We can expect government drivers to be more favourable for people- processing and possession-processing services that require a significant local presence, because these services can create local employment opportunities. In service business on which new product development costs are low, cost drivers are also likely to be less significant.

Under such circumstances, scale economies tend to be lower and experience curves relatively flatter. However, cost drivers may be less applicable for services that are primarily people based and so require recreating most element of the “service factory” in multiple locations. Lower operating costs for telecommunications and transportation, accompanied by improved performance, serve to facilitate entry into global markets.īarriers to entry caused by the upfront cost of equipment and facilities may be reduced by such strategies as equipment leasing (as in airlines), seeking investor-owned facilities such as hotels and then selling them on management contracts, or awarding franchises to local entrepreneurs. The effect of these drivers varies according to the level of fixed costs required to enter an industry and the potential for cost efficiencies. It may also be advantageous to take advantage of favorable labour costs and exchange rates by consolidating operations of supplementary services (such as reservations) or back office functions (such as accounting) in just one or a few selected countries. Significant economies may be gained by centralizing “information hubs” on a global basis. Access to the Internet or World Wide Web is accelerating around the world.īut there may be no need to duplicate all informational elements in each new location.

Technology drivers:įor information-based services, the growing availability of broadband telecommunication channels, capable of moving vast amounts of data at great speed, is playing a major role in opening up new markets.

Similarly, once a major player moves into a new foreign market, a scramble for territory among competing firms may ensue, particularly if the preferred mode of expansion involves purchasing or licensing the most successful local firms in each market. To the extent that customers who operate around the world are known to value global provision of services, a firm may be obliged to follow its competitors into new markets in order to protect its position in existing markets. These exercise a powerful force in many service industries. In possession-processing services, the development of global logistics capabilities by firms such as Federal Express has encouraged a number of manufacturers to outsource responsibility for their logistics function to a single firm, which then coordinates transportation and warehousing operations around the world.

Five major drivers of globalization