Globalisation Is an Opportunity but also a Challenge for Companies - Essay Example

Globalisation Is an Opportunity but also a Challenge for Companies Introduction This paper will be analyzing some of the strategies to be put into consideration by companies before venturing into the global market and the challenges that they are likely to face in those regions. According to Michie (2011), globalization creates more chances of doing business by introducing new markets and new trade areas hence it promotes companies trade. This is achieved by exploring the available resources of a country and exploiting the resources. Companies therefore are not only faced with the challenge of competing or developing their brand in a new market, they are also provided with an opportunity to sample from the available raw intellectual resources available. However, the various decisions that have to be made include issues of management and leadership, marketing, finance, acquisitions and mergers, operations among others (Hitt et al., 2011). Intellectual capital can also be used for the advantage of companies determined to set up in new markets. This includes transportation of concepts and human capital into new markets to come up with solutions for the market using locally available materials (Weick et al., 2013). This includes setting up of research and development facilities in different countries. A perfect example of this capability made possible by globalization is the Hyundai motor company. Hyundai has research and development facilities in six countries including Germany, Japan, India and Korea. It also has a design center based in California specifically for development of cars suitable for the American market (Ahmad, 2013). Companies are known to apply and replicate their business models and processes throughout their corporation so as to maintain consistency. Consistency of a product creates a standard appreciated by clients making the product maintain its value (Sarin, 2013). When a company decides to venture into new markets, it might be forced to change its operation model to fit in with the demands of the new market. A good example is the global beverage making company coca-cola. Coca-cola has ventured out in the global market using different business models for different markets. According to Foster (2008), this has always been a challenge for the company because it seeks to maintain its parent product in markets which have different demands. The American market of coca-cola uses high fructose corn syrup which is cheaper than sugars used in other markets like Africa, this means that the cost of operating in America is different from that of Africa but the product has to come out as a standard coca-cola product. In relation to this, marketing strategies of diverse markets vary. According to Kessler and Wong (2009), a very effective ad in Latin America will have minimal impact on the European market. This is because of reasons well explained by the international theories of marketing. The identification theory says that it is easier to persuade a person if they see similarities between you two. Multinational companies in foreign regions should therefore develop localized marketing techniques to attract the local market (Sarstedt et al., 2011). Companies that venture out in new global markets are also faced with the challenge of staffing (Storey, 2007). This is because they are in various markets which have different cultural perspectives from the ones in the parent company. Since the position of top management is normally retained by employees who have an experience in the company, it becomes difficult to adapt to direct the new employees because of the cultural barrier aspect (Crawley et al., 2011). This becomes a challenge to the company as it tries to adapt to the new operational environment causing a delay in operations. Understanding the theories of international trade can be very beneficial to a company that is seeking to spread its operations to a global front. These theories include the mercantilist theory, theory of country size, theory of absolute advantage, factors proportion theory, theory of comparative advantage and the theory of product life cycle (Alon et al., 2013). The mercantilist theory of between 1500 – 1800 A. was described as a commercial revolution of nations where countries increased their exports but minimized their imports. This rise to capitalism ensured that the Western Europe countries increased their national wealth through the purchase of vital trade goods like gold and silver. Countries that practice mercantilism encourages production and manufacturing while discouraging imports. As for today, a company considering operating in a mercantilist country should know that imports are highly taxed so they should generally avoid frequent importation. Adam Smith in his theory of absolute advantage however stated that factors of production determine the cost of goods. His theory suggests that countries should supply specific products which they are economically viable, and that they should import products from countries which have an advantage in their production. He suggests that international trade can be encouraged by division of labor in several countries, making each country produce gods needed by other countries. Companies nowadays can therefore take advantage of this analogy to exploit globalization. Globalization is definitely attracted by availability of sustainable raw materials and cheap labor (Calder, 2010). It is for this reason that Apple incorporation, an American company, manufactures its products from the Asian countries like Taiwan, Singapore, Malaysia, China Japan and South Korea. This is because of the availability of cheaper labor in those areas as compared to America (Wu, 2006). The theory of country size addresses the fact that larger countries have varied climates hence they can get varied products hence less imports and exports because of their self sustainable market. For today, a company seeking to go set-up in a different country must look at the size of the country. This is because companies in large countries incur a higher cost in transportation because of sparse population and the distance between production and the market. Some of these cultural differences and company culture are explained better in Hofstedes view on cultural dimension. According to Luger (2009), this study is now used as guide by companies before venturing into foreign territory. The five dimensions according to Dr Geert Hofstedes study carried out on IBM employees include Power Distance Index (PDI), Masculinity (MAS), Uncertainty Avoidance Index (UAI), Individuality (IDV) and Long Term Orientation (LTO). PDI addresses the fact about existence of inequality between people with power and those without. A high PDI shows that the inequality is high and accepted by the people of that community and that instructions and decision making is normally passed down the hierarchy. Hofstedes identified Malaysia as a region with high PDI. In region/company with low PDI, so much teamwork is involved because people consider themselves peers. companies setting up in new regions should identify the PDI of the region to be able to put up an effective organizational structure. setting up an office in Malaysia would perform efficiently if the organization structure is hierarchical in nature while setting up a company in Germany or Austria would require a horizontal organization structure where teamwork and collaboration is maximum among all employees. IDV index show the connection between individuals and their community. Marketing strategies in countries with low IDV like China, Pakistan and Ecuador should target communal settings. Regions with high IDV however people keep small circles, they do not share personal information and they respect each other’s time and freedom. Setting up a company in such areas like USA, UK, Canada and Switzerland requires that the products should always target individuals for them to be adopted in the market. According to Hofstedes, Japan has a high MAS index than Sweden. This means that horizontal segregation is higher in Japan than Sweden. If a company is to open an office in Japan, it would need to appoint male leaders in order to increase its chances of success because of the high MAS index. However, opening an office in Sweden would require a balance between male and female employees because of the low MAS index in Sweden. Hofstedes cultural dimension indicated that UAI measures the level of anxiety felt by members of a society if faced by uncertain situations. High UAI communities are very conservative in nature. Regions which have people with a law UAI are very pragmatic and open to ideas and change. This baseline of UAI gives managers the ability to determine the best approach to dealing with clients from different parts of the world. A client from Germany for example is a person who has a high UAI and expects formality, rules and procedures to be adhered to as a way of reducing risk. Dealing with a client from a country such as Greece would be more open and they can be said to be risk takers. Lastly, LTO tries to identify a community’s commitment to traditions and values. A country with a high LTO values traditions, systems and long term commitments. These communities regard the elder people with so much respect and the men are the decision makers. Dealing with this community requires humility, loyalty and perseverance in order to be rewarded. However, communities with lower LTO normally do not believe in systems so much. They are spontaneous people who encourage creativity and diversification of ideas. Some companies also set out with the aim of conquering new markets but they end up being swallowed by the reality in the market. This is normally attributed to poor reconnaissance and market research about the new territory. Researches normally assist a company in making vital decisions about very fragile matters like marketing, branding and packaging of the product (Piepenburg, 2011). Conclusion For companies to be able to operate in different countries efficiently, they have to identify the needs of the market where they are going to be operating from. This include the cultural differences and how to manage them, human resource expectations and marketing fundamentals of different regions so as to blend in effectively with the company’s product. References AHMAD, A. (2013). New age globalization meaning and metaphors. 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