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semi-conductor chips, and computers, have been global fordecades. Retailing has been primarily local in orientation, but ina testament to the scope and I pace of globalization, this too isnow changing. Falling barriers to cross-border invest-ment havemade this possible. Rapid economic growth in developingnations and mar-ket saturation at home- has made globaliza-tion a strategic imperative for established retailers seeking togrow their business. Many, such as Wal-Mart and Tesco, feel thatthey must move aggressively now lest they lose the initiative toearly movers like Car-refour. They see their strategic advantage interms of building a global brand, realizing economies of scale,and leveraging skills across national borders. In this, they are nodifferent from companies in other industries that have alreadygone global.At the same time, going global is not without problems. Thistoo was evident in the opening case. The grand strategic visionof retailers such as Wal-Mart and Carrefour has often run upagainst the hard reality that for all the superficial similarities inma-terial and popular culture and in business systems, doingbusiness in foreign nation still has unique challenges. Becauseof different tastes and preferences, what sells in Britain may notsell in Thailand, operating systems that give a retailer a competi-tive advantage in America may be difficult to implement inMexico, and a brand that means something in Kansas maymean little in Indonesia.The tension evident in the opening case between the economicopportunities associated with going global and the uniquechallenge associated with doing business across borders is animportant one in international business. To begin with,however, we need to take a closer look at the process of globalization. We need to understand what is driving thisprocess, appreciate how it is changing the face of internationalbusinesses, and better comprehend why globalization hasbecome a flash point for debate, demonstration, and conflictover the future direction of our civilization.
What is globalization?
Globalization refers to the shift toward a more integrated andinterdependent. World economy. Globalization has two maincomponents; the globaliza-tion of markets and the globaliza-tion of production.
The Globalization of Markets
The globalization of markets refers to the merging of histori-cally distinct and national markets into one huge globalmarketplace. Falling barriers to cross-border trade have made iteasier to sell internationally. It has been argued for some timethat the tastes and preferences of consumers in differentnations are beginning to converge on some global norm,thereby helping to create a global market.
Consumer productsuch as Citicorp credit cards, Coca-Cola soft drinks, SonyPlayStation, and McDonald’s hamburgers are frequently held,up as prototypical examples of this trend. Firms such asCiticorp, Coca-Cola, McDonald’s, and Sony are more than justbenefactors of this trend; they are also facilitators of it. Byoffering a standardized product worldwide they help to create aglobal market.A company does not have to be the size of these multinationalgiants to facilitate, and benefit from, the globalization of markets. In the United States, more than 200,000 smallbusinesses with fewer than 100 employees registered foreignsales in 2000. Typical of these is Hytech, a New York-basedmanufacturer of solar panels that generates 40,percent of its $3million in annual sales from exports to five countries, or B&SAircraft Alloys, another New York company whose exportsaccount for 40 percent of its $8 million annual revenues.Despite the global prevalence of Citicorp credit cards andMcDonald’s hamburgers it is important not to push too far theview that national markets are giving way to the global marketvery significant differences still exist between national marketsalong many relevant dimensions, including consumer taste andpreferences, distribution channels, culturally embedded valuesystems, and the like. These differences frequently require thatmarketing strategies, product features; and operating practices becustomized to best match conditions in a country. For example, automobile companies will promote different carmodels depending on a range of factors such as local fuel costs,income levels, traffic congestion, and cultural values. Similarly, aswe saw in the opening case, global retailers may still need to varytheir product mix from country to country depending on localtastes and preferences.The most global markets currently are not markets for con-sumer products-where national differences in tastes andpreferences are still often important enough to act as a brake onglobalization-but markets for industrial goods and materialsthat serve a universal need the world over. These include themarkets for commodities such as alu-minum, oil, and wheat;the markets for industrial products such as microprocessors,DRAMs (computer memory chips), and commercial jet aircraft;the markets for com-puter software; and the markets forfinancial, assets from U.S. Treasury bills to eu-robonds andfutures on the Nikkei index or the Mexican peso.In many global markets, the same firms frequently confronteach other as competi-tors in nation after nation. Coca-Co la’srivalry with Pepsi is a global one, as are the ri-valries betweenFord and Toyota, Boeing and Airbus, Caterpillar and Komatsu,and Nintendo and Sega. If one firm moves into a nation that isnot currently served by its rivals, those rivals are sure to followto prevent their Competitor from gaining an ad-vantage. Theopening case revealed that retailers such as Wal-Mart, Carrefour,and Tesco are starting to engage in a global rivalry. As firmsfollow each other around the world, they bring with them manyof the assets that served them well in other national markets-including their products, operating strategies, marketingstrategies, and brand names-creating some homogeneity acrossmarkets. Thus, greater uniformity replaces diversity. Due to suchdevelopments, in an increasing number of industries it is nolonger meaningful to talk about “the German market,” “theAmerican market,” “the Brazilian market,” or “the Japanesemarket”; for many firms there is only the global market.
The Globalization of Production
The globalization of production refers to the sourcing of goods and services from loca-tions around the globe to takeadvantage of national differences in the cost and qual-ity of