A fundamental shift is occurring in the world economy. We are moving progressively away from a world in which national economies were relatively isolated from each other by barriers to cross-border trade and investment – by distance, time zones, language, national differences in government regulation, culture and business systems. And we are moving toward a world in which national economies are merging into an interdependent global economic system, commonly referred to as globalization.
The electronics industry is the largest and fastest growing manufacturing industry in the world. The rapid rate of globalization is made possible by the rapid development and expansion of the Internet economy, which in turn is fueled by the unprecedented growth of high-tech electronics manufacturing.
In just one human generation, the high-tech revolution has spread out from its birth place Silicon Valley to encompass vast sections of the globe. A typical computer now contains components manufactured and assembled all over the world – semiconductor chips made in New Mexico or Scotland or Malaysia, a disk drive made in Singapore or Thailand, a CRT monitor made in Japan, circuit boards made in China and assembled in Mexico or Costa Rica.
As the global economy becomes larger, more complex and more inter-dependent global trade issues have begun to dominate international relations. International bodies such as The World Trade Organisation, and treaties such as North American Free Trade Agreement have been enacted to set the rules for international commerce. These new initiatives are driven by international trade and business concerns, and global high-tech giants often play a dominant role. Environmental labor and human rights issues have taken a back seat.
What is Globalization?
Globalization refers to the shift towards a more integrated and inter-dependent world economy. Globalization has two main components: globalization of markets and globalization of production.
Globalization of markets:
Refers to the merging of historically distinct and separate national markets into one huge global market place. The taste and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market. The global acceptance of consumer products such as Citicorp credit cards, Coca Cola, Levi’s Jeans, Sony Walkmans, Nintendo game players and Mc Donald’s hamburgers are all frequently held up as examples of this trend. Firms such as Citicorp, Coca Cola, Mc Donald’s are more than just benefactors of this trend – they are also instrumental in facilitating it. By offering a standardized product worldwide, they are helping to create a global market.
The most global markets currently are not markets for consumer products – where national differences in taste and preferences are still often important enough to act as a break on globalization – but markets for industrial goods and materials that serve a universal need the world over. These include the markets for industrial products such as microprocessors, DRAMS, commercial jet aircrafts etc. In many global markets, the same firms frequently confront each other as competitors in nation after nation. Coca-Cola’s rivalry with Pepsi is a global one. Thus diversity is replaced by greater uniformity. As rivals follow rivals around the world, these multinational enterprises emerge as an important driver of the convergence of different national markets into a single and increasingly homogeneous global market place.
Due to such developments in an increasing number of industries, it is no longer meaningful to talk about “the german market”, “the American market”, “the Brazilian market” or “the Japanese market”; for many firms there is only the Global Market.
Globalization of Production:
The globalization of production refers to the tendency among the firms to source goods and services from locations around the globe to take advantage of the national differences in cost and quality of the factors of production. This would enable the companies to lower their overall cost structure and improve the quality and functionality of their product offering, thereby allowing them to compete more efficiently.
Take for example, Boeing Company’s latest commercial jet airliner, the 777. The 777 consists of 132,500 major component parts that are produced around the world by 545 suppliers. Eight Japanese suppliers make parts for the fuselage, doors and wings; a supplier in Singapore makes the doors for the nose landing gear; three suppliers in Italy manufacture wing flaps and so on. These suppliers are the best in the world at performing their particular activity. The result of having a global web of suppliers is a better final product , which enhances the chances of Boeing winning a greater share of the total orders for aircraft than its global rivals, Airbus.
There are substantial impediments which still make it difficult for firms to achieve the optimal dispersion of their productive activities to locations around the globe. These impediments include formal and informal barriers to trade between countries, barriers to FDI, transportation costs, and issues associated with economic and political risk.
Drivers of Globalization:
1.Declining Trade and Investment Barriers –
International Trade occurs when a firm exports goods or services to consumers in another country. Foreign Direct Investment occurs when a firm invests resources in business activities outside its home country. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from foreign competition. After the World War II, the advanced industrial nations of the west committed themselves to removing barriers to the free flow of goods, services and capital between nations. This goal was enshrined in the treaty known as GATT (General Agreement on Tariffs and Trade), which was later established as The World Trade Organisation to police the international trading system. The most recent round of negotiations known as the Uruguay Round was completed in Dec 1993.
In addition to reducing trade barriers, many countries have also been removing restrictions to FDI. Such trends facilitate both the globalization of markets and the globalisation of production. The lowering of trade and investment barriers also allows firms to base production at the optimal location for that activity, serving the world market from that location. Thus a firm might design a product in one country, produce component parts in two other countries, assemble the product in another country and export the finished product around the world.
2.Role of Technological Change:
The lowering of trade barriers made globalization of markets and production a theoretical possibility, and technological change has made it a tangible reality. The world has seen major advances in communications, information processing and transportation technology including most recently the explosive emergence of the Internet and the World Wide Web.
*Microprocessors and Telecommunications –
The single most important innovation has been the development of the microprocessor which enabled the explosive growth of high power, low cost computing, vastly increasing the amount of information that can be processed by individuals and firms. The microprocessor also underlies many recent advances in telecommunications technology. Global communications have been revolutionized by developments in satellite, optical fiber and wireless technologies. The cost of microprocessors continues to fall while their power increases.
SPECIAL REPORT: ALL-DISTANCE TELECOM (FEBRUARY 4, 2003)ƒx
*Internet & the World Wide Web –
Recent growth of Internet and the World Wide Web is the latest expression of this development. In 1990, fewer than 1 million users were connected to the Internet. By the year 2000, the Internet may have over 30 million users. The Internet and the World Wide Web promised to develop into a information backbone of tomorrow’s global economy. Companies such as Dell computers are booking over 4 million dollars a day in Web based sales, while internet giant Cisco Systems books more than 20 million dollars per day in web based sales.
Included in this web based electronic commerce or e-commerce as it is called is a growing percentage of cross border transactions. The web allows businesses, both small and large to expand their global presence at a lower cost than ever before.
Japanese and Korean companies that have sprung up on the frontier of the mobile Internet. Cybird, Index, Xing, or Com2uS are seeing fantastic growth as 60 million Japanese and 16 million Koreans regularly use them to log on to 63,000 commercial Web sites and 2.3 million personal home pages designed for small phone screens and wireless connections. And they’re expanding to Europe, the U.S., and other points in Asia. Japanese and Koreans have multimedia phones outfitted with digital cameras, crystal-clear screens, and serviceable speakers. Japan’s three mobile carriers made $9.9 billion in data-traffic revenue last year, up 62% from 2001. SK Telecom Co. Korea’s largest cellular operator, saw data traffic nearly triple, to $611 million, last year.*
*Transportation Technology –
Several major innovations in transportation technology have occurred since world war II. The most important are probably the development of commercial jet aircrafts and super-freighters and the introduction of containerization, which simplifies trans-shipment form one more of transport to another. The advent of commercial jet travel, by reducing the time needed to get from one location to another has effectively shrunk the globe.
Containerization has revolutionized the transportation business significantly lowering the cost of shipping goods over long distance, thereby helping to drive the globalization of markets and production.
*Defence Technology –
With high tech’s progress in the 1980s, the network-centric idea advanced from possible to plausible. The network-centric scheme embodied in Raytheon’s Cooperative Engagement Capability (CEC) system was originally conceived to knit together all the naval-combat tools present on some remote stretch of ocean. Radar and sonar images from all the ships and patrol planes there -even those far over the horizon, out of sight in all directions – are combined electronically and displayed on screens in every ship’s combat-control center. If enemy planes zero in on a particular cruiser, say, and mask their attack with radar-jamming signals, the cruiser’s skipper can still see the radar blips picked up by other ships. And if the cruiser’s defenses are overloaded because of incoming missiles and torpedos, the CEC system can fire anti-aircraft missiles from a nearby ship.ƒx
Implications for the globalization of production:
Due to containerization and technological innovations, it is possible for a firm to manage a globally dispersed production system, further facilitating the globalization of production. A satellite based communication system allows electronic firms like Texas Instruments to co-ordinate on a global scale, its production planning, cost accounting, financial planning, marketing, customer service and personnel management. The system enables managers of the firm to send vast amounts of information to each other instantaneously and to co-ordinate the firm’s different plans and activities. Hewelett Packard uses satellite communications and information processing technologies to link its world wide operations. HP has new product development teams when developing new products, these individuals use Video Conferencing to meet on a weekly basis. They also communicate via telephone, email and fax. The development of commercial jet aircraft has also helped knit together the world wide operations of many international businesses.
Implications for the globalization of market:
Low cost transportation has made it more economical to ship products around the world, thereby helping to create global markets. Low cost global communications such as the www are helping to create electronic global market places. The low cost jet travel has resulted in the mass movement of people between countries. This has reduced the cultural distance between countries and is bringing about some convergence of consumer taste and preferences. At the same time, global communication networks and global media are creating a world wide culture.
Today, we live in an increasingly interconnected and interdependent world – a world characterized by change and driven by continued advances in technology.
So then, would the globalization of production and markets have been possible without the technological changes? It would have been possible, but definitely not to the extent with which it has developed and progressed today, all credited to the advances in technology.
There has been a dramatic shift to e-business, and it has become fairly obvious that the explosion in the use and availability of the Internet is both a driver and an enabler of much of this change. We are seeing a shift in how all transactions are conducted between companies and their customers all over the world, their business partners and other bodies they interact with on a daily basis. So we are really entering a period, an influction point, where this technology becomes so ubiquitous that it begins to be part of the everyday fabric of our lives. And we see a time where millions of companies will be connected to literally billions of customers and consumers using billions of devices whether they be cell phones, or personal computers or smart cards as a way of interacting with these companies, a way of gaining access to information and new services both from the public and private sectors all over the globe.