International Business - Microsoft - Case Study Example

University: Introduction to International Business. Name: Date: EXECUTIVE SUMMARY The report provides an insightful analysis of the evolving business model of the Microsoft corporation, The report embarks on a rather interesting analogy of the challenges faced by the Microsoft corporation, and provides an analytical business perspective in addressing each challenge, with the purpose of determining the suitability, failure and relevance of various theories that come to play in such situations. The report intimates that despite the challenges and the changing face of the global business environment, certain business models and concepts are well rooted and ultimately determine the success or failure of any organization depending on how effectively they are put into use. INTRODUCTION The Microsoft Corporation has undergone tremendous changes in three decades in the business world to conquer a very competitive market in what can be attested to be a steady application of a strategic business model (Hitt, 2008, p.34). While it cannot be stated that the corporation has made no flaws, it is widely acceptable in business circles that the organization has grown by leaps and bounds despite seemingly high odds indicating the opposite. This paper seeks to address the challenges faced by the corporations, with a particular emphasis on the theories behind the operations of this organization. The principal reason for selecting this organization is the fact that among other things, the corporation’s strategies, theories and economic models have outlived the test of time to emerge irrefutably effective (Daft, 2006, p.35). Moreover, the fact that the corporation has been a consistent market leader over the years, backed by a consistently growing portfolio, only makes the organization a perfect fit for conducting analysis on its operations. As I explore the organization, however, the much emphasis will be on the challenges, the shortcomings, and the areas that the company should have responded to with more vigilance and prudence, and also the specific areas that the company should address if it is to continue being a global leader and trend setter in technological advancement of Information Technology. CHALLENGES IN STRATEGIC APPROACH One of the most candid characteristics of the Microsoft Corporation that has left both competitors with discomfort has been Microsoft’s competitive strategy. Undeniably, Microsoft has been accused of using underhand techniques to outdo its competition over the years. A flashback into the origin of Globalisation reveals that in the last half of the last century, the United States of America dominated the global economy and was the set pace for the establishment of the world trading arena (Mueller, 2010, p. 47). Additionally, the united States were the dominant players at the Foreign Direct Investment. Although this was eventually eroded with the emergence of other super powers such as Germany, United Kingdom, and France, the time duration did allow Microsoft to flourish at a global scale (Stammers, 2011). Microsoft has consistently put its competitors between a rock and a hard place by providing high quality user friendly finished products, while also being the sole provider of additional services resulting from those purchases. However, in the examination of the primary motivations behind this rather aggressive move by Microsoft, what comes out strongly clear is a fact that the corporation made a very strategic entry mode into the market. One of the leading challenges for budding corporations has been choosing and following a successful entry mode. Judging from a firm’s competencies, it should be able to develop a workable entry mode that should establish either a solid management or technological knowhow entry mode (Sunny, 2008, p.40). In analyzing Microsoft, it is crystal clear that the company struck a delicate balance in the management and technology sub categories and built a business model that had extensive support of legal patents, making it practically impossible for any competitor to counterfeit their products. Microsoft, like other huge technological corporations, has earned a reputation for its high number of patents, a justifiable claim considering that the firm came to inception at a time when copyright laws were not very stringent. This meant that Microsoft suffered the blunt of the lack of patents, an important right for intellectual property. CHALLENGES IN GLOBALIZATION By closely looking at the link between the performance of Microsoft and the International trade theories, it is clear that there exists undeniably strong relations. For example, the new trade theory asserts that there exists a relationship between the industrial characteristics and other factors within a country that to a great extent affect international business (Hitt, 2008, p. 46) The Microsoft Corporation was founded in the United States. The concepts argued in the new trade theory leads us to conclude that the natural advantages that a country has usually propel or paralyze businesses within the country. As with the case of Microsoft, the government cooperated upon request to enact intellectual property right law, a move that greatly benefited Microsoft in the wake of the 21st century (Daft, 2006, p.53). Moreover, the fact that the United States created an enabling environment was also a major contribution towards the consistent progress of Microsoft in outdoing its competitors As we embark on investigating the challenges that the Microsoft corporation has faced in its rise to be a global business leader, it is imperative that we analyze the different economic models and the impact they have had on the success of Microsoft. Microsoft was founded in an open economy (Sunny, 2008, p.41). One of the key distinguishing features of an open economy is the few restrictions put to traders. The traders are in a position to engage in fair competition practices from both within the country and overseas. While an open economy has its major strength, especially on exposing companies to a diverse market, there are some accompanying shortcomings. One of the challenges has been the issue of market segmentation. As many market players seek to join the lucrative Information technology industry, there has been evident division of the market as each player obtains a niche market (Elena et al., 2006, p.401). Essentially, Microsoft has for the last half decade received back lash from ardent innovators as being a company that has been dwindling from its previous glory of beading an innovator to merely being a follower. Although not fully justifiable, these accusations have stemmed from the fact that the corporation has for quite some time now failed to match up with the huge developing competition from other manufacturers. A case in point is the firm’s initiative to set up a cloud computing technology. Even with such a great idea, the company still failed to capture as much of the customers as it had anticipated primarily due to the competitive nature of the industry (Mueller, 2010, p.96). As such, the company must certainly needs to venture into the smartphone market to ensure sustained relevance. In looking at the theories in internationalization, the concept of comparative advantage is described as a situation where an organization or country should specialize in a field of production where it is most productive. Therefore, even with these hard realities that Microsoft is in a cut throat competition and the temptation to diversify into the smart phone industry is rather high, it is perhaps best that the company sticks to production of its windows operating system and softwares (Beattie, 2010). With this knowledge I mind, it becomes clear that Microsoft’s major challenge is striking the delicate balance between manufacturing specialized products for and thus maintaining comparative advantage and also diversifying its products so as to remain profitable in the long run. The new trade theory candidly augments the position and the essence of specialization by maintaining that an organization’s output invariably increases with the adoption of specialization. This provides very important insights into the reason as to why even with the sprouting of new businesses, Microsoft is still able to remain at the top of the competition. Part of this is attributable to what the new trade theory defies as the advantage of economies of scale, making Microsoft to remain quite competitive (Jihye & Yungwook, 2007, p.80). Undeniably, the challenges faced by Microsoft are not new, neither are they exceptional from other firms. However, what makes Microsoft’s case rather unique is the business model that is embedded into the company’s management. Even with the factor endowments such as infrastructure, capital and labor, Microsoft has made deliberate efforts to provide top quality products to the large market. CHALLENGES IN THE CULTURAL ENVIRONMENT In developing an understanding of the progress of an organization, a critical component that should be looked into is the organization culture. Fundamentally, culture is defined as the set of norms and values who live together and which, as a whole, set the overall standards for desired behavior (Hitt, 2008, p.28). In business and our social life alike, organizations have to build a culture within their organization. The role played by engaging in a positive and affects the progress of any organization. In the case of Microsoft, it has received accolades in the recent past for being one of the best companies in the world in terms of the fairness in both employment opportunities and the way of doing business. The organization has been characterized as being one of the toughest organizations in terms of the rigorousness in conducting the recruitment process (Beattie, 2010). While Microsoft has made tremendous effort in a bid to keep the company as of the best, the role played by developing a transparent a well thought out culture cannot be ignored. A major challenge that has face Microsoft in terms of the organizational culture comes mainly with the opening up of new branches in foreign markets. As Microsoft expands and opens up new branches in other either unexploited lands or high competitive regions, the challenge has been to accept the diversification in the workplace and embrace the different cultures (Stammers, 2011). With the prevalence of globalization, organizations have had to embrace the different cultural and socioeconomic differences in different regions. One important concept explained in the study of the cultural environment is that the organization should at all times put the customer first. This has meant that customer satisfaction should take precedence over any individual differences between organizations. However, it is important to note that the success of such a large organization usually depends on massive advertisements and dependency on creating good public relations with the community at large (Chris, 2009, p.66). This, therefore, means that if the organization fails to treat the customers well, it is getting ready for a nose dive in sales. Nevertheless, Microsoft has safely managed to overcome the hurdles of the cultural differences through prudent recruitment and a consciously encouraging the employees to embrace cultural diversity. POLITICAL AND LEGAL CHALLENGES An equally notable challenge facing Microsoft has been the challenge of embracing the political environment. When considering whether to get involved into manner in which an organization conducts business, it is necessary to undertake the consequences of the actions taken by the organization on the political scene. First and foremost, the political arguments presented against Microsoft Corporation originate predominantly from the need for protection of both the end users and the employees within the corporation. As Microsoft expanded, it faced the arduous task of maintaining the top talent while also striving to reward them with equally attractive remuneration. For large corporations such as Microsoft, the pressure to act in a politically correct manner is always eminent. This has meant that among other things, Microsoft is tasked with the responsibility of protecting the job opportunities of its employees as well as a protecting the right of the consumers. However, even as Microsoft has made these efforts to follow to these government rules and regulations, the real challenge has emanated from some countries that have enacted rules driven by political interest. For instance some Chinese legislations have made it particularly difficult for Microsoft to get fully established in the country through imposition of value added tax (Sunny, 2008, p.37). Such foreign policies have acted as hurdles and thus slowed market penetration in otherwise lucrative markets. The role played by the political environment in fostering development of any industry is a reflection of the extent to which governments and government agencies have control over the business practices within a country (Williams, 2011). CHALLENGES IN THE ECONOMIC ENVIRONMMENT Furthermore, in assessing the economic environment in which the Microsoft Corporation is positioned, there is enough evidence to support the fact that the corporation indeed is still subject to various economic factors that present unique challenges to the speedy growth of the corporation. The macroeconomic stability of the United States, where the parent company was founded, provides the corporation with a cutting edge as there is large pool of qualified personnel as well as the slow but steady growth. In seeking to expand, Microsoft has often sought to establish the viability of a country as a future prospective investment location. However, the challenge faced by Microsoft has been to conduct critical assessments on factors such as the risk and the costs involved on doing business in that country (Hitt, 2008, p.84). Striking a balance here often requires that the company understands and regard the benefits to be reaped against the costs. Following this, Microsoft has also been forced to limit and reconsider on the countries in which it can successfully conduct business. For example, it is far much easier and safer for Microsoft to open up and do business in developed nations as the risks and costs that come with these countries is far much lower than the associated risks that may arise when operating the same business in the lesser developed countries (Chris, 2009, p.59). His does not entirely rule out the possibility of Microsoft opening up large franchises in the developing world but just goes to show the risk factors involved. CHALLENGES IN THE INTERNATIONAL MONETARY SYSTEM Like any other businesses, Microsoft has had to consistently counter exchange rate fluctuations in determining the optimum sales for their goods. The fact that the economy is in a constant state of fluctuation has forced the international corporation to develop aggressive marketing strategies to shelf consumers from exploitation by distributors. A very efficient technique applied by Microsoft has been the use of their website to advertise their products together with updated catalogues bearing the market prices of these commodities (Jihye & Yungwook, 2007, p.78). In part, this has served to alleviate overexploitation of their consumers and also largely created a good image of transparency and openness in doing business (Elena et al., 2006, p.404). Moreover, with changes in the market forces, Microsoft has experienced fluctuating demand for their products. For instance, in the event that the exchange rates depreciate, imports become quite expensive and in these economic times, there is a remarkable decrease in the sales figures in foreign markets (Daft, 2006, p.78). Similarly, an appreciation of the exchange rates leads to making imports cheaper and thus allowing the company to sell more of their hardware products. An interesting analysis of the relationship between the Chinese Yuan and the American Dollar showcases just how sensitive exchange rates can get in influencing demand for products. The changing patterns in the behavior of the Dollar and Yuan is reflective of the overall impact of currency exchange rates on the free forces of demand and supply. The performance of Microsoft is stellar. The fact that Microsoft has over the yeas reported profit margins gives the impression that the company’s performance is quite in order. However, to truly understand the truth of this claim, there is need to embark on financial analysis. In looking at key financial indicators such as the dividend payout ratios, it is clear that Microsoft has been making progress amid the highly competitive technology sector (Williams, 2011). Moreover, the company has shown aggressive strategies to stay afloat in the rapidly changing market dynamics. This has been done through the various acquisitions that the company has engaged in a bid to diversify its portfolio. The acquisition of Skype by Microsoft marked a major hallmark in integrating modern communication past the age of emails. Skype has become a popular platform for conducting video conferencing and its usage asserts the changing face of technology in the 21st century (Chris, 2009, p.63). As if that was not enough, towards the middle of this year, Microsoft further made an additional acquisition, the buyout of Nokia. These aggressive strategies are what has set Microsoft apart from its competition. Microsoft’s consistency has proved wrong cynics’ views that the company would fizzle out and lead to an eventual negative economies of scale due to its expansion on a global scale (Hutt et al., 2013, p.79). However, the company has been able to produce better results with the end of each financial year. The success of Microsoft does not merely come about as a result of involvement in the sale of its products but also through the provision of various services. THE FUTURE OF MICROSOFT CORPORATION There are few doubts about the role that Microsoft has played in paving the way for other technology business empires. The competition created by Microsoft raised the standards of cloud computing, communication, and information security. Further, the advancements and good consumer relations have placed Microsoft on the good books of major corporations and government institutions. In spite of these accomplishments, there are valid fears in the contemporary markets that leave financial analysts fearing for the future of Microsoft (Daft, 2006, p.78). A major reason for these growing fears is the dwindling in the sales volume of Microsoft’s windows operating system. With the emergence of android and Apple tablets, there is a shift in the market dynamics with strong indications that the future is shifting towards more use of hand held devices. Also evident is the question of the relevance of Microsoft’s online store. With fewer customers using the sore, it has been quite expensive for the corporation to maintain ad has thus resulted in extra expense for the firm (Hitt, 2008, p.102). There is therefore, a high chance that this online store might be eventually closed done. More worrying, however, are the speculations of possible lay off of workers. As the corporation restructures itself to respond to the changes in the market, cutting down on the costs might become a huge priority of the company and this could lead to a possible lay off of a substantial number of workers in the next half decade (Elena et al., 2006, p.402). What the above predictions point at is the changes in the concepts of consumer tastes. While Microsoft long enjoyed the benefits that came with operating under a monopoly, the entry of strong market players has challenged almost every division in the Microsoft Corporation. In the battle to keep Microsoft at leverage in the competition, the company will have to make tough decision. For instance, the need to have an entertainment division that has in the last four years made no substantial contribution to the overall efficiency and profits of the company begs serious reevaluation (Stammers, 2011). The most reasonable move for the company would be to sell of this division to entertainment firms like Sony. Further, the company should align itself with the modern technologies such as cloud computing and invest more resources and research on these areas. Ultimately, innovation for Microsoft should not be a challenged given its robust financial muscle and the large pool of highly qualified and competent staff. CONCLUSION An analysis of the challenges faced by Microsoft is by and large a reflection of the challenges that face the Information technology industry as a whole. While there are a few exceptions on the good role the company has played, what stands out about the Microsoft corporation is that despite battling with a very cut throat competition, the company has still managed to conducted its businesses in a socially responsible manner, ever being mindful of the welfare of its environs. Even when opening up operations in new countries, the corporation has exercised prudence and fairness in recruitment opportunities and respected the laws of the land. It is these attributes that have seen the Microsoft Corporation bag the awards for being the most socially responsible corporation. Undoubtedly, Microsoft has helped bring about tremendous change in the way of handling a dynamic consumer market. REFERENCES. Beattie, A. 2010. A History Of U.S. Monopolies. [online] Investopedia. 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