Globalization Strategy in Foreign Markets - Research Paper Example

Lecturer: presented: Introduction Globalization is the process through which production, trade, governance and many other aspects of life have continued to be standardized across the world. The recent wave of globalization has led to the expansion of industries in foreign markets. Global capitalism is the situation in which industries are engaging in private investments worldwide. Trade is controlled by the market forces such as supply and demand. With increased globalization of industries, greater competition has emerged thereby necessitating downsizing for the purposes of cost reduction, greater efficiency, increased productivity and organizational change. This paper presents a critique of the globalization and downsizing, and the reasons why organizations engage in these strategies. Downsizing Strategy Downsizing is a management strategy that involves reduction of an organization’s labor force as a result of corporate restructuring that is focused on maintaining competency in a highly competitive environment. Mergers and acquisitions are among the significant drivers for downsizing. For instance, the acquisition of PeopleSoft by Oracle led to a reduction in the number of employees by 5,000 in a bid to increase efficiency in the new organization. PeopleSoft’s revenue had been declining as a result of the economic crises that significantly affected the profitability of UK firms in 2007 (Blackburn, 1999). However, mergers and acquisitions may necessitate downsizing due to duplication of roles among employees from the merging organizations. The dominant organization tends to retain a greater share of its human resources while selecting few employees from the other organization, mainly those with specialized skills that may help in maintaining competitiveness (Kothen et al. 1999). Revenue management is focused on maintaining high revenue while keeping costs at the lowest level possible. Downsizing is among the key strategies for revenue management since organizations find it easy to reduce the workforce and utilize the remaining employees maximally. The operating environment is under constant changes that may affect an organization’s profitability if drastic measures are not undertaken. For example, globalization of industries has increased competition as foreign firms establish subsidiaries globally. Local industries in the global economies are faced with challenges with regards to product quality and production costs. For example, Spar (2003) observes that the cost of labor in China is low compared to some developed economies such as US and the UK. Foreign companies have therefore established subsidiaries in China where they produce at lower costs and then sell their products to other economies where the cost of labor is high. This trend has significantly affected industries operating in such economies since they have to minimize spending on labor to effectively compete with organizations that have taken advantage of the Chinese labor market. They have been compelled to lay off workers as well as calling for early retirement (McCann et al. 2008). Technological advancements have significantly influenced the need for organizations to downsize. Organizations engage in innovations to maximize production and increase efficiency. However, some innovations reduce labor-intensive work thereby reducing the need for workers. For example automation of processes increases speed and efficiency in production compared to human labor. Moreover, the recurrent expenditures of maintaining human resources are avoided since the machines require an initial capital outlay and occasional maintenance. Many organizations globally downsized after introducing computers in their processes. This was a significant development that increased efficiency and accuracy in record keeping as well as service delivery to customers (Froud et al. 2000). Efficiency improvement involves reduction of the excess workers that perform tasks which have little contribution to the organization’s revenue as well as those slowing down the organizational operations such as through extended bureaucracy. The process of reducing the non-essential workforce allows an organization to embark on an open appraisal that results in an effective separation of the non-performers from the competent employees and hence getting rid of the incompetent workforce (Hassard et al. 2009). This strategy allows cost reduction through reducing the number of employees whose yield does not match with the cost of maintaining them and increased efficiency through effectively motivating and empowering the competent employees for greater productivity (Bennett & Durkin, 2000). Downsizing allows an organization to review the remaining employees’ job descriptions, which leads to assignment of greater responsibilities, career enhancement through training and progression as well as improved performance standards that are accompanied by reward schemes to promote job satisfaction. Incompetent employees may not respond to reward schemes. Moreover, such employees may promote dissatisfaction in the workplace in a bid to assert their existence through resistance to change. Ivancevich et al. (2007) argues that the fact that change mainly involves moving from an assured position to the unknown with a view to improve the status quo may at times cause doubts to employees who have worked in the organization for long. In many situations, resistant employees prefer straightforward processes that are likely to convince them that the organization protects their interests, disregarding the benefits that an organization may gain from such changes. They are usually unable to endure the ambiguity involved especially if a project is expected to take long. Rewards are significant motivators for the directive drive to achieve particular change objectives. Nevertheless, extrinsic rewards may backfire if employees feel that they are compelled to act in a particular way for the sake of a third party rather than self satisfaction. Herzebergs’ hygiene factors of motivation such as good working environment and a positive organizational culture come in handy in promoting change among employees that have a positive view of their job (Herzberg, 2008). There is also a trend in the global workplace whereby workers are faced with challenges regarding their knowledge on production systems. Organizations downsize as a result of obsolescence of the equipment that was used initially for production. For example, in software development, there are variations with regards to the length of time that certain software remains useful. This depends on the rate of new software development. Companies usually go for the most recent ones in a bid to ensure that they take advantage of the slightest opportunity presented by the emerging technologies (Froud et al. 2000). Under such situations, the employees are faced with the risk of losing their jobs if they are unable to cope with the emerging technology. They have to ensure that they constantly improve their skills in order to cope with the dynamic work environment (Hassard et al. 2009). Contemporary organizations also downsize in the process of implementing new organizational structures. For example, directly employing staff is associated with employee benefit schemes such as retirement benefits, pension and health schemes as well as paid leaves. Outsourcing is one of the significant strategies applied to reduce these expenditures. An organization outsources labor from providers who have a duty of overseeing the employees’ benefits. Security, catering and sanitary firms are significantly involved in providing outsourced labor whereby organizations engage in contractual arrangements whereby they employ workers for hire. The outsourcing organization is not directly involved in the management of the employees. It is a major organizational restructuring that results in a lean organization but with all the necessary human resources (Bennett & Durkin, 2000). Globalization In the early 1950s, leaders especially from the developed economies needed to build up scheme of making certain that wars of such intensity as the first and the second World Wars could not recur. This had to be realized through removal of the barriers that formed impediments to trade in order to boost success and increase interdependence amongst nations globally. The powerful economies such as the US were involved in developing frameworks for international trade and investment through agreements. They established key global institutions, including the GATT, International Monetary Fund and the World Bank among others. According to (Barry 2008), the political powers promoted international treaties that were aimed at upholding international trade through tariff reductions and encouragement of free trade amongst its members. This process resulted in a major reduction in the restrictions that hampered trade before it was established, such as minimum quantity of what was to be traded. Held and Mcgrew, (2000) observe that “GATT membership kept on rising, and in 1995, it was transformed in to the World Trade Organization”. This was transformation was a step taken by members to further reduce barriers to international trade especially for the new entrants, mainly from the developing countries. The barriers that existed in regard to political boundaries were reduced to a great extent thereby making it possible for industries to participate in international operations. They played a major role in the assimilation of developing countries in to the multilateral trade. Their trade diversified through the flexible rules created under the treaties. Raymond (1999) indicates that “the decreased tariffs resulted in the formation of the European Union and North American Free Trade Area”. Raymond (1999) further attributes the recent wave of globalization of industries to policies that arose from the emergent treaties. They motivated member states to adopt open economic policies that have contributed to a great extent, the expansion of trade worldwide. Investors can easily cross borders to invest and market their products in foreign countries. This has led to a rise in the number of global collaborations between companies and their foreign affiliates. The policies have enhanced the reduction in governments’ influence in the investment market, creating and enabling environment for foreign direct investment. Investors usually focus on the economies where policies on tax regulation are encouraging. They tend to make investments in the economies where tax charges are minimal (Dugan et al. 2008). The United States has the largest number of multinational companies in many developing countries. Held and Mcgrew (2000) for example observe that it is for the basis of a favorable environment created by many of the regimes’ political and economic reforms. Political reforms in many developing countries have encouraged foreign direct investments by multinationals from developed countries. Firms apply globalization strategies to facilitate the formation of alliances that are aimed at making it possible for them to offer better services in an efficient manner and hence maintain a great market share. Griffiths and Wall, (2007) observe that “the main forms of alliances are evident in the international communication service providers”. These have contributed greatly to re-organization of the global characteristics of trade. Alliances can be either equity oriented or non-equity associations. They might, in addition take the form of outsourcing alliances whereby the main corporation subcontracts small scale investors operating in the domestic market. The communication companies have established several alliances that operate worldwide. For example, (Fang 2005) cites “the Concert communication services alliance between MCI and British Telecommunications” which was formed with a goal of offering services in communication internationally. They have a central point of operation. The two corporations enjoy autonomy while each sets prices for the products offered. “Global One alliance” was formed with an objective of ensuring the best services for telecommunications are provided globally. “It is an alliance between three corporations; Telekom from Deutsche, Sprint, and Telecom from France” (Held and Mcgrew, 2000). The objective of the alliance was provision of a variety of services as may be deemed appropriate by the “Global Venture Board”. Other agreements in the telecommunication industry that have been formed in the global context include; “world partners, the federation of cable and wire communications as well as Uniworld, targeting the multinationals within Europe” (Feenstra, 2003). Globalization has been accomplished as a result of organizations exploring market for their products. As production increases due to innovation, industries in the developed economies are exploring new markets in the less developed countries where they operate under minimum competition. The unexploited markets are a major attraction to foreign investors. In essence, economic factors contribute greatly to the development of organizational operations to a global scale. Many companies have begun to focus their production on the global market whereby they can exercise their innovativeness, especially for the unexploited markets. For example, Nike is one of the companies that have established in less developed countries such as Vietnam where there is availability of cheap raw materials. The company is amongst the multinationals that have introduced modern technology in less developed economies, new production and managerial expertise as well as innovative ideas in production. Such companies have led to the expansion of the commodity and labor market and new skills in the host countries (Hill, 2008). In order for industries to flourish, there is a tendency towards investing in research and development. Technological advancement has significantly contributed to the globalization of industries. All forms of technology have in one way or the other traversed state boundaries. Advancements in communication technology have facilitated outsourcing of labor from foreign markets especially through the use of the internet (Obstfeld & Rogoff, 1996). Transaction costs have to a great extent decreased in the course of technical progression. For example Duffield (2001) states that, “the cost of calling from London to New Yolk has significantly reduced from 1990 to the present”. The cost of traveling has also reduced. These have reduced production costs, which translate in to increased production and hence the search for foreign markets by industries for their surplus production. This trend facilitated production for export purposes. Business researchers are moving beyond political boundaries to investigate new ways of production and business development. As they move from one region to another, they identify strategic locations where an organization can operate with minimal cost in terms of taxes and trading licenses. Organizations also establish in foreign markets that have a stable currency and minimal inflation. Some governments offer subsidies to encourage foreign investors and hence the desire for organizations to globalize (Slaughter & Swagel, 1997). Foreign investment is one of the resultant aspects of economic globalization. As nations continued to advance technologically, better means of transport and communication led to the movement of investors beyond political boundaries, especially during the colonial period. Even after nations acquired independence, globalization continued to promote trade between investors and foreign countries, whereby the less developed countries were supported by the developed nations to acquire materials and equipment to utilize the available natural resources for economic development (Feenstra, 2003). However, the equipment needed to be supported with the necessary skills to ensure that the less developed countries were able to utilize their full potential. As economies expanded, trade grew and exchange of goods and services continued to advance. With the less developed economies possessing plenty of raw materials for industries abroad, foreign investment was inevitable as industries from developed economies sought to establish in the less developed countries where raw materials were available (Slaughter & Swagel, 1997). The concept of foreign investment also derives its roots from the realization by industries in the developed countries that labor was expensive in the developed countries. Companies therefore sought other regions where they could make use of cheap labor and produce the same quantity as they would in the country of origin. Markets are also a major factor that facilitates the movement of industries to establish in regions where there is ready market for commodities (Alexander, 2006). For example, foreign companies tend to invest in the third world countries where they can acquire a large market share, with few competitors. It also means that companies establish in foreign economies as a strategy to evade rising competition in their country of origin. Foreign investment therefore is a result of the rising needs of companies to enhance the accomplishment of organizational goals (Hill, 2008). Organizations usually face difficulties depending on many factors such as political stability, barriers to trade and conflicts of interests among other hindrances. These usually present high risks to investors considering the fact that it requires a high initial capital outlay to establish. The stocks acquired in n unstable economy may be lost if the operating environment becomes hostile as a result of political volatility. In case of policies focused on the expropriation of companies to utilize property or premises for public infrastructure development, organizations may be faced with a risk of closure and eventual loss (Charlotte, 2004). For example, investors in the African economies have been faced with a lot of challenges especially due to the recurrent violent change of regimes which have different policies with regards regard to investment and government tendering processes. Some of the autocratic regimes have even led to enormous losses amongst investors through confiscation of property belonging to investors, such as the losses incurred by foreign investors in Uganda during the tyrannical rule of Id Amin and the recent crisis caused by the unfavorable investment climate in Zimbabwe, Somalia Lybia and Egypt. Organizations therefore have to globalize in order to effectively spread the risks associated with political volatility (Scholte, 2005). The international law has provisions aimed at protecting foreign investors from losing their property and hence investors have confidence to establish in foreign markets. This is mainly emphasized through treaties such as NAFTA, WTO, and COMESA among others. Such treaties have been significant in protecting foreign investment, especially advocating the elimination of protectionism (Yarbrough & Yarbrough, 2002). Multinational companies operating under the protection of these treaties are shielded from the impact of unfavorable political climate generated by various regimes. However, many less developed countries usually encourage foreign investment to enhance economic development and therefore tend to offer subsidies and removal of trade barriers to allow foreign investment (Alexander, 2006). Conclusion Downsizing is one of the significant management strategies aimed at cutting costs through reducing the number of employees. It is also applied to increase efficiency by doing away with some of the non core business activities that do not contribute to an organization’s revenue. Only competent workers are left, allowing effective performance and reward management. Downsizing is also applied when organizations are implementing new structures aimed at eliminating bureaucracy. Mergers and acquisitions are among the re-organization strategies that necessitate downsizing. Globalization strategy on the other hand is focused on exploring new market for products in foreign markets. It has been enhanced by international treaties that have led to a reduction of trade barriers. Organizations also venture in to foreign markets while undertaking business research. Technological advancements have made it facilitated the establishment of organizations in the global market as a result of decreased costs of production and transport. Cheap labor is also a major driver towards globalization of industries. Globalization of business also allows investors to spread risks especially due to political volatility in global economies. Reference List Alexander, O. 2006. Peremptory Norms in International Law. New York: Oxford University Press. Barry G. 2008. 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