The Globalisation of Logistics and Supply Chains - Coursework Example

The Globalisation of Logistics and Supply Chains Introduction Globalisation is not an illusion; rather, it is a reality that continues to affect businesses whether they are big or small (Mangan, Lalwani,& Butcher, 2008). Consequently, every business needs to have an effective strategy that enables it to be strategically ready to deal with the effects of globalisation. There are some scholars who believe that globalisation only causes problems; contrastingly, some believe that it has both challenges and opportunities that businesses can exploit. Those who are anti-globalisation are usually concerned that the phenomenon will cause economic catastrophe and that it should, therefore, be avoided (Wild, Wild,& Han, 2008). Anti-globalisation individuals look at globalisation from a political point of view and argue that it will have a negative effect on economies around the world (Frear, Metcalf, & Alguire, 1992) (because politics affect economies, so those who are against the globalization believe that globalization makes it easier for international politics affect economies negatively). However, globalisation can also be examined from a business point of view. The 19th century was the dawn of globalization. According to Rugman and Collinson (2006), if the right strategies are implemented, firms—and especially big firms, such as multinationals—can benefit a great deal from globalisation. According to Worthington and Britton (2003), the firms that have been able to develop an effective global strategy have also been able to advance their interests and increase their global market share while improving their sales and profit margins. A very good example of this is Coca-Cola, which was one of the first multinational firms to begin formulating and implementing a global business strategy even before the debate on globalisation was ignited. Because of this, the company was able to come up with ways to take over the global soft drink market, and today, the firm’s products are available and adored all over the globe, even in the least developed regions. This has made Coca-Cola the leader in its industry. However, there are several factors that every business should consider with regard to globalisation. These factors will be examined. Market Participation Market participation refers to the ways in which firms are able to participate in strategic markets around the world (Mintzberg etal., 2010). The world consists of more than 200 countries, and even the most globalised firms have been unable to reach all these countries. For firms, globalisation is not a matter of having operations in each and every nation in the world but of having operations in the geographical regions that matter most. A firm that wants to have an effective global strategy will not necessarily set up operations in all the countries of the world; however, it will set up its operations in the nations that matter according to its strategy. Many issues determine the parts of the world in which the firm mounts its operations. Firms will select the countries that are deemed to be the most important in terms of their contribution to the globalisation of commerce. This will be examined further below. The global significance of competition A firm may decide to set up operations in a country not because the country is strategically important in its own right but rather because it is the home country of a major competitor (Rushton, Oxley,& Croucher, 2000). In this regard, a firm may want to camp in that country in an effort to counter its competitor. This is done in the hope that bringing competition to the competitor’s doorstep will help the firm to compete not only in its home country but also in the foreign country in which both firms operate. Whether or not this strategy is effective in the long run is debatable (Cole, 2005). However, it is logical that any firm has to have the right strategy to deal effectively with its competitors. This was discussed by Porter in his theory of the five forces that affect a firm’s business strategy. Market development The other important reason why a firm may decide to set up operations in another country is that it may need to take advantage of a market that it considers important for the growth of its business (Kendall & Cole, 2006).Thelast10yearshaveseenmany firms expand to overseas markets. Western firms, especially those from the United States (US),have gone to the Middle East and Asia to access markets that are growing at a rapid rate. Firms such as Wal-Mart, BMW, and Best Buy have encroached on the lucrative Asian market. These firms do not merely move to Asia to compete with the businesses that are headquartered there; rather, they also want to have access to the market, which is a major part of the Brazil Russia India China and South Africa (BRICS). At the same time, some businesses in Asia and the Middle East have also ventured into Western markets. A good example is Huawei, which is a telecommunications and computer networking equipment manufacturer based in China. This firm has ventured in to the American market to take advantage of it. Other Asian firms, such as Samsung, have also ventured into the Western market. All these activities have been seen by the international business community as evidence that globalisation is occurring and will continue to occur as time goes on. Product Offerings Another aspect of globalisation is the issue of product offering (Baily, Farmer, Crocker, Jessop,& Jones, 2008). Once the firm has identified the geographical location to which it wants to expand its business, it has to determine how best to offer its products. Several strategies can be employed in this regard. Product standardisation Product standardisation means that the firm will have standardised products for all its markets (Bloomberg, LeMay & Hanna, 2002). This can be both advantageous and disadvantageous. The advantage is that the firm will benefit from cost reduction. Producing standardised products is definitely easier than producing customised products for each market (Branch, 2001). However, this will mean that the firms will not be able to meet the individual needs of each market, and this can affect its strategy negatively. Product customisation A firm may need to customise its products if this is more relevant to its market strategy (Harrison & Hoek, 2005). While customising a product for each market or region can be expensive for the firm, it can help it to reach the market more effectively than offering a standard product that is not customised. Different firms have been able to customise their products or services to ensure that they reach a new foreign market (Jessop & Morrison, 1994). A good example is BMW, which customised its products to meet the unique needs of the Asian (Chinese, to be exact) market. The firm realised that most Chinese buyers wanted a bigger car that they could use for official occasions and to take their families out. This required the body of the car to be altered to meet the needs of this particular market. Location of Value-Added Activities Reorganisation of the value chain According to Lysons and Farrington (2012), this is one area in which globalisation has affected numerous firms. Most firms have deemed it necessary to distribute their value-added activities so that each activity can be situated in the global location that is most effective. Western multinationals have relocated their manufacturing activities to Asia, where they are able to access high-quality cheap labour, thereby helping them to save on costs. This need to outsource labour to Asia was caused by the previous global recession, which left many firms with few resources and the need to save every possible penny (Weele, 2009). At the same time, the competition among the firms led them to source cheaper labour in Asia. To do this, a firm can use one of the following two strategies. Divisions or strategic business units (SBUs) With this strategy, each division is within the corporate structure is given the autonomy to create their own operational as long their strategy fits with the corporate strategy (Johnson, Scholes,& Whittington, 2010). Each division can be located in a different country where there is the greatest ability to meet its strategic needs. This helps the business to meet the individual needs of each market or region without affecting the corporate strategy or structure. Strategic outsourcing With strategic outsourcing, the business sustains its core functions and outsources its support functions. This can be done in such a way that each region outsources functions to meet the specific needs of the firms within it, as opposed to having an umbrella strategy for meeting these needs. Marketing Approach Firms use different types of strategies to market their products. These are as follows. Global strategy A global strategy involves a uniform marketing method that is used by the firm in all its geographical locations. Consequently, neither home nor foreign factors are considered when determining the firm’s marketing strategy. This method is usually used by firms whose products and markets trategies do not have to be changed. For instance, a computer manufacturer may not need to have a different marketing strategy for each market. However, a mobile phone manufacturer may need to have an individual marketing strategy for each country or region because the customer dynamics have an effect on the ways in which customers in different regions buy this kind of product. Even firms that use the same marketing strategies for each region or country may still need to change the four Ps of marketing according to the country or region (Lowe, 1989). Ethnocentric strategy Especially in regard to marketing, firms may decide not to employ a global strategy and to instead consider the factors at home. In such a situation, they will assume that the factors that affect the rest of the world in terms of the market are the same as those in their home economy. For instance, a firm that is seeking to expand to Asia may choose to use the same marketing strategy there as it uses in the US. The benefit of this is that the firm will not have to undergo the tedious process of adapting its market strategy to each foreign market it penetrates. It also helps if the firm is cohesive, as it is, therefore, easier to control, and activities can be more easily predicted and managed. This is determined by centralization of important function so that there is a central authority as opposed to distributed source of critical decision making sources. Although decentralization creates flexibility which is good for the firm, it can bring in chaos and thus making the firms no cohesive. However, this means that the firm may be unable to access the foreign market in an effective way. In fact, this can cause the firm to fail in the foreign market. There are several examples of how a firm can fail as a result of not adapting its marketing strategy to foreign markets in its bid to globalise its business. For instance, Best Buy struggled to succeed in China because, unlike Wal-Mart—its main competitor—it did not change its marketing strategy to meet the needs of the Chinese market. The needs of the customers in the Chinese market are fundamentally different from those of the customers in the US market; therefore, Best Buy’s failure to adjust its marketing strategy to meet these needs was detrimental to the company. Tesco, a United Kingdom-based retail giant, also attempted to launch its business in the US; however, it failed drastically because it did not adapt its marketing strategy to the US. In the end, Tesco failed and had to exit the US market scarcely a year after it had ventured in. Multi-ethnocentric The other strategy that firms can use is the multi-ethnocentric strategy: Each market is considered differently, and a marketing strategy for a particular market is developed based on its specific needs. In such a situation, the local managers in the foreign markets are always given precedence over the expatriates with regard to the development of strategies that meet the needs of the local market. This can be difficult for businesses; however, it helps to make them ready them for successful within the local market. This concept is known as “think global act local” which refers to the fact that the firm’s strategy developers must consider that they are operating in a global market but must also remember that each individual market that makes up the global market has its preferences, which must be met individually. Competitive Moves While thinking about its global strategy, a firm must know how competitive decisions are made and how they can be countered by its competitors. The firm may decide to launch its product in the home economy of the competitor, rather than within the home market, to help it to deal with the competitor in the global market. However, firms must know that this can be easily countered by their competitors in a number of ways. For instance, if the competitor was not already in the home market, it can lead to them also deciding to bring in their business in the home market of the competitor. At the same time, the competitor can choose to respond in other markets where itself or the attacker is not a home market. These factors have to be considered for every move that the firm does with regard to the globalization. Discussion Firms in today’s globalised world are able to operate based on integrated global strategies. Almost any major multinational today uses a certain type of integrated global strategy to ensure that it remains competitive. Coca-Cola, for instance, has used outsourcing to ensure that it is able to focus on its core functions. It consequently outsources functions such as the bottling of its soft drinks. The firm has been doing this for a long time—even before the debate about globalisation and its effects on modern business and economics was ignited. Another firm that can be said to have an integrated global strategy is Apple. Apple was one of the first big US firms to start outsourcing its manufacturing functions to enable it to remain competitive not only in the home market but also in the global market. As a result, its manufacturing, especially in regard to smart phones, has been outsourced to Asia. Different parts of the product are manufactured in various locations in Asia and then assembled into one product before being sent to the market. This not only enables Apple to save on labour cost but also helps the firm to be globally strategic. Other firms, such as Procter & Gamble, have also been able to use an integrated global strategy to ensure that they are able to exploit the global market. Procter & Gamble has been able to develop products that are in line with the needs of the customers in each market. For instance, Procter & Gamble realised that in Brazil, a very large portion of the market for one of its laundry soaps was not buying the product because it was not producing enough lather. According to a majority of the people in Brazil, especially those in the rural areas, soap is only effective if it produces a substantial amount of lather. Procter & Gamble was quick to take note of this issue and immediately changed its market strategy in order to better serve its customers by delivering a product that met their expectations. The aforementioned examples of how businesses are having to operate based on an integrated global strategy are many and varied. It is clear that a firm that fails to employ a global strategy will encounter problems in the long run, while firms that have a solid global strategy are more likely to benefit from globalisation. Those who view globalisation as a menace are, to some extent, mistaken. In a globalised world, it has become possible for people in industrially underdeveloped regions to access and benefit from products manufactured in the developed world. A good example of this is Africa, where there are no industries that manufacture products such as cars, computers, and mobile phones. Yet, due to the fact that many of the firms which produce these goods are globalised, their strategies enable them to enter the African market, thereby allowing consumers there to access their products. Conclusion The effects of globalisation cannot be ignored, nor should its power be underestimated. In the last century, the slow process of globalisation has shifted the ways in which businesses around the globe operate. Within the last decade, the process of globalisation has intensified, accompanied by the proliferation of communication technology. The future is expected to lead to an even more globalised world commercially, politically and even culturally. This will continue to affect the ways in which businesses—whether big or small—access markets. 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