MYTHS OF GLOBALIZATION – January 2, 2007

GLOBALIZATION?

It is near impossible to pick up a newspaper, magazine or turn on a TV news program without being exposed to the term "global." However, this term is rarely defined and the ambiguity of the term allows it to be used in nearly every situation that involves some level of cross border activities. For example, the world's largest company measured by sales, Wal-Mart, calls itself a "global retailer" in its 2005 annual report. However, it only has direct sales operations in around 5% of the countries that make up the United Nations, around 80% of its sales come from the USA and approximately 90% of all sales come from North America. Is Wal-Mart a "global" company? The answer would have to depend on the definition of "global." Wal-Mart sells products produced in a number of countries, but only directly operates in a select few markets. The vast majority of the citizens on the planet have never been inside a Wal-Mart store. BMW considers itself a "global" company; however the majority of its customers come from two important markets, Western Europe and the USA. Moreover, BMW, as true in most "global" companies, has a top management team made up almost exclusively of individuals from the country of origin, in this case Germany. While BMW does have sales throughout the world, the products are aimed at the top earning one percent of the citizens on the planet. Can a company be "global" when it manufactures products that are priced out of reach of over 99% of the planet's citizens, and is directed by a top management team from a single country? Once again, it depends on the definition of "global." In actuality, all human activities, whether business, political or social, have a limited reach and rarely directly affect everyone on the planet; what percent of the earth’s population needs to be directly affected by an activity for it to be classified as “global” would appear to be very subjective.

According to the 2005 article, “International Risk-Sharing: Globalization is Weaker Than You Think” in the Business Review of the Federal Reserve Bank of Philadelphia, written by Leduc, the amount of international trade has been increasing but the effect of "globalization" on a nation's economy is often overstated. A case could be made that the increases in international trade are primarily due to the breaking down of the unnatural barriers that divided the world into two camps, communist and capitalist, that for the most part didn’t trade with each other after the end of World War II. Furthermore, currently most international trade is conducted between developed nations with a smaller, but growing, percentage of international business activities taking place in developing Asia and Latin America, with many other locations being left out. Instead of companies from developed nations exploiting Africa, as is often cited in the media, “global” companies have for the most part ignored the continent. The lack of integration into the global trading system is one important factor limiting poverty reduction in Africa. Most Africans would welcome a little bit of globalization to come their way.

Another factor to consider is, according to the statistics compiled by the United Nations for 2005, the vast majority of cross border trade is conducted through importing and exporting. For centuries people have traded goods across national boundaries while pursuing different goals and retaining unique cultures and traditions. This is also true today. Drivers in Australia are able to use gasoline made from Middle Eastern oil without having studied the fascinating history of the region. Christmas shoppers in Nebraska are able to purchase toys made in China without having the ability to read Chinese characters. Coffee drinkers in France can drink coffee made from beans grown in Equatorial Guinea without being completely confident in their ability to pin point the country on a map. Taking a historical view, international trade has not resulted in pressures to converge into a single “global” culture and international trade is unlikely to do so in the future. There are many scholars and historians (for an example see: Masson's IMF policy discussion paper in 2001 entitled, "Globalization: Facts and Figures") who have looked at the history of globalization and see an evolutionary and cyclic phenomenon and not something that is radically different today from what has been seen in the past. For sure, the Internet has increased the speed and ease of international contacts, but so did the steamship and the telegraph in times past.  

While the extent that the world is "globalizing" is typically overstated, the general trend of increased international interconnections is occurring and there is a growing need for professionals with the ability to work across borders. Trade, travel, and international contacts of individuals are increasing in frequency, and therefore governments are being forced into increased international cooperation as well. While this increased level of globalization does not require everyone on the planet to understand the culture and language of everyone else, it does require human "bridges" that are able to operate in multiple cultural environments. Working abroad, studying abroad and studying foreign languages are important steps in developing the skills needed to work in a position connecting organizations and individuals between cultures, and the people with the skills needed for these positions can expect their skills to increasingly be in demand. But not everyone connected with an international organization needs to be that closely connected with people from other nations. An American farmer is not required to be multi-lingual in order to grow wheat, corn or rice that is exported to other nations. An assembly line worker in South Korea doesn't need to understand Canadian history and the reasons behind Quebec being a French speaking enclave in North America to work on a car to be sold in Montreal. Most international trade is conducted as market transactions, where customer wants are transmitted through price and sales information. Cultural knowledge may be used for competitive advantage in some cases, but in commodities or commodity like products (computers, clothing, TVs, mobile phones, food, etc…), the business only needs to know what the customers are willing to pay for, not the reasons behind the motivations to purchase.   

DOES GLOBALIZATION RESULT IN CONVERGENCE OF BUSINESS PRACTICES?

While studying business practices internationally, the abundance of studies showing convergence of business practices are counterbalanced by approximately an equal number of studies showing business practices remain distinctly different across national borders. While on the surface these results may appear to contradict each other, but when looked at closer, one sees both convergence and retention of culturally specific business practices happening simultaneously, however happening at different strategic levels of operations. An improved understanding of global business practices requires breaking practices into operational, tactical and strategic levels.

Increased trade and travel require globalization of business practices at an operational level. To conduct trade across borders requires the use of a common language, common communication channels, common accounting procedures, and standardized operational business practices. Because of globalization, we see the use of standard sized shipping containers around the world since products packed in Taiwan need to be unpacked efficiently in Peru. Because of the need to communicate across borders, people generally use compatible software and programming languages across the globe to ensure documents and digital information can be accessed from different physical locations. The need for a common language to communicate in is the driving force behind English becoming the lingua franca of the international business community.

However increased international trade does not require globalization of business practices at the tactical and strategic levels. The strategic level is long-term focused and is reflected in a firm’s organizational structure and selection of product or services to provide. Tactical level is how things are done. For the most part, there has not been convergence of business practices at the strategic or tactical levels. For example, After the Asian financial crisis in 1997, many Western observers declared Asian countries and governments would need to adopt Western style strategic business practices to recover. Although for the most part, Asian firms and government did not make serious moves towards Western-style regulatory regimes or Western-style organizational structures (Family-ownership continues to be common throughout Asia as opposed to the corporate structure that is commonly found in the west). Yet Asian economics have experienced growth rates in recent years that exceed those in the West. Also, at the tactical how-to level, most research appears to indicate a firm’s HR, marketing, and managerial styles are more influenced by local culture and legal requirements than by global forces and therefore convergence of these tactical practices is limited.

DO BORDERS MATTER?

Historically, political and economic integration have not led to the extinction of cultures and unique behaviors and practices based on geographical location. The colonial system did not result in Indonesia becoming Dutch, Cambodia becoming French, or Brazil becoming Portuguese. While the influence of being colonized varied in each location, colonies retained unique features based on indigenous culture. Even in cases where the colonies were primarily populated by European immigrants (Australia, Canada, New Zealand and the United States), the colonies developed cultures that made them distinctly different from their European cousins. In more recent times, we have seen a number of Asian countries, Japan, South Korea, Singapore and Taiwan, quickly modernize and become economically advanced without adapting Western culture or values. However, these countries while advancing did adopt and use Western technology (operational techniques); however today technology diffusion appear to be more multi-directional. A causal visitor to Asia from North America or Europe can not help but notice the surface similarities, clothing, food and technology, with the West, but in fact Asia is modernizing in an Asian way and retains some cultural values that are not “global.”

International trade and travel does not eliminate national or individual differences in the cultural values of people around the world. Globalization is not resulting in a single world culture or a single method of conducting business around the world. As the American soldiers in Iraq, the Japanese business executive in Alabama, or the Indian academic in the UK knows, doing things exactly as they are done at home will not lead to success in a very different environment. It is important to not overestimate the impact of shared operational business practices or the use of common products on values and perceptions. “Globalization” is resulting in increased international connectivity; it is not resulting in a single global culture.                   

Dr. Scott A. Hipsher

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The Author of the article holds a Ph. D. in Management Science from Capella University, MBA degree from Bangkok University and B. Sc. from the University of Maryland. He is presently a lecturer at Bangkok University, Webster University and Mahidol University in Thailand. He is a member of the International Academy of Business. Mr. Hipsher is the co-author of the forthcoming book "The Nature of Asian Firms: An evolutionary perspective" (2007).

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