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Globalization and Its Impact on Firms

Introduction

The term globalization emerged as an offshoot of the high-technology tools that have sprung these past decades – computers, the internet, Information Technology. We can connect and conduct business with the rest of the world so easily. With just a computer with an internet connection, indefinite access can be attained with co-partners anywhere and anytime. This is the twenty-first century, the age of digitization and fast-paced communication.

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Most firms have ventured or entered the process of globalization. In this new environment, some traditional processes may remain but governance and structural arrangements are different. Some differences include the structural setup: the top managers and their boards now assume functions different from traditional firms. The structures and functions with respect to the roles of top managers and board of directors, the CEO or the Managing Director, and the composition of the Board of Directors are not the same as in traditional firms. The changes are rather pronounced because the scope and the geographical considerations are big and therefore very different from the organization of proximity.

Traditional multinational corporations are different from global firms. While both the traditional and the new global firms handle a large organization with respect to geographic consideration, their structure is different.

“It is the characteristics of globalization rather than the territorial dimension that makes a difference” (Sussland 2). This means global firms conduct business differently, with the use of the internet and other technology, with ease and comfort. There is a wider scope and things are more unpredictable, faster, and very competitive.

A commonly accepted definition of globalization by economists, says Van Der Bly, is that it is the “international economic integration that can be pursued through policies of ‘openness’, the liberalization of trade, investment, and finance, leading to an ‘open economy” (875). Internationalization, liberalization, increased competitiveness – are some of the aspects of globalization.

Motivation

This brief essay will delve as much as many aspects of globalization; more specifically, we will talk on:

  • What precisely is globalization?
  • How do global firms work?
  • What is the structure of a global firm? Where are the decisions made?
  • How does the firm manage its subsidiaries in various countries?
  • Through what internal mechanisms are resources such as labor and supplies distributed?
  • What is convergence and what is divergence as a result of globalization?

Hypothesis

In globalization, firms are faced with more challenges and ambiguity but they have to cope and go with the flow of social and economic transformations. Inside the organization, structural reforms have changed.

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There is a convergence of employment-related aspects of industries and among industrialized nations. Mills et al proposed “a theory of the mechanisms of convergence, divergence via path dependence and convergent-divergent” (563).

Discussion and Findings

An empirical study was conducted that examined whether globalization produced “increased convergence or divergence of unstable labor market careers among selected industrialized countries” (Mills et al, 2009).

Due to globalization, national borders are not very important now, and there is the interconnectedness of organizations and businesses, while countries focus more on deregulation, privatization and liberalization of industries, and the importance of world markets.

Global firms have the whole world as their market field that they can offer a wide array of products and services – firms keep growing while others downsize or rightsize. One aspect of globalization is that firms can assign departmental functions, such as marketing, finance, operations, human resource management, and accounting to other firms – this is known as outsourcing.

Global firms use many different structural forms in dealing with globalization. They can use the horizontal structure because this is made easier with the availability of the internet and Information Technology. It is still possible with the old structure, i.e., the vertical structure where the top echelon of the organization can dictate or take hold of the reins of business even if they are on the other side of the world.

We can cite some structures in firms as a result of globalization, for example, firms with subsidiaries in many countries. Stakeholders will just know what is going on on the other side of the globe through the internet and teleconferencing, but management is being taken care of by their own trusted managers and employees.

Background/Overview of Existing Research

There will be more convergence in the global market but there is still no explanation as to why this is so.

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In globalization, some firms centralize control, meaning decisions are made at headquarters. But other firms delegate some important decisions to overseas managers. Governance and structural arrangements are different in global firms. The relationship between top managers and their boards differs on a global basis, resulting in different structural arrangements among firms.

Governance relationships among top managers and the board of directors are managed in different ways. The CEO or Managing Director is monitored by a Board of Directors that numbers ten to fifteen people in the US but can be more in other countries (Parker 352).

On the other hand, the Board of Directors usually answers to others such as shareholders or the government. The Board has the responsibilities to:

  • Review strategic decisions.
  • Assess the company’s current and future ability to meet shareholder and stakeholder expectations.
  • Evaluate top-executive performance.
  • Set executive pay and other forms of compensation.
  • Hire or fire top managers.
  • Select financial auditors; review the results.
  • Oversee management, corporate strategy, and the company’s financial reports to shareholders.

Functions of the Board vary worldwide. China, for example, has a different setup in its national companies because they include politicians among the Board members, but private Chinese companies would more likely be headed by founders. In Malaysia, a native Malay always heads the Board. In the wake of financial debacles in the US and Europe, many nations introduced new legislation mandating what and how boards were to monitor senior managers. Singapore requires that auditors be changed no less frequently than every two years. (Parker 352)

As Parker says, “A more global mindset calls for generalized and broad expertise rather than a narrow specialty, a less definitive set of decision rules, and an emphasis on processes… global mindset also calls for teamwork and diversity” (11).

Theoretical Predictions Regarding the Hypothesis

There are new paradigm shifts in organizations. Convergence is a new term. This is an outcome of globalization. With the interdependence of organizations and countries, functions and resources are converged and focused on a certain point. Advantages and disadvantages are brought out in the open.

“There will be an intensification of competition and the notion that capital and labor are increasingly mobile. The internationalization and interconnectedness of financial, goods and service markets translate into increased exposure to international competition for national firms and economies” (Mills et al 570).

There is a convergence of policies in institutions and organizations because of globalization.

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Description of Data Used in the Analysis

There are a number of factors that influence firms as a result of globalization. Liberalization has brought today’s proportion of merchandise trade to gross domestic product to levels quite similar to those at the start of the 20th century.

In the US, three out of four companies in the Standard & Poor’s 500 combine the role of Chairman of the Board and CEO (Parker 353). This is a common practice in the US where the Board reviews executive decisions and allocates CEO rewards which are itself headed by a CEO. Board members are often nominated by the CEO from other CEOs who are linked with the company or who have personal ties with the CEO.

Some firms new to the globalization trend first often participate in group organizations conducting export business. This is known as the export office structure. It organizes international activities under a single role, the export manager. (Parker 356)

In the United States, industries such as airlines, electric utilities, and telecommunications have been deregulated. The competitors can appear from anywhere.

Studies

Researchers and scientists examined the effects of globalization, and one of these is convergence in political institutions, systems, and organizations or global firms. Researchers approached this by charting the convergence of markets and real wage dispersion. Mills et al (2009) defined convergence as the growing similarity of key patterns in employment-related aspects of countries, industrial relation systems, and employment career paths of individuals in selected industrialized societies. In other words, there is a concern on whether employment-related institutions within industrialized countries have adopted similar deregulation or policies; and as a result of converging policies, employment careers have become increasingly destabilized, uncertain and unstable for all individuals.

Convergence occurs when there is resource dependence, which is a primary characteristic of the increased interdependence of nations and organizations in the era of globalization.

The chart shows economic openness among countries in the era of globalization.

Conclusion

Countless changes have occurred as a result of globalization, and firms have to adjust to these changes. But all these changes are not positive ones. There are other changes occurring between industries, while workers have also to adjust to such patterns of complexity in organizations. Their benefits, careers, and work relations are particularly affected.

There is still no clear explanation in the convergence phenomenon as a result of globalization, researchers say. One thing is certain: globalization is not all positive for organizations and countries.

References

Mills, Melinda, Hans-Peter Blossfeld, Sandra, Bernardi, Fabrizio, & Hofmeister, Heather. Converging divergences?: An international comparison of the impact of globalization on industrial relations and employment careers. International Sociology 2008, 23. 561DOI:10.1177/0268580908090728.

Parker, Barbara. Introduction to Globalization and Business: Relationships and Responsibilities. London: Sage Publications, 2005.

Sussland, Willy A. Connected: A Global Approach to Managing Complexity. London: Business Press, 2000.

Van Der Bly, Martha C. E. Globalization: A Triumph of Ambiguity. Current Sociology 2005, 53 (875), DOI: 10.1177/0011392105057153.

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StudyCorgi. (2021, November 18). Globalization and Its Impact on Firms. Retrieved from https://studycorgi.com/globalization-and-its-impact-on-firms/

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