With these fundamentals, she will then try to integrate the theories and drivers and compare them to the real situation and discuss whether they adequately describe what we see today. Only when transport costs are prohibitive or economies of scale are difficult to achieve – that is, when there are negative incentives for consolidation – do more decentralized models of industrial location define the natural order. Companies like GE and Whirlpool have globalized their operations in many ways, but the fundamental economics of the industry make consolidation unattractive. The production of some value-added components such as compressors or electronic parts may be concentrated to some extent, but the bulky nature of the product and high transport costs make concentration economically unattractive. In addition, advances in flexible manufacturing techniques reduce the minimum scale required for efficient production. This allows manufacturers to tailor their product offerings to local tastes and preferences, further counteracting the globalization of the industry. While price isn`t the only factor that plays a role in consumers` purchasing decisions, it certainly plays a crucial role. When companies compete in a globally competitive field, cost drivers are much more complex than in smaller, simpler markets. Companies are influenced by general considerations such as monetary values, exchange rates, and labor and material costs in different locations. Government drivers of globalization – such as the presence or absence of favourable trade policies, technical standards, policies and regulations, and competitors or customers operated or subsidized by the state – influence all other elements of a global strategy and are therefore important in shaping the global competitive environment in an industry. In the past, multinational corporations relied almost exclusively on governments to negotiate the rules of global competition.
Today, however, that is changing. As the politics and economics of global competition become increasingly intertwined, multinational corporations are beginning to pay more attention to the so-called non-market dimensions of their global strategies, which aim to shape the global competitive environment to their advantage (see section below). This broadening of the scope of the global strategy reflects a subtle but real shift in the balance of power between national governments and multinational corporations and is likely to have important implications for how policy and regulatory differences affecting global competitiveness are resolved in the coming years. Globalization is a powerful result of the New World system. It is one of the most influential forces in determining the future course of business. The term was first coined in the 1980s. We define globalization as the democratization of access to local market knowledge, customer information, services, products and capital across national, cultural and linguistic boundaries. Procurement efficiency and costs vary from country to country, and global businesses can benefit from this. Other cost drivers of globalization are the ability to achieve global savings and today`s high product development costs. (Ferrier, 2004) “Globalization” is often described gradually as a more or less gradual process that begins with an increase in exports or global supply, followed by a modest international presence that evolves into a multinational organization and eventually evolves into a global position. However, this appearance of gradualism is misleading. It obscures the major changes that globalization requires in a company`s mission, core competencies, structure, processes and culture.
As a result, managers underestimate the huge differences between running international operations, running a multinational and running a global company. Research by Diana Farrell of McKinsey & Company shows that industries and companies tend to gradually globalize and that at each stage there are different opportunities and challenges associated with value creation. Farrell (December 2, 2004). The definition of market drivers includes the forces that influence consumers` purchasing decisions. In global markets, they reflect global rather than regional macroeconomic trends and conditions. The third stage (disaggregation of the value chainThe phase of globalization in which companies begin to disaggregate the production process and concentrate each activity in the most favorable place.) represents the next stage in the globalization of the company`s supply chain infrastructure. At this point, companies begin to disaggregate the production process and concentrate each activity in the most favorable place. Individual components of the same product can be manufactured in several different locations and assembled into finished products elsewhere. Examples include the PC industry market and the decision of companies to outsource some of their business processes and IT services. We must also distinguish between the globalization of industry, global competition, and the degree to which a company has globalized its operations.
In traditionally global industries, competition is mostly global and executives have created global corporate structures. But the fact that an industry is not truly global does not prevent global competition. And a global competitive position doesn`t necessarily require a global reorganization of all aspects of a company`s operations.