Examples Of Cost Drivers In Globalization

Table of contents

1 Introduction

2 Drivers of Globalization

3 Theories and Models of Gobalization and International Trade
3.1 From mercantilism to Smith and Ricardo
3.2 Ricardo to the next step: Factor Proportions Theory and the Leontief Paradox
3.3 Vernon Life-Cycle Theory
3.4 Porter’s Diamond Approach
3.5 Monopolistic Advantage Strategy
3.6 Eclectic Theory

4. Discussion of Theories and Drivers
4.1 Ricardo-Mill and outsourcing
4.2 Dunning, Cantwell and the influence of technology

Ironically, the drivers of globalization have also given rise to a greater level of imports. Globalization in this sense is a very strong flattener. Importing The sale of products or services in one country that are sourced in another country. Involves the sale of products or services in one country that are sourced in another country. In many ways, importing is a stealth form of internationalization. Sep 17, 2015  The globalization of customer needs and the opportunities for scale and standardization it brings will fundamentally alter the economics of many industries. Economies of scale and scope, experience effects, and exploiting differences in factor costs for product development, manufacturing, and sourcing in different parts of the world will assume.

5 Bibliography

1 Introduction

'Globalization is not something we can hold off or turn off . . . it is the economic equivalent of a force of nature -- like wind or water.'

Bill Clinton (American 42nd US president (1993-2001))

The first part of this research paper will define the major drivers of globalization and then introduce some of the basic and advanced theories of international trade and business.

With this foundations it will then try to integrate theories and drivers and compare them to the actual situation and discuss if they are appropriately describing what we are seeing today.

2 Drivers of Globalization

Agk easy grabber 10195 drivers test. The media and almost every book on globalization and international business speak about different drivers of globalization and they can basically be separated into five different groups:

1) Technological drivers

Technology shaped and set the foundation for modern globalization. Innovations in the transportation technology revolutionized the industry. The most important developments among these are the commercial jet aircraft and the concept of containerisation in the late 1970s and 1980s. Inventions in the area of microprocessors and telecommunications enabled highly effective computing and communication at a low-cost level. Finally the rapid growth of the Internet^[1] is the latest technological driver that created global e-business and e-commerce.

2) Political drivers

Liberalized trading rules and deregulated markets lead to lowered tariffs and allowed foreign direct investments in almost all over the world. The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing opening and privatization in Eastern Europe are only some examples of latest developments.

3) Market drivers

As domestic markets become more and more saturated, the opportunities for growth are limited and global expanding is a way most organizations choose to overcome this situation. Common customer needs and the opportunity to use global marketing channels and transfer marketing to some extent are also incentives to choose internationalization. (Ferrier, 2004)

Fallout weapons of the new millenia. 4) Cost drivers

Sourcing efficiency and costs vary from country to country and global firms can take advantage of this fact. Other cost drivers to globalization are the opportunity to build global scale economies and the high product development costs nowadays. (Ferrier, 2004)

5) Competitive drivers

With the global market, global inter-firm competition increases and organizations are forced to “play” international. Strong interdependences among countries and high two-way trades and FDI actions also support this driver.

3 Theories and Models of Gobalization and International Trade

Theories of International Trade extend to the 15th century and the age of mercantilism. This next paragraph will provide a brief summary of the most important theories and also cover two less popular theories, the monopolistic advantage theory (Kindleberger / Hymer) and the integrated eclectic theory (Dunning).

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^[1] evolved from the military ARPA (Advanced Research Projects Agency) network 1969, which was extended to an university network 1986 and finally became public as the world wide web in 1990, due to Tim Berners-Lee at the CERN institution (Wikipedia, 2005)

The relative significance of each driver varies by service category. In some instances, there may even be variations by industry.

1. Market globalization drivers:

One factor of particular significance to many service industries is the presence of global customers who demand consistent service from suppliers around the world, and the availability of global channels in the form of fast-developing physical supply chains or electronic networks. As large corporate customers themselves become global, they often seek to standardize and simplify the suppliers they use in different countries for a wide array of business-to- business services.

A related trend can be found among some of the people-processing services used by interna­tional business travellers and tourists, who often feel more comfortable with predictable standards of performance worldwide for such travel-related services as airlines and lodging.

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In possession-processing services, the development of global logistics capabilities by firms such as Federal Express has encouraged a number of manufacturers to outsource responsibility for their logistics function to a single firm, which then coordinates transportation and warehousing operations around the world.

2. Competition drivers:

These exercise a powerful force in many service industries. To the extent that customers who operate around the world are known to value global provision of services, a firm may be obliged to follow its competitors into new markets in order to protect its position in existing markets.

Similarly, once a major player moves into a new foreign market, a scramble for territory among competing firms may ensue, particularly if the preferred mode of expansion involves pur­chasing or licensing the most successful local firms in each market.

3. Technology drivers:

For information-based services, the growing availability of broadband telecommunication channels, capable of moving vast amounts of data at great speed, is playing a major role in opening up new markets. Access to the Internet or World Wide Web is accelerating around the world.

But there may be no need to duplicate all informational elements in each new location. Significant economies may be gained by centralizing “information hubs” on a global basis. It may also be advantageous to take advantage of favorable labour costs and exchange rates by consolidating operations of supplementary services (such as reservations) or back office functions (such as accounting) in just one or a few selected countries.

4. Cost drivers:

The effect of these drivers varies according to the level of fixed costs required to enter an industry and the potential for cost efficiencies. Lower operating costs for telecommunica­tions and transportation, accompanied by improved performance, serve to facilitate entry into global markets.

Barriers to entry caused by the upfront cost of equipment and facilities may be reduced by such strategies as equipment leasing (as in airlines), seeking investor-owned facilities such as hotels and then selling them on management contracts, or awarding franchises to local entrepreneurs.

How­ever, cost drivers may be less applicable for services that are primarily people based and so require recreating most element of the “service factory” in multiple locations. Under such circumstances, scale economies tend to be lower and experience curves relatively flatter. In service business on which new product development costs are low, cost drivers are also likely to be less significant.

5. Government drivers:

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We can expect government drivers to be more favourable for people- processing and possession-processing services that require a significant local presence, because these services can create local employment opportunities. In contrast, governments often impose regula­tions to protect home-based services, such as passenger and freight transportation, from attacks by foreign carriers operating on the same routes.

A typical action involves restricting foreign airline’s landing rights or their ability to pick up passengers at an intermediate stop on a scheduled flight between two other countries.

If transportation services are easily exported, information-based services are even more so. Data, after all, can move around the world almost instantaneously through electronic channels. Govern­ments can play an important role in requiring adoption of internationally compatible technical stan­dards.

However, unrestricted imports of services in categories ranging from entertainments to fi­nance are often seen as both an economic and cultural threat. Hence such government actions as regulating international banking (widely practiced), banning private ownership of satellite dishes (already implemented in China, Iran, Singapore and Saudi Arabia), or seeking to limit access to ser­vices on the Internet.

6. Overall Assessment of Drivers:

Are some types of services more easily driven to globalize than others? Looking at the summary in Table 23.1, we can see important variations in the impact of each of the five groups of drivers. However, government drivers, expressed in terms of economic policy, regulation, and protections, are often specific to individual industries. Hence it’s important to evaluate globalization drivers at the level of individual industries, as well as in terms of broader service categories.