Environmental factors and organisations
Environmental factors and organisations

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Environmental factors and organisations

1 The commercial environment

1.1 Globalisation

Globalisation is something we tend to take for granted, mostly in the form of the remarkably low prices we pay for our consumer goods. When the first pocket calculator was launched in the UK in 1972, it cost £79 plus tax, an amount close to the average monthly take home pay.

Ten years later came the original IBM PC. Replete with a 4.77 MHz processor, 64kB RAM, a 12″ monochrome monitor (and an optional floppy disk drive!), it carried a UK price tag in excess of £1500, at that time a figure of the order of 3 months’ take home pay.

By 2006, a ‘typical’ desktop PC might feature a 3 GHz processor, 1GB of RAM, a 17″ colour screen and an 80GB hard disk drive, and cost less than £500 (by now, rather less than the average UK gross weekly wage). A basic 4-function calculator is almost cheap enough to be given away with a packet of cornflakes.

There are many factors influencing this dramatic reduction in ‘real’ prices. Yes, the technology has advanced in quite spectacular fashion, and yes, total production volumes allow for significant economies of scale, but a quick glance at the back of the average mobile phone, DVD player or digital camera will reveal something crucial. It probably says ‘Made in China’.

Figure 1 The Sinclair Executive pocket calculator, c1972
Figure 2 The original IBM PC, c1981

Box 1 An American icon

There was a time in the history of rock ‘n’ roll when every aspiring young British guitarist lusted after the (American-made) Fender Stratocaster. In 1965 they cost 185 Guineas (£194.25), which was then approximately 4 months average take-home pay. They were understandably pretty rare in the UK. The Japanese have a long history of manufacturing musical instruments, and by the mid-1970s were beginning to build themselves something of a name for ‘replica’ guitars, in effect shameless copies of US originals including the venerable Fender Strat. Needless to say, Japanese-made Strats were much cheaper than an American original and were relentlessly improving in quality, so much so that eventually Fender bought one of the Japanese companies involved and so was born the Squier brand. In the immediate aftermath of the purchase, with US-made originals typically costing upwards of £600, a Fender Squier Stratocaster could be had for less than a third of that price (coincidentally £185, by now less than 3 weeks take home pay). What was even more impressive was the quality. Many professional musicians, including several household names, would gig with their ‘cheap’ Squiers, whilst their old US-made originals were now deemed too expensive for life on the road and were seldom seen outside the studio. (For those interested in such things, early US-made Strats can now reach prices in excess of £10,000, more if they have a ‘big-name’ association.)

Interestingly, the process did not stop there. Due to a combination of acknowledged high quality and the international value of the yen, the price of Japanese instruments began to rise, and so Fender/Squier started looking for a cheaper manufacturing base. They quickly found one in the emerging ‘Tiger Economies’ of South-East Asia. Manufacture of the cheaper instruments in the range was moved to Korea, and yes the initial response to these products was that they were not really to the same quality as their Japanese forbears. But then the quality was seen to improve and the cycle started all over again. Currently the cheapest Squier Stratocasters are made in China, with other price-points in the Fender range being manufactured in Korea, Mexico, and Japan, with full US-manufacture now reserved for expensive ‘hand-built’ models from the Custom Shop range.

Figure 3 A Fender Stratocaster

The moral of the story is intended to be that, almost whatever it is, if you are in a medium or high wage economy then for the foreseeable future there will always be someone, somewhere, who can make it cheaper. Even with highly efficient factories there were just too many infrastructural overheads (health provision, education and welfare arrangements, pension schemes and the like) for established Western economies to compete on price.

Early responses to this trend were visible at least as far back as the 1980s when the UK tilted away from its traditional manufacturing base and towards a service economy. More recently it was discovered that many services are just as amenable to delivery from elsewhere. Although the UK might legitimately claim to have ‘invented’ the call-centre, telephone calls for customer service and support are increasingly likely to be answered by somebody in not just a different country but even a different time zone.

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