3. CONCLUSIONS

In this chapter, we have had a look at recent changes in the business environment. Today, it is often described as being shaped by globalisation. Globalisation was defined as the integration of production and distribution processes concerning goods and services beyond the borders of nation-states. Two aspects of globalisation were reiterated: the increase in international trade and the increase in foreign direct investment.

Globalisation occurred because the benefits of international interactions increased relative to those of intranational interactions. The causes for these changes were divided into two groups: namely changes caused by policy factors and changes caused by technological and economic factors. In order to spell out the changes in international interaction costs they were divided into three cost categories having to do with international trade and three cost categories having to do with foreign direct investment.

With regard to policy changes, liberalisation in the form of deregulation and privatisation played an important role. These changes caused state-mandated barriers with regard to both international trade and foreign direct investment to shrink considerably. The liberalisation of capital markets has helped to decrease the costs of financing foreign direct investment. International interaction costs have thus been reduced due to policy changes.

The changes caused by technological and economic factors have an effect in the same direction. The secular decrease in transport costs has made international trade much more attractive compared with intranational trade. The Internet has reduced both organisation and transaction costs on a worldwide scale, it has thus also made international trade and foreign direct investment more attractive.

Some of the economic and technological changes can be expected to lead to demands for further liberalisation. As an example, the Internet that makes new kinds of border-crossing trade possible that is currently still prohibited was named. Globalisation can thus be expected to keep its pace. Firms will have to adapt their strategies in order to remain successful in a radically altered business environment.

2.6. Rapid Change of Consumption Patterns

Many industries have experienced rapid changes in consumption patterns over the last couple of years: margarine turned from a cheap substitute for butter into a fancy lifestyle product, Adidas footwear and textiles transformed from old-fashioned sportswear to a hip product to be worn in cool clubs on Saturday nights. There are many more examples.

Many of these changes were hardly predictable for the companies concerned. They can radically change a firm’s business environment: all of a sudden, marketing can become crucial etc. But many of these changes are also unpredictable for competition authorities. These changes mean that demand substitutability becomes even more difficult to ascertain: at least some products that used to belong to some sportswear market have become part of some fashionwear market.

2.5. Homogenisation of Preferences

The hypothesis that preferences will become ever more similar on a worldwide scale has been around for quite some time (see, e.g., Levitt 1983) and has been highly disputed. It can be decomposed into two seemingly contradictory trends: on the one hand, the trend toward ever more similar preferences, and on the other the trend toward ever more specific preferences. As long as they both occur simultaneously and on a worldwide scale, they might have far-reaching effects on firm behaviour.

There are three arguments in favour of consumer preferences becoming more alike beyond cultural or nation-state borders: Firstly, due to the improvement and the worldwide availability of mass media, information is shared on a worldwide scale. Knowledge concerning the consumer habits of others could, from that point of view, influence one’s own preferences. Secondly, the growth in tourism over the last decades has brought people belonging to diverse cultures into direct contact with each other. And thirdly, higher income levels in many countries have led people to lead more similar lifestyles.

For firm behaviour, the trend towards the homogenisation of preferences can have far-reaching consequences: Certain marketing strategies are not confined to specific countries anymore but can be used in a variety of world regions and economies of scale in promotion and advertising can be realised. This means that international interaction costs have been decreasing. Use of such strategies is not confined to large companies anymore but small and medium-sized companies can also apply them.

On the other hand, trend experts have long reported a tendency towards an individualisation of lifestyles. The number of archetypal consumers, whose preferences and desires market research companies are after, has substantially increased. The individualisation of lifestyles means a trend towards an ever-finer differentiation of products. This means that niches for specialised producers open up and the danger of a strategically induced market foreclosure seems rather negligible.

2.4. The Internet

It could be argued that the Internet is a medium for transporting information and that it should therefore have been discussed in the last subsection. This is, of course, true. Yet, we have decided to discuss the Internet as a separate factor because too many of today’s fundamental changes in business are closely related to the development of the Internet.

Today, all digitalised information can be transported via the Internet at almost no cost. The Internet is, of course, not a one-way medium and thus does not only allow for the transport of information, but also for communication, i.e., the mutual exchange of information. From the point of view of firms, three main channels of communication can be distinguished meaningfully: (1) intra-firm communication, (2) communication with other firms (Business-to-Business, B2B), and (3) communication between the firm and its customers (Business-to-Consumer, B2C).

Although the Internet allows firms to exchange information with anybody who has access to a computer, some communication is intentionally restricted to the boundary of the firm. So-called intranets that are based on the Internet can be an important tool for saving on organisation costs. It is important to note that the Internet does not only allow for savings on transaction costs – to be discussed in a minute – but also for savings on organisation costs. This means that ex ante little can be said about the direction in which the optimal size of the firm develops to the diffusion of the Internet. Whether firms become larger or smaller depends on the relative magnitude of the savings in transaction costs compared to those in organisation costs.

During the Internet boom, B2C was expected to grow rapidly. In the meantime, B2B has grown much faster. It has helped many companies to substantially save in their sourcing activities.

The Internet allows for both firms and private consumers to gain more transparency with regard to (1) the range of available products, (2) their quality, and (3) their price. Thanks to search engines such as Google or Altavista, many products can be searched for on a global scale. Markets that used to be very untransparent have turned into transparent ones. Take the market for antiquarian books: a couple of years ago, many used book dealers did not even have an incentive to publish lists of the books they had in stock. Now, the stock of many antiquarian bookstores can be browsed through within seconds. The transparency-enhancing effect is, however, not confined to products whose existence one is already aware of. The Internet can also be used to gain an overview over the specifications of many different products. In many cases, this will lead to increased demand substitutability.

The Internet can also be used to get information concerning the quality of goods one is considering to acquire. If I look for a certain book on “amazon.com”, I will not only get a description of the book, its title page, some sample pages and so forth, but also a number of critiques from people who have (supposedly) read the book. If I am uncertain as to what travel guide to buy, this information can be decisive for my purchase. In the meantime, some portals have specialised on collecting and providing customer reports on a wide range of products (“ecomment.de”). Suppose a potential consumer has collected some information on the products
available for her needs and has compared qualities using the Internet. She would now like to buy the product, of course, at the lowest possible price. Again, some portals have specialised in finding the lowest price on the net (“BestPrice.com”). Increased transparency can be expected to channel demand to low-cost suppliers. It will therefore increase price competition.

The paradigmatic textbook case for monopoly power is this: a supplier has a monopoly and is facing atomistic, unorganised consumers. Traditionally, consumer interests have indeed been notoriously difficult to organise. The Internet has not only decreased the costs of running an existing hierarchical structure (as discussed above) but has also increased the chances of people with similar interests to coordinate their behaviour for the first time. Examples are portals that offer lower prices as the number of customers increases. In the pre-Internet days, costs of finding consumers interested in buying identical products used to be prohibitive. Due to the low cost of using the Internet, this has changed.

These costs of getting organised have not only been decreasing for final consumers. Producers who co-operate in their sourcing activities are able to establish buyer power and will often be able to substantially reduce costs. The best-known example for this is Covisint (Covisint.com), a venture of a number of automobile companies. Cost-savings are, however, not confined to the demand side of the market: Thanks to the Internet, suppliers can often penetrate markets without having to incur heavy investments in the creation of a distribution network, a brand, etc.

Many orthodox classifications become outdated due to developments induced by the Internet. Synthetic creations like “prosumer” or “coopetition” are evidence of that development. “Prosumer” is a mixture of consumer and producer and shows that this traditional division tends to become flawed. “Coopetition” is a mixture between “cooperation” and “competition” with a similar bent. It has been observed that the traditional distinction between “markets” and “hierarchies” is not sufficient for describing the complexities of real life anymore: Markets tend to get ever more organised (“ebay.com”), hierarchies tend to get an increasing number of market-like elements. This is a trend that has long been analysed by representatives of Transaction Cost Economics under the heading of “hybrid forms” (Williamson 1985).

The Internet can be expected to lead to additional demand concerning policy changes: as a distribution channel, national borders are often negligible (the sale of software products that are distributed via the net is an example). At other times, they do play a certain role. One can order from the Internet pharmacy Doc Morris via the Internet. Delivery of the product, however, still has to rely on traditional distribution channels and national borders can still function as barriers to trade. But the possibility of lower prices can be expected to lead to further demands concerning liberalisation and deregulation. In many cases, it can be expected to lead to lower prices and higher consumer welfare.

2.3. Developments in Transport Costs

Transport Costs are one component of international interaction costs. As a consequence of the liberalisation and deregulation described in the previous section, they have decreased substantially over the last couple of decades. Another factor contributing to their decrease was the trend to uniform standards, a third factor being innovative logistics concepts. Baldwin/Martin (1999) have estimated the development of various categories of transport costs for the period between 1940 and 1990. According to their calculations, costs of sea freight have dropped some 50%, airfreight has dropped some 80%, information transmission via satellite has dropped 90% (here, the relevant period is the one between 1980 and 1990), and the transatlantic transmission of data has decreased some 98%, all in real terms. Note that their estimates end in 1990.

In the meantime, a number of important developments have taken place that should have led to further substantial cost cuts: railways have been partially privatised or at least deregulated in many countries. This has not only led to decreases in transport charges but also to improvements in service quality. The liberalisation of the road freight business within the European Union only occurred in 1993. It also led to additional reductions in transport costs.

The reduction of transport costs has been so important that many firms have been able to reduce the number of plants and increase average plant size. The reduction of transport costs is thus an important determinant of a firm’s plant structure. Traditionally, transport costs could be an important cost component preventing the entry of new competitors. Due to dramatic decreases, this effect should have vanished largely.

2.2. Increasing Mobility of Supply

It has been observed that expertise in a number of basic production techniques can at times enable firms to enter familiar markets without having to invest much in terms of learning costs. If this is true, this would mean that the relevance of supply-side substitutability has to be taken more explicitly into account: should the price-cost ratio increase in a certain market, firms that have the capability of entering into this market without having to sink substantial amounts of costs would be credible potential entrants into that market.

2.1. Rapid Technological Change

Compared to the 1970s, the length of product and innovation cycles has been cut in half (Leker 2001). This has increased competitive pressure immensely: in order to make the investments on research and development profitable, large quantities of new products need to be sold fast on a global scale. Management consultants have termed this the “multi-domestic” strategy (Leontiades 1985). Another attempt to economise on R&D costs has been to share them with competitors (“strategic alliances”). These have been evaluated critically by a number of competition authorities. Drawing on the insights of transaction cost economics, many of them can be explained as an attempt to economise on an important cost component, in this case R&D (Voigt 1993 for an evaluation of strategic alliances from a competition policy point of view; Lopez 2001 for recent attempts of competition authorities to evaluate them as an attempt to monopolise).

The cutting in half of product and innovation cycles has far-reaching consequences for the competitive process: innovative leads cannot be conserved anymore. It is often highly unlikely that today’s dominant position that is due to superior technology will persist for long. The time dimension has thus increased in importance. To quote an often-cited example: innovation cycles in the chip industry are so short that once a firm has a certain lead, its competitors will not even try to imitate it on that cycle but immediately invest into the next generation in order to gain a lead there. It has been observed that this is closer to the notion of competition for the market than competition within the market. If relevant markets were narrowly defined, one would regularly find market shares of 100%, then. Shorter product cycles also mean that newcomers or incumbents from related markets have better chances to enter into these markets. The importance of these trends is amplified by the very rapid development of the communication and data processing industries.

In the past, product cycles were often characterised by an extended degeneration phase. At times, competitors knew each other and there was not much technological change. These are often good prerequisites for successful collusion. This has changed for two reasons: the degeneration phase tends to become ever shorter. If there is a degeneration phase of considerable length, competitors from low-cost countries will be attracted into the market. Chances for successful collusion have thus often become rather slim.

2. ECONOMIC AND TECHNOLOGICAL FACTORS

After having looked at policy changes that led to a reduction in international interaction costs and that made globalisation thus possible, we now turn to have a look at economic and technological factors that have had similar effects. It is, of course, possible that the groups of factors reinforce each other. This will shortly be dealt with in the conclusion of this chapter.

In this section, six economic and technological factors will be presented. Factors that can be grouped as supply-side factors are (1) rapid technological change, (2) increasing mobility of supply, (3) reduction in transport costs, and (4) the Internet as a multi-purpose tool for business. After having presented them, we will turn to two demand-side factors, namely (5) the homogenisation of preferences, and (6) the rapid change in consumption patterns.

1.2.4. Liberalisation of service markets

The importance of the service sector has steadily grown over the last couple of decades. In the most advanced economies, its share of the gross national product accounts for 67,2% of gross national product (for the OECD members as of 2001, OECD 2004). Many service activities have been liberalised on the level of the nation-state since the 1980s. These efforts have been complemented by efforts to liberalise the international trade in services. The General agreement on Trade in Services (GATS) that is part of the WTO is probably the most important of these agreements.

1.2.3. Facilitation of Foreign Direct Investment

Foreign Direct Investment can be impeded by a host of non-tariff barriers: lengthy permission procedures are only the most obvious example. Needless to say, these can make foreign direct investments unattractive and they thus function as a protection of domestic producers. Over the last number of years, a host of bilateral and regional agreements putting foreign direct investment on firm ground have been concluded. It has been estimated (Koch 1997, 219) that currently, some 16 regional and some 1,100 bilateral investment agreements exist.

The focus of some of the WTO agreements is broader. In TRIMS, e.g., the contracting parties commit themselves not to establish regulations that are incompatible with the principle of national treatment and the prohibition of quantitative restrictions. GATS – which will be mentioned in the next sub-section – also contains some rules pertaining to the establishment of subsidiaries and the free movement of personnel. The mindset of many governments of less developed countries has fundamentally changed with regard to foreign direct investment over the last decade: It was often interpreted as an attempt of big capital to become even richer to the detriment of the less developed countries. In the meantime, many governments seem to have realised that foreign direct investment is crucial for their domestic development and that it can make all parties involved better off.

These developments have led to a reduction in international interaction costs. It can thus be conjectured that they are one of the reasons for the considerable increase in foreign direct investment that has been taking place since the mid-1980s.

1.2.2. Liberalisation of capital markets

International financial markets have been growing at an unprecedented pace since the beginning of the 1970s. Various measures have been used as a proxy for this growth: the outstanding volume of treasury bills as well as that of bonds negotiated by private corporations are two possible indicators, the amount of currency trade is another. These changes have been made possible by structural changes in the financial markets such as the development of new financial instruments, the emergence of new intermediaries, and fierce and often global competition among various suppliers of financial services. But these changes would have been impossible had there not been a liberalisation of capital market and currency constraints. In 1970, only 35 countries had accepted the IMF standards of capital convertibility, in 1994 it was 90, and today 106 countries have accepted these standards (IMF 2004).

For the individual company, these developments mean substantially lower costs for financing equity, but also for taking up venture capital. It has often been argued that large firms have advantages in financing new activities. Increased competition in capital markets means that this advantage has decreased if not vanished entirely. It has even been argued that convincing product- and export strategies are highly welcomed and can be a source of advantages in financing quite independent from the size of the respective company.

1.2. Sector-Specific Liberalisation 1.2.1. Liberalisation of goods markets

When the GATT was founded in 1947, tariffs on industrial goods averaged around 40%. Today, average import tariffs are lower than 5% with further reductions to be implemented. About half of all industrial products traded across borders are not taxed at all anymore. Nevertheless, there was a countervailing trend: more and more non-tariff trade barriers were substituted for tariffs. This problem has long been recognised, however. One result of the Uruguay-round was that all non-tariff trade barriers should be transformed into tariff equivalents and that these should subsequently be reduced. These trends have led to a reduction in the costs that need to be incurred in order to comply with state-mandated barriers to trade.

As just pointed out, the protection of intellectual property rights was improved by establishing TRIPS as a part of the WTO. The more effective protection of intellectual property rights means that the costs of foreign direct investments have been reduced because companies investing – and producing – abroad need to spend fewer resources on protecting their rights.

The substantial reduction in international interaction costs is the result of the described liberalisation. For many firms, the decomposition of the value chain into many parts that are produced in various countries becomes the cost minimising strategy. To the degree that the liberalisation of the goods markets has led to a decrease in transaction costs, the answer to the make-or-buy question will be modified. Looked at from the other side, this trend means that for a number of companies, entry into markets that had until now been protected by barriers ecomes attractive. This is, of course, also true on the procurement side with global sourcing being the pertinent catchword.

The WTO also includes an agreement on the harmonisation of standards (The Technical Barriers to Trade Agreement). Its consequences are primarily relevant for industrial goods. Standards have been a traditional non-tariff trade barrier, their effect often being the protection of domestic producers. The harmonisation of standards will often lead to increased competitive pressure precisely because the protection awarded by way of the standard has ceased to exist. But the harmonisation of standards can have yet another effect: it can also accelerate the decomposition of the value chain. If suppliers of various inputs can guarantee that their products comply with certain international standards, this can substantially decrease transaction costs (in particular monitoring costs) and this can make supply from independent suppliers attractive. In addition to leading to lower monitoring costs, another component of transaction costs is also affected, namely the search costs that have to be incurred in order to find a contracting partner.

1.1.3. Liberalisation on a worldwide scale

On a worldwide scale the most important development of the last decade surely was the establishment of the World Trade Organisation (WTO) that extends the General Agreement of Tariffs and Trade (GATT). Besides further reducing tariff and nontariff barriers with regard to goods (the traditional focus of GATT), a number of additional agreements were integrated into the WTO. These are the General Agreement on Trade in Services (GATS), an agreement on trade-related investment measures (TRIMS), and an agreement on trade-related aspects of intellectual property rights (TRIPS). Additionally, a number of more narrow changes in world trade were agreed upon as a consequence of the so-called Uruguay round. These include, e.g., substantial improvements with regard to trade in textiles and fibres (the so-called multifibre agreement).

All these steps have helped to decrease various components of international interaction costs. They have been decreased further by improvements in some of the internal decision-making procedures used in that international organisation. Before the Uruguay-Round, disputes could, e.g., only be settled unanimously, i.e., the state suspected not to have complied with GATT rules had to agree to the sanctions carried out against it. Needless to say, chances of ever being convicted were thus extremely low. This has considerably improved after having changed the procedures accordingly.

Over the last ten years, GATT/WTO have become a truly global organisation with membership now being 146 up from 95 in 1990. After having looked at liberalisation and deregulation as factors influencing international interaction costs from a geographic point of view, we will now turn to look at recent developments taking a sector-specific view.

1.1.2. Liberalisation by regional integration

The number of regional trade zones and unions notified with GATT substantially increased during the 1980s and 90s. From the point of economic theory, their effect on world trade is ambivalent, their net effect depending on the size of trade-creating effects within the regional agreement and the size of trade-diverting effects in relationship to trading partners who are not members of the zone (Viner 1950). Every regional trade association needs to be notified with GATT because – due to its regional focus – it is not in compliance with the GATT principles of most-favourednation clause and non-discrimination. Regional trade associations are built on the principle of discriminating between members and non-members on the basis of geography. When GATT was founded, it was hoped that regional trade associations would be an intermediate step towards worldwide integration. This is why an exception was built into GATT rules right from the outset.

In practice, regional trade associations have led to substantial liberalisation between member states in the past two decades. The European Union is clearly the most remarkable example, which has had enormous effects with regard to liberalisation and deregulation: the completion of the Common Market with the four basic freedoms (with regards to goods, services, capital, and settlement) was a very important step. By further reducing state-mandated barriers to trade, it has led to a significant decrease in international interaction costs.

The introduction of a single European currency has further reduced relevant transaction costs. The trade-creating effects are further amplified by the recent round of accession. In the medium term, they might further increase by the possible membership of Bulgaria, Romania, Croatia, the former Yugoslavia, Albania and possibly even Turkey. Additionally, many of the integration effects also apply to the EEA (i.e., to Norway, Iceland and Liechtenstein).

In North America, the North American Free Trade Association (NAFTA) has led to intensified economic integration between Canada, the U.S. and Mexico. In South America, Mercosur (currently comprising Argentina, Brazil, Paraguay and Uruguay) has not been quite as successful. There are various plans for regional integration associations combining the states of the Americas in one organisation. In other parts of the world, activities to reach higher levels of regional integration have also intensified everywhere over the last decade.

1.1.1. Liberalisation within nation-states

Substantial deregulation was initiated by the Reagan administration in 1981. It led, inter alia, to a drastic deregulation in the airline and telecommunications industries as well as substantial cuts in welfare programs. Margaret Thatcher in the UK initiated a similar policy. In the UK and continental Europe, it did not only lead to the first steps in deregulation but also to far-reaching privatisation programmes comprising all sorts of utilities such as post and telecommunications, the transport sector, and other utilities such as energy. Many of these had traditionally been state-run in Europe. Privatisation was often accompanied by deregulation leading to the emergence of new suppliers and dramatic changes in prices as well as quality. In order to make one’s location as attractive as possible, attempts at reducing corporate taxes were made in many industrialised countries.

The countries of Central and Eastern Europe have been subject to fundamental transition processes. The creation of an institutional framework for a market economy was often accompanied by mass privatisation programmes as well as the opening of markets to international trade and to foreign direct investment. Both of these factors have led to the rapid integration of the countries of Central and Eastern Europe into the world markets. This development will be even speeded up by their membership in the EU.

Many developing countries fundamentally changed their development strategies since the early 1980ies. Whereas the countries of Eastern Asia had decided relatively early to implement an export diversification strategy, thus trying to get integrated into the world economy by focusing on their respective comparative advantages, the countries of Latin America had stuck to the strategy of import substitution, i.e., trying to prevent integration into the world economy by trying to produce as many goods as possible at home. The result of this natural experiment could not be any clearer: whereas the countries of East Asia have substantially increased their average standard of living and are often called the Asian Tigers, the standard of living has at times even deteriorated in Latin America. This has led to a reorientation towards liberalisation and deregulation in many less developed countries. This reorientation is in no way confined to Latin America but can, e.g., also be observed with regard to India and other important states among the less developed countries. Some figures in the GATT/WTO membership can highlight the recognised importance of integrating one’s economy into the world economy: in 1980, the GATT had 84 members, in 1990 (i.e., before the creation of many new states as a consequence of the demise of the Soviet Union), it had already 95 member states. This number had further increased to 135 by the year 2000 and has reached 146 in 2004. This is a significant development because China is not only the most populous country, but has also been the economy with the largest growth rates for quite a number of years. Among developing countries, it is by far the most important recipient country of foreign direct investment.

1. LIBERALISATION AS A DRIVING FORCE OF GLOBALISATION 1.1. General Trends

Since the 1980s, the world has seen an unprecedented degree of liberalisation. It has taken place within nation-states as well as in regional agreements and on the world level. Liberalisation was not confined to specific sectors but could be observed across the board, i.e., with regard to goods, services, capital, but also the right to work and invest in countries other than the home country.

INTRODUCTORY REMARKS

Optimal firm behaviour depends on the specific business environment within which firms act. If the business environment is subject to fundamental and rapid change, this will most likely trigger modified strategic behaviour by firms. This could also have consequences for merger policy: behaviour evaluated to be restricting competition within the business environment at one point in time might not be restricting competition anymore after circumstances have fundamentally changed. Possible policy implications with regard to competition policy will then be drawn in chapter IV.

Many of the important and fundamental changes in business environment have been subsumed under the heading of “globalisation”. This concept has been able to generate angry opposition by many who directly benefit from it. But it has also been met with scepticism by many economic historians who point out that today’s integration levels are not dramatically higher than those achieved at the end of the 19th century, but that, in fact, they are often lower than those of more than a hundred years ago.

Still, it is a widely used concept and many of the changes in business environment can be subsumed under this heading. We define globalisation as the integration of production and distribution processes concerning goods and services beyond the borders of nation-states. Two indicators are often used to demonstrate the underlying developments:

(1) The increase in international trade; this has been a long-term trend since the end of World War II that has picked up considerable speed since the 1980s. Since then, growth in world trade has by far outnumbered growth in world income. It is particularly noteworthy that trade in services has been consistently growing faster than trade in goods.

(2) The increase in foreign direct investment; the growth in foreign direct investment has been consistently higher than the growth of world income.

In this chapter, some of the causes that have brought about these changes will be dealt with. Due to them, the costs of acting beyond the borders of the nation-state have decreased. These costs will hitherto be called international interaction costs (for the term and many similar arguments, see also Erb et al. 2000, chapter A). They consist of two categories, namely the costs of overcoming space and (nation-state) borders on the one hand and the costs of foreign direct investments on the other. The first category can be divided into three sub-categories, namely (1) the costs of transporting goods between two countries, (2) the transaction costs that have to be incurred when contracting with foreigners,12 and (3) the costs for complying with state-mandated barriers to entry such as tariff and non-tariff barriers to trade. Similarly, the costs of foreign direct investment can be broken down into three subcategories, namely (1) the costs of financing a foreign direct investment, (2) the transaction costs that have to be incurred, and (3) the costs of overcoming statemandated barriers to entry. Some of these costs must have fallen to make globalisation happen.

Figure 6: Overview of International Interaction Costs

We propose to distinguish between decreases in cost that are due to policy changes (liberalisation, deregulation) and those that are due to economic or technological changes. Section one will deal with policy factors and section two with economic and technological factors. Section three contains some conclusions.