Definition of Globalization, Causes & Effects of Globalization
What is Globalization?
Globalization can best be defined as the increasing trend for markets to be international in scope rather than domestic; for instance, rather than have firms in Germany that manufactured cars and serve purely German consumers, the automobile market is now global in scope. The same 10 to 12 firms compete not just for customs in one country but also for all customers around global markets.
Globalization means that, rather than markets being contested purely by domestic firms, international organizations are now contested.
Causes & Effects of Globalization.
Removal of Trade Barriers.
Over time, more and more countries have become members of a trading bloc, and they’ve relaxed some of the barriers to trade like quotas and tariffs that they may previously have enforced. When those kinds of protectionist policies are relaxed, it’s more enticing for overseas firms to want to go and sell in those markets.
The removal of the relaxation of trade barriers has encouraged more trade between nations and has contributed to the globalization of markets.
There are a large number of countries around the world whose political circumstances have evolved over recent decades.
Many countries in Eastern Europe or China example would be an excellent example of a country whose political situation has changed. And rather than those economies being more inward-looking and protectionist, due to political reform and evolution, those countries are now more active in their pursuit of allowing foreign firms to come and try and penetrate their marketplace.
Reduction in Costs
Perhaps one of the biggest reasons globalization has accelerated has been reducing costs that firms may encounter by trying to trade internationally, particularly transport costs and communication costs are now much lower than they may have been in the previous era.
It’s not as costly for firms to expand into markets that are on the other side of the world. Those firms might be up to transport or ship goods from one country to another country far quicker than they previously could, making it more efficient, more useful to trade internationally than once, and a cheaper proposition.
Growth of Businesses
Growth of businesses has also played a role in increased levels of globalization. In particular, some of the formative multinational companies’ success has acted as an enticement for other businesses to try and replicate those fortunes.
Businesses that have perhaps reached the potential that they might be able to grow to in their saturated domestic markets will look at successes that some of the big global multinational, transnational organizations are experiencing and naturally want to experience those growth rates themselves.
As multinational companies move from market to market, growing the sphere of influence they have in global business makes it a more attractive proposition for other businesses to try the same as they see businesses in other firms experiencing success.
Increasing Rates of Foreign Direct Investment
Another reason for globalization is the increasing rates of foreign direct investment or FDI that economies are experiencing. Foreign direct investment is businesses investing in a more on in an overseas economy, building some infrastructure in the economy, whether it be production, retail outlets, or another kind of facility in those nations.
When building and investing in a foreign country, the logical next step is to sell your goods and services while you are there.
If you’re going to develop a state-of-the-art factory in an overseas nation, why not sell your products in that country?
So as firms are investing in overseas countries, as firms are taking advantage of some of the opportunities to produce in foreign nations, it was the logical next step for them to sell their goods to consumers in those nations and contribute to greater levels of globalization.
Some geographic factors might also be playing a role in increased levels of globalization. Factors such as the migration of people around the world might be fueling the pace of globalization that’s taking place as workers consider themselves to be operating in a global labor market rather than just a local labor market.
More and more people are prepared to take their skills, not just to another part of their own country to find work but to another part of the world. And most countries around the planet now will have large pools of migrated labor that has moved to that country to work.
This migration creates opportunities for organizations not just to hire employees with more lavish skill sets, but maybe also to hiring staff that might be prepared to pay for lower wage rates.
This makes firms’ costs lower, and it makes them more competitive. And so that they can sell their products around the globe at lower prices, making their products potentially more attractive to consumers in different countries than domestic producers’ firms might be.
It fuels the demand for globalized businesses as foreign consumers want to buy the cheaper goods that foreign firms may sell in their markets.
Growth of Global Populations
Another geographical factor that might be contributing to globalization is the share growth in global population figures.
In particular, the growth of populations in certain countries, such as India and China, makes those markets so attractive to overseas businesses that it’s only natural for firms from outside of those countries to want to sell there.
It may be that because of the growth of global populations, many businesses from countries with smaller populations than India or China, might be that those countries seem particularly attractive to firms from outside of those nations so that they want to try and penetrate those markets with their goods and services.
Changing the Structure of Their Economy
The final factor we could talk about in essays that might be fueling the rate of globalization around the world is nations changing the structure of their economy.
As the nation’s economy becomes more developed, it becomes less reliant and primary sector industries and secondary sector industries.
On there’s a growing need on-demand for consumers for more significant service sector industries. But it may well be that as an economy is emerging, its service or tertiary sector is relatively underdeveloped. It’s only at its fledgling stage, but there will be a whole host of experienced multinational companies ready to move into that market and satisfy this growing demand for greater levels of services.
Because consumers can’t wait for a nation to develop its service sector, they swarm onto multinational companies and their goods and services as they develop this rampant demand from middle-class consumers with growing incomes for the kind of services that they want to try and enrich their lives.
What is Global Marketing?
Global marketing can be defined as marketing on a worldwide scale reconciling or taking commercial advantage of global operational differences, similarities, and opportunities in order to meet global objectives. It is the process of conceptualizing planning, producing, placing, and promoting a business’ products or services in the worldwide market.
Global marketing is also a field of study in general business management that aims to market products, solutions, and services to customers locally, nationally, and internationally.
Global Marketing will be explaining the different strategies that firms might adopt towards their marketing when competing in overseas countries.
Global Marketing Strategies.
Three different global marketing strategies
- Ethnocentric approach to global marketing.
- Polycentric approach
- Geocentric approach
When companies adopt an ethnocentric approach to their global marketing strategies. What that essentially means is that the firm is not going to adapt or tailor the products that it has in its product range to the different local markets of the countries that it would like to compete in. Essentially, the business is not going to engage or indulge in any kind of local customization of its product.
It’s going to have one standard variation of each of its products on is going to try and sound that same uniform version of its product in the market aftermarket.
Regardless of the country that the business is selling, it’s goods in that good is going to be the same. It’s going to be standardized. It means no customized for the bespoke needs of consumers in that nation.
Ethnocentric Approach to Global marketing.
There are some firms that very successfully used this strategy. Microsoft might be a good example with products such as Windows or particularly with products such as the X box. That product is standard.
Microsoft doesn’t tweak or change or adapt that product for the needs of the local market.
The Microsoft exports that you might buy in America might be the same as the ones you buy in the UK on be the same as the ones that you might buy in Japan.
Aside from maybe adapting how you plug that product into account for different power supplies and different nations, that product is standardized, that product is not differentiated for the needs of the local market.
Apple might be another good example of firms adopt this ethnocentric approach. If you were to buy an iPhone in different countries around the world, Apple hasn’t made that product.
Different will is bespoke for the needs of consumers in different nations. It is standardized.
Advantages of Ethnocentric Approach to Global Marketing.
Perhaps the major benefit is the huge potential it offers for economies of scale because we’re not adapting our product because we’re just selling this one global standardized version of each of the products in our range.
It means that any sales we accumulate in global markets will allow us to benefit from economies of scale because we’re not adapting what we sell.
We might benefit from huge purchasing economies of scale because of all of the components of raw materials we need we combine and create one standardized version of our product for the global marketplace.
A further benefit of the ethnocentric approach might be the reduction in R & D costs that we’re able to experience.
Because we’re not tweaking or adapting what we sell for consumers in different markets, we don’t need to constantly be researching and developing tweaks and adaptations and new versions of our products.
This is going to drive down the R & D costs of the organization and coupled with the economies of scale that we might materialize.
This means that the business might be able to have lower costs overall, potentially sell at lower prices in global markets Making ethnocentric business is potentially more price competitive when trading abroad.
Disadvantages of Ethnocentric Approach to Global Marketing.
But the obvious downside is that the sales of our products might suffer because we are hoping that consumers in one country will have the same needs and wants as consumers in the other.
It might be that we stumble our way into some international markets and find that customers don’t demand the variety of products that we are selling.
By not meeting the local needs of customers in different nations, we might be damaging our sales when it comes to the polycentric approach. Obviously, the opposite is true.
Polycentric Approach to Global Marketing
Now that contrasts with the polycentric approach to global marketing, which is essentially the opposite philosophy.
This time, the business is going to try and capture customers in different markets and different nations by specializing in customizing what they produced.
Changing the product, adapting the product to more closely, meet the needs of consumers in that nation.
This time they’re going to conduct more market research, find out whether customers in a new country might have their own unique or specific needs that might differ from other countries that the business is selling. It’s the goods and services that the business is going to adapt.
What it sells is going to create something more customized, more bespoke for the needs of the local market. Now again, there are examples of businesses that have used this strategy to varying degrees of success.
Tesco is an example of a UK supermarket that the UK market leader when it comes to grocery sales. But when they decide to try and set up operations in overseas markets, they don’t use their successful UK business model on simply transplant that onto foreign markets.
Instead, they change the product that they have for sale in their grocery stores. They conduct research into what the needs of the local market might be, rather than assuming that the needs of customers in the U. K will be the same as the needs of customers.
The polycentric approach is to global marketing may extend to the business, not using its brand name that’s established in one market when it’s competing in other countries. For example, trades under a different name when it sells in China in other countries in Asia. Certainly, when Tesco try to penetrate the American market, they decided that rather than trade under the UK brand name Tesco’s, they would create a new brand name to try and target the American market.
The polycentric approach is to global marketing, a far more sympathetic to the needs of each group of customers in each new international market.
Advantages of Polycentric Approach to Global Marketing.
The big advantage is that now we will be meeting the more specific localized needs of customers in different countries. That might mean that the sales of our products overall are going to be great up.
It may even mean that consumers in those nations mind just pay a slightly higher price for the goods and services that we sell because they are hitting their consumer needs more closely.
Disadvantages of Polycentric Approach to Global Marketing.
But the trade of this is obviously that we are going to have higher costs. We’re going to have to conduct lots of market research to find out what consumers in each of these global nations want.
We’re also going to have the research and development costs of having to create adaptations and changes to our product range for each of these markets.
Geocentric Approach to Global Marketing
The middle ground between the two is a geocentric approach to marketing. This time we’re going to try and continue to use the business’s global brand name, so we try and consolidate or create one global identity for the organization.
But we might have some sympathy and some consideration towards the need to tweak and adapt and customize the products that we sell to, the more we spoke needs of customers in different countries.
Perhaps we won’t do that to a huge extent. We won’t create a completely different product range for a new market but might invest in researching the needs of customers in different countries and trying to do some mild adaptations to our product range to make it more suitable impertinent to customers in that country.
McDonald’s would be a nice example of a business that adopts this geocentric approach. They trade under the McDonald’s brand name Internationally, they have the same selling proposition, the same kind of business strategy in each nation.
But they will make adaptations and changes and tweaks to the menus in each of the countries that they sell him.
The products that they have in the menus of America or some Western European countries might not appear on the menus when they’re selling in countries like Japan or Israel, other nations around the world.
Pepsi might be another example of a business that uses this geocentric approach this hybrid between the ethnocentric and the polycentric strategies. Pepsi again will trade under their global brand name on it may well be that the packaging that they use may be consistent throughout the world.
In order to cater to the palates of different nations, they may make their products sweeter or less sweet as they sell them in different countries around the world, just slightly customizing and adapting the product that they sell to suit the needs of different markets
In particular, it might be useful to know the potential benefits of these different approaches to global marketing
This is why businesses might be drawn towards a geocentric approach where they’re trying to achieve on amalgamation, of the benefits of both of these two extremes.