03 Apr 2006  What Do YOU Think?

Has Globalization Reached Its Peak?

A new book argues that globalization has led corporations to outsource too much of their work and, more important, their intellectual capital. What with the increasing fluidity of labor markets, is it all too much for global managers to handle?

 

Summing Up

The global corporation and globalization in general are poised to achieve new and different heights, if responses to this month's column are to be believed. As Greg Bownik put it, "for globalization to peak businesses would have to stop communicating, marketing, and selling on a global basis . . . nothing short of dismantling the global economy could reverse the trend." Nari Kannan commented, "Clamping down on globalization by any country or company will ensure its own demise that much quicker."

How will we know when globalization has truly peaked? Mark Opperman suggests that "Globalization will have reached its peak when we have global citizens who can pay their taxes where they please and enjoy the benefits of the government that serves them best no matter their geographic location . . . will it be any different from those of ages past who paid their taxes to Rome?" Sunil Unni echoes this point of view: "Globalization is an ongoing process that can only peak when citizens across the world enjoy its benefits without any barriers whatsoever." Henrique Plöger Abreu approaches the question from another direction in commenting, "If we look at all the regional trade barriers, subvention politics, protective measures, and legal and fiscal barriers that exist worldwide, I think one can assume that globalization is far from having reached its peak."

Elisio Neto proposes an interesting notion that "Globalization comes in waves. We are just seeing the aftereffects of one peak . . . this wave will be different from the one before . . . natural resources will play a strong role, and immigration will be an issue." The next step of globalization, according to Akhil Aggarwal, will involve companies currently performing outsourced tasks sending much of their work abroad, enabling them to "further outsource non-strategic work so as to concentrate on strategic issues that their audiences (the U.S. firms) would be more interested in." Gregory Black describes another aspect of change while sounding a cautionary note: ". . . the elephant in the room is the assumption of the availability and cost of petroleum . . . the economics of globalization will change dramatically in the decades ahead."

Will what is true for the world turn out to be true for individual global corporations? Biju Cherian weighs in with this comment: ". . . there could be a rise and fall in global corporations—a rise of corporations from new economy nations and a fall in corporations in old economy nations." As M. P. Jayaprakash puts it, "Like water finding its own level, globalization will go on until such time that disparity between the haves (U.S., Europe, etc.,) and the have-nots is significantly bridged."

One theme common to several of these comments is that globalization (and the outsourcing it promotes) will turn out to be an equalizing force between have and have-not countries and corporations. This is a far cry from the claims of the protesters at the World Trade Organization summits. Is it possible that globalization will be the catalyst that speeds up a process by which the poor get richer instead of poorer and that this process has just fully gotten under way? What do you think?

Original Article

The global corporation is once again under the microscope. Twenty to thirty years ago the concern was whether global corporations would behave responsibly without adequate international law and regulation to contain their behavior. The fear was that they would become as powerful as, and less responsible than, the countries in which they operated. Now the focus of interest seems to be different, if one believes the author of a book published several months ago, End of the Line: The Rise and Coming Fall of the Global Corporation.

The basic arguments of this book are that globalization has led corporations to outsource too much of their work and, more important, their intellectual capital. This has created a worldwide level of interdependency that increasingly threatens to disrupt supply lines and markets at times of earthquakes, explosions, terrorist acts, and other disasters in one part of the world. Operating a lean organization in a global economy, the argument goes, results in more use of just-in-time inventory management and premium transportation for critical parts and other resources that are increasingly sensitive to such disruptions. Further, U.S. manufacturers in particular face a decline in capability as a result of vigorous outsourcing initiatives.

This seems to come at a time when outsourcing is still on the rise. I was reminded of this again in late March: Several MBA student teams, engaged in putting together business plans for the annual contest among budding entrepreneurs here at HBS, were awaiting the arrival of software being designed in India that would allow them to demonstrate smoothly-functioning Web sites important to their prospective businesses. Getting the software completed in India allowed them to concentrate on strategic issues in which their audiences would be more interested. But Indian software was also much more affordable on the limited budgets available to these student teams.

And End of the Line's arguments come at a time when labor mobility is once again being debated on the North American continent. In this case, it concerns the treatment of illegal immigrants already in the U.S. The fact that they are here and that millions of others have arrived in Europe suggests an increasing tendency for labor to seek global solutions. Whether this is good or bad depends on whether one believes that jobs are lost and wages reduced for U.S. citizens and legal immigrants or whether immigrants of any stripe help lower costs for all kinds of goods and services.

Some would argue that more fluid labor markets, increased outsourcing, and the tendency to locate jobs in low-cost labor markets, wherever they might be, could provide a safeguard against any calamity except perhaps a world war. This assumes that astute global managers outsource primarily non-strategic activities, act responsibly, and maintain positive working relationships on the local operating level, as well as establish multiple sources of supply. Is this a tall order for them to fill? Has globalization reached its peak? What do you think?

To learn more:

Barry C. Lynn, End of the Line: The Rise and Coming Fall of the Global Corporation (New York: Doubleday, 2005)

Comments

    • Gregory Black
    • VP, Software Engineering

    Despite all the forward projections for increasing globalization and the benefits and costs as we look at that curve, the elephant in the room is the assumption of the availability and cost of petroleum. If the hypothesis of Hubbert's Peak turns out to be correct, then the economics of globalization will change dramatically in the decades ahead. Failing supply chains and localized sourcing may well be the issues confronting the next generation of business and political leaders.

     
     
     
    • Sunil Bhardwaj
    • Faculty Member, ICFAI Business School

    It's very difficult to say whether globalization has reached its peak. As a citizen of a developing country, I see globalization as increased opportunities in urban areas. Globalization is also seen as the "Americanization" of job styles and work life.

    I think globalization would be at its peak when it could provide opportunities across sectors in and around the country and also when it dissolves all cultural barriers.

    As far as peaks are concerned, the present is one of the many peaks to which globalization will rise in the future. It's a rolling and growing wave in the ocean of time.

     
     
     
    • Saurabh Dwivedy

    Does any cyclical process have a peak?

     
     
     
    • Sunil Unni
    • CEO Business Development & CED, Kores India Limited

    Globalization is an ongoing process that can only peak when citizens across the world enjoy its benefits without any barriers whatsoever. It has to be measured in terms of the collaborative progress that mankind experiences over a period of time. It can only peak when everybody on earth is clothed, fed, and sheltered. Disparate conditions and islands of poverty, hunger, thirst, darkness, etc., are red flags that keep it from peaking.

     
     
     
    • Nitish Shukla
    • Participant, SPJIMR

    Before there were nations there were city-states. Globalization is not a cycle but a concept analogous to one by which the entity called nation came into being. The reversal of globalization would therefore be analogous to the breakdown of nations, and this would be possible only if there were a regression en masse to medieval means of communication and transportation.

    Globalization has gone through many phases and is now impossible to root out. To give you an Indian example, a youth of India may be working for Microsoft customer service, eat out at McD's regularly, wear Levi's Red Tab jeans, and shop for Sony and Nokia. Each of these goods she or he consumes on a regular basis has cross-border manufacturing cycles. If there were a 60-second earthquake in Taiwan, the electronics components would be supplied by a Thai company for the week during which the workers would return to their work, supplying parts for Casio.

     
     
     
    • N. Subramanian
    • Lifetime student, India

    Globalization has just about started. With the global human mindset, one wonders if it will ever reach its peak and be complete! Five thousand years of history is replete with wars that have essentially been fought in the name of peace. Increasing productivity per se is self-limiting and has no meaning unless productive and developmental initiatives include all global citizens. If income, employment, consumption, and therefore demand are the essence of economic development and creation of wealth, why don't we learn that such activities must involve every global citizen? The irony is that each one of us, as countries and human beings, has our own physical and mental boundaries.

    Today, globalization is all about competitiveness, but it is not self-limiting. Competitiveness is of no use unless we are able to use that advantage to feed the starving millions. Globalization will reach its peak and will be complete only when there is free movement of men, materials, and ideas across countries and when every global citizen is able to find employment, income, and a better quality of life. Despite what I have stated, I am not pessimistic about it at all. We are making great progress in our strides towards globalization yet it will require continuous tweaking in order to ensure that it doesn't lose its purpose!

     
     
     
    • Dr. P.L. Joshi
    • Instructor, Bahrain

    The question is not whether globalization has reached its peak, but rather what damage it has brought in host countries. Losers of globalization are those who have lost their jobs as a result of economic liberalization in countries such as India. Many meat shops are closed now due to the arrival of big shopping mall or supermarkets. People now buy frozen meat and chicken from these supermarkets. SMEs are gradually disappearing and local handicrafts industries have lost their significance because of quality. Take the example of handmade carpets: Machine-made carpets are available in large quantities in these shopping malls.

    The dark side of globalization is the tremendous impact on and distortion of local and national cultural and social values. Western culture is gradually swallowing local culture. The stock market is growing, but who are the beneficiaries of this boom? Only big investors and capitalists. The gap between the rich and the poor has widened. Globalization has forced many locals to leave their countries and illegally immigrate to the Middle East and Europe for employment purposes. The only beneficiaries of this globalization are the educated middle class whose relative size has increased in recent years.

     
     
     
    • Biju Cherian
    • Business Consultant, Siemens

    The column by Jim Heskett on the book End of the Line: The Rise and Coming Fall of the Global Corporation suggests that global corporations are only from America.

    This is where the next level of globalization is coming in. What about Chinese banking institutions buying into investment banking in the U.S., or where a Taiwan brand in beauty products becomes a global brand and positions itself ahead of the market leaders from Procter & Gamble or Unilever or L'Oreal. What about the center of entertainment shifting from Hollywood to Bollywood?

    Yes, as the title suggests, there could be a rise and fall in global corporations—a rise of corporations from new economy nations and a fall in corporations in old economy nations. Anyway, the global economy is not going to be stagnant; it is going to continuously evolve over time. It is going to follow Darwin's theory of survival of the fittest!

     
     
     
    • M. P. Jayaprakash
    • Senior Executive Officer, IEEMA

    Like water finding its own level, globalization will go on until such time that disparity between the haves (U.S., Europe, etc.,) and the have-nots is significantly bridged. It's inevitable. The haves need to bring the have-nots on board for their own survival and prosperity. With China and India—which together account for a third of world population—having graduated from closed to partially open economies shows that globalization seems to have reached a critical mass. It is likely to accelerate in the years to come, resistance on either side of the divide notwithstanding.

     
     
     
    • Shalini Grover

    Globalization is not only about outsourcing with virtual global teams representing an extension of one organization locally and globally. It is about overcoming trade barriers, accepting and adapting to a world culture of peace, and maintaining and sustaining growth.

     
     
     
    • Mark Opperman
    • Marketing Manager, Marketers beyond Globalization

    Globalization will have reached its peak when we have global citizens who can pay their taxes where they please and enjoy the benefits of the government that serves them best, no matter their geographic location. The transnational or global citizen is not far off. And will it be any different from those of ages past who paid their taxes to Rome?

     
     
     
    • Simon Griffiths
    • Symetrix, Johannesburg, South Africa

    Surely everyone doesn't think globalization is an ever-growing wave. It's part of a development cycle, so there will be times when it stops and even reverses—if only to correct imbalances. Also, there are cultural barriers that slow it down or stop it, something that Americans seem to be unaware of.

     
     
     
    • Henrique Plöger Abreu
    • International Marketing Manager

    If we look at all the regional trade barriers, subvention politics, protective measures, and legal and fiscal barriers that exist worldwide, I think one can assume that globalization is far from having reached its peak.

     
     
     
    • Sumit Goswami
    • Manager, Business Excellence, Metaljunction Services Limited

    A. The following are expected to continue over next hundred years:

    1. Decrease in travel, telecomm, and Internet costs;
    2. Spread of television usage—hence exposure to global lifestyles;
    3. Reduction in tariff barriers; and
    4. Privatization.

    B. Organizations strive to provide optimal service and customer satisfaction at optimal costs.

    Points A and B together drive globalization further.

    Like any other phenomenon, the difference between the rate of rise in collective wisdom of mankind and the rate of technological change will decide the net impact on humankind. Human knowledge of atomic fusion and fission can be used to destroy millions of humans under mutual fear and distrust between communities. Under wise guidance, human knowledge of atomic fusion and fission can also be used to provide energy without depleting scarce mineral resources. Aggressive globalization attempts by former powerful communities in the past led to two world wars.

    One possible specific scheme on the wise impact of globalization is to use online business applications. Poor flower farmers in poor countries with lots of land can go online to bypass intermediaries and access remunerative flower markets in the U.S. and Europe. The resulting surplus in profits can be invested back in community assets such as training and development institutes, and health facilities. Volunteer engineers and managers across the world can pool voluntary hours in project planning and execution. In the U.S. and Europe, front-end work can be done by physically challenged people. A visit to poor communities impacted can have healing effects on these front-end people. It's a global win-win for disadvantaged people across continents.

     
     
     
    • Ravi
    • Senior Engineer, Software Solutions

    This is not the first time the doomsayers of globalization have predicted D-Day for the globalized world. People predicted the end of globalization when the dot-coms went bust in 2000. Hundreds of billions in wealth evaporated from the market in a moment's time with the fall of tech bubble. Doomsayers had compelling evidence to prove the death of a giant wave, but they were wrong.

    The march to globalization has not stopped, just slowed down a little. It has regained its shape and enormous power to break all the geographical and cultural boundaries. Today we can find thousands of American multinationals in Asia and thousands of Asian companies in the U.S. The sell-off of IBM's PC business to Lenovo is an historical example of seamless integration. Just extrapolating from this trend shows that the Asian tiger has much to offer, and it is good for the world if we won't put chains all around it.

     
     
     
    • Greg Bownik
    • Adjunct Instructor, Bethel University

    I don't think globalization has reached its peak nor do I think globalization has a peak. In the 1890s, sometimes known as the first wave of globalization, the spread of information could be limited by governments and large organizations. Communication technology was limited and markets were regionally based and not interconnected. However, this is certainly not the case now. Communication technologies continue to expand as technology becomes more complex. And markets are now interconnected globally. Consequently, for globalization to peak businesses would have to stop communicating, marketing, and selling on a global basis. We have traveled too far down the path of globalization, and nothing short of dismantling the global economy could reverse the trend. This won't happen since most countries and markets are interconnected through the global economy. No, globalization has not reached its peak and I doubt if it ever will.

     
     
     
    • Elisio A. Neto
    • General Manager, Gerdau

    Globalization comes in waves. We are just seeing the aftereffects of one peak. The drivers of globalization are still very strong. Huge inequalities in terms of consumption, standards of living, and economic efficiencies across the globe will force markets to open, but this wave will be different from the one before. New players will arise at the scene, natural resources will play a strong role, and immigration will be an issue.

     
     
     
    • Ritesh
    • Associate Consultant, Kanbay, India

    The results of globalization beyond outsourcing have been enormous. We have seen the direct impact of job losses and wages decreasing in U.S. This scenario is in the European Union, too. We saw what France and Netherlands had in mind when they opposed the E.U. constitution.

    The aftereffects of the above are dangerous, because these actions move the opinion and the pulse of masses around the globe in favor of regional trade agreements. RTAs lead to further marginalization of the poorest countries. Poor countries already suffer due to WTO and multilateral agreements in place—agreements that since the Uruguay round favor the developed world.

    This is just one aspect of globalization—an increase in the number of RTAs and the WTO failing again and again. We also see a trade imbalance in Latin America and African countries where global trade has decreased dramatically. Their domestic industries are unprotected. The sole motto of the large multinationals we see is to increase profits for their shareholders, regardless of how, as we see in China for Google and Microsoft, to name a few.

    I'd like to continue this response but I work for a multinational and have to go back to work! As life moves, so does the world.

     
     
     
    • Srinivasan Kannan
    • CEO, Utmost Group

    Globalization does and will forever evolve. Within India, the business process outsourcing industry constantly looks at alternate, lower-cost locations that offer better infrastructure and intellect. It won't be long before the world gets to hear about the city of Coimbatire along with Bangalore and Hyderabad.

    The concerns in the "What Do You Think" column related to natural calamities as well as terrorism are applicable to the whole world. Companies should draw up contingency plans to address them. Complexities in outsourcing are management issues for which the respective corporations need to find solutions as for operational issues.

    Globalization to me is not just about outsourcing. It is also about the geographical expansion of business for growth in turnover and earnings. This strategy is actively pursued and institutionalized by many economies including Singapore and the United Arab Emirates. For many, it is a question of survival and being relevant in the global context.

    The concern that I manage thrives on globalization. This is due to the creation of a sustainable competitive edge through logistics that makes it difficult for potential competitors to move in.

     
     
     
    • Akhil Aggarwal
    • Sr. Programmer/Telecom Business Analyst, IBM Corp.

    Globalization seems to have woven a web around the globe, but we stand at the outset of the next step in globalization.

    For the past decade the U.S. had been leading the bandwagon of creating jobs in international locations, mainly India, China, and Brazil. Let's look at the latest trends of the very firms that acquired outsourced work from U.S. companies. Indian and Chinese firms like Infosys, Lenovo, and Tata Consultancy Services, to name a few, have been busy setting up centers in locations like the Czech Republic, Holland, the Philippines, and China. Considering that the search for low-cost, high-skilled labor is the prime motive behind these decisions, one is inclined to believe that this activity is but a bellwether for the second level of outsourcing, when these so-called offshore companies could further outsource nonstrategic work so as to concentrate on strategic issues that their audiences (the U.S. firms) would be more interested in.

    If over the years one trend has proven the most utilitarian in improving international relations, it has been trade liaisons. Trade and strategic ties develop significant light in the relations of any two nations. Australia and New Zealand have been working together to resolve their social issues, and India and Pakistan have included trade as an important point in their dialogue. Russia has a history of developing long-lasting relationships only through trade. Therefore, saying that globalization develops a risky, speculative, or spoiled dependency would not be correct, considering that trade benefits are the strongest ammunition in the efforts of any country working to develop cordial relations with other nations.

     
     
     
    • Nari Kannan
    • CEO, Ajira Technologies, Inc.

    Globalization will continue, and talking about its end is a little premature and a knee-jerk reaction to structural changes in large U.S corporations like General Motors. While GM is struggling, Toyota has built twenty plants in the U.S., employing the same [number of] Americans and proving that with their management approach they can double the productivity of each worker.

    Clamping down on globalization by any country or company will ensure its own demise that much quicker. International money will always go to countries and companies that are most efficient and effective, wherever they are. If the U.S. becomes protectionist, it will only hasten the departure of innovations to other countries like India and China. Smart U.S. corporations know this and offer the chance to innovate in Bangalore, Shanghai, or Silicon Valley. Google, Microsoft, or Intel, you have these choices.

     
     
     
    • Charlie Cullinane

    In many ways it looks as if globalization has hit its peak. With the student strikes in France, the immigration demonstrations in the United States, and the (emotional) exporting of jobs in Europe and the United States, it does appear that globalization has peaked.

    But in reality it has not peaked, it is evolving. On CNBC recently they discussed a labor shortage in China—yes, China—and how they were seeking lower-cost areas in which to produce products. India has similar problems with educated labor: Their supply is also finite.

    Globalization has been around a long time (remember the clipper ships?) and will remain. Who does what will change, but globalization will remain.

     
     
     
    • Priscilla M.
    • Student, Oberlin College

    Globalization is overwhelming both the rich and poor. Corporations, mostly Western ones, have benefited disproportionately from global trade due to huge advantages in technology and experience in finance, property rights, etc. Simultaneously, less developed countries have learned many lessons from the pains of trading with superpowers. I think what we see today—outsourcing moves by firms in the U.S.—is a direct response to a new supply of inexpensive human capital in less sophisticated countries like India, Brazil, Morocco, etc. Since the aims of capitalist corporations depend on profit making and not necessarily ideological utility, this trend will continue. What most analysts don't admit is that immigrants have the same motivations that drive firms to outsource—profit or greater economic utility/competitiveness! The sophisticated nature of international human rights will make it difficult for world powerhouses to halt unwanted immigration.

    I foresee a trend of bilateral immigration between developed countries and newly industrialized countries like India and Latin America as opportunities lost in developed countries open up in the NICs.

    My view is that since the greater goal of all economic activity is to enhance human life, a humanitarian approach should be used to smooth the rough trends that globalization is creating. Engineers in the U.S. may lose their jobs to Indians, but according to The World Bank's 2004 report, 268 million people in South Asia are still expected to subsist on less than $1 a day in 2015.

    Globalization is bigger than outsourcing, and I hope policymakers realize that soon!

     
     
     
    • Murugapiran
    • Software Consultant, NTRUST Infotech

    Globalization has not reached its peak and it will never reach its peak. It is only the mental block of human beings that can eventually lead to the plateau or decline of globalization. Economic growth is not a zero-sum game. The possibility of a global work force enriching the life of everyone is significant.

     
     
     
    • Mike Flanagan, C.P.M.
    • Purchasing Mgr

    As time moves forward and the world in which we live in moves faster, the philosophies of globalization, outsourcing, e-commerce, or reverse auctions have and will reach their peak in due time.

    They are the thoughts that represent man's improvement from the past to present and into the future. However, they are not the panacea of current and future ills of business that man brings upon himself.

    All good things in moderation and at the appropriate time. Each item can be used when necessary to improve our economic standing, but they cannot and should not be used and abused. A little bit of these, plus a tad from the old mixed with a pinch of some new philosophies, will help us to maintain the balance needed for our businesses to prosper and enhance the world of now and the future.

     
     
     
    • Anonymous

    First things first: Why do big corporations outsource in the first place? The main reason was and still is to reduce the cost of products. Today this cost reduction is performed even to the detriment of quality. I myself have experienced the fact that products manufactured in very low-salary jurisdictions are of low quality.

    I don't believe globalization has reached its peak yet. What I observe is that big companies must deal with some important business characteristics: disruption of supply lines, markets, and quality discrepancies—all linked to globalization.

    Where is globalization heading? Maybe a new complementary approach of globalization should be developed in order to make room for better global performance and profit growth. The approach should not limit the business opportunities of globalization to profit growth in high retail-price markets.

    What if big companies could turn low salary jurisdictions into profit centers and not confine themselves to see these jurisdictions as only a source of cheap labor? Big companies could also develop their businesses locally through their own local company and upgrade these emerging local markets. This is what these companies have being doing for decades in their countries of origin. They didn't become big companies or multinationals overnight and consumers did not gain sudden purchasing power. Big companies have at their fingertips what it takes to make it happen somewhere else: knowledge, trained people, money, the markets, and the will to do it. In other words, better performance and profit growth globally might have to be approached as something to achieve in the long run, in all jurisdictions, with a local presence owned by the big company. In this new complementary approach of globalization, it is highly possible that one of the key success factors is that big companies learn how to become a successful big local company abroad. And the market is huge.

    This would indeed be a sound foundation for a rising standard of living for the majority of citizens, as well as in these low-salary jurisdictions . . . and big companies will have access to upgraded consumers. This new complementary approach of globalization could be a way to transfer not only technology, but also a better and long-lasting quality of life for all, globally.