Chapter 2
Globalization of Markets and the
Internationalization of the Firm
International Business
Strategy Management & the New Realities
by
Cavusgil, Knight and Riesenberger
International Business: Strategy, Management, and the New Realities
Globalization of Markets: A Macro Concept
• Two mega trends have altered the international
business landscape: globalization and
technological advances.
• Market globalization refers to the
interconnectedness of national economies and
growing interdependence of buyers, producers,
suppliers, and governments in different countries.
• Globalization allows firms to view the world as one
large marketplace for goods, services, capital,
labor, and knowledge.
International Business: Strategy, Management, and the New Realities
Globalization Index 2006
The World Competitiveness Scoreboard 2007
(2006 rankings are in brackets)
Source: IMD World Competitiveness Yearbook 2007
Global Competitiveness Index 2006-2007
International Business: Strategy, Management, and the New Realities
Relationship Between Globalization and Growth in
Per Capita Gross Domestic Product, 1990s
Phases of Globalization
1st Phase: 1830, peaking around 1880
Aided by railroads, ocean transport; resulting in the rise of mass
production and growing trade
2nd Phase: 1900, peaking late 1920s
Fueled by electricity and emergent modern technologies; early
MNEs
3rd Phase: 1948, peaking around 1970
End of WW II; Marshall Plan; Gradual reduction of trade barriers,
especially under General Agreement on Tariffs and Trade (GATT)
4th Phase: 1980, peaking around 1997
Fueled by information and communications technologies. Rapid
liberalization in Emerging Markets
The Death of Distance
International Business: Strategy, Management, and the New Realities
The Drivers and Consequences of Market
Globalization
Firms are Compelled to Internationalize
• Firms implement internationalization
proactively are more successful than
those reactively engaging.
• E.g., Vodafone has established
production and marketing operations
all around the world. Has some 200
million customers in 30 countries.
International Business: Strategy, Management, and the New Realities
Technological Advances as a
Driver of Market Globalization
• Advances in technology provide the
means for internationalization of firms
• Advances in technology:
– Reduces cost of doing international
business;
– Enables even small firms to go
international
– Helps coordinate worldwide activities;
– Mitigates geographic distance
International Business: Strategy, Management, and the New Realities
Information Technology
• Cost of computer processing fell by 30% per
year since late 1980s, and continues to fall.
• Increases productivity across the firm
• Impact of IT on our daily lives has been profound
– laptops, intelligent cell phones, Internet,
Google, etc.
International Business: Strategy, Management, and the New Realities
Declining Cost of Global Communication and
Growing Number of Internet Users
Communications Technology
• Especially important. Includes
telecommunications, satellites, optical fiber,
wireless technology, and the Internet.
• The Internet, and Internet-dependent systems
such as intranets, extranets, and e-mail, connect
millions of people across the globe.
• The Internet opens up the global marketplace to
all firms, large and small
International Business: Strategy, Management, and the New Realities
Manufacturing and Transportation Technologies
• Revolutionary developments now permit
manufacturing that is both low-scale and low cost,
with the support of computer-aided-design of
products (CAD), robotics, and production lines
managed and monitored by microprocessor-based
controls.
• In the 1960s, technological advances have led to
the development of fuel-efficient jumbo jets, giant
ocean-going freighters, and containerized shipping.
• Thus, the cost of transportation has declined
substantially, spurring rapid growth in international
trade.
International Business: Strategy, Management, and the New Realities
Societal Consequences of Market Globalization
• Positive consequences
– More jobs
– Economic development and growing prosperity
– Technology and knowledge transfer
• Negative consequences
– Natural environment
– Disruptive effects in national economies
– Human rights violations abroad (e.g.,
sweatshops)
– Job losses at home
International Business: Strategy, Management, and the New Realities
Economic Freedom Enhances Income Growth
• In the long run, globalization generally
leads to:
– higher living standards
– more efficient resource usage
– greater access to technology, products, and
services
• In particular, liberalization of markets
appears to enhance income levels
International Business: Strategy, Management, and the New Realities
Unintended Consequences of Market
Globalization
•
Loss of national sovereignty
–
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Offshoring and the flight of jobs
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Power shifts to MNEs and larger countries
Dislocation of jobs
Effect on the poor
–
Benefits of globalization are not evenly distributed
•
Effect on the natural environment
•
Effect on national culture
–
Loss of national cultural values and identity
International Business: Strategy, Management, and the New Realities
International Business: Strategy, Management, and the New Realities
Corporate Social Responsibility
• Over time, governments pass legislation that
promotes improved environmental conditions.
• In addition, many firms now consider the
societal consequences of their actions -Corporate Social Responsibilty (CSR)
• Examples: Benetton in Italy (clothing), Alcan
in Canada (aluminum), and Starbucks have
attempted to embrace practices that protect
the environment, often at the expense of
profits.
International Business: Strategy, Management, and the New Realities
Firm Level Consequences of Market
Globalization
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Countless new business opportunities for
internationalizing firms
New risks and intense rivalry from foreign
competitors
More demanding buyers who source from
suppliers worldwide
Greater emphasis on proactive internationalization
Internationalization of firm’s value chain
International Business: Strategy, Management, and the New Realities
Examples of How Firms’ Value
Chain Activities Can Be Internationalized
Value Chain: Sequence of value adding activities
performed in the course of developing, producing,
marketing, and servicing a product.
Implications for Management
• Global orchestration’ of value-chain activities (e.g.,
in order to cut costs, access resources, target new
markets)
• Exploit knowledge acquired worldwide
• Increase productivity
• Collaborate with foreign partners
International Business: Strategy, Management, and the New Realities
Implications for Managers: Acquiring Global
Competence is a Requirement
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Open-mindedness
Tolerance for ambiguity
Perceptiveness
Premium on personal relationships
Flexibility, adaptability, and self-reliance
Good sense of humor
Warmth in human relationships
A curious mind
International Business: Strategy, Management, and the New Realities