Introduction
With the fall of communism, the world became enjoined in a unitary global political economy, but of great importance was the formation of global markets, crossing national borders an event that resulted into globalization.
For some time, the definition of globalization has conceptualized on the process of economic exchange in finished goods and commodities but as the trend shows, this historical definition is changing as more global production concept sets in. Revolutionary advances in communications and information technology have facilitated globalization of production (Maswood, 2008).
The factors that have resulted into globalization of production can be traced to include trade liberation in the postwar era, neo-protectionism in the 1970s and 1980s and the Plaza Accord of 1985 (Maswood, 2008).
Globalization in its essence is regarded as a logical extension of the liberalization process and the interdependence networks that were created among the nations after the Second World War. More so, it has been largely been influenced by the illiberal forces of neo-protectionism and by the exchange rate adjustments that took place in 1980s (Maswood, 2008).
As the world becomes more global, barriers in trade and transport become minimal resulting in reduced costs of conducting businesses across nations. This in turn leads to increased trade between producers located in one country and consumers found in another country (Hanson, 2001, p.1).
Today, as globalization continues to entail increased trade in finished goods, there is also continued fragmentation of industrial operations internationally where industries are moving to locate their firms in a country operations can be carried out with minimal cost (Hanson 2001, p.1).
Hill, McKaig and Richardson (2010) define globalization of production as, “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 like labor and capital” ( p.1).
To the author, this is taking place in the world because there is developments in the technological environment and numerous regions are presenting varying and unique advantages as far as economic is concerned. As these happen, there is increased transportation of voluminous goods covering long distances.
In addition, many people are moving further and further from their original places due to impacts of information and communication (Hill, McKaig and Richardson, 2010).
The role of communication is further played in the global environment in that it is becoming cheaper to purchase numerous component parts at cheaper prices. Lastly, as manufacturing continue to take place there is greater sourcing of components from different locations within the particular nation or from outside the country (Hill, McKaig and Richardson, 2010).
Historical development of globalization of production
Scholte (2000) noted that globalization is at forefront in helping capitalism to become more widespread and strong than ever. As such, globalization can be seen to be another form of ‘hyper-capitalism”. According to the author, globalization has in great measures modified the ways that accumulation usually takes place and to one hand the changes are associated with commodification (Scholte 2000).
As a result, globalization has stimulated the growth of consumer capital, finance capital, and communication and information capital. Economic activities viewed in this perspective present a scenario where the activities are seen to have acquired a capitalistic logic.
Analyzing globalization in terms of organization, evidence shows that there is much accumulation through offshore centers and transborder companies as a result of globalization while at the same time, the growth of transworld spaces continue to motivate an unprecedented wave of corporate mergers and acquisitions leading to further concentration of capital (Scholte, 2000).
The history of Globalization of production can be linked to the era of expanded commodification where Marx viewed commodities to be objects through whose production and exchange surplus was being created, extracted and cumulated. Hence, to Marx, a resource becomes ‘commodified’ when it is incorporated into the mainstream of capitalist process of accumulation (Scholte 2000).
For instance, commodification may take place in many ways; take a case where a forest is commodified through exploitation by the timber industry, a song on the other hand is commodified through recording and sale by the music industry (Scholte 2000).
According to Schaeffer (2005), globalization of production may be called redistribution of production and is a process that started in the postwar period. According to the author, production was redistributed primarily from USA to other Western Europe countries together with Japan and poor countries were isolated.
Globalization of production hence originated as a partial and limited process instead of a universal development (Schaeffer 2005). During this period, redistribution of production was carried out because various governments, businesses, and consumers adopted policies and practices that changed the location of jobs in manufacturing and agriculture from USA to other locations.
Scholte notes that as commodification expanded, industrial capital was required and this led to production of range of commodities that included manufactures from large-scale factory production.
Starting from late nineteenth century onwards, commercial and industrial capital were boosted with finance capital where financial instruments like stocks and bonds became largely commodified and businesses transacted in these articles became a form of amassing in its own right (Scholte 2000).
From 1960s, the tendency of globalization has further contributed to the widening the scope of commodification in three key areas: consumerism, which is related to global products, which in turn has extended the range and variety of industrial capital.
Second is the growth of supraterritoriality which in turn has contributed to the expansion of finance capital, where global banking, global securities and global derivatives business have led to growth and increase of the volume and the variety of different financial instruments that act as channels of accumulation in their own right (Scholte, 2000).
Third, globalization has led and motivated the spread of commodification into other new and unfamiliar regions largely through information and communication and as such, commodities like computer software and telephone calls have become objects of accumulation.
Consumerism is connected to globalization in three main ways: first, many of the principal consumerist articles are largely transworld products and many of these products succeed through ‘global branding’, where transborder production at the same time continue to promote and facilitate consumerism; secondly, the various items of consumerist desire have originated directly from the technologies of globalization, for instance tourism is as a result of large scale air travel companies; third, global environment has contributed a critical role in producing the hedonistic desires on which consumerism has been based in order to thrive.
Therefore, it can be concluded that the growth and rise in consumerism tendencies has led to globalization of production where global products are becoming popular in different societies.
What are the main drivers of globalization of production?
Globalization has been defined as,” a process of increasing and deepening interactions between individuals and organizations across the globe, facilitated by advancing communications technology and the opening of markets to trade and investment” (Anon, n.d, p.4). In this definition, key elements that define globalization emerge.
First, capitalist markets in the world are growing and expanding thereby minimizing obstacles to trade and investment. Second, there is increasing interconnectedness among various firms, governments, and individuals allover the world.
Third, information and communication technology is seen to be advancing together with transport and lastly, there are observable qualitative modifications in organizations and societies as a result of emerging global interactions (Anon, n.d, p.4).
The results of globalization to an extent have influenced globalization of production where globalization of production is seen to thrive due to numerous reasons ranging from reduced inter-state and trade and market barriers, increasing communication and technological advancement, increasing consumerism of global products and also increasing cooperation and inter-dependence between various governments and corporations.
Yucel, Elibol and Dagdelen (2009) note that with the setting in of globalization, global production became inevitable especially with the decline in obstacles in regard to flow of goods, services and capital investment particularly after the Second World War.
At the same time, modification and development in technology has also been at forefront in encouraging globalization of production and this has particularly happened with advancement in communication, information processing, and transportation technologies.
According to Stonehouse et al (2004), there are different categories of forces that are influencing globalization and in the process, encourage globalization of production.
These forces are: technological forces, such as industrialization, transport revolution and information and communication revolution; social forces operating in the form of consumerism, convergence in customer tastes and development in education and skills; economic forces such as overall increasing incomes, world trade improving and flourishing, world financial markets, other potential market forces and also world competition; lastly, political forces taking place across the globe in form of reduced trade barriers, intellectual property rights, privatization, development of trade blocs, and technical standards (cited in Paraschiv and Albescu, 2008).
The authors finally note that the lowering of trade barriers among different countries has made globalization a possibility while changes in technology have made it a reality (Paraschiv and Albescu, 2008).
On his part, Ernst (1997) observes that globalization is resulting into qualitative changes, which can be described as a shift from partial to systemic forms of globalization.
As such, competition in the world is increasing at a faster rate and for companies and other corporations to fit well into the competitive environment they have been forced to integrate their earlier ‘stand-alone-operations’ in their individual countries and shifted then into international production networks.
Most of these companies are looking to areas they can conduct their operations more effectively and also where they can penetrate the vital market growth being witnessed in the whole world.
To these companies, motivational factors to venture into international production has originated from the reduction of transaction costs, clusters of specialized capabilities and contested growth markets, the need to speed up response to technological change and lastly du to the changing market requirements (Ernst, 1997).
The role of financial structure
Moulaert and Scott (1997) note that there is an ongoing systematic shift of industrial production from the developed countries such as USA and Europe to the developing countries specifically those located in the Pacific Rim, Southern and Eastern Europe and also those in Latin America.
According to the authors, this global change in industrial production has resulted into de-industrialization process in the most developed countries. The authors note the increasing role of capital as the main driving force of the global economy whereby financial capital has become an independent autonomous force in the new and globalizing world.
Further, with relation to the financial capital, whoever is given the responsibility has power to determine the financial structure mostly between creditors and debtors, or between financiers and investors is seen to dominate the major decisions, which shape the global economy (Moulaert and Scott 1997).
Today, there is a global reach of finance to many societies or nations, which in turn has spurred the world’s national economies and other major business transactions. In addition, there is a constant and regular introduction of new financial instruments that are ensuring there is an ever-increasing volume of capital, which is required to promote and maintain the expansion of the global economy.
The current international financial structure has in large measures separated itself from state regulations and is only in small measures influenced by international monetary organizations and as a result the role of the financial structure has been facilitating global reach of capital and other decisive production by many corporations involved in international production and trade.
Further as a result of supportive and flexible financial structure there is more heightened international capital mobility and international financial markets continue to grow influencing international capital flow to increase (Milberg, 2004).
Role of transnational corporations and technological innovations
As competition soared, companies could not concentrate in one particular region or country for survival they needed to move to other regions (Letto-Gillies, 2005). With international trade barriers being looser and more flexible, International companies found it possible to transfer their various factors of production to other regions.
However, the critical role these transnational companies have played is their ability to ‘export’ sophiscated skills, technologies and expertise’s to regions they move to. In return they regions have increased their industrial production capacity.
Further, due to relatively low a cheap labor in other countries transnational companies found it relatively easy to conduct their operations by minimizing costs, a situation that motivated many transnational companies to internationalize their production.
Technological innovation and advancement on the other hand has ensured that appropriate technology can be adopted by the MNCs at a reduced cost thereby accelerating international production. Also technological advancement such as internet, communication and transport have ‘joined’ the world making it easier for MNCs to ‘export’ their production units to other countries at a faster speed.
Conclusion
Globalization has given birth to different forms of international interaction. However, it is trade that has characterized and purely defined globalization. Although much has been written and researched about globalization of trade, little has been done about globalization of production.
Evidences shows that globalization of production has been spurred by factors such as decline in trade and other political barriers between different countries, integrated international financial structure that is becoming more flexible, advancement in technological innovation especially in communication, transport and information technology.
Therefore more research in globalization of production is necessary in order to see how the concept continues to modify the world as far as trade is concerned.
Reference List
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