Yip’s Framework of Globalization

Globalisation is a concept that entails transformation of industry from national to multinational and global competitive structures (Ellis & Williams, 1995). Globalised businesses often operate in major markets of the world in an integrated and coordinated way. Globalisation may be in form of market globalisation or product globalisation. Globalisation has an impact to every company in the world in various ways, and results in various strategic consequences. It contributes to some strategic issues and creates opportunities for business organizations and firms to increase revenue, lower costs, and boost their profits. Globalization also poses some challenges and threats to businesses.

Yip’s framework of globalisation – drivers, opportunities and challenges

According to George S. Yip (1992) there are four drivers of globalisation: government drivers, cost drivers, competitive drivers and market drivers. This can be shown in the figure 1 below.

Yip's Framework of Globalization

1) Cost Drivers

In terms of cost drivers, operating internally reduces costs in three ways. The first way is increasing economies of scale. Scale economies refer to production of goods in large volumes or large quantities. Globalisation enhances increased volume of products beyond that which the market is able to support. This applies to both purchasing of supplies and production of output. Increasing scale economies leads to cost reduction especially in areas which incur high development costs (Ellis & Williams, 1995). Differences between countries also provide an opportunity for reduced costs of global operations. For instance, companies may internationalize into countries or markets with lower labour or material costs. Some favourable logistics may also offer an opportunity for organisations to operate in global markets. If the costs of moving final products or services across borders are lower than the value received from the process, then the logistics of globalizing are considered to be favourable.

2) Competitive Drivers

Competitive drivers of globalisation also offer opportunities for globalisation. In this case, globalisation is considered as an integrated strategy across the world rather than a simple international strategy (Mintzberg et al., 1998). Globalisation enhances global networks which boost interdependence between operations across countries. This increases pressure for global coordination and trade in global markets. This gives companies an opportunity to compete successfully. Globalisation also increases pressure for competitors to adopt competitor strategy. This boosts competitiveness and competitive advantage of global companies.

3) Government Drivers

The challenges of globalisation include government barriers and presence of economic unions. For a company to operate in a global market, it should meet the government requirements of the countries they intend to establish business. The barriers may include tariff barriers, subsidies local firms in the target country, technical standards set by target country’s government, ownership restrictions in the target country, differences in currency, and barriers to capital and technology transfer. Regional economic unions such as EU and COMMESA also reduce trade barriers for European countries, making other countries outside Europe to be disadvantaged.

4) Market Drivers

One of the market drivers of globalisation that boost global companies is standardisation of markets. Globalisation enhances the presence of the same customer needs and tastes in the market, e.g. similar needs for cheap and easy credit across the world. The second component of standardisation as a result of globalisation is the presence of global customers. Globalisation also creates transferable markets in which standardized products can be sold across the world in order to increase the number of customers and consequentially the amount of revenue. International expansion through globalisation enables companies to identify some of the potential markets where there are still low levels of competition. This enables a company to increase the market for its goods, hence increasing its revenue.

1 Comment

Leave a Reply

Your email address will not be published. Required fields are marked *