Globalisation: What Is It and How Does It Affect Modern World?

Globalization is an established part of the modern world. Globalization is a way of eliminating the difference between different countries, continents, and economies. mobilization of people, knowledge, ideas, goods, and money across the national borders led to the interconnectedness among the world´s populations, economically, socially. culturally, and politically. Globalization helps to trade and conduct transactions within and between nations. (David Held and Anthony McGrew, David Goldblatt, and Jonathan Perraton, 2014).

One of the definitions of Globalization is, it’s a complex area of a social process that intensifies and expands worldwide economic, cultural, political, and technological exchanges and connections.

  (Patrica J. Campbell, Aran MacKinnon, Christy R. Stevens, 2010).

According to Professor Theodore Levitt, “globalization is the process of integrating nations and peoples- politically, economically, and culturally into a larger community. In this broad sense, it is a little different from internationalization. Yet globalization is more than this incremental process that over the centuries has bought people and nations closer together as technological innovation dissolved barriers of time and distance, and enhanced flows of information promoted greater awareness and understanding.

”(americanforeignrelations.com, 2017)

Brief History of Globalization

Globalization is the gradual integration of economies of peoples and of cultures across the world. Although contacts between Asian, African, and European continents had existed before, historians contend that global interactions became increasingly common from the 1500s and rapidly intensified after the 1800s. This period of about 300 years has been called early or proto globalization. This early globalization is a story of discovery and empire. (Vanham, 2019) Globalization invented with the invention of new ships which help people to trade between countries on a large scale.

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In the 1980s the modern globalization really took off the world and now it works as the driving force of the modern world. Before the modern globalization, the ships and airplanes exist in the economy but now it plays a crucial role in the globalized economy. The recent developments and innovations in the transport sector such as ships, rails, and airplanes help the economy to increase the growth. These developments help people to more convenient and faster to travel across the world and execute their trade practices. With the recent developments in the global world shipping cost decrease, it makes more sense to make the product at a cheaper cost. Some regions have raw materials with less cost and companies make the product in a cheaper region and transport it to its destination. There is no limit to setting up a factory or office in a cost-effective area. In addition to that, the improvements in the internet and technology also make it easier to communicate internationally. It also helps the economy to a steady growth rate.

Benefits of Globalization

Globalization has provided a wide range of advantages to the economy. One of the major advantages attain from globalization is an expansion of economic integration.  (G. Williamson, 2002). The export and import are widely increased, and the trade helps the Market to more diverse. It results in growth in the gross domestic product (GDP) and revenue. The economies are mainly dependent on importing raw materials from another country for production. It led to getting better products at lower prices. However, one country may face a recession on the economy which may also affect the other countries.

Apart from that, quick technological advances also improve economic growth. Globalization was a great force of spreading new technologies and providing new economic opportunities to labor in both developed and developing countries. It helped to give a try higher premium on human capital and giving companies a new chance to employ the staff needs to compete successfully. (Erixon, 2018)Moreover, collaboration and shared resources, and cross-cultural exchange are also the main benefits of globalization. consumer tastes and purchasing habits are confluence globally so that consumer markets have considered more important to the economy. Therefore, business operations and productions are mainly based on global preference. (partners, 2020)

Globalization has enabled firms to specialize and to increase the intensity of research and development, innovation, and capital in their output. The companies have considered mainly the consumer preferences and purchasing habits of the public. Hence, the company´s operations mainly dependent on that scale. These companies called multinational companies’ example is PepsiCo. These companies help to increase the economic growth of the world as mentioned earlier.

Factors Affecting Globalization

Globalization is a product of modern rationalism. There are many factors that influencing globalization in this century. The major factors are free trade, technological innovation, and capitalism. After globalization, there are some fluctuations in the monetary transactions and reduce the barriers between the countries. The World Trade Organization (WTO) and North American Free Trade Agreement (NAFTA) help to expand globalization in the world. The eliminating of tariffs, reducing transportation costs, capital controls, subsidies of local businesses and creating subsidies for global corporations have led to promote free trade. In addition to that, one of the major driving forces of globalization is technological innovation. The rapid development of technology and the communication sector helps globalization to provide infrastructure for trans-world connections. This development helps people to get information regardless of time and space. This gives more chances to businesspersons to get information and to initiate business opportunities. Nowadays, the mode of transport is much cheaper and faster. Airplanes and containers help to transport high amount of heavy goods to other countries. Besides that, the continuous improvement of shipping also takes part in a good manner.

On the other hand, capitalism is one of the factors affecting globalization. Capitalism has advanced globalization. The global market offers to increase profit through higher sales. The global market ensures enhanced profits due to economies of scale. Capitalists more focused on the low costs and high earnings because of that capitalism follow globalization and it provides production facilities. Moreover, electronic finance and telecommunications create major opportunities for profit making. (POLOGEORGIS, 2019)Key areas that drive globalization on PepsiCo.

There are mainly four key areas that drive globalization such as cost, market, environment, and competition. One of the major key factors is that cost. Most of the industries mainly depended on the customer needs and opportunities of scale and Standardization. The economies of scale, experience effects from the countries and differences in the factor costs for production, manufacturing and so on, also major factors that determine the global strategy. For example, Pepsi experienced a soda sales reduction in the United States when the costs for potatoes, corn, and other commodities have increased.

As a result of the decline in sales of Pepsi in the United States, the company has taken decisions on investments outside US and it anticipates that boost its business and resources. Recently PepsiCo invested a huge amount to expand their operations in India. PepsiCo plans to increase its production capacity, research and development, and marketing in India for earning higher revenue. (TheEconomicTimes, 2019) .

Bloomberg reported that similar plans have made for Brazil and to open three production units in Brazil. PepsiCo and the Pepsi bottling plant announced that they have agreed to jointly acquire a 75,53% stake in Russia´s leading branded juice company JSC Lededyansky for $1,4 billion. Ledeyansky is the world´s sixth-largest juice manufacturer and the largest in Russia. (BusinessWire, 2008). CEO of PepsiCo announces that they are transforming their product line-up into more beverages and snacks which helps to increase their consumer interest and health.

PepsiCo is one of the world´s leading beverage and food companies which is serving more than 200 countries and territories around the world. PepsiCo products that enjoyed consumers one billion times a day across the world. PepsiCo generated more than $ 67 billion in net revenue in 2019, driven by a complementary food and beverage portfolio that includes Frito -Lay, Gatorade, Pepsi-Cola, Quaker, and Tropicana. PepsiCo´s product portfolio includes a wide range of enjoyable foods and beverages, including 23 brands that generate more than $1 billion each in estimated annual retail sales. PepsiCo has been steadily losing market share to Coca-Cola in the carbonated soft drinks market, but PepsiCo´s strength mainly depended on portfolio diversification. (Trefis, 2013)PepsiCo believes that the success of the company totally interconnected with the sustainability of the globe. The company considers continuously improving their products which sell and simultaneously give importance to the development of the economy through empowering people and protect the planet which helps them to get long-term value for society and shareholders. PepsiCo company´s efforts mainly focused on the global sustainability agenda which is on creating a healthier relationship between people and food. (PepsiCo, 2019)Apart from that, competition is one of the major factors that drive globalization on companies. PepsiCo beverage, food, and snack products are in highly competitive categories. PepsiCo operates in multiple geographies and competes against the regional, local, and private label manufacturers, and other international beverages. The Coca Cola company is the primary beverage competitor of PepsiCo. Other competitors are DPSG, Kellogg company, Nestle S.A, Red Bull GmbH, etc.

There are many factors that help PepsiCo to compete with others, which are brand recognition, taste, price, quality, product innovation, sustainability, marketing, advertising, packaging, convenience, services, consumer preferences, research and development, and also focus on consumers health and wellness. PepsiCo trust that their brand strength, innovation, marketing, product quality, the flexibility of the distribution network, allows them to compete effectively.

Strategic Challenges Faced by PepsiCo on Globalization

The way to success has never been smooth and easy. There are many challenges faced by PepsiCo when they trying to globalize. While operating global business environment, PepsiCo faced many strategic challenges. Firstly, it was planning and training to management globally. If there is a lack of a good management system, it will adversely affect the company. Therefore, the company should hire, recruit, and retain new highly skilled employees to the company. PepsiCo should hire, recruit, retain an efficient workforce and must train them and develop their skills, efficiency, and competitiveness. These skilled workforces should take good decisions and compete with their ability and skills to the competitors and other companies. Moreover, whenever company face unplanned turnover or unsuccessful implementation in their plans, these workforces including chief executive officer should provide apt decisions, otherwise, it will adversely affect the company´s reputation, business, financial condition, and operations. By offering good learning opportunities to their associates PepsiCo depicts their commitment to the development of their associates. PepsiCo believes that providing these learning opportunities to their associates is must to attract, develop, retain the skilled professionals across the world and these people helps to strengthen and sustain the leadership for long term.

In addition, PepsiCo faces the most strategic challenges is changes in international trade laws. These changes in the laws and regulations could affect the business operations, financial conditions and so on. The conduct of business is mainly depending on the laws and regulations of the countries and regions. These rules and regulations mainly focused on the production, distribution, labeling, content, quality, safety, marketing, sale, advertising, distribution, disposal, recycling, and so on. At the same time, employment and occupational health and safety measures should be considered by the company.

Apart from that, many jurisdictions provided the competition laws and anti-corruption laws. Many of these laws and regulations are differing the legal standards across the markets. These rules and regulations mainly affect the firms where they produced, distributed, and sold. These changes in regulatory requirements and competing regulations standards may result in higher costs, capital expenditure, higher production costs, which could negatively affect the firms.

On the other hand, third parties like World Health Organisation (WHO) have published documents or studies declare that the taxes on the sugar sweetened beverages, food on high sugar, saturated fat, and sodium. As a result of these studies, jurisdictions may impose taxes and other requirements on their products which may decrease the consumer demand or affect their sales, which also could affect the firm’s financial conditions, operations, and business.

Other major challenge faced by the PepsiCo is based on the demand and supply. Changes in consumer preferences mainly affect companies’ operations. PepsiCo is a multinational food and beverage company operating in highly competitive market. Continuous consumer demand and sell their products which are generate their revenue and profit. In general, changes in consumption or consumer demographics which may reduce the demand for their products. On the other hand, companies should analyse the trends and preferences of the consumers and customers. (Venkataraman, 2008) The main shifts in consumer trends and preferences mainly depended on the health and wellness of the people, convenience or location of the origin, and sources of the ingredients and products.

In the modern world, consumers are concerned about their health and they prefer organic food or locally sourced ingredients. Changes in the political, social, and economical trend also affect the company’s demand and supply. There are several factors dependent on the consumer demand such as quality of the product, marketing innovation, production, distribution, marketing, advertising, recycling, sustainability, extension of portfolio of products, responds to cultural differences, adapting media environment through social media, online advertising campaigns and marketing program. PepsiCo should consider these factors to increase their demand and supply. Otherwise it will affect adversely.

Another major challenge faced by the PepsiCo on globalized economy is environment sustainability. PepsiCo has adopted several programmes for the sustainability and this sustainability agenda has mainly executed positive change for their consumers, communities, and planet. These programmes mainly depended on the reduction in the sugars, sodium, saturated fats, add nutritional factors in the food and beverage products, reinvestment to the workforce, recycling, and so on.

Climate change and water scarcity also unfavourably affect the company’s operations and business activities. If companies take wrong measures according to their rising revenue and profit without considering environment and other social factors, it may damage their reputation and goodwill. Moreover, natural disasters, and extreme weather conditions may disrupt the productivity of the company´s operations and these climate change also reduce the availability and quality of water and negatively affect the agricultural productivity.(Simmons, 2017) These issues could adversely affect the manufacturing and distribution activities.

The continued change in climate change may result new regulatory requirements to mitigate the greenhouse gases and impose additional costs to commercial water use. These stringent measures may experience disruptions or increase the costs in the operations and distribution and required to extra investments in facilities and equipment. These increasing regulations to fuel emissions could increase the cost of fuel. Its results companies may increase their distribution and supply chain costs associated with their products. Governments, Non-Governmental Organizations, customers, investors, and consumers also increased the focus on environmental sustainability like deforestation, land use, climate change, water use. if PepsiCo does not act with these measures potentially, it may damage their reputation.

References

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Globalisation: What Is It and How Does It Affect Modern World?. (2020, Nov 25). Retrieved from http://studymoose.com/globalisation-what-is-it-and-how-does-it-affect-health-essay

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