Name, discuss, and assess core issues of globalization
that have an influence on the conduct of
multinational corporations

von: Till Schneider
 

Basics and development of globalization

Globalization covers more and more countries and markets with increasing speed.1 Globalization is one of the most often used words of the present,2 but a clear definition is missing. Most of the times globalization is seen as a strong increase of the worldwide trade activities which includes the transboundary exchange of goods, services, capital as well as manpower.3 The structure of national barriers is broken up within the process of globalization to strengthen free trade and competition.4 Improvements in transportation, production and communication brought about new possibilities in the international division of labor, which brings along advantages to use scarce resources.5 Technological, political and institutional changes pushed the process of globalization through easier and faster access for market participants to goods, services and information from outside the home market.6 Globalization was not growing all by its own, but next to the improvements in technology the prerequisites were built by political initiatives like the GATT (General Agreement on Tariffs and Trade) or the liberalisation of the goods and financial markets.7

Core issues of globalization

The first point to mention is that technical progress in the area of information and communication as well as in transportation lead to a decrease in transaction costs. This offers the possibility for companies to sell their products cheaper. New information systems, especially the internet, lead to a massive reduction of transaction costs by offering faster and cheaper information resources. Messages to members of the companies as well as to trade partners can be sent and received within seconds all over the world via email or phone. Transportation systems improved during the time of globalization. Goods and services can be delivered faster to the customers. National as well as regional economic areas are merging and create a single world market, due to the decrease of transportation costs. What can be observed is an integration of factor and goods markets. As a consequence, multinational companies have to reconsider their market strategy. As the new markets with its great amount of new demand offers further selling opportunities companies have to be careful by picking the markets where they want to do their business and expect the best selling opportunities.

Furthermore, there are new dimensions of international division of labor. Companies always look for the cheapest production possibilities to ensure that they maximize their benefit by maximizing their profits. In many countries of the so-called Third World labor costs are much lower than in industrialized countries where companies can take advantage of. By having new production facilities produced by cheap labor they can do so. In 2003 the average costs for labor per hour in India was 0,74 USDollar and 2,69 Dollar in Brazil in comparison to 21,83 Dollar in the United States of America. In fact, every single component of a product can be distributed to the cheapest place to produce it. For example, some components of a product can be produced in Brazil, some in Portugal and the rest is finished in Germany. “Outsourcing” has become a very important issue for companies by placing the companies` resources to the locations and strategic partners where they are most efficient for increasing the value of the company. For example, a lot of call centers of technology companies are outsourced to India, because companies maintain low costs for staff over there and the people are English speaking. Education systems also improved in many countries. Thus nowadays, companies have the possibility to recruit their staff from a worldwide market.

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1 Vgl. SCHNEIDER (1998), S. 265; KAPILA (2002), S. 426.

2 Vgl. SCHMIDT (1998), S. 7.

3 Vgl. SOUNDARAPANDIAN (2003), S. 456; KAPILA (2002), S. 426.

4 Vgl. SOUNDARAPANDIAN (2003), S. 455; SANGMEISTER (2000), S. 9.

5 Vgl. ESCHENBURG/DABROWSKI (1998), Vorwort; SANGMEISTER (2000), S. 9.

6 Vgl. VANBERG (1998), S. 1.

7 Vgl. KÖSTERS, S. 377f.; SCHMIDT (1998), S. 33.