Impact of Globalization on the Growth and Expansion of Brazil - Assignment Example

?Globalization Table of Contents Globalization Table of Contents 2 0Introduction 3 2.0Globalization of company’s operations 3 3.0Rationale for globalization 4 4.0The target geographical location for expansion 5 5.0Brazil’s PESTLE analysis 6 6.0Impact of globalization on the growth and expansion of the company 7 7.0Advice to opponents of globalization 8 8.0Conclusion 9 References 9 1.0 Introduction Globalization has reached its maximum point in the last half century. The trend has elicited heated discussion from both the scholars and businessmen mostly focusing on the importance and impacts of globalization. From a broad perspective globalization is considered as the process in which countries enhance their interdependence in trade and other relations. Analyzed from a business perspective, globalization refers to the process in which domestic companies seek international markets to expand their operations (Intriligator, 2003). According to Michael (2003), globalization of a company is a powerful trend in the current global competitive market and is one of the major factors that influence the future growth of a company. Globalization of the world economy has made the world become a global village where anyone can get whatever he wants from any part of the world. Today a company’s employees, competitors and customers can come from any part of the globe. In addition to increasing the market, globalization has led to the development of many companies both local and multinationals and invention of new products, this has made the market to be very competitive and a number of companies find it hard to survive (Collier & Dollar, 2002). The following discussion will present the importance of globalization, expected challenges and explain why the company should go global. 2.0 Globalization of company’s operations Globalization of the world economy has increased both bilateral and international trade thereby opening up many countries for companies to venture into. Many companies such as our competitors have expanded their operations to overseas markets and have reported significant success in those markets. Before venturing into new markets especially foreign, it is important to have a perfect strategy that will help the company take over the market with ease. With our global market strategy in place, the company can adopt both cost leadership and product differentiation in order to properly position its products well in the market. Cost leadership strategy is the one being applied by our competitors and they have reported good performance with it (Britt, 2007). Over the last two decades, companies all over the world have gone global a move that is threatening the survival of the local companies. This has made it hard for these companies (local) to expand their operations and even some lose their market share. This is clearly evidenced in the company’s analysis report that reported a decrease in the company’s sales volume as a result of the move taken by competitors who have already ventured into foreign markets. In order to compete fiercely and regain its market share, the company has to outdo its competitors which mean engaging in aggressive expansion and marketing programs which will lead to the growth of the company. According to Mike Myatt, Chief Strategy Officer of N2growth, he states that the ability to do business in international market is an important necessity if one is to remain competitive in the current market. Operating a business in the international market is both a defensive and offensive play. Comparing the international market and the domestic market, it is with no doubt that international market is wide and majority of potential customers are living abroad (Myatt, 2009). Considering the move taken by our competitors and the success they have recorded in foreign markets and the dwindling sales in the local market, it is paramount for the organization to go global. 3.0 Rationale for globalization Globalizing a company’s operations in the current competitive environment is one of the major strategies of ensuring a company’s growth and survival. Some of the benefits that will accrue to this company as a result of globalization include the following; Market growth – from the analysis of the company’s sales, there was a decrease in market sales by 8% between 2005 and 2006. The local market has gradually declined as reflected in the reduced home renovations and furniture sales. This situation has been made worse by our competitors who are doing aggressive marketing and have developed product lines for retail stores. Venturing in to international market will help the company increase its market base and also tap the un-served market. However to succeed in the new markets, proper strategies must be put in place such as differentiation or cost leadership strategy. Increased competition – the industry has several high-end brands that present a threat to the survival of this company. The competitors have also adopted aggressive marketing strategy aimed at reaching many customers. In addition, they have also developed products for retail stores that give the low income earners an access to these high-end brands at a lower price. These companies have reported increased profits both locally and internationally and therefore competition is still expected to get tough. The implication is that it is important for the company to seek foreign markets where competition is less stiff or where there are no competitors. Increase in sales volume – the local market sales have declined as noted in 2005/2006. This to some extent can be attributed to the increased competition from other high-end brands. To regain the company’s lost ‘glory’ in sales, globalization would be a wise strategy since most of the potential customers are living abroad (Myatt, 2009). Availability of cheap raw-materials – as competition for the market increases, the same is extended to raw materials. The company requires raw materials especially timber to make its products. The company can seek to venture into foreign markets that offer ready market and where cheap raw materials are available. 4.0 The target geographical location for expansion The presence of an unsatisfied need or satisfied market creates a business opportunity. Availability of a potential and ready market is an important factor that every firm should consider when planning for expansion especially in foreign markets. With this in mind, it would be a great move for the company to expand its operations in Brazil. The choice for this location has been supported by the following arguments; Brazil is the largest country in South America and Latin America too and is ranked fifth in terms of population and size. The country has a population of about 199.321 million people. During the last 23rd congress of the Association of Furniture Industries from the State of Rio Grande do Sul whose theme was “People that Move markets”, it was reported that in 2012 the world furniture production hit $432 billion mark. Between the years 2004 and 2012, global production grew by 79.7% of which Brazil’s contribution was 3.8%. In import and export, Brazil represents 0.5% of the world total in both. According to Padro, Brazil’s furniture sector comprises of seventeen thousand productive units and eleven furniture clusters (Capistrano, 2013). During the year 2012, the sector produced 461 million pieces of furniture which was a growth of 6.8% from 2011. During the same year, the sector invested R$ 1.3 billion making the total investment from 2008-2012 to be R$ 4.3 billion. This year the sector is expected to grow by 8.2% in volume and 9.7% in figures from 2012. This projection is based on the performance of the sector from January to April this year. In addition, consumption of wood panels has increased by 34% from 2008-2012. However, exports have recorded a downfall cumulative of 28% since 2008 and it is still expected to decline as a result of exchange rate appreciation and limitations as a result of international crisis. The major destinations for Brazil’s furniture are Argentina (18%), US (13%), and UK (11%). Most of its imports originate from China (31%) (Capistrano, 2013). In addition to the above figures, Brazil is known to possess the world’s biggest extents of tropical forests. The forests occupy 357 million hectares (145 million acres), which is one-third of the world’s total forest cover. The country’s forest cover is more than all of Africa, Asia, Central America, and South America combined. 62% of the Amazonian forest is possessed by Brazil and around 70% of it is still unutilized (United Nations, 2013). This presents a valuable source of raw material (timber) for the country. 5.0 Brazil’s PESTLE analysis Political - Politically, Brazil has over many years emerged as the stable country in Latin America. The country enjoys political stability and the government has always developed and implemented sound policies that support the country’s economic growth. The political stability that the country enjoys has been a boost to the country, making it a suitable destination for institutional investors and foreign direct investments. Economic – from an economic angle, Brazilian economy is regarded as the most stable economy in Latin America. It is expected that the economy will grow to $3.17 trillion by the year 2017 reporting a 4.3% CAGR from 2012-2017. In addition, the economy has recorded low risk as a result of euro crisis. However, the country faces high interest and tax rates coupled with increasing inflation rate. Social factor - Brazil is the fifth most populous country in the world. The population not only offers a huge market opportunity but also provides a growing skilled labour force at low cost. The composition of this population in terms of classes is as follows; high class 11%, formal middle class 17%, informal middle class, 50%,and lower class 22%. The middle class is increasing and this will definitely increase the demand for the company’s high-end furniture (Galvao, 2013). Technology – Brazil invests heavily and constantly in technology with the total expenditure amounting to 1% o the country’s total GDP per year. This ensures there is constant technological advancement and progress in this field. The country has also developed its intercommunication channels such as internet allowing it to interact with the rest of the world. Environment – the country’s government has instituted sound policies and rules aimed at protecting the environment. For example the country is very keen on deforestation and it is reported that in 2010 deforestation reduced drastically by 70%. Manufacturing companies are made to sign and initiate eco-friendly techniques and processes of manufacturing. Towards this end, the government has signed agreements with developed states to jointly upgrade the Amazon basin and reduce deforestation. In addition, the country is also endowed with many natural resources that also contribute the growth of the economy (Galvao, 2013). 6.0 Impact of globalization on the growth and expansion of the company According to Mike (2009), conducting international business is the only way of ensuring the survival and the growth of the company (Myatt, 2009). Globalization has led to a market dynamic that encourages competition, calls for increased levels of efficiency and demands real knowledge in supply chain optimization. Due to this competition, any company intending to extend its market, it must have superior strategies and offering goods of superior quality. Internationalizing the company’s operations will expose the company to the outer world which will allow interactions with other giants in the industry. Through these interactions the company will be in a position to learn about new and efficient processes that can be implemented to improve the growth of the company. Companies expand their operations into foreign markets in various ways. There those who employ franchising like MacDonald’s, others use joint ventures or subsidiaries. It’s through these methods that many multinational companies venture in to new markets. The global economy today has become so competitive such that companies are no longer competing among themselves; instead they are forming supply chains that compete across the board. According to Thomas Friedman’s in his book The World is Flat, he notes that companies in China and India have become a component of the big global supply chains. Commenting on Friedman’s book, David Barnes, chief information officer of UPS, notes that, by 2010 firms will no longer compete against firms (Britt, 2007). Globalizing the company’s operations will imply that the company will join these supply chains that are already in place. This will be a big boost to the company since it will be easier to compete effectively, market its products using the supply chain’s mechanisms and also venture other markets easily therefore enhancing its expansion translating to sustainable growth. An organization’s growth is determined by its market share and its total revenue. The major reasons for globalization are to increase the market base and increase sales volumes. Mike (2009) observed that the largest numbers of potential customers are living abroad (Myatt, 2009). Noting the above factors, it is quite clear that globalizing the company’s operations will definitely have a positive impact on the company. The market share is expected to increase and as a result sales volumes will increase. 7.0 Advice to opponents of globalization Any plan no matter how good it seems to be will always have its ups and downs and critics will always emerge to oppose the implementation of such plans. Going global will not be a smooth sail, there are expected to be challenges such as inadequate funds, government regulations in the host countries, tax legislation, cultural and language barriers, to mention just but a few. These challenges will always be there and cannot hinder the company from going global. The problems are short-lived and a number of them like inadequate capital can be avoided through sourcing for more funds, but comparing the long-term benefits and these challenges, the benefits accruing are far much more for the company to shelve the intended expansion. With the globalization being the order of the day, it leaves no other better option for the company to pursue for it to achieve sustainable growth and increase its expansions. Anyone refuting this plan should read the expansion program of MacDonald’s. MacDonald’s is the largest fast food company in the world. In addition to offering a variety of quality products, the company has engaged in globalizing its operations mostly using franchising strategy a move that have seen the company establish its operations in most parts of the country. The move has not only improved the growth of the company but it has enhanced the expansion program of the company. Therefore, despite the number of challenges that the company is expected to face, globalization remains the only best option to ensure the company achieves a sustainable growth and profitability and attains a competitive edge. 8.0 Conclusion Globalization has become the common trend with companies intending to expand their operations. Companies go global for various reasons; the most common ones include; increasing their market base, wade off competition, look for cheaper raw materials, and increase their sales volume. The above discussion points out the best country or location into which the subject company can expand its operations to be Brazil. This country has a stable political regime that has supported the growth of the economy by implementing sound policies. The country has a large population that provides cheap skilled labor. In addition, the country’s economy has for a long time being stable and is actually the most stable and strong economy in Latin America. Globalization has emerged out to be one of the most effective strategies that a company can implement to enhance its growth and also achieve a competitive advantage. Through globalizing its operations a company increases its market share leading to more sales volume. The process also exposes the company to other giants in the industry from whom the company can learn from and acquire current and more efficient processes of producing goods. References Britt, D. (2007, September 17). Impact of Globalization in Creating Sustainable Competitive Advantage. Retrieved November 5, 2013, from Supply & Demand Chain: http://www.sdcexec.com/article/10289694 Capistrano, M. d. (2013, July 9). Brazilian furniture industry: 2013 Outlook. Retrieved November 4, 2013, from International Alliance of Furnishing Publications: http://www.iafpalliance.com/item/brazilian-furniture-industry-2013-outlook.html Collier, P., & Dollar, D. (2002). Globalization, Growth, and Poverty: Building an Inclusive World Economy. World Bank Publications. Galvao, A. (2013, May 1). Brazil PESTLE Analysis. Retrieved 2013 Intriligator, M. D. (2003). Globalization of the World Economy: Potential Benefits and Costs and a Net Assessment. Los Angeles: University of California. Myatt, M. (2009, July). The Impact of Globalization on Business. Retrieved November 4, 2013, from N2Growth: http://www.n2growth.com/blog/the-impact-of-globalization-on-business/ United Nations. (2013). Brazil Population 2013. Retrieved November 5, 2013, from World Population Statistics: http://www.worldpopulationstatistics.com/brazil-population-2013/ Read More