Globalisation is defined as "tightening international linkages on a world-wide scale". (De Wit and Meyer, 1988). As barriers to the movement of capital and tariffs are eliminated, some global organisations providing typically standardised products to world markets have in the extreme, become more powerful than nation states. (Dicken, 1998). The global firm, as opposed to the multinational firm operates with resolute consistency, at low relative costs, as if the entire world, (or major regions of it) were a single entity; in other words it sells the things in the same way everywhere1.
Global Integration is leading to the promotion of international best practice through the sharing of knowledge and experience. Traditional business practices have disappeared as individual preferences have become similar, leading to the standardisation of products that, inevitably has a profound impact on organisational design. In the past there were huge inefficiencies in the flow of information around the world, however due to technological advancements in communication methods, information now flows with relative freedom resulting in the old geographical barriers becoming irrelevant.
Almost everyone, everywhere wants all the things they have heard about, seen, or experienced via these new technologies. The mobility of people around the world is also increasing due to a falling cost of travel. This causes old national perceptions to be changed. An example of this being the case in Japan where citizens were mislead by authorities about the quality of Australian and American beef to promote the sale of the local beef. Now however they have travelled, tasted it and know it is both good and cheap. 2 These new global needs lead of course to a more global product.
Globalisation is aimed at cutting costs through scale economies but it increases the complexity and interdependence of the organisation, which can increase costs. The aim of the firm should be to control this complexity through an organisational structure that handles the challenges of globalisation. The varying level of Globalisation However, the level of globalisation varies significantly from industry to industry, and the level will depend on a number of factors linked with the company's strategy. Firstly, the success of global firms has been linked with the widespread standardisation of products.
Certain products cannot be standardised to suit all of an organisations key markets. Ikea experienced such difficulties when it entered the US market. The success of their "Swedishness" was not being replicated due the difference in physique and preference of the consumer. It was only when Ikea moved away from the standardisation approach when they achieved major growth. 3 Nissan demonstrated a different tactic in aiming to achieve greater standardisation through its "lead-country model" system. The key elements of customer needs were identified in the biggest selling markets and models designed to suit them.
Basis 'skeleton' models were then produced and specifications would be decided by local management for local markets. The company was thus able to reduce the number of basis models on the range from 48 to 18, with 80% of sales from standardised models. This would clearly aid in the standardisation and thus help achieve scale economies. 4 Another factor that will affect an organisations global strategy is the nature of the product itself. If a product is aimed at a specific niche, the home market may become saturated very quickly, which will push firms into new markets.
The size of the niche will affect the extent of the globalisation of the given product. The next major factor that will affect globalisation is the market in which the firm is operating. If the home country has reached saturation point, the firm will automatically look to new markets to reinforce growth. However, the major issue with the marketplace is the fall of quotas and tariffs on cross border trade have meant that clients have been able to source internationally at no additional cost, and often providing great savings on necessary goods.
Therefore the home country organisations have been pushed into global trade in order to compete for local and global trade by gaining economies of scale. Ohmae argues that success in the 'Triad' (US, Europe and Japan) is based on popular prices, based on aggressive cost reduction and global economies of scale. 5 This leads us to the next point, which is the necessity of global firms to spread costs into global markets. The cost of research and development (R & D), and the development of production lines can be astronomical in certain industries. It thought that the average cost of a production line in the automotive industry is $1 billion.
Another industry that relies heavily on global markets is the pharmaceutical industry due high R&D costs and stringent political control. With discovery to market time lags of 12 years and development costs of $600 million per product global exploitation is imperative. With 80% of world trade taking place in 9 nine markets, presence in each of them is essential. 6 The capacity to lower costs through scale economies varies within industry and thus the extent of globalisation will depend on the scale economies available to each specific organisation.
Finally, developments in communication technology, namely the Internet, have allowed organisations and consumers to become more globally conscious. The Internet also provides organisations with the ability to cut the cost of ordering and communicating over long distances. These factors affect industry directly. For example, direct to consumer advertising of pharmaceutical products is banned in the EU, but those with Internet access can find out information at will about new products.
In 2000, the second most searched for issue on the Internet was health, with 75% of those who searched admitted to discussing findings with their GP. This of course means that the global transfer of information is creating greater interest and concern about the industry. 7 These developments in communication affect industries differently and provide different opportunities. The finance sector, for example has been completely re-designed due to the IT age. The important concern for organisations is how is globalisation controlled and can it be controlled effectively? The structure of firms is inevitably affected by globalisation.