2.0 GLOBALIZATION

2.0 GLOBALIZATION • Definitions and key developments in globalization • Drivers of globalization • Global markets, global factories and global supply chains • Political and cultural globalization • Perspectives on globalization

2.1 DEFINING GLOBALIZATION “The global circulation of goods, services and capital, but also of information, ideas and people. It has shaped the 20th century, albeit with large cyclical variations and become an increasingly visible force in recent decades.” (World Bank 2000) “A social process in which the constraints of geography on social and cultural arrangements recede and in which people become increasingly aware they are receding.” (Waters, 1995) “A reconfiguration of social geography by the transplanetary and supraterritorial connections between people” (Scholte, 2005)

2.2 KEY DEVELOPMENTS (after Scholte 2005) • Internationalization. Rapid growth in international trade of goods, services, money and information • Liberalization of economic systems, markets and information • Universalization. Growth of similar products, regulations and regulatory bodies • Cultural change? – Convergence on westernization or diversity? • Deterritorialization

2.3 GLOBALIZATION SINCE THE 19TH CENTURY Industrialization and trade expansion create the global economy by 1880. Capitalism creates accumulation and commodification. The global economy breaks up as a result of: - Two world wars - Russian revolution - Great depression - Protectionism and cartels - Soviet and Chinese communism - Cold war - Post-war crises in Germany and Japan Resurgence of the global economy since 1980s – the move to global markets, factories and supply chains.

2.4 DRIVERS OF GLOBALIZATION • The importance of rational knowledge • Growth of international trade • Growth in FDI • Changing world politics • Changing markets – global products; emerging markets • The need for expansion to recover and reduce rising costs • Technological innovations in ICT making possible a networked global economy • The growth of global regulations and standards and of global and regional organizations • Multinational corporations diffusing technology, ideas and converging practices

2.5 WHICH DRIVER IS KEY • Are some factors more important than others? • Some writers believe so, although they disagree on the factors. - Yip (2003) argues changing markets and cost factors. - Bartlett and Ghoshal (1995) argue liberalization and changing politics. - Castells argues changing technology especially ICT. • Drivers can also be consequences e.g. increased trade is both a cause and a product of globalization.

2.6 ASPECTS OF GLOBALIZATION • Economic and operational aspects • Political aspects • Cultural aspects

2.7 ECONOMIC AND OPERATIONAL ASPECTS OF GLOBALIZATION • Emergence of global markets, global brands, global advertising, global retailing • Globally organized production systems via technological transfer, off-shoring, offshore outsourcing and joint ventures • The growth of global supply chains linked to the above • Emergence of global companies and new structures • Labour as a global resource – mobility or exploitation?

2.8 THE GLOBAL MARKET • Championed by Theodore Levitt in his 1983 article ‘The globalization of Markets’. • The convergence of consumer needs and tastes has led to products and services being available on a global scale. • This is supported by global branding, global advertising and global retailing.

2.9 THE GLOBAL MARKET - LEVITT • Levitt (1983) identified a qualitative change in markets towards standardised global products. • He argued that cultural differences were overstated barriers. • National tastes and preferences have gone global – Chinese food, pizzas, jeans, Coca Cola. • Growing demand for standardized products that are high quality, reliable and affordable. • Technology is the key driver: - development costs and competition create the need for cost reduction. - this is achieved by economies of scale and standardized products – variety costs. - global media and ‘proletarianized’ communication and travel have created global demand for the same products.

2.10 THE GLOBAL MARKET II - ISSUES BUT • National markets are not borderless: - cultural barriers - political barriers – quotas, tariffs and regulations - economic barriers – purchasing power • Global products ARE customised e.g. McDonalds, Coca Cola, although Levitt argues that this has been exaggerated. • The world has changed since 1983 – even more communications and pressures for standardisation; but increased capability for flexible manufacturing and greater variation.

2.11 GLOBALY ORGANIZED PRODUCTION • The integration of manufacturing and service provision across a number of different countries usually involving a number of different firms. • Involves the disaggregation of supply chains globally. • Involves the growth of the multinational firm and both offshoring and outsourcing with impacts on home and host economies.

2.12 OFFSHORING AND OUTSOURCING • Offshoring: moving processes to another country. • Outsourcing: contracting out part of the operation to another country. It can take place within the same country or in another country. • Offshore outsourcing: contracting out to a firm in another country.

2.13 ASSUMED BENEFITS OF OFFSHORING AND OFFSHORE OUTSOURCING For the home firm and home country • Labour cost savings to be reinvested at home. • Displaced workers move to jobs of higher value. • Consumers have cheaper goods and services. • Increase in export for home market goods. • Take advantage of time zone differences. For the host country and its firms • Job creation and higher wages. • Increased GDP through exports. • Increased purchasing power of the population. • Improvements in the supply chain benefiting the whole economy.

2.14 ASSUMED PROBLEMS WITH OFFSHORING AND OFFSHORE OUTSOURCING For the home country and its firms • Unemployment • Wage reduction • Lower quality products and services • Increased risk of health and safety issues • Losing competitive advantage based on technology • Economic gains may be less than calculated. For the host country and its firms • Smaller firms can be forced to close • Exploitation of workers in non-first tier suppliers • Benefits only a minority of people – usually the owners of capital.

2.15 THE GLOBAL FACTORY I • A global network often involving several firms engaged in innovation, design, production, marketing, branding and distribution of a set of products and services. • The product and service are fine-sliced into a number of component parts with different firms being responsible for each stage. • The fine slicing is possible due to standardization of products and processes. • New forms of organization are created which include wholly owned subsidiaries, joint ventures and contract offshore outsourcing. • Control of complex networks is facilitated by developments in ICT.

2.15 THE GLOBAL FACTORY II A global factory can comprise: • A product assembled in one country by a lead firm with components made in several other countries. • Components are made by multinational firms in advanced economies and/or by wholly-owned subsidiaries and joint ventures or contract outsourcing in cheaper labour economies.

2.16 THE DELL NOTEBOOK: GLOBAL FACTORY EXAMPLE I

2.17 THE BOEING 787: GLOBAL FACTORY EXAMPLE II

2.18 WHAT ARE GLOBAL VALUE CHAINS? ‘The international process in which the full range of activities that are required to bring a product or service through from conception to consumption.’ Kaplinsky (2000) • At each stage of the chain value is added. • The build-up of value throughout the chain creates profit. • MNES account for 25% of world GDP and of this 40% is created by foreign affiliates. (UNCTAD 2011)

2.19 THE IPHONE GLOBAL VALUE CHAIN

2.20 TYPES OF GLOBAL VALUE CHAIN I Buyer-driven chains • The key player in the chain - the governing firm - is a buyer of products from a string of nominally independent suppliers. • Characteristic of labour intensive industries e.g. clothing and footwear industries. Producer-driven chains • The dominant, governing firm is a producer with backward and forward linkages in the chain. • The dominant firm controls key technologies e.g. computers. Both forms of value chain are linked to the growth of outsourcing and joint ventures.

2.21 TYPES OF GLOBAL VALUE CHAIN II There are variations depending on how the value chain is governed • Modular chains consist of a range of suppliers making components to the specification of the lead company e.g. computers, electrical goods, automobiles. • Captive chains tend to involve small suppliers that are dependent on a large powerful buyer e.g. fresh food industry, clothing industry. • Relational chains involve a relationship between a lead firm and its suppliers that tends to be based on mutual trust with an exchange of ideas and information with some shared development.

2.22 POLITICAL ASPECTS OF GLOBALIZATION • Emergence of supranational organizations such as the united nations - Alliances for defence such as NATO - Alliances for trade such as NAFTA, EU • Shift from economic to social and political objectives in such as EU and G8 • Issues - Sovereignty of nation states and democracy - Power of USA - Decentralization – balkanization, regionalism

2.23 CULTURAL ASPECTS OF GLOBALIZATION • Dominance of English language • Oligopolistic media • Global consciousness via travel andmedia • Convergence of some values – especially universalism and individualism

2.24 PERSPECTIVES ON GLOBALIZATION • Globalist • Anti-globalist • Sceptical

2.25 THE GLOBALIST PERSPECTIVE • Growth of global products, services and markets – more products available to more people • Convergence of cultures – greater understanding between people in different countries • Global integration of production, markets and distribution with increased efficiencies • Firms no longer represent nation states – business needs replace political needs • Increased flows of goods, services, money, people, ideas and knowledge explosion • The result of the above is economic growth and prosperity for all with some dramatic success stories e.g. Asian tigers • Increased security – absence of wars – a result of political or economic integration? • Global action on and improvements in poverty and health • Greater literacy and numeracy

2.26 THE ANTI-GLOBALIZATION PERSPECTIVE • Agreement with globalists about the changes but not the benefits • Benefits only a minority with widening gap between rich and poor nations and rich and poor people • International agencies serve the needs of the rich nations • Big business exploits nations and their people • Economic problems quickly spill over to other countries – cause of economic crashes • Local wars still exist • New problems created – drug trafficking, money laundering • Associated with ecological disasters and health problems e.g. HIV/AIDS • Globalization must be stopped or controlled

2.27 GLOBALISTS v ANTI-GLOBALISTS • Argument not clear cut • World Bank (2000) - “Compelling evidence” that globalization has created growth and reduced poverty in the developing world. - But also created inequalities. • Friedman (2006) - Globalization has brought the world together as the “flat world”. - But half the world population including rural China and India and most of Africa live in an “unflat world”.

2.28 THE SCEPTICAL PERSPECTIVE • Globalization is not new but part of a continuing trend in international trade • There is no plausible model of the global economy • Changes that are taking place are not global but focus on the advanced nations only • Nation states reject the notion of a borderless world – limit the flow of goods, services, money and people • Jobs move rather than people • Firms still identify with countries of origin • Cultural diversity significant

2.0 GLOBALIZATION