drivers & dimensions of market globalization by martinson t. yeboah

8/10/2019 Drivers & Dimensions of Market Globalization by Martinson T. Yeboah

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The Drivers andDimensions of Market Globalization

1. Drivers of Market Globalization Worldwide reduction of barriers to trade and investment Market liberalization and adoption of free markets Industrialization, economic development, and modernization Integration of world financial markets Advances in technology

2. Dimensions of Market Globalization Integration and interdependence of national economies

Rise of regional economic integration blocs Growth of global investment and financial flows Convergence of buyer lifestyles and preferences Globalization of production activities Globalization of services


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Dimensions of Market Globalization

Integration and interdependence of nationaleconomies: Results from firms collectiveinternational activities. Governments contribute bylowering trade and investment barriers.

Rise of regional economic integration blocs:Free trade areas are formed by two or morecountries to reduce or eliminatebarriers to trade and investment,such as the EU, NAFTA, andMERCOSUR.


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Dimensions of Market Globalization (cont.)

Growth of global investmentand financial flows:

Associated with rapid growthin foreign direct investment

(FDI), currency trading, andglobal capital markets. Convergence of buyer

lifestyles and preferences: Facilitated by globalmedia, which emphasize lifestyles found in the U.S.,Europe, or elsewhere; firms market standardizedproducts.


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Dimensions of Market Globalization (cont.)

Globalization of production: To cut costs, firmsmanufacture in low labor-cost locations, such asMexico and Eastern Europe. Firms also sourceservices from abroad.

Globalization of services: Banking, hospitality,retailing, and other service industries are rapidlyinternationalizing. Firms outsource businessprocesses and other services in the value chain tovendors overseas. And, in a new trend, manypeople go abroad to take advantage of low-costservices.


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The Drivers, Dimensions, andConsequences of Market Globalization

1. Drivers of Market Globalization Worldwide reduction of barriers to trade and investment Market liberalization and adoption of free markets Industrialization, economic development, and modernization Integration of world financial markets Advances in technology

2. Dimensions of Market Globalization

Integration and interdependence of national economies Rise of regional economic integration blocs Growth of global investment and financial flows Convergence of buyer lifestyles and preferences Globalization of production activities Globalization of services

3a. Societal Consequences of Market Globalization Contagion: Rapid spread of financial or monetary crises from one country to another Loss of national sovereignty Offshoring and the flight of jobs Effect on the poor Effect on the natural environment Effect on national culture


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Societal Consequences of Market Globalization

Contagion Rapid spread of monetary orFinancial crises: Beginning in late 2008, the worldeconomy experienced a severe financial crisis andglobal recession, the worst in decades. The crisisemerged when pricing bubbles occurred in housingand commodities markets worldwide. As bubbles inreal estate markets burst, home values crashedand many homeowners could not repay their debts.Meanwhile, thousands of mortgages had beensecuritized, and their values plunged or becameuncertain.


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Worldwide, many people fell into severe poverty,partly because developing economies depend onexports to, and direct investments from, theadvanced economies, which were in recession.

Central bankers and finance ministers struggled tokeep up with rapidly evolving events.

Governments pumped huge sums of money into

national economies to stimulate economic activity.

Regulation of economic activity is increasing asgovernments address the crisis.


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Percent Change in Annual GDP Growth


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China and other emerging markets continued togrow, albeit at a slower rate.

Crisis began in the U.S. and, like a contagion ,spread worldwide. Contagion spreads relativelyeasily today because of globalization.

An important cause of the crisis was inadequateregulation of mortgage markets and banking

sectors in the U.S. and elsewhere, which highlightsthe importance of a strong legal and regulatoryframework for national economic well-being.


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Societal Consequences of Globalization (cont.)

Loss of national sovereignty: MNE activities caninterfere with governments ability to control theirown economies and social-political systems. Somefirms are bigger than the economies of manynations


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Loss of national sovereignty: However, some argue that global competition in thecontext of global free trade makes MNEs lesspowerful (e.g., the U.S. auto industry declined asforeign rivals from Japan and Europe entered theU.S. market. Someday, Wal-Mart may be overtakenby a giant Chinese retailer).


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Offshoring and the flight of jobs: Jobs are lost asfirms shift production of goods and services abroad inorder to cut costs and obtain other advantages. Firmsbenefit, but communities and industries are disrupted.

Effect on the poor: In poor countries, whileglobalization usually creates jobs and raises wages, italso tends to disrupt local job markets. MNEs may paylow wages, and many

exploit workers or employchild labor. Globalizationsbenefits are not evenlydistributed.

Example

Many people in India arelosing jobs as the hand-woventextiles industry is beinggradually automated.


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Effect on the Poor


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Example: Nikes Foreign Factories

Nike has hundreds of factories in Asia, Latin America, and elsewhere. Nike has been criticized for paying low wages and

operating factories with sweatshop conditions.

Labor exploitation and sweatshop conditions aregenuine concerns in many developing economies.


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Example: Nikes Foreign Factories

Consideration must be given to the other choicesavailable to people in those countries.

Nike and numerous other MNEs are making effortsto improve working conditions in their foreignplants.


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SOURCE: International Monetary Fund,World Economic Outlook Database

Growth of World GDP,Average Annual Percent Change, 2000 2009


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Growth of World GDP,Average Annual Percent Change, 2000 2009


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Effect on the naturalenvironment: Globalizationharms the environment bypromoting industrialization

and other activities thatgenerate pollution, habitatdestruction, and otherenvironmental harm.

E.g., as China and Indiaindustrialize, air andwater pollution havebecome major hazards.


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Effect on National Culture: Globalization opensthe door to foreign firms, global brands, unfamiliarproducts, and new values. Increasingly, consumersbuy similar products, modeled according to Western

countries, especially the U.S. In this way, traditionalnorms, values, and behaviors may homogenizeover time. National identity may be lost to globalculture.


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McDonalds-ization


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Effect on the Natural Environment: However , as nations develop their economies,

they tend to pass laws that protect theenvironment.

For example, this happened in Japan from the1960s to the 1980s. In Mexico, the government isgradually adopting policies to protect the air, water,etc.


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Globalization, EconomicFreedom, and National Prosperity

Economic freedom is the extent of governmentinterference in business, the strictness of the nationsregulatory environment, and the ease with whicheconomic activity can be carried out.

National prosperity is strongly associated with: Participation in international trade and investment The nations level of economic freedom

Thus, nations should emphasize economic freedomand participation in international trade and investment.

l h l b l d h


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Relationship Between Globalization and Growthin Per Capita GDP (in the ten years through 2002)


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Distribution of Economic Freedom

Th D i Di i d


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The Drivers, Dimensions, andConsequences of Market Globalization

1. Drivers of Market Globalization Worldwide reduction of barriers to trade and investment Transition to market -based economies and adoption of free trade in China, former Soviet Union countries, andelsewhere Industrialization, economic development, and modernization Integration of world financial markets Advances in technology

2. Dimensions of Market Globalization Integration and interdependence of national economies

Rise of regional economic integration blocs Growth of global investment and financial flows Convergence of buyer lifestyles and preferences Globalization of production activities Globalization of services

3a. Societal Consequences of Market Globalization

Contagion: Rapid spread of financial ormonetary crises from one country to another Loss of national sovereignty

Offshoring and the flight of jobs Effect on the poor Effect on the natural environment Effect on national culture

3b. Firm-level Consequences of Market Globalization:

Internationalization of the Firms Value Chain Countless new business opportunities for internationalizing firms New risks and intense rivalry f rom foreign competitors More demanding buyers who source from suppliers worldwide Greater emphasis on proactive internationalization Internationalization of firms value chain


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Firm Level Consequences of Globalization

The most significant implication of market globalization forcompanies is that a purely domestic focus is no longer viablefor firms in most industries.

Market globalization compels firms to internationalize their

value chain, and adopt a global rather than a local focus . Value chain: The sequence of value-adding activities

performed by the firm in the process of developing, producing,and marketing a product or a service.

Globalization is the heightened ability of a firm tointernationalize its value chain (reconfigure key value-addingactivities), leading to greater international integration andcost efficiencies.

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Internationalization ofthe Firms Value Chain

I i li i f


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I i li i f


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I i li i f


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I i li i f


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I t ti li ti f


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Internationalization of the Firms Value Chain

The truly international firm configures itssourcing, manufacturing, marketing, andother value-adding activities on a global scale.

Rationale: Cost savings Increase efficiency, productivity, and flexibility of

value chain activities

Access to customers, inputs, labor, or technology Benefit from foreign partner capabilities


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Implications for Management

Building interconnectedness: globalorchestration of value -chain activities

Exploiting knowledge

Search for maximum flexibility in manufacturing,sourcing and other value-adding activities

Relentless search for productivity gains andoperational efficiency

Recognizing, cultivating, and measuring key globalstrategic assets of the organization

Gaining and sharpening partnering capabilities


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The World Competitiveness Scoreboard 2010

(2009 rankings are in brackets)

Source: IMD World Competitiveness Yearbook 2007


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Global Competitiveness Index 2003-2010


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For Further Information

Contact Address

M RTINSON TENKOR NG YEBO H .Founder/CEO

P.O.BOX 1448Kaneshie- accraEmail: [email protected]

[email protected]: www.martmasteryconsult.comTel No: +233505839848

F b k f b k / l

drivers & dimensions of market globalization by martinson t. yeboah

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