Download Globalization

"... a social process in which the constraints of geography
on social and cultural arrangements recede and in which
people become increasingly aware that they are receding“
Featuring…..
increased transnational flows
decline of nation-state
world cities as sites of interaction
flows of cultural products
Encompassing…..
internationalization of economic activity
(trade & investments)
liberalization (freeing markets)
universalization (cultural interchange)
technological changes
Improvements in transportation
or possibly even….
Westernization / Yuan’ization
reduction in the cost of
transportation,
decrease or abolition of control
over capital / the capital market
formation of free zones for carrying
out commercial activities, against
payment of little or no tariffs at all
decrease, abolition or synchronization
of subsidies in domestic trades
decrease or abolition of every kind of tariffs
Stability in emerging markets has seen the rise of
international commodity prices -- owing largely to
Chinese and Indian demand
……..which has helped raise incomes in Latin America and
Africa.
The drivers of globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Creation of blocs
Increased ownership of corporations by foreign
acquirors
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
Growth of global networks making countries
interdependent in particular industries
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers: Undesired Developments
Globalisation of financial markets
Revolution in information and communication
.Improvements in business travel
What is Globalization?
• Globalization is market integration on a world scale.
And what does market integration mean?
• It means that markets operate according to’the law of
one price’, LOOP.
• LOOP means that an identical good gets the same price
in any market.
Well, actually it is more complicated than that.......
LOOP and transaction costs
• There are transport and other transaction costs involved
in bringing a good for one market, say London, to
another, say New York, therefore LOOP must be
rephrased......
• LOOP means that the (absolute) price difference
between an identical good sold in two markets must not
exceed the transaction costs involved in bringing the
good between the markets.
Implications
• If transport and transaction costs fall then there is price
convergence.
• There are additional factors contributing to price
convergence:
– increased market efficiency reduces excess trading profits
Globalization should thus bring in ....
price convergence
increasing trade / GDP ratio
increased capital mobility
falling interest rate differentials
wage convergence
(promoted by mass migration)
The Two Schools of Thought
Those who believe that the emerging similarities among
nations far outweigh the differences.
Those who believe that unique differences among nations
still exist and that firms must recognize and respect these
differences as the key to competitiveness and long term
success.
Globalization
The multinational terminology of the 1970’s is obsolete. Global companies
are groups of overseas subsidiaries that execute decisions made at
headquarters.
THE GLOBAL FIRM…
-
does research wherever necessary,
-
develops products in several countries,
-
promotes key executives regardless of nationality and
-
even has shareholders on three continents.
Globalization
Example 1)
-
Otis elevator, a division of United Technologies, developed its new
Elevonic 411 in 6 research centers in 5 countries, saving and estimated
$ 10 million in design costs and cutting the development time in half.
Example 2)
-
Swedish conglomerate ABB has sales of more than $30 bn. In early
1990’s it acquired Combustion Engineering of USA. Its HQ’s are in
cosmopolitan Zurich, Switzerland where business is transacted in
English and the books are kept in dollars.
Globalization
Example 3)
-
In Asia, HP affiliates working closely together rolled out a new line of
graphic terminals in 18 languages, complete with equipment and
documentation. The company had previously been beaten to market by
competitors in locally oriented new product introductions.
The Coco-Cola Experience
The most memorable commercial – 200 people gathered on a hill top
in Italy: “I’d like to buy the world a coke”.
Post World War II – 64 bottling plants – GOING GLOBAL !!!
-
a)
b)
c)
Come 1990’s – SERIES OF SETBACK - What went wrong ??
Over centralized in Atlanta ?
Insensitive antitrust regulations in Eu?
Slow to react on the contamination scare in the Eu ?
Rethinking…..laying off 6000 in Atlanta
“WE DO NOT DO BUSINESS IN MARKETS, WE DO BUSINESS IN
SOCITIES – IN OUR PAST WE SUCCEEDED BECAUSE WE
UNDERSTOOD AND APPEALED TO THE GLOBAL
COMMONALITIES – IN OUR FUTURE WE WILL SUCCEED
BECAUSE WE WILL ALSO UNDERSTAND AND APPEAL TO THE
LOCAL DIFFERENCES.”
Globalization….
Globalization will shape the global economy
over the next 25 years…..
The World Bank 'central scenario' report
predicts
that the global economy could expand from
$35 trillion (2005) to $72 trillion in 2030
By 2030, 1.2 billion people in developing countries-15 percent of
the world population-will belong to the "global middle
class*," up from 400 million today.
*[purchasing power between $4000 to $17000 per capita]
Globalization….
Developing countries that only two decades ago provided 14 percent of
manufactured imports of rich countries, today supply 40 percent, and by
2030 are likely to supply over 65 percent. At the same time, import
demand from developing countries is emerging as a locomotive of the
global economy.
Global trade in goods and services could rise more than threefold to $27 trillion
in 2030
A Journey called Globalization….Since the dawn of history
•
Globalization began in the ancient civilizations of China, Greece, Rome and
India and continues today with the World Trade Organization and the Doha
Round trade talks.
Round 1] CROSS BORDER IDEAS…..
•
Quite a few of these ideas originated in India, China, Greece and Rome.
And undoubtedly, there was significant cross-fertilization between these
ancient civilizations, alongside the vanished memories of Babylon and
Egypt.
•
Be it the writings of Megasthenes, the 4th century B.C. Greek Ambassador
to India, or
•
The Chinese scholar Hieun Tsang, who visited India's 2,000 tutor-staffed
Nalanda University a millennium later.
•
The Arabs who transferred Indian science, medicine, literature and, above
all, mathematics to western Europe.
•
All At a time when Europe, as we should recall, was only beginning to settle
down after the trans-territorial forays of their energetic cousins.
A Journey called Globalization….Since the dawn of history
Round 2] THE AGE OF COLONIES, EMPIRE and the INDUSTRIAL
REVOLUTION…...
•
An era where Comparative Advantage comes of Age….
•
Financial flows went on to fuel the Second Round of Globalization — the
age of colonies, Empire and the Industrial Revolution.
•
The Second Round also turbocharged standards of living in Europe and
America — its principal movers and shapers.
•
Globalization became a business phenomena when the first Multinational
was founded in The Netherlands.
A Journey called Globalization….Since the dawn of history
Round 2] THE AGE OF COLONIES, EMPIRE and the INDUSTRIAL
REVOLUTION…...
•
During this Dutch Golden Age the Dutch East India Company was
established as a private owned company. Because of the high risks
involved with the international trade, ownership was divided with Shares.
The Dutch East India Company was the first company in the world to issue
shares, an important driver for globalization.
•
This also lead to…….
•
Polarization and the loss of Global Equity.
•
Ideas had flowed into what had become an ideologically stagnant India and
China. Some of these ideas were truly revolutionary — about equality,
liberty, earthly justice and the promise of boundless material benefits.
•
China opted out of this Industrial Revolution, while India was left out.
A Journey called Globalization….Since the dawn
of history
Round 3] U ARE MAKING IT HAPPEN…..
THE RISE AND RISE OF INDIA AND CHINA
A Journey called Globalization….Since the dawn of history
Round 3] THE RISE AND RISE OF INDIA AND CHINA….
•
Case in point…..spices — high value, low volume and easily transportable
— is not the only reason so many Western adventurers went seeking
Mother India.
•
Steadily empowered and largely youthful populations in the world's
demographic hubs are not just suppliers of cheap labour. They are also
buyers and providers of goods and services which their aging, consumptionsaturated counterparts in the West simply do not need on a similar scale.
•
India's attainment of the world average per capita income would mean an
additional $7 trillion of new economic activity, with a multiplicity of value
points for those who care to become engaged with it. [today it is barely a
third of the world average.]
•
In Sum and Substance….The Journey Back to GLOBAL EQUITY…thus
globalizing the CURRENT WESTERN WORLD VIEW
Globalization….
•
Globalization essentially means….opening up of the economy and its
integration with the other economies of the world.
It implies change in external economic policy as well and involves
abandonment by a country of protectionist stance in commercial policies
and dismantling of tariff walls and encouragement of free and fair trade
between nations.
It involves:
Pursuit of economic policies which encourage free and fair competition
inter se among public enterprises and among private and public
enterprises as well.
Release of the forces of competition within the economy which promote
economic efficiency and result in an optimum allocation of resources.
– Deregulation and adoption of the policies of economic liberalization and
economic reforms which are calculated to encourage the growth of
private enterprise.
Globalization….From Statism to Laissez Faire
•
The Welcome shift in economic Policies of most developed and developing
countries…..
•
The dismantling of the iron curtain and the virtual economic collapse of
communist countries including Soviet Russia,
•
The Shift from Plan to Market or from Statism to Laissez faire. *
•
Ie. The shift from …From Autocratic, Unaccommodating, State controlled
To
•
Unautocratic, Accommodating, Hands-off, Lax, Lenient, Liberal…..
*The doctrine that government should not interfere in commercial affairs
* With minimally restricted freedom in commerce
Globalization….From Statism to Laissez Faire
•
As classical economists recommended laissez faire or market economy as
an ideal path to follow,
•
Globalization has now become the order of the day in most developed and
developing countries.
•
……is essentially based on the cornerstone of
•
Adam Smith's concept of laissez faire
and
Ricardian theory of comparative cost advantage,
It marks a paradigm shift in economic thinking on the part of economic
philosophers and policy-makers and represents an on-going process of
change and adaptation which is in no small measure aided by recent
advances in means of transport, telecommunications, computerization and
the internet
.
Globalization
-
Rapid Growth of World Trade and Investment
-
Rising Economic power of South East Asia
-
Growing power of Regional Trade Blocks
-
Gradual opening of major new markets like China, East Europe and
Arab countries.
-
Severe debt problems of countries like Mexico, Brazil
-
Privatization of public owned companies to make them more efficient.
-
Increased forming of Strategic Alliances – like GM and Toyota, CibaGiegy, Compaq-HP.
-
Substantial speed up of International Transportation.
Globalization – Driving Forces…..
•
A reduction in official obstacles/barriers for conducting business with
foreigners
•
Fast reduction and convergence of transaction costs associated with
doing this business
Examples of price decline in transport and communication
•
Between the early 1980's and 1996 real sea freight costs fell 70%.
•
Real air freight costs have fallen 3-4% a year over a long period.
•
Real costs of international phone calls fell 4% a year in the developing
countries in the 1990's and 2% a year in the industrial countries.
Cost of a 3-Minute Telephone Call, New York to London
(Constant 1990, U.S. $)
350
300
250
200
150
100
50
0
1930
1940
1950
1960
1970
1980
1990
$0.30
Globalization
The death of distance as a determinant of the cost of communication will
probably be the single most important economic force shaping the growth of
international business .
A global industry is an industry in which the strategic positions of competitors in
major geographic or national markets are fundamentally affected by their
overall global positions.
GLOBAL FIRM:
Fords – World Truck ?
Chasis in NAM , Assembly in Brazil, Imported in
USA for Sale.
Or maybe Versace tee, Levis denims, Godrej Hair
Die, L'Oreal paints…….
Globalization – Coco Cola…….
Taking a company international is one thing, transforming it into a global
corporation is another.This process occurs when companies loose their
“HOME-MARKET” orientation and become “WORLD ORIENTED
ENTERPRISES”. That is they choose markets , manufacturing sites,
personnel and raw material sources without regard to national
prejudices.
Journey started with CEO Robert Woodruff patriotically declaring that he
will make Coke available wherever American troops fought.
Today – Coke gets more than 80% earnings and 66% sales from markets
abroad.
Globalization
What do we gather from the above ?
“ WE ARE CITIZENS NOT OF BOMBAY OR INDIA BUT OF THE
WORLD”
At times we do tend to think that our global perspective is an unusual
response to local problems. But on a planet as small as this one has
become, there is simply no room for borders, between nations or even
between ideas.
Globalization….
For the consumer….
Globalization requires a country to promote consumer welfare and adopt
customer-centric polices intended to give him the best deal.
– It requires the country's economic statesmanship to pursue a
comprehensive reforms programme and set up appropriate
administrative machinery to execute a series of economic tasks.
– The success of a country's globalization programme depends on how it
takes suitable steps to improve the investment climate
domestically and is also able to attract foreign capital.
– The country has of necessity to build suitable financial architecture
which involves banking and insurance sector reforms. Although
globalization is no magic wand its success has to be assessed in terms
of its impact on the growth of GNP and alleviation of the deep-seated
problems of poverty and unemployment.
Globalization….
•
Lately it has become fashionable to question whether globalization and its
benefits have peaked or are even about to reverse themselves.
•
Exports of merchandise rose by two-thirds from 2000 to 2005, according to
the World Trade Organization, as did trade in commercial services. Both
types of trade also made up a greater share of the world's gross domestic
product in every single year.
•
The value of global mergers and acquisitions rose 38 percent in 2006 from
2005 and was 11 percent higher than in 2000, its previous peak.
Globalization – going global
-
Research and development facilities are located where there are
suitable market conditions and talented personnel.
-
Financial resources are drawn from countries with the lowest capital
costs.
-
Manufacturing is based where companies obtain optimal cost-quality
combinations.
-
CEO’s play big roles in inculcating this non-nationalistic philosophy into
executives and workers.
-
In a nutshell, operate in more than one country capturing the above in
its cost and reputation that are not available to purely domestic
competitors.
Globalization
Another School of thought…
GLOBALIZATION = Corner stone of the unending human journey, embracing
COOPERATION and COMPETITIVENESS.
Cooperation: - Represents a deep understanding of interdependence and
joint responsibility at work, across firms and national boundaries.
Competitiveness:- Conveys the perception that cooperation without
motivation is doomed to fail and that only through practical inducement can
continuous improvement and progress be a way of life.
Globalization
We are corporate citizen of Germany, so we are also a corporate citizen
wherever we have major plants and investments…….
Jurgen Schrempp - Chairman Daimler Benz.
Globalization has a special meaning within P&G. It means that we will
continue to change to form a United States based business into a truly
world company. A company that thinks of everything it does in terms of
the entire world.
Edwin Artzt – Chairman and CEO P&G (1990)
I don’t find foreign countries foreign
Alfred M. Aeien- Chairman Gillette
Globalization in the eyes of TED TURNER
-
CEO’s play big roles in inculcating this non-nationalistic philosophy into
executives and workers…….
Ted Turned pioneered the above approach in CNN by forbidding use of the
word “FOREIGN” within his company.
Thanks to his foresight…CNN today…..
Reaches more than ….
+68 Mn homes in USA
+107 Mn customer Internationally
+ 100 countries.
(Ironically most popular in Japanese Banks & Security Companies)
The Global Evolution Of a Company…
Prof. Jagdish Seth – Emory University.
Crux of the Model…
-
Almost all organizations began initially as domestically oriented
REPLCATE/ MIRROR IMAGE OF HOME
COUNTRY
-
As they grow, they tend to evolve from their initial structures and
operations on a replicative basis.
-
With Time and evolution - Metamorphosis's into GLOBAL PLAYERS
…wherein they are driven by a number of “Contextual Determinants”
Globalization – Contextual Determinants
1) Cultural Context:
Political stability,
Government Policy
Ideology Driven Economy
2) Entry Context:
Fear Of Colonialism
Fear of Imperialism.
3) Operational Context:
Infrastructure Adjustments
Functional Adjustments.
Product Life Cycle Management
Globalization
The major change for an organization as it moves from a multi-domestic
approach to a global system is how it views the creation of values.
Seth uses the measure that he calls as share holder value to determine the
success of the global - organization.
CREATE VALUES THRU: (Respective) Domestic Portfolio Management.
i.e. managing successfully, a variety of brands or products or services. Like
NESTLE in foods – appealing to global pallets
HOWEVER NOW: Drift from multi portfolio management to success in global
orientation thru FOCUS ON CORE BUSINESS.
Globalization - Factors Evaluating which
markets to enter.
Indicators such as:
-
GNP / capita
Prior business dealings
Whether country is a low cost producer
Whether senior management can work comfortably
Risk level of each country – political stability, currency stability and
repatriation rules.
ROI
ARRIVE AT DECISION BY INDEXING,WEIGHING AND COMBINING
THE VARIOUS NUMBERS ALLOTTED TO THE ABOVE
PARAMETERS.
Globalization - Problems weighing on Management
Minds prior to deciding entry into foreign markets.
-
Huge foreign indebtedness.
-
Unstable governments – political instability, high unemployment, which
expose foreign firms to risks of nationalization, profit repatriation.
-
Forex Problems
-
Foreign-Government entry requirements
-
Tariffs and trade barriers
-
Corruption and bureaucracy
-
Technological pirating
-
High cost of product and communication adaptation.
Group Exercise
Product level decision for International Markets.
Photocopiers….
Advertisement Campaign
for Ray Ban…..
Watches…..
Software for Rocket
launchers / launch pads….
Patented Products…..
Golf Clubs….
Consumer Goods…..
Group Exercise Product level decision for International Markets.
Golf Clubs….
4 decade old company. 800mn$. Traditionally Eu, MEA.
Segments: Gender Rs. 100 crore industry, 30% growth
Brand Endorsed by / Ambassador: Jeev Milka Singh. (Member PGA)
Retail distribution
Market Segments : Metros + some tier 2 cities. (total = 8) Market Size : 1 lakh Indians
(as of date). North India : Special focus
Business model: Successive launches and not parallel. Spread growth story form city
to city
3 brands rule the market. 60% dominated by Taylor
Opportunity : Inferior quality of equipments / kit, impacting inherent skill
Pricing > Premium.
Competition : Cricket (as a Religion).
Catch them young > Watch them grow.
Women Parks. (untapped segment)
MDP’s (Mgmt Development Programs)
Ride on technology .> From steel to graphite.
Group Exercise Product level decision for International Markets.
Software for Rocket Launchers / Launch Pads….
MARKET SEGMENTATAION: Segment 1 > Highly developed Fully automated .
Segment 2> Developing. Semi automated. Segment 3> Under developed. Basic level
electronics only
Industrial products.
Customer Segments> End Users, Decision makers, Gate keepers
MNC Orientation with licensing arrangements in certain markets.
Industry Characteristics> High entry barriers, Skilled labor, High exit barriers,
Competition from super power countries.
Retain Skill set, Constantly upgrade technology > Challenges.
HQ in India. Scores high in Global Political Environment
Threat > Track record or the lack of it.
Ring on increased defense budgets world over.
High cost of upgradation.
Group Exercise Product level decision for International Markets.
Watch
20bn market worldwide, few thousand bands, 50% turnover from 5% brands.
Me too brands insignificant in global markets.
MARKET SEGMENTATAION: Premium, Luxury, Lifestyle, Sports BRANDS.
Opportunity for launching Premium Sports Brands.
Price pointing > Global USD 1500 + For Sangram & Co > USD 1200
Target Segment > Sports freak, affluent and arrived people in developing countries.
Features > 300 m water resistant, eco auto functionality, chronograph, studded with
gems / jewelery.
Signature collection for first 3 years > Limited Availability in countries of Brand
Ambassadors.
Brand personality > Sports
Promotion > Prominent Sport events sponsorship.
Group Exercise Product level decision for International Markets.
Advertisement campaign for Ray-Ban
Global product.
Aspirational brand, Emotional loyalty.
Glocalization strategy.
US times, UK times, India Times and Asian Times. > Missing feeling (Ray Ban)
I am wearing my attitude > Are u ?
Group Exercise Product level decision for International Markets.
Photocopiers
Assumption > Standardized Product.
Standardized by function
Differing in features (scanner, printer options etc), prices,
Blue tooth, carry images, internet functions, email gateway with IP address able to
send print / edit commands, document bunching, punching, segregation, color option,
Fuzzy logic on refilling, divide between aesthetics or functional use, font compatibility.
Features based on country / geographic segmentation
Glocalization strategy.
Partner with DHL, Fed ex for distribution Hub and Spoke model.
Imaging solutions for corporates, home users, neighbourhood stationary centres,
Email yr requirements.
Tie up with E-books, Institutions like HBR, CMR, Stanford etc
Installation
Augmented
product
Packaging
Actual
product
Brand
name
Features
Core
benefit
or service
Delivery
and
credit
Aftersales
service
Core
product
Quality
Styling
Warranty
Three levels of product
Globalization – Product Decisions:
Standardization v/s Adaptation
OBJECTIVES:
•
Describe drivers for international standardization and off an overview of
the international standardization-local adaptation continuum and
respective company strategies
•
Examine country-of-origin effects on brand evaluations in relation to
product stereotypes and consumer ethnocentrism
•
Examine challenges faced by service providers in international markets
•
Address issues related to brand name protection and the reasons
behind widespread international counterfeiting
Globalization – Product Decisions:
Standardization v/s Adaptation
• Standardized Product
- Domestic product introduced internationally, with minor or no
modification
- Efficient but not effective
•
-
Localized Product
Domestic product adapted for foreign markets
Product designed specifically for foreign markets
Effective but not efficient
Globalization – Product Decisions:
Standardization v/s Adaptation
Standardization:
i.
ii.
Don‘t accept local consumer behavior, market & competitive structures
as Irremovable determinants–they can be changed.
Don’t tinker too much with international brands–only peripheral
elements can be changed.
Adaptation:
i. Adaptation often happens via using multiple brands.
ii. Should be across the value chain.
iii. Adaptation / Regionalization Touch Points: products, brands &
promotion
iv. campaigns for closeness to local preferences
STRATEGIC OPTIONS INTRODUCING PRODUCT IN
FOREIGN MARKETS
1.
EXTENSION STRATEGY –
Same approach as home market
2.
ADAPTATION STRATEGY Makes changes to fit new market requirements
3.
INVENTION STRATEGY Entirely new approach is developed for the new market
4.
STANDARDIZATON –
Same product, all markets
5.
GLOCALIZATION –
Only some aspects of the product are standardized
Globalization – Product Decisions:
Standardization v/s Adaptation
Influences:
• product/ industry, legal requirements, marketing infrastructure, product
use and consumer expectations
• International /Global companies tend towards standardization for :
lower costs, coherent brand image, speed, reduced complexity
• Under similar conditions global marketing strategy performs better than
a differentiated one.
Reasons:
• Strategic orientation of company and product characteristics
• •Competitive advantage is based on value(vs. price)
• •Anticipation of market growth
• •Opportunistic and defensive behavior
Globalization – Product Decisions:
Standardization v/s Adaptation
Arguments for Standardization:
i.
ii.
iii.
iv.
simplicity and cost
consistent company or product image
musical recordings and works of art
industry specifications
Arguments for Adaptation:
(MANDATORY)
i. Government regulations (Left Hand Drive Syndrome)
ii. Measurement systems
iii. Operating systems
Globalization – Product Decisions:
Standardization v/s Adaptation
Arguments for Adaptation: (OPTIONAL)
i. Physical distribution
ii. Local use conditions
iii. Climatic conditions
iv. Space constraint
v. Consumer demographics as related to physical appearance
vi. User's habits
vii. Environmental characteristics
viii. Price
ix. Limiting product movement across national borders (gray
marketing)
x. Historical preference or local customs and culture
Globalization – Product Decisions:
Standardization v/s Adaptation
Market Trends:
• Consumption patterns are becoming increasingly homogeneous worldwide
• Consumers are shifting to global products when prices are lower and quality is
acceptable / better
• Global companies are drivers of the homogenization process
• Market convergence favors international standardization of products,
brands and marketing programs
However Adapt:
• non-core elements(e.g. labeling contents, package sizes, product
names, promotion)
• Regional or local
– price corridors
– Product lines, brands & advertising
– Establishment of regional management centers
Disadvantages of Standardisation
• Lack of uniqueness - exclusivity may be behind purchase
decision
• Off-target - miss the customer target completely
• Vulnerable to trade barriers - local production may be
necessary, so economy of scale benefits are lost
• Strong local competition - customisation by competitors, lack of
local knowledge
Problems with global standardisation
• Insufficient market research
• Over standardisation
• Poor follow-up
• Narrow vision
• Rigid implementation
Brand globalisation potential
• Does the brand name make sense outside of the country? Nokia
from Finland is aware name sounds Japanese (same roots)
• Does the name have a positive, country specific image? E.g
GM’s Opel and Chevrolet
• Is the name available legally in many countries? Dutch Philips,
Phillips Oil registered in USA
Globalization - International product
standardization and adaptation
FACTORS ENCOURAGING STANDARDIZATION:
-
Economies of scale in production
Economies in product R&D
Shrinking of the world market place
Global competition
Economies in marketing.
Marketing / Communications.
FACTORS ENCOURAGING ADAPTATION:- JAPANESE CARS IN USA
-
Differing use conditions
Government and regulatory influences
Differing consumer behavior patterns
Local competition
“Made In”
Standardization versus Adaptation, continued
Regional Standardization
Using a uniform marketing strategy in a particular region
Global Localization
The practice of global branding and localized marketing adaptation to
differences in local culture, legislation, etc.
 Modular Adaptation
 Core Product Strategy
Standardization versus Adaptation
Modular Adaptation:
Offer parts (modules) that can be assembled worldwide in
different configurations, depending on market needs. (GM)
Core Product Strategy:
Involves using a standardized strategy for the core product
worldwide, but varying certain aspects of the offering (product
ingredients, advertising, for example) from market to market
Standardization versus Adaptation, continued
Mandatory Adaptation:
 Adapting products to local requirements so that they can
legally and physically operate in the respective countries
– for example: Left-hand driving in the United Kingdom
Local Non-Mandatory Adaptation:
 Adapting a product to better meet the needs of the local
market, or developing new brands for individual local
markets, even though such adaptation is not required
Ethnocentrism
• The belief that purchasing foreign products hurts the local economy
by causing loss of jobs, and that it is morally wrong and unpatriotic
• Leads to the rejection of foreign products
BUY
AMERICAN!
Globalization: International product Conditions
for success in standardization
While all international products are not designed with this objective, the
proportion of international products that balance standardization and
adaptation appears to be growing
anecdotes justifying the merits of balancing standardization and
adaptation come from a spectrum of industries.
These include:
food and cosmetics (where adaptation would appear to be important)
along with
Copiers & televisions (where standardization appear to be critical)
Globalization: International product Conditions
for success in standardization
The logic being that, by balancing standardization and adaptation,
MNCs can not only ….
simultaneously harness the benefits of efficiency and responsiveness
but also
coalesce into their products, inputs of both headquarters and foreign
subsidiaries for greater competitive advantage.
Globalization: International product Conditions
for success in standardization
-
-
Global market segmentation of product – (photocopiers)
Consistent Company image – (health care products)
High cost of R&D (Boeing)
Mass production (steel)
Similar need characteristics (watches / diamonds)
Small user base (s/ware for rocket sciences)
Intellectual property rights (patented products)
Availability of communications and distribution networks. (in Malaysia
foreign-made ads must not use white people. Therefore Ray-Ban were
forced to shoot locally for TV ads )
Last but Not the Least : Heed The N.I.H. Syndrome (Not Invented
Here)
-
THUS, STANDARDIZE WHATEVER YOU CAN AND
- WHEREVER U MUST, ADAPT.
Globalization: Saint or Sinner ??
“The winds of globalization feel like a
chilling blast, not an invigorating*
breeze.”
*Imparting strength and vitality- make lively, intensify….
Globalization: Saint or Sinner ??
Disadvantages to host country
– MNCs may drive local firms out of business
– limited demand for local components
– repatriation of profits
– transfer pricing and effects on tax revenues
(competition between developing countries to attract MNCs )
– distorting the whole pattern of development
• increasing gap between rich and poor
What can developing countries do??
Globalization: Saint or Sinner ??
•
Industrial Globalization (alias transnationalization) - rise and expansion
of multinational enterprises
•
Financial Globalization - emergence of worldwide financial markets and
better access to external financing for corporate, national and
subnational borrowers
•
Political Globalization - spread of political sphere of interests to the
regions and countries outside the neighbourhood of political (state and
non-state) actors
•
Informational Globalization - increase in information flows between
geographically remote locations
•
Cultural Globalization - growth of cross-cultural contact
Globalization: Saint or Sinner ??
•
Industrial Globalization (alias transnationalization) - rise and expansion
of multinational enterprises
•
Financial Globalization - emergence of worldwide financial markets and
better access to external financing for corporate, national and
subnational borrowers
•
Political Globalization - spread of political sphere of interests to the
regions and countries outside the neighbourhood of political (state and
non-state) actors
•
Informational Globalization - increase in information flows between
geographically remote locations
•
Cultural Globalization - growth of cross-cultural contact
Globalization: Saint or Sinner ??
•
Greater international cultural exchange,
– Spreading of multiculturalism, and
– better individual access to cultural diversity, for example through
the export of Hollywood and Bollywood movies.
However…..
the imported culture can easily supplant the local culture, causing
reduction in diversity through hybridization or even assimilation.
The most prominent form of this is Westernization, but Sinicization
[the linguistic assimilation or cultural assimilation of China i.e. To
make Chinese in character or to change or modify by Chinese
influence] of cultures also takes place.
Globalization: Saint or Sinner ??
-
Relentless transition of the economic and political landscape by self
seeking MNC’s who have scant regard for their employees or the
environment.
-
It is the erosion of the power of national governments which have to
share power with transnational corporations.
-
The ability to control economy is reduced either thru participation in
trading blocks or thru the activities of transnationals.
Factor in also :
French perfume – made in USA ??
Swiss chocolates made in P *@#$%^&
Ambivalence towards Globalization….
•
People commonly interpret "globalization“:
•
a] to mean the global reach of communications technology and capital
movements,
•
b] some think of the outsourcing by domestic companies in rich countries,
and
•
c] Some others see globalization as a byword for corporate capitalism or
American cultural and economic hegemony
•
But in all this muddle where does it touch upon the life of the Common Man
????
Ambivalence towards Globalization….
•
The other side of the coin….
•
Globalization has been seen by some in the world as a
– New, more attractive label put on the old imperialism, or worse, as a
form of re-colonization.
•
Though foreign investment is sometimes welcomed as a bearer of new jobs,
it is also seen as an indifferent invader leaving locals in the lurch when
things get rough. These kinds of views are sure to color local feeling toward
"the invasion" of foreign cafés……..as they call it.
•
The question is…..Does Globalization touch upon Migration and Progress of
non-monetary resources as well ???
Ambivalence towards Globalization….
•
But does this hold true for Migration as well??
•
Migration slowed in the 1990s, with the world's stock of migrants growing
only 1.3 percent a year, according to data from the International
Organization for Migration.
•
But the pace has picked up again. The organization's world migration report
estimated that there were 190 million migrants in early 2005, implying
annual growth of 1.7 percent in the first half of this decade.
Also consider…..
•
Distributional Effects of Globalization in Developing Countries
meaning…..
the effects of globalization on the income distribution in the economy of a
developing country
Globalization: Saint or Sinner ??
However Opposition to globalization is difficult
because it is a process and not a specific event
like an apartheid , nuclear missile or the Gulf
War.
TAKE AWAYS FROM THE WORLD SOCIAL FORUM AT NEC
GROUNDS - MUMBAI !!!
Ambivalence towards Globalization….The package Deal
» Components of such a package might include:
•
Macroeconomic stability to create the right conditions for investment and
saving;
•
Outward oriented policies to promote efficiency through increased trade and
investment;
•
Structural reform to encourage domestic competition;
•
Strong institutions and an effective government to foster good governance;
•
Education {from primary level] , training, and research and development to
promote productivity;
•
External debt management to ensure adequate resources for sustainable
development.
Ambivalence towards Globalization….The package Deal
•
All these policies should be focused on country-owned strategies to reduce
poverty by promoting pro-poor policies that are properly budgeted—
including health, education, and strong social safety nets. [Case in point
……China’s Rural Safety net….]
•
A participatory approach, including consultation with civil society, will add
greatly to their chances of the success of Globalization….
Advanced economies can make a vital contribution to the low-income
countries’ efforts to integrate into the global economy:
As Michel Camdessus, the former Managing Director of the IMF put it: "The
excuse of aid fatigue is not credible—indeed it approaches the level of
downright cynicism—at a time when, for the last decade, the advanced
countries have had the opportunity to enjoy the benefits of the peace
dividend."
Ambivalence towards Globalization….The package Deal
By promoting trade…….. To provide unrestricted market access for all exports
from the poorest countries. This should help them move beyond specialization
on primary commodities to producing processed goods for export.
By encouraging flows of private capital to the lower-income countries,
particularly foreign direct investment, with its twin benefits of steady financial
flows and technology transfer.
By supplementing more rapid debt relief with an increased level of new financial
support.
Official development assistance (ODA) has fallen to 0.24 percent of GDP in
advanced countries (compared with a UN target of more than 1 percent).
Ambivalence towards Globalization….The Silver Lining by
the World Bank……HIPC and 32 PRSP*
In 1995, there was no comprehensive mechanism in place for debt relief for the
poorest countries, by either the multilateral institutions or other creditors.
Today,
More than 22 countries have begun receiving debt relief under the Heavily
Indebted Poor Country (HIPC) Initiative, 18 of them in Africa–for a total of $34
billion.
With this….
The total external debt of these countries will be reduced by two-thirds, lowering
their indebtedness to levels below the average for all developing countries.
*Poverty Reduction Strategy Papers (PRSP)…32 developing and 4 completed
countries.
Ambivalence towards Globalization….The Silver Lining by
the World Bank……CDF and IDG’s
Comprehensive Developmental Framework……for better division of labor
among all the players–international institutions, the United Nations, bilateral
donors, nongovernmental organizations (NGOs), and the private sector.
Selectivity at the heart of WORLD BANK work going forward……based on
comparative advantage and on accountability.
International Development Goals (IDGs).
reducing by half the proportion of people living in extreme poverty by 2015;
a two-thirds decline in infant and under-five mortality,
a three-fourths decline in maternal mortality;
universal primary education for all by 2015;
gender equality in education in this decade;
national strategies for sustainable development;
and
ensuring that the current loss of environmental resources is reversed globally
and nationally by 2015.
Ambivalence towards Globalization….The Silver Lining
Climate by the World Bank……
The climate for investment, jobs, and sustainable growth, and empowering
poor people to participate in development by investing in them, and through
them.
Development must be country owned and country driven – by listening to the
voices of the poor.
[interviews with 60,000 poor people in 60 countries confirmed, they do not want
charity, they want a chance.]
Development must be done by them and with them, not to them.
Lastly embrace all the players [not the government alone]: civil society
(including NGOs–foundations, universities and research institutions, and faithbased community groups), the private sector, governments themselves, and their
parliaments etc…..
Measuring Globalization….
Globalization index calculated by the Swiss Think tank KOF.
The index measures the three main dimensions of globalization:
A] Economic,
B] Social, and
C] Political.
In addition to three indices measuring these dimensions, an overall index of
globalization and sub-indices referring to:
actual economic flows,
economic restrictions,
data on information flows, and
data on cultural proximity is calculated.
[Data are available on a yearly basis for 122 countries.]
According to the index, the world's most globalized country is the USA, followed
by Sweden, Canada, the United Kingdom, and Luxembourg. The least globalized
countries according to the KOF-index are Togo, Chad and the Central African
Republic..
Measuring Globalization….
Trade integration, Financial integration, Global production networks
55
Trade to GDP Ratios Rose Dramatically over the Last Decade
(Export plus import as a percentage of GDP)
50
45
40
Developing countries
35
30
High-income OECD
25
20
1970
1975
1980
1985
1990
1995
2000
2005
When theory is inconclusive, history might
have the answer
Source: NBER (2003), Globalization in Historical Perspektive.
SAINT
SINNER
Utilization of Resources for Social (Global)
Welfare.
Local companies & their & contribution to GDP
growth over last 60 years.
Economies of Scale – Effective pricing
C.K.P ~ Fortune @ Bottom of the Pyramid.
Infrastructure Development (GDP growth), better
standard of living.
Product array is good but not at the cost of
treatment as a dumping ground.
Not talking about Patriotism and Globalization.
Global specific and not country specific.
We were isolated from the Recession as we are
not “as” globalized.
Has bought in Innovation, Competitiveness. No
animosity.
Self sufficiency and self dependence has led to
growth.
Technological tie ups & alliances with Int’l
companies.
Is it About Exporting / Dumping Obsolescence or
Is it Technological tie ups. What about
Cryogenics, Super Computers ?
Paved the way for Free Trade. – multilateral
organizations: WTO, UN, IMF,
Under cover of globalization > Exploiting
Resources ? Profit Repatriation (Pepsi ~ Water)
Pull is created by Demand / Consumerism.
Win ~ Win situation. Giving (technology) Getting
(market access)
Choice of products to consumers.
Globalization makes countries dependant / over
dependant on certain economies.
SAINT
Internal bottlenecks, lack of will and insensitivity
brings in constraints.
SINNER
Inequalities for the consumer.
Rings in opportunity for earning / building up forex This wave is not all encompassing . Third world
reserves which can be utilized for importing
companies are isolated.
“survival and basic needs”.
Country development, Generates Employment,
Country earns Goodwill.
Amplifying Disparity - Social Dumping.
Self Sufficeincy.
Fall back to Mercantilism way of trade.
Encourages taken for granted in home (exporting)
country. Local consumers deprived.
Breeds exploitation. (Cheap labor: Nike)
Prof Amarya Sen: Globalization is not only about
GDP & FDI growth. It is more so how dispersed
capital is across the economic strata.
Comes at a cost of domestic growth – China.
Depriving local markets to serve exports.
Global companies are not environment friendly in
developing countries.
SAINT’s
SINNER’s
Country development – Globalization as a road to
Super Power Status.
Growth good but Is the Inclusive. (Measure: No.
of patents from the developed / developing world)
Scarce but necessary commodities. - Better
Standard of living.
Does it Come at a cost of sacrificing domestic
needs ?
Foreign exchange Earnings. > as a fund for rural
safety net ? Lack of it due to governmental
tardiness not ill wills of globalization.
***** Growth in pockets. Look Not only at
capital generation but spread of capital. (GDP
spread)
Technology Exposure. – Best practices
adaptation. Farming sector > Drip Irrigation from
Israel.
Social Dumping ? Limitations to growth. Gate
way for Inferior quality products. (Bt Brinjal)
BROWNIE points for the Moderator >> For pointing out don’t mix up Globalization and Patriotism.
Employment opportunities.
Tool used by developed countries for selling
products > Mass marketing < Due to saturation of
local markets.
***** Eases political tensions / hostility.
Policy pressures from multilateral organizations >
CIP > CAC.
Basic tenets > Freedom to work / live / buy – Are
we touching upon this ?
SAINT’s
SINNER’s
Opportunity Cities. – Beijing and Shanghai.
Improvised standard of living.
Globalization comes at cost of…..China Story.
State driven, Controlled.
Not an aftermath of Saturation.
*****The great divide > Race of unequals.
Growing divide between rich and poor.