The developments described above set a context within which the international economy operates, and many observers have claimed that this has facilitated a number of trends that are unprecedented and deserve to be described with a term that is distinct from internationalization, namely globalization. A number of basic tenets make up this ‘strong’ globalization thesis:
● national and regional economies are becoming dominated by a new global system of economic co-ordination and control in which competition and strategic choices are organized at the global level;
● national and international firms are becoming subordinated to transnational firms that differ significantly from them and are accountable only to global capital markets;
● the ability of nation states to regulate economic activities is rapidly declining, and global markets increasingly dominate national economic policies;
● national economic policies, forms of economic organization, and managerial prac-tices are converging to the most efficient ones as a result of global competition.
One of the key developments here is the internationalization of financial markets.
Over the last 20 years the barriers to transferring money from one country to another privately-owned, unregulated monopolies; countries such as Korea were cajoled into
privatizing their state-owned firms, despite the relatively favourable performance of these firms and the fact that the country’s problems were clearly in the private sector; the medicine of abolishing exchange controls merely exacerbated the problems in many Asian countries in 1997 by allowing massive outflows of capital; and the austerity measures of cuts in government spending and increases in interest rates were spectacularly ill-suited for countries entering a recession.
For Stiglitz, these problems stem from the influence of the ‘Washington consensus’, by which he means a set of economic policies geared towards allowing markets to operate with minimal government intervention. Moreover, he argues that the IMF’s policies have been closely tied to the interests of the US Treasury and the financial institutions in Wall Street. The IMF has defended itself from this critique, arguing that it is developing more flexible policy prescriptions and is learning from its mistakes (see Rogoff 2002).
Nonetheless, most observers agree that a consequence of the IMF’s actions has been that it has contributed to a globalization process in which the role of sovereign governments has reduced and the role of MNCs and international speculators has increased.
For further details and contrasting perspectives on the IMF, see:
Stiglitz, J. (2002) Globalization and its Discontents, New York: Norton and Co.
IMF website at http://www.imf.org
Rogoff, K. (2002) An Open Letter, available at http://www.imf.org/external/np/vc/2002/070202.htm
Case study question:Why do you think that the IMF pursues policies that have the impact that Stiglitz identifies?
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have greatly reduced. Exchange controls – the mechanisms that governments use to restrict flows of money into and out of their countries – have fallen out of fashion, frowned upon by bodies like the IMF as we noted above. Accompanying these shifts in government policy have been technological developments that have greatly reduced the cost and time involved in transferring money across borders. The result has been an explosion in the movements of ‘hot’ money across the globe, with the pattern of move-ment being driven by the available returns. The daily exchange of foreign currencies is now $1.2 trillion, more than 100 times the amount traded 30 years ago and, for exam-ple, more than the annual gross domestic product (GDP) of France (Gray 1998; Legrain 2002; see also Figure 1.4). Moreover, the stock of financial assets held by foreigners grew in the last part of the twentieth century to unprecedented levels (see Figure 1.5).
International trade has also increased sharply. During the post-war period trade has grown consistently faster than national output in the developed economies, the
7 6 5 4 3 2 1
0 1980
% world GDP
1985 1990 1995 1998
Figure 1.4 Daily currency exchange turnover
Source: data from Guillen (2001)
60 50 40 30 20 10
0 1870 1900
Foreign assets over world GDP (%)
1914 1930 1945 1960 1980 1995
Figure 1.5 Growth in foreign assets over world GDP
Source: data from Wolf (2004)
Part 1 • The context for international HRM
result of which is that a higher proportion of the goods and services that are bought and sold are produced in one country and sold in another (see Figure 1.6). In fact, many goods and services are produced through integrated global ‘chains’ of firms across a number of different countries (Gereffi 1999). Perhaps most notable of all is the increasing domination of the international economy by MNCs. These firms are commonly portrayed as ‘stateless’ economic actors that behave qualitatively differ-ently from more nationally-based competitors (Bartlett and Ghoshal 1998; Doz and Prahalad 1993; Hedlund 1993). Together with the expansion of international trade and growth of international capital markets, the increasing power of MNCs has been linked to the emergence of a ‘borderless world’ in which national boundaries and the states controlling them have less economic significance than the decisions of transnational business elites and financial markets. In general this process is seen as diminishing the significance of different kinds of national and regional forms of eco-nomic organization in favour of a new cross-national form of capitalism that is in the process of replacing them through superior efficiency.
It is beyond question that the scale of economic activity controlled by MNCs has grown sharply in the last 20 years or so. The United Nations Centre on Transnational Corporations estimates that there are around 61,000 multinationals in the world con-trolling around 900,000 subsidiaries. These firms make annual sales of $19 trillion and directly employ around 54 million people. The stock of foreign direct investment (FDI) controlled by MNCs increased steeply, from $560 billion in 1980 to $7,123 bil-lion in 2002 (UN 2004; see Figure 1.7). This was driven mainly by the sharp growth in cross-border mergers and acquisitions, which rapidly increased the extent to which many MNCs are spread across countries.
However, it is not simply the scale of MNCs and the resources they control that is significant. There are also important developments in the way these firms structure themselves and the strategies that they pursue. This issue is considered in depth in
1,600 1,400 1,200 1,000 800 600 400 200
0 1950
Key: Trade Output
1955 1960 1965 1970 1975 1980 1985 1990 1995
Indices equal 100 in 1950
Figure 1.6 Trends in world trade and output
Source: data from Hirst and Thompson (1999) IHRM_C01.QXD 11/10/05 3:57 pm Page 12
Chapter 4, but it is worth noting here the argument that the pressures of globalization are forcing companies to move towards new structures and strategies. For instance, according to Bartlett and Ghoshal (1998), the new economic environment is creating the need for a new type of organization – the transnational organization – which recog-nizes new resources and capabilities, captures them and then leverages the advantages on a worldwide scale. Although the extent to which many MNCs can be characterized as truly transnational can be disputed, as we will see, there are many examples of MNCs moving towards a greater geographic dispersion of business activities.
One of the implications of this trend for human resource management (HRM) is the emergence of a highly flexible international cadre of transnational managers, capable of implementing the very complex strategies involved. The strong globaliza-tion thesis predicts that instead of having careers that are driven by vertical moves up the organizational hierarchy, the focus will shift to managing lateral moves aimed at broadening and sharpening experience. The way in which managers are allocated to assignments and temporary projects will become more cross-functional, cross-busi-ness and cross-geography. We deal with the development of international managers in more detail in Chapter 9, looking specifically at career management and interna-tionalization, and at how they are recruited and selected in Chapter 10.