Nature of Globalisation

Critically Consider The Nature Of Globalisation. In So Doing, Identify And Examine The Various Elements Associated With The Process Of Globalisation.

It would be fair to say that globalisation had its beginnings just after the 2nd world war, in December 1945, when 15 countries entered discussions to end blind customs tariffs (World Trade Organisation). The aim of this move was to end the years or protectionism which had led up to WWII (World Trade Organisation). It was believed that the terrible economic status of countries after WWI led to WWII. It was thought that if countries trade and economies were more interlinked it would be possible to avoid war in the future (European Commission). This was the basis for creating the European Community (EC), where the aim was to create a common market economy.

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The General Agreement on Tariffs and Trade (GATT) was also created at about this time following a first round of negotiations. This step was a relatively small one as the agreement only affected 1/5 of the world trade (World Trade Organisation), however it was an important first step in trade liberalization. There were further discussions in an attempt to create the International Trade Organisation in conjunction with the Havana Charter; however this was not supported by the United States, spelling its end (World Trade Organisation). GATT was the only means of governing world trade until the creation of the World trade organisation.

Although GATT was relatively limited in its powers, its reductions in tariffs and general trade liberalization helped to spur on world trade growth by 8% a year between 1950 and 1960 (World Trade Organisation). A good sign that this GATT was working was that trade growth continued to outpace production growth (World Trade Organisation). This means that countries were trading, not because they had a giant surplus of product but because the future benefits around economic growth were clear. However GATT was not without its problems, economic recessions between 1970-1980 caused Governments to use other methods to protect sectors facing increasing foreign investment (World Trade Organisation). With the closure of factories and an increase in unemployment, the governments of America and Western Europe set out to subsidise agriculture in order to maintain large trade (World Trade Organisation). This practice made it economically undesirable to export agricultural produce to these subsidised countries as the price of the local goods was largely brought down by the government, meaning it would be very difficult to attract consumers to the same, more expensive product. This was effectively a barrier to world trade and would have been damaging to the GATT agreement. With increased globalisation, the limitations of the GATT started to be seen. The trade in services was not governed by the GATT, but it was increasing in importance to world economies.

Loop holes were being exploited in The GATT agreements (World Trade Organisation), and this led world leaders to believe that there was a need for a more unilateral agreement. The World trade organisation was born and has become the unilateral trade governing body.

The GATT was not the sole point of this global push, another organisation, The Organisation for Economic Co-operation and Development (OECD), started in 1961, with the aim to ‘Supporting sustainable economic growth, boost employment, raise living standards, maintain financial stability, assist other countries’ economic development & contribute to growth in world trade’ (Organisation for Economic Co-operation & Development). These initiatives are a summary of the political will of the time which had such a driving force on globalisation.

The speed of change has been facilitated by rapid technological change. Technological change has had a number of steps. The first satellite-delivered basic cable service was called the Christian Broadcasting Network (CBN); later The Family Channel was launched in 1977. From 1981 to 1985, the “big-dish” C-Band satellite market began to take off. System sales soared as hardware prices fell. The increased access that this brought around the globe allowed TV images to be transmitted to the world (Marples, 2008). This process allowed one nations culture and principles to be transmitted very quickly around the globe, therby changes in one country, typically the USA would influence changes elsewhere, where people perceived others to be living better.

The demand for information and growth in telephonic communication led to a growth in the 1970s’ of the telecommunications network, with more ‘trunk’ lines linking major countries. This both facilitated and satisfied the growing need to communicate across countries (Webb & Associates).

IBM introduced the desktop personal computer (IBM PC) in 1981. This led to the explosive growth in the computer industry which facilitated the development of global supply chains, where computers linked together in a network could control the management of stock worldwide. The benefits of this were quickly recognised and required the infrastructure to support large data transmissions (Webb & Associates).

This caused a huge expansion in the 80’s of fibre optic cables required for rapid data transmission. As a result many companies invested in the manufacture of this new cable (Ivan P. Kaminow, 2002), however with the sheer number of companies producing the cable its value dropped enormously, which in turn caused more of the cable to be used in networking (Ivan P. Kaminow, 2002). The next step in this chain reaction was the introduction of faster computers to deal with this massive increase in data transmission; Moore’s laws states that the ‘number of chips in a computer doubles every 18 months (Encyclopædia Britannica). This ever increasing demand and supply of faster computers has driven the development of centralised computer facilities which in turn has promoted the use of faster broadband. This is known as the network effect which drives technology (Nordhaus, 2000). This led to the development of the World Wide Web in the early nineties which gave a further boost to rapid global communications and the need for faster data transmission. The internet spawned a new generation of on-line businesses that traded across the globe, eg Amazon in 1995 (Internet Story).

In order to get the most benefit from technology it is best if everyone has it. For example the social networking site – Facebook, would be useless if only a few people used it. Similarly technologies such as mobile phones require a high degree of integration as the technologies become useless if limited to those who have the same handset as each other (Dix). One market’s use of a given object drives another through seeing the use of it and wanting it themselves (Dix).

These technological changes created greater awareness in one market of what was available in another and eventually giving direct access to it via on-line trading. This was creating what has been referred to as ‘The Global Village’ (Absolute Astronomy). McLuhan describes how the globe has been contracted into a village by electric technology and the instantaneous movement of information from every quarter to every point at the same time. In bringing all social and political functions together in a sudden implosion, electric speed has heightened human awareness of responsibility to an intense degree.

Alongside this technological development was the opening up of China in 1978, with the launch of its economic reform program (Huchet, 2006). This allowed China to become the global source of manufacturing (Huchet, 2006). Many companies saw the opportunity to manufacture high value, small electrical items at a low cost. This brought down the price of technology overall, which helped to bring popular electrical items like computers to the masses. It is important to see why the opening up of China was such a large world event in the process of globalisation. China had been isolated from the international world from 1949-1979 (Woo, 2003), so 1/5th of the world’s population had not participated in world trade and investment systems (Woo, 2003), leaving a large void to be filled. This caused the massive relocation of labour intensive industries to China to take advantage of this sudden new opportunity. It is the suddenness of this opportunity which has really caused the dramatic increase in the rate of globalisation. To highlight this increasing rate of globalisation the direct financial investment of a country can be examined. In 1997 China had $44.2 billon of direct investment, in 2002 this figure had risen to $52.7 billion (Woo, 2003), this dramatic increase shows that in the space of 5 years the amount of investment entering China has increased dramatically, showing that growth is not slowing. Due to China’s massive population, it is also responsible for a large number of world imports, with the growth in Chinese importing between 2002 and 2003 growing by 30% (Stetten, 2005).

Arguably culture has been most affected by globalisation. People’s culture is affected by what they see every day. The export of American movies has dramatically changed some cultures by the assimilation of elements of western culture (Flynn). This exposure particularly affects attitudes to women, birth control and the demand for certain products (eg Coca Cola). The exposure to global media has also caused world fads to arise through product exposure (Lechner); products such as Pokémon and Tamagotchi are a good example of this.

Massive increases in the amount of international travel and tourism have caused countries to learn the culture of another through greater exposure to their people (Freesun News, 2009). Immigration from one country to another has introduced one country’s culture to another, which is then passed down to subsequent generations (The University of Iowa Centre For International Finance and Development). The popularity of World sports events such as the Olympics or The Football World Cup are definitely due to increased global communication and generalised culture attracting support from around the world (Freesun News, 2009).

In conclusion the process of globalisation was underpinned by the belief that to avoid future wars it was beneficial to promote sustainable economic growth and thereby boost employment and raise living standards, whilst maintaining financial stability to assist other countries’ economic development and thereby contribute to growth in world trade.

This mindset led to the creation of world trade governing bodies, such as the World Trade Organisation and the Organisation for Economic Co-operation and Development and The European Union. These organisations set out to liberalize trade through the removal of import/export tariffs and protectionism by governments. The rapid increase in the rate of globalisation has been facilitated by the introduction of technology which has allowed fast communication and transport between geographically distant places. The admission of China into the world trade market has increased supply and demand for finished products which is further boosting industry around the world.

References

Dix, A. (n.d.). eBulletin. Retrieved 11 17, 2009, from Network Effects and Market Engineering: http://www.hiraeth.com/alan/ebulletin/network-effects/

Encyclopædia Britannica. (n.d.). Encyclopædia Britannica. Retrieved 11 17, 2009, from Moore’s Law: http://www.britannica.com/EBchecked/topic/705881/Moores-law

European Commission. (n.d.). EUROPA. Retrieved 11 17, 2009, from The history of the European Union: http://europa.eu/abc/history/index_en.htm

Flynn, D. A. (n.d.). Retrieved 11 17, 2009, from Revisiting Globalisation through the movie and digital games industries: http://web.mit.edu/cms/Events/mit2/Abstracts/KerrFlynn.pdf

Freesun News. (2009, 09 29). Travel & Tourism: Unity through Diversity in the Age of Globalization. Retrieved 11 17, 2009, from Travel & Tourism: Unity through Diversity in the Age of Globalization: http://www.freesun.be/news/index.php/travel-tourism-unity-through-diversity-in-the-age-of-globalization

Huchet, J.-F. (2006). Social Research. Retrieved 11 17, 2009, from The emergence of capitalism in China: an historical perspective and its impact on the political system: http://findarticles.com/p/articles/mi_m2267/is_1_73/ai_n26878471/

Ivan P. Kaminow, T. L. (2002). Optical Fiber Telecommunications IV: B. Systems and impairments. London: Academic Press.

Lechner, J. B. (n.d.). Globalization and World Culture. Retrieved 11 17, 2009, from Globalization and World Culture: http://www.sociology.emory.edu/jboli/isb408026.pdf

Nordhaus, W. D. (2000, June 13). Technology, Economic Growth, and the New Economy. Retrieved 11 17, 2009, from http://www.econ.yale.edu/~nordhaus/homepage/sweden%20061300c.PDF

Organisation for Economic Co-operation & Development. (n.d.). About OECD. Retrieved 11 17, 2009, from Organisation for Economic Co-operation & Development: http://www.oecd.org/pages/0,3417,en_36734052_36734103_1_1_1_1_1,00.html

Stetten, M. D. (2005). China and Globalisation. Intereconomics , 40 (4), 226-234.

The University of Iowa Centre For International Finance and Development. (n.d.). Immigration & Globalization. Retrieved 11 17, 2009, from Immigration & Globalization: http://www.uiowa.edu/ifdebook/issues/globalization/readingtable/immigration.shtml

Woo, W. T. (2003, 12 04). The Economic Impact of China’s Emergence as a Major Trading Nation. Retrieved 11 17, 2009, from The Economic Impact of China’s Emergence as a Major Trading Nation: http://www.econ.ucdavis.edu/faculty/woo/Woo.US-China%20statement.1Feb04.pdf

World Trade Organisation. (n.d.). The GATT years: from Havana to Marrakesh. Retrieved 11 17, 2009, from World TRade Organisation: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm

Select A Multinational Company That Has Existed For At Least 20 Years. Assess How The Process Of Globalisation Has Influenced The Development Of Your Chosen Company

Unilever is one of the largest global players in the fast moving consumer goods sector with annual sales of €40,5bn (Company Accounts 2008). However, it started from humble beginnings in Bolton in 1886 when William Lever established a soap manufacturing company called Lever Brothers with his brother James. In this essay I will attempt to set out how the process of globalisation has influenced this company.

Unilever was started in the 1890s by the Lever brothers, who introduced Sunsilk Soap to Victorian England. Within a short time Lever was selling soap throughout the UK, as well as in continental Europe, North America, Australia, and South Africa (Unilever).

Lever began a tradition at this time that lasted well into the 20th century–that of producing all its raw components. Lever Brothers, a vertically integrated company, grew to include milling operations used to crush seeds into vegetable oil for margarine as well as packaging and transporting businesses for all of its products, which then included Lux, Lifebuoy, Rinso, and Sunlight soaps. In the early 1900s, Lever was using palm oil produced in the British West African colonies. Lever was therefore an early example of a global company (Unilever).

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In 1914, as the German Navy began to threaten the delivery of food imports–particularly Danish butter and Dutch margarine, the British government asked Lever to produce margarine. This was eagerly accepted as the margarine business was thought to be compatible with the soap business because the products both required oils and fats as raw materials. Lever Brothers’ successful diversification, however, put the company in competition with Jurgens and Van den Bergh, two leading, long established Dutch margarine companies. This is an early example of global competition (Unilever).

Jurgens and Van den Bergh merged to form the Margarine Unie and after two years of discussion, Lever Brothers and The Margarine Unie decided that an ‘alliance wasted less of everybody’s substance than hostility’ and merged on September 2, 1929 and Unilever was born. This was an early example of cross border mergers.

The reason for this merger being that both companies used animal fats and oils as their raw materials. The end result of the merger was a company that bought and processed more than a third of the world’s commercial oils and fats and traded more products in more places than any other company in the world – an early example of global scale.

The decade following World War II was a period of recovery for Unilever, culminating by the early 1950s in rapid economic growth in much of the Western world with the development of the various global trade bodies discussed earlier. Until 1955 demand in Unilever’s markets continued to rise and competition was not a major issue. However as markets grew the demand sucked in global competitors, particularly from the USA and Germany and profit margins dropped and success was less assured. Unilever’s strategy through this period was to use its global financial scale to acquire companies in new areas, particularly food and chemical manufacturers. Among the postwar acquisitions were U.K. frozen foods maker Birds Eye (1957) and U.S. ice cream novelty maker Good Humor (1961) (Jones).

The advent of the European Economic Community created new opportunities for Unilever. Since the late 19th century, when the companies that comprised Unilever had set up manufacturing facilities they had been located in various European countries to avoid tariff restrictions and where it was most economical. Under the Common Market, many of the tariff restrictions that had spawned the multinational facilities were eliminated, giving the company an opportunity to consolidate operations and concentrate production in lower-cost countries and thereby reduce its overall costs. During the 70’s Unilever progressively consolidated its manufacturing operations across Europe, taking advantage of the economies of scale of the larger European Union Market (Unilever).

As the world economy expanded during the sixties and seventies Unilever set about developing new products and entering new markets. It was Unilever’s management and technological capability allied to great financial strength based on its success in Europe that made it possible to enter these markets. It developed a global management structure facilitated by improved communications and the growth of air travel (Unilever).

Throughout its history Unilever has grown through acquisitions, using its global financial scale to purchase local or regional companies that gave additional scale or access to new markets or adjacent markets, Ponds, Calvin Klein and Ben & Jerry’s to name a few. These acquisitions all represent foreign investment which without the process of globalisation would never be possible (Newinternatiomalist).

As individual markets blurred and a more international view of markets was taken we can see the emergence of global brands such as Sure deodorant, known as Rexona globally. This emergence of global brands required Unilever to restructure its business to remain competitive. In the 1980s Unilever undertook a massive restructuring (Unilever). The company sold most of its service and ancillary businesses, such as transport, packaging, advertising, and other services that were readily available on the market, and went on a buying spree, snapping up some 80 companies between 1984 and 1988 (Unilever). The restructuring was designed to concentrate the company in ‘those businesses that we properly understand, in which we have critical mass, and where we believe we have a strong, competitive future,’ Unilever PLC Chairman M.R. Angus told Management Today in 1988 (International Directory of Company Histories). Specifically, Unilever’s core businesses were detergents, foods, toiletries, and specialty chemicals. This was followed in late 1990s by a comprehensive review of Unilever’s wide-ranging businesses in an effort to focus on the strongest core areas: ice cream, margarines, tea-based beverages, detergents, personal soaps, skin care products, and prestige fragrances with several other areas identified as ‘developing’ core areas: frozen foods, culinary products, hair care products, oral care products, deodorants, household care products, and industrial cleaning products (Unilever). Businesses outside of these areas were sold including its largest disposal the selling of its specialty chemicals business to Imperial Chemical Industries PLC for about US$8 billion.

As the pace of globalisation increased, Unilever had to focus more on global brands and in 1999 Unilever announced that it would eliminate about 1,200 of its brands to focus on around 400 regionally or globally powerful brands–a group that accounted for almost 90 percent of 1998 revenue. This sweeping overhaul of the product portfolio was aimed at increasing annual growth rates from four percent to six to eight percent and at eventually reaping annual savings of £1 billion. Unilever has focussed further in the 21st century on 12 €1bn global brands (Unilever).

Like with most multinational companies Unilever manufactures many of its products away from the destination market, in order to reap the benefits of cheaper labour and increased profit margins. It operates a global supply chain and, for example, a forecast planner in the UK will control the output from factories in Germany or France and a planner in Singapore may control a plant in China. It is due to the technological synchronisation of the world’s telecommunications and broadband systems that this has become possible, coupled with the ability to send expatriate managers out to foreign countries to develop new operations and transfer management know how.

International organisations also have had an effect on the development of Unilever. In 2008 Green Peace targeted Unilever for obtaining palm oil for its soap from non sustainable sources (Jones). Unilever responded by announcing it would source all palm oil from sustainable sources. It is this flow of information from geographically distant countries, facilitated by international organisation, which has undoubtedly forced Unilever to develop to remain in the public good.

International competition has always been an issue for Unilever, with international competitors like Proctor and Gamble (USA), Nestle (Switzerland), Kao (Japan) to name but a few. This international pressure has shaped Unilever and its markets. This kind of international competition shows how the world is no longer working on a country level, the entire globe is seen as a single market in terms of competition and as such Unilever faces many different competitors depending on which country it is marketing a product towards.

References

International Directory of Company Histories. (n.d.). Encyclopedia.com. Retrieved 11 17, 2009, from Unilever PLC Unilever N.V.: http://www.encyclopedia.com/doc/1G2-2840600220.html

Jones, G. (n.d.). Working Knowledge. Retrieved 11 17, 2009, from Unilever—A Case Study: http://hbswk.hbs.edu/item/3212.html

Newinternatiomalist. (n.d.). Newinternatiomalist. Retrieved 11 17, 2009, from History of Unilever: http://www.newint.org/issue172/simply.htm

Unilever. (n.d.). History. Retrieved 11 17, 2009, from http://www.unilever.com/aboutus/ourhistory/