The Impact of Globalization on the Consumer [PDF]

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The Impact of Globalization on the Consumer James Scriven

Introduction If one looked at the tags on the clothing in their closet, one would see many different countries of origin, including China and Indonesia. How about the location of the manufacturer of your watch? What about the place of origin of your television? There is no question that globalization has permanently changed the landscape of how consumers behave, think, and more importantly, spend. The fact that countries are able to more freely trade with each other, has created an abundance of products and services that can be offered to the consumer. Many of these available products and services would have been unimaginable before the many free trade agreements were signed and international unions were formed. This research examines the impact of globalization on marketers, consumers, workers, and cultures. The impact of globalization is mixed in terms of its affect on quality of life, but its impact is undeniable. Globalization and Culture Globalization has created the ability to purchase life changing goods for consumers. It has provided the flexibility of having many consumption alternatives at reasonable prices and created a slew of expectations moving forward. It has generated changes in societies and cultures across the world. Into the future, consumers and marketers can see an increase of the types of goods within existing markets or tiers, such as laptops and mp3 players. These same consumers and marketers can expect to see the integration of similar products, such as a touch screen 13

tablet and laptop combination. International trade creates these opportunities but it also raises questions about the ethical issues facing global businesses. It requires an understanding of foreign exchange markets and requires analysis of the impact of such trade on consumers specifically, and residents of different countries in general. It also creates challenges for marketers, who must create advertisements for the same product, across different nations, that will appeal to various ethnic groups and cultures. Globalization is defined as the process by which cultures influence one another and become more alike through trade, immigration, and the exchange of information and ideas (“Culture and globalization,” n.d.). Culture (also referred to as the personality of a society) is defined as the total pattern of human behavior and its products embodied in speech, action, and artifacts and dependent upon man’s capacity for learning and transmitting knowledge to succeeding generations (Solomon, 2011). Through globalization, one’s culture may be easily influenced, and members of society are not always aware of how a nation’s culture is being affected from without. When a new product is introduced to a society, it will be used and eventually integrated into the daily life and routine of the consumer. With the rise and prominence of technology, globalization can be expected to spread due to the increased trade and communication. Technological improvements such as advancements in hardware and software have begun to unite individuals, communities, and nations in ways that were previously unimaginable. Types of food and clothing have gained global appeal; popular clothing brands such as Nike and Adidas gained global attention, along with popular food brands such as Pepsi and Coca Cola. Cultural Differences and Marketing Marketers notice this and have developed many different ways of reaching out to consumers around the globe. In many cases, marketers will have to create totally different advertising strategies when dealing with different nations, to appeal to those nations’ peoples’ customs and 14

beliefs. For example, Starbucks products usually feature a female on their products, in their logo. Countries such as Saudi Arabia frown upon having a woman’s face exposed. Due to this, the Starbucks logo in Saudi Arabia is a crown swimming in the sea (Walker, 2011). When attempting to go global, there are many factors a company must consider including the factors known as power distance, uncertainty avoidance, masculinity/femininity, and individualism. All of these factors help shape a culture, leading to individuals’ beliefs and values, impacting their purchasing decisions. It is based on these beliefs and values that marketers will create advertisements to appeal to specific consumers. Power distance is defined as the way members perceive differences in power when they form interpersonal relationships (“Power distance,” n.d.). Uncertainty avoidance is defined as the degree to which people feel threatened by ambiguous situations and have beliefs and institutions that help them avoid this uncertainty (“Uncertainty avoidance,” n.d.). Masculinity/femininity is defined as the degree to which a culture clearly defines sex roles and individualism as the extent to which the culture values the welfare of the individual versus that of the group (Solomon, 2011). All of these factors are important to understanding the consumer because they shape each consumer’s being. It is this circumstance that means that an American consumer is not likely to be opposed to a woman’s face and figure at the center of Starbuck’s logo but an American marketer will have to be mindful that this will be unacceptable when doing business in a country such as Saudi Arabia. Marketers must recognize these differences but it is also true that the behavior of consumers is affected by globalization. The simplest and most obvious observation related to this is the products that we purchase. The shirts Americans wear may be manufactured in China. The computer that a student is using may have been assembled in Limerick, Ireland (RTE News Ireland, 2009). An mp3 player has parts imported from dozens of different countries around the globe (Feenstra & Taylor, 2008). Millions of people around the globe use products like these (“Globalization and trade,” n.d.). 15

Globalization and Impact of Free Trade Agreements Globalization has impacted our lives tremendously in the products that consumers can access. An especially important factor contributing to this global trade is the increasing creation of free trade agreements and economic unions. A positive aspect of globalization is the increase in variety of goods available to consumers and the decrease in prices. This could not have occurred prior to the institution of free trade agreements between many countries; even had products been dispersed around the world, those products would have carried hefty price tags given trade barriers, both financial and others. One of the largest, with the greatest impact on American culture, and the most widely recognized free trade agreement is the North American Free Trade Agreement (NAFTA). NAFTA was initially agreed to in 1992 by United States’ President George H. W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney. On December 8, 1993, President Bill Clinton signed it into law in the United States (U.S.), then on January 1, 1994 it was finally implemented (Amadeo, 2012). The beginnings of NAFTA in the U.S. came about while former President Ronald Reagan was in office. In 1984, Congress passed the Trade and Tariff Act, which gave the President the “yes or no” option when it came to trade. Congress only had the power to approve or disapprove, but not to change anything in an agreement. In 1988, Reagan and Canadian Prime Minister Mulroney agreed on- and signed- the Canada-U.S. Free Trade Agreement, which was implemented in 1989. Since the implementation of the broader NAFTA, this agreement has been suspended (“NAFTA- pros and cons,” n.d.). Soon after the Canadian pact, President Bush of the U.S. and President Salinas of Mexico were working on negotiations for a trade agreement between their respective nations. Before NAFTA, Mexican tariffs on U.S. goods had been a staggering 250 percent higher than that of U.S. tariffs on Mexican goods. Obviously, a free trade agreement was in the best interests of the U.S. at this time. Before Mexico and the United States could finish their agreement, an offer was proposed by Canada 16

for a trilateral. In 1993, the end result of these various negotiations was NAFTA (“NAFTA- pros and cons,” n.d.). A major condition of NAFTA was that all barriers that were in place to limit the inter-country movement of supplies, goods, and services were removed. Also, NAFTA was meant to promote fair competition and increase investment opportunities. This agreement was supposed to be used as a model of how trilateral agreements could work and to create multilateral cooperation in order to expand the benefits of trade (“NAFTA—pros and cons,” n.d.). The Effect of NAFTA on Individuals Since the implementation of NAFTA, trade barriers have been reduced or eliminated. Certainly, there has been an increased number of investment opportunities and procedures have been put in place to solve any problems with the regulation of any trade. The question that must be raised relates to the impact that these changes have had on individuals. When a free trade agreement is implemented, increased manufacturing may well occur as new markets are opened up. The NAFTA agreement linked about 439 million people together after it was put into effect, with about $15.3 trillion in goods and services affected (Amadeo, 2009). For the United States, the result of NAFTA has been that many parties have benefited. In general, the public as buyers are often the biggest winners—but the public as workers can be the biggest losers. Between 2002 through 2007, about 897,000 jobs were lost; however, prices have been lower and there are more options for purchases (“NAFTA—pros and cons,” n.d.). In many ways, the United States is better off because of free trade. Prices are lower for everyone, and people who lost jobs in inefficient and uncompetitive industries are now free to use their labor in an industry in which the U.S. can be competitive. Some may argue that the job loss is unfair to workers; others suggest that labor that retrains into a more competitive industry actually benefits. Consumers generally prefer lower prices and more options to the opposite and a free trade agreement has created this combination (“NAFTA—pros and cons,” n.d.). 17

Chandler (2006) notes that “…fair trade gives consumers an opportunity to exercise a moral choice in their own purchasing practices. This is most true in the developed world, but is increasingly becoming an option in local markets in developing countries too. The regular purchase of fair trade items can act as a powerful reminder and reinforcement to the individual of the importance of their commitment to promoting economic justice.” The ability to base purchase decisions on moral bases arises out of the options that freer trade brings according to this author because, with more products available, the awareness of some consumers’ increases. The Effect of Globalization on Culture The impact of globalization goes beyond providing consumers with choices. Cultures are being flooded with new and different ideas and beliefs, which can drastically alter peoples’ lives. “With globalization, today the world is different place. While human lives continue to be lived in local realities, these realities are increasingly being challenged and integrated into larger global networks of relationships. The forces of globalization are taxing the youth, families, and cultural systems worldwide. All social systems are contaminated by the need to borrow values, morals, skills, and competencies from the next regions or nations. The process of globalization and its attendant consequences may lead to a stripping away of culture identity” (Doku & Oppong Asante, 2011). Some companies have negotiated these challenges successfully; others have not. An example of a successfully globalizing company is McDonalds; an American company with American values and beliefs that is succeeding all over the world. The first international McDonalds restaurant was opened in Puerto Rico, in the year 1967. Now, there are over 30,000 restaurants worldwide inhabiting six continents (“McDonalds,” n.d.). An example of less successful globalization comes from Dunkin’ Donuts. This popular company is able to succeed in America because Americans thrive on their morning coffee, hence the Dunkin’ Donuts slogan: America Runs on Dunkin’. The Japanese are the opposite. They use their time in the afternoon, normally referred to as 18

tea time, for snacks and drinks and donuts and coffee do not appear to appeal to the Japanese in the afternoon (Solomon, 2011). Despite examples of success and failure of companies expanding globally, consumers everywhere have been exposed to other cultures. Other cultures integrate into American culture all the time, especially into popular culture. One example of this last year was the popular song, Gangnam Style by Psy. The combination of a catchy tune, simple dance, and animated foreigner has made Gangnam style one of the most popular songs in recent memory, still inspiring commercial take-offs. Another example is one of the most popular children’s series today which was able to achieve such great popularity because of globalization. The show, Power Rangers, was created by a Japanese production company. Power Rangers incorporated the Japanese fighting style of karate with the fashion trends of American teens, to appeal to the senses of all young viewers. Power Rangers is the epitome of what Doku & Oppong Asante were referring to when they discussed cultures that are becoming interwoven. Two cultures were integrated to create a widely successful television series. The Speed and Origin of Globalization The rise of globalization can be directly attributed to advances in technology. “Nowadays, globalization is more comprehensive than in the past. This is due to its dynamism imposed by new technologies, which allow the further attainment of various fields of life through a faster rhythm. Before, the ideas and technologies needed centuries to extend to the whole world. However, today this can be accomplished in just a few seconds. With the help of the new communication means, new ideas can get around the world in just a few moments” (Soproni, 2011). In the past it would be nearly impossible for information to be transmitted as easily and accurately as it is today. Today, consumers know about the hottest products, often before images have even been released for the products. Engineers, while still designing the prototypes, will often have to add new features to their designs based on consumer feedback. Globalization turned out to be an unexpected outcome of World War II. “The spread of globalization was … facilitated through 19

international trade agreements. The end of World War II also led to decreased barriers to international trade through formalized agreements, such as the General Agreement on Tariffs and Trade (GATT). These trade agreements enabled greater international economic integration through policies that promoted free trade, reduced or eliminated tariffs, created free trade zones, reduced transportation costs and instituted common intellectual property protections among member nations” (Newton, 2009). Newton (2009) also points to technological advances that have helped the process of globalization reach the extent that it has reached. “Technology has been a principal driver in the spread of globalization. As technological advancements in computer hardware and software made rapid gains, almost all sectors of the global economy experienced corresponding growth. In addition, information technology, which creates a communication platform that enables the exchange of goods, communication and resources regardless of geographic proximity, greatly increased the international flow of commerce and ideas. These increased technological capabilities began uniting individuals, communities and nations in ways that crossed political and economic boundaries” (Newton, 2009). Examples of this are evident in everyday life, ranging from interactions via social networking to playing video games with people online who live on the other side of the planet. Conclusion: How Globalization Has Changed Our Lives One result of the abundance of options available to consumers, thanks to globalization, is that consumers appear to automatically conduct more research on products generally looking for the best deal. Consistent with this notion is the result that when it comes to certain products, brand name is not always the primary determinant for consumer choice. Regarding televisions, size and price are usually the driving forces that ultimately cause the consumer to make a decision. When it comes to clothing however, the consumer may even want to purchase the product with the higher price tag, depending the way that price is interpreted and how that consumer’s culture influences him or her. 20

The majority of consumers in generation Y, also known as the millennials who are born between the 1980s and early 2000s, will choose the most popular brand in a heartbeat. If marketers can make a brand seem cool, that brand will be popular to consumers in this generation. A product that is viewed as cool is nothing more than a product that is popular and in style, and what is popular and in style relates to the consumer’s culture. The impact of globalization on workers is different. Trade agreements have resulted in many products being brought to the U.S.; products that are not produced here, or are no longer produced here. Some of the largest imports from Mexico are crude oil, video equipment, and vehicles and their parts (“Mexican,” 2013). Some of the largest imports from Canada include petroleum, car parts, telecommunication devices, and lumber (“Canada,” 2013). It is unfortunate that people lost their jobs as a result of NAFTA, but many recreational products that the average American uses come from Mexico. Had it not been for NAFTA, it might be true that only the rich would have access to some of the upscale video games, the ten megapixel cameras and the high definition televisions currently available. Canadian trade has also made life easier for people in the United States. If it were not for Canada, the U.S. might be importing oil from far less friendly countries. Consumers benefit where some workers have not, but at the end, we are all consumers so the argument can be made that NAFTA has been a net gain. As to cultural changes that have resulted because of globalization, there is debate regarding whether the impact of globalization is positive or negative. The debate is best summarized by Lechner (2001), noting that some worry about the “westernization” of cultures and the creation of a “consumerist culture” encouraged by globalization. For others, loss of cultural diversity is not the result of globalization; rather, “homogenization and heterogenization may actually operate in tandem or even reinforce each other,” and globalization actually causes an appreciation for diversity that might not occur otherwise (Lechner, 2001).

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References (n.d.). Power distance. Clearly cultural: Making sense of cross cultural communication. Retrieved from website: http://www.clearlycultural.com/ geert-hofstede-cultural-dimensions/power-distance-index/ (n.d.). Uncertainty avoidance. Clearly cultural: Making sense of cross cultural communication. Retrieved from website: http://www.clearlycultural.com/?s=uncertainty+avoidance Amadeo, K. (2010). Economic indicators. Retrieved from website: http://useconomy.about.com/od/economicindicators/p/unemploy_rate.htm Amadeo, K. (2009). Gross domestic product. Retrieved from website: http://useconomy.about.com/od/grossdomesticproduct/f/Real_estate_faq.htm Chandler, P. (2006). Fair trade and global justice. Globalizations, 255-257. Retrieved from website Doku, P. N. & Oppong Asante, K. (2011). Identity: Globalization, culture and psychological functioning. International Journal of Human Sciences, VIII (2), 1-8. Retrieved from website Feenstra, R. C. & Taylor, A.M. (2008). International economics. New York: Worth Globalization101.org. (n.d.). Culture and globalization. Retrieved from Suny Levin Institute website: http://www.globalization101.org/uploads/File/Culture/cultall.pdf Globalization101.org. (n.d.). Globalization and trade. Retrieved from Suny Levin Institute website: http://www.globalization101.org/category/issues-in-depth/trade/ Lechner, F. (2001). Does globalization diminish cultural diversity? Retrieved from The Globalization website: http://sociology.emory.edu/faculty/globalization/issues05.html McDonalds. (n.d.). Retrieved from McDonalds Corporation website: http://www.mcdonalds.ca/ca/en/our_story/our_history.html NAFTA—pros and cons.(n. d.). Retrieved from alibaba website: http://resources.alibaba.com/topic/274928/NAFTA_Pros_and_Cons_.htm

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Newton, H. (2009). Globalization: Societal Implications. Research Starters Sociology, 1-8. Retrieved from website RTE News Ireland. (2009, January 8). Retrieved from website: http://www.rte.ie/news/2009/0108/Dell.html Solomon, M. R. (2011). Consumer behavior buying, having, and being. Upper Saddle River: Pearson Soproni, L. (2011). The globalization of communication. Eurolimes, XII. 5-8. Walker, A. (2011, January 6). New Starbucks logo too racy for some countries. Good, Learn. Retrieved fromwebsite: http://www.good.is/posts/new-starbucks-logo-too-racy-for-some-countries Workman, D. (2013, July 9). Highest value Mexican export products. World’s Top Exports. Retrieved from website: http://www.worldstopexports.com/highest-value-mexican-exportproducts/2624 Workman, D. (2013, July 6). Canada’s top exports. World’s Top Exports. Retrieved from website: http://www.worldstopexports.com/canadas-top-exports/2502

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