The world is fast changing into one big village. Cultural diversity, religion, race, and differences in ideology, which have created barriers among nations, are fast fading as people learn to accept and tolerate each other. The free flow of capital and labor among nations give evidence of this change.
The political, economic, and socio-cultural turbulence in one country that ripples across the world, further assert this existence. For example, the current economic crisis in the world is a result of increase in the cost of living caused by increase in fuel prices.
What actually caused the increase in fuel prices? It was the attack of Iraq by the United States and its allies, which lowered the production of oil against the ever-increasing demand. The whole world has thus felt the effects of oil shortage. The gradual change that has seen the world become this one big village is globalization. Many factors have contributed to globalization.
However, “business and revolution of communication technology” remain the main motivators (Parker 2005). Technological inventions in communication like the internet and mobile phones have stimulated globalization by easing communication. On the other hand, the desire to maximize profits by businesses drives globalization in many ways.
To maximize profits, businesses must make more sales and incur small expenses. This has led to cost reduction strategies such as, moving operations to countries with few trade restrictions, taxes, and logistics. To maximize sales, these businesses move to regions with high populations and little competition. The rise of big companies with excess capital to invest has led to globalization too as these companies search for regions to invest.
The approaches Trans-National Companies may take to tap into the global market vary. First, the companies may invest directly into the foreign markets thereby establishing production units in those regions. However, this decision has challenges ranging from unfair treatment in foreign markets, inability to predict changes in policies that may affect business, and lack of understanding of cultural beliefs, which might prove costly.
Secondly, a Trans-National Company may use strategic alliance, which enables it to pool resources and command considerable finances and knowledge. Franchising, management of contracts and joint ventures are other possible approaches. There are many challenges to globalization. The choice of management structure is one of such challenges.
As businesses expand their operations, they venture into unique markets that one manager cannot fully understand. This leads to the need for regional managers with autonomous control. However, this is challenging as people have different personalities and cannot lead the same way.
Another challenge is the choice of products. Having standardized products for all markets may make the products expensive for some markets, while being of low quality for others. If the business chooses localized products, it may not benefit from economies of scale.
This is because every region will need to market and package its own products. Tomlinson cites cultural diversity in the world as another challenge to globalization (1999). It is impossible to make one product that satisfies every one’s cultural beliefs yet ignoring such beliefs may throw a firm completely out of business.
As the multinational companies expand their operations in the least developed countries, they kill small businesses, which would have otherwise grown to great heights. Globalization has led to the decline of job opportunities in Least Developed Nations since many firms import labor from countries of origin.
Globalization is also responsible for the erosion of indigenous culture and beliefs in Least Developed Nations. There are many benefits of globalization. Globalization helps in improving the economic growth of developing nations. It also enhances the spread of technology, and is a possible tool for controlling inflation.
Parker, B 2005, Introduction to globalization and business: relationships and responsibilities, SAGE, London.
Tomlinson, J 1999, Globalization and culture, University of Chicago Press, Chicago.