Chapter Outline

Introduction

A fundamental shift is occurring in the world economy. We are moving progressively further away from a world in which national economies were relatively isolated from each other by barriers to cross-border trade and investment; by distance, time zones, and language; and by national differences in government regulation, culture, and business systems. And we are moving toward a world in which national economies are merging into an interdependent global economic system, commonly referred to as globalization. The trend toward a more integrated global economic system has been in place for many years. However, the rate at which this shift is occurring has been accelerating recently, and it looks set to continue to do so during the early years of the new millennium.

The global telecommunications industry, which was profiled in the opening case, is one industry at the forefront of this development. A decade ago most national telecommunications markets were dominated by state-owned monopolies and isolated from each other by substantial barriers to cross-border trade and investment. This is rapidly becoming a thing of the past. A global telecommunications market is emerging. In this new market, prices are being bargained down as telecommunications providers compete with each other around the world for residential and business customers. The big winners are the customers, who should see the price of telecommunications services plummet, saving them billions of dollars.

The rapidly emerging global economy raises a multitude of issues for businesses both large and small. It creates opportunities for businesses to expand their revenues, drive down their costs, and boost their profits. For example, companies can take advantage of the falling cost and enhanced functionality of global telecommunications services to more easily establish global markets for their products. Ten years ago no one would have thought that a small British company based in Stafford would have been able to build a global market for its products by utilizing the Internet, but that is exactly what Bridgewater Pottery has done.1 Bridgewater has traditionally sold premium pottery through exclusive distribution channels, but the company found it difficult and laborious to identify new retail outlets. Since establishing an Internet presence in 1997, Bridgewater is now conducting a significant amount of business with consumers in other countries who could not be reached through existing channels of distribution or could not be reached cost effectively. Nor is Bridgewater alone; thousands of companies around the world are now taking advantage of the new global communications infrastructure to build new global markets for their products. As I sit in Seattle writing this book, I do so using an ergonomic computer mouse that was designed by a former farmer in Norway who found that repeated computer use gave him carpal tunnel syndrome. The farmer designed a mouse that alleviates his problem, started a company to manufacture it, and has now sold the mouse to consumers worldwide, using the Internet as his distribution channel.2

While the emerging global economy creates opportunities such as this for new entrepreneurs and established businesses around the world, it also gives rise to challenges and threats that yesterday's business managers did not have to deal with. For example, managers now routinely have to decide how best to expand into a foreign market. Should they export to that market from their home base; should they invest in productive facilities in that market, producing locally to sell locally; or should they produce in some third country where the cost of production is favorable and export from that base to other foreign markets and, perhaps, to their home market? Managers have to decide whether and how to customize their product offerings, marketing policies, human resource practices, and business strategies to deal with national differences in culture, language, business practices, and government regulations. And managers have to decide how best to deal with the threat posed by efficient foreign competitors entering their home marketplace.

Again, the opening case offers an example of how service providers in the telecommunications industry are positioning themselves to cope with this new global reality. Companies such as AT&T and British Telecom, which for years had monopolies within their protected national markets, are now competing head-to-head with other telecommunications service providers. As the case tells us, to improve their chances of capturing the business of multinational corporations that prefer a single telecommunications provider for their worldwide operations (and most do), AT&T and British Telecom have formed a joint venture. Other competitors, such as MCI-WorldCom and Telefonica of Spain, have entered into more loosely structured marketing alliances in an attempt to achieve the same basic goal. These companies are experimenting with different strategies to better compete and prosper in the emerging global marketplace. Only time will tell which strategy makes the most sense. Such strategic experimentation, however, is occurring in a broad range of industries as firms struggle to come to grips with the new realities of global markets and global competition. Against the background of rapid globalization, the goal of this book is to explain how and why globalization is occurring and to explore globalization's impact on the business firm and its management. In this introductory chapter, we discuss what we mean by globalization, review the main drivers of globalization, look at the changing profile of firms that do business outside their national borders, highlight concerns raised by critics of globalization, and explore the challenges that globalization holds for managers within an international business.