Page 2: Globalisation
Many companies first enter an overseas market by chance - they may receive a single foreign order and then decide to follow it up. They may then realise that trading overseas will help them to achieve growth, particularly if the market is mature. At the start, businesses simply may be using up their surplus capacity, but over a period of time, trading overseas may help to provide:
- higher earnings - margins in many markets overseas exceed those in the home market.
- the ability to spread risks – while sales in the home market may be in decline, those in export markets may be booming.
- the benefits of economies of scale - producing over larger production runs helps to cut unit costs.
- a competitive edge – organisations develop expertise which provides them with an edge on competitors in terms of design, packaging product trends, market recognition as well as in other areas of marketing.
Many people believe that the international business environment is going through a period of fundamental change. This has been called global shift. The argument is that we are moving away from national economic systems towards a system where national markets are merging into one huge global marketplace and as we move in this direction, the tastes and preferences of consumers from different nations will begin to merge. For example, it is probably as easy to find a McDonald's restaurant in London, Moscow and Tokyo as it is in New York. How many of you regularly drink Coca-Cola, have a Sony Walkman or wear Levis?
Two factors have been cited as the major influences in the trend towards the globalisation of markets. These are:
- Dramatic developments in communications as well as information and transportation technologies. Global communications have been revolutionised by developments in television and the global brand, satellite and fibre-optic technologies. These allow the microprocessor to encode, transmit and decode vast amounts of information across electronic highways. At the same time the development of superfreighters and containerisation systems have simplified the transportation of goods. The speed and ease with which international operations take place today have made the globe shrink.
- A decline in barriers to the free flow of goods, services and capital. The General Agreement on Tariffs and Trade (GATT) was set up in 1947 to set out trading rules, to resolve disputes between countries and to create freer trade by cutting down barriers. In 1994 on the completion of the eighth round of talks to reduce barriers to trade, GATT was replaced by the WTO (World Trade Organisation). There are currently 131 member countries in the World Trade Organisation, accounting for over 90% of world trade.
The effects are two fold:
- In addition to domestic competition, British businesses today have to compete with more cost-effective foreign competitors.
- The movement towards freer trade opens up many opportunities for organisations to export overseas as well as to engage in activities in other countries.