g l o b a l i s a t i o n a n d b u s i n e s s - e f f e c t s o n b u s i n e s s

The Effects of Globalisation on Business

The effects vary a lot from one part of the world to another, and from one area of business to another. Communications infrastructure is important to modern businesses, but not all countries have got one. There is also the ‘non-traded’ sector ie goods and services which are not traded internationally. Domestic services, for example, have to be provided where the house is; you can’t export a clean house.

Competition

- Foreign businesses buy into domestic markets.- Deregulation opens up markets to competition.- Deregulation encourages innovation in new products and markets which challenges traditional market leaders

Meeting consumer expectations and tastes

- Generally, consumers all over the world are better informed, have higher incomes and therefore higher and more exacting expectations. This forces businesses to meet higher standards.

Economies of scale

Selling into a global market allows for enormous economies of scale, although not all industries benefit from these.

Choice of location

Businesses are now much freer to choose where they operate from, and can move to a cheaper and more efficient location. In the last decade the UK has been seen by many businesses as an attractive business location, especially in financial services, and many businesses have located in the UK which has boosted the UK economy but also provided increased competition for UK businesses. This increased movement of businesses and jobs has, to some extent, forced governments to compete with each other in providing an attractive and low-cost location. Ireland, for example, offers ‘tax holidays ’ to businesses relocating there. Manufacturing businesses are increasingly relocating to low-wage countries such as Indonesia. Inputs vary in price across the world, and businesses now have more freedom of movement in moving to get hold of those cheaper inputs eg labour in developing countries, or financial advice in the City of London. One limitation on this is that managers won’t always move to some countries if living conditions are unpleasant or even dangerous.

Multi-national and multi-cultural management

This is a major challenge to businesses and their managers. A multi-national business environment is more complex with more variables, and so is more difficult to manage. A multi-cultural employment policy leads to employees of many different nationalities, languages, religions and cultures in different offices across the globe. These employees react in quite different ways to incentives, to motivation and it is very difficult to find managers who are sensitive to all these different factors. It is very easy to inadvertently give offence and demotivate workers. For example, the Japanese were initially very disappointed with their Thai employees who didn’t respond well to Japanese methods of building up

corporate loyalty and motivation. Once they turned production targets into a game, the Thais worked extremely well.

Globalisation of markets

National borders are becoming less and less important. Markets stretch across borders and MNCs are well-placed to take advantage of this. The same issues of language and culture and so on arise. Consumers are more alike, but by no means the same. Many businesses have made expensive mistakes by not taking local variation sufficiently into account. Marketing, in particular, is a minefield because of its dependence on language. The marketing books are full of stories, often very amusing, of how businesses got it wrong. For example, the GM Nova failed in Spain because ‘NoVa’ means ‘doesn’t go’ in Spanish. See, for example,http://news.bbc.co.uk/1/hi/business/1592295.stm

The Role of Multinational Enterprises in Globalization

An Empirical OverviewThe activities of multinational enterprises drive the economic globalization process to a very large degree. This paper lists some facts about their dominant role in all channels of globalization. Therefore, the importance of multinational enterprises in foreign direct investment and production abroad is examined as well as their contributions to the international transfer of knowledge and technology and to foreign trade. It is argued that economic theory must account for multinationals’ activities in the analysis of the globalization process.