Impact of Globalization on Business of Siemens - Case Study Example

Case Study Table of Contents Table of Contents 2 Question 3 Elements of global influence on Siemens AG 3 Strategies 4 Impact of globalization on business of Siemens 4 Question 2 5 UK Business Environment and impact on pricing policies and FDI 5 Question 3 7 Elaboration on suitability of international trade for Siemens 7 Comparative cost theory 7 Market imperfection theory 8 Heckscher-Ohlin (factor proportions) theory 8 Classical trade theory 9 Reference List 10 Question 1 Elements of global influence on Siemens AG Siemens AG is identified as a renowned electronics and electrical operator, which has its business worldwide. The company is headquartered in Munich, Germany and the turnover of the business is high enough to support innovation (Siemens AG., 2014a). With the passage of time, Siemens has developed its technological storage and constantly made effort to increase the efficiency of the machines whose technology is devised by the company. These machines are part of everyone’s daily life such as toaster, train and traffic lights. In hospitals hundreds of patients are being saved form dangerous consequences by employing MRI scans, which have advanced medical imaging technology developed by Siemens. As a multi-sector operator, Siemens have always responded to the global influences and have taken it as challenges (Siemens AG., 2014a). The global influences are difference in capabilities of employees of the offices that are situated around the world. Same level of productivity is not present in every country as it depends on the skills of the same. Hence, it is practically impossible for the company to design and produce products in all counties due to the lack of efficient workers present in all the offices. This indicates the fact that the company has to hire efficient employees globally and put them in the right place, where they are needed. Thus, the global influence of talent is a considerably significant element for the company for its success worldwide. However, the company concentrates in manufacturing the product by employing specialisation that is they are produced with the help of specialised workmen and shipped to different parts of the world for sale (Siemens AG., 2014). One major global influence on the company is currency fluctuation. The prices of the products that are supplied to different place around the world are subject to currency value change. The Euro value can rise with respect to dollar value. For these reason the company products are higher Europe and lower in United States. However, the company have responded strategically towards these global influences and have eliminated the difficulties. Strategies Due to inability of providing the best workers to the company worldwide, Siemens have concentrated its manufacturing activities in few countries. In these countries, skills of the employees are specialised for manufacturing the products that becomes competitive edge for the company. Thus, the company has responded very tactically towards the accomplishment of its long turn goal to become the world leader in manufacturing and selling electronic goods. These products are manufactured in few countries and then shipped worldwide. This shipment of products is subject to a number of problems; one of which is currency fluctuation. In order to check this global influence the company has employed an internal risk management system. This system helps in checking the threats and controlling the damages that arise from currency fluctuations (Siemens AG., 2014). Impact of globalization on business of Siemens Globalization has altered the lives of every individual along with their style of living. The needs and demands of the global mass are changing due to globalization (Siemens AG., 2014). This has affected many companies that operate in a wide range of industries negatively as their sales decline drastically along with products and services becoming obsolete. However, companies such as Siemens AG did not encounter much difficulty due to globalization as the panel of intelligent owners along with their employees have developed new strategies to marinating their brand name in the world market. Siemens in United Kingdom (UK) have maintained its position by manufacturing and offering a wide range of top class electronic products to the customers. These customers add value to the company as they the revenue is generated through them. Siemens have ensured that customers get whatever they need readily in the market and they do not have approach any other supplier who can deceive them. Question 2 UK Business Environment and impact on pricing policies and FDI The business environment in the UK is stable and the legislative policies adopted by the government in the recent times have focused on attracting higher proportion of FDI compared to the other countries of the European Union. The government has been keen on modifying its taxation policies, trade objectives and continuous support for the small and medium term organizations that have been successful in attracting investors from all corners of the globe. The growth of business services FDI in the UK is noticeable and it has also made huge advances in the field of financial services and software services. The economics and politics of the United Kingdom are heavily influenced by the role of the regional trading blocs and the policies framed by the European Union. Multinational companies like Siemens are heavily influenced by the decisions that are framed regarding trade by the government through the trading blocks. Competitive polices taken by the local governments have a profound impact on the strategies framed by the multinationals including their pricing decisions. The rationale behind this is that a decline in the import tariffs and other production tariffs can be directly translated in the fall of cost of production for the company (HM Government, 2013). A fall in the cost of production directly reduces the price that is to be charged from the final customers. Siemens is one of the largest multinational companies that are present in the UK and it has created a reputation of providing superior quality products to its clients. The business operates in multiple portfolios to ensure that the customers can enjoy quality service in all walks of life. Efforts on the part of the government play a major role for the company to charge reasonable price for its products so that the customers can enjoy quality service. The government has lowered the level of corporate tax from 28% to 23% in a bid to improve the profitability of the company and to ensure that more inward investments flow in. The country has committed itself to become the best destination in terms of the corporate tax regime among the G20 countries (HM Government, 2013). A considerable part of the FDI is also spent in improving the infrastructure like rails and roads to guarantee that businesses like Siemens can improve their profitability. The European Union has recently modified tax policies for regulating the profits earned by multinational companies. As a consequence of this policy, the UK has sharply reduced its corporate taxes by simplifying the credit structure. It is expected to improve the business prospects of companies like Siemens in their cross country transactions. The previous system of national corporate tax had greatly impaired cross-country transactions. Pricing policies of Siemens have been greatly affected by the trade liberalization practices adopted by the government in the form of reduction of import duties and production tariffs (B. Kim, Prescott and S. M. Kim, 2005). One of the latest advancement in the trading front was to introduce the system of duty free trade in e-commerce that is expected to positively impact the multilateral trading of all companies engaged in e-commerce. The role of the government has been supportive to bring in foreign investment from the beginning of the 1980s. Siemens-state-of-the-art semi-conductor plan can be considered as the biggest Greenfield investment of the country that has provided the economy with multiple jobs. The government of the country had taken up collaborative efforts with the private sector companies in a bid to make the UK one of the most lucrative spots in the global business. The country has set its aim to raise its exports and foreign direct investment doubly by 2020 (UK Trade and Investment, 2014). Siemens have become an important part of the ambitious target set by the government because it dominates a major portion of the UK manufacturing and engineering sector. Siemens have played a major role in bringing foreign direct investment in the country. The collaboration of Siemens with the government of the UK is a mutually beneficial partnership that impacts both the parties eventually. In a recent effort Siemens has invested £310 million pounds in an offshore wind manufacturing in Hull to generate income and employment for the economy. This project is collaboration between multiple government bodies that have generated direct employment of 1000 individuals in an area that initially had very low employment (UK Trade and Investment, 2014). Based on these arguments it can be argued that the contribution of Siemens in the economy of the UK is profound and the government has been trying to reciprocate the advantages by modifying its legislations for smooth functioning of the global giant. Question 3 Elaboration on suitability of international trade for Siemens Siemens AG is presently a global brand in the electronics an electrical industry. According to the case study, in context of global expansion the company has certain constraints. These constraints include home country production and maintenance of economies of scales through specialised products. The paper focuses on evaluating the international business strategy of Siemens with respect to various international theories pertaining to the given situation in the case study. There are a number of theories of international trade that can be described in context of operations of Siemens in the global framework: Comparative cost theory Heckscher-Ohlin (factor proportions) theory Market imperfection theory Classical trade theory Comparative cost theory Comparative cost theory was proposed by classical economist David Richardo, who proposed that international trade between two countries is possible only if absolute or comparative cost advantage with respect to production exists between the countries. It is noteworthy that in the theory of comparative advantage, the pertaining source of advantage is productivity of labour. Through labour can be mobilised within the country, the theory does not support international mobilisation of resources. In Siemens, it was observed that the company enjoys superiority in its manufacturing because of availability of labour, thus it has an absolute advantage over some countries while with respect to others it enjoys comparative advantage. However, certain assumptions under Ricardo’s theory such as inconsideration of transport cost and imperfect mobility of labour prevents this theory to be considered appropriate for the given company (Hill and Jain, 2007; Klug, 2006). Market imperfection theory The concept of imperfect market was indirect proposed in the international finance and economic sector when Modigliani and Miller suggested that existence of capital structure is a firm is irrelevant in a perfectly defined market. The concept of market imperfection theory is primarily related to foreign direct investment. The theory states that overseas investment decision of a firm is governed by a strategy to capitalise on specific capabilities that have not been accessed by foreign competitors. In other words, imperfections existing in a foreign market often act as sources of opportunity for a given company. In context of Siemens, it was ascertained that the company has been engaged in manufacturing activities in the home country followed by transportation. For Siemens, it is recommended to study other cross-national markets for investment so that it can minimise its transportation and other export related costs (Hill and Jain, 2007; Klug, 2006). Heckscher-Ohlin (factor proportions) theory The Heckscher-Ohlin factor proportions theory is an extension Ricardo’s comparative advantage theory and states that international trade mainly compensates for uneven geographic distribution of various resources. These resources are mainly capital and labour and countries take advantage of the difference in factor endowments. In the United Kingdom, Siemens is implicitly involved in manufacturing as well as tertiary sector resulting in earning of large capital. The company prefers manufacturing in its home country because of greater availability of labour force. The HO theory in context of Siemens essentially suggest that the company should focus on greater export of its commodities apart from meeting domestic demands because of the comparative advantage it enjoys with respect to labour and capital (Hill and Jain, 2007; Klug, 2006). Classical trade theory The classical trade theory focuses on trading pattern of a country with other nations in terms of export and import. The theory suggests that a nation can develop a profitable position if it produces goods and services in which it has economic advantage for indigenous consumption followed by export of the surplus. Therefore, if classical trade theory is applied on international trading of Siemens, then the company should prioritise its internal consumption followed by export of the surplus. However, such an approach may be effective for short run for a company but keeping in view, specialised activities of Siemens, this theory cannot be recommended (Hill and Jain, 2007; Klug, 2006). Hence, Siemens should develop strategies based on factor proportions theory and market imperfection theory for international expansion of its business. Reference List Hill, C. W. and Jain, A. K., 2007. International business: Competing in the global marketplace (Vol. 6). New York, NY: McGraw-Hill/Irwin. HM Government, 2013. A guide to UK taxation. [pdf] HM Government. Available at: [Accessed 30 August 2014]. Kim, B., Prescott, J. E. and Kim, S. M., 2005. Differentiated governance of foreign subsidiaries in transnational corporations: an agency theory perspective. Journal of International Management, 11, pp. 43-66. Klug, A., 2006. Theories of international trade. London: Routledge. Siemens AG., 2014. Siemens Quality Management. [pdf] Siemens AG. Available at: < http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&uact=8&ved=0CBwQFjAA&url=http%3A%2F%2Fw1.siemens.ch%2Fhome%2Fch%2Fde%2Fcc%2Fsiemens%2FsiemensA%2Fqualitaet%2FDocuments%2F110429_mandatory_elements_v3.pdf&ei=lKYBVIDmF8Ph8AWIxoGAAw&usg=AFQjCNFNXnLjg2Md09hiSzUeovJm7AfnxQ&bvm=bv.74115972,d.dGc > [Accessed 30 August 2014]. Siemens AG., 2014a. How Siemens is inventing the future today. [online] Available at: < http://www.siemens.com/innovation/en/ > [Accessed 30 August 2014]. UK Trade and Investment, 2014. UKTI inward investment report 2013-2014. [online] Available at: [Accessed 30 August 2014]. Read More