How Globalisation Complicates the Process of Business Management - Essay Example

? HOW GLOBALISATION COMPLICATES THE PROCESS OF BUSINESS MANAGEMENT AND YET INCREASES PROFITABILITY by 28 January How Globalisation Complicates the Process of Business Management and Yet Increases Profitability Introduction Globalisation is the source of multiple influences on business and financial activity. On the one hand, globalisation activity results in the emergence of new, attractive investment targets and opportunities. This is particularly the case of developing countries, which enter the global economy and open their borders to the rapid inflow of financial capital and high-quality banking services. On the other hand, globalisation is inevitably associated with the changes in competitive dynamics, which necessitate the creation and implementation of new business strategies and lead to profound shifts in management consciousness at a global scale. How globalisation drives profitability and complicates business management in international banking is a difficult question. The current state of research into the effects and implications of globalisation for business management and profitability is rather scarce. The main goal of this research is to analyse primary and secondary information in regards to the changes in profitability and business practices as a result of globalisation and internationalisation in the banking sector. Research aims and objectives The main research question is “how globalisation complicates global banking business and yet increases overall profitability for stakeholders and promoters for global banking enterprises”. The choice of the topic is justified by the facts that (a) the banking industry is the key vehicle of any country’s economic growth; (b) globalisation remains the key trend in the development of international economic and financial relations, and is likely to persist in the nearest future; and (c) the existing tensions between globalisation, business management, and profitability need to be remedied, to ensure that local and international banking institutions can utilise the profitability potential of globalisation to the fullest. The key objectives of the research are to: Define the scope and implications of globalisation for the business sector; Analyse the effects of globalisation on business management practices; Understand how globalisation raises profitability; Estimate the mechanisms behind globalisation, profitability, and management practices in the banking sector. Literature review The current state of research provides a wealth of information about globalisation and its implications for various economic processes. Much of what was written and said about globalisation revolves around the topic of macroeconomic policies, financial internationalisation, and the shifts in competitive dynamics. However, contemporary scholars display increased interest toward the issues of globalisation and its effects on profitability and business management in organisations. Recent studies and research findings provide useful information about how globalisation affects businesses and decision-making processes in the new, global reality. The significance of the relationship between globalisation and management practices cannot be underestimated. More often than not, globalisation in management reflects through the development and implementation of the universal global standards of professional decision-making. In this context, international accounting and financial standards are among the most frequently discussed topics in professional literature. Beke (2010) suggests that the adoption of international financial standards by firms leads to better profitability and improved quality of accounting practices and decisions in organisations. Furthermore, harmonisation and standardisation of management practices are the most regular consequences of using international financial standards by firms (Beke 2010). Ultimately, it is due to the use of international financial/ accounting standards that businesses spend less time and money managing their earnings and expenses (Beke 2010). Unfortunately, the benefits of globalisation for businesses are diminished by the difficulties with adjusting to new, global standards of financial performance (Beke 2010). These processes are particularly complex in the developing world (Beke 2010). Beke (2010) is correct in that globalisation complicates business management, as long as the process of arriving to international standards is extremely challenging and painful. These standards cannot be adopted and effectively used, unless organisations and the countries, in which they operate, have a well-developed institutional base (Beke 2010). In a similar vein, the development and expansion of the universal corporate social responsibility (CSR) standards is inevitably associated with serious difficulties in management. Anonymous (2009) writes that “despite trends towards globalisation, many companies continue to operate in an environment where laws and regulations are established on a national basis” (p.125). The effects of these management complexities are two-fold: on the one hand, businesses that fail to adopt the global vision of CSR will have scarce opportunities to expand their operations worldwide; on the other hand, adopting these principles requires significant investments and subsequent changes in the national approaches for managing organisations. This is, probably, one of the reasons why enterprises and organisations may be reluctant to shift toward the global standards of doing business. These, however, are not the only problems of globalisation. Wisma (2008) suggests that the rapid growth of international partnerships increases economic uncertainty at a global scale. Businesses fail to adopt a new, global mindset, being excessively concentrated on their bottom-line (Wisma 2008). Other problems in business management include piracy and cyber crimes, terrorism threats and global economic instability, as well as incompatibility of national technological systems and the lack of effective transportation and communication channels (Wisma 2008). The creation and adoption of these business solutions require a profound shift in business and management consciousness, which is problematic, challenging, costly, and extremely difficult to realise. Resistance is a regular issue with new business management practices. The lack of cultural compatibility adds complexity to the situation (Wisma 2008). These are just some of the problems scholars discuss in the context of globalisation and its effects on management. The whole picture looks rather gloomy and unpromising. Nevertheless, globalisation has already proved to be a reliable driver of increased profitability within organisations. That globalisation is the source of unique financial and business benefits to organisations cannot be denied. More often than not, business enterprises perceive globalisation as the gateway to the new markets and business opportunities. According to Chandrashekhar (2006), internationalisation of businesses and their subsequent globalisation offer significant cost advantages. Organisations relocate their manufacturing facilities and activities to other countries, reducing their cost pressures and using additional profits to differentiate themselves from their competitors (Chandrashekhar 2006). Non-economic benefits of globalisation include the development of information-related climates, which reduce the costs of information transfer internationally and, as a result, raise profitability indices in business (Chandrashekhar 2006). Globalisation opens new and expands the existing business frontiers. More often than not, businesses perceive globalisation as the source of new investment opportunities and a productive driver of financial innovation (Norback & Persson 2008). Globalisation encourages and favors mergers and acquisitions, and results in the creation of the new business forms, which fit in the new conditions of global business performance and, simultaneously, leads to increased profitability and competitiveness in the long run. Norback and Persson (2008) write that mergers and acquisitions are a distinctive feature of globalisation in business. In their opinion, globalisation facilitates the process of entering international markets, acquiring international business assets and using them to enhance organizations’ performance (Norback & Persson 2008). Ultimately, globalisation creates new diversification opportunities in business; the latter, in turn, reduces business uncertainty and, consequentially, raises the chances that business profitability will improve in short and long-term perspectives (Rodrik & Subramanian 2009). The current research supports a thesis that firms can become more profitable if they choose to go global, adopt multinational organisational forms, and diversify their business portfolios (Loth & Parks 2002). In light of this information, the relationship between globalisation and profitability is mediated by a multitude of factors, from whether businesses use or not use available business opportunities, to the ways businesses choose to diversify their business decisions and acquire new assets. Simultaneously, the topic of globalisation and its implications for profitability remains severely under-researched. As a result, it is imperative that the effects of globalisation on profitability and business management practices be analysed and understood. Methodology The study utilised the benefits of the qualitative survey methodology. Twenty managers of national and international banking institutions participated in the study. Informed consent forms were signed, prior to administering survey forms among the research participants. Senior and middle managers from the leading European banks gave their written consent to participate in the study. No personal information was provided or used for this research. The names of the banks and managers’ titles and credentials were kept confidential. Based on the aims and objectives of the study, a short qualitative questionnaire was created, to survey managers about their perceptions of profitability and business management practices in conditions of globalisation. Each questionnaire included six questions, provided in Appendix 1. The aim of the qualitative survey was to understand how globalisation complicates business management practices but raises profitability in the international banking sector. Results Of twenty questionnaires sent to the study participants, nineteen questionnaires were returned. Of those returned, two questionnaires had only four answers to the six questions included in the questionnaire form. As a result, seventeen questionnaires were used to analyse the study results. The prevailing majority of the participants (15 of 17) agreed that globalisation was a unique source of competitive advantages for banking facilities and organisations and replied that, in general, globalisation had significantly improved their performance. Twelve respondents asserted that their banks encountered serious management difficulties as a result of globalisation, with those difficulties mostly originating from the need to adopt international standards of organisational performance, to exploit international financial markets, and to develop a new, global mindset. Two respondents also mentioned cultural resistance to globalisation among their workforce. Fourteen respondents noticed that globalisation increased their profitability, but nine of them also noted that an increase in profitability was a long-term consequence of globalisation. Ultimately, all seventeen respondents agreed that globalisation would remain the key trend in the nearest future, and the banking industry would have to adjust to the new conditions of continuous learning and intensive competitive dynamics in the international banking services. Discussion The results of the study almost fully support the hypotheses and assumptions in previous research. That globalisation complicates international business management practices and decisions has long been established by scholars (Beke 2010; Wisma 2008). However, how exactly globalisation complicates the situation in business management was never fully understood. This study adds to the existing knowledge about the relationship between globalisation and management practices: it appears, that the adoption of international banking standards, exploration of the new financial markets, and developing a new, global mindset. Workforce resistance to globalisation and cultural changes in banks was among the principal causes of complexities in business management systems in the banking sector. Simultaneously, the study confirmed a belief that globalisation is a unique source of new business opportunities and has a potential to increase profitability in the companies, which choose to go global (Chandrashekhar 2006; Rodrik & Subramanian 2009). However, increased profitability in the international banking sector is, mostly, a long-term consequence of globalisation. Business management complexities and difficulties partially explain these results: most probably, banking institutions require some time to adopt international standards of performance and develop a new, global vision of business reality. These difficulties lead to soaring profits and increased costs of knowledge transfer to the global level of organisational performance. In the long-term periods, these changes result in increased profits and improved competitiveness. However, these theses and assumptions require further investigation and analysis. Conclusion/ Limitations Globalisation complicates business management but increases profitability in organisations and banking institutions. This study supports a positive relationship between globalisation and profitability and points to the factors that hinder the development of effective business management solutions in global business reality. The most common factors of difficulties with business management include the need to arrive to international standards of organisational performance, the need to explore and expand to new financial markets, and to develop a new, global mindset. Workforce resistance to globalisation can be potentially damaging to business management practices in banks. Simultaneously, globalisation provides a wealth of opportunities for increased profitability and improved business performance. However, increased profitability is usually a long-term consequence of globalisation in banks. This study is not without limitations. First, small sample size can potentially reduce the reliability and validity of the research results. Second, managers’ responses are not totally free from personal bias. Finally, the research does not help to explain HOW globalisation leads to increased profitability in the long run. Therefore, the future research must concentrate on the factors that mediate the relationship between profitability and globalisation in the international banking sector. References Anonymous 2009, ‘Globalization and CSR in Asia’, Asian Business & Management, vol.8, pp.125-127. Beke, J 2010, ‘Accounting management by international standards’, International Journal of Business and Management, vol.5, no.5, pp.36-44. Chandrashekhar, GR 2006, ‘Examining the impact of internationalization on competitive dynamics’, Asian Business & Management, vol.5, pp.399-417. Loth, T & Parks, T 2002, ‘The impact of foreign operations on organisational performance’, International Journal of Management, vol.19, no.3, pp.418-428. Norback, PJ & Persson, L 2008, ‘Globalization and profitability of cross-border mergers and acquisitions’, Economic Theory, vol.35, pp.241-266. Rodrik, D & Subramanian, A 2009, ‘Why did financial globalization disappoint?’, IMF Staff Papers, vol.56, no.1, pp.112-138. Wisma, M 2008, ‘Global business management: current trends and practices’, The Journal of Applied Business and Economics, vol.8, no.1, pp.96-109. Appendix 1 Questionnaire 1. Globalisation is a unique source of business opportunities – do you agree? 2. How has globalisation affected business performance in your banking institution? 3. Did your bank encounter management difficulties? 4. What were their reasons? 5. What were the effects of globalisation on profitability? 6. Do you see the future of the banking industry in globalisation? Read More