Globalization Refers to the System

Globalization refers to the system where the different countries of the world interact to develop a common global economy. It is the integration of the economics and societies around the world. Some of the traditional international trade theories that support the concept of globalization are the Ricardian Model, the Heckscher-Ohlin (Factor Proportions) Model, and the Specific Factor Model. All of these international trade theories, along with contemporary ones, work together to support the concept of globalization and allow us to see international trade in different point-of-views.

There are five major drivers of globalization and these are the following: technology drivers, government drivers, market drivers, cost drivers, and competitive drivers. Examples of technology drivers are the development of commercial jet aircrafts, inventions in the area of microprocessors and telecommunications, and the rapid growth of the Internet. Examples of government drivers are the Liberalized trading rules and deregulated markets that lead to lowered tariffs, the institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995, and the ongoing opening and privatization in Eastern Europe. Examples of market drivers are the limited opportunities for growth and global expanding, the awareness of common customer needs, and the existence of the opportunity to use global marketing channels. Examples of cost drivers are that now, sourcing efficiency and costs vary from country to country, the opportunity to build global scale economies and the high product development costs. Finally, examples of competitive drivers are that the global inter-firm competition increases and organizations are forced to "play" international, strong interdependences among countries, and high two-way trades (M. Bauernfeind, 2005).