What is the Impact of Globalization on Business?
Globalisation covers large areas. It implies expansion of business internationally, removal of domestic market and foreign market, locating and positioning or organising market, physical production facilities with an eye on global business, whatever be the regional consideration.
For this reason, factors of production may have to be sourced from best possible destinations, (where cost is less than profits). In addition to it finance and technology should also be outsourced. Production planning will be prepared on global market considerations. Organisational ethos, management culture should also follow global vision, internationally accepted norms and a transnational outlook.
In view of above, when judged in the above perspective globalisation has been achieved only to a limited extent. Geographically many parts of the globe are far from integrated. The European Union with its East European associates are far from fully integrated, inspite of the fact it is the one of the most important parts of this area. The Atlantic and Pacific economies have attained a certain level of globalisation in terms of capital movement, trade movement and migration level.
Parts of Latin America are also integrated one. Much of Africa and parts of Asia including India is forming a part of economically detached sovereign state. Integration among economies is not even in the heartland of global economy, there are continuous disputes among themselves. Continuing debate on various issues offer a stubborn resistance to globalisation process.
Labour markets are highly disintegrated. Except for professional, skilful and technical man power, in general, labour market is highly national and regional in character. Politically the world is very much national. In a nutshell, world is more cosmopolitan than globalized. Even MNCs have a unique home base, from which they are centrally operating.
Globalisation in the true sense is only a partial phenomenon. Whatever may be its degree or dimension us may only draw some symptoms or indications about the level of globalisation. Peter Drucker has used the word as transnational economy to describe the feature of globalisation. According to Drucker, transnational economy has certain unique features.
In this economy capital flows or “hot money” comes from abroad. National economy also reacts to the changes in the pattern of movement of money of flow. The monetary policy and fiscal policy are adjusted according to the changing situation of the international market.
In the transnational economy management becomes supreme in decision making process. In such a type of economy, goal is market maximisation and not profit maximisation. In this economic situation trade takes place with investment.
A major advantage in the globalisation process is that corporate decisions can be taken in a neutral manner. Customers here are equidistant in every direction. There is no customer who is Japanese, American or Indian. Every customer is unique and identical. A truly global firm like Fiat or Honda has not identified specific overseas or indigenous customer all customers are in an identical zone.
The companies work for all consumers of all the countries where they market their products. Globalisation principles require certain prerequisites for success such as enough freedom of business. Restriction on trade, lack of opportunity to outsource from abroad creates problem for smooth functioning of global business.
Government patronage is another precondition for success of globalisation. Globalisation also calls for easy availability of resources, skills, technological capability. There should be barrier free trade practices. A global orientation in respect of culture is also highly necessary on the part of business entities.