The distinguishing and integral feature of modern international business is globalization, which has a dramatic effect on domestic economies of all countries as well as the world market. Being a general term to describe the denationalization of markets and rising of the global economy, the process of globalization has obviously larger impact on the modern world than just unification of national markets into single international one. Globalization has an enormous influence upon all spheres of people’s lives, including economic, political and cultural spheres. The process of globalization has been always accompanied by the establishment of large international corporations, in which the level of production, consumption, export, import and income depends on the decision of international centers situated beyond the certain country’s borders. As any other process that takes in the world, globalization has certain advantages and disadvantages, thus, it has its followers and opponents. For some countries globalization offers multiple opportunities of economic growth and prosperity, however, the other ones are threatened by it, due to the economic inequality and political control it can cause. Developed and developing countries have different fears concerning globalization. While some developed countries anticipate the process of globalization, because it opens new low-cost markets of developing countries and creates new competitive environment, which might not be favorable for domestic markets of developed countries; developing countries are concerned about possible political and economic dependence from the side of developed countries, which may be caused by the globalization and domination of market forces. Despite positive or negative effect of globalization, this process continues to exist, shaping all spheres of life in the modern world. Other advantages and disadvantages of the process of globalization will be discussed further.
The present study was designed to learn the peculiarities of modern international business and its interdependence with the process of globalization by the example of such international corporation as AT&T.
International Business, Globalization and multinational corporations
Before speaking about the AT&T Corporation and the peculiarities of its global business it is necessary to take a closer look at the process of globalization. Globalization is a general meaning of the complex of relations between people, businesses, institutions and markets that appears in widening of production lines, technologies and financial instruments, in inevitable growth and strengthening of influence of international institutions, in global activity of international corporations, in considerably widening of size of the communicational and informational resources via Internet. Also the term globalization can be implied as the stable transformation of world space into one unified zone, where capital, goods and services can move without any obstruction. Hence, globalization implies formation of international political, scientific, economical and cultural space, so-called “global economy”.
Generally speaking there is nothing unusual about globalization. This term appeared in common usage since the 1980s to show technological progress that has made international transactions easier and faster, both in the field of trade and finance. It has opened national borders of many different countries that were closed for centuries; it has made it easier and more efficient to communicate between cities, countries and continents. With the help of globalization markets became more effective, because globalization also promotes free competition which makes the producers of goods and services provide consumers with better quality of their products in order to attract them. Competition is also one of the moving forces of technological progress. Creating united economical space globalization helps people to get a wider choice of import and export markets to use. There are three resources of globalization. The first resource is technological progress that led to rapid reduction of transport and communication expenses and considerable reduction of expenses of processing, storage and usage of information. Informational services are directly connected with the progress in electronics and invention of electronic mail (email). The second resource of globalization is liberalization of trade that caused the limitation of policy of protectionism and made global trade freer. As the result of it a lot of taxes and rates have been reduced, and a lot of trade barriers have been eliminated at the markets of goods and services. Other means of liberalization led to faster flow of capital and other factors of production. The third resource of the process of globalization is the creation of international companies and corporations in which the level of production, consumption, export, import and income of a country depends on the decision of international centers situated beyond the certain country’s borders.
There are many different opinions on the matter of globalization. Some people view it as a favorable process that will lead to high economical development of all countries. Other people treat it with animosity and fright. They think that globalization will increase inequality between countries making some countries extremely poor and some extremely rich. The process of globalization gives us wide range of opportunities for the development of the world in a whole, but the process of development is uneven in different countries. Some countries join the global economy and integrate more quickly than other ones do. Countries that have been able to integrate into global economy display faster economical growth with decreased level of poverty, while the others are still trying to struggle against the burning problems: poverty, low standard of living, corruption, environmental pollution and others.
As it has been mentioned above, the process of globalization is always followed by the creation of powerful multinational corporations, which tend to have headquarters in such developed countries as the USA, Canada, Germany and others, and place subsidiaries all over the world. Nowadays the creation of large corporations has caused the debates, which “often expressed in terms of concerns about the undermining of national sovereignty and the alleged excessive power of multinational corporations” . Multinational corporations are core constituents of economic integration and international production. A company becomes a multinational corporation, when it starts to invest in “value-adding activities outside its domestic market or starts to exercise control over such activities outside its domestic market” . The United Nations Organization gave the following definition of international corporations – “enterprises which own or control production or service facilities outside the country in which they are based” (The United Nations Organization).
Speaking about the USA, there are a lot of multinational corporations in the United States, however, this study will focus only on one of the – AT&T. American Telephone and Telegraph Company (AT&T) is the largest corporation in the USA working in the sphere of telecommunications. AT&T is considered to be a worldwide leader in information technology. The American Telephone and Telegraph Company was established as a “subsidiary of then-parent American Bell Telephone Company, with a charter to build and operate the original long distance network” . The main areas of business in which AT&T operates include “long-distance telephone service; integrated communications and computer solutions; telephone network switching and transmission equipment; and customer premises equipment” . In 1925 the AT&T’s President Walter Gifford announced the major goal of the company to create a universal telephone service in the USA, however, by that time the company had already established a worldwide manufacturing subsidiary called International Western Electric Company, which operated in London, Merlin, Vienna, Paris, Milan, Tokyo and other biggest cities of the world. Though AT&T has been already operating on the market more for more than a century it still remains the leader in the USA, possessing more than 30 million customers.
As for the international business of AT&T it is necessary to mention that the AT&T Corporation went globally more than 20 years ago by forming several joint ventures with German, Italian, French, Japanese and other companies. The usual way in which AT&T entered international business was partnership in a form of joint venture. There are several reasons why different companies decided to form a partnership. The first and most obvious reason is the opportunity to share possible risks and high costs between companies rather than handling everything alone. All forms of partnership “enable companies to leverage the assets, skills and experiences of their partners for the purpose of enhancing competitive advantage” . Because AT&T formed several joint ventures it is necessary to discuss what a joint venture is and what benefits it brings to the companies in the international business. “A joint venture is a long-term alliance in which each member has an equity stake and exercises control and influence over decision-making” . When two or more companies form a joint venture they establish a united corporate entity by combining the assets of all partners. Usually joint ventures are created in order to achieve certain goals, thus, the structure and membership of the joint venture depends on the objectives set. The members of this kind of partnership may be equal or one partner may have the majority of shares. Generally speaking, joint ventures are established in order to give the partners an opportunity to achieve the goals which they are not able to achieve singly. Among the most attractive advantages of the joint venture is the opportunity of “more rapid and successful entry into a new location than trying to enter it alone” . Sometimes a foreign company is forbidden to apply foreign direct investment (FDI), and for this reason it chooses the formation of the joint venture, which also benefits a local firm forming a joint venture by gaining of new progressive technologies or management skills from a foreign partner. Other benefits of joint venture include the development of innovative technologies and the economic growth of all partners. However, in order to reach success, the partners should develop a long-term strategic plan, which would meet the objectives of all partners. To do this the members of the partnership “must be clear about the type and quantity of resources each brings to the project; the organization and breakdown of responsibilities and the distribution of benefits” . While forming a joint venture or any other international partnership it is necessary to take care of cultural differences, which may occur, because employees possess different corporate culture in different countries. Very often differences in cultures prevent companies from forming a successful partnership. It is very important to develop a correct strategy of management the cultural diversity inside the partnership as well as outside while entering a foreign market. Besides language barriers that may cause difficulties in, for example, advertising. It is also important to pay attention to cultural peculiarities, meaning that certain pictures or music used in advertising may be very effective in one country, but a total failure in the other one. Human resource management inside the partnership is one of keys leading to the success. While forming a joint venture, it is necessary to decide which operations will be managed by the host company and which operations will be managed by the home one. It is also necessary to consider the relationship of managers and workers of both home and host companies. Religion as a constituent of culture also should be considered while entering a foreign market. So, in order to reach success and form a productive joint venture it is necessary: 1) to observe the main principles of the Declaration of Human Rights, a violation of which will definitely lead to a failure; 2) to observe the international labour laws (to avoid child labour and force labour; 3) to pay attention to the protection of natural environment; and 4) according to the Foreign Corrupt Practices Law, US companies are forbidden to pay any additional money to the foreign companies, though it might be acceptable abroad.
In 1983 AT&T formed a joint venture with German company N.V. Philips. This joint venture was equally owned and placed in Netherlands in order to produce and sell the equipment for the telephone network. The joint venture was called APT. However, it appeared to be not very successful. That’s why AT&T bought the major share and reorganized it into AT&T Network Systems International. The following partnership was formed by AT&T and Italian company Italy’s Ing C. In 1987 AT&T entered Spanish market by forming a joint venture with Telefonica. Eighty percent of shares were owned by AT&T and only twenty percent by Telefonica, which was Spain’s national telephone company at that time. Later the American Telephone and Telegraph Company entered Pacific markets by establishing joint ventures. “It formed two separate operations in Korea with Lucky-Goldstar to manufacture fibre-optic cable and switching equipment and market AT&T transmission equipment and microcircuits” . Further AT&T’s emergence to the Pacific market was marked by the formation of joint ventures in Taiwan and Japan. A great success was reached by the company in 1989, when “Italy chose AT&T as partner for the state-owned manufacturer Italtel as part of that nation’s estimated $30 billion dollar planned upgrade of its telephone network” .
There are also other ways to enter foreign markets, such acquisitions, mergers and foreign direct investment. Entrepreneurs’ motivations for engaging into foreign direct investment (FDI) include “resource seeking; market seeking; efficiency seeking; and strategic asset seeking” . About 20 percent of world FDI inflows were directed to the developing countries, while the outflows were less than 10 percent. Speaking about the advantages of FDI, it is necessary to mention that one of the most obvious advantages of it is the stimulation of national economies of the countries to which the FDI is directed. At the national level FDI stimulates export activities and contributes to the reimbursement of national debts. Among other types of investment FDI appears to be less affected by the fluctuation of exchange rates. FDI has a positive impact on the development of new businesses as it promotes product diversification. While FDI stimulates the expansion of business, it also affects the rate of employment, which usually increases due to the growth of wages. FDI sometimes helps to replace declining market sectors. Foreign direct investment may also influence cultural and social life of people if it is done by means of non-traditional goods. For example, “if financial resources are diverted away from food and subsistence production towards more sophisticated products and encouraging a culture of consumerism can also have negative environmental impacts” . Investment directed from the home country to the host one promotes research and development, implementation of innovation and new progressive technologies there. Though FDI seems to be an effective method of improvement of economic situation for any country, it still concentrated in certain regions of the world, mainly in the developed countries. “The vast proportions of FDI flows go to other developed countries, especially the “Triad” of USA, UK, Japan, but also countries such as Germany, France, Canada, and Netherlands”.
The process of globalization is closely bound up with the integration of financial markets. In contrast to other markets (labour market or commodities market) financial market is the most integrated nowadays. The integration of financial markets will consequently lead to further development of the global economy; it will increase the interrelations of all countries and stimulate economic growth. As all countries possess different currencies, there is a question of creation of a single currency to operate worldwide. In 1970 due to several reforms implemented in the USA American banks received an opportunity to operate abroad, while certain foreign banks could enter the US banking market. Further reforms allowed banks to render a greater variety of services worldwide. In Europe a special banking system was created giving an opportunity for all banks to operate inside the European Union without any obstacles. All these changes and reforms shaped international capital movements greatly, creating a world financial system, which allows transferring capital around the world just for seconds. Though, there are certain barriers preventing from immediate financial transactions, it is obvious that very soon such financial system will be created. The integration of financial markets has lead to the “weakening of the link between currencies and their traditional locations – the nation state – and the multiplication of the forms of money” . This is especially noticeable with the US dollar, which has become a popular currency used in many countries in Latin America and other regions. It is interesting to note that “there are currently as many dollars in circulation outside as inside the United States” . The creation of such European currency as Euro also evidences that national currencies are not important any more, and circulation of one single currency is more comfortable than having marks, francs and etc. However, different currencies still exist, and that’s why it is important to “enable states to value and exchange currencies” .
The last paragraph of the current study will be dedicated to the pros and cons of the process of globalization, which has large impact on not only world economy or business, but also on cultural and social life of people. At first it is necessary to speak about the advantages:
- International trade has increased greatly between countries due to the liberalization of world market. Some of the trade barriers were reduced which resulted into world growth in goods and services. This process has increased profit and has raised the standard of living in many countries.
- A lot of international corporations have been created and made it easier to operate the market across the borders.
- Internet and Mass Media gave the world an opportunity to communicate without any time limits and at low costs.
- Globalization made the process of exchanging goods and services faster; now it is possible to sell and buy goods from home by using computer and the Internet.
- It also helped democracy to be spread all over the world.
- Nations became more interdependent with each other.
- Cultural barriers were put down, which helped different countries to find common language.
- Globalization created healthy atmosphere for developing of free competition which increased the quality of goods and helped to keep prices at the same level to protect from the inflation.
- More attention is now paid to the protection of the natural environment from being polluted.
- Globalization helps to provide peace between developed countries.
However, as any other process globalization has its disadvantages:
- Globalization caused non-equal development of countries, because some of them could integrate faster than others.
- The level of unemployment has increased in developing countries, because people that don’t have proper education cannot find a job.
- Mass Media plays a great role in life of everyone, while culture has been put aside.
- Globalization opened cultural barriers and is now making all cultures mixed up together into one unified culture, which ruins the historical and cultural heritage of different countries.
- Due to the ability of easy traveling nowadays some diseases can as easily travel the world as people.
- While globalization promotes peace among developed countries it may also cause war among developing countries.
- Millions of people have lost their jobs due to the cheaper import provided from abroad. The result is the increasing level of unemployment in developing countries.
- As some of the international organizations were created it caused the interference in national and individual sovereignty.
Having spoken about interrelation of international business and the process of globalization it is necessary to make a conclusion. Though the term “globalization” appeared not so long ago – in 1980s, the impact of this process is rather large. Globalization has touched all spheres of modern life. But the sphere of life that is the most influenced by the globalization is international business, which is nowadays characterized with the rapid integration of financial, labor and commodities markets. Creation of large multinational corporations is also a distinguishing feature of modern international business. Though certain companies were established in one country (like AT&T, which was established in the USA and first operated there), later they decided to go globally, and thus, enter foreign markets by creating partnerships or mergers. Such company as AT&T, which started to operate in the end of 19th century, remains a world leader in providing people with long distance calls and other communication services.
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