Global Business and the Success of Multinational Companies - Essay Example

Global Business Introduction Global business has taken a turn for the better owing to the developments in technology. The aspect of globalization has had a lot of influence on the business of any firm no matter the spread of its operations. Those who have realized the most gains are evidently in the firms with a global reach. With advancements such as video conferencing and chat rooms, communication has taken wide strides towards reducing the world to a single village as it is said. Many aspects on the global business front have contributed to the success of multinational companies in ways that were never imaginable a decade ago. In this paper, the various aspects of the spread of businesses to a global level shall be outlined and their impacts on the products they offer detailed (Wild, 2009). IBM The company to be focused on is International Business Machines (IBM). This is a public company founded in 1911 by Thomas J. Watson and Charles Ranlett Flint. The firm is headquartered in Armonk, New York. It has among the most developed global networks and serves the whole world at present (Steers, 2010). IBM has interests in the provision of services, financing, hardware, and software. Its take on the global business scene shall be outlined in the following sections. Global Reach Globalization is the movement towards achievement of greater interdependence among economies and national institutions in view of their political, cultural, technological, and economic advancements. The falling barriers to trade and investing in general have facilitated globalization largely. Technology has also played an important role in oiling the wheels of the globalization locomotive. These two forces have ensured that companies all over the world can carry out business in locations far away from their headquarters. Globalization has played an important part in reducing income inequalities across the globe. Poor countries can now pay their employees’ wages that were not possible a few years ago. The availability of jobs by multinationals in foreign countries has also elevated the standards of living of people in faraway lands. Multinational corporations such as oil conglomerates have led the pack in ensuring globalization. The global business environment has enabled corporations in the world to carry out business at a much lower cost than it was in the previous years (Ietto-Gillies, 2005). IBM has branches all over the world to oversee its operations in these countries. While headquartered in New York in the United States, it has subsidiaries in Europe whose operational headquarters was moved from Paris in France to Geneva in Switzerland in 1935. Other countries in which IBM has offices include, Austria, Bulgaria, Belgium, Czechoslovakia, China, Germany, the Netherlands, Italy, Japan, Norway, Romania, Poland, Russia, Vietnam, Sweden, and Yugoslavia. Today, IBM has a presence in many other countries including Kenya and South Africa besides Nigeria and Brazil. This detailed network of subsidiaries has seen to the enjoyment of many of the benefits of globalization as enumerated above (Porter, 1990). What is global business, and it is developed A global business is a business that operates and competes in global markets. The competitive advantage of such business is entirely reliant on the economies of scope and economies of scale attained across international markets. In addition, international or global business is a form of business where transactions cross the national boundaries of a particular business and extend into other countries (Harvard Business Review, 2012). The perspective of international business is the scope of fundamental issues that must be addressed or researched on before a company decides to cross borders into other countries and trade with companies that are there. In order to develop global business, it is important for the organization to critically look into the significance of a capital investment on its bottom line. In other words, if a company is investing in a specific country, will that country be the best place based on infrastructures and other developments that will facilitate its business. In addition, it is significant to note that a company desiring to expand globally needs to attain specific information and skills relating to the state where they want to operate. This incorporates comprehending the laws, culture, business practices, history, political landscape, trade patterns, and the economy (Huffington Post, 2013). Business beyond Culture The set of values, qualities, institutions, rules and beliefs held by a given people is there culture. The development of cultural literacy in an individual enables them tackle many issues with people of other cultures without much conflict. The components of culture play a big part in pointing out the points of interest to anyone dealing with a foreign culture. The components include manners and customs, personal communication, aesthetics, social culture, education, values and attitudes, religion, and the physical and material environments. Cultural diffusion has occurred on a global scale with the integration of mannerisms from different cultures with predictions of cultureless individuals in the future. Technology and the physical environment determine the forms of business people engage in besides their cultural progress. The classification of culture using different frameworks has enabled businesses operating on a global level avoid causing friction in new countries they take their operations to (Bartlett & Ghoshal, 1989). IBM utilized the principles stated above in entering the European and Asian markets. Although Europeans do not have many traditions and traditional beliefs, IBM faced an uphill task in entering the Asian market. The Asian business landscape is heavily reliant on the oriental culture and its practices. The cities of Hong Kong, Tokyo, Mumbai, and Beijing have among the most culture-intensive business practices in the world (Buckley & Ghauri, 1999). Politics, Law and Business Ethics The political and legal landscapes of various countries determine the course of global business by a large margin. Democracies and totalitarian states have different forms of political operations, which have a direct effect on global businesses. In investing in a foreign country, every business runs political risk and, the more unstable the country, the higher the political risk (Greeley, 2014). On the other hand, the laws and regulations in a given country define the legal system of a country. The most common legal systems are common law, civil law, and theocratic law. Standardization of legal systems has been the focus of many governments to reduce on the resources wasted in shifting one’s operations from one country to the other. The relationships between countries also determine the level of global business between the two countries. Countries with a history of conflicts discourage foreign investments and global business in effect. In this way, political, legal, and ethical systems play a part in determining the level of global systems (Forsgren et al, 1975). Relations between Governments and Business Units The relationship between businesses and governments determines the level of global business that shall occur. Policies such as mercantilism discourage the importation of goods from foreign nations while encouraging exports in the name of creating national wealth. The governments in place also determine the levels of international trade by the types of policies they put in place. With the existence of absolute and comparative advantages, countries can tilt the business landscape either in favor of or against global business. According to the two types of advantages and the factor proportion theory, a country or business would produce that which it is efficient at producing and has the necessary resources in sufficient amounts. The international product life cycle theory vouches for investments in foreign countries with the movement of given products. On the other hand, the new trade and national competitive advantage theories insist on specialization in the production of a given product since it increases the efficiency and innovativeness of the given company or country. All these favor global business practices (Rugman, 2009). Even with the mass adoption of free market economies around the world, governments intervene in business operations to streamline and bring things back to normal. In protecting jobs, responding to unfair trade practices by other nations, gaining influence over other nations, and preserving national security, government intervention in businesses has been found to have a lot of effect on the course taken by global business practices. The same governments intervene to protect and promote young industries from fierce competition. Even with these, governments offer subsidies, exporting financing, foreign trade zones, and expert bodies specific to international trade. On the other hand, there are tariffs, quotas and other trade restrictions that are put in place to limit international trade (Root, 1994) World governments have set up the World Trade Organization (WTO), which oversees business practices the world over. This organization ensures free flow of trade, negotiates the opening of markets, and settles trade disputes (Dunning & Lundan, 2007). IBM, in all its business operations, played nice with the governments in the countries it had established itself. This is seen most evidently in its role in carrying out population censuses in European countries including Germany and Austria even when the regimes in power were against global peace. Economic Systems the Levels of Development Economic systems in any given country determine the levels of global business that shall take place within the borders of this country. The most common economic systems are centrally planned economies, mixed economies and market economies. Generally, the number of business regulations reduces as one move from a centrally planned economy through a mixed economy o the market economy. Most countries favor the market economy since it opens doors for international business. By using the GDP (gross domestic product), GNP (gross national product), PPP (purchasing power parity), and the HDI (human development index) of countries, their levels of development are determined. By reforming its economy, every country can witness economic transition with the result that barriers to business operations are reduced. This encourages global business with more multinationals setting base in countries with few barriers. The shortages of capital and management skills besides cultural differences and environmental degradation have been identified as among the remaining obstacles to global business (Rugman, 2009). A keen scrutiny of IBM’s strategy in approaching the global business landscape reveals that it focused on the highly developed countries and those with minimal barriers to entry. In entering Europe, IBM went through Germany due to flexible rules and strong and stable economy. Although it is blamed for having aided the Nazi government, IBM’s entry into Germany had occurred long before Adolf Hitler assumed power. Foreign Investments Foreign direct investments (FDI) have determined the global business landscape for a long time. Starting from the 90s, the flow of global capital has determined the levels of development in the world economies. The countries with the highest foreign direct investments include Japan, the United States, and the European Union members. The factors most cited for foreign direct investments are global market imperfections, international product life cycles, market powers, and the seeking of business advantages. Companies also face hurdles in investing in foreign lands with the governments in the destination countries playing a big role in the course that shall be taken. The dilemma of either buying an existing business or setting up a new one also comes about as a major hurdle to foreign direct investments. Productions costs as determined by the labor regulation in the foreign countries also come up as a thorn in global business practices. The existence of ready markets in the foreign countries also plays a role in determining whether companies are ready to make a jump of faith into the countries. Governments play a role in the way foreign direct investments are utilized. They intervene in business activities to maintain a balance of payments, improve technology and technical knowhow, and protect their resources. The same governments issue tax incentives, low interest loans, tax breaks, insurance covers, and the application of political pressure on other countries to encourage foreign direct investments. On the other hand, they also impose ownership restrictions, differential tax rates, sanctions and create performance demands, which influence the course of action taken by multinational companies. IBM invested in many countries mostly during and after the Second World War. In this way, many countries were desperate for foreign direct investments to rebuild their economies, which had suffered huge losses due to the war. The countries had, to encourage foreign direct investments, lowered the barriers to trade and to business practices in general. The most notable of this is its entry in the European market in the early 1930s (Douglas, 1987). Economic and Political Integration The coming together of countries sharing physical borders over economic and political reasons has played an important part in shaping the global business landscape. The groups formed are referred to as regional trading blocs and the member countries put in place laws to ease trade by elimination of some barriers. In many ways, the integration may yield a free-trade area, a customs union, a common market, an economic union, or a political union. The blocs created increase the volume of trade between the member countries leading to development in many other areas beyond business (Dunning & Lundan, 2007). They reduce the operational costs of businesses too. They reduce trade barriers such as tariffs and quotas besides increasing the power of negotiation with other countries. Wars and other forms of conflict are reduced by the joined nations in many ways. In some cases, the union formed plays an important role in salvaging fellow countries from political and economic turmoil as was with Greece in the European Union. In all aspects, the consumer is the biggest beneficiary since the prices of goods and services are in most cases lowered. The downside to the creation of economic blocs is that there is trade diversion and loss of jobs besides loss of a country’s sovereignty (Porter, 1990). The most known trading blocs in the world are the European Coal and Steel Community, the European Free Trade Association, the European Economic Area, the Andean Community, the Latin American Integration Association, the Southern Common Market, the Common Market for East and Southern Africa among others. All these blocs have reduced trading barriers between the member countries and increased their bargaining power on the world map. IBM has greatly utilized the benefits of these blocs by setting up offices in a single country to serve others in the same bloc. An example is its office in Nairobi, Kenya, which serves the East and Central African region whose members are unified under the East African Community (Edwards et al, 2005). Monetary Systems There are many countries that have come together to ensure a common currency among them. These include the European Union whose currency is the Euro. Although the United States, the United Kingdom and the United Arab Emirates are not regional blocs, they are characterized by a similarity in being made up of many smaller states and using one currency in general. Today, the most common international currencies include the United States dollar, the European Union Euro, the Chinese renminbi, and gold. Regional and international monetary systems have many benefits for those carrying out business across borders. Besides easing the making of transactions across borders, they reduce on the costs incurred in exchanging and re-exchanging money from one currency to the next (Dunning & Lundan, 2007). IBM’s operations in the European Union have been facilitated by the existence of the Euro as the common currency. Although it entered the region when the European Union was not in existence, its formation has had far-reaching benefits to the undertaking of business practices by IBM (Daniels & Sullivan, 2009). Conclusion and Reflection on Global Business Global business is the expansion of operations of a business across the borders of foreign countries. It has accelerated in the recent past due to advancements in technology and reduction in the barriers to trade besides the formation of political, economic, and social units. If one asked, global business and the practices that accompany it should be taught in all its detail. This is to educate the world about its benefits. Another point of note is the fact that global business should be approached with care given that, in some cases, it spreads negative business practices. Exploitation of the destination country by multinational corporations has also been a thorny issue and needs constant monitoring to ensure it does not get out of hand. In conclusion, global Business has helped many countries and businesses achieve feats only dreamt of. When the mobile phone was invented nearly a decade ago, Africa and the rest of the third world benefited a lot by ease of communication. That alone changed the global landscape with the opening up of business opportunities previously only pondered about. References Bartlett, C, & Ghoshal, S, 1989, Managing across borders: The translational solution. Harvard Boston: Business School Press. Buckley, P.J. & Ghauri, P.N,1999, The Internationalization of the Firm. London: Thomson Business Press. Cabrera, A, 2012, What Being Global Really Means, Harvard Business Review. Retrieved 18 March 2014 from http://blogs.hbr.org/2012/04/what-being-global-really-means/ Daniels, J, & Sullivan, D. 2009. International Business: Environments and Operation, Reading: Pearson.  Dunning, J.H.& Lundan, S. 2007. Multinational Enterprises and the Global Economy, Cheltenham, UK: Edward Elgar. Douglas, S. P, 1987, The myth of globalization, Columbia Journal of World Business, 22, 4, 19- 30. Edwards, T., Almond, P., Clark, I., Colling, T. and Ferner, 2005, Reverse diffusion in us multinationals: Barriers from the American business system, Journal of Management Studies, 42, 6, 1261–1286. Forsgren, M., Holm, U. and Johanson, J, 1995, Division headquarters go abroad- a step in the internationalization of the multinational corporation, Journal of Management Studies, 32, 4, 475–491. Greeley, B, 2014, Why Fuel Subsidies in Developing Nations Are an Economic Addiction, Bloomberg Business Week. Retrieved 18 March 2014 from http://www.businessweek.com/articles/2014-03-13/why-fuel-subsidies-in-developing- nations-are-an-economic-addiction Huffington Post, 2013, Starting a Business Overseas, Huffington Post. Retrieved 18 March 2014 from http://www.huffingtonpost.com/azeem-khan/starting-a-business- overs_b_4389628.html Ietto-Gillies, G, 2005, Transnational Corporations and International Production. Concepts, Theories and Effects, Cheltenham, UK: Edward Elgar. Porter, M, 1990, The competitive advantage of nations. New York: Free Press. Root, F.R, 1994, Entry Strategies for International Markets, San Francisco: Jossey-Bass Inc. Rugman, A, M, 2009, International Business. New York: Prentice Hall.  Steers, R, M, 2010, Management Across Cultures, Cambridge: Cambridge University Press.   Wild, J.J, 2009, International Business and the Challenges of Globalization, New York: Prentice Hall. Read More