Global Markets and Firms - Essay Example

Global Markets and Firms Name Course Lecture Date Introduction Globalization is redefining the way business is conducted in the contemporary world. Driven by advances in communication technology and travel, the world is a more closely knit society than ever before. In addition, countries are forced to reduce or remove trade protection for their industries. Industries have to grow more competitive or they will not survive in the globalized business environment. For many companies, Traditional markets have lost their allure and many are saturated. Thus, Multinational companies have spread their wings to foreign markets in order to increases sales. However, new markets have their challenges too as products demand some level of customization. The world is converging into a common culture where every other person is eager to get the alluring things they have heard off and thinks they are popular. A new commercial reality has dawned as the world demand standardized consumer goods in quantities never before imagined. Many multinationals have aligned their production to this global reality and take advantage of massive economies of scale. With huge economies of scale multinationals are able to decimate competitors lacking a global perspective of the business environment. Old assumptions that there are differences in regional and national preferences are being disapproved. The developed world now demands the same quality and version of goods as those offered in the developed world. Foreign markets no longer offer higher prices, margins or profits. These changes indicate the globalization of market where only truly global firms can survive. Discussion Globalization is a force that is mostly driven by technology. Decades ago it was predicted that the age of technology would lead to an unprecented convergence of the way things are done across the world. In business, corporation have started competing on the global stage with their products being the same (Baffour Awuah and Amal 2011). Standardized products made in the globalization wave now influence the lives of every person on earth. For any ordinary person, the products they us every day is like taking a virtual trip around the world. In the Morning you maybe woken up by a Seiko watch made in Japan. The bread for breakfast is toasted by an LG toaster made in South Korea. Next you may wear Adidas Sports shoes made in Indonesia and an Abercrombie& Fitch T-shirt made in Northern Marina Island. You Smartphone maybe an Apple iphone made in China but designed in the US and powered by US Intel processors. A quick look at the “made in” tags in your consumer goods will reveal we are living in a truly globalized world. Business beyond national borders has taken root and is present across many regions in the world. Everywhere you go or look you will find goods that are manufactured in foreign countries. It is not unusual for a product to have travelled tens of thousands of miles by sea, air and road to reach the final consumers. According to Nadkarni, Herrmann and Perez (2011), products worth tens of trillions are exported by nations every year. So how has this unprecented level of international business been possible? Technology is the main driver of both societal and commercial globalization. The internet is the foremost technology that allows consumers to search for products from all over the world, send information and purchase all kinds of goods and services (Nadkarni, Herrmann and Perez 2011). The same web technology is used by companies to purchase raw materials and other supplies from foreign markets, and to distribute their products to overseas markets. The use of the internet and electronic computer technology to conduct transactions is known e-commerce or e-business. E-commerce enables the production and distribution of products from foreign sites. HP one of the leading computer server manufacturers has moved some of its operation abroad. To enable the production of cheaper computers, HP moved its design and production from the US to several Pacific Rim countries and India (Dixit et al 2011). With internationalized production HP reduced labour costs, taxes and delivery time yet design, building and distribution productivity was enhanced. The global dispersion of production and distribution allow companies like HP to be more competitive globally as they are able to eliminate inefficiencies in their international operations. Globalization has also shown that production of low-cost, high quality and reliable product appeals to consumers across internationally boundaries. World-standardized products carry favour whenever they are marketed (Özsomer et al 2012). Standardized products like Smartphones, computer software, computers and laptops appeal to people of different tastes, needs and preferences. For example, Japanese cars have continued to sell across global markets while South Korean TVs, music systems and micro-computers are popular with consumers across different regions of the globe. According to Nadkarni, Herrmann and Perez (2011), the success of international firms is dependent on standardization of products for one global market segment. Off course offering the same product to multiple market segments is a strategy that rarely succeeds. Global firms work to identify similar global segments to their most successful segments back home. Depending on a technology homogenised globe, international firms find global equivalents and are thus able to take advantage of economies of scale. Large scale standardization of goods for these homogenous segments across many countries takes place resulting in lower cost goods and a more competitive stance in both the home and foreign market (Halldin and Braunerhjelm 2012). Many business sizes and types are involved in international business from small retailer to retail giants like Wal-Mart and Tesco. Small businesses are involved in international trade through importation of products. Large businesses on the other hand may have production operations distributed across the globe. Unfortunately, global trade is still dominated by Multinationals from the world’s wealthiest nations who benefit from profits and taxes (Hayakawa, Machikita and Kimura 2012). However, second world firms from Brazil, India and China are joining in international trade. Small and medium enterprises are also significant players in international trade as technology has opened up international markets for all types of businesses. More businesses can now be considered multinational business as they have manufacturing or distribution subsidiaries in more than one country (Hayakawa, Machikita and Kimura 2012). Multinationals are considered a development force as they bring investment, jobs and tax revenues to country’s that host them. However, Multinationals carry huge risks to local economies especially when they decide to close or move operations rendering thousands jobless. Today, merger of multinationals with smaller companies from emerging economies is a common occurrence. Today, some global companies employ more people than the total population of some countries (Özsomer et al 2012). For example, Wal-Mart employs over two millions employees in its global operations. Many Multinational companies have enormous economic clout and would rank as wealthy nations if their annual revenues were compared with those of countries. The global marketplace offers more opportunities for small businesses and entrepreneurs to market their products. Technology assists companies to produce for exports earlier and small companies can grow rapidly to become huge exporters (Tanev 2012). Unlike in the past, small companies can access distant market through electronic distribution and marketing. The new technology comes with the advantage of being cheap and more effective than the traditional distribution channel. In addition, the cost of business communication has also reduced significantly allowing small companies to be more competitive. New business entities have also rose to cater for the needs of global markets. Some businesses are purely electronic with no brick-and –mortar offices to carry out traditional business activities (Tanev 2012). Many firms that aim to tap the global market opportunities are characterised by innovative culture and knowledge-intensive organizational capabilities. Many innovative global firms have arisen in developed economies and rose to become major competitors in the global market (Dixit et al 2011). Firms like Amazon, Google and Facebook were born out of internet technology and in just a few years are among the world’s most prolific firms. However, many small businesses are yet to realize the potential of export opportunities available to them due to globalization. Only 10 per cent of US small companies conduct some kind of exports business while over 20 per cent of medium and large businesses trade internationally (Felbermayr, Prat and Schmerer 2011). Many small businesses are still caught up in the assumption that its only large businesses that can participate in export trade. While small businesses face barriers such as lack of capital failure to export can only be owed to lack of innovativeness among their owners. International business can be distinguished from local businesses as they operate in a global business environment. A global business environment comprises of the forces of globalization, the international business environment, National business environments and international firm management (Hayakawa, Machikita and Kimura 2012). Thus the international business environment is much more complex than a purely domestic market. In the next section we will look at how each of the components of the global business environment influence internationalized firms. The forces of globalization affect both local and international businesses in countless ways. Two of the most important drivers of globalization are technology innovation and elimination and reduction of trade and investment barriers (Jankalová 2012). These forces influence most aspects of the global business operations. Since globalization make the entire world a common market, competition among internationalized businesses increases (Özsomer et al 2012). Thus globalization calls for managers to be constantly aware of commercial and social changes that may influence their position in the market. On the other hand, changes in the international business environment have the ability to influence firms’ operation both subtly and non-subtly. Since changes are felt across international borders, no business can escape events in the international business environment (Felbermayr, Prat and Schmerer 2011). In addition trade flows, investment and capital growth keeps changing meaning firms have to look out for changes in the environment that may affect their operations. International business managers must be aware about the diversity of culture, politics, economy and social attitudes across international boundaries (Jankalová 2012). These factors define how business can be conducted within the nation’s borders. However, the differences between countries are fading as countries open up to International businesses. Despite this some societies may be concerned about the spread of foreign influence through foreign firms. International managers must remain keen to note and consider any national factors that may influence their firms’ operations. International firm management is another major issue in the global business environment. Managing internationally is a vastly more complex task than managing a local entity. International businesses must abide by different rules in each of the markets they are allowed to operate. Operations in particular countries are therefore defined by the rules that touch on the company’s operation. For example, multinational companies have to deal with different labour rules in different national jurisdictions (Felbermayr, Prat and Schmerer 2011). This may make standardization of human resource management impossible throughout the firm’s labour force. In addition, international firms may be unable to control employees serving in widely distributed production and distribution centres. It is important for international managers to be knowledgeable about the culture and ways of doing business in the countries they are in charge. Close attention should be paid to forces of globalization, national and international business environment to ensure success. Conclusion We live in a globe were technology and removal of trade barrier has created one huge global market. Goods manufactured from the farthest flung parts of the world are consumed by consumers in equally far-flung parts of the world. A good inspection of the ordinary consumer goods we use each day will support the fact that we live in a globalized world. Globalized markets have provided opportunities for multinational firms to expand sales of their dominant standardized products to homogenous segments in foreign countries. Banking on the fact that market segments are replicated in almost every country, International enterprise have produced standardized products in massive quantities. However, even small and medium enterprises are becoming internationalized and a growing number export their goods and services to international markets. References Baffour Awuah, G, & Amal, M 2011, Impact of globalization: The ability of less developed countries'(LDCs') firms to cope with opportunities and challenges, European Business Review, 23(1), 120-132. Dixit, S., Ojanpera, T., van Nee, R, & Prasad, R 2011, Introduction to globalization of mobile and wireless communications: Today and in 2020. In Globalization of Mobile and Wireless Communications (pp. 1-8). Springer Netherland Felbermayr, G, Prat, J, & Schmerer, HJ 2011, Globalization and labor market outcomes: wage bargaining, search frictions, and firm heterogeneity, Journal of Economic Theory, 146(1), 39-73. Halldin, T, & Braunerhjelm, P 2012 Born global firms–do they perform differently. Centre of Excellence for Science and Innovation Studies (CESIS) Electronic Working Paper Series, 269, 2-26. Hayakawa, K, Machikita, T, & Kimura, F 2012, Globalization And Productivity: A Survey Of Firm‐Level Analysis, Journal of Economic Surveys, 26(2), 332-350. Jankalová, M 2012, Business Excellence evaluation as the reaction on changes in global business environment, Procedia-Social and Behavioral Sciences, 62, 1056-1060. Nadkarni, S, Herrmann, P, & Perez, PD 2011, Domestic mindsets and early international performance: The moderating effect of global industry conditions. Strategic Management Journal, 32(5), 510-531. Özsomer, A, Batra, R, Chattopadhyay, A, & ter Hofstede, F 2012, A global brand management roadmap, International Journal of Research in Marketing, 29(1), 1-4. Tanev, S 2012, Global from the start: The characteristics of born-global firms in the technology sector, Technology Innovation Management Review, 2(3). Read More