Globalization, Competitiveness, and Governability

The Three Disruptive Forces of Business in the 21st Century

Ricardo Ernst, Jerry Haar

• Publisher: Palgrave Macmillan
• Year: 2019
• ISBN:
  9783030175160
• Topic: Betriebswirtschaft
• Subtopic: Verwaltung

This book argues that three powerful symbiotic forces (globalization, competitiveness, and governability) are disrupting business in the 21 st century, resulting in an impact on the economic and business environment far greater than the effects of any of these three individually. Both globalization and competitiveness are governed essentially by market forces that force the introduction of significant changes aimed at increasing efficiency so that a better use may be made of the advantages of globalization (i.e., the traditional "invisible" hand). Responsibility for bringing about these changes lies not only with the private sector but also with the government (i.e., the "visible" hand).

Readers will find in this book an explanation of how globalization, competitiveness, and governability define the context of global business.

© The Author(s) 2019

Ricardo Ernst and Jerry HaarGlobalization, Competitiveness, and Governabilityhttps://doi.org/10.1007/978-3-030-17516-0_1

Begin Abstract

1. Why the Three Forces

Ricardo Ernst¹ and Jerry Haar²

(1)

Georgetown University, Washington, DC, USA

(2)

Florida International University, Miami, FL, USA

Ricardo Ernst (Corresponding author)

Email: [email protected]

Jerry Haar

Email: [email protected]

End Abstract

Globalization, Competitiveness, and Governability are the Three Disruptive Forces of Business in the twenty-first century. Presently, the previous sentence is simply a statement and one can argue the basis of stating it. Thus, as you read on, you will realize that the statement under discussion is more of a fact. We establish that globalization, competitiveness, and governability are not only disrupting business in the twenty-first century but also that there is a symbiotic relationship between these three forces, resulting in an impact on the economic and business environment far greater than the effects of any of these three individually.

Following its birth in the nineteenth century and its post-World War I decline, the globalization process has gained new strength in the last third of the twentieth century and early twenty-first century. This is due to advances in transport, IT and communication developments, and the spread of the idea that the basis for economic development is a free market. It is a cross-border phenomenon affecting economic, political, technological and cultural relations while giving rise to interdependent relations between states, companies, organizations, and individuals. Globalization has thus resulted in a rapid reduction in barriers to the movement of ideas, capital and people, the opening of new markets, and the government’s withdrawal from the economic arena.

Globalization affects every country regardless of its economic, political or social situation. In this context, as states endeavor to adapt their policies to new demands, companies deploy strategies to attain an increasingly globally integrated production system. The globalized world forces us to seek and develop appropriate ways to undergo this process. Today, discussions about the advantages and disadvantages of globalization are insignificant and unimportant in the face of the great need to determine the essential conditions for countries, companies, and individuals to really benefit from it.

Competitiveness has thus become essential in achieving that aim. Therefore, it represents the response to and results from the opportunities offered by globalization. It is the answer to the challenge resulting from increased competition in the global market, as well as the solution which makes it possible to correct the inefficiencies not permitted by globalization due to the magnitude of their consequences and the speed and irreversible nature of their evolution.

The dynamics of globalization , accentuated by the technology phenomenon, have indeed increased commercial and financial operations and, therefore, also the competition in those markets. On this basis, globalization requires the transformation of production systems and the adoption of strategies to foster stronger competitiveness .

However, both globalization and competitiveness are governed essentially by market forces that force the introduction of significant changes aimed at increasing efficiency so that a better use may be made of the advantages of globalization (i.e., the traditional “invisible” hand). Responsibility for bringing about these changes lies not only with the private sector but also with the government (i.e., the “visible” hand).

Governability is one of the factors that ensure the establishment of a competitive environment . Governability includes not only the governing body of a nation, state, or community, but also the governing structure of the companies. This does not involve disbanding the institutions or structures that comprise it, but rather understanding how they operate and affect companies’ fields of maneuver which might, depending on the case, ensure that such companies become fully integrated in a dynamic global society brimming with opportunity while in others create serious obstacles to reach the efficiency levels required to compete in a globalized market. Therefore, business in the twenty-first century requires an explicit recognition for the need of a “handshake” between the “visible” and “invisible” hands as illustrated in Fig. 1.1.

Fig. 1.1

The interlinks of the visible hand and the invisible hand

1.1 Globalization and Competitiveness

To better explain the impact of these “invisible” and “visible” factors and observe their interconnectedness, we take a “drill-down” approach with globalization ; that is, we deal with the country, the industries within the country and the firms existing in the industry as shown in Fig. 1.2.

Fig. 1.2

Levels of evaluation for the impact of globalization

There is a major difference in approach to competitiveness between companies and countries. As Michael Porter , famous guru in the field of competitiveness stated—companies compete on market share and profitability while nations compete in providing a platform for operating at high levels of productivity and therefore attracting and retaining an ample investment in those activities that support high returns to capital and high wages .¹

Michael Porter had also stated that “the productivity of a country is ultimately set by the productivity of its companies. An economy cannot be competitive unless companies operating there are competitive, whether they are domestic firms or subsidiaries of foreign companies. However, the sophistication and productivity of companies are inextricably intertwined with the quality of the national business environment …to competing on competitive advantages arising from superior or distinctive products and processes.”²

Garelli mentioned in 2008 that globalization evolves in waves (Fig. 1.3). As globalization increases pace with the increasing technology and decreasing barriers, the companies face a challenge to evolve along with it. The ability of companies to handle this challenge will be a deciding factor in their survival.

Fig. 1.3

Waves of globalization evolution (Garelli , S. [2008]. The New Waves in Globalization and Competitiveness, in IMD World Competitiveness Yearbook 2008, pp. 35–39)

Thus, it is the government’s task to provide companies with a business environment that facilitates them for growth. Governability in terms of business policies, FDI policies, corporate tax regulations , environmental regulations and international relations, to mention a few, decide the efficacy of businesses to compete in a globalized environment.

1.1.1 Interconnected Competitiveness

In order to keep pace with transformations led by globalization in the industry, the companies undertook two major modifications in their business strategies: (1) They sought to achieve critical size and gave higher priority to external growth through mergers & acquisitions. They also multiplied the number of cooperation agreements and alliances while making internal organizational changes. (2) They refocused on strengthening the activities of the firm where they initially had a dominant position. Globalization has made it mandatory for the countries to improve economic efficiency to effectively compete globally. Globalization has also changed traditional indicators of competitiveness, based on the new information.

Especially in the areas of employment, trade and competition, the challenges raised by globalization deserve an in-depth analysis thus making competitiveness a prime concern for governments and the firms. However, the differing goals of the reference levels—the firm and the country—may serve as a barrier in measuring competitiveness . For instance, while a country’s primary goal would be to improve living standards of the citizens and provide security, a firm’s primary goal is to make profits and maximize shareholder value.

1.1.2 Internationalization of Production

The various elements that contribute to the manufacturing of a product (capital, labor , technology, raw materials, intermediate goods, distribution) may come from many sources; countries and firms are now so interdependent, and the links between them so complex, that it is sometimes quite difficult to determine exactly where the various elements come from. There is no better example than the multiple sources of inputs in global automobile manufacturing.

1.1.3 Pattern of International Trade

The main, though not the sole consequence of the growth in trade has been increased intra-industrial specialization—itself the result of the greater integration of the world economy, which goes hand in hand with the growing demand for differentiated products with a higher and higher technology content.

1.1.4 Growing Interdependence of the Various Levels of Globalization

Direct investment flows generate exports from the countries making the investment; these exports are accompanied by transfers of technology and know-how, and capital movements (e.g., equity investments , international loans, repatriated profits, interest, royalties). Similar linkages could be identified in areas other than that of direct investment.

Two other developments can also be identified: First, trade is no longer virtually the sole vehicle of globalization, since direct investment, although quantita...