Globalisation - The Double Edged Sword

Globalization is indeed a double edged sword that can bring us countless benefits, yet it can also harm our economy and society. 

Many big corporations would argue that globalization is a trend that helps corporations reap larger profits and benefit the people. 

Does this scene look familiar? If you guessed that it was Starbucks, you’re absolutely right!

Starbucks is a golden icon of globalisation. Its logo and store is easily recognized in all parts of the world. In fact, you can get a cup of Starbucks’ coffee in almost any corner of the world - it has 20,891 stores in 62 countries and territories including North America, Central America, Asia, Europe and Africa. 

In 2008, it had 16,226 stores in 44 countries. In just over 5 years, the number of stores increased by 28.75% and its global presence increased from 44 countries to 62 countries. 

Starbucks started its global expansion by acquiring local coffee chains in different countries. In 1998, Starbucks acquired the 65 outlet UK-based Seattle Coffee Company and rebranded all their stores as Starbucks. (Horizontal integration)

As Starbucks’ business started to flourish rapidly, its need for basic resources in production such as coffee beans, sugar and paper cups also grew. Starbucks obtains these resources from all over the world. It also established a wholesale coffee trading company in Switzerland, bought over the manufacturer of Clover Brewing System (a manufacturer of coffee equipment) and Teavana (speciality tea and tea accessory retailer), all of which are basic resources for its global chain of stores. (Backwards vertical integration)

Starbucks is a successful business that reaped in a revenue of US$13.29 billion and a profit of US$1.38 billion in 2012. 

However, there is a growing tension between the global expansion of corporations and societal norms of the countries that globalization affects.

Starbucks has been criticized for using it’s power to get the prime location and restrict landlords from leasing units to it’s direct competitors. It is criticized for “killing” small coffee shops, who cannot afford to pay an inflated price to lease the shop space. 

Although it can be argued that globalization can give us greater choice, the reverse can also be argued. Starbucks is accused of saturating the market and creating a homogeneous culture, essentially killing some countries’ individual “coffee culture” and limiting consumers’ choices. 

“Starbucks has become a global brand through their costumer loyalty and 'word of mouth' communications. If I were to go to Hungary and see two coffee shops, one being a local Hungarian coffee cafe and the other being Starbucks, I would probably go to Starbucks. Why? Because brand loyalty. I know when I order my Chai tea latte it will be just that: a chai tea latte. When I go somewhere unfamiliar I can be hesitant to what I might actually get, even if it is an unique European style coffee house.”

http://theeconomicspectacular.blogspot.co.uk/2013/02/globalization-and-starbucks.html

From this quote, we can see that Starbucks has effectively limited this consumer’s choice. 

Another effect of globalization that I would like to discuss is that it can help a company lower its cost of production. Companies such as Nike, Primark etc have global production chains to manufacture their clothes, which help them to capitalise on cheaper resources in different countries. In the case of Nike, it has kept its design plants in Europe and US, but it has moved productions to Asian countries such as China and India, as the labour costs in Asia are relatively cheaper.

By setting up manufacturing plants in these countries, these companies have helped to create jobs for the low-skilled workers in these countries, and also contributed to the gross domestic product (GDP) of these developing countries, fueling economic growth in these countries. 

However, many of these large companies have exploited cheap labour, often grossly underpaying their workers. A report showed that workers in Bangalore are paid as little as 13p an hour, and work up to 48 hours a week in poor conditions. Nike, for example, was embroiled in a sweatshop scandal that damaged their reputation. Thus, while it is claimed that people’s lives are being bettered through globalisation, it can be shown that in actual fact, these people are actually being exploited and underpaid.