’ (Yano, 2009). Martial Arts movies from Hong Kong
have penetrated the world market. The rise of Korean Pop or K-Wave has been a regional
and global rise that includes the spread of Korean dramas and music. The smash hit of
Gangnam Style by Korean Pop star PSY is an example. It became viral when it was released in
2012 in You Tube, topping music charts in over two dozen countries including France,
Germany, Poland, Mexico, Australia, Norway, and Lebanon and subsequently won Best
Video at the MTV Europe Music Awards.
Globalization has not been a one-way street. The region is generative of many aspects of the
globalization process. This can be seen both historically and more recently and across a broad variety of
domains from the economy to political structures of culture.
3.
The Anti-Global Impulse: Regional Alternatives to Globalization. The final paradigm to understanding
the relationship of Asia Pacific and South Asia to globalization is as a regional alternative to
globalization. The arguments from this perspective see the region as a source of resistance to
globalization or to global or to Western powers. The following are the postulates and reasons:
o The Japanese colonialism in the 1930s and 1940s. Japan’s colonization of the region and the
building of a supposed Easy Asian Co-Prosperity Sphere merely replicated imperial
relationships in East and Southeast Asia with new masters. However, it was also arguably a
push back against Western imperialism. The propaganda used during that period centered
on the idea of ‘Asia for Asiatics’ and the need to ‘liberate’ the region from Europe. The
“Sphere” referred initially to Japan, China, and Manchukuo. Upon the outbreak of WWII,
Japan also looked beyond Northeast Asia to South and Southeast Asia. The members of the
Sphere included Japan, Manchukuo, Mangjiang (Outer Magnolia), the People’s Republic of
China, State of Burma, the Republic of the Philippines, Empire of Vietnam, Kingdom of
Kampuchea, Kingdom of Laos, Azad Hind, Kingdom of Thailand (Beasley, 2000).
The Greater East Asia Conference held in November 1943 headed by Japan’s General Tojo
declared that Asia had a “ spiritual essence” that opposed the “materialistic civilization of
the West” (Beasley, 2000). On the contrary, the failure of the Co-prosperity Sphere was a
result not only of Japan’s loss in WWII, but also the overt racism of Japan itself towards its
supposed co-members. It soon became clear that the Sphere was for Japanese interests only
at the expense of the interests of the fellow members. Despite of its failure, the notion of an
Asian region that serves as a kind of opposition to globalization and Western imperialism
manifests itself in different ways at present.
o
The proponents of Asian values such as then-Prime Minister Mohamed Mahathir of Malaysia
argued that Asia has culturally distinct characteristics that make it different from Western
liberal democracies. The Asian way is to reach consensus on national goals within the
democratic framework, to take the middle path, the Confucian Chun Yung or the Islamic,
awsatuha; to exercise tolerance and sensitivity towards others. (Langlois, 2001). This in
contrasts with Western values where “ every individual can do what he/she likes, free from
any restraint by governments and individuals soon decide that they should break every rule
and code governing their society” (Langlois, 2001).
Individual rights, political liberalism, and democracy are Western concepts, which are
antithetical to Asian tradition. The leaders of these states justified their authoritarian
regimes based on Asian values.
o
o
o
The lens of regional arrangements is another way the region serves as an alternative to
globalization. The East Asia Economic Caucus (EAEC) is an example. The EAEC which was
floated as early as 1990, then more precisely an APEC without Western states. The proposed
member states, were ASEAN, China, South Korea, and Japan. The United States strongly
objected the idea while Japan saw the exclusion of The US as a threat to their strategic
partnership and effectively vetoed the idea. Today’s ASEAN plus 3 (APT), which includes
China, South Korea, and Japan, is seen as a successor to the EAEC, though it is not seen as
the radical alternative of the earlier version because it is embedded in a slew of other
institutional arrangements.
The emergence of regional terror networks, such as Jemaah Islamiyah or JI. The origins and
the extensiveness of JI are murky, but its main operations have been in Indonesia with
apparent links in Malaysia, Philippines and Thailand among others. JI is in famous for the
2001 Bali bombings which took place in a night club in the resort town of Kuta and killed
more than 200 people, mostly Australian and other foreign nationals (ICG, 2000). The
alleged goals of JI are territorial and also regionalist, namely to create an Islamic state of
Indonesia followed by a pan-Islamic caliphate incorporating Malaysia, Singapore, Brunei, and
the southern Philippines. The notion of regionalism here is narrower than the Asia- Pacific
and South Asia and ultimately, the vision of the caliphate is to expand from a regional to a
global structure. The point here is that JI articulated an alternative vision of political and
social organization in the region, and one that clashes directly with the paradigm of
globalization (ICG, 2002).
The local movement within the region is the final way to think about the region as an
alternative to globalization. The movements are not exclusive to the Asia Pacific and South
Asia region, but they are characteristic of trends there vis-à-vis the process of globalization
with respect to the emphasis on disengagement from globalization.
For example, the village of Santi Suk in Thailand created their own currency following the
Asian financial crisis that struck the region in Thailand (Hookway, 2009). The currency is
called the bia, loosely translated as “merit” and operates through a ‘central bank’ located in
the village. The currency can be used to purchase various commodities but cannot be used
outside of participating villages and cannot be exchanged for Thailand’s national currency,
the Baht.
OBE Activity 6.1
Directions: Divide the class into groups (five members for each group)
1. Browse the Internet and look for images that will explicitly present the global divides between the south
and the north. The following groups will be assigned to explore and discover the disparity between the
countries cited for comparison and contrast in the context of global divide. Focus on the inner pictures of
the city of the global south (the slum dwellings, the images of poverty within the city as opposed to the
affluent communities of the global north with the exception of Tokyo and Singapore which are both part
geographically of the global south).
Group 1 San Francisco, California, USA vs. the interior of Dhaka, Bangladesh
Group 2 London, UK vs. the other side of Jakarta, Indonesia
Group 3 Paris, France vs. the ‘dark side’ of Metro Manila (Smokey Mountain, Slum dwellings in the cities
of Pasay and Paranaque)
Group 4 Singapore vs. the inner side of New Delhi, Madras, and Bombay, India
Group 5 Berlin, and Frankfurt Germany vs. the other side of Bangkok, Thailand
Group 6 New York, U.S.A. vs. the inner side of Saigon, Hanoi, Vietnam
Group 7 Stockholm, Sweden vs. the other side of Colombo, Sri Lanka
Group 8 Amsterdam, Netherlands vs. the inner side of Islamabad, Karachi, Pakistan
Group 9 Tokyo, Japan vs. the other side of Mogadishu, Somalia
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