Impact of Globalization in the Context of Business Environment - Research Paper Example

Evaluation of Business Globalisation Contents Introduction 3 Discussion 3 Globalization of Business 3 Advantages of globalization for business 4 Disadvantages of globalization for business 5 Examples 7 Conclusion 8 References 9 Bibliography 10 Introduction This study shall focus on impact o globalization in context of business environment. Globalization has been beneficial as well as disadvantageous for businesses. The term globalization refers to changes occurring across the globe in terms of transforming self-contained countries to an integrated region. Globalization of business is associated with company shifting from a single country towards multiple countries. It is a form of international integration where there is interchange of culture, world views, ideas and products. Since mid 1990s the concept of globalization has been rapidly increasing. This approach supported business to expand operations and gain high profit margins. Globalizing process has affected work organization, business, socio-cultural resources, natural environment and economics. There are four different aspects of globalization identified by International Monetary Fund such as trade and transactions, people movement and migration, knowledge dissemination, and investment and capital movements. In this study some examples shall be portrayed to provide a clear understanding about advantages and disadvantages of globalization. Discussion Globalization of Business Globalization of business refers to shifting of operations from one region to wide array of geographical regions. The impact of globalization in relation to business environment is divided into broad categories like product globalization and market globalization. Product globalization can be stated as service or product sourcing from other countries in order to gain competitive advantage. Price differences across the globe enables a company to gain long term advantage. The cost of production also reduces due to such globalization of business and in turn low prices are charged from customers. Market globalization refers to barrier decline in terms of selling products or services to other countries apart from home country. Companies are able to operate internationally due to emergence of globalization. Business strategies and marketing programs are designed by companies taken into consideration other cultures. Multinational firms should be able to understand the trend of developing nations, mainly strategies adopted by government to redefine policies and interests. Globalization brings forth risks for companies and firms need to manage it appropriately (Doku and Oppong, 2011). This trend has benefited business operations since market opportunities can be explored of a wider segment, along with achieving competitive advantage in global market place. Technological advancements in global markets have always proved to be beneficial for multinational businesses. Advantages of globalization for business The concept of globalization encompasses wide range of opportunities which can be efficiently explored by business organizations. Economies of scale can be achieved by business firms operating in international markets. Average cost per unit is witnessed to decrease with greater availability of services and products. Business expansion in international markets helps in acquiring such economies of scale. It can be stated that cost reduction will be noticed in terms of production cost, supply costs and sales system costs. Innovation and research and development activities are enhanced with globalization of business. Companies can sustain its competitiveness through reducing costs in foreign markets (Gregory and David, 2007). As economic range increases, unit cost is reduced since there is greater availability of product line. Logistic chain is highly benefitted because of globalization. Product diversification and expansion into new markets eventually leads to companies utilizing their experience to promote products in such foreign markets. In different regions, other production factors might be cheaper in comparison to home market. Cheap labour is available to business firms which was a major area of concern before globalization. Benefits of globalization are closely knitted with production movement across globe markets and imports from other foreign countries. Strong market positioning can be achieved by companies through globalization trend. Strategic alliances are undertaken by multinational firms in order to eradicate all potential competitors (Bremmer, 2014). There are opportunities provided to large organizations whereby they can regulate purchase prices, control international technologies and improve upon supply conditions. Transnational corporations are given advantage in the form of exploring profitable ventures in international markets. The major advantage of globalization is smooth flow of funds across boundaries. Easy credit availability enables business organizations to focus on wider market segment (Newton, 2009). Innovative ideas can be implemented with availability of funds across national or local boundaries. Globalization has also led to technological spillovers which are mainly beneficial for developing nations. Domestic markets restrict firms from gaining high revenue margins but international markets initiate comparative advantage for businesses. Market failure rate can also be regulated by business firms since operations are expanded across wider geographical domain after globalization. Disadvantages of globalization for business Uncertainties and new risks are associated with globalization. High integration level between local and domestic markets, eventually results into intensified competition in the market place. Risk for business organizations are in context of rising competition, profit and price swings, high level of product or service imitation, product destruction, etc. In earlier years, greater degree of benefits was explored by firms but in current scenario there is more of unstable demand in global market place. Unpredictable demand in foreign markets decreases revenue margins of companies. Products manufactured by firms are transformed into commodities and there is no such pricing advantage left with companies. This is simply because of intensified competition in global markets where large number of players is offering similar products to customers. Currency fluctuation is also a vital aspect of globalization. It can be stated that currency devaluation negatively affects many businesses. Currency fluctuation might result into expensive imports and exports for an organization and this would lead to low revenue margins. On the other hand, customer preferences in foreign markets might not be similar to that of domestic market. This forms another disadvantage of globalization since companies have to reshape their entire business strategy so as to operate in international markets (Soproni, 2011). In foreign markets, companies need to consider wide range of factors like political conditions, exchange rate, corruption, external debt, custom duties, and bureaucracy, non-tariff and tariff barriers. Foreign investment is usually promoted through political stability. There are firms operating in global markets which have to face challenges due to political instability in particular geographic location. This kind of instability restricts business firms to perform operations efficiently. Internationalization comprises of negative effects and it lowers down possibility of obtaining profit margins which was possible in local markets. External debt would initiate undesirable interest and tax mechanism that negatively affects profit margins of Multinational Corporation. Exchange rate fluctuations in terms of foreign currencies also limit corporate investment and commercial activities to a great extent. The major disadvantage in operating globally is to understand consumer behaviour in foreign markets, their culture, tradition, expectation, etc. Global competitors can be considered as a threat for local firms operating into international markets (Mourdoukoutas, 2011). Higher public expectations might disrupt brand image of global corporations and hence more concern should be shown towards country regulations, human rights, environmental protection, etc. Return on investment in foreign markets is unpredictable and centralized managerial control is violated. Examples There are many firms that have entered into global markets and remained successful. Coca Cola Company can be stated as one of the renowned multinational firms. This brand operates across foreign markets and focuses on adaptation business strategy. The flagship product is standardized for all markets but certain products are developed based on market conditions. For instance the company has introduced health drinks for those markets where consumer market demand is relatively high. Globalization has enabled the organization to acquire wider market segment and higher profit margins. Nokia is another firm which has benefitted from globalization. This firm has incorporated economic adaptation policy and thereby launches advanced or expensive product for North America or Europe, and focuses on easily affordable products for African market (Geiersbach, 2010). Levi Strauss incorporated new strategies so as to operate across international markets such as China, Asia, etc. There are some brands which failed in global markets due to risks or uncertainties associated with globalization. Holland and Barrett is a well-known health food retailer based in United Kingdom. This firm was not able to operate successfully in foreign markets. The failure of this retail firm was due to lack of understanding of foreign market’s economic conditions and differing consumer taste and preferences. Proctor and Gamble is another firm which has benefitted from globalization. Funds availability because of such trend facilitated the company to strengthen brand position in international markets. To be more precise, growth of the firm was linked with varied tastes or preferences across foreign markets. New products were launched by Proctor and Gamble in different markets as per consumer expectations. Conclusion The study highlights different dimension of globalization and its impact on business growth. Globalization trend has emerged since 1990s and it has supported growth and development of many multinational firms. Domestic market had limited business operations but decline in barriers enabled organizations to explore foreign markets. On the other hand, cultural diversity across nations and changing consumer behaviour appeared to be a major challenge for businesses since globalization. It can be stated that advantages and loopholes have always been a vital part of globalization. Less of international barriers supported organizations to expand their operations and political instability or currency fluctuations across nations disrupted profit margins of business organizations. However intensified competition, easy flow of funds and wide array of products or services has contributed towards economic development of countries. References Bremmer, I., 2014. The new rules of globalization. [Online] Available at: https://hbr.org/2014/01/the-new-rules-of-globalization [Accessed 9th May 2015]. Doku, P. N. and Oppong Asante, K., 2011. Identity: globalization, culture and psychological functioning. International Journal of Human Sciences, 8(2), pp. 1-8. Geiersbach, N., 2010. The impact of international business on the global economy. [Online] Available at: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0CCcQFjAC&url=http%3A%2F%2Fwww.saycocorporativo.com%2FsaycoUK%2FBIJ%2Fjournal%2FVol3No2%2FArticle_8.pdf&ei=otdNVdrbEJGdugTEq4GgBw&usg=AFQjCNHEj8eDoFWgOTyEgkNY7gA9XB3bBA&sig2=GgnE30yZ5BrfrhQZJ2fA5Q&bvm=bv.92885102,d.c2E [Accessed 9th May 2015]. Gregory, S. and David, L., 2007. Globalization: Its effects. International Business & Economics Research Journal, 6(1), pp. 89-95. Mourdoukoutas, P., 2011. The good, the bad, and the ugly side of globalization. [Online] Available at: http://www.forbes.com/sites/panosmourdoukoutas/2011/09/10/the-good-the-bad-and-the-ugly-side-of-globalization/ [Accessed 9th May 2015]. Newton, H., 2009. Globalization: societal implications. Research Starters Sociology, 22(2), pp. 1-8. Soproni, L., 2011. The globalization of communication. Eurolimes, 12(1), pp.5-8. Bibliography Kohler, G. and Chaves, E. J., 2003. Globalization: critical perspectives. Hauppauge, New York: Nova Science Publishers. Murray, W. E., 2006. Geographies of globalization. New York: Routledge. Stiglitz, J. E., 2002. Globalization and its discontents. New York: W.W. Norton. Read More