Global and International Business Contexts - Research Paper Example

Global and International Business Contexts Market analysis of the Asian market Among the international market, the market which is growing at a good pace and has potential for more optimal growth is the Asian market. The continent of Asia consists of around 40 odd countries and sizable numbers of countries as well as specific regions are showing good growth. Speaking of countries, in the current scenario the whole Asian market seems to be focused and is dependent on activities in the market of two countries, China and India. As far as the regions in the Asian market is concerned, the East Asian regions, South East Asian regions and also Middle East Asian regions has been witnessing effective economic growth from earlier years and this potential will be visible in future as well. Apart from the historical reasons, the Asian market and its countries are able to achieve good growth also because of the economic based movements like globalization. Foreign organizations in the name global integration of businesses and economies, will continue to help in formation of businesses in various segments that they set foot in. This has already happened in the past and will continue to happen in the future. From earlier times, the developing countries of the eastern economies, namely Asia, depended on agriculture for their earnings. As the world started opening up with the advent of eased regulations to allow free business transactions across countries, companies across the world started looking at opportunities beyond their own countries. To make most of this opportunity, the Asian economies not only shifted attention from agriculture to industrial development but also started looking at ways of attracting these multinational investments by way of easy entry laws as well as offering attractive public and monetary proposals. For example, it can be said there may be no country in the world, which is using at least one of the Chinese products. In China, 30 years after the counter-revolution, a new big bourgeoisie has emerged along with increasing stratification and oppression. In 2004, the Chinese proletariat manufactured 75% of the world’s toys, 58% of the world’s clothes, and 29% of the world’s mobile telephones (Levy 2007). Poverty elimination is one of the reasons for the Asian governments to receive the global companies with open arms. This is because with the entry of these companies, these economies expect to alleviate the economic conditions of their people and the countries as a whole. These foreign firms are responsible for the progress of the Asian economic scenario and hence these countries are greeting these firms in a way that is most advantageous for them. These companies are alleviating the conditions of the workforce of the area by distributing high percentages of their profits among them. This not only improves their standards of living but also boosts the financial condition of the country in the most optimal way. These advantages can make these companies’ presence more widespread. There is some resistance to the foreign firms in the Asian countries as they are thought to be robbing the local firms of the opportunities to grow. However, the general public has realized these firms are not the real cause of this problem. Loss of customers and market share, happens mainly due to the inability of the local businesses, however they wrongly fear that large multinationals would drive them into extinction and cripple domestic entrepreneurship. (Bhagwati 2004, p.181). So, the administrators of these countries are finding better ways of helping the global foreign companies in doing business. This is because they have understood the advantages that these companies are giving to them in terms of monetary improvement and development in business and trade and also due to the fact that the world is becoming a global village Analysis of the global retail industry Retailing is the interface between the producer and the individual consumer buying goods for personal use which can be purchased from a retail store, online orders, through vendors or many other policies. Globalization and confluence of markets has created an extremely opportunity filled environment for retail industry. Retailing has become a primary driver for global economy and has been said to derive more profits than any other form of business, with low investment. Probably because of this, giants of many industries are moving towards retailing. Retail has played a major role world over in increasing productivity across a wide range of consumer goods and services .Retail stores constitute 20% of US GDP and the 2nd largest employer segment in USA. Retail is the second-largest industry in the United States both in number of establishment and number of employees. It is also one of the largest worldwide. The retail industry employs more than 22 million Americans and generates more than $3 trillion in retail sale (mart.manipal.edu). On the same lines, in the Asian market, the retail industry is growing at a break-neck speed with potential for more growth. This can be seen in many Asian countries like China, India, Singapore, Malaysia, Hong Kong, Sri Lanka and Dubai and also other Asian countries. Although, when compared to the American retail market, Asian retail market could face some organisational shortfalls, that could not prevent it from tapping optimal opportunities. For example, the American retail market is advanced in the field of technology and supply chain management but these concepts are new and yet to be developed in the Asian retail sector. For example Wal-Mart built a competitive advantage in the field of distribution information system but this concept is new and still to be developed in the Asian economies. In countries such as India, the mall culture and shopping culture as part of retail sector has grown widely, but it still has to be developed. However in countries such as Singapore mall culture and thereby retail sector has developed optimally and has succeeded in attracting many tourists exclusively for shopping. Thus the scenario of retailing keeps varying from country to country in the Asian countries, but on the whole the growth is said to be high and retailing has become a major income generating sector for the Asian economies. The Asian economies have the largest consumer base and thus they are considered as the most preferable and the potential markets for retail industry. Geopolitical / international relations analysis of China China is seen to be getting double benefit by the entry of the MNCs. This is because earlier they only used to export goods to other countries because of the price advantage of these products. But now, the foreign firms have seen the ability of large population of China in translating into a very large customer base. This has led them to enter this country as they can foresee a very high ability of this economy to give them a huge customer base. With their entry, China is taking the advantage created by their outlays in the country and the generation of jobs there for producing goods. This also adds to the export kitty of China. “Most of the world’s major global firms are desperate to grab a slice of the world’s largest and most rapidly growing emerging market” (Gamble 2006). As the local people of China are getting more money in hand on account of job creation, they are spending equally well and hence the multinationals are getting more prospects of selling their products locally. Beside the financial growth of the economy and huge customer base for MNCs, their entry has been facilitated by reduction in various restraints that the Chinese administration used to put on foreign investments on account of being a firm believer of Communist principals. China put various controls to the entry of foreign firms to shield their local firms against competition. However, when the Chinese administration saw the economic developments in other countries on account of the world becoming a global village in the 1990’s, they started loosening the restrictions to make use of the opportunity by exploiting the full ability of the Chinese economy. “For mainland China, globalization process has been made possible by the open door policy and the subsequent adoption of an export-oriented growth approach, following the economic growth model in the greater China region and East Asia.” (Wu 2006, pg.2). Hence, the government of China embarked upon relaxing some of the restrictions on MNC entry to facilitate best possible utilization of the markets of China. Though the country gave firms full right to entry and even tax cuts and other incentives, there were still some hindrances to full freedom. China’s membership of World Trade Organization (WTO) further facilitated the relaxation of rules. With China becoming a member of the World Trade Organization, there were further loosening of restraints to the best possible extent and many entry barriers for foreign firms have been removed since then as WTO has rules which require its members to facilitate open trade. “China reviewed more than 2500 trade-related laws and regulations for WTO consistency, repealed or amended nearly half of these, and issued many new laws and regulations...restructured government ministries with a role in overseeing trade..., and made required tariff reductions. (Yager 2004, pg.7). With these favourable situations created specifically for the entry of Multinational firms, many firms including retail firms from all over the world entered China profitably tapping its market. The retail sector has good opportunities in China, brought on by the increased buying power of the Chinese people. “China retail industry has been showing upward trends for quite some time now. Growth in this sector is particularly spurred by the changing buying patterns of consumers and rising per capita income in the country” (newswiretoday.com). They have been well received by the customers and it shows in the total sales volume as well as in their expansion plans. International development of Wal-Mart in China These positive factors paint a bright picture about the Chinese retail sector. Many well-known retail firms from all over the world have made or making optimum presence in China, which in turn paves the way for the entry of more confident foreign retail firms. “China was the only retail market on earth where the top four global players—Wal-Mart, Carrefour, Tesco and Japan’s Seven and I Holding Company—compete in a significant way.” (Lannes, Li and Charveriat 2008). So, if any foreign firms enter that sector, it can achieve good success and that what Wal-Mart did and is still doing after its entry in 1996. Before 2005, foreign companies including retail firms seeking to enter China’s retail market were required to have Chinese partners to set up stores anywhere in the country. So, in 1996, Wal-mart entered China through the route of joint-venture agreement with Citic, the Beijing-based parent of Citic Pacific. “We began our retail operations in China in 1996 with a Supercenter and Sam’s Club in Shenzhen. Neighborhood Markets soon followed, and in February 2007, Walmart China invested in the hypermarket chain Trust-Mart, which operates more than 100 retail units” (walmartstores.com). That is, after 2005, foreign companies were allowed to establish their own retail chains, even without needing approval from the Central government, Gone are limits on the number of stores, rules confining them to large cities, and regulations capping the foreigners stake in local ventures at 65%. (business-in-asia.com 2005). Because of these best case scenarios for the foreign retail firms, made their independent presence quite quickly and effectively in China. As mentioned above, Wal-Mart is making optimum presence in China by expanding to various parts of China, and garnering a sizable market share. Wal-Mart is able to achieve this success with the implementation of apt strategies, which is surmounting many challenges. For example, the challenge of good local advertising firms and inadequate local talent was being neutralized by Wal-Mart by bringing equipped human resources from their own country and using them for vital works. These foreign employees can also be used to train the prospective local employees and make them also equipped. Wal-Mart is doing this aptly, as it is bringing in employees from U.S. to fulfil the job needs in China. “To succeed in China, Wal-Mart had to expand its model and bring not only good ideas and cash but also its human capital to develop its local business” (Guérin 2005). Wal-Mart brought not only their brands and products, but also human capital with their strategy and executives. Also, retail firms like Wal-Mart have transferred their parent country management practices and retail concepts to their Chinese subsidiaries. Then, importantly they have trained the local employees in those practices and concepts, so they can get quality and equipped labour for a cheaper price. This way, Wal-Mart is able to achieve success and has good opportunities to make further success. International teamwork and cross-cultural management If the multinational firms aim to be unbeaten, they will need to be dynamic in terms of finding ways of utilizing the opportunities presented by developing countries and markets. For this they need to change or increase their spread in these countries. Thus, they need to be more global by spreading into more and more countries to achieve economic advantages. “As the global economy expands, as more products and services compete on a global basis and as more and more firms operate outside their countries of origin, the impact on various business functions becomes more pronounced” (Briscoe and Schuler 2004, p. 20). Like organisations, sizeable percentage of humans will also not remain ‘static’ in one geographical location; rather they will or have to keep on moving to new places as part of job necessities and also for job opportunities. That is, as part of organisational commitment and to enhance their prospects of better life, they could or will keep on moving to uncharted territories to achieve advancement. When these expatriate employees from different countries with their distinct cultures, traditions, way of life, etc, enter some other country and thereby organisations, the organisations should incorporate apt International Human Resource Management (IHRM) principles to optimally handle them and make them highly productive. The best way to account for the region specific complications arising in functioning of multinational firms in foreign grounds is to make use of the polycentric way of selecting the managers for the local subsidiary or branch. This means that the managers chosen from a group should be of the region where the subsidiary operates. This will help the company in dealing with any local problems as the managers will be well equipped to handle them because of their familiarity with the environment. The company’s performance can thus be at its optimum levels as the human resource policies can be designed based on local issues which will in effect extract better performance from the employees. To work in a foreign ground, it is important to understand the difference of cultures of various countries and have full trust in the local employees. This is the basic principal of polycentric way of working.. “Host-country regulatory conditions, labour market conditions, local employees institutionalized views about management practices and cultural factors may all constrain MNCs from transferring their parent-country HRM policies and practices to their overseas affiliates” (Gamble 2003, p. 373). Besides the polycentric approach which was proposed by Harzing and Ruysseveldt (2004) the other two approaches proposed by them are ethnocentric and geocentric. In the ethnocentric way the functionaries at the top of the hierarchy are from the home country of the multinational. This is to keep a control over the working of the local firm by implementing HR policies of the home country. However, this cannot be a successful way of running the organization in a foreign country as the management will not be able to understand the local issues and these policies will not be absorbed successfully within the organization. In the geocentric style, the most capable manager is chosen to run the show for the company in foreign country. However, if this manager is not a local, he/she too will find it difficult to understand local dynamics. Hence, he/she will not be able to provide operational excellence. References Bhagwati, JN, 2004, In Defense of globalization, Oxford University Press US, New York. Briscoe, D. R. and Schuler, R. S. 2004, International human resource management, Routledge, London. business-in-asia.com 2005, China in Major Change: Opens Retail, Distribution Sectors to Foreign Businesses, viewed on May 8, 2010 http://www.business-in-asia.com/china_retail.html Gamble, J. 2006, ‘Multinational retailers in China: proliferating “McJobs” or developing skills?’ Journal of Management Studies Vol. 43, No. 7, p.1463-190 Gamble, J 2003, “Transferring human resource practices from the United Kingdom to China: the limits and potential for convergence,” International Journal of Human Resource Management, 14, 3, pp. 369-387 Guérin, D 2005, Chinas Rising Advertising and Media Industries, viewed on May 9, 2010 http://www.danwei.org/media_and_advertising/human_capital_and_chinas_risin.php Harzing, AW & Ruysseveldt, JV 2004, International Human Resource Management, SAGE, London Lannes, B., Li, J and Charveriat, S 2008, Chinas Great Retail Race, viewed on May 9, 2010 http://www.feer.com/economics/2008/july/chinas-great-retail-race Levy, B 2007, The interface between globalization, trade and development: Theoretical issues for international business studies, International Business Review, vol.16: 594–612 mart.manipal.edu, Why Retail? Overview & Opportunities, viewed on May 8, 2010 http://www.mart.manipal.edu/whyretail.htm newswiretoday.com 2006, Increase In Per Capita Income & Changing Consumer Needs Result in Climb in Retail Expenditure, viewed on May 9, 2010 http://www.newswiretoday.com/news/8740/ Yager, L 2004, U.S. China Trade, Opportunities to improve U.S. government efforts to ensure Chinas compliance with World Trade Organization commitments: Report to congressional committees, DIANE Publishing, Washington. walmartstores.com, China, viewed on May 8, 2010 http://walmartstores.com/Careers/273.aspx?p=7792 Wu, F 2006, Globalisation and the Chinese city, Routledge, New York. Read More