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GLOBALIZATION

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, 18.10.2011 .

Introduction ...2 2. Definition of globalization ...2 3. The reasons of globalization..3 3.1 Economic reasons..3 3.1.1 Exchange of goods, money and services.....3 3.1.2 Transportation..4 3.1.3 Communication....4 3.1.4 Globalization of customers..4 3.1.5 Globalization of competitors.5 3.2 Political reasons..5 4.Theories about the global competition6 5. Stages and strategies for entering a new market.6 5.1 Stages.6 5.2 Strategy types..6 5.2.1 Licensing..6 5.2.2 Franchising..7 5.2.3 Strategic Alliances.7 5.2.4 Joint Ventures.8 Summary...8

1. Introduction During the last century the ongoing process of globalization is the obviously most influencing factor in the business world. Due to this process its necessary for companies to get a deeper knowledge about the changes, which influences their business environment. Therefore this essay is made to describe and identify the dimensions, the drivers and the effects of the globalization. Globalization in general is a not a new phenomenon. The roots of globalization go back to the time of colonization when nations discovered new lands and founded new markets and even further in the past when the first nations in Europe started trading with each other. But due to better transportation possibilities and easier trade due to several regulations between different countries it is still increasing. 2. Definition of globalization In the literature there are very diversified definitions of the term globalization. To some globalization is similar to the growth of global corporations whose operations overstep national borders. Others define it as a broader cultural integration due to mass communication like the Internet.

In this essay we use a very general definition of the term globalization which describes it as the together growing network between different nations and trade markets including the factors given through the cultural change without seeing it as a diversified area. Globalization reaches many fields of our life. Especially the economic, political, cultural and communicational environments are influenced in a huge way due to this process. Beside the benefits the behavior against it has strengthened as well. Reasons therefore are for example that companies in the third world often to not comply with regulations of the human rights and the reduction of income inequality

To complete this little overview, here are some interesting facts about globalization: Of the 100 largest economies in the world 51 are corporations The majority of trade takes place between industrial nations, dominated by global corporations that control 33 percent of exports The world Bank report that 200 million more people are living in absolute poverty then in 1987 (less than 1$ per day) The assets of the 200 richest people in the world are greater than the income of the 20 billion people at the bottom of the pyramid.3 3. The reasons for globalization As already mentioned globalization influences different parts of our environment, the major drivers for this action should be mentioned in the following chapter. 3.1 Economic reasons The change in the economic environment is one part of this process. In order to describe it we will differentiate between the factors: Exchange of goods, money and services; transportation and communication. 3.1.1 Exchange of goods, money and services For nearby every country, especially industrialized countries, the export of goods and services has become an important factor of the economy. The purchasing power in the home markets of bigger companies often isnt enough, or is already too exhausted to let them grow any further. Due to this there is the necessity to develop new markets to find new customers to get access to their purchasing power. New markets could be in already developed markets as a competitor of foreign companies and in rising and new markets. to New the new inventions markets. and techniques markets have often made have those lower processes easily accessible to the companies. Another way would be to outsource production services Those salaries and taxes, which could give possibly advantages to a company.

3.1.2 Transportation New opportunities in transportation allow companies to ship their goods or export their services to other countries. New or improved technologies thereby help companies to send their products to different parts of the world more quickly then ever before. One other factor could be identified in trade agreements or unions between different countries like in the EU. They set up regulations, which allow an easy and regulated trading. Besides the increasing number of fast transportation ways via train, ship and airplanes the digitalization of parts of products (especially in the case of media based services or goods, like internet based services) decreased the importance of local based stores, storages or facilities. Digital products can be sold all over the world without additional costs like storing- and transportation costs, except of the need of an adaptation to the cultural factors. In this case Cultural factors could be for example the language or payment behaviors. 3.1.3 Communication As already mentioned above, people can use digital techniques to communicate which each other (e.g. e-mail). Besides standardized applications like e-mail or voiceoverIP, more and more multinational operating companies or cooperating companies set up own business platforms. These platforms allow those companies to react very quickly on upcoming opportunities or threats and to communicate very fast between each other. Services like Amazon allow small business to stay competitive in the global market by providing them a good organized sales platform. As an effect of this more and more small companies joining the competition and displace previous big companies 3.1.4 Globalization of customers Another supporting reason for a company to get into global markets is that their customers may are already there. A consequence of the globalization is that customers become more and more homogeneous in their demand. Everywhere in the world products of famous producers like Nike or Apple could be seen. If someone
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would have a favor for Apple products, for example, Apple would even loose opportunities and get into the risk of being replaced by another company if they would not try to take part in the foreign market. 3.1.5 Globalization of competitors Another reason that globalization occurs is that ones own competitors are already operating multi-national. For some companies they key reason to go global is that their competitors become global players. Not going global in this case would mean that the company would lose potential sales opportunities to their competitors.8 Globalization is no longer an option but a strategic imperative for all but the smallest firms. 3.2 Political reasons The process of globalization has set the necessity of strong multi-national

organizations. Most important are legal regulations, which should be accepted by all cooperating political systems. For reducing the complexity in trade between each other these organizations set up frameworks for international trading and legislation. These organizations make it easier for companies to expand to a foreign country, which also makes them a reason for the rising speed of globalization. Examples for such (trading) organizations are: UN: The United nation is a fusion of 192 countries. Their major topic is to set up and control regulations of human rights and keep peace in conflict zones. EU: The EU is a combination of a political and economic union of 27 member states. Besides political advantages the main important economical advantage of the EU is that its members can trade tax free and without strong security controls with each other. The EU also gives EU habitants the possibility to work easily in a foreign (EU-) country without a complicated visa requirement. This improves the exchange of knowledge and skilled workers between the member states.

4. Theories about the global competition When a company tries to deal with the challenge of entering the global competition they need to have a good knowledge about the processes und difficulties about going global. Therefore this chapter describes the most common theories and models.

5. Stages and strategies for entering a new market The integration of a company when entering a new market can have different levels. This chapter describes the three main stages of a company going abroad and gives an overview of the different strategy types, which could be used. As already mentioned a company can enter foreign markets in different levels of integration. At the first Stage a company still produces and manages its business from the home country and only exports goods. Companies at this stage often have cooperations with foreign trade companies. Companies at the second stage enter a new market by hiring foreign representations or contracting with foreign manufactures without having own property at the entered market. This practice is especially in the B-to-B sector very usual. The third stage describes the method of a company, which enters a new market by licensing/franchising models or with the help of joint ventures. An even higher integration could be reached by building up own subsidiaries in the new market. The higher the level of integration is, the higher is the level of control of a company about the management of the product.

5.2 Strategy types A company which is trying to reach a foreign market should choose its strategy type very carefully in order to gain a maximum of profit. 5.2.1 Licensing Licensing agreement describes is to a contractual assets of agreement the from two companies. for Goal of the
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make

licensor

available

another

company

(licensee). The profit of the Licensor is in the most times a form of license fee or some other compensation. These Assets could be for example patens, trade secrets or company names. This gives the licensor the chance to sell parts of his business to foreign countries without having an own risk of failing. On the other hand the licensee has the chance to include a successful product patent without developing cost. Besides that the licensee has advantages out of marketing actions of the licensor. The licensor should be aware of the fact, that licensing strategies also include some risks, because he doesnt have good controlling options ones a product is sourced out to another company. Especially when the licensed object includes some kind of knowledge, the licensee even hast the chance to become a competitor of the licensor. 5.2.2 Franchising Franchising describes a special form of licensing, where a company (the franchisor) offers license a whole to or fees business another other concept company including The products, maybe marketing most and again management consists of examples of fundamentals (the franchisee). The profit

compensations.

famous

franchising come out of the fast food industry with franchisors like McDonalds, Burger King or Subway. The big advantage of the franchisor is that he has extensive influence on the franchisees operations, which helps keeping an attractive and clear brand image. Meanwhile the franchisee has lower costs for marketing. The franchisor should choose his franchisees very careful because of the risk of damaging the brand image. 5.2.3 Strategic alliances Forming models a strategic without alliance the allows companies to set up cooperational often business their

losing

independence.

Strategic

alliances

share

benefits and control the business in a common way.

5.2.4 Joint Ventures The strategy joint venture describes a special form of a joint equity ownership, which allows companies to have an experienced partner in the new market. Another advantage is the combination of the strengths of both value chains and those risks can be shared. The main risk is that due to a management consisting of two companies, joint ventures have less flexibility and maybe even different visions or interests. To avoid such difficulties its necessary to work out a very detailed plan about the goals and processes of the joint venture. 6. Summary Summarizing it can be said that the globalization is an unstoppable process, driven by new technologies and a together growing world. It opened a lot of opportunities for countries and companies, as long as they can deal with the political and economic difficulties. Besides that a company, which wants to expand, has to be aware of the risks and should calculate all advantages and disadvantages very carefully in order to avoid a failure. Bibliography Scholte, Jan Aart, 2000, Globalization: A Critical Introduction, New York: St. Martin's. Tomlinson, John, 1999, Globalization and Culture, Cambridge: Polity Press.

Other Internet Resources

Global Transformations website (maintained by David Held, Political Science, London School of Economics, and Anthony McGrew, International Relations, Southampton University) The Globalization Website, maintained by Frank Lechner (Emory University). Globalization Stanford Encyclopedia of Philosophy ): http://plato.stanford.edu/entries/globalization/#1