Chapter 3 Globalization, Technology Transfers, Economic Development and Cultural Change John S. Hill Chapter Outline • The Economic Development Process • Economic Development Effects on Institutions • • • • and Behaviors Developmental Effects on Industry, Business Practices, and Consumers Country Development, Industrialization, Modernization, and Integration into the Regional and Global Economics Obstacles to Economic Development Figure 3.1 Chapter Outline Overview Economic development is defined, along with the resource bases needed to advance national economic agendas Economic development: Country progress in living standards and changes in cultural institutions and values How international corporations affect national cultures, both positively and negatively The ways that political, economic and cultural institutions change with development, along with effects on social and individual behaviors The diffusion of modern behaviors in national economies, and what factors contribute to and impede development processes The developmental process as it affects industry development, business, and consumer behaviors. Introduction: The Economic Development Process Resource Bases for Industrialization Internal public resources include government investments to create infrastructures and to deliver essential services Internal private resources, comprising local businesspeople and entrepreneurs External public resources include supranational institutions such as the UN External private resources: the contributions of international corporations Technology Transfers: Positive and Negative Effects Technology Transfer Positive Negative Product Sales (Consumer) Upgrades Consumption know how/consumer education Affordable only to affluent segments Product Sales (Industrial) Upgrades production process technologies; technician/engineering skills; lowers per unit production costs/prices Displaces workers with more intensive use of capital Licensing, technology agreements; corporate R & D efforts Broadens, elevates technology bases and workforce vocational and scientific skills Banking and Financial institutions Mobilizes savings to create investment markets for public/private sector-stock market capital; consumer/installment credit for individuals and business Only the wealthy benefit in the short term and leads to power concentrations; possible unwanted foreign influences encouraging buyers to purchase goods beyond their means. Continued Local procurement of materials and components Stimulus for private enterprise/local initiatives Establishment of wholesale/retail distribution systems Creates distribution infrastructure/expertise; increases customer exposures to modern goods & services Upgrades labor skills and vocational bases Worker training in technologies and production know how Management training in organizational know how/methods Increased managerial education and efficiency Financial and accounting skills Planning and budgetary control Easier for other foreign firms to meet procurement quality requirements Foreign control over distribution; consumer exposed to products that are beyond their means to purchase For a minority only; majority have insufficient education Only educated elites benefit Economic Development Effects on Institutions and Behaviors Institutions Traditional Modern Autarchy (dictatorships, presidents for life, chiefs, Kings, Shahs) Democracy: multi party systems Centralized (self-sufficient villages; communist economies) High Decentralized (market forces) Population Base Rural Urban Production base Agricultural Industrial Land ownership Stocks/shares Political Institutions Economic Institutions Economic System Community Orientation Economic power base Low Continued Cultural Institutions Family unit Gender orientation Religiosity Education system Social class: criteria :mobility Linguistic and ethnic backgrounds Extended Nuclear Patriarchal Emancipated High Low Informal Formal Hereditary Wealth Seniority/education Income Multilingual/many ethnic groups, often isolated Linguistic homogeneity Infrastructures develop to link communities and promote homogeneity Conformist Individualistic Religious/social Legal Social Behaviors Societal tendencies Control mechanisms Economic Development Effects on Institutions and Behaviors Changes in Institutions • Changes in political institutions: autocracies to democracies • Changes in economic institutions – Economic system changes: centralized production to market forces-based systems – Community orientation changes from high to low – Rural to urban population shifts – Agricultural to industrial sectors – Economic power base shifts from land ownership to stocks/shares Economic Development Effects on Institutions and Behaviors • Changes in cultural institutions – Family systems change from extended to nuclear – Hereditary and seniority social class systems to economically-based (income, wealth) – Gender orientations: patriarchal to egalitarian – Religiosity: declines with industrialization – Education systems: from informal to formal – Cultural homogenization- the Melting Pot Society (Figure 3.2 p. 88): how multilingual/multiethnic societies evolve over time into linguistically/ethnically homogeneous national cultures – Social behaviors:conformist to individualistic behaviors Economic Development Effects on Institutions and Behaviors Individual Changes in Values and Behaviors • Interpersonal behaviors: insider-outsider distinctions break down • Individual values (Table 3.3 p.89): Breakdown of traditional values (formality, trust, dislike of change, risk, fatalism, conformism) to modern values (low levels of trust, formality; preferences for efficiency, change, risk; self-help, individualism encouraged) • How Individuals Adapt to Industrializing Societies: The “Rat Race” Emulation Cycle (Figure 3.3 p.90): Individuals migrate to towns and become committed to jobs and urban lifestyles Impetus for Sustained Development: The “Rat Race” Emulation Cycle 1. Industrializing society uses economic criteria to determine social position Migration to towns, young workers join industrializing society 6. Work hard to emulate of consumption patterns of social superiors “Demonstration Effect” Exposure to new products, media, lifestyles 5. Commitment to industrial society increases 2. Work becomes “means to the end” work ethic cultivated 3. Wages allow new consumption patterns to form and 4. Materialistic behaviors take hold The Diffusion of Modern Behaviors: Intra-Country Behaviors and the Flexible Stereotype (Figure 3.4 p.92) Modern behaviors diffuse from urban to semi-urban to rural areas over time Modern societies are urbanized—most of their populations live in towns; rural populations more traditional in institutions and values Modern urban values define national cultures Developing Societies: 40-70% rural populations define national cultures and have traditional institutions and values Developing societies have pockets of affluent, urban peoples and migrants making the change to modern behaviors and values Developmental Effects on Industry, Business Practices and Consumers Developmental Effects on Industry Behaviors Developmental Effects on Business Practices Developmental Effects on Consumer Behavior Developmental Effects on Industry, Business Practices and Consumers • Developmental Effects on Industry Behaviors Supply chain development: (Table 3.4 Long-term developmental drivers of industry change) – National trade policies: From protectionist to free trade economies – Local labor costs and availability: From abundant low cost unskilled labor to high cost skilled labor Developmental Effects on Industry, Business Practices and Consumers • Developmental Effects on Industry Behaviors (cont’d) – Infrastructure development: roads, ports, banking systems, government support systems, education Demand factors – Market affluence increases: middle classes emerge – Market demand: aggregate supply>demand; marketing becomes important competitive tool – Media communications:more commercial media – Rural to urban population movements shift demand – Cultural diversity decreases: more homogeneous demand Developmental Effects on Industry, Business Practices and Consumers • Developmental Effects on Business Practices – Corporate behaviors (Table 3.5 p.96) • From small scale, harmonious, output-oriented firms to large scale, profit-oriented, competitive organizations – Management style changes (also Table 3.5) • Decision making: from orders given to employee involvement • Goal setting and planning: top-down to consensus • Leadership styles: from autocratic to democratic • Motivation methods: fear/punishment to rewards/involvement • Management-worker interactions: few to frequent • Career progression: seniority/loyalty to objective merit Developmental Effects on Industry, Business Practices and Consumers • Developmental Effects on Business Practices (cont’d) – Developmental effects on marketing practices (Table 3.6 p.98) • Segmentation: ethnic/geographic to • • • • • • income/demographic/psychographic criteria Limited to extensive product lines Urban-based marketing to national coverage Price becomes a competitive marketing tool Distribution: geographic to product specialization Marketing emphasis: distribution to demand creation Market research becomes important Developmental Effects on Industry, Business Practices and Consumers • Developmental Effects on Consumer Behavior Table 3.7 Traditional-Modern Changes in Consumer Habits and Behaviors – Purchasing roles – Sources of information – Branding – Labor-saving products – Retail outlet options – Merchandising and packaging – Means of purchase Developmental Effects on Consumer Behavior Purchasing roles change from patriarchal to egalitarian as families acquire purchasing power and buy more products Sources of information change from personal to commercial media Branding: becomes important to consumers and firms Labor saving products (refrigerators, canned, frozen foods) become important as more women work Retail outlet options increase (supermarkets, departmental stores) and consumption patterns change (bulk-buying) Merchandising and packaging: viewed as important and become primary marketing tools Means of purchase: credit/debit replace cash Country Development, Industrialization, Modernization, and Integration into the Regional and Global Economies • Table 3.8 The Industrialization, Modernization, and Globalization Process • Stage 1: Traditional Pre-industrial Societies: communistic, self-sufficient, agricultural, autocratic, culturally heterogeneous, hereditary social classes, traditional manufacturing • Stage 2: Industrialization and Modernization Processes: development of: market forces system; regional then national markets as infrastructure develops; government health and welfare systems, financial systems, democracies, national cultures, modern factory methods Country Development, Industrialization, Modernization, and Integration into the Regional and Global Economies • Stage 3: Postindustrial Economies: mature, service-oriented economies, internationally involved, politically, economically very competitive; large, specialized firms—customeroriented • Stage 4: Regionally and Globally Involved Societies: members of trade blocs and global bodies; source and sell worldwide—deeply involved in global economy; regional media, products, currencies, cultures, infrastructures Obstacles to Economic Development Industrialization Process Impediments Population migration problems:over-urbanization; towns are melting pots Worker frustration: low-paid unskilled work Worker adjustment problems: rural lifestyles vs. regimented factory disciplines Geographic Impediments Resource impediments: lack of consistent agriculture, energy sources, minerals Geographic location: affects climate, infrastructure development, trading route access Obstacles to Economic Development Ethnic and Linguistic Composition: Common languages must develop for economic development/coordination to occur; dominant ethnic language, colonial language Institutional Resistance to Change Political Resistance: incumbent politicians resist change Economic Resistance: privileged families, firms (SOEs) Cultural Resistance: religion (to westernization); education (humanities-based versus science/technology); rigid class system (old money); ethnic or tribal divisions Key Points Economic development causes changes in country political, economic and cultural institutions, and in individual values, attitudes and behaviors Technology transfers by international corporations contribute to modernization and westernization Individuals migrate to become part of the modern society Economic development causes change in industry demand and supply chain Corporate behaviors alter to emphasize profit-oriented, competitive behaviors, and participative corporate cultures Consumer behaviors change as companies become more sophisticated and aggressive in their marketing efforts Thank You!