Influential commentator Hamish McRae has stated that businesses are the “main driver” of globalisation. Why is this?
Multinationals (businesses that operate in more than one country) want to increase sales, profits and shareholder value. Globalisation provides that opportunity
The barriers to international business are lower and falling – it is much easier to expand into new territories, particularly if the business is providing a service (e.g. selling software)
Governments want to encourage domestic businesses to expand overseas (it results in a flow of profits back into the domestic economy) – so there is lots of help available for businesses looking to expand overseas
Businesses themselves though are not the only drivers of globalisation. Consider factors such as:
Picking up on two examples from the drivers above: Lower transport costs
Costs of ocean shipping have come down, due to containerisation, bulk shipping, and other efficiencies
This helps to bring prices in the country of manufacture closer to prices in the export market
Digital communication
The Internet has dramatically lowered the cost of transmitting and communicating information
Expressed in 2005 US dollars, the charge for a three-minute New York-London call has dwindled from $80 in 1950 to $0.23 in 2007
Digital communication has stimulated global trade in “knowledge products” – e.g. software, outsourced services & media content
There are several alternative approaches for a business looking to expand globally – many choose to follow one or more of the following:
Establish production sites overseas
Licence technology & other intellectual property
Joint ventures
Franchising
Offshoring / outsourcing
Selling directly to overseas markets – either with sales agents, distribution agreements or online
The motivations for successful businesses to operate globally are strong, and growing. For example:
Higher profits and a stronger position and market access in global markets
Reduced technological barriers to movement of goods, services and factors of production
Cost considerations – a desire to shift production to countries with lower unit labour costs
Forward vertical integration (e.g. establishing production platforms in low cost countries where intermediate products can be made into finished products at lower cost)
Avoidance of transportation costs and avoidance of tariff and non-tariff barriers
Extending product life-cycles by producing and marketing products in new countries
