Globalization and Global Industries¶
Globalization means that countries, companies, and people from all over the world are more connected than ever before. This connection happens through trading goods like food and electronics, sharing technology, investing money in different countries, and even moving from one country to another.
A simple example is your smartphone. It might be designed in one country, made from parts that come from several different countries, put together in another country, and then sold all around the world. Another example is how you can find food from all over the world, like pizza, sushi, and curry, in many countries now. This shows how globalization lets us share products, ideas, and cultures with people far away.
Introduction¶
Globalization represents a dynamic process that enables individuals, corporations, and nation-states to interact and influence each other on a global scale. This interaction occurs faster, farther, deeper, and more affordably than ever before.
As Thomas Friedman puts it, globalization allows the world to reach into entities and vice versa, enabling unprecedented levels of exchange and influence.
Global Industries¶
An industry becomes global when a company's position in one country is interdependent with its position in another. This interconnectedness is a hallmark of global industries, characterized by:
Indicators of Globalization:¶
- Cross-border Trade: The ratio of cross-border trade to total worldwide production.
- Cross-border Investment: The ratio of cross-border investment to total capital investment.
- Industry Revenue: The proportion of industry revenue generated by companies competing in key world regions.
Competitive Advantage, Globalization, and Global Industries¶
The strategy of focusing on core competencies is essential in the global marketplace. For instance, Nestlé's former chairman, Helmut Maucher, emphasizes the company's sharp focus on food and beverages, deliberately avoiding sectors where it cannot be a leader, such as soft drinks unless it could dominate the market by acquiring Coca-Cola.
The Importance of Going Global¶
Going global is not just an option but a necessity for companies seeking growth beyond their home markets:
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U.S. Companies: For U.S. businesses, 75% of the total world market for goods and services lies outside the country. Coca-Cola, for example, earns 75% of its operating income and two-thirds of its profit from outside North America.
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Japanese Companies: For Japanese firms, 90% of the world market is outside their country, highlighting the importance of international expansion for growth.
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German Companies: Despite Germany being the largest EU market, 94% of market potential for its companies lies outside its borders, emphasizing the global opportunities.
Conclusion¶
Globalization and the emergence of global industries have reshaped the competitive landscape, compelling companies to adapt by focusing on their core competencies and expanding their reach to international markets. This global perspective is crucial for sustaining growth, leveraging new opportunities, and achieving a competitive advantage in today's interconnected world.
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