Drivers of Globalization

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1 Introduction

"Globalization is not something we can hold off or turn off . . . it is the economic equivalent of a force of nature -- like wind or water."

Bill Clinton (American 42nd US president (1993-2001))

The first part of this research paper will define the major drivers of globalization and then introduce some of the basic and advanced theories of international trade and business.

With this foundations it will then try to integrate theories and drivers and compare them to the actual situation and discuss if they are appropriately describing what we are seeing today.

2 Drivers of Globalization

The media and almost every book on globalization and international business speak about different drivers of globalization and they can basically be separated into five different groups:

1) Technological drivers

Technology shaped and set the foundation for modern globalization. Innovations in the transportation technology revolutionized the industry. The most important developments among these are the commercial jet aircraft and the concept of containerization in the late 1970s and 1980s. Inventions in the area of microprocessors and telecommunications enabled highly effective computing and communication at a low-cost level. Finally the rapid growth of the Internet[1] is the latest technological driver that created global e-business and e-commerce.

2) Political drivers

Liberalized trading rules and deregulated markets lead to lowered tariffs and allowed foreign direct investments in almost all over the world. The institution of GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing opening and privatization in Eastern Europe are only some examples of latest developments.

3) Market drivers

As domestic markets become more and more saturated, the opportunities for growth are limited and global expanding is a way most organizations choose to overcome this situation. Common customer needs and the opportunity to use global marketing channels and transfer marketing to some extent are also incentives to choose internationalization. (Ferrier, 2004)

4) Cost drivers

Sourcing efficiency and costs vary from country to country and global firms can take advantage of this fact. Other cost drivers to globalization are the opportunity to build global scale economies and the high product development costs nowadays. (Ferrier, 2004)

5) Competitive drivers

With the global market, global inter-firm competition increases and organizations are forced to “play” international. Strong interdependences among countries and high two-way trades and FDI actions also support this driver.

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