Globalization

There was a time when consumers only had access to goods and services that were available locally. Their choices were limited by what they could access on foot, by horse, or by carriage. This is still the case for many people around the world, and in rural and remote parts of the U.S., it’s still necessary for families to make weekly trips to town to stock up on food, household items, and other necessities. However, with the rise of Internet-based business (think Amazon), there’s been an explosion of international trade, and more and more consumers essentially have the world at their door. Of course international trade isn’t just a twentieth-century phenomenon. Trade across borders and between cultures has been a feature of human civilization for centuries—there’s evidence of this dating back as far as the 19th century BCE. The Silk Road, one of the best-known and most enduring “international” trade routes, began sometime around 200 BCE and for centuries was central to cultural interaction from China through regions of the Asian continent all the way to the Mediterranean Sea.

So, if cultures and nations have been trading with one other for four thousand years, what makes today’s business landscape different? The answer lies in the distinction between international business and globalization.

International business refers to commerce in which goods, services, or resources cross the borders of two or more nations. This is what the Egyptians were doing when they sent goods across the Red Sea to Assyria. Globalization is broader than international business and describes a shift toward a more integrated world economy in which culture, ideas, and beliefs are exchanged in addition to goods, services, and resources. Globalization implies that the world is “getting smaller”: As a result of new transportation and communication technologies, people around the world can more readily connect with one another—both virtually and geographically.

The following video provides a good introduction to the causes and consequences of globalization.

You can view the transcript for “Globalization easily explained” (opens in new window) or the text alternative for “Globalization easily explained” (opens in new window).

Impact of Globalization on Global Business

The video above provides a good bird’s eye view of the effect of globalization on business—from opening up new markets to increasing the level of competition within markets and industries. Let’s take a look at a particular example, though, to think through the various implications of conducting business on a global scale. Consider McDonald’s, which was started by two brothers in San Bernardino, California, 68 years ago. As a result of globalization, nearly 69 million people in 118 different countries eat at McDonald’s every day. The first McDonald’s outside the U.S. and Canada was established in Costa Rica in 1970, and since the 1990s, most of the company’s growth has taken place in foreign countries. The process of building a global presence, entering new markets, and capitalizing on growing international demand for American fast food has enabled McDonald’s to expand from a single location to a global corporation with over 37,000 locations in over 100 countries.^[1] However, entering new markets—whether at home or abroad—means contending with increased competition in those markets, including competition with other globally minded companies. In 2010, Subway surpassed McDonald’s to become the largest single-brand restaurant chain and the largest restaurant operator globally (although, since 2014, Subways’ sales have lagged behind McDonald’s).^[2]

What is it like for companies that decide to take advantage of global opportunities, as McDonald’s and Subway have? Return to the discussion of “external forces” in Module 1, but now consider them from a global business perspective. Globalization certainly means that businesses can reach consumers around the world more rapidly and efficiently—thanks to cell phones, airplanes, and the Internet, we are all so much more interconnected and “accessible” now. But globalization also means incredible complexity.

McDonald’s is not a complex business—after all, it sells inexpensive burgers and fries, not automobiles, airplanes, or pharmaceuticals—but clearly the global environment presents challenges even for them. You may be wondering why nations and businesses decide to take on such challenges, given the ongoing difficulty, risk, and uncertainty. We’ll investigate this question throughout the remainder of this module.