Incentives to Globalize
Introduction
Developing countries account for 60% of the global population, this number alone focuses the attention of any organization looking to reach huge untapped markets. The consumers in these markets are becoming increasingly aware leading to generation of new needs and wants and with ever increasing purchasing power to satisfy those needs and wants (Rajan, 2003).
Businesses cross borders and tend to internationalize because they want to stay afloat and reap more and more profits for themselves (Kiggundu, 2002). The two most important reasons for globalization of business are:
- Economies of scale and learning
- Increased market size
The most important reason for globalization is the economies of scale and learning. In the markets of today the firms can hardly dictate their prices due to cut throat competition. In such a situation it is very critical for the organizations to minimize their cost which is done by achieving the economies of scale by mass production. As seen in the case of automobile industry, the spare parts of vehicles are highly interchangeable. These parts can easily be mass produced, without any danger of obsoleting and can be exported to different markets world over, by developing multi-domestic strategy. The mass production of these auto-parts will lead to reduction of unit cost and hence increase the profitability of the firm. The same is true of other businesses like pharmaceuticals and electronics etc.
The second important reason for globalization of business is to increase the market size, which leads to increased market share and profits. It is clear, that unless businesses cross their borders, they will remain stagnant and small. Internationalization of their business is the key for global giants like Toyota, Sony, McDonald’s, Wall-mart and many more, who enjoy trillion dollars turnover annually. The vast majority of population and markets in the developing countries of the world will remain the target of expansion by joint venture corporations for decades to come. Even small businesses wish to increase their market size by investing in profitable foreign countries on their own or in partnership with local firms. The bigger the market size for business, the bigger will be the profits and return on their investment. Hence they will feel more stable and secure. (Cunat & Guadalupe, 2006)
Conclusion
We observe from our narrative above that globalization offers tremendous benefits and incentives to businesses. This is the crucial strategy through which the one time small businesses have transformed into big multinational corporations. By going global, businesses enjoy expansion in markets and economies of large scale production, resulting in huge profits. By expansion and internationalization businesses can better ensure their survival. The fruits of business globalization are evident in the bustling economies and markets of developing countries like China, Brazil and South Korea (Benefits of Globalization, 2014). Their GDPs have jumped by 100% than what they were some 50 years ago, only by dint of globalization of economies.
References
Kiggundu, M. N. (2002). Managing globalization in developing countries and transition
economies: Building capacities for a changing world. Westport, CT: Praeger.
Rajan, R. S., (2003). Economic globalization and Asia: Essays on finance, trade, and taxation.
Singapore: World Scientific.
Benefits of Globalization. (2014, June 27). Retrieved November 16, 2014, from
https://www.boundless.com/management/textbooks/boundless-management-textbook/globalization-and-business-14/globalization-101/benefits-of-globalization-470-3958/
Vicente Cunat., & Maria Guadalupe. (2006). Globalization and the Provision of IncentivInside the Firm: The Effect of Foreign Competition Retrieved from http://web.law.columbia.edu/sites/default/files/microsites/contract-economic-organization/files/working-papers/mcglob1006.pdf
China and India maintain focus on location-specific advantages. (2013, December 18). Retrieved November 16, 2014, from http://www.tpa-global.com/newsitem348334/
