International Business - Global Marketplace - Case Study Example

Supervisor Using one specific company with which you are familiar, examine the actual andpotential impacts of globalisation on that company. Explain the reasoning behind the points you make. By: November, 2008 TABLE OF CONTENTS 1.0 Introduction 1.1 Overview of the Company in Question 1.2 Potential Impacts of Globalisation on the company 2.0 Conclusion and Recommendations 1.0 Introduction The globalisation of production refers to the sourcing of goods and services from locations around the globe in other to take advantage of the national differences in the cost and quality of factors of production (Anderton 2006). The very act of going international multiplies company's organisational complexities. Recent changes in the international market scene, politics and environment have forced companies in the quest and optimisation of various options. With the rational ranging from optimisation of resources, being more responsive with the various stakeholders and keeping the pace of learning and employees development in their world wide operations (Ghoshal. S., et al 2002, Caves. 1996). Moving global, shouldn't be an overnight decision in multinational enterprises. Such a move should be carefully given a second thought, as it involves not only a total strategic reorientation but a major change in an organisations capabilities, resources and challenges (Ghoshal., et al 2002, Caves. 1996). In the last few decades, globalisation has been accelerated by changes in the external environment, the increasing recognition that competitive success requires worldwide activities for integration and coordination and above all, Ghoshal et al (2002) argue that integration and co-ordination enabled the MNC to develop the strategic capabilities to compete effectively with local competitors. Companies going global should be able to face the challenges of thinking globally and implementing locally. There is no doubt operating internationally rather than domestically presents organisations with many new opportunities (Ghoshal et al 2002). From access to new markets, tactical and strategical positioning to a pool of information for subsequent product development (Markusen., et al., 1998). Going international at times looks logical when we look at these pull factors. Economists are not in agreement as to a common definition of multinational or transnational enterprises (MNE/TNC). Multinational corporations have many dimensions and can be viewed from several perspectives (ownership, management, strategy and structural, etc.) (Root. 1994, Hill, 2007). According to Hill (2007), a global enterprise (or transnational corporation) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Most multinationals have budgets that exceed those of many countries (Hill 2007). This paper is aimed at analyzing and discussing the potential impacts of globalization on a chosen multinational. The first part of the paper presents activities of Tesco, the second part looks on the positive impact of globalization on Tesco, the third sections focuses on the negative impact of gobalisation on Tesco while the last section presents the conclusion. 1.1 Overview of the Company in Question-Tesco Founded by Jack Cohen in 1919, Tesco Plc has come a long way and has established itself as the largest super store in Europe. At the turn of the century, Tesco became very proactive in coming up to the requirements of the new ear and tesco.com was launched, followed by aggressive entry into international markets like Malaysia, Japan & Turkey, China & the US. Today, the international operations of Tesco yield more profit as compared to the profits in the Europe market. More than half of Tesco's selling space is in markets outside Europe (Tesco Review 2007). The Tesco Plc website states "shareholders. Today the Group operates in 12 markets outside the UK, in Europe, Asia and North America. Over 160,000 employees work in our international businesses, serving over 28 million customers and generating 13.8 billion sales and over 700 million profit." Tesco denotes its success to an aggressive global strategy of geographic diversification. In its attempt to renew the brand and keep it in sync with changing customer tastes and keeping up the growth figures in future, Tesco follows various strategies including international diversification, providing value to customers, product diversification, innovation, and umbrella branding. Since the 1990's Tesco has been taking its market diversification strategy very seriously and has business in 12 foreign markets. Tesco focuses on customer retention through providing added value. For this purpose, they have created loyalty programs and are stressing on communicating their corporate social responsibility and Core Company values to their customers (Tesco Review 2007). Primarily Tesco is a food store. The evolution from a food store to becoming a retail store and providing innovative retail products is a strategy of product diversification. Tesco has reformed the retail food service industry through continuous innovation and has achieved competitive edge in providing groceries and other ready to cook meals to its customers.It can be seen that Tesco likes to have umbrella branding strategy and products in other market segments like Tesco Telecom and Tesco retail have all retained parent the parent brand name. 1.3 Potential Impacts of Globalisation on the company-Tesco Exploiting existing assets and exploring new assets are two major and often concurrent forces driving firms to invest abroad. Moving beyond prior attention to their separate effects on foreign ownership decisions (Anand &Delois 2002), Chen & Hennart 2002), Tseng Hui-Chuing 2007). Nonetheless, multinationals like Tesco face difficulties in deploying marketing knowledge in different contexts and thus are more likely to choose joint ventures for an aggressive foreign market entry. For example, because of globalization trend, Tesco had to go in for a joint venture when entering the Korea market. A potential positive impact of globalization on Tesco can be seen from the level of their ownership advantage. Ownership advantages resulting from Tesco's operations can be looked upon from two directions. That is in a situation where full ownership prevails and a situation where ownership is shared with local partners. Tseng Hui-Chuing (2007) argued that MNEs equipped with capabilities to attain assets seeking objectives are more likely to choose an internationalization of foreign operations than a shared ownership mode. In this direction, diversification of institutional power is reduced, corporate identity is preserved, and opportunistic behaviour resulting from shared ownership minimize. However, with Tesco, both strategies are operationalised with respect to different markets. For example, when entering the Korea market emphasis was on a joint venture for easy access. However, in the United States full ownership prevails. Tseng Hui-Chuing (2007), went further to argue that, MNEs will prefer full ownership mostly in situation where the short term benefits in collaborating in assets exploration tend to be more than the long term cost of full ownership (White &Lei 2005). It should be noted here with respect to existing literature that, entering into join venture is only possible option when assets seeking multinationals lack capabilities to duplicate or acquire needed assets or where the pros of sharing assets outweighs the cons of ownership (Chen &Hennart 2002, Oliver 1990, White and Lui, 2005). By entering into a join venture ownership structure, the partnership will provide an advantage to easily gain access to resources that are costly or prohibitive to be reproduced or transfer outside of the firm that controls the resources (Oliver 1990). Globalisation thus has, redefined the value chain of Tesco as advantages are sourced from different angles. Makino & Neupert (2000) went further to substantiate that a wholly owned structure has an advantage of a greater discretion or latitude to leverage the resources when compared to join venture. Tseng Hui- Chuing (2007) elaborated and strengthened location and ownership advantages existing to MNEs using a set of hypothesis to connect, local technological advantages, natural resource advantages, cheap labour, technological advantages with firm specific advantages (Marketing and firm size advantage). Tseng Hui Chuing (2007) however, postulated that in situation where the advantages and capabilities that MNEs embrace, is location specific (labour, technology, natural resources, expertise etc), or difficult to be redeployed or rebuilt in a new market, then Join ownership should not be given a second thought. These ties with Dunning (1993) findings that there are four generic location specific advantages for MNEs. Natural resource seeking advantage Market seeking advantage Strategic assets seeking advantage Efficiency seeking advantage. Smarzynska, & Mariana, (2008), argued that affiliates with joint domestic and foreign ownership may face lower costs of finding local suppliers of intermediates and thus may be more likely to engage in local sourcing than wholly owned foreign subsidiaries. This in turn may lead to higher productivity spillovers to local producers in the supplying sectors (vertical spillovers). Second, the fact that MNEs tend to transfer less sophisticated technologies to their partially owned affiliates than to wholly owned subsidiaries, combined with the better access to knowledge through the participation of the local shareholder in partially owned projects, may facilitate more knowledge absorption by local firms in the same sector (horizontal spillovers) Looking at it from this direction, one will hesitate to note that by circumventing a wholly owned ownership structure, the internalization advantages likely to result will include; Preservation of Proprietary know how Minimise losses due to opportunistic behaviour Protect the organisational cultural identity Confined capital structure of the organisation. Christos, et al., (2007) argued that cultural differences decrease firm value by imposing a barrier to the exploitation of internalisation advantages listed above. From the beginning of the world economy, multinationals entreprises have discovered and exploited world resources, created transportation and information infrastructures, and moved production processes across borders. They have built and rebuilt the webs of the global economy (Jones 2005). Multinational entreprises, create jobs, do investment and serve as developmental partners with local authorities. A whole chain of activities usually follow with the establishment of Tesco in another country. Such actions result to higher living standard for the employed, social and infrastructural development. The situation of China today serves as a good local example. Multinational companies account for one fifth of the worlds output excluding the centrally planned economies (Dunning 1993). MNEs are amongst the most powerful economic institutions generated by the private sector. As the twenty-first century began, FDI continued to be clustered in a relatively small number of countries. Emerging country hosts accounted for one-third of the stock of world FDI, but one-third of this amount was located in China and Hong Kong. Most of Africa and Latin America, as well as India, held little FDI in absolute terms (Jones 2005). By operating in this form, Tesco acts as distribution mechanism to facilitate the allocation of resources into the most efficient and effective use. Countries and regions have become linked by complex flows of trade and investment. As a result, globalization has become part of the reality of the daily life of people in a way unimaginable even two decades ago (Hill 2007). Both a blue-collar worker in Michigan and an IT software engineer in California now work in an environment where their jobs might be "outsourced" overnight to another continent. The growth of globalization has resulted in unprecedented contacts between cultures, but it has not yet diminished clashes between them. The terrorist attack on September 11, 2001 demonstrated that globalization was far from a guarantor of peace. 1.2 Conclusion and Recommendation Firms look into oversees market opportunities to gain a wide market coverage, and reduce the negative effect of economic down turns within individual countries (Transport cost, trade restrictions,) (Chetty 1999). Cross country or cross cultural differences persist and as such MNEs experience liabilities of foreignness relative to indigenous firms. Differences in consumer preferences, marketing practices, market potentials and participants make it difficult for a company to operate and serve foreign markets from their home country (Hill 2007). Forming joint ventures with local partners is an effective springboard to penetrate these barriers and rapidly develop local marketing knows how. Where MNEs posses strong marketing experience at home, the is a constraint of transferring this abroad. Tseng Hui-Chiung (2007) argued that, wholly-owned subsidiaries are preferred to joint ventures when multinationals are able to tap into host innovatory dynamism by employing extant technological capabilities and to access local natural resources by leveraging corporate scales. Nonetheless, he further postulated that multinationals face difficulties in deploying marketing knowledge in different contexts and thus are more likely to choose joint ventures for an aggressive foreign market entry. Foreign Exchange risk may also have significant negative effects on the stock market as well as on the value of a MNE. For example, following the 1997 Asian Crises, the Asian Stock Market witnessed a decline in value between 40 and 60 percent (Verschoor &Muller 2007: p. 710, Shapiro 2006). This was as a result of the movement from a fixed exchange rate regime to a floating rate regime in most countries in Asia. For example, the Thai Bhat, which was originally pegged to the US dollar on the 2nd of July 1997 abandoned its peg to the US dollar and began floating freely against all other currencies (Shapiro 2006). The MNE as such possesses a real (call) option that is rationally exercised whenever the foreign currency has been substantially appreciated relative to the domestic currency ((Shapiro 2006). From the foregoing caption, globalisation has equipped Tesco to be better place to manage its risk management challenges. Tesco today is better placed to respond effectively to all three diverse and competing sets of forces. These include global scale efficiencies, national market responsiveness, worldwide innovation and learning. BIBLIOGRAPHY Anand, J., & Delois, A.,(2002) Absolute and relative resources as determinants of international acquisitions. Strategic Management Journal 23(2), 119-134 Anderton. A., (2006) Economics. 4th Edt Causeway Press Charles W.L.Hill. (2007). International Business. 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