V globalization: what it is?

“When there is too much competition to increase our sales, we’ll have to sell outside the country. We have to globalize”, said the owner of a small Ohio company that makes home barbecue grills. However, the president of Goodyear, remarking about his firm’s global strategy, stated, “We have globalized our product line to service automakers and their customers no matter where they are. It doesn’t matter if a car was built in Sydney or Sao Bernardo and then shipped to London or Laramie. When a replacement tire is needed, Goodyear will have one on hand locally to match the Goodyear already on the car”.

Both are using the same term, but are they talking about the same thing?

Unfortunately, “globalization” and its root, “global”, are overused and misused in international business. For example, global marketing strategy for some people, such as the Ohio grill manufacturer, means a plan to sell in markets all over the world (where the company does business). For others, a global marketing is one that focuses on customer similarities and uses large-scale manufacturing and superior quality to standardize products and services worldwide (how the company does business).

More recently, globalization is taking on a new meaning. After talking about having to be a multinational firm in order to gain a competitive advantage, management may turn to the buzzword “globalization” as a strategy for beating their competitors. Over time, however, globalizing firms are becoming more significant than their predecessors, the multinationals, for two reasons.

One is that there are many of them. Second, they are placing production plants all over the world to gain the benefits of lower-cost labour and better-educated workers.

Management is removing the barriers within their companies to allow the free flow of ideas and people. For cultural diversity, many are offering top management positions to citizens from countries other than the home country.

There is already a new name for this type of company – multicultural multinational – that is based on two propositions:

1. Because innovation is the key to success, managers are looking everywhere in the global organization for new ideas, hence the name, multicultural. No longer do they treat foreign subsidiaries as pure factories subject to orders and ideas that come from the single culture at headquarters. Management speaks about eradicating the “not invented here” syndrome, meaning that the headquarters staff members are being educated to give serious consideration to ideas and suggestions that originate from overseas affiliates.

2. Communications technology is making it possible for people from subsidiaries around the world to work together on projects. For example, teleconferencing and computer networks enabled Ford designers in Europe and the United States to work jointly on the design of its new global car, the Mondeo.

The aims of the multicultural multinational are (1) to be responsive to local markets, (2) to produce and market its products globally, and (3) to exploit its technology on a global basis, an elusive objective attained by few companies so far.

There are three interrelated forces leading international firms to the globalization of their production and marketing:

1. Advances in computer and communications technology permit an increased flow of ideas and information across borders, enabling customers to learn about foreign goods. Cable systems in Europe and Asia, for example, allow an advertiser to reach numerous countries simultaneously, thus creating a regional and sometimes global demand. Global communications networks enable manufacturing personnel to coordinate production and design functions worldwide so that plants in many parts of the world may be working on the same product.

2. The progressive reduction of barriers to investment and trade by most governments are hastening the opening of new markets by international firms that are both exporting to them and building production facilities for local manufacture.

3. There is a trend toward the unification and socialization of the global community. Preferential trading arrangements, such as the North American Free Trade Agreement and the European Union, that group several nations into a single market have presented firms with significant marketing opportunities. Many have moved swiftly to enter, either through exporting or by producing in the area.

The impact of this rush to globalization had been an explosive growth in international business.

Mini-Nationals. Small and medium-sized firms of a special kind are entering world markets in growing numbers, not just by exporting as many small firms do, but by opening factories, research facilities, and sales offices overseas in the manner of the large multinational and global enterprises. Because not much is known about these firms called mini-nationals (also mini-multinationals, micro-multinationals, or mini-globals), Business week analyzed hundreds of small internationally active firms and identified 50 that it considered the best. Business Week surveyed these companies and found that they had the following characteristics:

1. Products often unique because of their technology, design or cost.

2. Sharply focused. Their goal is to be the first or second globally in a technology niche.

3. Lean operations to save money and speed decision making. Because of relatively open trading regions and newer technologies, they are able to service the global market with a small number of manufacturing locations, resulting in a smaller bureaucracy.

4. Open to ideas and technologies from around the world. Many establish research laboratories in other countries.

5. Using foreigners to head foreign operations and also fill senior positions at headquarters.