Globalization and its Impact on Firms - Assignment Example

EUROPEAN MONETARY UNION By Globalization and its Impact on Firms Section A Cola Wars in China: how can a domestic competitor defend its local market against global giants, such as Coca Cola, Pepsi Cola? The cold wars in china are raging over the years owing to the concept of globalization as well as, its application in the real market world. As such, this leads to a cold war in trade especially in china whereby local or domestic forms fight for industrial control against global multinational corporations. In fact, these cold wars emanate from the efforts put forward by domestic competitors in defending their local markets against global giants such as Coca Cola and Pepsi Cola. These global competitors come along with seasoned experience and massive capitals that outrun the ability of local firms to compete on the same trading scale with them, and as such, have to seek other ways of protecting themselves from the competition posed by such international corporations. The Coca Cola Company, for instance, is one of the major multinational corporations operating in China as the leading market player in beverage drinks. In fact, the company holds nearly 16% of the total market share control of beverages in the Chinese market, which is a huge threat to the local players in the industry. The company is currently planning to spend $ 4 billion between 2015 and 2017 in the Chinese market in order to cut off the stiff competition it is getting from the here as the world’s most popular beverage drink market. This is just a sign of how much competition the local firms face from established multinational corporations. As such, apart from these firms coming into the domestic market with huge outlays of capital, they also come in with a reputable brand image recognized over a global scale, which makes it difficult for domestic firms to fight their competitive wave. Jianlibao is one of the leading domestic brands in beverage production in China. The brand had humongous success within its home market during the 1990s that spurred the sports drink maker to pursue its dream of expanding into international markets abroad. This move was totally out of line with the company’s local prospects of protecting and safeguarding its domestic playing field from international market players. For instance, its expansion to dozens of overseas markets created room for the entry of new international players like Coca Cola, which came in with a bang, and aspired to take over the local market. As such, Coca Cola produced a local brand that blended appropriately with the Chinese market, the Kekou Kele, which is among the most effective strategies employed by international firms to adapt to local Chinese markets, as well as, connect with local consumers. This new trade name for the company’s beverage sounds similar to the original, and translates as Delicious Happiness, which attracts more local customers to consume it instead of consuming their own local brand of Jianlibao. This local brand did another futile blow by competing with Coca Cola with price rather than going back home and concentrating on the consolidation of its Chinese domestic market where it dominated traditionally. Li Ning is another domestic beverage producer in the country, which also faces stiff competition from the entry of new players into the market. The legacy of Li Ning stems from the track field as the founder of the company was among the leading athletes in China, and aspired to ride on his athletic success to promote the sports drink across both the local, as well as, the international markets. This brand became one of the Top Domestic Brands in the Chinese market, and used sporting events such as the Olympics to fuel its growth and expansion. However, it also lost footing and grip of its local market to international players within the industry such as Pepsi Cola and Coca Cola owing to its ambition to go global without making appropriate plans. This created a void in the domestic market, which enabled the new market players to step in and control the beverage industry on their behalf. It is imperative to note that these local brands could take on some specific approaches that would enable them to contain and control their domestic markets from foreign competitors judging from the failures of the two beverage companies that originally had domestic control of the Chinese market. One of the mistakes evident in both companies is their expansion strategy whereby the firms moved out to expand into the global field without creating a strong foothold within its local markets. As such, when new comers flocked in, they found the local market quiverish of a domestic brand. this opened for them an opportunity to take over the domestic market by producing beverages that blended with the local Chinese market, such as the Kekou Kele from the Coca cola corporation. The best move for these two companies would be to first consolidate their market share and control within the domestic playing field before expanding to overseas markets. Their expansion to global markets before first taking over the local market is what gave room for international players to step in and control their domestic markets. These companies also committed a grave mistake of competing with the international players on price rather than market share and control. It is evident that all these international players coming into the market have a huge capital outlay that enables them to undertake huge capital investments, and as such, be in a position to charge very low process for their goods owing to increased economies of scale. Furthermore, these companies also come into the local market with a globally acclaimed brand name and brand image. This, combined with its low prices on the products its offers to the market, creates a leeway for taking over domestic markets and controlling a considerable portion of the local market share. As such, it is imperative for these local firms to consolidate their domestic markets first before expanding to global markets in order to reduce or control competition from international companies. Furthermore, the local companies can also adopt advanced aspects of corporate governance such as e commerce and consumer branding in order to consolidate its domestic market. What factors should the domestic producer take into consideration in this defense? Consumers in a local setting have a tendency of going for new products in the market with the belief that these new products add more value and have an extra utility as opposed to the current products existing in the market. As such, in the case of the beverages market, the new entrants into the playing field come into the market with something unique and different from what domestic consumers know and are aware of, yet they satisfy the same need or serve the same purpose. As such, the consumers will go for more of Coca Cola’s Kekou Kele as opposed to the domestically produced Jianlibao or the Li Ning. This is because they thing that because Coca Cola is a new brand and has a reputable global reputation, then its products are of a higher quality and thus more utility than the local products. The guidelines for such assumptions are the theory of consumption which states that consumers will always seek to maximize their utility at any given time of consumption. The local producers can defend themselves basing on the New Trade Theory. This advocates that innovating firms develop advantages to scale economies. This gives them an ability to build a sustainable market power that that creates a barrier that stops competitors from entering their local markets. The theory even implies that it is sometimes necessary for the governments to intervene in order to assist domestic “follower” firms in establishing their competitive positions. Therefore, the domestic beverage producers in China have to engage in creativity and innovation whereby they produce new products continuously for its markets. this new products show the consumers that they have something new to offer, something different, as well as, something with an enhanced utility and value. As such, when consumers know that they can get locally what international players bring in then their tendency to consume and support brand new imports or products from international firms will drop. This on the other hand, will give support and strength to the local firms to enable them strengthens their domestic footing, as well as, consolidates their market structures, thereby making it very difficult for a new foreign firm to enter and survive. Section B Ricardo’s Theory of Comparative Advantage states that while everything else remains constant or other things remain equal, a country has a tendency of specializing in and exporting the goods and services in the production of which have maximum comparative cost advantage, or have a minimum comparative disadvantage. On a similar setting, the imports of the country will also comprise of goods that have a relatively less comparative cost advantage or greater disadvantage. This theory applies greatly in international trade, especially in consideration with the cold war’s already taking place in the Chinese beverages’ market. The theory came into play from a financial economist by the name David Ricardo. Ricardo made a number of assumptions in his theory to make it hold in an economic set up, especially in relation to international trade. The assumptions put forward by Ricardo assist him in explaining the theory of comparative advantage. The assumptions include the necessity to have two countries and two commodities, the necessity for perfect competition market to come into play for both commodity and factor market, and the expression of the cost production be in terms of labor. as such, the measurement of the value of a commodity takes the scales of labor, and as such, considers the number of labor hours or days required to produce the product. Furthermore, exchange of commodities also takes place in the basis of the labor content in each good. Other assumptions in this theory are that labor is the only factor of production apart from natural resources, and it is homogeneous by being identical in efficiency in a particular country. Labor is perfectly mobile within a country but perfectly immobile between countries. This economic theory only holds in the availability of free trade, whereby there are no restrictions or hindrances to the movements of goods across different countries. The production of the goods is also subject to the constant returns to scale in this theory, whereby there is no technological change, no transportation costs, and both countries enjoy full employment. In conclusion, the last assumption of this theory is that trade between the two countries takes place on a barter trade system. The economic situation in the beverages market within China can also use the Comparative advantage theory proposed by Ricardo in coming up with a number of economical milestones necessary to consolidate and control the market share of local firms on domestics consumers. In considering the various assumptions in this theory, the two commodities could refer to the locally produced brands of beverages such as Jianlibao and Li Ning and the internationally recognized brands of beverages such as Pepsi Cola and Coca Cola. These tow products come from two different countries, namely China and the United states. As such, since China has the capacity to produce beverages that are of similar or even a higher quality as compared to the international beverage products from Coca Cola and Pepsi Cola, then the Chinese market has no need to import any products from the United Sates for supply or consumption in its beverages market. This is especially the case considering that importation of such products will bring about stiff competition to the local market players thereby denying them an opportunity to grow and develop by taking advantage of their home playing ground. Conclusion Various international market players bring about considerable competition to the local market players. As such, it is important for these companies to ensure that they employ the best strategies in defending themselves from the stiff external competition that comes from international market players. as in the case of Coca Cola and Pepsi Cola entering the Chinese market, domestic firms taking part in the industry should employ a number of theories and strategies that will enable them remain in control of the market, and if possible block these new comers from entering the market, but using legal means. Reference List Liu, R, 2007, the Impact of Globalization on Firms and Workers, University Of Toronto, Toronto. Read More