Factors in increased globalization

What factors have contributed to the increased growth in globalization in recent decades? Most analysts cite the following seven factors:

· Increase in and expansion of technology

· Liberalization of cross-border trade and resource movements

· Development of services that support international business

· Growing consumer pressures

· Increased global competition

· Changing political situations

· Expanded cross-national cooperation

Needless to say, these factors are interrelated, and each deserves a closer look.

Increase in and Expansion of Technology Many of the proverbial "modern marvels" and efficient means of production have come about from fairly recent advances in technology. Thus much of what we buy today did not exist a decade or two ago. There is also an increased demand because of rising productivity, which means, on average, that people produce and can buy more by working the same number of hours. Furthermore, more than half the scientists who have ever lived are alive today. One reason, of course, is population growth. But another reason is economic growth, which frees up a much larger portion of the total population to develop new products because a smaller portion of the population can produce what is demanded. As the base of our technology expands, new product development accelerates and we need more scientists and engineers to work on technical applications.

Advances in Communications and Transportation Strides in communications and transportation now permit us to learn about and want products and services developed in other parts of the world. Moreover, the costs of improved communications and transportation have risen more slowly in most years than costs in general. A three-minute phone call from New York to London that cost $10.80 in 1970 costs less than $0.20 today.

Innovations in transportation mean that more countries can compete for sales to a given market. For example, the sale of foreign-grown flowers in the United States used to be impractical; today, however, flowers from as far away as Ecuador, Israel, the Netherlands, and New Zealand compete with each other for the U.S. market because growers can ship flowers quickly and economically.

Or recall our opening case. Innovations in transportation and communications allow individual athletes and teams to go head to head at venues around the world and sports media to broadcast competitions to fans – and consumers – around the world. If it weren't for modern means of transportation, a tennis pro couldn't play in Monte Carlo right after finishing a tournament in Miami. And if it weren't for modern means of advertising to fans around the globe, the prize money wouldn't be big enough to induce players to do all that traveling.

Improved communications and transportation not only speed up interactions, they also enhance a manager's ability to oversee foreign operations. Thanks to the Internet, even small companies can reach global customers and suppliers. Atlanta's Randy Allgaier, for example, has established a partnership in Taiwan, which contracts a Chinese factory to manufacture lighting fixtures for him – all this without his need for costly on­site contact with people in either Taiwan or China.

Liberalization of Cross-Border Trade and Resource Movements To protect its own industries, every country restricts the movement across its borders not only of goods and services but also of the resources – such as workers and capital – needed to produce them. Such restrictions, of course, set limits on international business activities, and because regulations can change at any time, they also contribute to a climate of uncertainty. Over time, however, most governments have reduced restrictions on international movements of products and services, primarily for three reasons:

1. Their citizens want a greater variety of goods and services at lower prices.

2. Competition spurs domestic producers to become more efficient.

3. They hope to induce other countries to lower their barriers in turn.

Development of Services That Support International Business Companies and governments have developed a variety of services that facilitate the conduct of international business. Take the sale of goods and services in a foreign country and currency Today, because of bank credit agreements – clearing arrangements that convert one currency into another, and insurance that covers such risks as damage en route and nonpayment – most producers can be paid relatively easily for goods and services sold abroad. What happens, for instance, when Nike sells sportswear to a French soccer team? As soon as the shipment arrives at French customs (probably from somewhere in Asia), a bank in Paris can collect payment in euros from the soccer team and pay Nike in U.S. dollars through a U.S. bank.

Other supporting services encompass much more than finance, and they're far too numerous for the current discussion. We will, however, mention one. You can send letters and packages any place in the world by paying postage or a fee only in the country from which you mail them and only in the local currency, regardless of whether they pass through or over other countries.

Growing Consumer Pressures Not only do consumers know more now than previously about products and services available in other countries, but also many more of them can afford to buy products that were once considered luxuries. Today, we want more, newer, better products, and we want them more finely differentiated. As usually occurs, this greater affluence has been unevenly spread, both among and within countries as well as from one year to another, but more and more companies are now responding to those markets where incomes and consumption are growing most rapidly, such as China.

Greater affluence has also spurred companies to spend more heavily on research and development and to search worldwide – via the Internet, industry journals, trade fairs, and trips abroad – for innovations and products they can sell to ever-more-demanding consumers. By the same token, consumers are more proficient today at scouring the globe for better deals; U.S. consumers, for instance, regularly search the Internet for lower-priced prescription drugs available from abroad.

Increased Global Competition The pressures, both present and potential, of increased foreign competition can persuade companies to buy or sell abroad. For example, they might introduce products into markets where competitors are already gaining sales or seek supplies where competitors are getting cheaper or more attractive products or the means to produce them.

In recent years, many companies have merged or acquired firms to gain operating efficiencies that enable them to compete with or become global leaders. An example is the merger between the two Brazilian firms Perdigao and Sadia to become BRF-Brasil Foods, a major exporter of chilled and frozen foods. In addition, so-called born-global companies start out with a global focus because of their founders' international experi­ence and because advances in communications give them a good idea of where global markets and supplies are. Related to this, many new companies locate in areas where there are many competitors and suppliers – a situation known as clustering – which helps them to become quickly aware of foreign opportunities and to gain easier access to the resources needed to move internationally.

Regardless of industry, firms have to become more global to compete; in today's busi­ness environment, failure to do so can be catastrophic. Once a few companies have responded to foreign opportunities, others inevitably follow suit. And they learn from each other's foreign experiences.

Changing Political Situations A major reason for growth in international business is the end of the schism between the non-Communist world and what was once the Communist world. For nearly half a century after World War II, business between the two camps was minimal. Today there are few countries that do business almost entirely within a political bloc.

Another political factor is the willingness of governments to support programs – such as improving airport and seaport facilities – that have fostered speed and cost efficiencies for delivering goods internationally. In addition, governments now provide an array of services to help domestic companies sell more abroad, such as collecting information about foreign markets, furnishing contacts with potential buyers abroad, and offering insurance against nonpayment in the home-country currency.

Expanded Cross-National Cooperation Increasingly, governments have come to realize that their own interests can be addressed through international cooperation by means of treaties, agreements, and consultation. The willingness to pursue such policies is due largely to these three needs:

1. To gain reciprocal advantages

2. To attack problems jointly that one country acting alone cannot solve

3. To deal with areas of concern that lie outside the territory of any nation

Gain Reciprocal Advantages Essentially, because companies don't want to be at a disadvantage when operating internationally, they petition their governments to act on their behalf. Thus governments join international organizations and sign treaties and agreements on a variety of commercial activities, such as transportation and trade. Treaties and agreements may be bilateral (involving only two countries) or multilateral (involving a few or many).

Countries sign treaties that allow each other's commercial ships and planes to use certain seaports and airports in exchange for reciprocal port use. They enact treaties that cover commercial-aircraft safety standards and flyover rights or treaties that protect property, such as foreign-owned investments, patents, trademarks, and copyrights.

Countries also enact treaties for reciprocal reductions of import restrictions (remaining prepared, of course, to retaliate when another party interferes with trade flows by raising trade barriers or cutting diplomatic ties).

Multinational Problem Solving Countries act to coordinate activities along mutual borders, building highways and railroads or hydroelectric dams that serve the interests of all parties. They also cooperate to solve problems that they either cannot or will not solve by themselves.

First, the resources needed to solve the problem may be too great for one country to manage; related to this, sometimes no single country is willing to pay for a project that will also benefit another country. Japan and the United States, for example, share the costs of ballistic-missile defense technology. In any case, many problems are inherently global and can't be easily addressed by a single country. That's why we've seen the development of cooperative efforts to fight the spread of such diseases as malaria, to set warning systems against such natural disasters as tsunamis, and to take actions affecting environmental problems such as global warming.

Second, one country's policies may affect those of others. Higher real-interest rates in one country, for example, can attract funds very quickly from individuals and companies in countries with lower rates, thus creating a shortage of investment funds in the latter. For instance, companies shift funds in response to slight interest rate changes. Similarly, companies may change suppliers in one country for those in another as costs change, thus contributing to unemployment in the country where they abandon suppliers. To coordinate economic policies in these and other areas, economically important countries meet regularly to share information and pool ideas.

Areas outside National Territories Three global areas belong to no single country: the noncoastal areas of the oceans, outer space, and Antarctica. Until their commercial viabil­ity was demonstrated, they excited little interest for either exploitation or multinational cooperation. The oceans, however, contain food and mineral resources, and they also constitute the surface over which much international commerce passes. Today, we need treaties to specify the amounts and methods of fishing to be allowed, to address ques­tions of oceanic mineral rights (such as on oil resources below the Arctic Ocean), and to deal with the confiscation of ships by pirates.

Likewise, there's disagreement on the commercial benefits to be reaped from outer space. Commercial satellites, for example, pass over countries that receive no direct ben­efit from them but argue that they should. If that sounds a little far-fetched, remember that countries do charge foreign airlines for flying over their territories.

Antarctica, with minerals and abundant sea life along its coast, attracts thousands of tourists each year, has a highway leading to the South Pole, and has thus been the subject of agreements to limit commercial exploitation. (The photo shows a group of flags at the South Pole.) However, there is still disagreement about Antarctica's development – how much there should be and who does it.