Mgt 448 - Globalization

A) Globalization is the shift toward a more integrated and interdependent

world economy (Hill, 2005). Globalization has several different areas including the

globalization of markets and of production. The Globalization of markets is the blending of different markets from different nations into one large global marketplace. Cross-border trading has made it easier to sell internationally. Companies can sell standardized products efficiently and effectively all over the world thus helping to build a global marketplace. The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital) (Hill, 2005). By doing so, companies hope to lower their costs and improve the quality of their product and increasing their distribution. This would allow the companies to compete with other companies on a worldwide basis.

There are many trade theories that support the idea of globalization. The theory of absolute advantage states that all countries differ in their ability to make goods efficiently. The theory suggests that each country should specialize in manufacturing products in areas where it has a distinct advantage over other countries. And that same country should import goods in areas where they are weaker. Another theory is the theory of comparative advantage. It suggests that unrestricted free trade between countries brings about increased competition and world production. This is truly in-line with globalization. Lastly, the Heckscher-Ohlin theory believes that the pattern of international trade is determined by differences in countries. It believes that countries will export goods that make use of locally abundant raw materials and will import goods that make use of raw materials that are rare locally speaking.

B) There are many major drivers for globalization. There are two factors that seem to drive the trend toward greater globalization. The first factor is the decline in international trade barriers that has occurred since the end of World War II. Once the barriers were removed then international trade had a chance to grow and change the economy to a more global one. Tariffs were fees charged on top off the cost of imported goods. The hope was to deter people from choosing the imports, instead choosing the domestic goods. Once the tariffs were stopped, many more people were able to buy and sell imported goods.

The second factor is the numerous technological advancements in recent years pertaining to communication, information processing, and transportation technologies.

The development of the microprocessor was a huge step forward in computing technology. The microprocessor allowed growth of high powered, low cost computers that could handle much more information than ever before. This enabled countries to grow their education and manufacturing capabilities greatly in order to compete in a global market place.

Lastly, containerization has forever changed the transportation business by lowering the costs of shipping goods over long distances. Before containerization, it cost time, money, and labor when shipping items over many miles. In the 1970s and 1980s, once containerization took charge, then shipping became cheaper and faster so more companies became able to participate in global trade.

C) There are many effects of globalization that impact our communities today. Some are good while others are not. The pros and cons of the growing global economy are debatable items. Globalization affects jobs, wages, and the environment. In Racine and at SC Johnson these effects are seen daily. Many companies such as Case Manufacturing, Chryslers Motor Company, and Walker Manufacturing have left Racine in the past years to move operations to foreign countries where they can produce products for less. Low wages and other cost effective factors make producing in a foreign country a profitable move for many companies. The loss of jobs has increased the unemployment rate and the crime rate. Many people have moved out of the area leaving a tax burden for those who are left behind. The community suffers and struggles to maintain and grow in a positive direction.

SC Johnson (SCJ) is a global consumer product company still in Racine. SCJ has been in Racine for over 100 years. As they try to grow and compete in the global market place they find it difficult to maintain operations in Racine and the US. Out sourcing of low value tasks and global sourcing for suppliers are tactics that SCJ uses to compete globally with their competition who is much larger. SCJ is trying to cut costs in many ways in order to keep profit