Contemporary Issues in International Business - Assignment Example

Contemporary Issues in International Business 1.0 Introduction The development of businesses in the global market is related to a series of challenges. At a first level, reference should be made to the lack of appropriate legislation for securing free trade in all markets. Other issues, such as the continuous technological changes and the differentiation in FDI flows have been proved as influencing the activities of businesses worldwide. Current paper explores and evaluates the key recent developments of clothing industries. Emphasis is given on the impact of these developments on international firms. The period under discussion is from 2008 onwards; issues related to the post 2008 period are also mentioned if they are considered as necessary for understanding the development of the global clothing industry from 2008 up today. The literature studied for this paper has revealed an important contradiction: global clothing industries tend to grow at international level but their performance in its market is not standardized, meaning that in certain markets the performance of these industries is quite discouraging, an issue that it is analytically discussed below. It should be also noted that the environment in which international businesses operate is briefly explained so that the position and the challenges of global clothing industry to be fully understood. 2.0 Contemporary Issues in International clothing industries 2.1 Contemporary issues in international business Businesses that operate globally have to face a series of issues. The willingness of investors to support global business initiatives is not standardized. In fact, Foreign Direct Investment (FDI) flows in markets worldwide present high variation, being reduced from time to time, usually because of local political or economic crises.1 FDI has become popular due to the low level of its risks, compared to other internationalization strategies. Justin explains that FDI can be described as ‘the investment in the real assets of a foreign company so that a product is produced or marketed.2During the last five years, FDI shows important downturns probably because of the recession of 2008. The specific fact is reflected in Graph 1 and Graph1a (Appendix) where the changes in FDI globally, both as inflows and outflows, are presented. The recent trends in regard to FDI globally are also presented in Graph 2 (Appendix) where emphasis is given on the FDI inflows in developing countries. It should be noted that a firm that wishes to secure its position in the global market needs to be able to continuously improve its productivity in order to respond to global competition, which tends to favour the most powerful organizations.3 In fact, due to globalization, competition has become stronger not only in the international market but also in local markets.4 Another issue for international business is the elimination of trade barriers. In practice, it has been proved that trade barriers can significantly threaten the prospects of firms in the global market, either temporary or permanently. Three major categories of trade barriers are likely to appear when the internationalization of a firm is attempted: ‘a) natural barriers, which can be either physical or cultural, b) tariff barriers, such as taxes, and c) non tariff barriers, such as the limitation of the quantity of goods that a firm can import in a particular country.’5 Another problem that international businesses need to face is the following one: the development of technology worldwide is quite rapid. Organizations that are not able to keep the technology used in their operations updated have not many chances to survive in the global market.6 Katsioloudes and Hadjidakis note that technological change in the global market is characterized by the following trends: a) continuous changes on technology used in business operations, as of all their aspects, b) increase of investment on research and development, c) just partial changes on technology used in business operations; this practice is highly popular due to its low cost, d) increase of laws focusing on the control of technology used in business operations, e) significant and continuous increase of Internet use in regard to many organizational functions.7 2.2 International clothing industry – key recent developments 2.2.1 Global clothing industry and networks of international production Developing a successful production network is critical for firms operating in the international clothing industries. However, the mode of production network used by the particular firms is decided by their leaders. This means that the production network chosen by the firms operating in the global clothing industries is not always aligned with these organizations’ objectives and needs. In addition, different modes of production network are organized in countries internationally, according to the local laws, as influenced by the governmental decisions on the particular issue.8 For example, in Cambodia, a series of ‘global clothing production networks’9 has been developed; these networks are based on firms/ local producers that provide to foreign enterprises clothing products not directly, but through ‘parent companies based internationally’.10 In other countries, as, for example, in China, Hong Kong and Singapore, a different practice is followed: direct clothing production networks are established, meaning that the arrangement for the provision of clothing products is developed directly between the local firms and the foreign companies, without intermediaries.11 According to Smelser and Swedberg the last decade the global population has been increased, leading to the increase of needs for clothing products.12 However, manufacturing costs have to be kept at low levels due to global economic downturns.13 Production networks based on developing countries are highly used since salaries in these countries are low; in this way, a high volume of clothing products can be delivered at significantly low cost.14 Camarinha-Matos, Boucher and Afsarmanesh note that in the context of the global clothing industry, there are four possible modes of supply networks: a) direct/ indirect retailer control; based on arrangements developed either directly between the manufacturer and the retailer or indirectly, through an agent,15 b) control of sources; the control over the materials used in the manufacturing process can belong either to the manufacturer or to the retailer, depending on their agreement,16 c) the level of garment complexity; the designs chosen can be ‘simple or complicated’;17 firms that are based on innovation are likely to choose innovative designs the cost of which can be significantly higher compared to that of simple designs;18 d) involvement of retailer in quality control; retailer can be involved in the control and assurance of product quality either in an early phase or a later phase of the production process.19 From a similar point of view, Johnson and Turner explain that in the global market two key modes of supplier chain networks can be identified: ‘a) the producer-driven chains and b) the buyer – driven chains’.20 In the global clothing industry the second mode of supplier chain network is used; reference can be made, as examples, to global clothing brands, such as Benneton and The Gap.21 In Graph 2, the textile production in EU is presented, as compared to the textile production in Europe, in Graph 3 (Appendix). It should be noted that the future prospects for the textile and apparel industry are important as revealed through the Graph 5 (Appendix). 2.2.2 Global clothing industry and FDI flows The level of FDI flows, as related to the clothing industry, is depended on specific factors, such as ‘the availability, cost and productivity of labour’,22 meaning the labour involved in the manufacturing process of the global clothing industry. For example, FDI flows in Vietnam especially ‘for the production of textile’23 have been increased in 2008, so that the potentials of the country to respond to global needs for textile are enhanced. On the other hand, Cattaneo, Gereffi and Staritz note that the level of FDI related to the clothing industry is differentiated in countries worldwide, according to the potentials of these countries to respond to the industry’s needs but also to provide adequate security to the funds invested.24 In the study of Cattaneo, Gereffi and Staritz a comparison of the level of FDI used in the countries that are quite popular as apparel exporters is provided. Among those countries, only Cambodia and Bangladesh seem to depend on FDI exclusively, while the vast majority of these countries, including China, Vietnam and India, do not rely solely on FDI for covering the needs of their apparel industry.25 2.2.3. Global clothing industry and impact of globalization Globalization has resulted to important changes on global clothing industry. Reference can be made primarily to the increased clothing needs worldwide, as a result of the increase of global population. In addition, globalization has led to the increase of competition in the global clothing industries, as also in other industries worldwide. At the same time, globalization has enhanced the power of global clothing brands. Firms that have the resources required for reaching many markets have secured their position in the global market while many small retailers have not been able to survive. Dicken supports that ‘the global clothing industry is highly fragmented’;26 still, it seems that this condition favours major retailers that ‘can easier secure their dominance in the global market’.27 2.2.4. Global clothing industry and impact of technological change The advances of technology have highly influenced the global clothing industry. In practice, it has been proved that technological change has intervened in the development of manufacturing process, as part of the global clothing industry.28 More specifically, emphasis has been given on the potential of technology to support the following needs of the manufacturing process: a) the need to increase machines flexibility,29 b) the need to improve the performance of machines in regard to sequential operations30 and c) the need to introduce ‘a unit production system in order to deliver pieces of work to the operator on a conveyor belt system’;31 in this way, the time of delivery from the manufacturer to the retailer is significantly decreased.32 Gwilt and Rissanen focus on another aspect of technological change, as related to the clothing industry. The above researchers note that through the advances of technology the time and cost required for locating, designing and producing clothes have significantly decreased.33 However, in this way, the attention paid on the environmental effects of the manufacturing process, as part of the clothing industry, is quite limited.34 2.2.5. Global clothing industry and localization of economic activities – Porter’s Diamond Model Traditionally, firms based in highly industrialized countries have been more capable of securing their dominance worldwide. During the last 5 years, the changes that took place in the clothing industry proved that the above phenomenon is no more valid. Indeed, a Spanish firm, the Inditex Group, owner of Zara brand, has ranked first as a global retailer for 2008.35 At the same time, a Swedish clothing retailer, H&M, has managed to develop its market position rapidly; for 2007, the firm’s ROI was estimated at 32.6% significantly higher from Zara the ROI of which was estimated at just 17.7%.36 In order to understand the potentials of a country to perform high in regard to its clothing industries it would be necessary to review the structure and the regulation of the local market. Porter has developed a framework that can help to identify the performance of a country in each industrial sector. This framework is known as Diamond model and is based on the idea that there are four factors that can help a country to increase its competitiveness in a particular industry: ‘a) factor conditions, b) demand conditions, c) related and supporting industries and d) firm strategy and rivalry’.37 It should be noted that for Porter, the strategies of firms can highly impact the competitiveness of nations.38 For example, in Italian clothing industry, emphasis has been given on ‘subcontracting and inter-firm cooperation’;39 gradually, these practices have been appropriately changed so that the country’s firms are able to respond to increased orders and to changes in regard to customers’ preferences.40 2.3 Impact of clothing industry’s developments on international business The developments of global clothing industry have highly influenced international business. At a first level, the clothing industry has been a sector that has highly contributed in the development of brands;41 reference can be made for example to Lewis, a brand that has become popular in all markets worldwide helping customers to become familiar with brands.42 Moreover, the technological advances incorporated in the manufacturing process of the clothing industry have helped towards the establishment of technology as a key factor in the performance of all industries.43 At the same time, international businesses have adapted many of the practices of clothing industry, as for example the establishment of global supply network for minimizing costs or the use of FDI as key scheme for entering a foreign market.44 In addition, the clothing industry has provided a strategy for promoting innovation within quite short time; for example, in Zara the update of existing garments can take place in just 2 weeks, including the time for the design of clothes and their delivery to the firm’s stores.45 The above target is achieved by the support of 200 professionals who constitute the firm’s design team.46 On the other hand, the clothing industry has helped leaders of international business to understand that the location of businesses is vital for their performance but may not have a decisive role for the organizational growth.47 For example, major global retailers in the clothing industry have established their supply networks in many countries, emphasizing on keeping costs low and on responding to customers’ orders with no delay.48 3.0 Conclusion When having to develop its activities worldwide, a firm needs to take into consideration a variety of factors. Primarily, the conditions in the external environment need to be carefully assessed so that appropriate strategies are developed. A similar practice should be used for the firms operating in the global clothing industries. The review of the key recent developments of these industries leads to the following assumption: from 2008 onwards global clothing industries, as also all industries, are characterized by strong turbulences. In the past, it has been easier for these industries’ firms to secure their market position, mostly because the power of globalization to influence the performance of markets was not so strong, as today. However, it is still possible for firms in global clothing industries to enhance their performance; this target would be achieved by emphasizing on market trends, as related to FDI flows and technological change, and by promoting innovation especially in regard to their production networks securing that a high area of the global market is covered without the quality of products/ services to be decreased. References Bigdol, H., The Handbook of Technology Management: Supply Chain Management, Marketing and Advertising, and Global Management (Hoboken: John Wiley & Sons, 2010). Camarinha-Matos, L., Boucher, Xavier and Afsarmanesh, Hamideh, Collaborative Networks for a Sustainable World: 11th IFIP WG 5.5 Working Conference on Virtual Enterprises, PRO-VE 2010, St. Etienne, France, October 11-13, 2010, Proceedings (New York: Springer, 2010). Cattaneo, O., Gereffi, Gary and Staritz, Cornelia, Global Value Chains in a Postcrisis World: A Development Perspective (Washington: World Bank Publications, 2010). Dicken, P., Global Shift, Sixth Edition: Mapping the Changing Contours of the World Economy (New York: Guilford Press, 2011). Francis, C., International Business: Text And Cases (New Delhi: PHI Learning Pvt. Ltd., 2010). Fry, J., Asean: Regional Trends in Economic Integration, Export Competitiveness, and Inbound Investment for Selected Industries (Washington: DIANE Publishing, 2011). Gitman, L. and McDaniel, Carl, The Future of Business: The Essentials (Belmont: Cengage Learning, 2008). Gwilt, Al and Rissanen, Timo, Shaping Sustainable Fashion: Changing the Way We Make and Use Clothes (London: Routledge, 2011). Hines, T. and Bruce, Margaret, Fashion Marketing (London: Routledge, 2012). Johnson, D. and Turner, Colin, International Business: Themes and Issues in the Modern Global Economy (Oxon: Taylor & Francis, 2010). Justin, P., International Business (New Delhi: PHI Learning Pvt. Ltd., 2011). Katsioloudes, M. and Hadjidakis, Spyros, International Business (London: Routledge, 2012). MacDonald, K. and Marshall, Shelley, Fair Trade, Corporate Accountability and Beyond: Experiments in Globalizing Justice (Burlington: Ashgate Publishing, Ltd., 2010). Morschett, D., Schramm-Klein, Hanna and Zentes, Joachim, Strategic International Management: Text and Cases (New York: Springer, 2010). Netessine, S. and Tang, Christopher, Consumer-Driven Demand and Operations Management Models: A Systematic Study of Information-Technology-Enabled Sales Mechanisms (New York: Springer, 2009). Schermerhorn, J., Management (Hoboken: John Wiley & Sons, 2011). Smelser, N. and Swedberg, Richard, The Handbook of Economic Sociology (New Jersey: Princeton University Press, 2010). Staritz, C., Making the Cut?: Low-Income Countries and the Global Clothing Value Chain in a Post-Quota and Post-Crisis World (Washington: World Bank Publications, 2011). Yao, S., Sustainable Reform and Development in Post-Olympic China (Oxon: Taylor & Francis, 2011). Appendix Graph 1 – Global FDI inflows (OECD Factbook 2010, p.80) Graph 1a – Outflows of FDI (OECD Factbook 2010, p.81, http://www.oecd-ilibrary.org/economics/oecd-factbook-2010_factbook-2010-en) Graph 2 - Inward investment in developing countries for the period 1970-2010 (Source: http://unctadstat.unctad.org/TableViewer/chartView.aspx) Graph 3 – Textile industry trends in the German market, from 2000 to 2011 (Deutsche Bank 2011, p.1, http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000275381/Textile+and+clothing+industry%3A+Innovation+and+internationalisation+as+success+factors.pdf) Graph 4 – Production trends in Europe in regard to the textile industry (Deutsche Bank 2011, p.11) Graph 5 – Prospects for the Textile and Apparel industry up to 2015 (Technopak p.43, http://www.technopak.com/resources/fashion/ITAC%20Report%202007.pdf) Read More