GLOBALIZATION

Introduction

            A powerful force drives the world toward a converging commonality and unity, and that force is technology. It has proletarianized communication, transport, research and travel. It has made isolated places and impoverished peoples eager for modernity’s allurements. Almost everyone everywhere wants all the things they have heard about, seen or experience via the new technology – the result of this is the emergence and materialization of global markets for standardized consumer products on a previously unimagined scale of magnitude ( and , 1993).

            Globalization has acquired considerable emotive force. Some view it as a process that is valuable – a key to future world economic development – and also inevitable, expected and irreversible. Other regards it with hostility, even fear, believing that it increases inequality between nations, threatens employment and living standards and thwarts social progress (, 2000).

            Globalization offers far-reaching opportunities for worldwide development but it is not progressing evenly. There are countries that are becoming integrated into the global economy faster than others. Those countries that have been able to integrate are seeing faster growth and reduced poverty. Outward-oriented policies bought dynamism and greater prosperity to much of East Asia, transforming it from one of the poorest area of the world 40 years ago. And as the living standard rose, it became possible to make progress on democracy and economic issues such as the environment and work standards (, 2000).

            Throughout the history, adventurers, generals, merchants and financiers have constructed an ever-global-economy. Today, unprecedented chances in communications, transportations and computer and information technology have given the process new impetus. As globally mobile capital reorganizes business firms, it sweeps away regulation and undermines local and national politics. Globalization creates a new market and wealth but it also causes widespread suffering, turmoil and unrest. It is both a source of repression and a catalyst for global movements of social justice and emancipation ( n.d.).

What is Globalization?

            According to  and  (2005), globalization is a multidimensional process, broadly restructuring and integrating the world’s economies, institutions and civil societies. It is a dynamic, ongoing and accelerating procedure that is increasing the links among actors, as well as the structures within which they operate, both within states and across borders. Trade, production and finance are now more globally integrated that ever before, as are global organizations and social movements. These far-reaching linkages are making global interactions more strong and complex. Globalization is also changing the nature of space, collapsing some space while creating sharper spatial barriers elsewhere. Like for example, the effective distance between individuals in Africa and Asia, between neighbors on a suburban street, customers in a supermarket and commuters on a subway. It is also affecting time, speeding up the nature of these interactions as communication hardware advances ().

            Globalization is the worldwide economical, political and cultural exchange of ideas among the states in the modern world. The economic aspects of globalization include trade, investment and migration across the countries. Globalization believes that human being should have greater access to vast number of goods ranging from cheap labor in third world countries to bigger overseas investments (, 2006). Globalization is a process fueled by, and resulting in, increasing cross-boarder flows of goods, services, money, manpower, information and culture (, 1999). It can also be considered as a decoupling or “distanciation” between space and time (, 1990) or “compression” of space and time, a shrinking of the world (, 1989).

            Globalization is driven not by foreign trade and investment but by increasing technological scale and information flows (, 1997). It is the increasing interdependence of national economies in trade, finance and macroeconomic policy (, 1987). It also refers both to the compression of the world and the intensification of consciousness of the world as a whole (, 1992). It is the diffusion of practices, values and technology that has an influence on people’s lives worldwide (, 1997).

History of Globalization

            The term “globalization” was coined by , a professor at the Harvard Business School in 1983 and popularized by the economist  in his works on the global strategies on the global strategies of multinational companies; the term ‘globalization’ defines a worldwide process of intensification of the movement of goods, information and products requirements, especially capital and finance instruments ( and , 2005).

            Globalization was already existing during the Arab Empire, when knowledge from many cultures were integrated, and when greater integration along the Silk Road during the Mongol Empire. The global integration continued through the expansion of European trade in 16th and 17th centuries, this was when the Portuguese and Spanish Empires reached to all the corners of the world (, 2000). 

            When the Dutch East India Company, the first multinational corporation was established in 17th century, the globalization became a business phenomenon. The first era of globalization was experienced in 19th century, when the liberalization cause the rapid growth in international trade and investment between the European imperial powers, their colonies and later, the United States (, 2002).

            Globalization also owed a great deal to the Industrial Revolution. The industrializing countries looked overseas for raw materials and foodstuff, and also for new markets for their output and invested heavily. During the World War I, foreign direct investment had reached an estimated US billion. The 1930s saw something of a lull, but transnational growth took off again after World War II. This was initially driven by American companies, and later by those of Europe and Japan.  Between 1870 and 1913, international trade expanded at around 3.4 percent per year. Between 1913 and 1950, there was a long hiatus, as a result of wars and various types of trade restriction, during which growth plummeted to less than 1 percent annually. It recovered on between 1950 and 1973, during that time the trade grew at over 9 percent per year (, 2000).

Global Openness

            Globalization is characteristics of the structure of all these interactions at the international level and the openness of the country indicates the extent to which a country takes a part in the process of globalization ( n.d.).

Economic Openness – this refers to a country’s cross-boarder economic interactions established through ingoing and outgoing flows of goods, services and capital. There are three different dimensions of economic openness: trade openness or total imports and exports; inward and outward foreign investments; and trade liberalization ( n.d.).

Social Openness – this involves means of communication such as telephone, television and the Internet and the movement of the people from one country to another by international travel and migration ( n.d.).

Political Openness – this refers to the international political relationship between countries. This relationship is regulated through the direct political interactions among countries as well as through international arrangements such as the United Nations (UN), the European Union (EU) and the North Atlantic Treaty Organization (NATO) ( n.d.).

Globalization and Nokia

            Globalization is competition and reorganization, attracting countries that were in need of investment and such investment improved their economic condition (, 2006). Nokia is considered as one of the companies in the world that is taking advantage of the effect of globalization. The official manufacturer of Nokia is based in Finland, but because of globalization, Nokia is now embracing China.

Customer, Competitor and Competition 3C’s model of Nokia

Strategic Triangle 3C’s

Adopted from , 1982,

Figure 1 The Strategic Triangle 3C’s of Ohmae                                                      

 

 

 

Customer-based strategies

Segmenting by objectives: Nokia is offering different edition of Nokia Nseries mobile phone which are the music and Internet edition. By doing this, it will be easy to target those music lovers as well as those active netizens.

Segmenting by customer coverage: Nokia is focusing it operation in their biggest market such as China, their biggest market, India, their second market, Vietnam, Philippines and other Asian countries.

 Corporate-based strategies

A case of make or buy: Nokia and Siemens merged their Network Business Group (Nokia) and carrier-related operations (Siemens) into a new company. The 50-50 joint venture created a global leader with strong positions in important growth segments of fixed and mobile network infrastructure and services (, 2005).

            Nokia and Airtel draw up joint strategy. This merged will help both companies to be ready to face the challenge posed by Vodafone. By doing this, both of the company will be able to produce quality phone that can compete with Vodafone but at partly subsided rates (, , 2007).

Competitor-based strategies

Power of image: Nokia outsell their competitors by offering different designs and Internet-based mobile technology. They’ve also made the program of their models more user-friendly and outstanding.

Tactics for Flyweights: Nokia’s main component of strategy is being ahead of the curve. They are investing in brand, in people and in distribution before anybody else. Nokia invested in each vertical of the handset ecosystem – manufacturing, distribution and design R & D (, 2007). The company established different laboratory and R & D center in different part of the world particularly in Finland, India and China.

 

 

 

Figure 2 The Percentage of Nokia People

Absolute Advantage

            Absolute advantage theory was introduced by a Scottish economist Adam Smith during the 18th century. It was an international trade history that asserted individuals or nations trade because they have superior productivity in particular industries. Nations should produce and export goods for which they possess an absolute advantage and import others which other nations possess an absolute advantage for ( n.d.).

            In today’s global environment whoever manufactures products better, cheaper and faster wins. Every country in the world is competing. In consumer products, China is grabbing a lot and they are moving strongly into high technology ( n.d.).   is the one who introduces this theory. A country has an absolute advantage in the production of good relative to another country if it can produce the good at lower cost or with higher productivity ( and , 2000). Nokia uses this theory in terms of production of mobile phones.  

Table 1 Labor Cost (, 2007)

Labor Cost

Countries

Cost (hour)

1. Europe

US

2. America

US

3. China

Below US

 

            This table shows the advantage of China among other country in terms of their labor cost. Labor cost is very important in a business because this will require a big portion of the company’s yearly budget. The per-hour cost for the worker in America and Europe is between US to US and sometimes more. This is contrary to the per-hour cost of the workers in China (, 2007)

            The theory of absolute advantage was used by Nokia to ensure that they can produce more mobile phones by having many workers but at the same time paying less.

            The reasons why China is now becoming the center of manufacturing of the world is because of its increasing manufacturing ability, the low labor cost and the good and respective quality and standard. It also has one of the worldwide market-share of about 50% of cameras, 30% of air conditioners and televisions, 25% of washing machines, 20% of refrigerator and 40% of microwaves. The city of Wenzhou, located at the Eastern China is the producer of the 70% of the world’s metal cigarette lighters.

 

 

Figure 3 The Global Manufacturing Network

            This figure shows that there are four sites of manufacturing of Nokia phones that are located in China. The company’s primary reason is lower logistics costs and taxes and co-location with their suppliers.

The Theory of Comparative Advantage

            The theory of comparative advantage is perhaps the most important concept in international trade theory ( n.d.). This theory was developed and introduced by an English Economist,  during 19th century.

            China and Finland are both manufacturer of Nokia mobile. China is the largest country manufacturer of the mobile phone brand because the company is taking the advantage of low salary rate of the Chinese worker. Nokia is using the theory of comparative advantage in such a way that they are manufacturing in China because of the said advantage but they are also doing business in Finland because of the quality. Most of the users around the globe are saying that Finland made Nokia mobile phone has a high quality than the China made. This will make the China and Finland equal in terms of manufacturing because both of the countries have their own advantages.

Effects of Globalization

            It is now conventional wisdom that globalization trend is set to gather pace, to transform the workplace, to change employment relations and, indeed, our way of life ( and , 2002). It will greatly affect the world’s industrial aspect, financial aspect, economic aspect, political aspect, informational aspect, cultural aspect, ecological aspect, social aspect, transportation aspect and cultural aspect.

Advantages of Globalization

            Globalization helps the productivity of the world. Living standard can go faster because countries can produce goods and services where they have a comparative advantage. Inflation is less likely to derail economic growth because of global competition and cheap imports. An open economy can spurs innovation with fresh ideas from abroad. Export jobs often pay more than other jobs and unfettered capital flows give the USA access to foreign investment and keep interest rates low ( n.p.).

            Globalization has opened up broader communication lines and brought more companies and worldwide organizations into different part of the world ( n.d.). This will provide jobs for jobless and will help decrease the unemployment rate and underemployment rate of a country. With new jobs, there are opportunity for high pay and will elevate the standard of living.

            The world has become smaller. People manufacturing products move funds and work all across national boarders. Human economic activities become broader and faster (, 2007).  Direct investments in Southeast Asia, China and other countries have been growing rapidly in recent years. Integrated systems of production have been spreading in Asia (, 2007).

            From 1981 to 2001, according to  figures, the number of people living on a day less declined from 1.5 billion to 1.1 billion in absolute terms. At the same time, the world population increased, so in percentage terms the number of such people in developing nations declined from 40% to 20% of the population. The percentage of people living on less than a day has decreased greatly in areas affected by globalization, whereas poverty rates in other areas has decreased by 50.1% compared to 2.2 % increased in Sub-Saharan Africa ( n.d.).

SOURCE: , , 2002

Figure 4 Demographic Daily Budgets

            The pro-globalization believes that because of the event income inequality as a whole is diminishing. They also believes that because of globalization, the gap between male and female in terms of independence decreases. Because of the foreign companies and investors that are investing money for a business in different part of the globe, there are more jobs that are allocated for women.

Disadvantages of Globalization

            The anti-globalization can see globalization as a negative phenomenon that is making rich richer and poor poorer. They believe that it causes poverty and dilute responsibility to the capital owners, slashed down the jobs and increased threats to resources in poor countries (, 2006).

            Globalization also causes brain and brawn drain. The recent joint venture of China with Japanese companies is to get skill directly by working with Japanese. A few example of successful story are experience of Singapore, Korea and Taiwan. The economies of these countries prospered through export led strategies with the use o cheap labor becoming skillful and creative. Korea’s Samsung and Hyundai is the best example for this situation. Despite all the benefits of globalization a large number of developing countries have not made much progress as anticipated. For example, other than few Asian countries, majority of African countries have made little progress or in some cases have even lost the track and becomes much poorer. In Asia, other than India, such as Maldives, Philippines, Indonesia, Burma and Nepal are becoming much poorer than they were before. This condition shows that the gap between the rich and poor countries is increasing (, 2006).

            Globalization is also killing the local market of a poor country. For example in the Philippines, because of globalization, China and Korea are now selling shoes in a very low price. This causes the decline of shoe industry in the said country. And because of the decrease of the demand for local shoes, there are many shoe companies, particularly those small enterprises that are closing.

            Globalization will also cause the decrease of quality of a product. Because most of the products now are can be bought in a low price, the quality is also at stake.

            Globalization will also lead to a sudden change of culture. Because of international exchange of goods and services as well as information, there are cultures and customs that are now starting to diminish such as using of local and native products.

Conclusion

            The four main economic flows that characterized globalization are: the goods and services, the labor or people, the capital and the technology. There is no doubt that globalization made the world small enough to communicate and to market different products and services. There are countries that are now taking advantage of the good effects of globalization to their economy. Like China and Japan, that is now at the top of the manufacturing and production field. These countries are now doing well in the world market. But as like what the anti-globalization believes, globalization is only good for those rich organizations, companies and individual but this event is not very good for the poor. Globalization is one of the reasons why most of the countries in Asia are suffering from poverty. Those huge and rich countries are taking advantage over those weak countries. They are selling goods and services in a very low price, and this may cause the decline of the local products of those poor countries.

            Globalization also affects the culture of a country because of the vast information sharing and marketing.

 

 

 

Bibliography

 

           

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