The global business environment

Business competitiveness has now evolved to a level of sophistication that many term globalism (though more commonly called globalization) – global competition characterized by networks of international linkages that bind countries, institutions and people in an interdependent global economy.

The invisible engine of global competition is being propelled by the phenomenon of an increasingly borderless world, by technological advancements, and by the rise of developing economies such as China and India. Thus a Swatch wristwatch, for example, designed in Switzerland, assembled in China from parts made in France, is sold in Australia for AS50.

Globalism

Joe Nye, former Dean of Harvard University’s Kennedy School of Government, has outlined what he sees as fundamental differences between globalism and globalization, and describes how both these concepts now shape our world. He suggests that globalism describes the interconnections of the modern world – and patterns that underlie (and explain) them.

In contrast, the term 'globalization’ refers to the increase or decline in the degree of globalism and the dynamism of these changes. Globalism is the underlying basic network. Globalization refers to the dynamic shrinking of distance on a large scale.

An example of what Nye calls ‘thin globalization’ is the old Silk Road that provided economic and cultural links between ancient Europe and Asia. Its direct impact was felt primarily by a small group of consumers along the road. In contrast, the operations of global financial markets today affect people from Pretoria to Penang. Thus, ‘globalization’ is ‘the process by which globalism becomes increasingly thick/intense’.

An increasing ‘thickness’ in globalism means that different relationships of inter­dependence intersect more deeply in some areas than others. For example, in 1996 the Australian telecommunications giant Telstra reported that 600 000 subscribers had Internet access. In 2006 in Oceania/Australia, 18 364 772 people out of a population of 33 956 977 used the Internet (51.4%), while in Asia, with a population of 3 667 774 066, only 10.3% had access (378 593 457). Thus globalism does not imply universality, nor homogenisation or equity. In fact, it is equally likely to make people more aware of differences.

Nye suggests there are four distinct dimensions of globalism: economic, military, environmental and social. Changes in the various dimensions do not necessarily go together: for instance, economic globalization includes low-wage production in Asia for the benefit of affluent Western markets.

Negative examples of environmental globalization include the accelerating depletion of the stratospheric ozone layer as a result of ozone-depleting chemicals – or the spread of the AIDS virus from central Africa to the rest of the world beginning at the end of the 1970s.

An example of military globalism is the so-called ‘war of terror’ since the disastrous events of September 11, 2001.

The fourth dimension is social and cultural globalism. It involves movements of ideas, information, images and people, who of course carry ideas and information with them. Examples include the evangelism of religions and the diffusion of scientific knowledge.

In the past, social globalism has often followed military and economic globalism. However, in the current era, social and cultural globalization is driven by the Internet, which reduces costs and globalizes communications, making the flow of ideas increasingly independent of other forms of globalization.

Based on the historic evidence, it is to be expected that globalism will be accompanied by continuing uncertainty. There will be ongoing competition between increased complexity and uncertainty on the one hand, and on the other, efforts by governments, market participants and others to comprehend and manage these systems.

Nye quoted the World Trade Organization as reporting that differences in regional output growth rates have narrowed as economic activity has picked up in Western Europe, the Asia-Pacific region and the transition economies. It is clear that world trade is growing and, importantly, is increasingly including the developing nations.

Economic power and shifting opinions, and ideals about politics and religion, are resulting in an increasing backlash against globalism and a rekindling of nationalism. Globalism has been fuelled by capitalism and open markets, most notably by Western companies. Now economic power is shifting to the emerging Asian nations: China and India are catching up fast with the US as engines of world economic growth.

Thus the face of global trade is changing and almost all firms around the world are affected to some extent by globalism. Firms from any country' now compete both at home and abroad, and domestic competitors compete on price by outsourcing resources around the world.

Trade agreements, such as the Australia-United States Free Trade Agreement (AUSFTA) from 1 January 2005, have opened borders for more robust trade, but often, sadly, at the expense of human rights and environmental protections. 'A push is gaining momentum to replace the idea of “free trade” – which generally favors the most powerful nations – with “fair trade", which puts producers in developing nations on a more level playing field.

Global companies are becoming less tied to specific locations. Their operations and allies are spread around the world as they source and coordinate resources and activities in the most suitable areas. Technology enables faster and more flexible interactions and greater efficiencies. It is essential, therefore, for managers to develop a global vision for their firms, to equip them with the skills and tools of international management, including an understanding of what it takes to do business in other countries and to work with people of other cultures.

Another indicator of globalism is that foreign direct investment has grown more than three times faster than the world output of goods. The United States is the largest home for foreign investment, with China the second largest recipient. Henry Tang, Financial Secretary of the I long Kong Special Administrative Region, in a speech to the Asia Society in Melbourne on 25 May 2006, spoke of ways in which Hong Kong and the countries of the Asian region are leveraging their proximity and unique circumstances to benefit from China’s outstanding economic growth. Business opportunities are expanding for foreign investors, including those of Australia, as a result.