Globalisation - A key to the next higher echelon of economy?

Globalisation is the shift from isolation to integrated and interdependent world economy.

Two key drivers: Markets and Production

Markets

The globalisation of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. The declining trade barriers of free flow of goods, services and capital, and the role of technology such as the World Wide Web are the 2 important drivers supporting the markets. For example is CNN.

1) Opportunities

Markets have lead to globalisation the way it is on the basis over the last 70 years. The world has seen the biggest amount of wealth and countries around the world have the opportunities to re-direct attention, efforts, investment in information building. Many countries have been focusing on the developing of countries’ intellectual properties and developing people.

2) Literacy and affluence rates

This developing of people has lead to a greatest level of literacy and affluence rates. With greater literacy and affluence rates, it increases greater levels of purchasing power. Globalisation nurtures global learning and albeit tacit knowledge and greater learning curve through MNC. People have becomes more skilled as a result of knowledge imparted by MNC, this increases countries’ literacy rates and affluence rates. For example is Hewlett Packard Company in Singapore where the knowledge, research and development of HP printers is parked in Singapore and make Singapore the HQ.

3) Global pressures

With high levels of literacy and affluence rates, many companies which are under great amount of pressures in the domestic markets have realised that global market has given them greater opportunities. For example, the top 5000 companies reported that of 80% of their markets share or profitability comes from outside their countries.

4) Single market

Markets are no longer limited to domestic markets. For companies, market is now on worldwide basis. The global platform has become a single market opportunity because of education levels and affluence rates have integrated to an extent to the people. As a result, people are now more willingly to spend and buy. Importantly, people are willingly to consume many of this products or service in a more standardised manner.

5) Role of technology

Market has inevitably created opportunities for companies to expand their operation around the world and technology especially the World Wide Web has played a supporting role. The Internet has created a huge role in integrating their operation to support their global markets. That explain companies globalising, that extends to organisation globalising their products or services on the global platform. As a result, many organisations no longer domestic orientated and moving towards globally orientated.

Production

The globalisation of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production. For example is Dell.

1) Opportunities and emergences of new companies

With the increasing market opportunities, greater market potential and market shares for companies to capture. This means that there are greater market competitions where stability has lead to many companies to emerge from many different countries as well. Until the 1970’s, companies were primarily from the triad nations which are US, Europe and Japan. Today, it is no longer being limited to triad nations, companies have emerged and competition from all over the world.

2) Competition

The level of competition is intensive. 30 years ago, there are a total of estimated 40,000 multi-national companies in the world.  From the latest report, now there are total of estimated 88,000 multi-national companies in the world. This figures means that the level of competition is intensive.

3) Pressure to reduce cost

When the level of competition is intensive, the profitability is severely affected. As a result, companies are under huge pressure to reduce their cost not just in their domestic market and also on the global platform. In order to reduce their cost, they have to find a way to position or move their operations around the world where their cost of economies greatest to their advantage. Companies cannot depend on a single country for operation but they have to internalise their location economies in which they could reduce their cost. As a result companies have already begun to breaking up their value chain into smaller components, matching these components to the other countries’ benefits where they can reduce their costs of value chain activities on a global platform. For example is China which is renowned for its low cost production. In essence, this expansion of production and investment which is foreign direct investment on a global platform has begun to integrate countries’ economies and played a big role in globalisation.

Production and Markets

Eventually, the production and markets began to integrate through major players in the world. Countries’ economies and companies operation began to integrate. This level of presence in the global platform is supported by technology such as telecommunication and transportation have allows companies to cope and fulfil their objectives of profitability and growth

Future outlook? - Sustainable competitive advantage

Companies and countries gain sustainable competitive advantage through expanding their strengths, exploring new opportunities, reducing their weakness and avoiding threats. For example is the automotive industry in India was opened to the global platform which saw major automotive manufacturers and suppliers in the world to park their investments in India. Thus, the countries saw an increase in employment rates and consumer purchasing power. While companies saw an increase in profitability and cost maximisation through effectiveness and efficiency respectively.