Management of Globalization

Management of globalization is a timely topic and its recent applications are attracting a great deal of attention. Subscribing to a perspective that emphasizes doing things right, this essay directs attention to the dependence of desired outcomes on institutional structures and managerial processes. Those structures and processes can generate desired enhancements to the global status of developing countries and their internal standards of living. Globalization is an increase in the flows of goods, services, capital, labor, and information across the borders of nation-states. In reality, the impacts of globalization and institutions are measurable. Three international institutions hold the tasks of managing globalization. They are the World Trade Organization, the World Bank, and International Monetary Fund. Among the items of interest, the latter two institutions generate predictions suggesting that China will become the third largest economy of the world and India will become the fourth largest by 2015. The complexion of free trade is becoming more dynamic with new entrants, yet the complexities of free trade appear static and/or stagnant. Prospective managers of globalization will need to address widely held perceptions that it hinders developing countries more than it helps them. From an educational viewpoint, the case study approach can be a highly effective learning tool as a method for expanding small successes into larger ones. Drawing attention to some key assessments and critiques on the management of globalization, the author of this essay challenges readers and students alike to contemplate opportunities to make a favorable impact as they gain a better understanding of international institutions, challenges, and cultures.

Keywords Free Trade; International Monetary Fund; Outcomes; Processes; Structures; World Bank; World Trade Organization

Management > Management of Globalization

Overview

Management of globalization is a controversial and timely topic. Evidence of its growing relevance over the past 20 years is observable in the three-fold increase on the number of colleges offering international business courses. Portraying a real need for future managers to gain a better understanding of diverse cultures and business practices, that trend also signifies evolving opportunities for students to improve global standards of living and to become aware of the international institutions. Recent publications of a couple books on the management of globalization provide some critical and highly important insights into the structures, the processes, and the outcomes of those institutions.

It is evident that a valuable opportunity exists for examining alignments between managerial perspectives and institutional purposes in light of satisfying the needs of target populations. A commonality between the publications and enrollments mentioned above is their relevance to allegations that the management of globalization hurts developing countries and favors developed countries. In order to understand the substance and nature of those allegations, one must examine the roles and purposes of the World Trade Organization, the International Monetary Fund, and the World Bank. The tasks of those three international institutions vary slightly in their approaches to managing globalization and advancing developing country stature.

This essay aims to provide some breadth and depth regarding the existing state of affairs in global commerce. Most importantly, it summarizes some points of discontent and resolution regarding the management of globalization as asserted by a Nobel Prize laureate, a widely-read author, and a highly-respected former insider at the World Bank. As readers move through this essay, they will find a section for each of the following subjects: The organization and management of globalization; the need for effective institutions; and, the relevance of international expertise and education.

Applications

The KOF Index of Globalization

With few references to management and economic theories, this essay focuses mainly on applications relevant to promoting the advancement of developing countries. The general definition of globalization is an increase in the flows of goods, services, capital, labor, and information across the borders of nation-states. Furthermore, globalization is real and it is measurable. In fact, over thirty years of country specific data are available via query over the Internet in a quantitative format from the Swiss Institute for Business Cycle Research, which produces the KOF Index of Globalization (KOFIG).

At its core is a compilation of variables that generate rankings of over 100 countries by measuring the economic, the social, and the political dimensions of globalization. Its 2007 report suggested that globalization continues to rise due, in part, to increases in political and economic aspects. The 2013 report demonstrated an overall slowing in globalization which is attributed to the economic crisis. That data provide global trading partners and others with a rich source of information for evaluating local situations and trends in a global context while presenting a viable foundation for measurement and calibration.

KOFIG Dimensions

The contents of the KOFIG become most interesting as one examines all three of its dimensions.

• First, the economic dimension summarizes variables that reflect the actual flows of goods, capital, and services and some perceptual information. It assesses data on capital and trade flow restrictions of a specific country and collects numeric measures of trade and foreign investment. This dimension constitutes 36 percent of the KOFIG.
• Second, the social dimension summarizes variables that reflect the diffusion of ideas, information, graphics, and individuals. It contains measures of personal communications, information transmissions, and cultural interactions. This dimension constitutes 37 percent of the KOFIG.
• Last, the political dimension summarizes variables that reflect the spread of government policies. It assesses data on embassy presence, international organization membership, United Nations' participation, and international treaties entered into. This last dimension constitutes 27 percent of the KOFIG.

It is apparent that globalization is forcing many current and prospective trading partners and other inhabitants of planet Earth beyond their comfort zones. As we can appreciate the healthy yet naturally unsettling tension in moving from the past toward the future, the KOFIG appears promising as a valuable resource for those who hold a genuine interest in evaluating the national and/or international context of globalization. The KOFIG can facilitate those evaluations and inform various decisions. Most importantly, managers of globalization may want to begin by focusing their attention on specific regions within Asia although there are valuable lessons that will result from examining the historical dominance of Europe and the United States in international trade along with current perspectives.

In an essay entitled "Europe at Fifty: Europe and the Management of Globalization," Jacoby suggests that many Americans think of globalization in terms of regulatory constraint removal, free exchange, and decentralized decision making processes. In contrast to these free market notions, spokespersons for the European Union are indicating their desire for new rules by which to manage globalization. Meanwhile, others tend to think more in terms of orchestrating structures and processes through which Third World countries can actually become active participants in international trade. Some may look to globalization as an opportunity while others may see it as a threat.

Organization & Management of Globalization

Managers may function in institutions and/or in organizations and need to understand their differences. In the most basic sense, organizations and institutions differ in one element: Receptiveness to change. Organizations are typically open to change and may be reactive and/or proactive in their dealings with external environments. In contrast, institutions are typically change resistant. Currently, responsibilities for the management of globalization reside with an international triad of institutions. They are the World Trade Organization, the International Monetary Fund, and the World Bank.

World Trade Organization

A brief overview of each institution in terms of its purposes, its structures, and/or its processes will provide readers with a better understanding of the organization and management of globalization. The purpose of the World Trade Organization is simply to settle disputes arising from international trade. Unlike the other two institutions listed above, it is unable to provide direct financial assistance or technical expertise to developing countries. The International Monetary Fund is a center for free access to experts on macroeconomics and it provides financial assistance to temporarily cover resource gaps resulting from an emergency.

World Bank

In contrast, the World Bank issues long-term interest-free loans to developing countries for infrastructure projects that will diminish poverty. Roads, bridges, wells, and systems for irrigation, communication, and/or health care are examples of such projects. Despite its name, there are no deposits so funding for those projects comes from taxes paid by developed countries. The World Bank maintains a Web site that contains links to data on world poverty rates. It has its share of critics and an American heads the institution, whose appointment comes from the President of the United States; readers will find greater elaboration on this last facet in the text ahead.

International Monetary Fund

The head of the International Monetary Fund (IMF) is usually someone from Japan, Germany, United Kingdom, or France. Twenty-four directors assist with its management. They are from five nations plus Russia, China, and Saudi Arabia. Formal voting includes active participation by finance ministers and the Secretary of the US Treasury. Each country receives multiple votes, which are in direct proportion to their Special Drawing Rights (SDR). One vote for each one-hundred thousand SDRs; one SDR equates to about $1.50. Recent data suggests that forty percent of all SDR purchases are with the US Dollar; 35 percent with the Euro; 13 percent with the Yen; and 12 percent with the British Pound. Without going into finer detail here, many believe the developed countries exert disproportionate amount of influence on IMF policies.

Sometimes misalignments between words and deeds are latent and other times they are blatant. According to a former insider, the World Bank engages in management practices that appear inconsistent with its institutional purposes. Consider for a moment globalization from a management perspective and pause for another moment to consider a common definition of management: Doing things right and getting them done through a group of people who strive to achieve specific goals and results. Joseph Stigler, who was a formal manager of globalization at the World Bank for about three years, concludes in Globalization and Its Discontents (2002) that globalization is failing 80 percent of the population who reside in developing countries and the 40 percent who live in poverty. In essence, Stiglitz is criticizing one institution charged with managing globalization and writes in a clear, concise, and compelling manner about the apparent conflict between words and deeds. With those statistics before them, current and prospective managers of globalization now have a metric against which to assess the effectiveness of future efforts.

Need for Effective Institutions

Institutions tasked with managing globalization are the World Trade Organization, the World Bank, and the International Monetary Fund. Over the past decade predictions by the World Bank and the International Monetary Fund (IMF) indicated that China would become the third largest economy of the world and India the fourth in 2015 (Kedia, 2006). As of 2013 China was listed as the second largest economy by these same institutions, surpassing their predictions. This trend represents a major challenge because cultural interactions will likely occur in a form different than that observed when the US and Europe are the dominant players in global commerce management.

There are many ways to make globalization work, but the World Bank is apparently falling short of the tasks before it. Joseph Stigler, who is also a 2001 Nobel Prize laureate, was a former senior vice president and chief economist of the World Bank from 1997 to 2000, and is the author of two books on the management of globalization. Reflecting on an underlying conflict between his principles and organization practices, he wrote two books: Globalization and Its Discontents (2002) and Making Globalization Work (2006). The former outlines some challenges facing an interdependent world. The latter presents a discourse on the appropriate role of government in free markets. In addition, it includes an agenda for institutional and managerial reforms and it highlights problems with the management of globalization. In short, Making Globalization Work (2006) contains a unique insider's view refuting the notion that the financial strategies of the World Bank equate with the successful management of globalization.

In tandem, those two books record Stiglitz's observations, among other criticisms, the IMF and other global financial institutions place their interests ahead of poor nations and they form trade policies that are highly appropriate and appear self-serving. Stiglitz is generally an advocate for free trade, but found himself challenging the underlying assumption that globalization is the result of freely operating markets in which the pursuit of self-interests generate societal and global betterment. In doing so, questions arise concerning the World Bank and its effectiveness with respect to how it prepares developing countries for realizing comparative advantages through their own devices.

Comparative Advantage

Economic theory informs us that achievement of comparative advantage and the resultant gains from international trade requires successful completion of a multi-stage process.

• In the first stage, a country needs to realize which items it can produce with a minimal amount of sacrifice in terms of producing alternative items.
• In the second stage, it specializes by producing only that item for which its opportunity cost is lowest.
• In the third stage, the country produces more than it needs creating a domestic surplus.
• In the last stage, the country will trade that surplus for the item it sacrificed in the first place and both it and its trading partner will gain more than they would have in the absence of trade.

Someone with a background in management and/or economics may gather that Stiglitz is referring to the inability of developing countries to realize trade gains and is seeking explanations for that inability. Aside from the lack of roads and other critical infrastructure, one possible explanation is the absence of managerial skills among officials in those countries. This feature, if true, by itself would likely inhibit completion of the first stage. Resolution of such a situation suggests a need for an immersion in subjects including management and economics. Certainly, skill attainment by immersion would improve a developing country's capacity to press forward through the remaining stages. Apparently, this is where progress begins to stall.

The G-7

Stiglitz calls into question the ordering of interests and begins to seek answers. In essence, he claims that the Group of Seven (G-7), who hold annual meetings called "Rounds," is failing to put their interests behind those of a developing country. If the claim is accurate, then the G-7's actions would prevent a developing country from moving relatively unimpeded through those processes, realizing natural gains on their own accord. If the claim is inaccurate, a developing country would receive strong encouragements to engage in trade with whom it so naturally desires whether the partner is another developing, a developed country, and/or a member of the G-7. It is important to note that the G-7 is comprised of international finance ministers from the following countries: United States, Japan, Germany, France, United Kingdom, Italy and Canada.

In his analysis of the 2005 Doha (Qatar) Round, Stiglitz points specifically to the need for G-7 governments to reduce their domestic farm subsidies and to reduce tariffs on imports coming out of the developing countries. According to his calculations, the tariffs levied by rich countries on poor countries are three times higher than those levied on other rich countries. The subject governments refuse to lower their import tariffs and farm subsidies. In his book, Stiglitz provides further evidence that the United States, the European Union, and Japan are among those refusing to do so especially for exchanges of items within the construction and transportation sectors. Developing countries are the most competitive on these items in relation to the rest of the world.

Stiglitz expresses discontent with the G-7's motives alleging that their efforts appear more like covert exploitation of Third World markets rather than genuine steps for promoting free trade and economic development. In the end, these multinational financial institutions wind up looking like greedy profit mongers who would readily disrupt and destroy locally-controlled commerce and business conditions. Those international institutions apparently missed an important opportunity to play a proactive, favorable role in the management of globalization. At issue is whether a need exists for greater and more effective forms of governance. Over the past century and a half, globalization created a demand for those institutions and a willingness of state-nations to supply them. What remains for future observation is whether the World Bank and the IMF maintain their relevance or some other arrangements will evolve through the dynamics of demand and supply. The range of possibilities is extensive when factoring in the roles of expertise, training, and education.

Relevance of International Expertise & Education

An initial approach might involve individuals who can change perceptions that free trade hinders developing countries more than it helps them. It is important to recognize perceptions are usually the reality of those who hold them and that these perceptions impact opinions about globalization (Ricard, Reynaud, Gopinath, & Ravilochanan, 2012). Many successful cases of change often begin through initial interactions between two or more individuals who understand a country's economic, social, and political complexities. The case study approach can be a highly effective tool of learning for management majors and international business scholars.

The Roll of University Faculty

In some cases under study, the general sequence of events might include the following components. Advisors from the ranks of university faculty, sometimes in an opportunity to engage in public service, meet with government officials, business leaders, and/or other interested parties from the host countries. Their work involves helping their hosts plan and implement organization structures and management processes along with providing expertise in evaluating the outcomes of the aforementioned efforts. Successful plans usually include delineating steps for resource allocations, formulating international strategies, and entering foreign markets. In the process, citizen awareness of those plans and efforts gains momentum and governments respond with policies for generating improvements in economic status and by directing new financial and technological resources toward service enhancements and infrastructure development.

China

Some same history repeats itself. According to Howell (2006), this is exactly what transpired in China two decades ago bringing the country to its present global status. It began after Moses Kiggundu, a professor at Carleton University's school of business, visited the country. American and Canadian companies opened operations after Kiggundu's visit seeking opportunities to lower labor costs. Persons from the local communities went to work for those companies learning the business, gaining new skills, and optimizing the market values of their products and their labor. As the Chinese began to exercise local control over those operations, wages went up and the factories closed down. However, the companies and skilled workers migrated elsewhere realizing new opportunities to apply and hone their skill sets. In fact, a recent visit by Kiggundu revealed that they went to Vietnam. It so happens to hold an economic status today comparable to that of China two decades ago. More importantly, this case of migration serves to illuminate the relevance of recognizing comparative advantage, realizing trade gains, and understanding own and distant cultures.

International Management Education

Sometimes short stories and anecdotal evidence are powerful sources of inspiration and information. As this essay draws the reader toward conclusion, it summarizes some observations on international management education made by Ben Kedia (2006), who has been an educator in the field for the past quarter century. While there has been a steadfast emphasis on learning business functions and transactions, Kedia expresses concern over academic programs that typically gloss over the institutional, cultural, and societal forces emerging from within the global marketplace. A variety of approaches is available for addressing those and similar concerns.

With intercontinental linkages and collaborations between management and business schools expanding in number and in popularity, there is a tremendous potential for developing a future generation of managers who will understand both the dimensions of global commerce and the magnitude of international poverty. Approaches such as faculty and student exchanges are a beneficial component of educational programs. However, they may fall short due to participant inability to grasp the larger institutional context. In identifying and pursuing their desired outcomes, many opportunities will arise for redesigning current institutions, designing new arrangements, and/or facilitating better alignments between those structures and managerial processes. Whatever the goal or desired outcome may be, one needs to direct energies to where need is the greatest.

The extent to which recent allegations against international institutions increase or subside over time remains uncertain at this time. However, it is very likely that an untold number of undergraduate college students will continue to enroll in international business courses and to participate in study abroad programs. Eventually, many of those students will exit those experiential and academic programs with their own stories and academic dissertations to share with the world. More importantly, there is a good chance that some of them will find their places in the next generation of globalization managers whether they join existing institutions or those yet to come into existence (Hurn, 2013).

In a world becoming smaller through technology and international trade, many opportunities will arise and many benefits will likely accrue by identifying and seizing those opportunities. For starters, one needs only to gain a better understanding of foreign institutions, cultures, and societies and develop an appreciation for global diversity. In addition to increasing understanding of the global context, the goals of various programs at schools in the United States also include cultivating awareness and enhancing competence. Furthermore, scholars and practitioners need to keep in mind that those new distant players on the global scene are both our trading partners and our labor market competitors. Current technologies, especially the Internet, make it easy for virtually anyone anywhere to apply for employment in the United States and almost anywhere else around the globe. To maintain currency and relevance in a highly competitive and collaborative interconnected globe, international business strategists assert that future managers need to develop strategic visions regarding global business functions and intercultural dynamics.

Globalization is very likely to continue as a catalyst for heritage preservation and a source of intercultural conflict. One implication is the demand for conflict resolution courses and training is likely to increase as well. Though this essay tends to highlight economics, business, and industry as areas critical to globalization, the author acknowledges engineering and science as professional areas comparable in level of importance. For the sake of brevity, this essay also omits other pertinent managerial factors such as gender and ethnicity. With a view towards institutional design issues, readers are encouraged to examine further the management of globalization offering critiques that refine how international institutions operate and/or conduct research on how such management relates to democratic governance and on other areas relevant to the topic. Above all, the author challenges readers and students alike to do what they can, if so inclined, to bring about change in the way institutions manage globalization and to conduct their global dealings in such a way that exhibits sensitivity to those who work and live in developing nations.

Terms & Concepts

Comparative Advantage: Situation when one country realizes that the production of one specific good or service brings a smaller sacrifice than the production of another alternative good or service; a prerequisite to achieving gains from trade.

European Union: A political and economic entity located primarily in Europe; 27 nation-states hold membership and behave as a single market economy.

Globalization: Occurs with an increase in the flows of goods, services, and financial resources across nation-state borders; measurable also in terms of its economic, social, and political dimensions.

Group of Seven: Consists of the United States, Japan, Germany, France, United Kingdom, Italy and Canada.

Tariffs: Taxes or charges levied by a government on imports that effectively raise their prices and diminish domestic purchases of those imports.

Bibliography

Hurn, B. J. (2013). Response of managers to the challenges of globalisation. Industrial & Commercial Training, 45, 336-342. Retrieved on November 25, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90609231&site=ehost-live

Kedia, B. L. (2006, June). Globalization and the future of international management education. Journal of International Management. pp. 242-245. Retrieved on November 25, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21190794&site=ehost-live

Ricard, A., Reynaud, E., Gopinath, C. C., & Ravilochanan, P. (2012). International comparison of global perceptions. International Business Research, 5, 28-37. Retrieved on November 25, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=78223597&site=ehost-live

Stiglitz, J. (2002). Globalization and Its Discontents. New York: W. W. Norton & Company, Inc.

Stiglitz, J. (2006). Making Globalization Work. New York: W. W. Norton & Company, Inc.

Swiss Institute for Business Cycle Research. KOF Index of Globalization 2007, retrieved November 23, 2007, from http://globalization.kof.ethz.ch/.

Swiss Institute for Business Cycle Research. KOF Index of Globalization 2013, retrieved November 25, 2013, from http://globalization.kof.ethz.ch/.

Suggested Reading

Ethical practice is the key to globalisation. (2002, April 30). Personnel Today, 3. Retrieved November 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=6694530&site=ehost-live

Jones, G., McEwen, N., Guillén, A., Marinetto, M., Bovaird, T., Theakston, K., et al. (2005). Reviews. Public Administration, 83, 957-981. Retrieved November 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=18842712&site=ehost-live

Pudelko, M., Carr, C. & Henley, J. (2006/2007). Globalization and its effects on international strategy and cross-cultural management. International Studies of Management & Organization, 36, 3-8. Retrieved November 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=23498380&site=bsi-live