Globalization can be thought of as the process in which flows between various parts of the world intensifies. This growing ‘connectedness’ has been driven in part by the enhanced flow of information via the internet. Here city-to-city internet connections have been visualized by Chris Harrison.

What is Globalization

Globalization is the process of social and economic transition from a local way of living to a more international and connected manner of living. There are many different factors affected by increasing globalization, including trade, culture, and politics. The reasons for increasing globalization include technological advances such as the increasing connectedness of the Internet, and the continuous expansion of companies into many different countries. There are both positive and negative effects of globalization. For example, poorer countries benefit from more jobs as foreign corporations set up shop, but this does not necessarily close the gap in terms of wealth distribution, as much of the profits that these transnational corporations make are subsequently taken out of the poorer country.

Globalization and Transnational Corporations

One of the most important factors when talking about globalization is the role of transnational (TNC) or multinational (MNC) corporations. These are defined as firms with two or more branch plants across international boundaries, usually organised with a spatial hierarchy of control and production. Examples of such companies include Nike, The Coca-Cola Corporation, and Sony Music Corporation. There are many different reasons corporations would choose to open firms in foreign countries. These firms can outsource production, and thus reduce capital inputs for setting up new factories and purchasing machinery, and they are able to shift operations more quickly to create more efficient production methods.

Kentucky Fried Chicken restaurant in Japan. KFC is an example of a transnational corporation.

Corporations must be careful when undertaking an international expansion, as opening new factories with different machinery and labor could compromise product quality. There could be new factors to take into consideration such as the unpredictability of labor in terms of strikes and wage expectations. Another possible negative impact on the firm is the potential leakage of trade information and production secrets, however this will affect certain industries more than others.

By expanding into new markets in foreign countries, international firms can provide huge organic growth boosts. There is also the potential for growth via takeovers and mergers, and firms can work with each other in order to combine their individual economies of scale. For example, the computer firm Hewlett Packard wished to expand to the Japanese market. To do this, they worked with Japanese firm Yokogawa. HP provided technology in exchange for workers, and so both companies benefited from their international relationship. An international firm also has access to a greater pool of workers, and as such can find greater efficiency.

Over time, transnational corporations change in their individual structures. There are several ways in which this has occurred. Rationalization is the active replacement of a human labor workforce with one in which machinery is mainly. Workers are replaced by machines, and so jobs transition from low-skill to high-skill; from the production line to machinery maintenance. Re-organisation is another way in which large firms must adapt. With increased production and international trade, there must also be changes in administration and marketing. As a firm grows, new opportunities can be seized. For greater security, firms can diversify their product range, creating new products so that they do not have to rely on demand for one main product. This is a key reason why companies have a desire for growth and transnational expansion.

Post-fordist Production

Another effect of globalization is the rapid adoption of new technologies and production methods. For example, the initial production method of the Ford motor company, known as just-in-case production, involved keeping large inventories of stock available at all times. This minimizes the probability that a product will sell out of stock before production is able to keep up with demand. However, this production method incurs high storage costs, whereby large inventories must be stored and in some cases maintained. With increasing globalization and technological development, corporations are now better able to predict product and service demand. This demand forecasting allows firms to slow down or speed up production based on anticipated future demand, and therefore reduces the need to maintain large stock inventories. The new paradigm of flexible, decentralized production is known as post-fordist production.

Post-fordist production systems often result in enhanced flexibility and costs savings for the consumer. These benefits, however, may come at the cost of poor labor conditions and low wages for workers, many of which reside in developing countries with few occupational regulations. 

Another impact of globalization is felt by workers. For large TNCs, there are no longer region-specific labor forces, rather one global labor pool. For example, international law firms are able to cherry-pick the best law graduates from universities across the globe due to having a global presence in most developed countries. Large law firms will have an administrative office in most developed countries even if they do not have a practicing legal team there.

Globalization in Developing Countries

There are several factors that are important as industrialization occurs in less developed countries. The standard of living may increase due to enhanced employment opportunities, and labor may shift in terms of maturity, from rural or agricultural work towards higher skilled manufacturing and service industries. Negative effects of industrialization include a possible increase in environmental degradation as a result of poorly regulated production methods. If adequate housing is not provided, slums can develop around manufacturing plants as workers travel from far away in order to seek employment. This in turn can lead to increases in crime and disease, and other negative externalities of slums.

The state has an important role to play in the regulation of globalization. One of the reasons large firms look to expand to developing countries is the supply of low-cost labour, and less strict manufacturing regulation. The government of a developing country must ensure that their population are not exploited by these transnational corporations, by ensuring adherence to fair wage rates, promoting investment in specific areas, taxing the firms and then re-investing that money into infrastructure and long-term developments that increase the standard of living. Regulators must ensure that environmental impacts are mitigated during construction of factories and production plants. If governments are developing support services (such as telecommunications, transport, logistics, and finance) in order to attract the inward investment of transnational corporations, they must ensure that these services are made accessible to local/national firms. This helps to prevent monopolies forming, and allows the organic growth of SMEs as a part of the local population.

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