Describe various Approaches of Globalization.
The different approaches of globalization are:
- Levitt’s Approach.
- Ohame Kenichi’s Approach.
- Management Approach.
- Export centered Global Approach.
- Porter’s Approach.
- Michael Taylor and Nigel Tharift’s Approach.
- Macro Fordist Approach
Professor Theodore Levitt of Harvard Business School used the term globalization for the first time. According to Levitt, globalization is an alleged consequence of markets in the world. A firm becomes global to, enjoy the benefits of large scale production, distribution, marketing and management.
Globalization is the emergence of global markets for standardized consumer products. Modern technology has facilitated the production of standardized products and it is now possible to expand the operations globally. According to Levitt, a successful globalized corporation does not abandon the practice of customerization or differentiation.
A global corporation also produces for the requirements of markets that differ in product preferences spending patterns and shopping preferences. But a global corporation accepts these differences only reluctantly. Global corporations prefer to produce standardized products.
Ohame Kenichi’s Approach:
Ohame Kenichi presented Japanese view in his well known book “The Borderless World.” His approach is known as “business chain” approach. A business chain consists of a firm’s main activities such as research and development, engineering, manufacturing, marketing and sales and service. Each of these steps involves the transfer of activities in the business chain to a foreign location.
According to him, these developments would make companies and customers global. He was of the view that a global corporation develops a genuine equidistance of perspective i.e. managers with a truly global orientation consciously try to set plans and build organizations as if all key customers are equidistant from the corporate center.
For example, the managers of Honda, which has operation in several parts of the world see the corporation as equidistant from all its key customers. At Casio, the top managers gather information directly from each of their primary markets and then sit down together once a month to layout revised plans for global product development.
According to Ohame, a firm passes through different stages of development before it becomes a truly global corporation. Following are the five different stages in the development of a firm into a global firm:
Exporting: Typically a domestic firm starts its international business by exporting. This state is the arm’s length service activity of essentially domestic company which moves into new markets overseas by linking up with local dealers and distributors.
Direct Sales and Marketing: In this stage, the company takes over marketing, sales and service functions on its own.
Direct Production: In this stage, the domestic company begins to carry out its own manufacturing, marketing and sales in the key foreign markets.
Full Autonomy to Overseas Activities: In this stage, the company moves to a full insider position in these markets supported by a complete business system including research and development and engineering. It forces the management to extend the reach of domestic headquarters to all overseas activities. Different local operations are linked, their relation to each-other established by their relation to the center.
Global Integration: In the ultimate stage of globalization, the company moves toward a genuinely global mode of operation. Company conducts its research and development and finances its cash requirements on a worldwide scale and recruits its personnel from all over the world.
Another Japanese approach of globalization is based on management. According to this approach multinationals develop integrated international management system. Globalization is presented in management centered concepts such as:
- Management-centered around the head office.
- Management delegated to overseas operating units.
- Management centering overseas operating unit with regional co-coordination.
- Management with a global perspective and conscious integration of total system and subsystem.
Export centered Global Approach:
Another approach of globalization is related to global supplies. Exporting is the most traditional mode of entering foreign market. Accordingly all activities such as procurement sales, marketing, research and development distribution and the organizational structure are designed in such a way that export of products manufactured in the home country should increase. This approach consists of following stages:
- Creation of global vision.
- Integration of overseas organization and establishment of multiple corporate headquarters.
- Promotion of a global hybridization process.
- Globalization of personnel, administration and cultivation of entrepreneurial middle management.
Porter belongs to a school of thought professing the issue of whether and how nations themselves compete and how they provide the context in which firms undertaking the process of globalization are helped or hindered. Porter’s view of globalization is based on the assumption that comparative advantage and factor endowments are not just inherited or given at the country level, but rather created by the firms that undertake innovation in these countries.
According to Porter an industry can be called global if there is some competitive advantage to integrating activities on a worldwide basis. Porter argued that in the process a pattern of country based competitiveness emerges and identified four determinants of this competitive advantage of nations:
- Factor conditions.
- Demand conditions.
- Related and supporting industries.
- Firm structure, strategy and rivalry.
The way in which a firm coordinates and configures its value chain is an important determinant of how the firm creates value and incurs costs in each part of its value chain.
The optimal coordination and configuration needs of the value chain across the world are often determined by the industry structure and industry economies. Industries globalize when the benefits of configuration and coordination globally exceed the costs of doing so. Further, in global competition a country must be viewed as a platform and not as the place where all activities of a firm are performed.
Michael Taylor and Nigel Tharift’s Approach:
According Michael Taylor and Nigel Tharift, the emerging global corporation is the result of the complex process of interlocking between the relatively autonomous development sequences of subsidiaries, branches and affiliates. These firms grow into complex international economic network.
A subsidiary is an incorporated enterprise in the host country in which another entity directly owns more than a half of the shareholder’s voting power and has the right to appoint or remove a majority of the members of the administrative management and supervisory body. A branch is a wholly or jointly owned unincorporated enterprise in the host country which is one of the following:
- A permanent establishment or office of the foreign investor, and
- An incorporated partnership and joint venture between the foreign direct investor and one or more third parties.
A foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is resident in an other economy, owns a stake that permits a lasting interest in the management of that enterprise.
Macro Fordist Approach:
Former President of Philips Mr. Wisse Dekker has developed macro fordist approach. According to this approach, globalization is the process of trans-nationalization of business. i.e. a relatively early stage in the internationalization of the firm. According to Wisse Dekker, trans-nationalization consists of following steps:
A local enterprise produces and sells in one and the same country.
An international enterprise still produces predominantly or entirely in the parent country, but sells in foreign markets too.
A global enterprise transfers some its production activities abroad often limited to assembling. It is done to circumvent input barriers or because of transportation costs.
A multinational enterprise has complete production facilities, sometimes even research and development in a number of host countries. A multinational enterprise has a federal structure. Thus, production is no longer local for local.