World Economic Trends

There are some world economic trends, which add momentum to the globalization trend. One of the important trends is the difference in the growth rates of the economies/markets. The comparatively slow growth of the developed economies or the stagnation of some of their markets and the fast growth of a number of developing countries prompt developed country firms to turn to the expanding markets elsewhere. The differences in the growth characteristics exist even with the categories of developed and developing countries.

Secondly, the domestic economic growth and the opportunities outside reduce the opposition to globalization. A classic example is China. China has benefited tremendously out of foreign investment; the fast growing Chinese economy provides scope for a large number of players in the expanding market. At the same time, China is enormously exploiting the business opportunities outside the country. Globalization should be a two way process, which can be mutually beneficial.

Another driving force of globalization is the economic liberalization, as pointed out earlier characterized by deregulation and privatization.

The proliferation of regional integration schemes like the European Union (EU), North American Free Trade Agreement (NAFTA) etc., by creating a borderless world between the members of such trade blocs, foster the globalization trend. A major part of the global trade now is intra regional trade (i.e. trade between the members of the trade blocs). Some of these regional blocs also give a fillip to the cross border investments and financial flows.

Leverages: A very important factor that supports globalization is the unique opportunity global company possesses to develop leverage. A global company can leverage its experience to expand its global operations. The more the number of countries it operates in a business sector, the more could be the scope for leverage.

Leverage is simply some type of advantage that a company enjoys by virtue of the fact that it conducts business in more than one country and a global company possesses the following four important types of leverage.

Experience Transfers: A great strength of a global corporation is the experience it can leverage for expanding or strengthening its global operations. It can draw on management practices, strategies, products, advertising appeals, or sales or promotional ideas that have been tested in actual markets and apply them in other comparable markets.

Scale Economic: As pointed out earlier, the cost is one of the important determinants of success. Cost advantage, in many cases, derives out of scale economies. The scale economies have been expanding in a number of industries. To realize scale economies, it is often essential to go after the global market. Technological break through are substantially increasing the scale economies and the market scale required to breakeven. Although scale economies are often most conspicuous in manufacturing, a global company may achieve economies on a global scale be centralizing other functional activities too.

Resources Utilization: Strength of a global company is its competence in sourcing the resources globally.

Global Strategy: The global company’s greatest single advantage can be its global strategy. A global strategy is built on an information system that scans the world business environment to identify opportunities, trends, threats, and resources. When opportunities are identified, the global company adheres to the three principles identified earlier: It leverages its skills and focuses its resources to create superior perceived value for customers and achieve competitive advantage. The global strategy is a design to create a winning offering on a global scale. This takes great discipline much creativity, and constant effort. The reward is not just success – it is survival.