2 management - School of International Business and ...

129 The Puzzle of Globalization
1 THE PUZZLE OF GLOBALIZATION
»Globalization is the inexorable integration of markets, capital, nation states, and
technologies to a degree never seen before.«– Thomas Friedman
Globalization is one of the most popular buzzwords of our time. Even in the theory and practice of
international management it emerged as a strategic guideline. Due to the ambiguity of this term, it
gives a wide scope for interpretations and applications. It is well-suited to describe the increasing ex-
posure to foreign competitors in the home market, the dramatic changes in foreign markets resulting
from the entry of new competitors from emerging economies, the high-speed diffusion of new tech-
nologies through many industries, the risks and chances to fragment the value chain and offshore/
outsource parts and components of production and/or production related services. Successfully man-
aging the complex challenges of globalization requires openness, pro-active and permanent learning,
state-of-the-art knowledge of analytical tools for the in-depth analysis of global trends, and social and
cross-cultural competence. It goes without saying that the fast changing business environment must
have repercussions on the organization of companies. The multinationalization of companies is one of
the most prominent answers to globalization, but at the same time it is shaping the dynamics and pat-
tern of globalization. But from a general point of view, international management has to find a flexible
mix between developing and implementing strategic concepts and seizing chances that result from
short-term dynamics of global markets. In many home markets, firms in industrialized countries are
exposed to a vicious circle of internal and external changes that are increasing competitive pressures,
not only in times of recession (Figure 1):
– »Sales pressure«: Home markets are getting saturated which leads to decrease in degree
of capacity utilization.
– »R&D pressure«: Risks and costs of R&D investments are increasing.
– »Price pressure«: The standardization of production processes and products among com-
petitors is enforcing price competition.
– »Cost pressure«: Excess capacities, decelerating advancement in productivity as well as
increasing commodity and energy prices are causing increases in costs of production.
Resulting from these internal and external changes, the profitability of many domestic companies
in industrialized countries is decreasing (Table 1).
The automobile industry in Europe and the U.S.A. – known as one of the most globalized indus-
tries – is a striking example for almost stagnating home markets, high focus on domestic sales and
therefore increasing competitive pressure (Figure 2a). Currently, the latter can be at least partly
compensated by penetrating into fast growing markets in emerging economies, especially in China
(Figure 2b). However, it is to be expected that the competitiveness of local producers (Figure 2c) will
increase within a few years. The growing number of Chinese companies in FORTUNE Global 500