Globalization and International Business: Economic Shifts

Introduction

Today, more and more companies set a goal of territorial expansion into other countries, driven by the desire to increase their customer base and gain access to resources — including capital, labor, technologies, and other commodities — all in pursuit of increased corporate revenues. Some organizations have achieved this through sustained efforts in globalization and market liberalization. Whereas market liberalization refers essentially to the elimination of tariff and non-tariff barriers to international trade between countries, globalization is a more complex phenomenon that is becoming increasingly present across various domains, including economics, politics, technology, and culture. The emergence of this phenomenon was made possible by the economic transformations of the past decades — particularly the last thirty years. The internationalization of technologies further supported globalization, and together these forces shape the way companies conduct their global operations.

Economic Changes Driving Globalization

The world has been the stage of continuous change ever since the beginnings of the Industrial Revolution, which started more than two centuries ago and continues in various forms to the present day. In more recent decades, the primary focus has been placed on encouraging and liberalizing international trade. Several organizations have been established to regulate global commerce — most notably the World Trade Organization (WTO) — and numerous treaties and alliances have been signed between countries to ease trade and reduce barriers, such as NAFTA. All these movements are concentrated under the broader effort to achieve economic integration.

A primary change that made the new global economy possible was a drastic shift in consumer behavior. Although this change was partly encouraged by corporations, it played a vital role in the formation of the current global economy. After the end of World War II and with the progress of the Industrial Revolution, living standards rose and levels of consumerism increased dramatically. Demand grew accordingly, and when internal supply was insufficient to satisfy growing needs, products began to be imported from other countries. Conversely, with technological improvements countries were better able to exploit natural resources and produce greater output, with the surplus sold on international markets. Today, however, natural resources in many regions have become insufficient, and corporations are moving their operations to less developed countries to gain increased access to those resources.

A significant change also occurred in patterns of work. Companies now place increased emphasis on personnel and customer strategies. Employees have become the primary means of satisfying customer needs, which in turn represent the path to organizational success. Changes in employment structures have followed, most notably the outsourcing of work to foreign countries where labor is cheaper. This strategy has attracted both support and criticism, given its positive and negative implications alike.

Other economic changes can be observed in how companies plan for the future. Organizations have become increasingly aware of the risks posed by international trade and have developed measures to reduce those risks. Greater emphasis is now placed on preserving the natural environment, and several laws have been issued to that effect. At the same time, while government authorities continue to regulate business practices, their interventionism has diminished, and most economies are guided more directly by the laws of supply and demand.

Technological Changes and Market Integration

It is generally agreed that the technological revolution of the past few decades has made a major contribution to the globalization of markets and production. In New Technology and Catching Up, Freeman went as far as to argue that the new technological changes represent a revolution as important as the textile innovations of the late eighteenth century, the invention of railways in the mid-nineteenth century, and the flourishing of the chemical industry in the early twentieth century (Freeman, 1989).

Technological innovations have supported the unification of international markets by easing communications and the data-sharing process among economic actors. As Singh (1994) observed:

"The revolution in information and communications technology involves a constellation of industries, such as computers, electronic components and telecommunications. These are among the fastest-growing industries in most leading industrial countries. The new technology has not only resulted in the introduction of a wide range of new products but, more importantly, has produced a drastic fall in costs and vastly improved technical performance in many other sectors of the economy. Of equal significance, the new technology is bringing about fundamental changes in the organization and structure of firms and industries, and changes in factory layout and in the management structure, procedures and attitudes of large firms."

Ricardo's theory of Comparative Advantage has also been applied in the technological sector, as countries began to trade technological goods and services to increase operational efficiency and reduce costs. A relevant example is the large volume of technology products developed in India and sold on international markets.