Global Expansion Management Strategies - Term Paper Example

?Global Expansion Management Strategies Paper Executive Summary Globalization has turned the world into a global village where individuals, communities, governments, and businesses are linked around the world; it has shrunk the world by establishing the interconnection between economics, politics, technology, and culture of countries. It has provided organizations with wider market and increased customer access. It has allowed nations to develop their economies, improve social standards, and transform their weaknesses into strengths. Today in the era of globalization and technological advancement; organizations belonging to various regions of the world depends on each other in getting the work done, they mutually handle operations and share the responsibility and accountability of the getting the work done. Advancement in technology has escalated the pace of globalization in past two decades; it is one the major reason which has made the globalization possible. Technology works as a vital force in the development of business globalization; it has given a new face to the world economy. Innovations in information and communication technology have become more proficient, smaller in size, and comparatively more inexpensive. In the past good and services produced were sold only at national level; the scope of the growth, profit, sales was limited to the product development; the swiftness of development was slowed down to the position where a company looks for new avenues to grow, therefore there was a growing need to expand globally to increase the market reach to achieve the new opportunities of growth. Cultural and political differences are the two major variations, companies’ encountered while operating in various regions of the world, therefore the consideration of cultural and political differences is very important as the purchasing decisions of individuals are strongly impacted by cultural and political beliefs. Organization’s decision to undertake the appropriate strategy depends on many factors such as satisfaction, nature of the product or service offered, level of competition, pace of the product development in the specific market, top management impact etc. There are two strategies which organizations adopt for going global which are internalization and localization. Internationalization is the process of establishing and practicing technical standards around the world whereas localization is the process of improving or modifying a product according to the need of the local market. To expand globally, an organization needs an effective market entry strategy. There are different strategies organizations use to enter into the foreign market which are export, licensing, franchising, contractual manufacturing, strategic alliance, and investment. There are number of factors which influence the selection of the market entry strategy which includes size of the organization; target market size and potential; long-term growth potential of the business, nature of the product; cost advantage; capital required to execute market entry strategy; the intentions of growth; risk attached with each strategy; legal, political, cultural, and economic environment; and technological factors effects the decision. When an organization expands its operations in the new foreign market, it needs to understand the new market in depth as the upcoming profits depends on the developed understanding, therefore the role of research and development in global expansion and in assortment of the right strategy for going global cannot be ignored. It allows an organization to better understand the market trends and changing needs of target customers. The report suggests that to go global, an organization should determine the need of global expansion and right set of global strategies; than it should selects the appropriate market entry strategy; an organization should also spend appropriate amount and time on research and development; lastly an organization should observe the political and cultural differences in the region and operates accordingly. Introduction Growth is the primary motive of any profitable organization, geographical expansion allows organizations to take advantages of core competences at a large scale and grow in an unexpected level (Stigliz, 2002). Globalization and technological advancement allows organizations to geographically expand its operations to build a strong global image and to achieve economies of scale. Geographical expansion provides growth opportunities; it allows organizations to take advantage from the world population; by catering differing needs and by balancing standardization and localization organizations can develop a sustainable market share in the new market (Raluca, 2010). Different organizations use different strategies to enter and compete in the foreign market, which allows them to operate successfully in the foreign market (Stigliz, 2002). This report will first discuss the importance of globalization in current competitive era of technology, than it will discuss the role of technology in encouraging the organizations to expand its operations globally, than it will talk about the need of global expansion, once the reader will be clear about the need of global expansion than the report will discuss cultural and political differences organizations face while expanding its operations to other nations, then the report will talk about going global strategies which organizations select to enter into new markets, than it will discuss the market mix decisions organizations encountered while expanding geographically, after discussing the marketing mix decisions the report will discuss the factors influencing the organization’s decision of selection of market entry strategy, and in the end it will provide the suggestions and recommendations regarding the undertaken topic. Global economy The concept of global economy sees the world as a single economy; global economy is the aggregate of national economies. Emergence of national markets into a single market has given birth to the concept of global or world economy. Global economy is based on the economies of all countries located on the globe (Stigliz, 2002). In a global economy, countries are dependent on each other in business operations. Today in the era of globalization; organizations belonging to different countries rely on each other in getting the work done, they mutually handle operations and share the responsibility and accountability of the getting the task completed (Narula, and Dunning, 2000). Some countries outsource their operation, here the concept of outbound outsourcing rises which states that firms contracts a business process with other firms located outside the home country to gain cost advantage which was previously internally performed; whereas some countries started its operations at the foreign market to gain the cost advantage from differences in currency values and cheap factors of production and to achieve potential market advantage (Raluca, 2010).. Except the dependency of operational activities, companies from different origins depend on the foreign market in terms of sales and growth. Companies export their standardized and customized products in other countries to gain more sales and profit from increased customer base. There are many controversies regarding the global economy, many economists believes that rich countries are getting richer, whereas poor countries are getting poorer due to lack of resources particularly capital and technology, trade policy relaxation has negatively impacted the growth of internal market of poor countries and some developing countries. Globalization Globalization has given the world a new face; it has turned the planet into a global village. World has now become a single market, countries are taking advantage from one another and growing immensely within a short period (Raluca, 2010). Globalization has encouraged trade between countries by breaking trade barriers; it has developed a global free market for good and services. It has developed connectivity in economic and cultural life of countries; countries are taking advantage of economic liberalization around the globe. Consciousness of the world has been improved as a whole; cross-border trade, cultural exchange, and investment have been increased radically with the changes in the world economy and societies (Griffin, and Khan, 1992). Globalization has linked individuals, communities, governments, and businesses around the world; it has shrunk the world by developing the interconnection between economics, politics, technology, and culture of countries (Raluca, 2010).. It has allowed the organizations to focus on core competences through best utilization of resources and outsourcing those business processes and activities which are costly to produce internally, by focusing merely on core competences organizations are able to create a competitive advantage and unique selling proposition for the products and services it offered. Although globalization has resulted in increased competition but it has also provided with ways to establish a unique market position and sustainable market share (Bridges, 2002). The concept of globalization has gain a lot of popularity since last two decades; it has allowed organizations to geographically expand its production capacities, operations, supporting functions, distribution, and sales to get the best out of efforts and decisions made. Today organizations are best utilizing its resources to produce the profitable product or service; they are able to enhance its profits by developing new markets for the product. Globalization has provided organizations with wider market and increased customer access. It has allowed nations to develop their economies, improve living standards, and turn its weaknesses into strengths. Role of technology Advancement in technology has escalated the pace of globalization in past two decades; it is one the major reason which has made the globalization possible. Innovations in information and communication technology have become more competent, smaller in size, and comparatively more affordable. Technology plays a role of vital force in the development of business globalization; it has revolutionized the world economy (Archibugi, and Pietrobelli, 2003). Electronic delivery of services has become possible because of the advancement in technology which has lead both the public and private sector to a new phase of development and has allowed organizations to incorporate ease and speed with the delivery process. Transportation because of improvements in technology as a whole has become larger, faster, cheaper, and environmentally friendly (Ernst, 2002). The evolution of internet has allowed organizations, corporations, and individuals to access information any time and from any where through using World Wide Web which has allowed organizations to stay up to date, and has allowed customers to access information related to the offering the organization easily on the internet (Ernst, 2002). Development in communication technology has revolutionized business and social lives. Decision making process in organizations has become speedy and efficient, secondly research and development has become an easy and more productive task, and thirdly satellite has outgrown its uses; whereas development in communication technology has also re-shaped social lives of individuals by providing an electronic base of communication. Technology has helped organizations to overcome the previously faced hurdles in the growth such as cross-border trade barriers, costly transportation, delays in information exchange, and lack of common ethical standards; in short technology has increase the pace of development at macro level (Goldberg, and Pavcnik, 2007). Need of global expansion Previously good and services were sold only at national level, the scope of the growth was limited to the product development, the velocity of expansion was slowed down to the point where a business look for new avenues to grow, therefore there was a growing need to increase market reach to achieve the new horizons of growth. Competition among organizations have become so intense, to stay in the market a company needs to meet the global standards and demands. From the past two decades global expansion has become the only way to stay competitive and profitable in the long-run. Global expansion allows organizations to achieve higher profits, whereas global presence allows the organization to take advantage from mass production and mass marketing. It allows organizations to establish a global image, and once the company establishes a world-known image it enjoys a sustainable market share and market position (Kotler, 2009).. By entering into overseas market, an organization opens the long-term growth prospects. Operating with in the home country is beneficial to a limit; when an organization decide to expand its operations overseas, it increases the product-life cycle time of its potential products which actually enhances the desire outcomes resulted from the efforts made. Although there are many challenges and risks an organization faces while expanding globally but the efforts, time, and money spend to overcome those challenges in worthy enough to get the bigger place and higher profits in the market (Fabozzi, Mann, & Choudhry, 2002). Competition is another major reason of global expansion, competition from foreign companies shrinks the profit and growth prospects for the local companies therefore they need to grow into new markets to stabilize the profit and to stay competitive by developing a global image. In this way the company balances the effect of foreign competition in the local market. Cultural and political differences When a company goes global, it faces a lot of differences in the overseas market. Cultural and political differences are the two major differences, companies’ encountered while operating in various regions of the world (Beaverstock, Smith, Taylor, Walker, and Lorimer, 2000). Culture differ from nation to nation; every nation carries a particular set of values, traditions, norms, ethics, religious beliefs, language, life style, race, and ethnicity which jointly shapes the culture of the whole nation. While expanding globally, an organization finds variation in these culture identifiers which makes the attempt of successful global expansion challenging for the organization. Cultural differences effects the purchase decisions of individuals, a product successful in the western countries may not appeal to countries located in eastern side of the world because of the cultural diversity (IMF Team, 2000). Law and order situation of a country is dependent upon the undertaken political activities by the state; these activities impact the businesses of both the local players and the foreign players in the market. Countries use different political systems and concepts to manage state and governmental affairs; the political scenario of the one country differs from another. Some countries are politically very conservative whereas some practice liberalization; some countries practice capitalism whereas some countries practice communism; and some countries feel dictatorship is the right way to handle state and economic affairs with a belief that state is better aware of the realities of the politics and can run the country in a good way without the interference of citizens, whereas some countries practice and believe in democracy, and involves citizens in the state affairs. Political values of the country shapes its political scenario and impacts the working conditions of organizations. Organizations planning for global expansion need to carefully analyze the cultural and political differences of countries as it affects largely to the business operations, foreign companies should also need to integrate cultural and political values of local market in the business processes and organizational environment to gain acceptance in the market. Going global strategies Globalization has increased the level of competition; organizations need to adopt an effective set of strategies to expand globally. Today it is not about expanding into new countries; it is about effectively expanding into new countries. There are two strategies which organizations adopt for going global which are internalization and localization. The decision to undertake the appropriate strategy depends on the organization’s choice which depends on many factors such as satisfaction, nature of the product or service offered, level of competition, pace of the product development in the specific market, top management impact etc. Internationalization is the process of establishing and practicing technical standards, when an organization undertakes the strategy of internationalization to go global, it produces standardized products for mass market. Such organizations offer same product to different countries focused on similar needs of varying markets. Standardization is not only in terms of product, supporting functions can also be standardized. Standardization usually comes with mass marketing which helps the organization to achieve economies of scale by producing in large amount and minimum possible unit cost (Bhagwati, 2004). Standardization gives cost advantage in producing, distributing, and marketing the product or service but it doesn’t work for the product which has rapid pace of development therefore it has a very limited scope and often seen ineffective to meet needs of local customers of overseas market. Localization is the process in which an organization improves or modifies a product according to the need of the local market. It allows the organization to build a unique image in the market by increasing the product appeal. Adjustments in the product allows the organization to create a unique selling proposition, when a product is aligned with the need or preferences of the end users than it will be easier for the organization to sell the product in the foreign market. Adaption also allows the organization to build a sustainable market share and market position; it opens growth options for the firm in the new market. Adaption is a very effective strategy but it is quite costly and requires a lot of careful planning, the failure of the project can result in disaster for the organization (Bhagwati, 2004). Market entry strategies There are different strategies organizations use to enter into the foreign market, the decision is based on many factors such as size of the organization, market size, long-term growth potential, nature of the product, capital investment etc. the types of market entry strategies are discussed below: Export When an organization selects export as a market entry strategy, it manufactures the product at the home land and transports it to the overseas selected market. Export can be direct or indirect; in direct export organizations setup their own exporting departments whereas in indirect export the organization outsource the management of export. Licensing In licensing a company uses a right to use a technology or property such patent, copy right and trademark under certain conditions. Licensing is appealing to small companies which lack resources to operate; it provides faster access to the market. It provides organizations with access to factors of production in the country it is planning to operate. Contract manufacturing It is a process which contracts the manufacturing of the specific product with the manufacturer in the overseas market, it is planning to expand, in this way it enjoys tax savings, lower cost of factors of production, lower political risk, and fast access to the market. Strategic alliance When a company selects strategic alliance as a market entry strategy, it builds a long-term venture with a company operating in the country it is planning to expand. Franchising Franchising allows the organization to use successful business model of the company operating in the country it is planning to expand, it pays a specific amount to the franchisor. Foreign direct Investment In this strategy, an organization invests in the country it is planning to expand. When an organization builds its own setup, it enjoys higher profits and greater control over the operations of the business. It is also known as green field operation. Factors influence the selection of market entry strategy There are number of factors which influence the selection of the market entry strategy which includes size of the organization, if the organization is of large size and does not lack any resources than it may think of investment; target market size and potential is also very important factor, market entry strategies also depend on the mass marketing or niche marketing; long-term growth potential of the business is another factor which impacts the decision of the market entry strategy, if the business has long-term growth prospects than a company can think of strategic alliance or investment, even the franchising can also be selected; nature of the product is another important factor; cost advantage is one of the important factor, the company selects a market entry strategy in which it has cost advantage; capital required to execute market entry strategy is also an important factor to select the market entry strategy; the intentions of the company is also an important factor, the intentions of growth supports the decision of market entry strategy; risk attached with each strategy also impacts the decision; entry barriers in the country also effects the decision; legal, political, cultural, and economic environment also effects the selection of market entry strategy; and technological factors effects the decision (Kotler, 2009). Role of research and development in global expansion Research and development plays a very important role in global expansion and in selection the right strategy for expanding globally. R & D allows an organization to better understand the market trends and changing needs of target customers. When an organization expands its operations in the new market, it needs to understand the new market in depth as the upcoming profits depends on it therefore the role of research and development cannot be ignored; it develops a strong base to operate successfully in the new market. It increases the success possibilities in operating in the new market (Kotler, 2009). Suggestions and recommendations To expand globally, firstly an organization should determine the need of global expansion and right set of global strategies as it determines the success or failure of the project; Secondly selection of appropriate market entry strategy is also a very crucial decision made by organization therefore they should consider all possible factors effecting the decision of the market entry strategy, random selection of market entry strategy can result in a big disaster; thirdly while planning stage of the expansion an organization should spend appropriate amount on research and development, as it helps the organization to stay aware about the prevailing market trends and consumer preferences; fourthly an organization should analyze the political and cultural differences in the region where it is planning to expand and work accordingly. Conclusion The paper presented important concepts and important things that firms and business managers need to know and understand in order to make their business successful in today’s global world. Today because of globalization, managing business has become more complex and therefore there are a lot of things that they need to look at and this report presented some of the most important things for practitioners. In addition to this, by knowing how firms have been successful and the factors that lead to the failure of firms, managers can learn and adapt the right strategies to be successful. References Archibugi, D., and Pietrobelli, C. (2003). The globalisation of technology and its implications for developing countries: windows of opportunity or further burden?, Technological Forecasting and Social Change, 70 (9), 861-883. Beaverstock, J., Smith, R., Taylor, P., Walker, D., and Lorimer, H. (2000). Globalization and world cities: some measurement methodologies. 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