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4.1
GLOBALIZATION: THE COLLAPSE OF TIME & DISTANCE
major question?
What three important developments of globalization will probably affect me?
THE BIG PICTURE

Globalization, the trend of the world economy toward becoming a more interdependent system, is reflected in three developments: the rise of the “global village” and e-commerce, the trend of the world's becoming one big market, and the rise of both megafirms and Internet-enabled minifirms worldwide.

“You don't have to be big to be global,” says Sonia Seye, who runs Hair Universal, a busy Los Angeles salon that specializes in braiding hair and turning multicolored hair extensions into fashionable coifs. With dreams of expanding her business, she launched a search in India for a supplier of human-hair extensions (which come from Hindu temples, where women shave their heads in offerings to the gods).

Seye spent 6 months researching suppliers online, peppering prospects by e-mail and checking them out with the Indian consulate, and then flew to India, where she met her final candidates. By buying direct, instead of going through middlemen, she halved her hair-extension costs, and thus is able to undercut the prices of rival salons. The trip to India has more than paid for itself.9

Can you visualize yourself operating like this? Like Seye, you are living in a world being rapidly changed by globalization —the trend of the world economy toward becoming a more interdependent system. Time and distance, which have been under assault for 150 years, have now virtually collapsed, as reflected in three important developments we shall discuss.10

  1. The rise of the “global village” and electronic commerce.

  2. The world's becoming one market instead of many national ones.

  3. The rise of both megafirms and Internet-enabled minifirms worldwide.

The Rise of the “Global Village” & Electronic Commerce

The hallmark of great civilizations has been their great systems of communications. In the beginning, communications was based on transportation: the Roman Empire had its network of roads, as did other ancient civilizations, such as the Incas. Later the great European powers had their farflung navies. In the 19th century, the United States and Canada unified North America by building transcontinental railroads. Later the airplane reduced travel time between continents.

From Transportation to Communication

Transportation began to yield to the electronic exchange of information. Beginning in 1844, the telegraph ended the short existence of the Pony Express and, beginning in 1876, found itself in competition with the telephone. The amplifying vacuum tube, invented in 1906, led to commercial radio. Television came into being in England in 1925. During the 1950s and 1960s, as television exploded throughout the world, communications philosopher Marshall McLuhan posed the notion of a “global village,” where we all share our hopes, dreams, and fears in a “worldpool” of information. Theglobal village refers to the “shrinking” of time and space as air travel and the electronic media have made it easier for the people of the globe to communicate with one another.

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Then the world became even faster and smaller. Fifteen years ago, cell phones, pagers, fax, and voice-mail links barely existed. When AT&T launched the first cellular communications system in 1983, it predicted fewer than a million users by 2000. By the end of 1993, however, there were more than 16 million cellular phone subscribers in the United States.11 As of early 2007, about 2.8 billion cell phones were in use worldwide, and 1.6 million new ones entered into usage every day.12

The Net, the Web, & the World

Then came the Internet, the worldwide computer-linked “network of networks,” for which there were an estimated 1.11 billion users throughout the world in 2007.13 The Net might have remained the province of academicians had it not been for the contributions of Tim Berners-Lee, who came up with the coding system, linkages, and addressing scheme that debuted in 1991 as the World Wide Web. “He took a powerful communications system [the Internet] that only the elite could use,” says one writer, “and turned it into a mass medium.”14

The arrival of the Web quickly led to e-commerce, or electronic commerce, the buying and selling of products and services through computer networks. Total U.S. e-commerce sales were expected to top $136 billion in 2007.15

Example
Worldwide E-Commerce: Amazon.com

In 1994, Jeffrey Bezos left a successful career on Wall Street with a plan to exploit the potential for electronic retailing on the World Wide Web by launching an online bookstore called Amazon.com.

Bezos realized that no bookstore with four walls could possibly stock the more than 2.5 million books that are now active and in print. Moreover, he saw that an online bookstore wouldn't have to make the same investment in retail clerks, store real estate, or warehouse space (in the beginning, Amazon.com ordered books from the publisher after Amazon took an order), so it could pass savings along to customers in the form of discounts. In addition, he appreciated that there would be opportunities to obtain demographic information about customers in order to offer personalized services, such as books of interest to them. Finally, Bezos saw that there could be a good deal of online interaction: customers could post reviews of books they read and could reach authors by e-mail to provide feedback.

Courtesy of Amazon.com.

Amazon.com sold its first book in July 1995 and by the end of 1998 had served 6.2 million customers in more than 100 countries. Later the firm began expanding into nonbook areas, such as online retailing of music CDs, toys, electronics, drugs, cosmetics, pet supplies, and technologies for planned digital media services. In early 2008, it reported 2007 net sales rose 39%, to $14.84 billion, from a year earlier.17

Your Call

Can you think of any highly specialized worldwide medium-sized or small business that the invention of the Internet made possible? Could you see yourself launching a similar business?

One Big World Market: The Global Economy

“We are seeing the results of things started in 1988 and 1989,” said Rosabeth Moss Kantor of the Harvard Business School a decade later.16 It was in the late 1980s when the Berlin Wall came down, signaling the beginning of the end of communism in Eastern Europe. It was also when countries of the Pacific Rim began to open their economies to foreign investors. Finally, the trend toward governments deregulating their economies began sweeping the globe. These three events set up conditions by which goods, people, and money could move more freely throughout the world—a global economy. Theglobal economy refers to the increasing tendency of the economies of the world to interact with one another as one market instead of many national markets.

 
“Oh, same old thing.” The cell phone represents a boon to less-developed countries because this kind of telephone infrastructure does not entail the costly process of installing miles of telephone poles and land lines.
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The economies of the world have never been more entangled. As Kevin Maney writes in USA Today, “They're tied together by instantaneous information arriving via everything from currency trading databases to Web sites to CNN broadcasts. Capital—the money used to build businesses—moves globally and moves in a matter of keystrokes.”18

Positive Effects

Is a global economy really good for the United States? “Ultimately, the medium- to long-term benefits of globalization are positive for everybody,” says the CEO of Infosys Technologies in India. “Let me give you an example. As our industry has increased economic activity in India, it's becoming a bigger market for American exports … Today you can't find any soft drinks in India except Coke or Pepsi.”19 Even in states such as Ohio, which has lost many manufacturing jobs to other countries, some U.S. businesses have benefited. Ohio companies exported $39.4 billion in goods in 2007.20

Negative Effects

However, global economic interdependency can also be dangerous. Financial crises throughout the world, beginning in 1997, resulted in vast surplus funds from global investments flowing into the United States and being invested badly in a housing-and-credit bubble that has now burst (the so-called subprime mortgages meltdown), hurting many people.21

Another negative effect is the movement, or outsourcing (discussed in Section 4.3), of formerly well-paying jobs overseas as companies seek cheaper labor costs. Two decades ago, the loss was in American manufacturing jobs; more recently, many service jobs have moved offshore. Part of the reason for this, as Microsoft's Bill Gates has observed, is that “American high schools are obsolete … Until we design them to meet the needs of the 21st century, we will keep limiting—even ruining—the lives of millions of Americans every year.”22 In the competition with low-wage countries (India, China, and Asia), Americans are falling behind in the skills required to excel.

But the global economy isn't going to go away just because we don't like some of its destabilizing aspects. “The process is irreversible, if only because of the information technology and communications revolutions,” says Claude Smadja, managing director of the World Economic Forum in Switzerland. “The problem also is that, contrary to some illusions, one cannot pick and choose in the package…. The new globality means a tremendous emphasis on speed, flexibility, versatility, and permanent change—in some respects, insecurity.”23

Cross-Border Business: The Rise of Both Megamergers & Minifirms Worldwide

The global market driven by electronic information “forces things to get bigger and smaller at the same time,” suggests technology philosopher Nicholas Negroponte. “And that's so ironic, when things want to do both but not stay in the middle. There will be an increasing absence of things that aren't either very local or very global.”24

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If Negroponte is correct, this means we will see more and more of two opposite kinds of businesses: mergers of huge companies into even larger companies, and small, fast-moving start-up companies.

Megamergers Operating Worldwide

AOL + Time Warner. Glaxo Wellcome + SmithKline Beecham. Verizon + MCI. SBC + AT&T. Home Depot + Hughes. Walt Disney + Pixar. Nokia + Siemens.

Megamerger? A Porsche + Volkswagen merger has long been rumored, and Porsche recently increased its ownership stake in VW to about 31%. Later it said it made the move to protect VW from a foreign takeover but was not interested in a merger. Do you think we will see more auto company mergers?

The last 10 years have been megamerger time, “corporations on steroids,” in one writer's phrase.25 Oil, telecommunications, automobiles, financial services, and pharmaceuticals, for instance, aren't suited to being midsize, let alone small and local, so companies in these industries are trying to become bigger and cross-border. The means for doing so is to merge with other big companies. In automobiles, for instance, Porsche targeted Volkswagen to ensure that rivals did not get their hands on it; VW in turn targeted Swedish truckmaker Scania.26

Minifirms Operating Worldwide

The Internet and the World Wide Web allow almost anyone to be global, which Kevin Maney points out has two important results:

1.
Small Companies Can Get Started More Easily

Because anyone can put goods or services on a Web site and sell worldwide, this wipes out the former competitive advantages of distribution and scope that large companies used to have.

2.
Small Companies Can Maneuver Faster

Little companies can change direction faster, which gives them an advantage in terms of time and distance over large companies.

Example
Small Companies That Get Started More Easily & Can Maneuver Faster: Bay-Traders

Many small firms have come from nowhere to collapse time and distance. For instance, so-called Bay-traders make a living selling things on eBay, the online auction company. Bay-traders find they get higher prices at Internet auctions than at swap meets or collectibles shows because bidding generates excitement and because the Internet's worldwide reach makes multiple bids more likely.

Judi Henderson-Townsand's Oakland, California, company, Mannequin Madness, began when, while working in marketing for a failing dot-com firm, she saw an online ad from a window dresser offering 50 mannequins. After purchasing the entire inventory, she started renting mannequins and later, after buying more from department stores, started selling them to special-event planners, retail stores, and artists.

Henderson-Townsand claims that the Internet, including eBay, has been by far her greatest marketing resource because it allows the firm to reach customers who could never be reached otherwise.27

Your Call

Do you have an idea for some uncommon products you might sell on eBay? What would they be?