MBEYA UNIVERSITY OF SCIENCE AND TECHNOLOGY

GLOBALISATION AND SOCIAL CHANGE

A Compendium of Notes for NTA Level 5

By

Abbas Y. Sanga
abbyosanga@gmail.com, abbsanga@mustnet.ac.tz

SCHOOL OF HUMANITIES AND BUSINESS STUDIES

DEPARTMENT OF BUSINESS MANAGEMENT
P.O. BOX 131, MBEYA, TANZANIA

FEBRUARY, 2018

Globalisation
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Although nations historically retained absolute control over the products, people, and capital
crossing their borders, economies are becoming increasingly intertwined. Globalisation is the
trend toward greater economic, cultural, political, and technological interdependence among
national institutions and economies. Globalisation is a trend characterized by denationalization
(national boundaries becoming less relevant) and is different from internationalization (entities
cooperating across national boundaries). The greater interdependence that globalisation is
causing means an increasingly freer flow of goods, services, money, people, and ideas across
national borders.

As its definition implies, globalization involves much more than the expansion of trade and
investment among nations. Globalisation embraces concepts and theories from political science,
sociology, anthropology, and philosophy as well as economics. As such, it is not a term
exclusively reserved for multinational corporations and international financial institutions. Nor is
globalization the exclusive domain of those with only altruistic or moral intentions. In fact,
globalization has been described as going “well beyond the links that bind corporations, traders,
financiers, and central bankers. It provides a conduit not only for ideas but also for processes of
coordination and cooperation used by terrorists, politicians, religious leaders, anti-globalization
activists, and bureaucrats alike.”

Understanding Globalisation
Globalisation is a term which includes all aspects of society
(a) Economic Dimension
 Policy of liberation
i. Privatisation
ii. Economic aspects of Globalisation
. Many new policies
. Many laws- stiff competition
. Economic reforms policy of liberalization
(b) E-Economy
- Transaction take place electronically at the click of a button through computers
- No paperwork or paper currency required.
- Shares bought and sold within seconds.
- Transaction of funds between countries in seconds.
- One major risk is sometime foreign companies buy up stocks in bulk, make a profit
and sell it back to stockholders.
- Main reason for electronic economy is revolution of technology.
(c) Weightless or Knowledge Economy
- Weightless Economy is that system in which basis is information e.g. IT sector,
internet, software
- A knowledge economy is one in which working people are not directly involved in
the production of commodities but gives support systems (Transport and
Communications, architects, welding planners, market, service, etc.)
(d) Globalisation of Finance
- Connected to Electronic Finance
- Hub of Electronic activity where transaction takes place 24 hours are called Financial
Capital of that City.
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 - Globally integrated markets do transactions involving billions of holders work within
seconds like Tokyo, New York, London, Bombay
(e) INC’s or MNC’s
- Companies which have branches in different areas.
- Big billions dollars MCC’s and small MNC’s
- Many companies
(f) Global Communication
- Many revolutions have taken place because of advances and improvement in
technology and communication.
- Some homes and many offices have multiple links t the outside world such as
telephone, Cellphones, fax machines,digital and cable television, electronic mail and
internet (satellite technology).

(g) Globalisation and internet, and division of labour

- Has emerged due to globalisation, where production (manufacturing) and
employment is spread over different countries all over the world.
- Wherever good infrastructure, cheap labour, resources, MNC’s come up.
- Hence frequent shifting of location occur
- This got a feeling of insecurity among labour
- Only unkilled, causal labours suffered
- Main aim of factory owners is profit
(h) Globalisation and employment
- Before globalisation (1990’s) the employment scenario was different
- Many jobs are now available after graduation
- Job opportunities broadened largely

Political Dimension
(a) Collapse of Socialists states like USSR
(b) Coming up of Organisations /Associations like ASEAN
(c) Coming up of GO’s and NGO’s

Cultural Dimension
(a) Globalisation local and Global culture
- Homogeneity all products and services are available everywhere.
- Uniqueness is being lost.
- Many foreign films are adapting to local cultures
- All foreign companies try to adapting themselves to the local practice of the country
where they have set up their branches
- Food
- Fusion of music and dance
- Many foreign are shown in local languages- this helps the marketing of the company
which leads to better profit-Appeals to bigger population- Culture we have to adopt
and mix-tradition and modernization.
- Sociologists debate it isn’t good as it is dissolving our culture
- Some say it is good as we are developing.
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 (b) Culture of Consumption
- Growth of cities was in places where there was growth of industries.
- Where ever there were industries there was infrastructure changes in terms of food,
clothes, art, music, tourism has been responsible for migration of people of cities.
- Aspects of spending money has changed.
- Myth: Women should be housewives not educated, not to take part in politics.
- One side believers they should be housewives etc.
- With the coming of globalisation it has empowered women.
- They take part in all jobs (Bank, pilot etc.)
(c) Corporate Culture
- Every corporation or MNC has its own culture because they want to be unique
- Each company has its own way of looking after its people.
- This is done to keep the employees happy and relaxed which is also an incentive to
keep there working efficiently.
- This incentive required because there is competition among the people so it is a
measure to increase productivity of the people.
- It is also done to create cohesiveness and loyality.
- Things companies do to keep employees happy.
- Each company has its own ways of sales and marketing
- Marketing is done through advertising
- Marketing strategies differ from company to company.
- Now with globalisation many new occupations have come up, people find jobs in
fields like fashion, designing, bank, art, dance, diet and theatre.
- The professionals have higher salaries so they face relatively more stress and strain
(good money but a lot of money).

Dimension of Globalisation

Economic Global Globalisation & Globalisation &

communication Labour political change

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 New international Division of Globalisation
Labour &Employment

Globalisation &
culture

Policy of Transnational Electronic Weightless/ Globalisation Culture of

Liberalisation Corporation Company knowledge consumption

Globalisation Gender &

of Finance Culture

For our purposes, this discussion focuses on the business implications of globalization. Two
areas of business in which globalization is having profound effects are the globalization of
markets and production.

GLOBALIZATION OF MARKETS
Defining International Marketing:
 “Marketing is defined as a process by which individuals and groups obtain what they
need & want by creating and exchanging products and value with others.
 The term “International Marketing” refers to exchanges across national boundaries for
the satisfaction of human needs and wants.
 The extent of a firm’s involvement abroad is a function of its commitment to the pursuit
of foreign markets.
 Global industries are defined as those where a firm’s competitive position in one country
is affected by its position in other countries, and vice versa.

Evolution of Global Marketing:

Firms, depending on their level involvement in foreign markets, pass through following five
evolutionary phases.
1. Domestic marketing
– Domestic marketers tend to be ethnocentric (focus is solely on domestic market) & pay
little attention to changes taking place in the global market place.
– Such firms produce and sell products and services only in their home country.
– Firms that keep focus only on their domestic markets may be vulnerable to the sudden
changes forced on them from foreign competition, when foreign firms enter the markets
or even when foreign firms develop better or cheaper products.
2. Export marketing
– Exporting firms fulfill unsolicited / solicited orders from foreign countries.
– For growth in export marketing, however, a company requires physical, financial and
managerial resources.
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 – When a firm attempts to export it faces many issues that include difficulties in
import/export restrictions, cost and availability of shipping, exchange rate fluctuations,
collection of money, development of distribution channels etc.
– Export marketers still tend to take ethnocentric approach, since they mostly make
products in their home countries and have no direct involvement in the foreign markets.
3. International marketing
– An international marketing firm has polycentric orientation with emphasis on product and
promotional adaptation in foreign markets whenever necessary.
– They make strategic decisions that are tailored to suit the cultures of the foreign
countries.
– The company may establish an independent foreign subsidiary in each and every foreign
market it services – such efforts are also called multi-domestic marketing.

4. Multinational marketing
– Multinational firms are those that sell products or services in many countries.
– Economies of scale in product development, manufacturing, and marketing are achieved
by multinational firms by consolidation of some of their activities on regional basis.
– In this regiocentric approach product planning may be standardized within a region (e.g.
a group of contiguous and similar countries).
5. Global marketing Emphasizes
– Global marketing firms sell products and services in most countries around the world.
– Through global operations firms achieve reduction of cost inefficiencies and duplication
of efforts among their national and regional subsidiaries.
– Global operations allow opportunities for the transfer of products, brands, and other ideas
across subsidiaries.
– Opportunities to operate worldwide are supported by the emergence of global customers,
and
– Improved linkages among national marketing infrastructures leading to the development
of a global marketing infrastructure.

Dynamics of international marketing:

Modern marketers have to deal with customers who are changing;
– With channels of distribution that are changing
– And with the technological advances that are changing the nature of their products &
services and requiring them to operate imaginatively & effectively in the emerging
markets.
The basic nature of Marketing does not change from domestic to international marketing, but
marketing outside national boundaries poses special problems, such as dealing with multiple
environments, managing operations in distant markets, optimizing businesses in more than one
country, dealing with foreign nationals etc. International marketing therefore, unlike domestic
marketing, requires operating simultaneously in more than one kind of environment,
coordinating these operations, and using the experience gained in one country for making
decisions in another country. The demands are tough and the stakes are high. International
marketers not only must be sensitive to different marketing environments internationally, but also
must be able to balance marketing moves worldwide to seek optimum results for the company.

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Globalization of markets:
It is widely asserted that we are living in an era in which the greater part of social life is
determined by global processes, in which national cultures, national economies and national
borders are dissolving. Central to this perception is the notion of a rapid and recent economic
globalization. “In France the word is mondialisation. In Spain and Latin America it is
globalization. The Germans say Globalisierung”. Many authors cite Wallerstein as the first one to
open up the theme of ‘globalization’ in his book “The Capitalist World-Economy”, published in
1979. Since then the topic has attracted much attention from diverse perspectives.
The common themes that run through the discourse of globalization are:
a)Ecological interdependence: The recognition that most places on the earth are linked
to all others by air, water, and overland links. Rapidly increasing
interdependence of world is rendering national boundaries meaningless.
b) Dominance and dependency: Falling barriers to international trade and world’s
markets expose everyone to domination by most powerful players and role
of nations in weakening into service structures for corporate interest.
c) Hologramatic diversity: The argument that each place reflects the same ‘diversity’ as
each other. What is perceived as human, social or cultural diversity is
essentially all the same.
d) Homogenization of cultures: The view that both material and non-material cultures
are becoming more the same wherever one goes and the argument that a
single
‘socio-cultural political’ system is the only viable solution for the problems of
interdependency.
e) Ubiquitous communication: The belief that communication is now becoming more
and more universal in all places at all times in all directions.

The above can probably be split into just two concerns:

i) The awareness of (and probably inevitability of) a global eco-social dynamics of
interdependency.
ii) Standardization in social, political, cultural, and material life in order to limit or
control the chaos (or to maximize economic gain).

‘Globalization’ has been defined in many ways. Some definitions are relatively concise while
others are more vague and evocative.

A more precise definition of ‘globalization’ is as follows:

“A process (or set of processes) which embodies a transformation in the spatial organization of
social relations and transaction … generating transcontinental or interregional flows and
networks of activity, interaction, and the exercise of power”.

Globalization may not be a particularly attractive or elegant word. But absolutely no one who
wants to understand their (and/or others’) prospects in future can ignore it. According to the
‘globalists’ school of thought, globalization represents;
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 - A convergence of tastes and increasing homogeneity that allows for the use of standard
products and services worldwide.
- The process of integrating purchasing and manufacturing processes on a global scale to
achieve cost efficiencies.
- Industries dominated by a few major players worldwide.
- Large organizations with global cultures and mindsets.
A number of scholars see globalization as a process driven by a series of global industry drivers.
These drivers are market drivers, such as common customer needs and the existence of global
channels; cost drivers, such as global scale economies and global sourcing efficiencies;
economic drivers, such as trade policy and deregulation; and competitive drivers, such as the
existence of global competitors.

Market Globalization Drivers - Market drivers depend on the nature of customer behavior and
the structure of channels of distribution. Some common market drivers are:
 Common Customer Needs
Factors that affect whether customer needs are similar in different countries include
economic development, climate, physical environment, and culture.
 Global Customers and Channels
Global customers buy on a centralized or coordinated basis for decentralized use. Their
existence affects the opportunity or need for global market participation, global products
and services, global activity location, and global marketing
 Transferable Marketing
Certain elements of the marketing mix, e.g., brand name, pricing strategy, etc., may be
transferable across markets. The implications are that these elements can be effectively
used both for increasing as well as reducing barriers.

 Lead Countries
Lead countries represent countries where innovations in particular industries are prone to
take place, e.g., Japan for consumer electronics, Germany for industrial control
equipment, and the United States for computer software.

Cost Globalization Drivers - Cost drivers depend on the economics of the business. These
drivers particularly affect production location decisions, as well as global market participation
and global product development decisions. The most commonly cited cost drivers are:

 Global Economies of Scale and Scope

Global economies of scale apply when single-country markets are not large enough to
allow competitors to achieve optimum scale. One of the most visible examples of this has
been in the electronics industry. In many cases, economies of scope may be available by
using facilities and processes in a single operating unit to produce a larger variety of
goods or services with or without the presence of scale economies. Areas where
economies of scope may be visible include consumer research, product development, and
the creation of marketing programs.
 Steep Experience Curve

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 Besides economies of scope and scale, steep learning activity associated with
concentration of activities can result in significant cost advantages.
 Global Sourcing Efficiencies
Efficiencies arise out of coordination of the procurement activities of raw materials and
components across the world. Ability to source from around the world allows firms to
reduce costs of raw materials and productions while increasing their qualities.
 Favorable Logistics
A favorable ratio of sales value to transportation cost increases the ability of global firms
to concentrate production in certain countries and take advantage of economies of scale.
Other logistic factors that have a bearing on global strategy development are non
perishability of products, absence of time urgency, and little need for location close to
customer facilities.
 Difference in Country Costs
This is based on the classical theories of differences in factor costs that do exist and can
be exploited by firms to achieve comparative advantage. Beside factor cost differences,
exchange rate differences also have a significant bearing on the absolute costs and the
stability of costs.
 High Product Development Costs
High product development costs relative to the size of national markets act as a driver to
globalization. These costs can be reduced by developing few global or regional products.
 Fast-Changing Technology
Fast-changing technologies in products or processes lead to high product development
costs, which increase their globalization potential.

Government Globalization Drivers - Rules set by national governments can affect the use of
global strategic decision-making. Governments around the world adopt policies, formulate
regulations and implement programs to support local businesses sell abroad and to affect their
international trade. These rules/policies include the following:

 Favorable Trade Policies

Import tariffs and quotas, non-tariff barriers, export subsidies, local content requirements,
currency and capital flow restrictions, ownership restrictions, and requirements on
technology transfer are some means governments can use to influence firm behavior.
These policies can have a significant negative impact on standardization of products and
programs.

 Compatible Technical Standards

Differences in technical standards among countries also affect the extent of product
standardization.
 Common Marketing Regulations
Restrictions on various marketing activities can also act as a barrier to the use of uniform
marketing approaches. For example, restrictions on the use of certain kinds of media for
advertisements, differences in ad content like the use of gender and comparative
advertising, and so on.
 Government-Owned Competitors

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 - The presence of government-owned competitors spurs the development of global plans
as a means of counteracting the advantages of protected home markets.
 Government-Owned Customers
- Presence of government-owned customers could provide a barrier to globalization since
such customers usually favor national suppliers.

Competitive Globalization Drivers - Competitive drivers raise the globalization potential of

any industry and spur the need for a response on the global strategy levels. The common
competitive drivers include:
 High Exports and Imports
The level of exports and imports of final and intermediate products and services, i.e., the
extent of interaction between countries, has a significant bearing on the use of a global
strategy.
 Competitors from Different Continents and Countries
Global competition among rivals from different continents trends to be severe.
 Interdependent Countries
Competitive interdependence among countries through shared business activities can help
such firms to subsidize attacks on competitors to counterattack these subsidies.
 Globalized Competitors
When a business’s competitors use global strategy to exploit industry globalization
potential, the business needs to match or preempt these competitors.
 Other environmental drivers
Revolution in IT & telecoms, international financial markets, reduction of tariffs, creation
of trade blocs, privatization drives

GLOBALIZATION OF PRODUCTION
Many production activities are also becoming global. Globalization of production refers to the
dispersal of production activities to locations that help a company achieve its cost-minimization
or quality-maximization objectives for a good or service. This includes the sourcing of key
production inputs (such as raw materials or products for assembly) as well as the international
outsourcing of services. Let’s now explore the benefits that companies obtain from the
globalization of production.

ACCESS LOWER-COST WORKERS

Global production activities allow companies to reduce overall production costs through access
to low-cost labor. For decades, companies located their factories in low-wage nations to churn
out all kinds of goods, including toys, small appliances, inexpensive electronics, and textiles. Yet
whereas moving production to low-cost locales traditionally meant production of goods almost
exclusively, it increasingly applies to the production of services such as accounting and research.
Although most services must be produced where they are consumed, some services can be
performed at remote locations where labor costs are lower. Many European and U.S. businesses

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have moved their customer service and other nonessential operations to places as far away as
India to slash costs by as much as 60 percent.

Access Technical Expertise

Companies also produce goods and services abroad to benefit from technical know-how. Film
Roman (www.filmroman.com) produces the TV series The Simpsons, but it provides key poses
and step-by-step frame directions to AKOM Production Company (www.akomkorea.com) in
Seoul, South Korea. AKOM then fills in the remaining poses and links them into an animated
whole. But there are bumps along the way, says animation director Mark Kirkland. In one
middle-of-the-night phone call, Kirkland was explaining to the Koreans how to draw a shooting
gun. “They don’t allow guns in Korea; it’s against the law,” says Kirkland. “So they were calling
me [asking]: ‘How does a gun work?’” Kirkland and others put up with such cultural differences
and phone calls at odd hours to tap a highly qualified pool of South Korean animators.

Access Production Inputs

Globalization of production allows companies to access resources that are unavailable or more
costly at home. The quest for natural resources draws many companies into international
markets. Japan, for example, is a small, densely populated island nation with very few natural
resources of its own—especially forests. But Japan’s largest paper company, Nippon Seishi, does
more than simply import wood pulp. The company owns huge forests and corresponding
processing facilities in Australia, Canada, and the United States. This gives the firm not only
access to an essential resource but also control over earlier stages in the papermaking process. As
a result, the company is guaranteed a steady flow of its key ingredient (wood pulp) that is less
subject to swings in prices and supply associated with buying pulp on the open market. Likewise,
to access cheaper energy resources used in manufacturing, a variety of Japanese firms are
relocating production to China and Vietnam, where energy costs are lower. Despite its benefits,
globalization also creates new risks and accentuates old ones for companies. To read about
several key risks that globalization heightens and how companies can better manage them, see
this chapter’s Global Challenges feature, titled “Managing Security in the Age of Globalization.”

GLOBAL CHALLENGES
Managing Security in the Age of Globalization
The globalization of markets and production creates new challenges for companies. As well as
the need to secure lengthy supply chains and distribution channels, companies must secure their
facilities, information systems, and reputations.
• Facilities Risk. Careful planning and facilities assessment (around $12,000 for a midsized
company; $1 million for a large firm) can be well worth the cost. Large companies with top-
notch property risk management programs are said to produce more stable earnings. And
companies practicing weak risk management experience 55 times greater risk of property loss
due to fire and 29 times greater risk of property loss caused by natural hazards.
• Information Risk. Computer viruses, software worms, malicious code, and cyber criminals
cost companies around the world many billions of dollars each year. The usual suspects include
disgruntled employees and dishonest competitors, but often are hackers who steal customers’
personal and financial data that is then sold worldwide to the highest bidder. Upon quitting their

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jobs, some employees simply walk away with digital devices containing confidential memos,
competitive data, and private e-mails.
• Reputational Risk. News regarding the actions of today’s largest corporations spreads
worldwide quickly. Reputational risk is anything that can harm a firm’s image, including
accounting irregularities, product recalls, workers’ rights violations, and involvement in a
lawsuit. The damaged reputation of Goldman Sachs following its $550 million settlement with
the Securities and Exchange Commission (for its actions before and during the financial
meltdown on Wall Street) is estimated to have cost the firm nearly 40 percent ($6 billion) of its
brand value in one year.

The Challenge. Like the risks themselves, the challenges are also varied.
 First, companies should identify all potential risks to their facilities and develop a best
practice property risk program.
 Second, employees should change passwords often, guard computers and mobile devices
with software patches, and return company-owned digital devices when leaving the firm.
 Third, as they come under ever-increasing scrutiny, companies should act ethically and
within the law to protect their reputations.

FORCES DRIVING GLOBALIZATION

Two main forces underlie the globalization of markets and production: falling barriers to trade
and investment and technological innovation. These two features, more than anything else, are
increasing competition among nations by leveling the global business playing field. Greater
competition is simultaneously driving companies worldwide into more direct confrontation and
cooperation. Local industries once isolated by time and distance are increasingly accessible to
large international companies based many thousands of miles away. Some small and medium-
sized local firms are compelled to cooperate with one another or with larger international firms to
remain competitive. Other local businesses revitalize themselves in a bold attempt to survive the
competitive onslaught. And on a global scale, consolidation is occurring in many industries as
former competitors link up to challenge others on a worldwide basis. Let’s now explore in
greater detail the pivotal roles of the two forces driving globalization.

Falling Barriers to Trade and Investment

In 1947, political leaders of 23 nations (12 developed and 11 developing economies) made
history when they created the General Agreement on Tariffs and Trade (GATT)-a treaty
designed to promote free trade by reducing both tariffs and nontariff barriers to international
trade. Tariffs are essentially taxes levied on traded goods, and non-tariff barriers are limits on the
quantity of an imported product. The treaty was successful in its early years. After four decades,
world merchandise trade had grown 20 times larger, and average tariffs had fallen from 40
percent to 5 percent. Significant progress occurred again with a 1994 revision of the GATT
treaty. Nations that had signed on to the treaty further reduced average tariffs on merchandise
trade and lowered subsidies (government financial support) for agricultural products. The treaty’s
revision also clearly defined intellectual property rights-giving protection to copyrights
(including computer programs, databases, sound recordings, and films), trademarks and service
marks, and patents (including trade secrets and know-how). A major flaw of the original GATT

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was that it lacked the power to enforce world trade rules. Likely the greatest accomplishment of
the 1994 revision was the creation of the World Trade Organization.

WORLD TRADE ORGANIZATION The World Trade Organization (WTO) is the

international organization that enforces the rules of international trade. The three main goals of
the WTO (www.wto.org) are to help the free flow of trade, help negotiate the further opening of
markets, and settle trade disputes among its members. It is the power of the WTO to settle trade
disputes that really sets it apart from its predecessor, the GATT. The various WTO agreements
are essentially contracts between member nations that commit them to maintaining fair and open
trade policies. Offenders must realign their trade policies according to WTO guidelines or face
fines and, perhaps, trade sanctions (penalties). Because of its ability to penalize offending
nations, the WTO’s dispute settlement system truly is the spine of the global trading system. The
WTO replaced the institution of GATT but absorbed all of the former GATT agreements. Thus,
the GATT institution no longer officially exists. Today, the WTO recognizes 153 members and
30 “observer” members.

The WTO launched a new round of negotiations in Doha, Qatar, in late 2001. The renewed
negotiations were designed to lower trade barriers further and to help poor nations in particular.
Agricultural subsidies that rich countries pay to their own farmers are worth $1 billion per day-
more than six times the value of their combined aid budgets to poor nations. Because 70 percent
of poor nations’ exports are agricultural products and textiles, wealthy nations had intended to
further open these and other labor-intensive industries. Poor nations were encouraged to reduce
tariffs among themselves and were to receive help in integrating themselves into the global
trading system. Although the Doha round was to conclude by the end of 2004, negotiations are
proceeding more slowly than was anticipated.8

REGIONAL TRADE AGREEMENTS In addition to the WTO, smaller groups of nations are
integrating their economies as never before by fostering trade and boosting cross-border
investment. For example, the North American Free Trade Agreement (NAFTA) gathers three
nations (Canada, Mexico, and the United States) into a free-trade bloc. The more ambitious
European Union (EU) combines 27 countries. The Asia Pacific Economic Cooperation (APEC)
consists of 21 member economies committed to creating a free-trade zone around the Pacific.
The aims of each of these smaller trade pacts are similar to those of the WTO but are regional in
nature. Moreover, some nations are placing greater emphasis on regional pacts because of
resistance to worldwide trade agreements.

TRADE AND NATIONAL OUTPUT Together, the WTO agreements and regional pacts have
boosted world trade and cross-border investment significantly. Trade theory tells us that
openness to trade helps a nation to produce a greater amount of output. Map 1.1 illustrates that
growth in national output over a recent 10-year period is significantly positive. Economic growth
is greater in nations that have recently become more open to trade, such as China, India, and
Russia, than it is in many other countries. Much of South America is also growing rapidly, while
Africa’s experience is mixed. Let’s take a moment in our discussion to define a few terms that we
will encounter time and again throughout this book. Gross domestic product (GDP) is the value
of all goods and services produced by a domestic economy over a one-year period. GDP
excludes a nation’s income generated from exports, imports, and the international operations of
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its companies. We can speak in terms of world GDP when we sum all individual nations’ GDP
figures. GDP is a somewhat narrower figure than gross national product (GNP)—the value of
all goods and services produced by a country’s domestic and international activities over a one-
year period. A country’s GDP or GNP per capita is simply its GDP or GNP divided by its
population.

TECHNOLOGICAL INNOVATION
Although falling barriers to trade and investment encourage globalization, technological
innovation is accelerating its pace. Significant advancements in information technology and
transportation methods are making it easier, faster, and less costly to move data, goods, and
equipment around the world. Let’s examine several innovations that have had a considerable
impact on globalization.

E-MAIL AND VIDEOCONFERENCING

Operating across borders and time zones complicates the job of coordinating and controlling
business activities. But technology can speed the flow of information and ease the tasks of
coordination and control. Electronic mail (e-mail) is an indispensable tool that managers use to
stay in contact with international operations and to respond quickly to important matters.
Videoconferencing allows managers in different locations to meet in virtual face-to-face
meetings. Primary reasons for 25 to 30 percent annual growth in videoconferencing include
lower-cost bandwidth (communication channels) used to transmit information, lower-cost
equipment, and the rising cost of travel for businesses. Videoconferencing equipment can cost as
little as $5,000 and as much as $340,000. A company that does not require ongoing
videoconferencing can pay even less by renting the facilities and equipment of a local conference
center.9

INTERNET AND WORLD WIDE WEB

Companies use the Internet to quickly and cheaply contact managers in distant locations, for
example, to inquire about production runs, revise sales strategies, and check on distribution
bottlenecks. They also use the Internet to achieve longer term goals, such as sharpen their
forecasting, lower their inventories, and improve communication with suppliers. The lower cost
of reaching an international customer base especially benefits small firms, which were among the
first to use the Web as a global marketing tool. Further gains arise from the ability of the Internet
to cut postproduction costs by decreasing the number of intermediaries a product passes through
on its way to the customer. Eliminating intermediaries greatly benefits online sellers of books,
music, and travel services, among others.

COMPANY INTRANETS AND EXTRANETS Internal company Web sites and information
networks (intranets) give employees access to company data using personal computers. A
particularly effective marketing tool on Volvo Car Corporation’s (www.volvocars.com) intranet
is a quarter-by-quarter database of marketing and sales information. The cycle begins when
headquarters submits its corporate-wide marketing plan to Volvo’s intranet. Marketing managers
at each subsidiary worldwide then select those activities that apply to their own market, develop
their marketing plan, and submit it to the database. This allows managers in every market to view
every other subsidiary’s marketing plan and to adapt relevant aspects to their own plan. In
essence, the entire system acts as a tool for the sharing of best practices across all of Volvo’s
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markets. Extranets give distributors and suppliers access to a company’s database to place orders
or restock inventories electronically and automatically. These networks permit international
companies (along with their suppliers and buyers) to respond to internal and external conditions
more quickly and more appropriately.

ADVANCEMENTS IN TRANSPORTATION TECHNOLOGIES

Retailers worldwide rely on imports to stock their storerooms with finished goods and to supply
factories with raw materials and intermediate products. Innovation in the shipping industry is
helping globalize markets and production by making shipping more efficient and dependable. In
the past, a cargo ship would sit in port up to 10 days while it was unloaded one pallet at a time.
But because cargo today is loaded onto a ship in 20- and 40-foot containers that are quickly
unloaded onto railcars or truck chassis at the final destination, a 700-foot cargo ship is routinely
unloaded in just 15 hours. Operation of cargo ships is now simpler and safer due to computerized
charts that pinpoint a ship’s movements on the high seas using Global Positioning System (GPS)
satellites. Combining GPS with radio frequency identification (RFID) technology allows
continuous monitoring of individual containers from port of departure to destination. RFID can
tell whether a container’s doors are opened and closed on its journey and can monitor the
temperature inside refrigerated containers.

Measuring Globalization
Although we intuitively feel that our world is becoming smaller, researchers have created ways
to measure the extent of globalization. One of the most comprehensive indices of globalization is
that created by A.T. Kearney (www.atkearney.com), a management consultancy, and Foreign
Policy magazine (www.foreignpolicy.com). The index ranks 72 nations, which altogether
account for 97 percent of the world’s GDP and 88 percent of its population. Each nation’s
ranking in the index comprises a compilation of more than a dozen variables within four
categories:
1. Economic integration. Trade, foreign direct investment, portfolio capital flows, and
investment income.
2. Personal contact. International travel and tourism, international telephone traffic,
remittances, and personal transfers (including compensation to
employees).
3. Technological connectivity. Internet users, Internet hosts, and secure servers.
4. Political engagement. Memberships in international organizations, personnel and
financial contributions to U.N. Security Council missions, international
treaties ratified, and governmental transfers.

By incorporating a wide variety of variables, the index is apt to cut through cycles occurring in
any one of the four areas listed above. And by encompassing social factors in addition to
economic influences, it tends to capture the broad nature of globalization. Table 1.1 shows the 10
highest-ranking nations in the latest Globalization Index. It shows each nation’s overall rank and
its rank on each dimension described earlier: (1) economic integration, (2) personal contact, (3)
technological connectivity, and (4) political engagement. Europe accounts for 5 of the top 10
spots, and the United States appears in seventh place on the list. The United States is the first
large nation to make it into the top ranks—due largely to its technological superiority. Large

15
nations often do not make it into the higher ranks because they tend to depend less on external
trade and investment.

The world’s least-global nations also deserve mention. The least-global nations account for
around half the world’s population and are found in Africa, East Asia, South Asia, Latin America,
and the Middle East. One remarkable commonality among these nations is their low levels of
technological connectivity. These nations will likely have a difficult struggle ahead if they are to
overcome their lack of global integration. Some of the least-global nations are characterized by
never-ending political unrest and corruption (Bangladesh, Indonesia, and Venezuela). Other
nations with large agricultural sectors face trade barriers in developed countries and are subject
to highly volatile prices on commodity markets (Brazil, China, and India). Still others are heavily
dependent on oil exports but are plagued by erratic prices in energy markets (Iran and
Venezuela). Kenya has suffered from recurring droughts, terrorism, and burdensome visa
regulations that hurt tourism. Finally, Turkey and Egypt, along with the entire Middle East, suffer
from continued concerns over terrorism, high barriers to trade and investment, and heavy
government involvement in the economy. To deepen their global links, each of these nations will
need to make great strides in their economic, social, technological, and political environments.

UNTANGLING THE GLOBALIZATION DEBATE

Globalization means different things to different people. A businessperson may see globalization
as an opportunity to source goods and services from lower-cost locations and to pry open new
markets. An economist may see it as an opportunity to examine the impact of globalization on
jobs and standards of living. An environmentalist may be concerned with how globalization
affects our ecology. An anthropologist may want to examine the influence of globalization on the
culture of a group of people. A political scientist may be concerned with the impact of
globalization on the power of governments relative to that of multinational companies. And an
employee may view globalization either as an opportunity for new work or as a threat to his or
her current job. It is because of the different lenses through which we view events around us that
the globalization debate is so complex. Entrepreneurs, small business owners, and globetrotting
managers need to understand globalization and the arguments of those who oppose it. In the
pages that follow, we explain the main arguments of those opposed to globalization and the
responses of those in favor of it. But before we address the intricacies of the debate, it is helpful
to put today’s globalization into its proper context.

TODAY’S GLOBALIZATION IN CONTEXT

Many people forget that there was a first age of globalization that extended from the mid-1800s
to the 1920s. In those days, labor was highly mobile, with 300,000 people leaving Europe each
year in the 1800s and 1 million people leaving each year after 1900.13 Other than in wartime,
nations did not even require passports for international travel before 1914. And like today,
workers in wealthy nations back then feared competition for jobs from high- and low-wage
countries. Trade and capital flowed more freely than ever during that first age of globalization.
Huge companies from wealthy nations built facilities in distant lands to extract raw materials and
produce all sorts of goods. Large cargo ships plied the seas to deliver their manufactures to
distant markets. The transatlantic cable (completed in 1866) allowed news between Europe and
the United States to travel faster than ever before. The drivers of that first age of globalization
included the steamship, telegraph, railroad, and, later, the telephone and airplane.
16
That first age of globalization was abruptly halted by the arrival of the First World War, the
Russian Revolution, and the Great Depression. A backlash to fierce competition in trade and
unfettered immigration in the early 1900s helped usher-in high tariffs and barriers to
immigration. The great flows of goods, capital, and people common before the First World War
became a mere trickle. For 75 years from the start of the First World War to the end of the Cold
War, the world remained divided. There was a geographic divide between East and West and an
ideological divide between communism and capitalism. After the Second World War, the West
experienced steady economic gains, but international flows of goods, capital, and people were
confined to their respective capitalist and communist systems and geographies. Fast-forward to
1989 and the collapse of the wall separating East and West Berlin. One
by one, central and eastern European nations threw off the chains of communism, embraced
freedom, and began a march toward democratic institutions and free-market economic systems.
Although it took until the 1990s for international capital flows, in absolute terms, to recover to
levels seen prior to the First World War, the global economy had finally been reborn. Lowering
the cost of telecommunications and binding our world more tightly together are the drivers of
this second age of globalization-communication satellites, fiber optics, microchips, and the
Internet.

Introduction to the Debate

In addition to the World Trade Organization presented earlier, several other supranational
institutions play leading roles in fostering globalization. The World Bank is an agency created to
provide financing for national economic development efforts. The initial purpose of the World
Bank (www.worldbank.org) was to finance European reconstruction following the Second World
War. It later shifted its focus to the general financial needs of developing countries, and today it
finances many economic development projects in Africa, South America, and Southeast Asia.

The International Monetary Fund (IMF) is an agency created to regulate fixed exchange rates
and enforce the rules of the international monetary system. Today, the IMF (www.imf.org) has
185 member countries. Some of the purposes of the IMF include promoting international
monetary cooperation; facilitating expansion and balanced growth of international trade;
avoiding competitive exchange devaluation; and making financial resources temporarily
available to members.

At this point we should note one caveat. Each side in the debate over globalization tends to hold
up results of social and economic studies they say show “definitive” support for their arguments.
Yet many organizations that publish studies on globalization have political agendas, such as
decreasing government regulation or expanding government programs. This can make objective
consideration of a group’s claims and findings difficult. A group’s aims may influence the
selection of the data to analyze, the time period to study, the nations to examine, and so forth.
It is essential to take into account such factors anytime we hear a group arguing the beneficial or
harmful effects of globalization.

Let’s now engage the debate over globalization by examining its effects on:
(1) Jobs and wages,
17
 (2) Labor and environmental regulation,
(3) Income inequality,
(4) National sovereignty, and
(5) Cultures.

Globalization’s Impact on Jobs and Wages

We open our coverage of the globalization debate with an important topic for both developed and
developing countries-the effect of globalization on jobs and wages. We begin with the arguments
of those against globalization and then turn our attention to how supporters of globalization
respond.

AGAINST GLOBALIZATION Groups opposed to globalization blame it for eroding standards

of living and ruining ways of life. Specifically, they say globalization eliminates jobs and lowers
wages in developed nations and exploits workers in developing countries. Let’s explore each of
these arguments.

Eliminates Jobs in Developed Nations Some groups claim that globalization eliminates
manufacturing jobs in developed nations. They criticize the practice of sending good-paying
manufacturing jobs abroad to developing countries where wages are a fraction of the cost for
international firms. It is argued that a label reading “Made in China” translates to “Not Made
Here.” Although critics admit that importing products from China (or another low-wage nation)
lowers consumer prices for televisions, sporting goods, and so on, they say this is little
consolation for workers who lose their jobs. To illustrate their argument, globalization critics
point to the activities of big-box retailers such as Costco (www.costco.com) and Wal-Mart
(www.walmart.com). It is difficult to overstate the power of these retail giants and symbols of
globalization. It is said that by relentlessly pursuing low-cost goods, these retailers force their
suppliers to move to China and other low-wage nations.

Lowers Wages in Developed Nations Opposition groups say globalization causes worker
dislocation that gradually lowers wages. They allege that, when a manufacturing job is lost in a
wealthy nation, the new job (assuming new work is found) pays less than the previous one. Some
evidence does suggest that a displaced manufacturing worker, especially an older one, receives
lower pay in a subsequent job. Those opposed to globalization say this decreases employee
loyalty, employee morale, and job security. They say this causes people to fear globalization and
any additional lowering of trade barriers. Big-box retailers come under fire in this discussion
also. Globalization critics say powerful retailers continually force manufacturers in low-wage
nations to accept lower profits so the retailers can slash prices to consumers. As a result of these
business practices, critics charge, powerful retailers force down wages and working conditions
worldwide.

Exploits Workers in Developing Nations Critics charge that globalization and international
outsourcing exploit workers in low-wage nations. One notable critic of globalization is Naomi
Klein (www.naomiklein.org). She vehemently opposes the outsourced call center jobs of Western
companies, such as Victoria’s Secret (www.victoriassecret.com) and Delta Airlines
(www.delta.com). Klein says such jobs force young Asians to disguise their nationality, adopt
fake Midwestern accents, and work nights when their U.S. customers are awake halfway around
18
the world. Klein maintains that free trade policies are a highly efficient engine of dispossession,
pushing small farmers off their land and laying off public-sector workers.

FOR GLOBALIZATION Supporters of globalization credit it with improving standards of

living and making possible new ways of life. They argue that globalization increases wealth and
efficiency in all nations, generates labor market flexibility in developed nations, and advances
the economies of developing nations. Let’s now examine each of these arguments.

Increases Wealth and Efficiency in all Nations Some economists believe globalization
increases wealth and efficiency in both developed and developing nations. Globalization
supporters argue that openness to international trade (the ratio of trade to national output)
increases national production (by increasing efficiency) and raises per capita income (by passing
savings on to consumers). For instance, by squeezing inefficiencies out of the retail supply chain,
powerful global retailers help restrain inflation and boost productivity. Some economists predict
that removing all remaining barriers to free trade would significantly boost worldwide income
and greatly benefit developing nations.

Generates Labor Market Flexibility in Developed Nations Globalization supporters believe

globalization creates positive benefits by generating labor market flexibility in developed
nations. It is claimed that benefits derive from worker dislocation, or “churning” as it is called
when there is widespread job turnover throughout an economy. Flexible labor markets allow
workers to be redeployed rapidly to sectors of the economy where they are highly valued and in
demand. This also allows employees, particularly young workers, to change jobs easily with few
negative effects. For instance, a young person can gain experience and skills with an initial
employer and then move to a different job that provides a better match between employee and
employer.

Advances Economies of Developing Nations Those in favor of globalization argue that

globalization and international outsourcing help to advance developing nations’ economies.
India initially became attractive as a location for software-writing operations because of its low-
cost, well-trained, English-speaking technicians. More recently, telephone call centers that
provide all sorts of customer services offer bright futures to young graduates who will not
become doctors and lawyers. Millions of young Indians view such a job as a ticket to working
for an international firm at a good salary. Today, the relentless march of globalization is making
India a base for business process outsourcing—including financial, accounting, payroll, and
benefits services. A bourgeoning back-office industry worth billions of dollars in India is
significantly elevating living standards. The reason is simple. The world’s largest corporations
and law firms now outsource legal work such as document review, due diligence, contract
management, and other activities to Indian law firms for one-tenth to one-third what they pay
Western firms. India is also popular as a location to outsource information technology (IT) jobs.
The salary of an IT worker in the United States is nearly 10 times that of an IT worker in India.
So long as such economic disparities exist, international outsourcing will continue to grow more
popular.

Summary of the Jobs and Wages Debate All parties appear to agree that dislocation in labor
markets is a byproduct of globalization. In other words, although globalization eliminates some
19
jobs in a nation, it creates jobs in other sectors of the nation’s economy. Yet, while some people
lose their jobs and find new employment, it can be very difficult for others to find new work. The
real point of difference between the two sides in the debate, it seems, is whether overall gains
that (may or may not) accrue to national economies are worth the lost livelihoods that
individuals (may or may not) suffer. Those in favor of globalization say individual pain is worth
the collective gain, whereas those against globalization say it is not.

Globalization’s Impact on Labor, the Environment, and Markets

Critics of globalization say companies locate operations to where labor and environmental
regulations are least restrictive and, therefore, least costly. They argue this puts downward
pressure on labor and environmental protection laws in all countries as nations compete to attract
international firms. Let’s now examine these claims and the responses of globalization
supporters.

LABOR STANDARDS Trade unions claim globalization reduces labor’s bargaining power and
lowers global labor standards when international firms are permitted to continually move to
nations with lower labor standards. One place to test this assertion is in developing nations’
export-processing zones (EPZs)-special areas in which companies engage in tariff-free importing
and exporting. More than 850 EPZs employ 27 million people worldwide. Yet a study by the
International Labor Organization (www.ilo.org), hardly a pro-business group, found no evidence
to support the claim that nations with a strong union presence suffered any loss of investment in
their EPZs. In fact, another study by the World Bank found that the higher occupational safety
and health conditions an EPZ had in place, the greater foreign investment it attracted. The
evidence fails to support critics’ allegations that economic
openness and foreign investment contribute to lower labor standards.

ENVIRONMENTAL PROTECTION Some environmental groups say globalization causes a

“race to the bottom” in environmental conditions and regulations. Yet studies show that pollution
intensive U.S. firms tend to invest in countries with stricter environmental standards. Many
developing nations, including Argentina, Brazil, Malaysia, and Thailand, liberalized their foreign
investment environment while simultaneously enacting stricter environmental legislation. If
large international companies were eager to relocate to nations having poor environmental
protection laws, they would not have invested in these countries for decades. Additional evidence
that closed, protectionist economies are worse than open ones at protecting the environment
includes Mexico before NAFTA, Brazil under military rule, and the former Warsaw Pact of
communist nations—all of which had extremely poor environmental
records. Again, the evidence does not support claims of lower environmental standards as a result
of economic openness and globalization.

FUTURE MARKETS Opponents to globalization claim international firms exploit local labor
markets and the environment to produce goods that are then exported back to the home country.
Such claims may not only perpetuate a false image of corporations but may also have no factual
basis. International firms today support reasonable labor and environmental laws because (if for
no other reason) they want to expand future local markets for their goods and services. When
analyzing a country prior to investing, companies today often examine a location for its potential
20
as a future market as well as a production base. Less than 5 percent of U.S. firms invest in
developing countries to obtain low-cost resources and then export finished products back to the
United States. For additional insights into how managers today succeed by respecting unfamiliar
markets, see the Global Manager’s Briefcase, titled “The Keys to Global Success.”

The Keys to Global Success

Making everything from 99-cent hamburgers (McDonald’s) to $150 million jumbo jets (Boeing),
managers of global companies must overcome obstacles when competing in unfamiliar markets.
Global managers acknowledge certain common threads in their approaches to management and
offer the following advice:
• Communicate Effectively. Cultural differences in business relationships and etiquette are
central to global business and require cross-cultural competency. Effective global managers
welcome uniqueness and ambiguity while demonstrating flexibility, respect, and empathy.
• Know the Customer. Successful managers understand how a company’s different products
serve the needs of international customers. Then, they ensure that the company remains
flexible enough and capable to customize products to meet those needs.
• Emphasize Global Awareness. Good global managers integrate foreign markets into business
strategy from the outset. They ensure that products and services are designed and built with
global markets in mind, and not used as dumping grounds for the home market’s
outdated products.
• Market Effectively. The world can beat a path to your door to buy your “better mousetrap”
only if it knows about it. A poor marketing effort can cause great products to fade into
obscurity while an international marketing blunder can bring unwanted media attention. Top
global managers match quality products with excellent marketing.
• Monitor Global Markets. Successful managers keep a watchful eye on business environments
for shifting political, legal, and socioeconomic conditions. They make obtaining accurate
information a top priority.

GLOBALIZATION AND INCOME INEQUALITY

Perhaps no controversy swirling around globalization is more complex than the debate over its
effect on income inequality. Here, we focus on three main branches of the debate: inequality
within nations, inequality between nations, and global inequality.

INEQUALITY WITHIN NATIONS The first inequality debate is whether globalization is

increasing income inequality among people within nations. Opponents of globalization argue that
freer trade and investment allows international companies to close factories in high-wage
developed nations and to move them to low-wage developing nations. They argue this increases
the wage gap between white-collar and blue-collar occupations within rich nations. Two studies
of developed and developing nations find contradictory evidence on this argument. The first
study of 38 countries over nearly 30 years supports the increasing inequality argument. The study
finds that, as a nation increases its openness to trade, income growth among the poorest 40
percent of a nation’s population declines while income growth among other groups increases.19
The second study of 80 countries over 40 years fails to support the increasing inequality
argument. It finds that incomes of the poor rise one-for-one with overall economic growth and
concludes that the poor benefit from international trade along with the rest of a nation. 20 The

21
mixed findings of these two studies are typical of a large set of research examining inequality
between developed and developing nations.

Two studies of developing nations only are more consistent in their findings. One study finds that
an increase in the ratio of trade to national output of 1 percent raises average income levels by
0.5 to 2 percent. Another study shows that incomes of the poor keep pace with growth in average
incomes in economies (and periods) of fast trade integration, but that the poor fall behind during
periods of declining openness.21 Results of these two studies suggest that, by integrating their
economies into the global economy, developing nations (by far the nations with the most to gain)
can boost incomes of their poorest citizens.

A new approach being developed takes a multidimensional view of poverty and deprivation.
Proponents of this approach say that the problem with focusing on income alone is that higher
income does not necessarily translate into better health or nutrition. The new approach examines
whether a household lacks any of 10 basic things, including whether the family home has a dirt
floor, a decent toilet, electricity service; whether children are enrolled in school; and whether
family members are malnourished or must walk more than 30 minutes to obtain clean drinking
water. A household is considered poor if it is deprived on over 30 percent of the indicators. This
new approach reveals important differences among poor regions. For example, while material
measures contribute more to poverty in sub-Saharan Africa, malnutrition is a bigger factor in
South Asia.

INEQUALITY BETWEEN NATIONS The second inequality debate is whether globalization

is widening the gap in average incomes between rich and poor nations. If we compare average
incomes in high-income countries with average incomes in middle- and low-income nations, we
do find a widening gap. But averages conceal differences between nations.

On closer inspection, it appears the gap between rich and poor nations is not occurring
everywhere: one group of poor nations is closing the gap with rich economies, while a second
group of poor countries is falling further behind. For example, China is narrowing the income
gap between itself and the United States as measured by GDP per capita, but the gap between
Africa and the United States is widening. China’s progress is no doubt a result of its integration
with the world economy and annual economic growth rates of around 9 percent. Another
emerging market, India, is also narrowing its income gap with the United States by embracing
globalization. Developing countries that embrace globalization are increasing personal incomes,
extending life expectancies, and improving education systems. In addition, post-communist
countries that welcomed world trade and investment experienced high growth rates in GDP per
capita. But nations that remain closed off from the world economy have performed far worse.

GLOBAL INEQUALITY The third inequality debate is whether globalization is increasing

global inequality-widening income inequality between all people of the world, no matter where
they live. A recent study paints a promising picture of declining poverty. This study finds that the
percent of world population living on less than a dollar a day (a common poverty gauge) fell
from 17 percent to just 7 percent over a 30-year period, which reduced the number of people in
poverty by roughly 200 million.24 Yet a widely cited study by the World Bank finds that the
percent of world population living on less than a dollar a day fell from 33 percent to 18 percent
22
over a 20-year period, which reduced the number of people in poverty from 1.5 billion to 1.1
billion.25 For a variety of reasons, the real picture likely lies somewhere in between these two
studies’ estimates. For example, whereas the World Bank study used population figures for
developing countries only, the first study used global population in its analyses, which lowered
poverty estimates, all else being equal. What is important is that most experts agree that global
inequality has fallen, although they disagree on the extent of the fall. What it must be like to live
on less than a dollar a day in abject poverty in sub-Saharan Africa, South Asia, or elsewhere is
too difficult for most of us to comprehend. The continent of Africa presents the most pressing
problem. Home to 13 percent of the world’s population, Africa accounts for just 3 percent of
world GDP. Rich nations realize they cannot sit idly by while so many of the world’s people live
under such conditions. What can be done to help the world’s poor? First of all, rich nations could
increase the amount of foreign aid they give to poor nations—foreign aid as a share of donor
country GDP is at historically low levels. Second, rich nations can accelerate the process of
forgiving some of the debt burdens of the most heavily indebted poor countries (HIPCs). The
HIPC initiative is committed to reducing the debt burdens of the world’s poorest countries. This
initiative would enable these countries to spend money on social services and greater integration
with the global economy instead of on interest payments on debt.26

Summary of the Income Inequality Debate For the debate over inequality within nations,
studies suggest that developing nations can boost incomes of their poorest citizens by embracing
globalization and integrating themselves into the global economy. In the debate over inequality
between nations, nations open to world trade and investment appear to grow faster than rich
nations do. Meanwhile, economies that remain sheltered from the global economy tend to be
worse off. Finally, for the debate over global inequality, although experts agree inequality has
fallen in recent decades, they disagree on the extent of the drop.

Globalization and National Sovereignty

National sovereignty generally involves the idea that a nation-state:
(1) Is autonomous;
(2) Can freely select its government;
(3) Cannot intervene in the affairs of other nations;
(4) Can control movements across its borders; and
(5) Can enter into binding international agreements.
Opposition groups allege that globalization erodes national sovereignty and encroaches on the
authority of local and state governments. Supporters disagree, saying that globalization spreads
democracy worldwide and that national sovereignty must be viewed from a long-term
perspective.

GLOBALIZATION: MENACE TO DEMOCRACY? A main argument leveled against

globalization is that it empowers supranational institutions at the expense of national
governments. It is not in dispute that the World Trade Organization, the International Monetary
Fund, and the United Nations are led by appointed, not democratically elected, representatives.
What is debatable, however, is whether these organizations unduly impose their will on the
citizens of sovereign nations. Critics argue that, by undercutting the political and legal authority
of national, regional, and local governments, such organizations undercut democracy and
individual liberty. Opponents of globalization also take issue with the right of national political
23
authorities to enter into binding international agreements on behalf of citizens. Critics charge that
such agreements violate the rights of subfederal (local and state) governments. For example,
state and local governments in the United States had no role in creating the North American Free
Trade Agreement (NAFTA). Yet WTO rules require the U.S. federal government to take all
available actions (including enacting preemptive legislation or withdrawing funding) to force sub
federal compliance with WTO terms. Protesters say such requirements directly attack the rights
and authority of sub federal governments.

GLOBALIZATION: GUARDIAN OF DEMOCRACY? Globalization supporters argue that

an amazing consequence of globalization has been the spread of democracy worldwide. In recent
decades, the people of many nations have thrown off the chains of authoritarianism and are now
better educated, better informed, and more empowered. Supporters say globalization has not sent
democracy spiraling into decline but instead has been instrumental in spreading democracy to the
world. Backers of globalization also contend that it is instructive to take a long-term view on the
issue of national sovereignty. Witnessing a sovereign state’s scope of authority altered is nothing
new, as governments have long given up trying to control issues that they could not resolve.
In the mid-1600s, governments in Europe surrendered their authority over religion because
attempts to control it undermined overall political stability. Also, Greece in 1832, Albania in
1913, and the former Yugoslavian states in the 1990s had to protect minorities in exchange for
international recognition. And over the past 50 years, the United Nations has made significant
progress on worthy issues such as genocide, torture, slavery, refugees, women’s rights, children’s
rights, forced labor, and racial discrimination. Like the loss of sovereignty over these issues,
globalization supporters say lost sovereignty over some economic issues may actually enhance
the greater good.

Globalization’s Influence on Cultures

National culture is a strong shaper of a people’s values, attitudes, customs, beliefs, and
communication. Whether globalization eradicates cultural differences between groups of people
or reinforces cultural uniqueness is a hotly debated topic. Protesters complain that globalization
is homogenizing our world and destroying its rich diversity of cultures. Critics say that in some
drab, new world we all will wear the same clothes bought at the same brand-name shops, eat the
same foods at the same brand-name restaurants, and watch the same movies made by the same
production companies. But supporters argue that globalization allows us all to profit from our
differing circumstances and skills. Trade allows countries to specialize in producing the goods
and services they can produce most efficiently. Nations can then trade with each other to obtain
goods and services they desire but do not produce. In this way, France still produces many of the
world’s finest wines, South Africa yields much of the world’s diamonds, and Japan continues to
design some of the world’s finest-engineered autos. Other nations then trade their goods and
services with these countries to enjoy the wines, diamonds, and autos that they do not, or cannot,
produce. To learn more about the interplay between culture and globalization, see this chapter’s
Culture Matters feature, titled “The Global Consumer.”

24
CULTURE MATTERS
The Global Consumer
The debate over globalization’s influence on culture evokes strong opinions. Some say
globalization promotes sameness among cultures while others say it fosters cultural individuality.
Here are a few main arguments in this debate.
• Material Desire. Critics say globalization fosters the “Coca-Colanization” of nations through
advertising campaigns that promote material desire. They also argue that global consumer-
goods companies destroy cultural diversity (especially in developing nations) by putting local
companies out of business.
• Artistic Influence. Evidence suggests that the cultures of developing nations are thriving and
that the influence of their music, art, and literature has grown (not shrunk) throughout the past
century. African cultures, for example, have influenced the works of artists including Picasso,
the Beatles, and Sting.
• Western Values. Businesses reach far and wide through the Internet, global media, increased
business travel, and local marketing by international companies. Critics say local values and
traditions are being replaced by U.S. companies promoting “Western” values.
• A Force for Good. Globalization tends to foster two important values: tolerance and diversity.
Globalization advocates say nations should be more tolerant of opposing viewpoints and
welcome diversity among their peoples. This view interprets globalization as a potent force for
good in the world.
• Deeper Values. Globalization can cause consumer purchases and economic ideologies to
converge, but these are rather superficial aspects of culture. Deeper values that embody the true
essence of cultures may be more resistant to a global consumer culture.

Key Players in International Business

Companies of all types and sizes and in all sorts of industries become involved in international
business, yet they vary in the extent of their involvement. A small shop owner might only import
supplies from abroad, while a large company may have dozens of factories located around the
world. Large companies from the wealthiest nations still dominate international business, but
firms from emerging markets (such as Brazil, China, and India) are increasingly important in
international business activity. Small and medium-sized companies also account for a greater
portion of international business largely because of advances in technology.

Multinational Corporations
A multinational corporation (MNC) is a business that has direct investments (in the form of
marketing or manufacturing subsidiaries) abroad in multiple countries. Multinationals generate
significant jobs, investment, and tax revenue for the regions and nations they enter. Likewise,
they can leave thousands of people out of work when they close or scale back operations.
Mergers and acquisitions between multinationals are commonly worth billions of dollars and
increasingly involve companies based in emerging markets. Some companies have more
employees than many of the smallest countries and island nations have citizens. Wal-Mart has
2,055,000 employees-the most of any company. We see the enormous economic clout of
multinational corporations when we compare the revenues of the Global 500 ranking of
companies to the value of goods and services that countries generate.

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Entrepreneurs and Small Businesses
In this age of globalization, small companies are increasingly active in international trade and
investment. Companies are exporting earlier and growing faster, often with help from
technology. Whereas traditional distribution channels often gave only large companies access to
distant markets, electronic distribution is a cheap and effective alternative for small businesses
that sell digitized products. Small companies that sell traditional products also benefit from
technology that lowers the cost and difficulties of global communication.

Globalization has given rise to a new international entity, the born global firm—a company that
adopts a global perspective and engages in international business from or near its inception. Key
characteristics of born global firms are an innovative culture and knowledge-based
organizational capabilities. Although these firms first appeared in nations having small domestic
markets, today they arise from all major trading nations. Remarkably, many of these companies
rise to the status of international competitor in less than three years. Perhaps the extreme
example of a born global firm is one that reaches out to customers around the world solely
through the Internet. Alessandro Naldi’s Weekend a Firenze (Weekend in Florence) Web site
(www.firenze.waf.it) offers global villagers more authentic Florentine products than they’ll find
in the scores of overpriced tourist shops in downtown Florence. A
Florentine himself, Naldi established his site to sell high-quality, authentic Italian merchandise
made only in the small factories of Tuscany. Weekend a Firenze averages 20,000 visitors each
month, with 40 percent coming from Japan, 30 percent from the United States, and the remainder
from Greece, Australia, Canada, Mexico, Saudi Arabia, and Italy.

ENTREPRENEUR’S TOOLKIT Myths of Small Business Exporting

• Myth 1: Only large companies can export successfully.
Fact: Most exporters are small and medium-sized enterprises with fewer than 50 employees.
Exporting can reduce the dependency of small firms on domestic markets and can help them
avoid seasonal sales fluctuations. A product popular domestically, or perhaps even unsuccessful
at home, may be wanted elsewhere in the global market.
• Myth 2: Small businesses can find little export advice.
Fact: Novice and experienced exporters alike can receive comprehensive export assistance from
federal agencies (www.export.gov). International trade specialists can help small businesses
locate and use federal, state, local, and private-sector programs. They are also an excellent source
of market research, trade leads, financing, and trade events.
• Myth 3: Licensing requirements needed to export are too complicated.
Fact: Most products do not need export licenses. Exporters need only to write “NLR” for “no
license required” on their Shipper’s Export Declaration. A license is generally needed only for
high-tech or defense-related goods or when the receiving country is under a U.S. embargo or
other restriction.
• Myth 4: Small businesses cannot obtain export financing.
Fact: The Small Business Administration (www.sba.gov) and the Export-Import Bank
(www.exim.gov) work together in lending money to small businesses. Whereas the SBA is
responsible for loan requests below $750,000, the Ex-Im Bank handles transactions over
$750,000. The Trade and Development Agency (www.tda.gov) also helps small and medium-
sized firms obtain financing for international projects.

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Business implications of globalization
The world’s national economies are becoming increasingly intertwined through the process of
globalization. Cultural, political, legal, and economic events in one nation increasingly affect the
lives of people in other countries. Companies must pay attention to how changes in nations
where they do business can affect operations. In this section, we briefly examine several
important business implications of globalization.

Harnessing Globalization’s Benefits

People opposed to globalization say it negatively affects wages and environmental protection,
reduces political freedom, increases corruption, and inequitably rewards various groups. Yet
there is evidence that the most global nations have the strongest records on equality, the most
robust protection of natural resources, the most inclusive political systems, and the lowest levels
of corruption. People in the most global nations also live the healthiest and longest lives, and
women there have achieved the most social, educational, and economic progress. One thing the
debate over globalization has achieved is a dialogue on the merits and demerits of globalization.
What has emerged is a more sober, less naïve notion of globalization. Those on each side of the
debate understand that it can have positive effects on people’s lives, but globalization cannot, by
itself, alleviate the misery of the world’s poor. Both sides in the debate are now working together
to harness the benefits of globalization while minimizing its costs.

Intensified Competition
The two driving forces of globalization (lower trade and investment barriers and increased
technological innovation) are taking companies into previously isolated markets and increasing
competitive pressures worldwide. And innovation is unlikely to slow any time soon. As the cost
of computing power continues to fall and new technologies are developed, companies will find it
easier and less costly to manage widely dispersed marketing activities and production facilities.
Technological developments may even strengthen the case for outsourcing more professional
jobs to low-cost locations. As competition intensifies, international companies will increase their
cooperation with suppliers and customers.

Wages and Jobs

Some labor groups in wealthy nations contend that globalization is forcing companies to join the
“race to the bottom” in terms of wages and benefits. But to attract investment, a location must
offer low-cost, adequately skilled workers in an environment with acceptable levels of social,
political, and economic stability. Rapid globalization of markets and production is making
delivery a complex engineering task. And as companies cut costs by outsourcing activities,
supply and distribution channels grow longer and more complex. Corporate logistics departments
and logistics specialist firms are helping international players respond to such challenges.
Logistic experts are helping companies untangle lengthy supply chains, monitor shipping lanes,
and forecast weather patterns. High-wage logistics jobs represent the kind of high-value-added
employment that results from the “churning” in labor markets caused by globalization.

The Policy Agenda

Countless actions could be taken by developed and developing nations to lessen the negative
effects of globalization.
The World Bank calls on rich countries to
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 (1) Open their markets to exports from developing countries;
(2) Slash their agricultural subsidies that hurt poor-country exports; and
(3) Increase development aid, particularly in education and health.
It calls on poor countries to improve their investment climates and improve social protection for
poor people in a changing economic environment. The Institute for International Economics
(www.iie.com) proposed a policy agenda for rich nations on two fronts.
On the domestic front, it proposes
(1) Establishing on-the-job training to help workers cope with globalization;
(2) Offering “wage insurance” to workers forced by globalization to take a lower-paying
job;
(3) Subsidizing health insurance costs in case of lost work; and
(4) Improving education and lifetime learning.
On the international front, it proposes
(1) Better enforcing labor standards;
(2) Clarifying the relation between international trade and environmental agreements; and
(3) Reviewing the environmental implications of trade agreements.
This chapter has only introduced you to the study of international business—we hope you enjoy
the rest of your journey!

Apply various aspects of social change and their relation to Development

SOCIAL CHANGE INTRODUCTION

Introduction to Social Change

What Causes Social Change?

Introduction to Social Change

Social change is the transformation of culture and social organisation/structure over time. In the
modern world we are aware that society is never static, and that social, political, economic and
cultural changes occur constantly. There are a whole range of classic theories and research
methods available within sociology for the study of social change.

There are four main characteristics of social change (Macionis 1996): -

 It happens everywhere, but the rate of change varies from place to place.
For example, the United States would experience faster change, than a third world
country that has limited access to technology and information.

 Social change is sometimes intentional but often unplanned. For example, when the
airplane was invented people knew that this would increase and speed travel. However, it
was probably not realised how this invention would affect society in the future. Families
are spread through out the country, because it is easier to return for visits. Companies are

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 able to expand worldwide thanks to air travel. The numerous crashes and deaths related to
airplanes was not predicted either.

 Social change often generates controversy. For example, the move over the recent
years to accept homosexual rights has caused controversy involving the military, religion,
and society overall.

 Some changes matter more than others do. For example, the invention of personal
computers was more important than Cabbage Patch dolls.

What Causes Social Change?

There are various causes of social change. These causes include the following: -

 Culture
Culture is a system that constantly loses and gains components. There are three main sources of
cultural change.

The first source is Invention.

Inventions produce new products, ideas, and social patterns. The invention of rocket
propulsion led to space travel, which in the future may lead to inhabitation of other planets.

The second source is

Discovery
Discovery is finding something that has never been found before, or finding something
new in something that already exists.

The third source is Diffusion

Diffusion is the spreading of ideas and objects to other societies. This would involve
trading, migration, and mass communication.

The ‘mass media’ is a vital factor in the speed of social change. It permits rapid diffusion of
ideas, making these manifests in the private and relaxing environs of the home, where audiences
are at their most susceptible

 Conflict
Another reason social change happens is due to tension and conflict (between races, religions,
classes etc.). Karl Marx thought that class conflict in particular sparked change.

 Idealistic factors
Idealistic factors include values, beliefs, and ideologies. From Max Weber’s perspective: in
essence, values, beliefs, and ideologies have a decisive impact on shaping social change. These
factors have certainly broadly shaped directions of social change in the modern world. For
example: -

 Freedom and self-determination

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  Material growth and security

 Nationalism, e.g. French & English Canadians, English & Irish, Germans &
French, Palestinians, Kurdish, Basque separatists and Spanish

 Capitalism: not only the type of economic system, but also ideology, connected set of
values and ideas emphasising positive benefits of pursuing one’s private economic
interests, competition and free markets

 Marxism
Max Weber thought that the expression of ideas by charismatic individuals could change the
world. Here are some examples of influential people who caused changes in the world (good and
bad): Martin Luther King, Jr.; Adolf Hitler; Mao Tseng Tung; Mohandas Gandhi & Nelson
Mandela

 The need for adaptation

The need for adaptation within social systems, for example: the development of efficient
bureaucracies is an adaptive response of firms to a competitive economic environment.

 Environmental factors
Change can be through the impact of environmental factors such as drought and famine. The
degree of natural disasters between different countries and regions also lead the different social
changes between the countries. The shift from collecting, hunting and fishing to agriculture may
have happened because, in some areas, the human population grew too large to be sustained by
existing resources.

 Economic & political advantage

International shifts in economic or political advantage also have great impacts on social change.
For example, ‘Globalisation’ & ‘the WTO’ are key factors in our modern society affecting the
global economy, political structures and dynamics, culture, poverty, the environment, gender etc.

 Demographic Change
Change occurs from an increase in the population or human migration between the areas.
Compared to the Netherlands and Tokyo the United States has an abundance of physical space.
The United States was affected by migration the late 1800's to early 1900's. When masses of
people came to America, farm communities started to decline and cities expanded. Human
migration between rural villages and big cities in China is causing a great impact on society in
China as a whole.

 Social Movements and Change

Change can also occur from people joining together for a common cause. This is called a social
movement. Social movements are classified according to the kind of change they are seeking.
Two questions to ask about each type of social movement are: ‘Who is changed?’ and ‘How
much change?’ More detailed information and discussion will be showed in the later section.
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  Consumerism
Maiteny and Parker have defined globalisation as a system of values based on the assumption
that well being is best achieved by accumulating the maximum wealth as quickly as possible
(Maiteny and Parker). The myth is that consuming more and more goods and services makes us
happy. Increasingly, economic globalisation has led to cultural globalisation, in that our values
are being formed by the underlying consumerist ideology: our desires have been manipulated to
benefit the capitalist system, with its emphasis on economic growth. The West has adopted
values and lifestyles corresponding to neo-liberalism, i.e. consumerism and individualism,
which, in turn, lead towards corresponding outcomes, i.e. a high impact on the environment and
social alienation. The more this situation progresses, the more the forces of social change react
and mobilise. Our ethical foundations (especially in the West) have evolved as a human-biased
morality, but the past 20 - 25 years have brought a significant change. Both the animal rights and
the Green movements have shifted the focus of attention to include the non- human world. This
perspective is, in fact, not at all new. The ancient, yet living, traditions of Indians and Aborigines
show a reverence and understanding for the natural world, which combines a respect for the
sustainability of the environment with a care for the individual animal.

It is interesting to note that many individuals who championed causes of human welfare also
campaigned against cruelty to animals (for example, William Wilberforce and others who
campaigned to abolish slavery; great Victorian reformers such as Lord Shaftesbury, Jeremy
Bentham and John Stuart Mill; black spokesmen such as Toussaint L'Overture of Haiti; and even
Abraham Lincoln). Progress with animal ethics in one country can also influence other countries.
There is
without doubt a moral influence from more advanced countries. There is also their role in
regional and international meetings. Once the momentum has begun, there is no holding back the
tide. We often see the situation where progress in one country takes a long while, then gradually
other countries follow suit, then more and more follow.

 The Role of Values and Ethics

Human values are formed by a similar process and act in a similar manner. Although the word is
commonly used with reference to ethical and cultural principles, values are of many types. They
may be physical (cleanliness, punctuality), organizational (communication, coordination),
psychological (courage, generosity), mental (objectivity, sincerity), or spiritual (harmony, love,
self-giving). Values are central organising principles or ideas that govern and determine human
behaviour. Unlike the skill or attitude that may be specific to a particular physical activity or
social context, values tend to be more universal in their application. They express in everything
we do. Values can be described as the essence of the knowledge gained by humanity from past
experiences distilled from its local circumstances and specific context to extract the fundamental
wisdom of life derived from these experiences. Values give direction to our thought processes,
sentiments, emotional energies, preferences, and actions.

An historical study of certain societies bears out the development of ethics in line with cultural
(and individual) development. Gradually, exploitation, injustice and oppression are recognised
31
and rejected - as can be seen with examples such as the abolition of slavery, the banning of
racism and the introduction of sexual equality. Animal exploitation and suffering is increasingly
recognised and dealt with as such ethical attitudes develop, but this invariably takes longer - as
human identification with animal suffering requires a greater degree of empathy and
compassion.

Our ethical foundations (especially in the West) have evolved as a human-biased morality, but
the past 20 - 25 years have brought a significant change. Both the animal rights and the Green
movements have shifted the focus of attention to include the non- human world. This perspective
is, in fact, not at all new. The ancient, yet living, traditions of Indians and Aborigines show a
reverence and understanding for the natural world, which combines a respect for the
sustainability of the environment with a care for the individual animal.

It is interesting to note that many individuals who championed causes of human welfare also
campaigned against cruelty to animals (for example, William Wilberforce and others who
campaigned to abolish slavery; great Victorian reformers such as Lord Shaftesbury, Jeremy
Bentham and John Stuart Mill; black spokesmen such as Toussaint L'Overture of Haiti; and even
Abraham Lincoln). Progress with animal ethics in one country can also influence other countries.
There is without doubt a moral influence from more advanced countries. There is also their role
in regional and international meetings. Once the momentum has begun, there is no holding back
the tide. We often see the situation where progress in one country takes a long while, then
gradually other countries follow suit, then more and more follow.

But perhaps this is not at all surprising when seen in the context of the build-up and release of
energies for social change? Once Pioneers begin to release the energies, they are imitated, the
‘multiplier effect’ comes into action and the energy is released and made explicit.

 Religion
Society develops in response to the contact and interaction between human beings and their
material, social and intellectual environment. Ethical views differ greatly from country to
country. This is partly because of factors such as culture and religion, as well as the practical
circumstances in which people are brought up (e.g. in the case of animal issues whether
population are living in close contact with animals, such as farm animals or wildlife, or not).
Religion is all about beliefs - beliefs about creation, purpose, destiny, life, and love. It shapes the
lives of believers. What people believe or disbelieve about God and the world affects all aspects
of their being, including their day-to-day behaviour. Social movements are all about changing
and shaping people’s belief systems. It follows, therefore, that religion can be vitally important to
the social change movement. Religion can affect attitudes and ethics, either positively or
negatively. For example, a society that is strongly Roman Catholic is likely to be very human-
centred, and believe that animals have no souls and that humans have ‘dominion’ over them -
whereas a Buddhist of Hindu society is likely to have a strong belief in the ‘oneness’ of life and
the importance of protecting and respecting nature and animals.

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  Technology and Information
As a society develops to higher levels, non-material resources play an increasingly important role
as factors of production. This principle is embodied in the concept of the Information Age, an era
in which access to information has become a valuable input and precious resource for improving
the quality of decisions and the productivity of activities.
Internet technology has an enormous impact on the globalisation of culture and ideas. It has
considerably increased the speed of social change. It is also a valuable tool for social change
organisations.

Further Resources
Social Movement Theories
http://husky1.stmarys.ca/~evanderveen/wvdv/social_change/social_movement_theories.htm

How Societies Change

http://gsociology.icaap.org/chirot.html

Sociology and Social Change

http://www.chss.montclair.edu/~hadisb/dev3.htm

Social Change
http://husky1.stmarys.ca/~evanderveen/wvdv/social_change/sc_course_documents.html

Books
Macionis, John J., (1997), Sociology, (6th. ed.), Prentice Hall: New

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