Globalization as a Powerful Aspect of the New World System

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Table of Contents

Introduction
Impact of Globalization on Global Operations
Corporate Strategy: Global Acquisitions
Globalization and Competitive Advantage
Differences in Management Roles
References

Introduction

The concept of globalization represents a powerful aspect of the new world system and may be considered one of the most influential forces determining our planets future course. The globalization process is continuous and involves the integration of regional economies with the international economy using trade, technology transfer, migration and injection of capital (Intriligator, 2004).

Some of the notable developments attributable to globalization in the recent past include the massive reduction in costs of devices such as computers. This paper seeks to discuss globalization within the context of operations, corporate strategy and acquisitions, competitive advantage and differences in management roles in domestic and global operations.

Impact of Globalization on Global Operations

Due to globalization there has been a marked increase in trade between countries not only in goods but also in exchange of currencies. This case is evident when considering the volume of international financial transactions estimated at $1.2 trillion daily through currency markets in New York (Intriligator, 2004). In similar fashion the volume of international stock market transactions have risen and exceed the enormous amount international currency transactions.

Another impact of globalization is evident in the marked increase of trade liberalization currently being witnessed world over. The process began in the last century but progress has been rapid in recent years with the result that there have been significant reductions in tariffs and similar barriers to trade (Intriligator, 2004). These reductions have acted as catalysts and caused trade between countries to increase dramatically over very short periods.

Owing to globalization the nature of institutions has also experienced changes. The organizations now have a wide reach due to technological advancement and are able to focus on a larger market allowing for the rise of multi national and international entities.

These changes have led to an increase in power, profitability and productivity of firms (Intriligator, 2004). The globalization phenomenon has had many effects but those mentioned constitute the main impacts on a global scale.

Corporate Strategy: Global Acquisitions

In attempts to grow and increase coverage or revenues business entities often will buy other companies in the same country or other countries. This process is largely influenced by the corporate strategy adopted by the organization. The lack of skilful strategies can hamper growth of companies and limit their ability to progress in the competitive business environment of today.

According to Useem (1998), the executives must be able to provide the strategy to stock analysts and, in addition, share value to money managers. This is true due to the fact that the globalization of equity markets provides firms with opportunities to reduce information and agency costs, hence contributing to higher firm values and lower capital costs (Randoy, Oxelheim and Stonehill, 2001).

This above fact is represented in the case actions of Hafslund Nycomed, a Norwegian pharmaceutical company. In 1992, the company listed on the New York Stock Exchange (NYSE) and made a $74.7 million equity issue. At this time the company represented the equivalent of 11% of the share value on the Oslo Stock Exchange. This issue improved the companys visibility and developed a reputation with US institutional investors.

In the same year this strategy paved the way for a $400 million takeover of its main rival in the US, Sterling Winthrop. This fact would posit that the relation between corporate strategy and financial strategy were pivotal to this success (Randoy, Oxelheim and Stonehill, 2001). This example clearly elicits the importance of corporate strategy in an organization.

Globalization and Competitive Advantage

Through the borderless business environments that are characteristic of a globalized economy several participating countries and their economies have gained immensely from globalization. This fact is corroborated by the data from countries that rely on export trade and increases in Foreign Direct Investment (FDI) in the developing world (Levy, 2007).

This FDI is influenced by factors such as political stability and macro economic conditions. In 2003, China received 8.2% of the worlds total FDI and in the following year had become the sixth largest global economy (Levy, 2007). The increased investment in China has resulted in transfer of technology which in turn has allowed the country diversify in products and generate increased revenue.

Firms can also utilize strategies such as international expansion to gain a competitive advantage in the globalized economy of today. This international expansion is likely to reduce labor and transportation costs as well as avoid taxation (McCloskey et al., 2006). This would entail a firm making strategic decisions that include acquisitions to enable it achieve these objectives.

In the developed world labor is very costly and as such goods produced in countries where labor is cheaper will allow a firm to gain much needed competitive advantage. Another useful and successful strategy that has been utilized in the era of globalization to gain a competitive advantage is that of franchising. A franchise is a developed business concept and operational guidelines that is sold for a fee.

This concept is common in fast food restaurants and has been widely successful in many parts of the globe. The result is the company running the franchise gains a serious competitive advantage that can generate significant revenues (Teegen, 2000). The above mentioned are just a few examples of how globalization can provide a competitive advantage in relation to both domestic and international rivals.

Differences in Management Roles

In a business context management is a process of bringing people together to accomplish desired objectives. Management in a domestic and global environment would be quite similar with a few exceptions. First, in a domestic environment management planning would focus on the existing local competition which would not be the case in the global environment.

As such, a firm that would operate in other locations would be required to consider the standards that exist in various locations. For example, the standards associated with fast food outlets in the US will be different with those same outlets in sub Saharan Africa. As earlier mentioned a competitive advantage may be gained by international expansion of a business entity.

This expansion is done mainly to capitalize on the advantages that can be gained from reduced labor or transport costs in other countries. This would posit that management in global operations requires collection of data on where or to invest to gain maximum benefits. In addition, the fact that globalization would increase interaction with foreign organizations, allows the assumption that management practices would require additional understanding.

It would be important to understand the cultures of related parties and adjust practices to ensure no hurdles are encountered through communication breakdown. In line with this the increased interaction would suggest the need to understand laws of different regions.

References

Intriligator, M.D. (2004). Globalization of the World Economy: Potential Benefits and Costs and a Net Assessment. Journal of Policy Modeling, 26, 485-498.

Levy, B. (2007). The Interface between Globalization, Trade and Development: Theoretical Issues for International Business Studies. International Business Review, 16, 594-612.

McClosekey, A., McIvor, R., Maguire, L., Humphreys, P &ODonnell, T. (2006). A User Centered Corporate Acquisition System: A Dynamic Fuzzy Membership Functions Approach. Decision Support Systems, 42, 162-185.

Randoy, T., Oxelheim, L & Stonehill, A. (2001). Corporate Financial Strategies for Global Competitiveness. European Management Journal, 19(6), 659-669.

Teegen, H. (2000). Examining Strategic and Economic Development Implications of Globalizing through Franchising. International Business Review, 9,497-521.

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