The business environment in the first quarter of the 21st century

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Chapter 1

Throughout history, profit-making entities (among other) have constructed an ever-more-global economy. In the last 15 years or so, unprecedented changes in communications and computer technologies have given the process new momentum.

Multinational corporations manufacture products in many countries and sell to consumers around the world. Money, know-how and raw materials move ever more rapidly across national borders. Along with products and finances, ideas and cultures mingle more unreservedly.

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As globally mobile capital reorganises business firms, it sweeps away regulation and undermines local and national politics. Globalisation creates new spins of old trading ideas (auctions are becoming increasingly prevalent in buying and selling); it starts new markets and it contributes to wealth, even as it causes extensive distress, chaos, and strife. It is both a source of tyranny and a medium for global movements of social integrity and liberation.

Undoubtedly, in the first quarter of the 21st century, the profit-making firm functions in an environment full of global opportunities and threats; and in the wake of recent corporate scandals, the firm, simultaneously, is heavily constrained by ethical self-restraining as well as innovative regulations enforced by domestic and global-governance institutions.

1 Globalisation

According to A.T. Kearney/Foreign Policy Globalization Index (2003), which is based on indicators such as economic integration, technological connectivity, personal contact, and political engagement (see Table 1 below), from about 1999 to 2003, global foreign direct investment and portfolio capital flows slowed down significantly thus contributing to the weakening of globalisation. Other global trends, especially international tourism, telephone traffic and worldwide access to the internet stayed strong helping to compensate for the weakening of international economic ties, thus deepening global links overall. What are the lessons that the profit-making firm may derive from the globalisation of economic activity?

It appears that global markets, as discussed in the remainder of the section, ‘offer’ to the firm less legal restrictions, induce reduction in excess capacity, cause higher market concentration and contribute to higher profits. Consider 1, which links together two 2-dimensional diagrams: one has its origin in the southwest with global concentration measured on the vertical axis and profits on the horizontal; the other has its origin in the northeast with excess capacity measured on the vertical axis and legal restrictions on the horizontal.

As it is discussed below, globalisation enables firms to move ‘northeast’ from point A to point B.

Table 1 A.T. Kearney/Foreign Policy Globalization Index (2003)

The 2003 results do not show causation, but they do point to significant correlations; they demonstrate that the most global countries are those where residents live the longest, healthiest lives; women enjoy the strongest social, educational, and economic progress; global integration leads to secularisation.

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