Chapter 1 Scope and challenges of international marketing

Introduction

Globalization – meaning and development

Definition and a short history of globalization

Globalization is a term on everyone’s lips, but one’s understanding of it often varies greatly. Cavusgil, Knight and Riesenberger offer a definition that includes the many aspects of globalization:

Globalization of markets refers to the gradual integration and growing interdependence of national economies. Declining trade barriers and rapid changes in communications, manufacturing, and transportation technologies are enabling firms to internationalize much more rapidly and easily than ever before. Globalization allows companies to outsource value-chain activities to the most favorable locations worldwide. A value chain is the sequence of value-adding activities the firm performs in the course of developing, producing, marketing, and servicing a product. Firms source raw materials, parts, components, and service inputs from suppliers around the globe. Globalization has also made it easier for companies to sell their offerings worldwide. (Cavusgil, Knight & Riesenberger, 2020, p. 64)

Globalization is not a modern phenomenon, although there is no agreement on exactly when it began. Some authors see the beginning of globalization in the Middle Ages, others in modern times. Different aspects are considered from economic, social or environmental points of view. Economic globalization, as the history of trade combined with progressive worldwide networking over great distances, can already be dated to the end of the Stone Age around two millennia before Christ. This is associated with the development of agricultural technology in which new ideas were exchanged through trade-motivated intercultural contacts. At the time of the Roman Empire, there were intensive trade relations as far away as China. Another milestone of globalization is the Hanseatic League, which, due to its geographical limitation, did not yet represent a true globalization of economy and trade. We can speak of the “discovery” of the American continent and the associated opportunities to utilize world-spanning trade routes since the 16th century. Since that time, international trade has grown continuously.

As a result of the Great Depression that started at the end of the 1920s and with the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947, the globalization of trade and commerce was anchored in an international treaty with the goal of reducing trade barriers. In 1995 the GATT was replaced by the World Trade Organization (WTO), which also paved the way for associations such as the European Economic Community (EEC), the Organization for Economic Cooperation and Development (OECD) and other organizations that have promoted international economic relations on a global scale. The WTO consists of three pillars: GATT for trade in goods, GATS (General Agreement on Services) for services, and TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rightst) for intellectual property issues.

Since 1980, world trade has grown to an extent never before seen in its history, reaching a global export volume of 17.6 quadrillion (= thousand billion) USD in 2020 (see Fig. 1.1). This is primarily due to falling trade barriers and lower costs of communication and transportation. However, globalization is vulnerable to crises, as we have seen in the past two decades since the start of new millennium. The burst of the dot-com bubble and the financial crisis of 2008 have resulted in deep cuts in the global trade volume (World Economic Forum, 2019). The COVID-19 pandemic and the Russian aggression against Ukraine, with the resulting sanctions against Russia, will also lead to further substantial cuts.

Source: UNCTADstat, n.d.

Fig. 1.1: Development of global export value 1950–2020 (in billion US dollars).

Dimensions of globalization

The development of global trade is not the sole perspective on globalization. In addition to trade and transactions, the International Monetary Fund (IMF) distinguishes three further aspects of globalization: capital and investment movements, migration and movement of people, and the dissemination of knowledge (IMF, 2002).

And yet another measure, the KOF Globalization Index, considers not only the economic, but also the social and political dimensions of globalization. Globalization in the economic, social and political fields has been on the rise since the 1970s, receiving a particular boost after the end of the Cold War (Dreher, 2006).

Social and cultural globalization can be observed in terms of variables such as tourism flows, migration and international exchange programs for youths and students. The global spread of fast food and fashion chains like McDonald’s and H&M are a hallmark of this cultural transformation. Social media influences the content and form of communication. In television, entertainment shows are being traded internationally. Broadcast formats such as Germany’s Next Topmodel, Big Brother or Who Wants to be a Millionaire? are sold worldwide as licensed products. Internationally available internet streaming services, such as Netflix, are also contributing to cultural globalization. Furthermore, the entertainment industry for music, books and computer games is a mediator of lifestyles and lifeworlds. For young people in particular, the products of the entertainment industry are an important basis for orientation in the formation of taste and style.

Political globalization results from the consequences of economic and cultural globalization. The expanding world economy increasingly demands higher, multilateral authorities that regulate economic cooperation between economic entities and states. Climate change and increased environmental pollution do not stop at national borders; no state can solve most environmental problems on its own. The pressure to find common solutions worldwide is increasing. Last but not least, global political cooperation extends to issues of security policy, such as peacekeeping, disarmament and law enforcement. These geopolitical, social and cultural developments are important for international marketers as they build the framework in which businesses are operating.

Benefits and drawbacks of globalization

For a long time, the principle of “change through trade” was unreservedly believed in by business, politics and academia. A more integrated and interdependent world economy as a guarantor of peace and stability and as an engine for the global economy led to greater prosperity for all. Reducing barriers to international trade and investment leads to lower prices for goods and services, increases the income...