Five Major Drivers Of Globalization
There are five major kinds of globalization drivers, all based on changes that are leading international firms to the globalization of their operations. True The United States has only about 10 percent of the world's population, so the vast proportion of most companies' potential customers are located elsewhere. Dec 22, 2017 - Globalization has also been driven by technology.Discuss the five major kinds of drivers of globalization as it applies for your chosen company.Five major kinds of drivers, all based on change, are leading international firms to the globalization of their operations: (1) political, (2) technological, (3) market.
Table of contents
1 Introduction
2 Drivers of Globalization
3 Theories and Models of Gobalization and International Trade
3.1 From mercantilism to Smith and Ricardo
3.2 Ricardo to the next step: Factor Proportions Theory and the Leontief Paradox
3.3 Vernon Life-Cycle Theory
3.4 Porter’s Diamond Approach
3.5 Monopolistic Advantage Strategy
3.6 Eclectic Theory
4. Discussion of Theories and Drivers
4.1 Ricardo-Mill and outsourcing
4.2 Dunning, Cantwell and the influence of technology
5 Bibliography
1 Introduction
'Globalization is not something we can hold off or turn off . . . it is the economic equivalent of a force of nature -- like wind or water.'
Globalization Drivers
Bill Clinton (American 42nd US president (1993-2001))
The first part of this research paper will define the major drivers of globalization and then introduce some of the basic and advanced theories of international trade and business.
With this foundations it will then try to integrate theories and drivers and compare them to the actual situation and discuss if they are appropriately describing what we are seeing today.
2 Drivers of Globalization
The media and almost every book on globalization and international business speak about different drivers of globalization and they can basically be separated into five different groups:
1) Technological drivers
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Technology shaped and set the foundation for modern globalization. Innovations in the transportation technology revolutionized the industry. The most important developments among these are the commercial jet aircraft and the concept of containerisation in the late 1970s and 1980s. Inventions in the area of microprocessors and telecommunications enabled highly effective computing and communication at a low-cost level. Finally the rapid growth of the Internet[1] is the latest technological driver that created global e-business and e-commerce.
2) Political drivers
Liberalized trading rules and deregulated markets lead to lowered tariffs and allowed foreign direct investments in almost all over the world. The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing opening and privatization in Eastern Europe are only some examples of latest developments.
3) Market drivers
As domestic markets become more and more saturated, the opportunities for growth are limited and global expanding is a way most organizations choose to overcome this situation. Common customer needs and the opportunity to use global marketing channels and transfer marketing to some extent are also incentives to choose internationalization. (Ferrier, 2004)
4) Cost drivers
Sourcing efficiency and costs vary from country to country and global firms can take advantage of this fact. Other cost drivers to globalization are the opportunity to build global scale economies and the high product development costs nowadays. (Ferrier, 2004)
5) Competitive drivers
With the global market, global inter-firm competition increases and organizations are forced to “play” international. Strong interdependences among countries and high two-way trades and FDI actions also support this driver.
3 Theories and Models of Gobalization and International Trade
Theories of International Trade extend to the 15th century and the age of mercantilism. This next paragraph will provide a brief summary of the most important theories and also cover two less popular theories, the monopolistic advantage theory (Kindleberger / Hymer) and the integrated eclectic theory (Dunning).
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[1] evolved from the military ARPA (Advanced Research Projects Agency) network 1969, which was extended to an university network 1986 and finally became public as the world wide web in 1990, due to Tim Berners-Lee at the CERN institution (Wikipedia, 2005)
Globalization is driven by various new development and gradual changes in the world economy.
Generally, organizations go global for expanding their markets and increasing their sales and profits. One of the major forces of globalization is the expansion of communication systems.
In the present era, it has become easy to distribute information to any part of the world through the Internet.
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Some of the important forces behind globalization are shown in Figure-1:
The different forces (as shown in Figure-1) are explained as follows:
(a) Advancement of Technologies:
Refers to one of the crucial factors of globalization. Since 1990s, enhancement in telecommunications and Information Technology (IT) has marked remarkable improvements in access of information and increase in economic activities. This advancement in technologies has led to the growth of various sectors of economies throughout the world.
Apart from this, the advancement in technology and improved communication network has facilitated the exchange of goods and services, resources, and ideas, irrespective of geographical location. In this way, advanced technologies have led to economic globalization.
(b) Reduction in Cross-trade Barriers:
Refer to one of the critical forces of globalization. Every- country restricts the movement of goods and services across its border. It imposes tariffs and quotas on the goods and services imported in its country. In addition, the random changes in the regulations create a chaos in global business environment.
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Such practices impose limits on international business activities. However, gradual relief in the cross-border trade restrictions by most governments induces free trade, which, in turn, increases the growth rate of an economy.
(c) Increase in Consumer Demand:
Acts as a main driver to facilitate globalization. Over the years, with increase in the level of income and standard of living, the demand of consumers for various products has also increased. Apart from this, nowadays, consumers are well aware about products and services available in other countries, which impel many organizations to work in association with foreign players for catering to the needs of the domestic market.
(d) High Competition:
Constitutes an important driver for bringing about globalization. An organization generally strives hard to grain competitive edge in the market. The frequent increase in competition in the domestic market compels organizations to go global. Thus, various organizations enter other countries (for selling goods and services) to expand their market share.
They export goods in foreign markets where the price of goods and services are relatively high. Many organizations have achieved larger global market shares through mergers and acquisitions, strategic alliances, and joint ventures. So, these are the major factors that have contributed a lot in globalization and the growth of global economy.