Globalisation Strategy for Companies - Coursework Example

Globalization of Companies Name Institution Course Date Globalization of Companies The process of globalisation typically is an inescapable phenomenon in the history of man which has brought the world closer since the era of early trade through exchange of commodities, culture and information (Rugman and Verbeke, 2004). Globalization has changed how businesses operate. This globalization has come in form of the transfer of technology, emergence of Multinational Corporation, and increase in foreign trade among others. As globalization has led to firms and people expand their access to markets, resources and products, it has also led to both positive and negative effects. During the last years, several barriers to international trade have been broken and a new wave of companies has pursued global strategies with an aim of gaining competitive advantage (Meghana, Beck and Demirguc-Kunt, 2003). Nevertheless, globalization does not work for all companies. Some industries benefit more than others and other countries have higher competitive advantage than others. Globalisation strategy for companies is therefore not an easy task for companies. Successful global strategies are created when executives and managers first understand the dynamic of a foreign market and the nature of the global industry’s competition (Meghana, Beck and Demirguc-Kunt, 2003). This paper will discuss the statement, “companies are under increasing pressure to globalise their operations”. It will first describe what globalization is and will highlight the advantages and disadvantages of globalisation on companies. The paper will also highlight using appropriate frameworks why companies are under pressure to globalize. Globalization can be termed as the changes that have taken place across the globe which encompass a shift from self-contained nations to integrated world (Banerjee, Carter and Clegg, 2009). Specifically, globalisation is therefore defined as the practice of integration of the globe into one market that offers several opportunities to many people and businesses with the removal of the trade barriers that existed among countries. Globalization in business refers to the change from operating in a single country to operating in multiple countries which is made possible by minimal trade barriers. Globalization has both benefits and limitations and they will always be here to stay (Hill, 2007). Local small enterprises in the developing countries may go bankrupt whereas the huge corporations in the developed countries dominate the economy. Companies are under pressure to globalize partly since they have recognized the benefits that come with the process. Globalization is beneficial to small enterprises. For instance, it is able to increase free trade within the small enterprises (Jagersma, 2005). Small enterprises are able to increase their market and customer base through implementing global operations. Companies are able to grow and expand and gain competitive advantage through going international (Jagersma, 2005). Although companies enjoy the benefits that come with going global, there are a number of challenges that can occur. For instance, multinational companies are accused of causing unfair working conditions as well as social injustices (Bernard et al., 2007). In addition, they are also accused of not taking care of the environment and often causes ecological and resources mismanagement. And due to this, their operations are made difficult by strict laws and regulations that govern their operations (Bernard et al., 2007). There are number stages that companies take when entering foreign markets. The first stage involve market entry where organizations try to access new market through different entry strategies such as export, licensing, foreign direct investment and joint venture among others (Renn, 2012). To access new markets there is need for a production presence depending on the nature of operation. The second stage involves product specialization where companies transfer their production process to a given location which is low-cost and makes it easy to export products to consumers (Renn, 2012). The third stage of company’s globalization process involves value chain disaggregation. Organizations in this step disaggregate the production activities in the most appropriate and effective locations. For instance, an organization may decide to manufacture different components of a product in different locations and assemble them in different location (Renn, 2012). The fourth stage of the globalization process is the value chain reengineering where a firm decides to increase its cost saving by reengineering their activities as well as processes in order to suit specific market (Renn, 2012). And finally, the last stage involves creation of new markets as a means of expanding market share. Most companies follow these stages before they can successful globalize their operations. One theory that explains the globalization process of companies is comparative economic advantage (Ball, 2006). According to the theory, due to natural benefaction, some nations and regions have more competitive advantage compared to others. For instance, Australia is more suited for mining industry. Other industries such as automotive struggle to some extend in the country. The United States is more suitable for agriculture industry. It has a vast temperate landmass that offers competitive advantage to agricultural companies (Luo and Tung, 2007). The more-wooded regions in the country offer advantage to timber-based companies. The role of a country is to offer a context in which companies can develop their resources as well as capabilities. For a country to gain competitive advantage, companies should broaden the foundation of their competitive advantage. According to Chi and McGuire (2006), although the initial resource endowments of a country is very essential for the success of global operations, companies that succeed overseas are those that influence innovation of a country and upgrade the available resources. The absence of a natural comparative advantage does not necessary mean that companies will fail overseas. Success in such countries requires companies to create their own relative advantage. Staples (2007) argue that the national competitive advantage is created and not inherited. It does not necessarily come from the nation’s natural endowments but from other factors such as labour availability and price, currency values, economic condition etc. In addition, a country’s competitive advantage may be created by the ability of a given industry to innovate and advance (Cullen and Parboteeah, 2010). A company may survive in a country with poor endowment if it has strong-based suppliers, financial capability and demanding foreign customers among others. In an era with increasingly global competition, countries have become more important and companies are under pressure to globalize its activities and operations in order to remain relevant (Cullen and Parboteeah, 2010). There are a number of reasons why companies enter foreign markets and globalize their operations. One reason that put pressure on companies to globalize their operations is to improve profits (Zou and Cavusgil, 2002). Many markets are not as competitive which put price pressures. Products in countries like the United States are sold at a higher prices compared to products sold in countries like Germany. In order for companies to enhance their profits, they may decide to expand in markets with higher competitive advantage (Kotilainen and Kaitila, 2002). In addition, other countries access new markets in order to increase sales. When businesses have succeeded in their local markets, they often decide to expand globally in order to improve their overall revenue (Bishop et al., 2011). When a company looks beyond the national boarder, there is a potential to increase its sales and revenue. Specifically, if an organisation manufactures a product that is not available in the international market, it will experience success overseas. Companies are also pressured to enter into foreign market due to the need to gain economies of scale (Chetty and Campbell, 2003). One entry method that is appropriate and effective in expanding a business that produces products with global acceptance is exporting. Companies are able to achieve higher scales of economy when they expand into new markets. Creation of economies of scale is possible when companies decide to integrate with foreign companies as an entry strategy (Kaplinsky, 2000). Companies can minimize their operating costs through consolidating value-chain practices which eventually creates economies of scale. Due to globalization and technological advancement, competition in the market has increased considerably. Companies therefore need to look for strategies in order to survive in the competitive environment (Zahra, Ireland and Hitt, 2000). Competitive strategies are methods in which different organizations utilize in order to gain further ground over the competitors with regard to business activities and operations. Without competitive strategies, a business is bound to fail. One competitive strategy that has been adapted by organisations is internationalization. Globalising operations is able to assist companies gain competitive advantage. According to Kotilainen and Kaitila (2002), organisations today are forced to expand their operations overseas in order to avoid being driven out of business. And as such, competition has put a lot of pressure on companies to expand into new markets. Other companies establish global operations in order to discourage local competitors. Many companies decide to access new markets in order to discourage the competitors from getting in the same space (Cullen and Parboteeah, 2010). For instance, the US companies like Airbnb and Square have their counterparts like iZettle and Wimdu in Europe. European start-ups exist partly since the US companies have not ventured their operations in Europe. Taking market leadership position in Europe will prevent other companies from venturing into the market (Ball, 2006). Other companies have gone global in order to match with their competitors. When a competitor goes internal along, it can plough back the benefits earned from the foreign market to the domestic market (Zou and Cavusgil, 2002). This would make it hard for other players to survive and enjoy substantial market share. For this reason, companies are pressured to pursue international markets. A domestic company would pursue global operation in foreign countries to prevent the competitors from obtaining larger market share (Zou and Cavusgil, 2002). Toyota has been in operation for many years and has grown to be one of the largest automotive companies in the world (Zahra, Ireland and Hitt, 2000). However, there are many automotive companies across the globe that can offer immense competition to Toyota Auto Group. Some of these companies include Mitsubishi Motors, General Motors, Tesla, Volkswagen Automotive, Ford and British Motors Corporation among others. Most of the competitors have expanded their operations in foreign markets in order to grow and gain competitive advantage (Zahra, Ireland and Hitt, 2000). For instance, companies such as General Motors and Ford started their global operations early on in the years which prompted other companies like Toyota to follow the suit (Zahra, Ireland and Hitt, 2000). In order to grow and be competitive, Toyota has expanded to different markets such as China, Saudi Arabia, France and Japan among others. Moreover, companies decide to globalize in order to access new potential customers. When an organisation has reached its ability to access customers at a domestic scale, opportunity for growth and for accessing new customers is available in foreign countries (Zahra, Ireland and Hitt, 2000). China for instance has developed over the years and has undergone industrialization for years. For example, Toyota Motor Company utilizes this mode of entry very often as a commencement of their international development. This is due to the lower risks that accompany them (Jagersma, 2005). This has been one of the finest methods undertaken by Toyota Motor Company in gaining entry and experience of new markets for example, into the UK and Chinese markets. This entry mode is advantageous to the company because of the economies of scale (Jagersma, 2005). China makes-up one-fifth of the global population and is geographical huge. Also, the country has a population of about 1.3 billion which makes the country overpopulated (Kotilainen and Kaitila, 2002). The country has tried to control its population by executing strict birth limitation policy but the population is still huge. It is therefore a potential market for Multinational Corporations that want to access new customers. A company that establish its operation in China is able to attract a large number of customers and expand its customer base (Kotilainen and Kaitila, 2002). Companies also globalise to have an access to affordable resources. A company that is aimed at offering services to a diverse market may benefit from a diverse workforce. This is only possible through global operations (Kraemer and Dedrick, 2002). In addition, manufacturing companies may establish their operations in a given region in order to get access to raw materials. One company that has done this is Dell Inc. Dell has established a global operation that serves markets like the United States, Australia, China Germany and Japan among others. In order to reduce inventory and increase speed, the company has decided to establish manufacturing plants in areas close to the suppliers and raw materials (Kraemer and Dedrick, 2002). Dell categorizes its manufacturing processes by regions. For example, it has a manufacturing plant located in Austin that serves North America as well as Brazil. The manufacturing plant in China serves regional markets of such as Japan, Limerick and also China (Kraemer and Dedrick, 2002). In addition, regional markets such as Europe, Africa and Middle East countries are served by Ireland plant. These manufacturing plants are in these specific regions due to raw material availability (Kraemer and Dedrick, 2002). In addition, companies are pressured to globalise their operations in order to reduce labour cost and access specialized staff. In an attempt to save on cost, some companies have established their operations in countries with cheap labour (Luo and Tung, 2007). Labour available makes companies expand into new markets. One company that has benefited from labour availability in China is Apple Inc. (Wilson, 2012). Apple operates in more than 16 countries such as China, United Sates, and Australia. It is considered to have the best global supply chain strategy. In order to save cost, the company has established a global operation in China. The manufacture of iPhone by Apple Company illustrated the strategy of the company to save on cost through global establishment. Apple’s iPhone supply chain is considered global. It has its research and development division in the United States with about 156 suppliers, retail outlets across different countries and assembly operations in China (Wilson, 2012). The reason for the establishment of assembly operation in China was to access cheap labour. The first phase of manufacturing and assembling of the iPhone was a challenging task. It was estimated that the company required about 8,700 engineers to oversee the assembly which could have taken nine months to find them in the United States (Wilson, 2012). Having an assembly site in China was beneficial for the company since it only took 15 days to find all the required qualified engineers which fastened the assembly work. In conclusion, globalization has offered an opportunity for companies o expand into new markets with few restrictions. Global operations bring about both positive and negative effects which impact the success of an organisation. Companies tend to globalize into stages which may result to successful global strategies. Not all countries are favourable for internalization and therefore managers should first analyse the favourability of a country before making expansion decisions. Due to increasing globalization and technological advancement, competition in the market has intensified. This has put pressure on firms to expand overseas. In addition, companies enter international market place with an aim of increasing sales and improve profits. 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