A definition of globalization:the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets
A definition of globalization as it is commonly used is “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets” (Merriam-Webster’s Collegiate Dictionary, 2004, p. 532). A more comprehensive definition for the purposes of this discussion is an amalgam from two sources. “Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transporta- tion, and trade” (Bhagwati, 2004). Globalization is typi- cally identified as being propelled by a combination of economic, technological, sociocultural, political, and biological factors. The term can also refer to the trans- mission of ideas, languages, or popular culture across national boundaries. Some facet of life that has under- gone this process can be considered to be globalized (Croucher, 2004).
What does all this mean with respect to strategic management? Not too long ago, companies might have asked themselves whether they should globalize; today, they should instead ask why they shouldn’t (Yip, 2003). Consider the following scenarios and the challenges they pose to businesses.
If you managed a local or regional company, you might think that you would be competing just locally or regionally, right? This assumption is no longer true. It’s highly likely that foreign competi- tors would be getting a foothold in your market. You or your competitors would almost certainly be buying parts or materials from foreign companies to make your products at lower costs. You could even be outsourcing your entire manufacturing to a foreign company; lately it seems that everything one buys is made in China. You may well be employing people from other countries. Without question you would be using equipment, from machines to cell phones to cars, made by foreign companies. So even an American company competing in the United States experiences globalization in every facet of its business.
If you directed an American company and your domestic market had matured or become satu- rated, meaning that sales had leveled off and no unserved demand exists, you would want to find new avenues for growth. If you believed that consumers in other countries buy your product, you would want to expand to one or more foreign countries to continue growing and making a profit. Globalization means doing just that, but you can expect to face tough foreign competition from other companies chasing the same customers. To succeed, you will have to do this in a country whose laws, culture, currency, customs, and even language are unfamiliar. You will have to make critical decisions such as whether to make the product in the United States and ship it to those countries or manufacture the product there. As you can imagine, this gets complicated very quickly.
While even the most global of companies must have their headquarters in one country, that aside, they are truly global. They have operations all over the world with employees from each of the
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Globalization is the process by which regional economies, cultures, and societies become integrated in a global network of political and economic ideas through com- munication, trade, and transportation.
CHAPTER 1Section 1.3 The Globalization of Business
Case Study Globalization at Work in San Miguel
In San Miguel de Allende, a colonial town in Cen- tral Mexico and World Heritage Site, a collection of upscale art and furniture galleries occupies what was once a textile factory. Negociación Fabril de la Aurora was a company that once supplied manta, or unbleached muslin, to all of Mexico.
Constructed in 1902 by an English company, the factory was equipped with cylinders, spindles, and looms to process the bales of raw cotton from the central part of Mexico and from Sinaloa and Sonora states. The raw fiber was cleaned, ginned, carded, and spun into yarn or thread and finally woven into manta. The Aurora manta was of high quality and used to make indigenous clothing and home linens. By the 1970s, production included heavy canvas used for making tennis shoes.
In the mid-1950s, most of the English machinery was replaced with later models from Germany and Switzerland. Until the time of its closing, La Aurora was the largest employer in San Miguel de Allende with a work force of over 300 and an integral part of the daily lives of its workers and the community. It sponsored soccer and baseball teams, held picnics for families on Sundays with a live band on the grounds, and even arranged an altar inside the factory for a local priest to deliver Mass.
“Free trade agreements brought many changes to the Mexican textile industry and La Aurora was not an exception. Cotton imports began flooding the market and domestic production was greatly affected. As a result, the steam-generated whistle which signaled the start and finish of each shift and was a notable sound in San Miguel for almost 90 years blew for the last time on March 11, 1991.” (Fabrica La Aurora, para. 7)
Source: Fabrica La Aurora. History of Negociación Fabril de La Aurora (1902–1991), framed at the entrance to La Aurora, photographed on March 26, 2011.
Associated Press/Eduardo Verdugo
Free trade agreements resulted in a trans- formation of the Mexican textile industry. When cotton imports flooded the market, many textile plants like Negociación Fabril de la Aurora were forced to close their doors.
countries in which they are located. Research and development centers may be established on sev- eral continents. Manufacturing is conducted in many locations, typically located near suppliers and customers to minimize transportation costs. Sales offices are found everywhere the company sells its products. It may be that products have to be tailored to a particular country, for example, cars outfit- ted with steering on the right for countries that drive on the left or appliances that operate on differ- ent voltages depending on the country. An enormous challenge is that a company must comply with the laws of each country in which it does business. An example of a company in this scenario is Volk- swagen, a German auto company that sells cars in the United States that are manufactured in Mexico.
Today, anyone starting a company in the proverbial garage can find customers all over the world through the Internet. Imagine, a craftsman or rug maker in Northern India with access to an Inter- net connection can now sell his products globally! Conversely, a consumer in the United States shopping for a particular product can now choose from suppliers or retailers anywhere in the