Globalization and Impact on Companies - Essay Example

Globalization and Impact on Companies Contents 1 Contents 2 Introduction 3 Opportunities of Globalization for Companies 3 Challenges Faced by Multinational Firms 4 Stopford and Wells Four Stage Model 4 Hofstedes Cultural Dimensions Model 6 BCG Matrix 8 Differentiation and Standardization 9 Conclusion 10 Introduction Most of the nations have experienced high economic growth rates since globalization due to increased degree of business internationalization. Globalization has helped the domestic firms to become international corporations. However, with business expansion in the foreign markets, the degree of complexity has also significantly increased. This essay will study the opportunities and challenges faced by the multinational firms since globalization. The context of the paper will also claim that some theoretical models with the help of which the multinational firms can rectify the upcoming challenges of their business. Finally the paper will also analyze the primary strategy through which these firms must operate in the international markets (Gray, 2009). Opportunities of Globalization for Companies Globalization has significantly carved the path of business internationalization. Some of these advantages are: High degrees of economic integration in the contemporary era have expanded the resource base of the companies. The multinational firms in the current era procure different factors of production like land, labour capital and entrepreneurship from global marketplaces. Moreover, the revenues generated by these firms have also expanded significantly because they experience both domestic and internal demand for their final products and services. Globalization has also increased the extent of competition across all industries. This has helped the firms to become more competent and efficient (Gray, 2009). Challenges Faced by Multinational Firms The major problems faced by the MNCs in the current era are: Problems associated with differences in the culture across the national borders. It is very decisive to recognize that key to winning globalization lies on both economic cultural aspects. Due to cultural differences the workforce within an organization cannot converse with each other efficiently then this obstructs the overall efficiency of the company. Human resource (HR) management becomes highly complex for the company’s that operates across different markets. There are problems faced by the HR managers in while coordinating diversity in workplaces. Lesser diversity in organizations lowers its business efficiency (International Labour Organisation, 2004). The tastes and preferences of the consumers are different across separate economies. The political, economical, social, environmental, technological and legal norms are very much different in separate marketplaces (Vaidya, 2006). Stopford and Wells Four Stage Model This model will help to analyze that since globalization, the business expansion process of a firm in the international market, makes it go through structural changes. This implies that at different stages of business internationalization, the multinational corporations (MNCs) should go through separate organizational structures (Veder, 2008). Stages Implication Analysis International Division This is the first stage of expansion where a MNC should simply set plans to expand its business. At this stage the firm might analyze the key factors required for successful business internationalization Worldwide Area and Product Division At this stage a MNC either only increases its geographical spread of business or increases product diversity. If the geographical spread is diversified, then the companies entail less product diversity. However, if the product diversity is more, the firms expand its business within limited geographical spread. If the scope of internationalization is wide, then a firm should not allocate much money is product diversification. This is because under such cases the strategy of expansion should be guided by duplication or coordination. Hence the firms should encourage specialization of its factors of production under this strategy (Schenk, 2011). On the other hand if the scope of internationalization is narrow then the local responsiveness would be low for the products of company. Hence the firm at this stage must entertain product diversity. It should give more focus in upgrading the creativity and efficiency of its resources. Matrix Structure At this stage the MNC should increase its geographical spread of business and should also encourage product diversity. At this state the MNC would lie in a sound position to compete with the leading rivals in each of its market. The different business branches should be controlled by the firm through common culture, socialization and networks. However, such dual chains of command often generate conflicts among the several business braches of the firm. The firm should be highly responsive to local market demands and should also aim to attain global efficiency. Like Emami Group in India (Luetge, Koslowski and Homann, 2013). Transnational Network Structure At this stage the MNC becomes matured and should follow the norms of strategic management in business The operations of the firm become highly complex at this stage. It should adopt an adaptive structure in business at this stage and actively respond to the changes in market demands. The firm requires being highly flexible and integrated in the global context at this stage. Some MNCs that lie in this stage are Procter & Gamble and General Motors (Marquardt, 2013). Hofstedes Cultural Dimensions Model Hofstedes Cultural Dimensions model claims that the economic outcomes across different nations significantly differ due to cultural discrepancies of the consumers in different markets. This model introduces a special Power Distance Index (PDI) that helps to estimate the cultural differences between nations (Khanna and Palepu, 2013). Figure 1: Figure 1: PDI Comparative Analysis (Source: Clearly Cultural, 2014) The dimensions that are included by PDI are: Individualism (IDV): the degree of individuals group integration Masculinity (MAS): the emotional role distribution between genders Uncertain Avoidance Index (UAI): the tolerance of a society to market uncertainties Long Term Orientation (LTO): the extent to which present is preferred than future While making price and output decisions the contemporary the MNCs should consider the PDI of a market. Like, in United States (U.S.) the LTO index is 29 while in Japan it is 80. This proves that the consumers in U.S. are less long term oriented than Japan, hence the U.S.; buyers are more spend thrift than Japanese buyers. If a MNC engages in the sales of luxury products, then its business retail would be higher in U.S. than Japan (Gannon, 2008). BCG Matrix The business units and product lines of corporations can also be analyzed in a more efficient manner by a MC with the essence of a growth share matrix or a Boston Consulting Group (BCG) matrix. Figure 2: BCG Matrix (Source: Gibbert and Durand, 2006) The business decisions of a multinational firm can be undertaken with the essence of this matrix. Like Star category considers those products and services of a company for which it experiences a high share market demand and demand growth rate. Hence the firm does implement new strategies in business to improve these services or products. However, the Question Mark category includes those products and services that has high market growth rate but its demand experienced by the firm is relatively low (Inoguchi and Marsh, 2007). Hence the company must try to implement new strategies through which it may make such products and services more competent in the market and hence experience a higher market demand. On the other hand the Cash Cow products are the products for which the company faces high demand but its growth rate is low. Hence implementation of new strategies would not substantially help the firm experience greater demand for the future (Hakansson and Waluszewski, 2007). Differentiation and Standardization The external environment differs from one economy to another. Hence multinational firms should differentiate their products and services while operating across different economies that largely differ in terms of external environment (Grey, 2009). The tastes and preferences of the consumers significantly differ across nations and hence the products and services of a multinational company, that are slightly differentiated (according to the exact preferences of different customer groups) are mostly much more preferred than the once that are standardized. Like Domino’s Pizza is a popular international pizza delivery franchisee and American restaurant chain. The company gives primary focus on serving assorted types of traditional, customized and speciality pizzas to its customers in different nations. The spices, toppings and add-on offered in the pizzas of the company differ across nations (Dominos, 2014). Like in India the company does not sell beef pizzas but the flavours are traditionally Indian like the “Tandoori Flavoured Pizzas” (Dominos, 2014). On the other hand in western nations the pizza menus of the company includes beef pizzas and are generally less spicy that those served in India and Pakistan. As recorded in 2013, the net operating income of the country was $1.802 billion (Dominos, 2014). It shares a high brand value in the market and experiences wide base of customers in the global forum. Moreover, the company appoints local employees for each of its outlets across nations. This is because the firm feels that local employees can cater to the requirements of the native customers in the best possible manner. Thus, just like Domino’s Pizza, if a company desires to successfully implement internationalization of business, then it should serve on the basis of differentiation other than standardization (Dominos, 2014). Conclusion From the above context it can be claimed that globalization has carved the path for business internationalization for contemporary firms. However, it has also entailed certain challenges to these firms. Such challenges are caused due to cultural differences, human resource discrepancies and many other factors across different markets where a multinational company operates. At this complex situation only with the virtue of strategic management a firm can successfully expand its business across international market. Like from the initial stage of expansion till final maturity stage the Four Stage Model explains the different states of organizational structure that must exist in a firm. The business expansion strategies must be undertaken on basis of the cultural dimensions in each market. Moreover, the products and services on which a firm must focus might be analyzed through a BCG matrix. The most crucial fact states that the firms should operate in international markets on basis of differentiation other than standardization. Only with the above changes the multinational firms would be able to utilise labour, intellectual capital and other resources about the world to the advantage of all (Gorelick, Milton and April, 2004). Reference List Clearly Cultural, 2014. Power distance index. [online] Available at: [Accessed 19 March 2014]. Dominos, 2014. Dominos. [online] Available at: < http://www.dominos.com/> [Accessed 19 March 2014]. Gannon, M.J., 2008. Paradoxes of culture and globalization. California: Sage. Gibbert, M. and Durand, T., 2006. Strategic networks: Learning to compete. New Jersey: Blackwell Gorelick, C., Milton, N. and April, K., 2004. Performance through learning: Knowledge management in practice. Massachusetts: Elsevier Butterworth-Heinemann. Gray, D.E., 2009. Doing research in the real world. London: Sage Publications. Grey, C., 2009. A very short, fairly interesting and reasonably cheap book about studying organizations. California: Sage Publications. Hakansson, H. and Waluszewski, A., 2007. Knowledge and innovation in business and industry: The importance of using others. London: Routledge. Inoguchi, T. and Marsh, I., 2007. Globalisation, public opinion and the state: Western Europe and East and Southeast Asia. London: Routledge. International Labour Organisation, 2004. A fair globalization: Creating opportunities for all. Geneva: International Labour Organization. Khanna, T. and Palepu, K., 2013. Winning in emerging markets: A road map for strategy and execution. Harvard: Harvard Business Press. Luetge, C., Koslowski, P. and Homann, K., 2013. Globalisation and business ethics. Farnham: Ashgate Publishing Ltd. Marquardt, M.J., 2013. The global advantage. London: Routledge. Schenk, C.R., 2011. International economic relations since 1945. London: Routledge. Vaidya, A.K., 2006. Globalization: Encyclopedia of trade, labor, and politics. Santa Barbara: ABC-CLIO. Veder, J., 2008. Reducing human capital risk in a global war for talent: How recruitment agencies could help in recruiting and retaining talent. Hamburg: Diplomarbeiten Agentur. Read More