Why All Managers Must Comprehend The Nature Of The
Globalisation Process To Be Effective In Their Jobs

                                                              

 

Peter Engholm

Monash University, October 2001

 

 

 

ABSTRACT:

The aim of this paper is to discuss why it is important that managers in both large, global organisations and small, local companies need to comprehend the nature of the globalisation process - or at least understand the very basics of it - if they are to be successful in their jobs. It shall be argued that globalisation is a complex process that cannot fully be defined and explained as it is constantly evolving and changing. However, due to a set of forces and drivers external to organisations, globalisation inevitably affects the way organisations are going about their businesses, or in other words, the way they need to be managed if they are to be successful and competitive.

KEYWORDS:

Management, globalisation, effectiveness, organisation, global forces

 

FULL TEXT:

The aim of this paper is to discuss why it is important that managers in both large, global organisations and small, local companies need to comprehend the nature of the globalisation process - or at least understand the very basics of it - if they are to be successful in their jobs. It shall be argued that globalisation is a complex process that cannot fully be defined and explained as it is constantly evolving and changing. However, due to a set of forces and drivers external to organisations, globalisation inevitably affects the way organisations are going about their businesses, or in other words, the way they need to be managed if they are to be successful and competitive.

The first part of the paper discusses globalisation in general, and how it can mean different things to different people and branches of the social sciences. The second part of the paper discusses the major forces and drivers of globalisation and how they impact on businesses and managers - both on a local and global level. The discussion is then summed up and commented upon.

First, however, it is important to discuss what is meant by globalisation and why it imposes challenges to organisations and managers in this new global economy. This is done next.

GLOBALISATION: BACKGROUND

Globalisation is a term that can mean different thing to different people, and different individuals and interest groups invariably use the term to explain current situations or events. Be it groups such as the S11 blaming globalisation policy for being one major reason to rising economic and political power among large multi-national organisations, or top-end politicians praising globalisation policy for allowing nations better access to new advanced technology and communication tools, issues of globalisation are very often in the centre of attention.

In general, different branches of the social sciences stress different elements of globalisation. Economists define globalisation mainly as openness toward other countries with no or few barriers to investment flows, finance and transactions, trade and labour, and with fewer regulations for foreign inputs. Sociologists focus more on two groups of changes that indicate globalisation. Firstly, there are the structural changes: growing complexity of society, internal differentiation, and acceleration of the speed of change. Secondly, there are new types of social relations on distance, and cultural dissemination and unification. Finally, political scientists are focused on three groups of issues: Firstly, how democracy as a political phenomenon is influenced by globalisation as an economic phenomenon; secondly, how dramatic changes in the role of the nation-state are impacting on problems of sovereignty and autonomy; and thirdly, the necessity of world governance (Sporer 2000).

No matter what position one takes when discussing globalisation, it is evident that it is “not just a phenomenon or some passing trend” (Thomas Friedman, cited in James 2001:75). Rather, it is important to realise that globalisation more or less affects every individual, every firm, every nation, and in every part of the world. Additionally, it is a process and not an epoch such as ‘modernism’, ‘post-Fordism’ and other terms often used in social sciences to explain different periods following the industrial revolution. Therefore it is constantly changing face, and cannot accurately be described. Langhorne (2001:1) writes that: “the process and the results of globalisation are changing the way we live our lives on a personal basis and they are changing the institutions which we collectively use to give form and predictability to our economic, social and political relationship”.

Globalisation is also not a new ‘invention’ of the late 20th century society. The early industrialisation period saw the world becoming more and more globalised, with improvements in transport and communication as well as development of international markets for goods and finance facilitating interaction and connection between people and nations in the world. However, one important way in which contemporary globalisation is different from this emergence of a globally interdependent economy, is the fundamental fact that the routine use of global communication has passed out of the sole control or regulation of governments and companies. As Langhorne (2001:15-16) puts it, “ordinary people have now joined the club”, and by that he means that it its their people’s activities, and not their authorities, who are the new beneficiaries.

Why then is it important for both global and local managers to comprehend the nature of the globalisation process in order to be effective in their jobs? It has already been argued that there are different ways of looking at issues of globalisation. One definition of globalisation is: “the accelerated integration of economic activity across national or regional boundaries” (TUAC 1997). It could also be defined as “the latest stage in a long accumulation of technological advance, which has given human beings the ability to conduct their affairs across the world without reference to nationality, government authority, time of day or physical environment” (Langhorne 2001:2). This means that globalisation is about increased awareness of, and access to, products, capital, and information. The flow of trade and information also creates a growing awareness among consumers everywhere about how other people live. This has huge implications for businesses and managers, because growing awareness arouses global wants that eventually lead to global products (Tapsell 1999).

Herein lies the main challenge to businesses and managers in today’s global society: the onset of globalisation has thrown new challenges at the workplace; the rapid changes in technology and ownership patterns, the high mobility of capital, the arrival of multinational companies and the gradual withdrawal of state interventions in the economy have all complicated the management of businesses (Manandhar 2000). To be successful in their roles, managers must understand the forces and drivers of globalisation, and try to predict the outcome of them for effective decision-making. The following section shall discuss some of these forces and drivers in more detail and what implications they have for managers in both small and large organisations.

FORCES AND DRIVERS OF GLOBALISATION

There are plenty of forces and drivers of globalisation that each has implications for effective management. It is not possible to discuss all of them in a short paper like this, however, the ones that are most relevant to managers shall be reviewed. First it shall be discussed what is meant by globalisation forces and drivers.

Globalisation drivers are primarily outside the control of business. They include market, cost, government, and competitive factors that affect a company’s ability to be competitive in different areas of the world – including a domestic market. Each industry has its own level of globalisation potential that is determined by these external drivers (Rhinesmith, 1996).  Yip (1999) argues that globalisation drivers are encouraging nearly all businesses to globalise. In addition to previously mentioned drivers, he also discusses drivers such as convergence in customer needs and tastes, a reduction in government barriers to free trade and investment, an acceleration of globalisation enablers and communication, and a surge in new technological products and services.

Tapsell concludes that:

From meat to machinery, foreign products play an important role in most world economies, and foreign markets now tempt local businesses that never worried about sales beyond their nation’s borders... driving this explosion is the worldwide decline in trade barriers, tariffs and import quotas, as well as the falling cost of transportation (Tapsell, 1999).

He argues that it is not only large companies, and, consequently, managers within these companies that need to consider and understand the effects of globalisation. Also small businesses must understand not only what potential benefits they can reap out of globalisation processes, but also the threats that come with them (Tapsell 1999). Hence, the following sections discuss the implications of globalisation for both small and large companies, whether or not they are globalising or intend to globalise. Four main areas of forces and drivers of globalisation shall be discussed: globalisation of product market; globalisation of workforce and society; globalisation of the financial market; and globalisation and advance of technology.

Globalisation of product market:

The market in which companies generate capital has become global. That does not means that all parts of the globe take part, but it does mean that all parts of the world are potential sources of investment. It also means that all parts of the globe are potential objects of investment (Langhorne 2001). Consequently, it means that issues of globalisation do not only reach out to large organisations, but to small domestic firms as well, as increased competition on local and domestic markets becomes the result of foreign direct investment (FDI) in those markets. 

FDI are those in the manufacturing sector, factories, utilities, energy, and telecommunications companies outside of the country in which the company is located. The data are showing that these investments are constantly growing and that more and more parts of any domestic economy are being opened up for such foreign investments and ownership (Sporer 2000). Since the late 1980's the growth of foreign direct investment has been the main factor driving increased economic interdependence. International trade grew twice as fast as GNP during the 1980's, but foreign direct investment grew twice as fast as trade. The growth of FDI slowed in the early 1990's but picked up in 1994 and rose to record levels in 1995. As a result there has been a significant deepening of international and foreign ownership (TUAC). In figures, it has been evaluated that FDI rose from $68 billion in 1960 to $2.1 trillion in 1993 (Dahl 1998).

As a result, the nation-state is no longer the dominant player. Half of the world’s top 100 ‘economies’ are companies. These global corporations are not only of equivalent size to national economies; they are becoming so geographically diverse that they cannot be defined by nationality (James 2001).

Therefore, a domestic enterprise, or even as small local firm, should not consider itself immune from globalising forces, such as the increased competition from FDI’s. International hostile takeovers, cross-border mergers and acquisitions, and new market access by roving global competitors can all intrude upon the market niche and profitability of the most secure domestic enterprise. Many people even argue that there is no longer any such thing as a domestic organisation of any consequence because if you are successful domestically, there is an increasing probability that a foreign competitor will enter your market to challenge your position (Rhinesmith 1996).

There are plenty of reasons for these competitive forces to have come about. Some of them include new demands for quality, constantly changing tastes, global fads, and short product life cycles. These forces are all pushing enterprises to seek global partnerships and alliances to gain access to new markets, or to defend markets that are currently held (Rhinesmith, 1996).

Langhorne (2001) argues that the competitive pressures are coming globally, but the responses are often paradoxically local or regional. In economic terms this means that the conditions for which an investing company regards as most attractive, are likely to be set by factors that are highly localised, for example, wage levels, environmental conditions, taxation, and workforce skills and education.

A few years ago, Michel Porter came up with a model of competitive forces in an industry and reference to this model has occurred frequently in management literature. Although the model can still be useful to help explaining the competitive nature of organisations, it does not fully account for new forces that have come about by globalisation. Therfore, Calori, Atamer and Nunes (2000) conducted an extensive study of what determines organisations’ decisions to globalise, focusing their research on the interaction between global and local forces – internal and external – that lead to opportunities for companies to enter new markets for their products. The authors found that specific market regions are created by external forces, which in turn determine companies’ strategies of entering these regions or not. They discuss three sets of forces: Two competitive forces include the distribution of knowledge and know-how across the world, and logistics. Economic forces include barriers of trade and foreign direct investment, and level of economic development. Sociological forces include different customers’ preferences and political-economical-cultural influences. The combination of these forces determines companies’ international strategies and the geographic scope and organisation of their activities. This means that a company in a regional or national industry where most of these forces for globalising are strong, and where it is attractive for ‘outside’ companies to enter the market, must be prepared for potential competition - whether or not the company itself intends to go global and market its products.

Other internal and external forces drive or restrain global and local integration, such as the level of protectionism in the country, transportation costs, business cultures, local regulations and norms, technological intensity, and opportunity to economies of scale (Calori et.al. 2000). Again, what is revealed from this research is that no company can sit back and feel comfortable that it has sole control over a market. Although it does not intend to move out of its territory, it constantly must be alert to these globalising forces that may interest foreign companies, and make sure its strategy is aligned with the threat of new entrants to the market.

Thus it follows that managers must understand these local and global forces of globalisation. For example, a local fast-food service business will always face the threat of strong, global competitors within the same industry, such as McDonalds and Burger King. If the business is to survive, its manager/s should assess how both the local and global forces can provide benefits to that business, in contrast to the global competitors that are ‘knocking on the door’. There are plenty of strategies to choose from – all depending on the particular industry and the set of globalising and local forces. The business might not be able to compete with a brand such as McDonalds or its low prices, but may focus on providing a service or quality of food that serves as an alternative to what customers get at the global fast-food operators.

There is a fine link between local forces for globalisation and the globalisation of workforce and society, and this is discussed in the following section.

Globalisation of workforce and society:

Dee Hawkes, founder of Intel Corporation, once said that:

In a society where consumers are as powerful as Superman, stronger than steel and faster than speeding bullet, the old model of supply and demand isn’t relevant. Creating some product or service, then setting out to convince people to buy it, just doesn’t work anymore (Hawkes, quoted by Tapsell 1999:45)

With easier access to information about jobs and products, created through dynamic forces of globalisation of the market in cooperation with advances in technology and changes in government policy, there has been a shift from companies dictating the rules of what goods to supply and what jobs to offer, toward meeting new demands of customers and employees. All this provides new challenges for both local and global managers.

Sporer (2000:1) writes that: “today we can expect that the individual would change several occupations during his or her career”. Additionally, with the coming up of 24 hours operation system, nine to five stable jobs are slowly disappearing from the labour market. Instead what you have are part-time, irregular, contractual jobs with no fixed work schedules. Mass production system is gradually replaced by flexible production system. Production is now more switched to demand fluctuations rather than supply conditions. The use of high-tech calls for knowledge organizations and the knowledge organizations demand knowledge workers. The arrival of professional white-collar skilled workers means the demise of traditional unions. Finally, the growing entry of women in the workforce implies another challenge to management. (Manandhar 2000)

By removing barriers for the movement of labour, the workforce is also becoming more culturally diverse. Rhinesmith (1996) argues that it is now clear that living with and managing diversity will be a central theme of the coming century. It will be the engine that drives creativity of the corporation of the 21st century, and therefore poses new demands on managers to develop intercultural skills. Additionally, advances in technology, and the spread of all types of information around the world, makes the world smaller in individual perception and raises human aspirations (Sporer 2000). This can lead to increased immigration into more developed countries, such as Australia, which further adds to the complexity of the labour market. That is why Australian companies have been forced to change their approaches to productivity, wages and workplace practices (Jones & Jackson 2000).

As hinted earlier, managers are meeting new challenges in the changing nature of union involvement as well, and this is regardless of whether a company is being global or domestic. Sporer (2000) argues that trade unions, that used to defend workers’ rights, are gradually losing power, and the unions themselves realise their need to adapt to global influences. From a protocol of an international trade union meeting in Seoul in 1997, it can be read that: “the central issue for trade unions is not to take a position in favour or against globalisation but to cope with a series of interconnected developments at work which are profoundly affecting all economies and societies” (TUAC 1997). The protocol also states that:

Increasingly trade unions are finding that in their relations with governments and in their relations with the employers, the actions of the negotiating parties are likely to be constrained by the international situation far more than before. With regard to government action whether it be in setting tax rates, economic policy management, interest rate policy or exchange rate policy, international constraints are increasingly cited as reasons for the inability of government to fulfil the tasks that trade unions naturally look to it to fulfil. With regard to the employers, their attitude to trade unions generally, their policy towards labour costs and their attitude to technological change and work organisation are again increasingly dictated by international competitiveness and international trends (TUAC 1997).

 

Government policy also shapes the future directions of its society and plays a vital part in the globalisation of the workforce. Governments are also pushed into the direction of more and more cooperation and interdependence with other states globally, accepting international laws and regulations in areas related not only to workforce and economic issues, but also to human rights and environmental protection. (Sporer 2000).

Globalisation therefore means that managers need to learn new skills and comprehend the nature of the globalisation process if they are to be effective in their roles. They will have to deal with a more flexible, diverse, and independent workforce, as well as the changing nature of union participation. Additionally, as previously argued, people’s preferences for global goods will rise when information is more accessible, which further puts pressure on managers to adapt to global influences and provide strategies to make sure their companies continue to be competitive and profitable.

Globalisation of financial market:

Whilst there may be doubts as to the extent to which manufacturing and service companies have become fully globalised, there are no such doubts about the globalisation of financial markets, which has been facilitated through service and product market deregulation and advanced information and communication technologies. The appearance of the ‘eurodollar market’ in the 1960's was followed by the collapse of Bretton Woods in the 1970's and the removal of national capital controls and deregulation of the financial sector in the 1980's. The result has been an explosion of cross border lending, the appearance of new financial ‘products’ and the appearance of an oligopolist structure of global financial institutions. Cross border assets held by banks tripled in the decade up to 1993. According to figures of the Bank for International Settlements, some $1.4 trillion US dollars in foreign exchange transactions are floating around the globe per day, or the equivalent of 100 times the value of all trade in goods and services (TUAC 1997).

The speed and availability of the capital contributed to the growth of the open economies, but at the same time it contributed to the volatility of the particular economies and the world economy as a whole (Sporer 2000). A word or two from Alan Greenspan, chairman of the Federal Reserve (the central bank of United States), can cause huge volatility in the financial market all over the world. The recent terrorist attack in United States resulted in a plunge of many of the world economies, which, in turn, could have a long-lasting effect on national economies and ultimately individual businesses. Managers need to be aware of many of the financial aspects in the global economy in order to be effective in their jobs. A sudden downturn in the global economy can have huge implication on companies that are investing, or plan to invest, overseas. The turmoil in the Asian currency markets a few years ago has demonstrated that financial market globalisation has very real implications for both governments and organisations (TUAC 1997).

One example of the volatility of finance is the recent Ansett crisis in Australia. Mark Mentha, administrator for Arthur Anderson, reported in the creditor meeting on August 18th that they “did not know where all the cash has gone”. In the same meeting concerns were raised about the global influence of Ansett’s management team, and how this could have been one reason for the apparent lack of control over the company’s cash assets. This particular case shows how open the world has become in terms of financial capital – so open that it is not always clear who owns what, where the assets they own are being held, and by whom.

Globalisation and advance of technology:

One of the major forces of globalisation is the advance of technology. New technological innovations have facilitated and made communication, interaction and trade possible to all parts of the world. As Rhinesmith (1996: vii) puts it: “With the growth of global customers, companies are challenged to deliver products in a consistent manner to areas of the world that for many managers have been nothing more than names on a map”. Information technology made the globalisation process more visible, and it has produced a feeling that everything that happens far away concerns us and influences us. Borderless feeling prevails over the classical closeness of the nation-state. Trade, capital, and finance are floating through the Internet, with the accompanying tendencies toward cultural unification as well (Sporer 2000). The Internet speeds up globalisation because it makes it easier for companies to market their products overseas and to offer both global and local versions of a product (Yip 1999).

Access to ‘state of the art’ technology has become a key factor in determining competitiveness in many of the growth sectors, including local, domestic markets. On the production side, joint ventures, sourcing agreements and other types of inter-company cooperation have become part of this process. There has been a clear tendency toward even more concentration of economic power in the hands of a few corporations that produce for the world market. On the application side the integration of information and communications technology is now having a radical effect on the organisation of the production of goods and services. Related to this has been the decline of Taylorist systems of mass production and the appearance of more flexible forms of organisation, as discussed in previous sections.

This has implications for all managers, at all levels of management. Large, global organisations must constantly be updated in technological innovations to ensure the most efficient and effective way of production, promotion, and sale of their products, so that they are not counter-sailed by their competitors. Technology can also have a huge impact on training and development in the organisation, as well as other administrative functions. One example of this is ANZ, one of Australia’s largest banks, which implemented a new training system nine months ago where most of the training is done over the Internet. The move toward e-commerce and e-learning both depend heavily on technology and how technology can provide better opportunities to reach out to people. Therefore, managers should develop close relationships to their IT-people and keep track of the changes in the organisation’s technological infrastructure in order to effectively do their job. They also need to develop at least basic technological skills, as more and more managerial tasks require them to use computers and other technology.

Likewise, managers in small, domestic companies need to understand the globalising forces of technology that can have an impact on customers’ purchasing behaviour and demands. It is now possible to sit at home and order goods over the Internet, and in some industries this is a globalising force that can hugely impact sales and company performance. For example, compact discs (CDs) can be purchased and delivered at a sometimes lower cost if purchased over the Internet, rather that having the customer come to the local store and purchase the product there. Strategies for small music businesses might then include promotions, special offers, bulk-buy prices, or even better service by providing listening stations allowing customers to determine whether the CD meet their demands. In any case, all managers need to understand the globalising forces of technology. It has made the world smaller and more accessible, but can also contribute to increased competitiveness and complexity in the market of goods and services.

SUMMARY

This paper has discussed how some globalising forces influence businesses and societies so that it is necessary for managers to comprehend the nature of the globalising process, or at least to have some basic understanding of it, in order to be effective in their jobs. It has been argued that globalisation of the product market leads to increased competition due to an increased number of companies going global and competing with local, smaller companies on a domestic and regional level, and larger multi-national corporations on a global level. Managers must realise the threats of global competition wherever they are, and turn the threats into competitive advantage by adapting to the changing nature of business.

It has also been argued that the globalisation of finance and technology impacts manager’s decision-making role in organisations. The advance of technology, and particularly the development of the Internet, makes global access and information available to consumers so that competition is not geographically bound anymore, but also present in ‘cyberspace’. Finally the changing nature of society and workforce necessitates managers to develop skills, particularly intercultural and human skills, to manage an increasingly flexible, independent and culturally diverse workforce.

It has further been argued that it is not only managers in large, global organisations that need to comprehend the globalisation process, but also managers in small, local companies if they are to survive and become successful in a global economy. Rhinesmith (1996) further believes that: “there is little doubt that to be viable… all organisations, whether domestic or international, will need to become more global in their outlook, if not in their operations”.

This paper finishes with a quote from Andy Grove, leader of Intel Corporation, which gets to the core issue of globalisation and its implications for managers in this new global economy:

You have no choice but to operate in a world being shaped by globalization and the information revolution. There are two options: adapt or die. The new environment dictates two rules. First, everything happens faster; and second, anything that can be done will be done, if not by you, then by someone else somewhere. Let there be no misunderstanding. These changes lead to a less kind, less gentle and less predictable workplace (Andy Grove, Sept. 18 issue of Fortune, cited by Rhinesmith, 1996 :x)

 

Any reproduction or distribution of this text is prohibited without express permission by the author. Please contact peter@engholm.nu for permission or further information.

 


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