very commonly used term, globalization can mean different things to different people. At a broad level, globalization refers to the growing economic interdependence among countries, reflected in the increasing cross border flow of goods, services, capital and technical know how. The booming Business Process Outsourcing (BPO) business in India is a reflection of this trend. At the level of a specific company, it refers to the degree to which competitive position is determined by the ability to leverage physical and intangible resources and market opportunities across countries.
There are a number of factors driving globalization. More and more countries across the world are embracing free market philosophy and dismantling trade barriers. Better and cost effective ways of communication are making the world a smaller place. Due to the heavy R&D costs involved in developing new products, the pressure is increasing on companies to look for global markets to quickly recoup their investments. Satellite television is playing an important role in creating global markets by promoting uniform tastes among customers across the world.
Globalisation has created major opportunities for poor countries. In the past, poor countries remained poor and rich countries remained rich for generations. Now societies can develop skills and wealth in a much shorter time. In less than 40 years, Singapore has gone from developing country to developed country status. Taiwan and South Korea are also good examples. Globalization has leveled the playing ground for smaller companies. What matters in the global economy is not simply size; it is other intangible factors such as nimbleness, reputation and the ability to innovate.
At the same time, the more global we become, the more tribal is our behavior. John Naisbitt, author of Global Paradox, has argued that the more we become economically interdependent, the more we become possessive about our core basic identity. Fearing globalization and, by impli¬cation, the imposition of a western (predominantly American) culture, many countries have become paranoid about preserving their distinctiveness and identity.
This book is more concerned with how companies globalize. Typically, the process of globalization of companies evolves through distinct stages.
In the first stage , companies normally tend to focus on their domestic markets. They develop and strengthen their capabilities in some core areas.
In the second stage, companies begin to look at overseas markets more seriously but the orientation remains predominantly domestic. The various options a company has in this stage are exports, setting up warehouses abroad and establishing assembly lines in major markets. The company gets a better understanding of overseas markets at low risk, but without committing large amounts of resources.
In the third stage, the commitment to overseas markets increases. The company begins to take into account the differences across various markets to customize its products suitably. Different strategies are formed for different markets to maximize customer responsiveness. The company may set up overseas R&D centers and full-fledged country or region specific manufacturing facilities. This phase can be referred to as the multinational or multi-domestic phase. The different subsidiaries largely remain independent of each other and there is little coordination among the different units in the system.
In the final stage, the transnational corporation emerges. Here, the company takes into account both similarities and differences across different markets. Some activities are standardized across the globe while others are customized to suit the needs of individual markets. The firm attempts to combine global efficiencies, local responsiveness and sharing of knowledge across different subsidiaries. A seamless network of subsidiaries across the world emerges. It is very difficult to make out where the home country or headquarters is.