Challenges of Globalization to Multinational Businesses - Essay Example

Running head: GLOBALIZATION AND ITS CHALLENGES Student name: Student number: Course title: Lecturer: Date: Abstract Globalization is driving the world economy as companies and organization align their services and operation to get the best of the globalization which is taking place at unprecedented pace. There are many issues that have been attributed to the globalization that is seen in the world today. The factors are also seen to be affecting eth globalization of goods and services. One of the leading reasons for the fast pace of globalization is the fact that the challenges and hurdles that were experienced in entering international trade have since been removed. Today, there is the establishment of the world trade organization which has been seen as a key player in driving economic globalization. With WTO, it is now easier than ever to participate in international trade agreements with countries around the world with much ease. This has not been possible before. This was made possible with the establishment of General Agreement of Tariff and Trade (GATT); this agreement was meant for countries that were willing to carry free trade with other countries in other countries. The main reason for establishing this tariff was to ensure that the countries that are participating were protected from exploitation. This would enable the countries who were initially not able to participate in international trade to go into it thus bringing with it globalization. With the barriers of trade being waived by the use of information technologies, globalization is therefore moving very fast. The paper will address the forces that are behind the increase in globalization. The paper will look at the challenges that are brought about by globalization. Table of Contents Abstract 2 Table of Contents 3 Introduction 4 Globalization driving forces 4 Challenges of globalization to multinational businesses 8 References 13 Introduction Globalization is seen to be receiving more concern from economy than any other area. The issue of financial globalization is seen to carry more weight given the impact it has in the whole issue. Give the financial tranquility that we are seeing in the world today, there is more international cooperation that has been seen to come with it. Taking the assumption that politics will drive the future aspects of globalization, then it follows suit that peace has been instrumental in the development of the avenues that globalization enjoys today. Also, the current status of globalization will require a peaceful environment which will help to enhance a good working environment (Gatignon, & Kimberly, 2008). The concept of globalization has undergone much refining since its inception. It is after the Cold War that has seen the shaping of globalization than any other period. The first section of this paper will look at the forces that are seen to be behind globalization. The second section of the paper will look at the impact that globalization has had on the operations of the international businesses and multinational corporations. Globalization driving forces One of the driving forces of globalization that is seen in the world today is the expansion of technology. With globalization, people have had close contacts with each other. There are many challenges that are facing out our world in the twenty-first century; on top of the list is the globalization. The talk on globalization is growing very fast around the world. The societal structures that are seen in the world are changing real fast. Talking about expansion of technology, the transport sector has seen tremendous changes in transportation changes. It is now possible to travel long distances using less time than it was before. With the new technologies found in the telecommunication sector, it takes less time to travel around the world. This is affecting the way countries communicate with each other. The economy is improved. There is the use of airport and seaports so that the globalization movements can be accommodated. Information technology has made communication even more efficient and reliable around the world. There is the use of e-mail systems and chat services instead of telephone and fax that was available in the former years. This trend is making communication reliable and efficient for many countries. It enables these countries to get new insights and ideas of how well they can engage in the international business. With the rise of Multinational Corporations, there has been an increase in globalization (Gatignon, & Kimberly, 2008). This trend is seen to increase since many firms are adopting the click-and-mortar models of doing business so that they are able to sell their products and services over the Internet. This way, they are able to engage customers from a wide area. The costs of communication have been seen to decrease with the availability of cheaper channels of communication. Although the concept of information and communication technologies is not given the attention it deserves in the traditional theory of trade, it has immense implications in the international trade; this is so given the fact that there is need to have communication between actual and potential customers, and between the different middlemen that are available in the information age. The trade and services is one area that has borne the most impacts of globalization. The modern communications has made it possible to have trade with far countries which was hard with traditional ways of communication. As an example the design of computer chips can be done in the Silicon Valley and the production being made in East Asia. Software can also be coded and programmed in India and Ireland on a contractual basis and then sent back to the United States. Doctors can do diagnosis on patients using transmitted MRIs and data. It is even possible to do operations with the use of robots where the doctor will give instructions to the robot on how some operations are to be done while the doctor is far away. Also in technological expansion is the shift in developing countries to using products which are manufactured instead of using agriculture. This impact has been felt the most by developing countries which have been having difficulties competing with products from developed markets like the United States and the UK. The products in these markets receive subsidies of between 20 and 30 percent. The use of information technologies have made the transactions easier to handle and also removed the barriers in the international business. These changes have brought revolutions and in effect brought about new opportunities. It has equally sparked a lot of debate on how legislation will be handled. Free flow of information has made it possible for diffusion of innovation between countries (Gatignon, & Kimberly, 2008). Another force which is seen to be driving globalization is that of people mobility. With people in developed countries getting older and diversified than ever, developed countries are lacking in labor. It is therefore common to see populations in developing countries moving to developed countries in search of employment. Emerging countries have the most educated, energetic youth who become competitive in the world market. There is increase in migration which is caused by factors like wars and political instabilities. It has been argued that the increase in labor freedom in labor movement in future will be indispensable. There is also an increase in passenger traffic which is as a result of tourism and business. With the increase in people movement around the world, there has been diffusion of products and ideas. Capital market liberalization is yet another factor that is seen to be behind the globalization trend. With capital undergoing digitization, investments are flowing across international borders now freely than ever. In fact focus has now been diverted to the problems that are associated with this liberalization like the financial crises that was experienced in Asia in 1997, and the crisis which occurred in 2002 in Argentina; these crisis started fierce criticism of IMF policies. Those opposed to liberalization started criticizing the free movement of capital between countries and they were particular on the hot money that was made available by eth speculation of cross-border movements. This even led to the proposals like the Tobin tax and Chilean tax which imposed some limitations on these speculations. With liberalization, there have been benefits that have been seen to come with it. One of them is a varied access to funds for entrepreneurs wishing to invest. The liberalization of capital markets has created investment opportunities but has also brought untold risks due to the inflations. Another force that can be attributed to globalization is the harmonization of global regulations. With many firms transacting business across their borders, it is common to see the setting up of regulations which are global. It perhaps explains the reason why there is the struggle to have standardized accounting principles and rules. There is also a concern for the environmental issues that occur in our environments by many countries. This is the reason why many firms are adopting the global warming and thus being united together in pursuant of a common goal. This is what driving globalization is; countries are pursuing goals in across the borders making the pursuit of the goal that they want to be easily achieved. In future, it is expected that there will be the convergence of culture and identity. As the world becomes global everyday, the language, products and experiences that countries and people will have will be more or less common. This is the platform that will unite people. The use of English language is becoming emphasized in many countries and this will effect communication among people. This does not insinuate that all the cultures of the world are moving towards attainment of one culture. This is not the case. Although globalization has many times been accused of causing hegemony or homogenization, there has not been a clear definition of the real cause and the real effects of it. There are factors that lead to convergence of culture which include development in economy, mass media coverage, and urbanization; none of these are associated with globalization. Challenges of globalization to multinational businesses Inasmuch as globalization gains popularity in the world today, it poses some challenges to multinational businesses today. Managers are required to enter the global markets and compete fiercely and make profits for the investors. Multinational corporations are supposed to learn foreign markets and out-compete their rivals to come out with some profits in order for the business to be considered worth an investment by investors. The international arena is where immense opportunities lie; it is also where complexity and risk are found. Some governments may have a choice of whether they should take part in this process or not. This is not an option for the businesses as they have to take part in this globalization process. Businesses do realize that markets are becoming global and so they have to prepare themselves to participate on the world stage in their businesses. Businesses and firms must be on the forefront in creating value across borders; there are also individual wealthy investors who are in this investment too. Firms are the main players that have the potential of creating immense opportunities for sustainable development. As politics between the proponents of globalization and their discontents bite, firms are struggling with the process of globalization everyday. Politics of globalization is part of world business context but the managers of international business corporations face other problems altogether. The managers of global enterprises are required to manage businesses in their quest to enter foreign markets and make sure that they manage risks well and still come out making profits in these markets too. With internationalization, there are risks which are associated with it and these include global supply chains, financial risks and geopolitical risks. Global business is faced with the dilemma on whether to pursue multi-local business strategy or global strategy given many choices of the business areas they can delve into. There is the dilemma that they must solve, whether they will go ahead and develop an international brand or not. Some of the questions that are faced by the managers of these global businesses include what the type of risks and uncertainties that will be faced by the firm in the foreign markets? How can the firm finish successfully a merger that blends well diverse culture and national cultures? How can the company be a good citizen corporate-wise and yet they are supposed to apply this image to many nations? Will they survive to play good to all the nations they will get involved with? How will they address the demands that come with global vendors and at the same time tailor their culture to the individual requirements? Some of the factors that will affect the success of the multinational corporations in these fields are extent in which the two markets differ, the government regulations that are there in the new markets and the market potential that are seen in these new markets. The other complexity that comes with globalization is that of the environment which is not static. This is seen in the fact that once a company has decided to start their operations in a particular market, they will have to make some other management issues like the development of the product, supply chain, and financial risks. The managers of multinational corporations will be required to decide on corporate citizenship. These are dynamic changes that are experienced in any modern business but are more pronounced in global businesses. Emerging markets are becoming a very important instrument in the world economy. This is seen in the upsurge of the strategy to do research concerning the topic (Wright et al., 2005). This has been favored further by the rapid increase of attention that is given by governments as they come up with policies that favor liberalization in the economies. Most nations are transiting from centrally planned economies, commonly called transition economies (Buckely, & Casson, 2003). When emerging markets started appearing in the globalization era, most multinational companies were the first to take advantage of them. These companies had their headquarters in established economies. These multinationals were sure to succeed in the operational establishment in these emerging markets. Studies done by Peng (2001) show that most management scholars researching on strategies that can be used by firms in emerging markets have one problem that they are trying to overcome; they believe that every emerging market lack Western-style business environment. There is need to enforce the rule of law in these economies. When operating in these economies, the entry strategy and even the operating strategy should be modified. Research on companies planning to enter emerging markets show some increasing doubt on the success stories once they are taken for granted. Jumping into the new markets without having the prior knowledge will have untold failures. In emerging markets, there are poor distribution channels, and poor infrastructures. There is also lack of operational discipline and the propensity to change the business operations frequently and without any predictions (Wright et al, 2005). There is the issue of complicated culture in the new market which requires a clear understanding of the firm. They are supposed to understand the insights of the local market and therefore provide a fit between its products and the diverse needs of the customers. With this, the company will be in a position to understand the needs of the customers and the also will be in a position to roll out technologies which are fit for the new markets. In emerging markets, the consumers have low incomes and tend to use basic services which are inconsequential to the firm. For the firm to realize profit in this situation, they have to consider bulk sales and implement different pricing model. There is also the issue of human capital where the firms will not be in a position to tell the best talents in the market. Getting the right staff and employees is a challenge. There are no recruiting firms which helps identify the best talents in the market. Instead, firms scramble to get the best employees in the market and furthermore they are not sure of which institutions produce the best skilled and potential employees. Government relationships can bear fruits as their linkages are good for the growth and the success of the firm in the merging market. It is important that the executive strive to gain important relationships with the government. It has been found out that there is a poor relationship of the firm with the local partners; corporate firms don’t trust that the local partners understand the market and will enforce the government regulations to the core. They are the poor in emerging markets. Globalization presents with it a web of complex puzzles. With internationalization, and generally all organizations, leadership cannot be separated from regulation. Supply chain cannot go without product development. With globalization, the firm has to be listed in different exchange rates. This will change the role that investors have in shaping the governance of the product. With globalization, there is the issue of outsourcing. It is estimated that in the United States alone, 3.3 million white collar jobs and US$136 billion in wages go to countries that get jobs from developed countries by the year 2015. With security being a concern for the nations of the world, it is something which is becoming a very crucial aspect in the world. There is the emergence of “new world order” which is becoming to unravel in the world and has some implications in businesses. There is therefore the issue of decision-making in all these. References Buckely, P., & Casson, M. (2003). Models of multinational enterprise. Cengage Learning. Gatignon, H., & Kimberly, J. (2008). Globalization and its challenges. Retrieved on 18th March 2011 from http://assets.cambridge.org/97805218/35718/excerpt/9780521835718_excerpt.pdf Peng, M. W. (2001b). The Resource based view and International Business. Journal of Management, 27, 803-829. Wright, M., Filatotchev, I., Hoskisson, R., Peng, M. (2005). Globalization: The role of emerging economies. Journal of Management Studies, 42(1), 1-19. Read More