Globalization is a Myth?

Rugman writes in his new book, The End of Globalization. "The vast majority of manufacturing and service activity is organized regionally, not globally. Multinational enterprises are the engines of international business--and they think regionally and act locally."

This contrarian view does not come from the fringes of society. Rugman, a British-born Canadian citizen, has taught at Toronto and Oxford and now holds a chair at Indiana University's Kelley School of Business. He also claims to be one of the five most-cited scholars in international business, having published some 30 books and more than 200 journal articles.

Rugman argues that there are three regional groupings, a triad, composed of North America (principally the United States), the European Union, and Japan. Within each of these regional groupings, trade is dominated by the multinational enterprises peculiar to it. There are virtually no truly global businesses, he claims, for even giants such as McDonald's and Coca-Cola tailor their products to the local market. Consumer electronics and high value-added goods with low transportation costs are the only exceptions.

There is little economic interaction among the three regional groupings. Even direct foreign investment takes place almost exclusively within a particular grouping. Rugman's statistics clearly indicate that most manufacturing activity is within regions, and service activities likewise "are essentially local and regional." Not only are these basic economic factors not creating globalization, but they are also far from creating a "homogenized global culture." As living standards rise, multinational enterprises "respond to the growth in divergent tastes with niche products and services."

Rugman criticizes globalization's foes, such as nongovernmental organizations, as unrepresentative and irresponsible; he argues that they ultimately hurt the interests of the poor they claim to champion. (And of course globalization's critics could counter that Rugman and his ilk neglect to discuss such important global problems as the environment.) He is, however, resigned to their influence. They are part of a dynamic about which he is pessimistic: "NGO activities, the probable withdrawal of the United States from the [World Trade Organization], its lack of commitment to free trade, and the dissolution of the postwar consensus about the virtues of free trade will lead to the end of globalization. But globalization was a myth anyway."

Business talks globally but thinks regionally and acts locally.

McDonald's and Coke are not as globalized as they seem, argues economist Alan Rugman of Indiana University. Globalization was not killed by the Seattle riots of 1999 or the Asian financial crisis, he says.

Another force countering globalization is the nation-state, which, in Rugman's view, is far from dead. In a world economy dominated by the triad blocs, nation-states "still make the rules, imposing regulations such as environmental and health codes." But national factors are not as rigid as before. "As the service sector increases its dominance of economic activity, the borders of the nationstate become less rigid," he notes, and "virtually all service sectors are now more regionally... based than is manufacturing."

Contrary to the views of many, Rugman believes that the Internet makes no real difference in globalization: "The Internet is a service vehicle, which is used for communication and, perhaps in the future, for entertainment services," he points out. "It is not able to bring people and goods together physically--it can only transmit messages and orders for business goods and services, which still need to be delivered locally." Like the telephone and the satellite, it "provides a global service for local users."

The current situation requires new thinking by managers of multinational enterprises. "Trying to design and implement a global strategy is no longer appropriate. Instead, a triad strategy is required," says Rugman. His message to managers: "Think regional, act local; forget global."

Victor Ferkiss is an emeritus professor of government at Georgetown University, a member of the World Future Society board of directors, and the author of Nature, Technology and Society (New York University Press, 1993).
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