Introduction to Globalization and Business

Relationships and Responsibilities

Barbara Parker

• Publisher: SAGE Publications Ltd
• Year: 2005
• ISBN:
  9781446230336
• Edition: 2
• Topic: Business
• Subtopic: International Business
• Index: Business

What is globalization? How have the world economies changed in recent years? What impact do these changes have on business and management practice? Through creative use of examples, case studies and exercises from organizations worldwide, this book demonstrates the many levels at which globalization impacts on contemporary businesses, society and organizations and elucidates the ways in which different globalization trends and factors interrelate.

Focusing on an integrated approach to understanding the effects of global trends such as new technologies, new markets, and cultural and political changes, the book enables students to understand the wider implications of globalization and apply this to their study and comprehension of contemporary business and management.

Each chapter:

- opens with a short and current case which introduces the key concepts covered in that chapter

- provides an overview of chapter objectives to allow the student to navigate easily

- illustrates the chapter concepts with useful boxed examples

- concludes with a review of the key chapter concepts learnt

- provides a series of review and discussion questions

- offers ?Global Enterprise Project? assignments for applying course concepts to the same company

- gives up-to-date references from many sources to direct student?s further reading.

Students can access the companion website which includes additional material in support of each chapter of the book by clicking on the `companion website? logo above.

Chapter 1

AN INTRODUCTION TO GLOBALIZATION

French Fries Go Global

Chapter Overview

Definitions for Globalization

Four Main Characteristics of Globalization

Growing worldwide interconnections

Rapid, discontinuous change

Increased number and diversity of participants

Growing complexity

Distinctions between International and Global Management

Emphasis on Nations vs. the World

International vs. Global Management Skills and Abilities

Management Theory and Globalization

Perspectives on Globalization

The Skeptical Thesis of Globalization

The Skeptical Thesis and Business Activities

The Limits of Skepticism

The Hyperglobalist Thesis of Globalization

The Transformational Thesis of Globalization

Perspectives on Globalization Inform Action

The Global Challenge for Managing Careers and Organizations

Chapter Summary

Review and Discussion Questions

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FRENCH FRIES GO GLOBAL

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Both large and small businesses in the fast-food industry serve growing numbers of people worldwide who are too busy to cook. Combined revenues for large global competitors like McDonald’s, Burger King, Pizza Hut, and KFC top $40 billion per year. McDonald’s alone is the world’s number one fast-food company by sales, serving burgers and fries in 100 countries in more than 30,000 restaurants. When fast-food companies such as McDonald’s open stores or sell franchises in new locations, they often add or subtract items to appeal to local taste and culture. The beef-free Maharaja Mac serves India, Japan samples the Teriyaki McBurger, and there is the McSpaghetti in the Philippines and the Beetroot Burger in New Zealand.

But one thing on the menu almost never changes: the French fry. Consumers love them, and so do restaurant owners because they are the second-biggest profit maker in fast-foods. In 1989 wholesale fries sales were $1.7 billion, but they’d grown to more than $3 billion by 2003. The Netherlands is the world’s largest exporter of frozen fries. Below we follow a single batch of French fries to illustrate how globalization forges interconnections worldwide.

Our fries were grown in the US Pacific Northwest by a small colony of Hutterites, a Pacifist group that fled Russia in 1873 to avoid military service. They settled first in the US, then in Canada during World War I to avoid conscription. Today they have colonies throughout North America. Members of the group sometimes speak a Tyrolean dialect of German, sometimes English. They are isolated culturally and geographically, but their fortunes rest on world trends and in part on fast-food sales a half a world away.

The Hutterites grow potatoes in circles of land that contain 5,000 tons of potatoes, or enough to make 14 million servings of fries. Seen from the air, the circles look like aliens carved them, but they are centered around pivot irrigation systems that revolutionized agriculture regions like Oregon where rainfall is sparse. The otherwise simple lives of the Hutterites are complicated by sophisticated tractors and other farm equipment that meet demands for farm specialization, efficiency, and flexibility. Although they don’t have television, the Hutterites use personal computers for work and education to keep up with global trends that affect the agricultural industry.

After harvest, the potatoes are trucked to a J.R. Simplot plant. Simplot is credited with inventing the frozen French fry, but it was Ray Kroc of McDonald’s who popularized it on a worldwide basis. Mass production of the fries for McDonald’s drove down costs, and increased profits on the French fry.

Simplot buys raw potatoes for about five cents per pound, processing adds 25 cents per pound, and when cooked they are sold at US outlets for about $3.65 per pound. Simplot’s company produces more French fries for McDonald’s than any other producer, and sends about 4 million pounds of frozen fries to Asia each week. Exporting to Muslim nations such as Indonesia requires Halal certification to assure Islamic customers that the food is prepared according to strict Muslim standards. This required Simplot to hire Mohamad Joban, an Egyptian-trained Muslim cleric to conduct the inspection. When approved, the fries can be readied for Indonesia’s market.

After arrival at the Simplot plant, the Hutterite potatoes are dumped on a conveyor belt made by Spudnik Equipment Company—a small Idaho company. Water pressure of 35 mph shoots the potatoes to laser-guided brass blades that yield perfect quarter inch slices. The fries are then partially cooked, dried, flash frozen, and packaged. The entire process from conveyor belt to frozen fries takes 45 minutes.

Ninety-five percent of all foreign trade travels by ship, and our fries are no exception. In the process, the transaction will pass through many hands, including freight forwarders, truckers, longshoremen, shippers, agents, importers and franchisers before arriving at Indonesian tables. One hundred and thirteen thousand servings of the Hutterite fries are loaded onto refrigerated trucks bound for the Port of Tacoma. There they meet the Dagmar Maersk, which sails under the Danish flag. The ship was built in South Korea; a German captains it; its crew comes in part from the Pacific islands, and it is bound for Asia. Above the fries, the longshoremen load a box of apples heading for Kuwait.

The Dagmar Maersk heads to Asia. Port cranes are so speedy that the crew has little off ship time in Yokohama, Shimizu, and Kobe, Japan stops. The Dagmar Maersk sails on to Indonesia. Rough weather in Taiwan, and a failed emergency beacon halt progress. Part of a global system for shipping,¹ the beacon must be fixed. An Australian engineer climbs on board, makes the adjustments, and the fries are back on their way.

Meanwhile, there is trouble in Asia. In 1997 currency traders observed that Thailand had a growing trade deficit. To hedge their risk in the Thai bhat, traders converted their holdings to dollars. These sales depressed the value of the bhat, leading to further sell offs that eventually took the bhat to half of its former dollar value.

The economic crisis spread as currencies in other Southeast Asian nations also began to drop. The Indonesian rupiah began to fall in December, and eventually would lose more than 80 percent of its dollar value. Meanwhile, about $50 million dollars per day were transferred out of Indonesia to the relative safety of Singapore’s banks.

The French fry is but one indicator of economic prosperity. The more a country develops economically, the more French fries people consume. The reverse is also true; when economies falter, French fries and fast-foods become a luxury that fewer can afford. In Indonesia, the currency crisis saw the price of a Big Mac triple. Because restaurants paid for imported wholesale fries in dollars, their costs soared. Customers could not meet price increases, and began to consume rice and egg dishes that McDonald’s added to their Indonesia menus. But McDonald’s sales plunged. Theirs and other US stores became targets for critics of globalization. One third of the restaurants that purchased French fries from Simplot were burned, including about 10 McDonald’s. Anti-foreign and anti-Chinese riots to follow took 500 lives.

In view of the Indonesian crisis, the Hutterites’ potatoes were diverted to Singapore’s more stable economy. On an early evening there Ernest Enver—a descendant of Russian Jews—met his wife Becky and three children in one of Singapore’s McDonald’s. Becky is of Chinese heritage, and the family is Roman Catholic. They ordered up servings of fries that took only seven minutes to reach crispy brown perfection.

The Aftermath

Mercy Corps, an international nongovernmental organization (INGO) that provides food and medical relief, distributed donated US wheat to Indonesians. Farmers in Canada and Australia who usually sell wheat to Indonesia were not happy to be edged out of wheat sales. And fast-food restaurants witnessed a drop in sales of fries.

Thanks to International Monetary Fund (IMF) pressures, several nations cut tariffs on French fries. One of the forces behind that pressure was the American Potato Trade Alliance, a nongovernmental organization of growers, processors, marketers, and fast-food managers.

Due to the Asian economic downturn, a planned factory to convert rejected French fries into ethanol was shelved. South Korean distillers wanted to ship the ethanol to South Korea for soju production, but they had to back out as lead investors when the cost of debt increased due to the currency crisis

In China, Liu Zai Jiang plows four acres planted with potatoes for J.R. Simplot. These potatoes will go to a small Beijing plant that produces about the same amount of French fries in a year as can be made in a week in US plants. But Simplot is always looking for new sources of potatoes, and through small ventures with farmers like Liu, his company now produces 70 percent of the fries for McDonald’s China stores.

McDonald’s managed to increase its market share in Japan, even as it lost sales in Indonesia. McDonald’s has more than 2,500 Japanese outlets. In Singapore where the economy remained stable, sales of fries and other fast-food remained stable. During the currency crisis, McDonald’s announced plans to invest over a billion in Asia for the coming years. The strong dollar would reduce ordinary costs of land and equipment for expansion. McDonald’s also expanded in Russia and Brazil. All over the world it is installing McInternet—McDonald’s digital inclusion project. New products such as the McCafe have been introduced, and cultural demands for healthier food motivate McDonald’s to offer salads and other low-calorie fare.

Parent Diageo sold Burger King Restaurants to a private investor group; they vow to compete to win against McDonald’s for world fast-food sales. Fast-food giant Jollibee has expanded from its base in the Philippines into US markets, and Hong Kong based Café de Coral means to make Chinese fast-food the next global food source.

In June of 1998 the financial panic spread from Asia to Russia and Latin America. In 2000 a technology-led boom in the US turned to bust, plunging the US and much of the world into economic slowdowns. In Africa, trade fell from small numbers to even smaller numbers, further plunging sub-Saharan Africa into dire economic conditions.

By 2005, French-fry consumption had slowed due to nutritional concerns, and worldwide evidence of “globesity” traced to consumption of fat-laden foods. McDonald’s responded to these concerns with new offerings that included salads and smaller portions.

Examples above cover many topics we will study in this book. Global economics, politics, businesses and industries, as well as culture, technology, and the natural environment all interconnect. Their effects on business practices and the lives and livelihoods of the planet’s six billion people vary. As the example above shows, there are critics of globalization as well as champions for it.

Source material: Richard Read (1998, Oct. 18–21) The French fry connection. The Oregonian, multiple pages.

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CHAPTER OVERVIEW

This chapter defines globalization, showing how studies of globalization differ from studies of internationalization. The chapter also describes critical managerial abilities and skills for a more global world. Three competing perspectives on globalization are presented to show how each informs management practice. The chapter concludes with a look at the challenges globalization creates for managing organizations and careers.

DEFINITIONS FOR GLOBALIZATION

The word “globalization” is in daily use throughout the world. Variously referred to as mondialisation in French, globalisierung in German, or Quan qui hua in China (Scholte, 1996), news articles, television, and even textbooks often use the word “globalization” to mean many different things. Author Jan Pieterse (1995) asserts there are almost as many conceptualizations of globalization as there are disciplines in the social sciences. Teachers and scholars in disciplines such as management, marketing, finance, accounting, and economics also use the word “globalization” to mean different things.

For example, some believe globalization is the absence of borders and barriers to trade between nations (Ohmae, 1995), but also it has been described as a shift in traditional patterns of international production, investment, and trade (Dicken, 1992). Another popular conception of globalization is that it is a business strategy that m...