John McCann

What is Globalization?

Globalization: Real Time Relationships Among Dispersed Individuals and Organizations

John M. McCann

May, 1998

Globalization is a term that is tossed around today without clearly defined meaning. As I prepared for my Technology, Globalization and Competition course in 1998, I undertook a literature search to find a definition that we could use to guide our approach to globalization. To my surprise, I found hundreds of instances of the term but not an agreed upon definition. In this document, I develop a view of globalization that is based upon the work of various authors, including consultants and sociologists.

Is Globalization Just Internationalization?

In many instances, the word globalization is used interchangeable with the word internationalization. When a company opens an office or a plant in another country, it refers to itself as international or global. Does being in two countries qualify a firm as being global? If so, then globalization is nothing new; it is just an extension of practices that evolved shortly after the emergence of nations. Does being in a lot of countries on a large scale qualify as global? If so, then the Roman Empire was a truly global organization.

One consultant, Frederick M. Shepperd (Managing Partner, The Quadral Group, Ltd.), in an online document “What is Globalization,” tells us that simply being in multiple countries is certainly not globalization:

Globalization" is not selling internationally, or offices, production and warehouses in numerous locations throughout the world. Large international structures may actually impede the globalization process.

Peter Dicken (Global Shift : the Internationalization of Economic Activity, London: Chapman, 1992) summarizes one strong view of the difference between internationalization and globalization:

"Internationalization" refers simply to the increasing geographical spread of economic activities across national boundaries; as such it is not a new phenomenon. "Globalization" of economic activity is qualitatively different. It is a more advanced and complex form of internationalization, which implies a degree of functional integration between internationally dispersed economic activities.

By this definition, the key to being a global firm is to integrate your functional units.

When one looks deeper at the history of international trade, it becomes evident that there have been spurts of new activities that are related to the emergence of new technologies: wheel, sail, sailing ship, printing press, steam engine, railroad, internal combustion engine, automobile, truck, electricity, telegraph, telephone, plane, radio, television, etc. We can place these technologies into two classes: transportation and communication. Work was conducted in fixed locations, sometimes termed "islands of work" with physical products, money, and communications moving between those islands. Each new technology served to enhance one or more of those flows, thus enabling internationalization to move to a higher plane.

Globalization and Knowledge

We are clearly seeing another “spurt of new activities” that fall under the phrase globalization. So, what is new today that has led to the widespread use of the term globalization? Don Tapscott (Digital Economy, McGraw Hill, 1996) gives us his answer in the very first paragraph of the Preface of his book:

Today, we are witnessing the early, turbulent days of a revolution as significant as any other in human history. A new medium of human communications is emerging, one that may prove to surpass all previous revolutions … in its impact on our economic and social life. The computer is expanding from a tool for information management to a tool for communication. Interactive multimedia and the so-called information highway, and its exemplar the Internet, are enabling a new economy based on the networking of human intelligence. In this digital economy, individuals and enterprises create wealth by applying knowledge, networked human intelligence, and effort to manufacturing, agriculture, and services.

So, what is new today is that knowledge is the key asset, as opposed to land, labor, and capital … the assets of the industrial age. On page 64, Tapscott first quotes Peter Drucker (“knowledge knows no boundaries”) and then tells us that “There is no domestic knowledge and no international knowledge. With knowledge becoming the key resource, there is only a world economy, even though the individual organization may operate in a national, regional, or local setting.” In a knowledge economy, there are no national assets; only assets that reside in a nation! This seems to be a difficult concept to grasp and accept but it is the key to understanding globalization.

The implementation of globalization increasingly occurs in technology, and this trend has been documented by a 1997 Deloitte & Touche LLP survey of 150 business leaders. The survey results are summarized below:

  • Technology has become the primary driver of corporate decision-making on globalization, surpassing competition and the economy as key business factors.
  • The role of information technology in creating efficiencies and effecting organizational change far outweigh cost considerations.
  • Knowledge-based information networks — which provide access to all vital information on a company's core competencies and qualifications — stand out as the future technology standard for respondent companies. More than half of the executives say that a company intranet (58%), the Internet (56%), e-mail (53%), and a knowledge-based information network (52%) are likely to be the technologies that will dominate the application of information technology in their corporate environments for the remainder of the decade.
  • Beyond the year 2000, 63% believe that knowledge-based information networks will grow in importance and will dominate their corporate technology environment.

This focus on globalization fits Alvin Toffler's notions that the industrial revolution amplified the body and the information revolution amplifies the mind. Most of the technological forces of the industrial revolution served a centralization function. Machines gave us mass production, transporters (trains, trucks, etc.) gave us mass distribution, electricity gave us massive buildings (office and stores) and mass communication, and mass production gave us massive factories. Mass production, mass communication and mass distribution gave us mass marketing. Mass communication gave us a centralized media and thus centralized marketing management. Massive buildings, massive factories, and centralized marketing management gave us massive office complexes. It is common today for historians and sociologist to describe the industrial revolution as the massification era.

From a knowledge perspective, the industrial revolution brought about the centralization of knowledge in large factories, large offices, and large stores … the so-called "islands of work." The "movement" philosophy of the time was to move people … move blue-collar workers to large factories, white-collar workers to large offices, and shoppers to large stores. It was necessary to congregate people so that they could share their knowledge: managers giving knowledge to workers, sales clerks informing shoppers, workers coordinating with other workers, etc. People were brought together so that they could build relationships and do their work. People who performed similar activities were grouped together: all the accountants were in the same place, as were the engineers, marketers, etc. To facilitate functional integration, these functional groupings were also brought together in the same location, thus the rise of the large office complexes. Social life even began to revolve around work relationships.

A Business Becomes a Network

The digital revolution is unleashing new forces that are reversing the centralization of the past four centuries. Globalization is one manifestation of that reversal. Recall that Peter Dicken (Global Shift: The Internationalization of Economic Activity) defines globalization as being the functional integration of internationally dispersed activities. And just how does this functional integration occur? More and more, it is with communication networks.

As Tapscott explains, a business is no longer a place, it is a network, and the connection of those networks is "enabling a new economy based on the networking of human intelligence." It is becoming common to talk about the movement from places to spaces when work becomes knowledge-based instead of muscle based.

Forces that permit people to be distributed are replacing the forces that congregated people in cities, factories, offices, and stores. Getting "closer to the customer" is one manifestation of those forces. "Islands of work" is no longer a good metaphor as a business becomes a network. As the knowledge portion of a business increases, the application of that knowledge can occur anywhere and thus the notion of "islands" should be replaced with an image that is more continuous and encompassing … perhaps the globe is a better metaphor than an island.

Some people get confused when they make this leap into the role of networks, as witnessed by the Deloitte and Touche paper referred to above. They focus on one dimension of the network: "providing access to all vital information on a company's core competencies and qualifications." It places too much focus on person-to-information-via-computer-networks, and not enough emphasis on people-to-people-via-computer-networks.

We have learned in globally distributed MBA program that what matters is our relationships with people via networks. And we have learned that digital networks and related digital technologies are increasingly useful in building, sustaining, and growing global relationships. It is this learning that we want to expand upon in this course by focusing on the networks as knowledge-based networks of intelligence, and not knowledge-based information networks. Thus we expand our focus on information technology (IT) to include relationship technology (RT).

It's About Relationships

One of the leading writers on relationship technology is Michael Schrage, a research associate at MIT's Center for Coordination Science and the author of No More Teams: Mastering the Dynamics of Creative Collaboration (Doubleday, 1995). The following is a summary of his views as presented in March 1997 at the Merrill Lynch Forum and summarized in the Merrill Lynch publication The Relationship Revolution: Understanding the Essence of the Digital Age.

  • A dispassionate assessment of the impact of digital technologies on popular culture, financial markets, health care, telecommunications, transportation and organizational management yields a simple observation: The biggest impact these technologies have had, and will have, is on relationships between people and between organizations. The so-called 'information revolution' itself is actually, and more accurately, a 'relationship revolution.'
  • Along every conceivable dimension — from the intimate to the institutional — digital media force both individuals and organizations to redefine what kind of relationships create value. Network technology demands that tacit rules about interpersonal relationships be made more explicit. What happens when everybody in the company has their own home page?
  • There is nothing inherently new in the observation that new technology alters how we perceive ourselves and our relationships. When Johann Guttenberg created his printing press over 500 years ago, the first thing he printed was the Bible, the symbol and substance of the community. Guttenberg's technology wasn't merely about producing compendia of information. It was about transforming traditional relationships between the People, their Church and the State. Five centuries later, the point endures. When it comes to the impact of new media, the importance of information is subordinate to the importance of community. The real value of a medium lies less in the information that it carries than in the communities it creates. Internet 'Netizens' vociferously argue that cyberspace is far more a medium of community than it is of information.
  • If technology has been changing relationships as long as human beings have been creating technologies, what's the special significance of this new generation of digital technologies? Why are we now in the midst of a relationship revolution, rather than further evolution? Primarily because these technologies do more than create new kinds of networks, they've created new kinds of networks between networks. What is the Internet but a network of networks. What are companies like Federal Express and Visa and American Airlines but organizations that connect physical networks to digital networks to human networks to create new forms of economic value?
  • As the rise of the Internet emphatically demonstrates, new technologies — particular digital media technologies — are about the essence of being human. Given the intellectual dominance of the Information Age paradigm in most organizations today, it's time for those managing complex digital enterprises to begin asking themselves some hard questions, none so important as: Is the digital technology that is in your organization designed to better manage critical information or to better enhance critical relationships? … Organizations today and into the next century will create more value by their deft management of relationships.
  • Ultimately, the issue boils down to value: How do organizations, markets and individuals create and manage value? The fact is, people create the value that matters, and information is merely one of many ingredients that people use. Consequently, the real value of digital technologies and networks rests with the architects of great relationships — not just the architects for timely bits and bytes of information.

Earlier, we equated globalization with the functional integration of dispersed activities and we can now see that this integration is about relationships among dispersed individuals and organizations, and that communications networks are emerging as the primary means of building and sustaining those relationships.

When business becomes more knowledge-based and is conducted in networks, then we might very well see a reversal of the industrial age trends that brought workers into large factories, offices, and stores during set periods of time, as espoused by Andrew Kupfer in a Fortune article titled "Alone Together" (Fortune, March 20, 1995):

"Information technology is poised to alter the scope of human intercourse … the new technology holds the potential to change human settlement patterns, change the way people interact with each other, change our ideas of what it means to be human. Information technology will have the power to reverse what may have been an aberration in human history: the industrial model of society. While people in agrarian societies had for millenniums worked the land around their homes to the rhythm of the sun, industrialization created the time clock and the separate workplace. Wired technology already is assaulting the industrial concept of the workday; as technology brings greater realism to electronic communications, the work-place for many will become untethered from geography, letting people live anywhere. … Wired technology will obliterate the significance of two of the great symbols of the Industrial Revolution, the train and the clock, and along with them the idea that society can organize everything to run on set schedules. The temporal shift this technology permits — even demands — is likely to be its most profound and enduring effect. With an economy that straddles many time zones, the nine-to-five workday will disappear for those for whom it hasn't already. People will become accustomed to flitting between their different roles of work, recreation, and repose, constantly prey to interruption, even addicted to it.

Regis McKenna, a long time Silicon Valley consultant, says in Real Time (HBS Press, 1997, p. 3) that we are not abandoning our clocks, only resetting them to real time:

Imagine a world in which time seems to vanish and space seems completely malleable. Where the gap between need or desire and fulfillment collapses to zero. Where distance equals a microsecond in lapse connection time. A virtual world created at your command. Imagine a world in which everything you do, from work to education, is clothed as an entertainment-like experience, veiled by technology so subtle and transparent that you have no idea it is there at all. Habits, attitudes, opinions, preferences, expectations, demands, perceptions, and needs all adapt unwittingly to an environment in which immediacy rules. All of this may sound like material for a science fiction thriller. But it is very near the world we are living in today. Technology is transforming our existence in profound ways, and the pace of change is speeding up, not slowing down. Almost all technology today is focused on compressing to zero the amount of time it takes to acquire and use information, to learn, to make decisions, to initiate action, to deploy resources, to innovate. When action and response are simultaneous, we are in real time.

At this point, we can add the time dimension to our definition, leading to the realization that globalization involves real time relationships among dispersed individuals and organizations.

The Global Age

And we can see that society can thus reorient itself around different social and human models. Sociologists have studied how society has reoriented itself in the past, and one of their themes was the rise of the Modern Age, which some say started with the discovery of America and involved the emergence of the dominance of the nation-states. One such author is Martin Albrow, a Research Professor in the Social Sciences at Roehampton Institute in London. In his book The Global Age (Stanford University Press, 1996), Albrow develops the hypothesis that we have left the Modern Age and have entered the Global Age, and he illustrates his hypothesis with a paragraph written by an anonymous author in the year 2050:

The most decisive event in inaugurating the Modern Age was the 'discovery of America' in 1492. Similarly epoch making was the event which signaled its impending termination, the dropping of the atomic bombs on Japan in 1945. In between, the story of modernity was of a project to extend human control over space, time, nature and society. The main agent of the project was the nation-state working with and through capitalist and military organization. It gave a distinctive shape to people's lives and the passing of generations. But the culmination of the project in the unification of the world was also its dissolution. With the end of the epoch, postmodern disorientation became widespread even as markets were laid for the coming new age. It was just not recognized at first for what it was. The Cold War, the Three Worlds, the human landing on the moon in 1969, the electronic 'global village', triumph of the United States with the collapse of the Soviet Union in 1991, and finally global warming were not triumphant modernity but signs of the new globality. In the 1980s 'globalization' became the keyword. In the 1990s came the general recognition that the Modern Age was at an end and that the Global Age had already begun.

Albrow's book provides a rich description of this new Global Age, and he elaborates on Dicken's notion of the rise of the functionally integrated firm.”

We should be looking at the concept of organization rather than market if we want to understand contemporary economic transformation. In this we can take a lead from Peter Dicken, who has emphasized the difference between internationalization and a much more recent globalization, the latter involving a functional integration of dispersed activities. … Intensive empirical evidence for economic globalization in this sense comes from a series of studies of particular industries by the OECD. They develop a path for firms of five stages from domestic to global operations, which culminates in the highly globalized, where international operations include integrated management, financial control, research and development, production and marketing. They highlight the way firms both locate operations in areas which have concentrations of personnel and advanced technology, which provide global competitiveness, and at the same time seek to bring final products closer to customers.

These views are supported and expanded upon by sociologist Manuel Castells in his first book (The Rise of the Network Society, Blackwell Publishers, 1996) of a three part series The Information Age: Economy, Society, and Culture. Castells moves us to the notion of a global economy and elaborates on the networked enterprise:

  • A new economy has emerged in the last two decades on a worldwide scale. I call it informational and global to identify its fundamental distinctive features and to emphasize their intertwining. It is informational because the productivity and competitiveness of units or agents in this economy (be it firms, regions, or nations) fundamentally depend upon their capacity to generate, process, and apply efficiently knowledge-based information. It is global because the core activities of production, consumption, and circulation, as well as their components (capital, labor, raw materials, management, information, technology, markets) are organized on a global scale, either directly or through a network of linkages between economic agents. It is informational and global because, under the new historical conditions, productivity is generated through and competition is played out in a global network of interaction. And it has emerged in the last quarter of the twentieth century because the Information Technology Revolution provides the indispensable, material basis for such a new economy. It is the historical linkage between the knowledge-information base of the economy, its global reach, and the Information Technology Revolution that gives birth to a new, distinctive economic system. (p.66)
  • The informational economy is global. A global economy is a historically new reality, distinct from a world economy. A world economy, that is an economy in which capital accumulation proceeds throughout the world, has existed in the West at least since the sixteenth century. A global economy is something different: it is an economy with the capacity to work as a unit in real time on a planetary scale. While the capitalist mode of production is characterized by its relentless expansion, always trying to overcome limits of time and space, it is only in the late twentieth century that the world economy was able to become truly global on the basis of the new infrastructure provided by information and communications technologies. (p. 92)
  • Networks are the fundamental stuff of which new organizations are and will be made. And they are able to form and expand all over the main streets and back alleys of the global economy because of their reliance on the information power provided by the new technological paradigm. (p. 168)
  • The complexity of the web of strategic alliances, of subcontracting agreements, and of decentralized decision-making for large firms would have been simply impossible to manage without the development of computer networks, more specifically, without powerful microprocessors installed in desktop computers linked up via digitally switched telecommunication networks. (p. 169)
  • Through the interaction of organizational crisis and change and new information technologies a new organizational form has emerged as characteristic of the informational/global economy: the network enterprise. (p. 171)

Concluding Thoughts

The title of this course is Technology, Globalization & Competition and we can now see that technology and globalization are intimately intertwined because globalization involves real time relationships among dispersed individuals and organizations and these real time relationships are enabled via computer and communications technologies. We should further recognize that we are near the beginning of the globalization era, or the Global Age. From a product life cycle viewpoint, we are in the introductory phase of globalization because we are in the early stages of the digital revolution that is creating the technologies that are enabling real time relationships among dispersed individuals and organizations.

A global firm is then one that is built around relationships among dispersed individuals and organizations. This global firm is thus a network enterprise because networks are the fundamental stuff of which new organizations are and will be constructed. This global firm operates in a global economy, which is an economy with the capacity to work as a unit in real time on a planetary scale.

  1. […] In 1998 I wrote a short paper titled "Globalization: Real Time Relationships Among Dispersed Individuals and Organizations" and used it in the course. I just added this paper as a Page which can be accessed from the link "What is globalization?" at the top of the right hand column of this blog. Or you can get to it by clicking on this link. […]

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