Australia is an excellent object of study of globalization and its implications for business as its economic structure is at an unusual ‘mid-way’ point. New market opportunities, competitive threats and opportunities alike have been the key drivers of globalization since the 1980’s. This essay analyzes a variety of topics to determine whether Australia should become more integrated into the global economy.
Defining globalization and its major players is crucial to the argument. Petrella’s definition of the main characteristics of contemporary globalization will be used as a framework to analyze and define the main changes that are a result of globalization. Through this process, the second part of the paper is devoted to analyzing the advantages and disadvantages for Australian business in becoming more integrated into the global economy. A conclusion can then be reached to confirm that the viability of Australia’s integration into the global economy is not only advantageous but also a necessary progression.
The internationalization of financial markets is a direct result of globalization and vice versa. Four clear forces have contributed to this: market saturation, disintermediation, deregulation of financial markets and the internationalization of financial markets. A clear conception of what a large part of globalization the industrialization of financial markets is, is clearly outlined by Clarke and Clegg International financial flows and foreign currency exchanges now dwarf the value of international trade in goods. The global financial system has become extremely volatile and very complex
The deregulation of finances and innovation by investors has created a highly technological financial system that is freely accessed on a global basis. The deregulation of the financial sector and the internationalization of financial markets are now made effortless through the ability to use instant telecommunications. Globalization with regard to corporate strategies encompasses many different aspects of management, corporate paths and planning. The most important however is changing the way managers think with regard to their use of resources
Global organizations no longer produce their goods in one country and then ship them around the world . . . They design products for world markets and use world-wide production and distribution systems, as well as vertical integration, to gain economies of scale. But may other benefits accrue from pursuing a global operations strategy. The commitment of corporations to competition as a source of wealth creation has several characteristics. These characteristics include strategic alliances, moving to under-developed countries to manufacture at low costs – hence creating a wider gap between the rich and the poor, and industry convergence.
The increase in technology is a major contributor in globalization. This is clearly shown in the article by Ferguson and James as The rapid growth of computerization and telecommunication. The Internet is the most obvious, but certainly not the sole, example of networks that have no geographical base. Business is operating in an environment of greater “connected-ness” as authors Stan Davis and Christopher Meyer observe. As shown, technological progress has the ability to create new knowledge that allows businesses, nations and consumers the avenue of using their resources to an extent that results in a larger output.
The transformation of consumption patterns into cultured products with worldwide consumer markets is another result of globalization. This is a direct consequence of falling trade barriers and organizations focusing on global marketing as opposed to specific target groups. The internationalization of the regulatory capabilities of national societies and the transition into a global political economic system refers to the removal of trade barriers and other forms of protectionism within a nation.
This results in a more global economic system of trade. Australia began its economic policy reforms during the 1980’s. At this time it began the slow and topical process of transforming the nation from one of the most inward looking and protected of countries, into one where ‘the liberal policy agenda is in ascendancy’. An excellent description of the effects of the internationalization of regulatory capabilities is illustrated by Marc Jones who refers to this process as the extension of nations ‘spatial boundaries’,
Spatial boundaries refers to the specific geographic location of a firms assets and activities. Where does it conduct its research and development? It’s manufacturing? As a firm enters into international business through exporting, its spatial boundaries increase as it reaches out to foreign customers The diminishing role of national governance is considered a direct result of the massive power possessed by multinationals and other powerful organizations such as the OECD. As a result, the national powers often operate within these organizations’ shadow.
The concept of the diminishing role of national governance in designing the rules for global dominance is based on the fact that companies are gaining more power than nations. The logic that supports the arguments of the diminishing role of governments is based on the fact that as companies trade and nations do not. Hence, in a capitalist society, companies that are central players in the global market place possess more power. It has become obvious that big-businesses have excessive influence and not national governments – even to the point that large business sectors are not paying taxes.
This gives the government and taxpayers no monetary advantage for having companies operate within the country Minimizing tax exposure, such as declaring profits in the most advantageous domicile is another factor. A startling example is Daimler-Benz’s announcement that by 2000 it will pay no tax in Germany. Australia is not exempt from this practice. Japanese multinationals have a $20-billion turnover yet made a net loss, which suggests their tax exposure is limited. The Australian Taxation office says its losing “billions” of tax through transfer pricing
The second part of this paper analyzes the effects of each of these characteristics of contemporary management in a globalizing nation and the advantages and disadvantages that each possesses. The scope of this topic is so broad that obviously not all aspects of globalization can be analyzed. Many of these topics however, are already largely integrated and globalized and the effects have been already seen. The subsequent consequences for Australian Business with regard to the internationalization of financial markets are substantial.
The world is already at a point where the money market is operating on a global basis. Interconnected finances carries obvious risks for Australian business, since when one nation’s finances crash, a domino effect can occur. As described by Stanley Fisher, First Deputy Managing Director of the IMF , it is simply another business uncertainty that organizations need to be aware of: It means ensuring that you are in a position to deal with the unexpected, which always happens. Banking crises have been with us as long as banking systems.
They can never be prevented entirely and they can never be resolved painlessly. But we must all hope that the lessons we are learning as a result of recent crisis’s will help make banking crises less frequent and less damaging in the future. It becomes obvious that the idea of globalization has consequences for Australian business, with regard to the financial market operating on a global scale, is not new. Added risks are expected as the financial environment extends itself to a global scale, but the financial opportunities that can be gained through globally financing are infinite.
Prime Minister John Howard maintains that the driving force that kept Australia afloat during the Asian crisis was the globalization of the financial sector. Through the floating of the exchange rate 18 years ago the depreciating Australian dollar ensured that Australian exporters were still able to divert their products to markets outside Asia into North America and Europe. The consequences of globalization with regards to the internationalization of corporate strategies, in particular their commitment to competition as a source of wealth creation is enormous.
The scope of this essay doesn’t allow for a description or analysis of all characteristics but the true commitment to competition can be clearly displayed through the use of underdeveloped countries as a basis to manufacture products On the surface . . . the mix of lower wages and first-world technology would appear to make third world economies super-competitive. It is inevitable, goes the argument, that there will be a massive shift of production and jobs from high wage countries to low wage countries.
This displays the change that has occurred in strategic planning on a global scale and also the commitment made by corporations to the accumulation of wealth through competitiveness. This issue can be considered both advantageous and disadvantageous, depending on the managers’ outlook. For Australian businesses, on a purely competitive basis the opportunity to reduce costs and hence accumulate wealth could be an advantageous effect that globalization generates. Changes are required however in the thinking processes of management for this to become successful.
The disadvantage of this paradigm change is that the increase in competitiveness will inevitably destroy smaller firms unable to compete on this scale. Unless the corporation has an understanding of globalization and the resources to compete on a global scale and manufacture in this way, they will be unable to compete against more powerful organizations. The advantages that technology offers are infinite, without which many firms would not exist. The Australian investment and total expenditures in research and development is an accepted indicator of any nation’s ability to advance technologically and its efforts in this sector.
The Australian investment in research and development is low by OECD standards, most particularly in the business sector. One might assume however that internationalization would ‘increase the R&D effort to the extent that there is a reallocation of resources towards ‘comparative advantage’ in R&D intensive activities’. This shows that globalization can be advantageous for Australian businesses. The disadvantage of technology is the consequence of Australian business not having the resources to keep up with such high levels of technology.
Without increases in the R&D effort by Australian firms, they will be unable to compete successfully with international companies that have these resources and are hence operating on a more efficient basis. The transformation of consumption patterns into cultured products with worldwide consumer markets has massive effects on the strategies that companies use. This concept stems from the opportunities that arise from the world becoming more globalized, hence standardizing the tastes and preferences of consumers. The future for Australian business if it is to keep up with this paradigm is suggested by Theodore Levitt;
In the future, successful companies will be those that make and sell the same things, in the same way in one global market An example of this is the Volvo Company. This particular company stated that through the directions that globalization has taken only one supplier would be contracted, and produce the best and cheapest product. This change in thinking makes the competitive market much harder for companies to penetrate – an obvious disadvantage for Australian firms. However as the consumer market expands there are profitable advantages to this paradigm change.
The true effect that this change will have on Australian firms and their strategies is displayed most clearly by Japanese firms who have embraced globalization. This is filled with profit potential as shown by Clarke and Clegg: These companies, many of them Japanese in origin, think in terms of creating products for a world market and manufacturing them on a global scale in a few highly efficient plants. If Australian businesses can learn to develop this new marketing program, they will be successful. Without this change they can only fail.
The internationalization of the world’s regulatory capabilities affects Australian business; particularly in sectors of industry that have enjoyed protection for long periods of time i. e. the automobile industry. Government boundaries in today’s contemporary system have already begun the process of becoming increasingly homogenous, as is the overall macroeconomic management of nations, as each joins trade groups that follow similar programs. This modified system, reducing regulations such as tariffs and trade barriers, naturally puts Australian businesses in the position of being exposed to the worldwide market place and its influences.
However, there are also many opportunities that can also be derived from this area as well. This is aptly described by John H Dunning: From the viewpoint of firms, one of the main consequences of globalization – or more correctly the forces leading it – is that it is requiring them to reconsider not only the locational configuration of the home bases for their strategically distinct businesses but how this configuration affects the rest of their foreign and domestic operations Though the risks in trading on a national basis are clear, the opportunities are also endless. Australia is not able to operate on a self-sufficient basis.
This makes global trade a necessity – not an option. As regulations and protectionism fall Australian firms are open to the risks associated with trading on a global basis – and there are companies that will not be able to compete and hence fail. Opportunities arise however to take advantage of deregulation in other nations. The advantages to removing trade barriers far surpass the advantages to keeping them for Australian firms. Trade protection increases the prices of consumer goods. This is an effect of businesses having to pay higher prices on the goods they need to import for their production processes.
Less competitive companies will hence suffer financially the consequences. The diminishing role of national governments implies a reduction in protection and has a similar effect on Australian firms. They lose protection against the risks and effects of any problem occurring within the global market place. The problems caused by the diminishing role of national governance is clearly defined in Clarke and Clegg: At the very time when political action may be necessary to remedy some of the more destabilizing impacts of globalization on the world system the significance of the nation state has been considerably weakened.
The largest twenty multinational corporations have a turnover in excess of the GNP of most nation states As Australian firms, particularly smaller ones, have become more exposed to the financial, economic and trade risks of the global market place, they are turning towards the government for help. As the power of the national government diminishes there is little assistance it can give. In conclusion the advantages and disadvantages of each of Petrella’s description of the characteristics of contemporary globalization have been discussed.
The internationalization of finances and trade into a global political system puts Australian firms in the vulnerable position of becoming exposed to environmental risks of the world. These factors also open infinite opportunities to Australian businesses. Trading on a global basis allows larger access to consumers, hence profits, and the internationalization of finances can be considered an economic strength, rather than a weakness. The internationalization of corporate strategies requires a change in the thinking of managers and their planning.
Through the diffusion of technology and transformation of consumption patterns the commitment to wealth creation can be endless. The major players in the global market place have changed with shifts in power towards large organizations. There will be losers in a more competitive environment but the benefits for Australian firms are endless. Globalization of Australia as it becomes more integrated into the economy is already in progress, and has been for a long time. If Australian firms are to keep up they will have to become more integrated, this is not a choice, but rather a necessity.
