Globalization's Pros and Cons for Business - Assignment Example

Globalization Part-A. The new economy has brought success to many organizations. The organizations used technologies, new concept like focus, good values, quality services and efficient exchange mechanisms for satisfying customers' needs and wants, have been proved successful in each and every part of the world. In the present world where communication technologies and networking has changed tremendously and still changing very fast, forced businesses to change accordingly. The complexity and multidimensionality of the international business environment forced to the development of some frameworks trying to classify its components. Mascarenhas (1982) developed a perspective of multiple factors the multinational organizations faces due to environmental uncertainty and focused on foreign exchange uncertainty, political uncertainty, and employment problems. Hambrick (1982) divided the environment into four categories: administrative, engineering, entrepreneurial, and regulatory, and these categories in twenty sub-categories. Several other scholars contributed to the classification in two broad dimensions: task (competitors, customers, and suppliers) and remote (political/legal, social/cultural, technological, and economic) environment (Dess & Beard, 1984; Ebrahimi, 2000). More recently, Guisinger (2001), based on prior work, proposed the geovalent construct to comprised eight "mutually exclusive, exhaustive, quantifiable, and largely replicable" (Guisinger, 2000: 4) environmental dimensions and encapsulate some of the main features of the international business environment. But the concept of globalization has changed the entire environment of global business. The IMF defines globalization as "the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through rapid and widespread diffusion of technology." Mitchell (2000) defines globalization as "globalization for better worse, has changed the way the world does business. Though still in its early stages, it is all but unstoppable. The challenge that individuals and businesses face is learning how to live with it, manage it, and take advantage of the benefits it offers. The world economy has been emerging as a global or transnational economy. A global or transnational economy is one which transcends the national borders unhindered by artificial restrictions like government restrictions on trade and factor movements. Globalization is a process of development of the world into a single integrated unit. The transnational economy is different from the international economy. The international economy is characterized by the existence of the different national economies the economics relations between them being regulated by the national governments. The transnational economy is a borderless world economy characterized by free flow of trade and factors of production across national borders. Drucker (1990) in his new realties observed that in the early or mid seventies with OPEC and president Nixon's floating of the dollar - the world economy changed from being international to transnational. Globalization in its true sense is a way of corporate life necessitated, facilitated and nourished by the transnationalization of world economy and developed by corporate strategies. Globalization is an attitude of mind - it is a mind - set which view the entire world as a single market so that the corporate strategy is based on the dynamics of the global business environment. International marketing or international investment does not amount to globalization unless it is the result of such a global orientation. Supporters and critics of a globalization alike tend to agree that globalization is nothing new. There have been always degrees of economic, political and cultural interdependence. What makes globalization an issue today is the speed at which interdependence is growing. This is partly the result of unprecedented technological change, particularly in respect to transport and communication, and embrace foreign influences. Companies which have adopted a global outlook stop thinking of themselves as national marketers who venture abroad and start thinking of themselves as global marketers. A truly global corporation views the entire world as a single market. It does not differentiate between domestic and foreign market there is only one market, the global market. The new phase of globalization which started around the mid 20th century became very widespread, more pronounced and over charging since the late 1980'sby gathering more momentum from the political and economical changes that swept across the communist countries, the economic reforms in other countries the multilateral trade agreement which seeks to substantially liberalize international trade and investment and the technological and communication revolutions. Affect of globalization could be seen all round. Through it is an unavoidable phenomenon but it has been hotly debated topic also. Even through supporters and critics of globalization are in agreement that even globalization is nothing new and that it is primarily driven by technological change and shifting political attitudes, they are far from agreeing about the consequences of globalization and whether these are beneficial or harmful. While developing countries which, in the past, were against globalization, have wide opened their doors for globalization, many people in developed countries like USA are angry and against globalization. Globalization has changed the dynamics of whole businesses environment. With free trade and greater competition, countries and businesses with in them are encouraged to think, plan and act globally. Technology spreads faster; countries specialize in particular products and processes and thereby exploit their core competitive advantages. Both rich and poor, it is argued, benefit from such a process. Politically, globalization brings us closer together. Political ties help to stabilize relationships and offer the opportunities for countries to discuss their differences. However imperfect the current global political system might be, the alternative of independent nations is seen as potentially far worse. The globalization of culture is also seen as beneficial, as a world of experience is opened, whether in respect to our holidays destinations, or the food we eat, or the music we listen to or the movies we watch. Globalization has not only affected the external environment like socio-cultural, political, economic, regulatory, environmental and technological position of an organization but also affected the internal environment. According to Business week/Harris pole (2000), more than two -third American believe that globalization drags down US wages. A strong majority of the Americans feel that trade policies have not adequately addressed the concerns of Americans workers, international labor standards, or the environment. But due to globalization, productivity grows more quickly when countries produce goods and services in which they have comparative advantage. Living standard can go up faster. it has been almost accepted that the market economy and the globalization driven by [private enterprise tend to aggravate most of the harmful effects traditionally attributed to neocolonialism. the global dominance of industries by MNC is on the increase. Many countries are indiscriminate in liberalizing foreign investment due to pressure from influential countries. A number of countries allow high foreign stake even in industries where that is not really required and this could harm the interests of domestic enterprises of developing countries. Due to globalization, there have been a large number of cases of takeover of national firms by foreign firms. In some of these cases, the domestic forms are driven to a situation of having to handover the majority or complete equity to the foreign partners of joint ventures because of the inability of the home countries partners to bring in additional capital or some other incapability. Replacement of traditional and indigenous products by modern products, resulting in the ruin of traditional craft and industries and the livelihood of people in these sectors has also been happening in several countries. The business environment today, however, is vastly different earlier because of the restrictions; developing countries could be used as a dumping ground for obsolete products, including technology. But due to globalization, competition between MNC's and national firms made possible by the dismantling of entry barriers (and freeing of technology imports by national firms and added thrust on R & D by them), technological edge is an important determinant of success. In a more globalize and competitive environment, a firm can survive only if it is efficient. Companies all round world, including many large multinationals, have been cutting down the size of their human resources as one of the means to achieve cost efficiency. Globalization can succeed only if the economy grows very fast to absorb the displaced labor and the new addition to the labor force. The developing countries, in general have been disadvantaged by the international trading system. The adverse terms of trade led to economic loss for the developing countries. Multilateral trade liberalizations were mostly in respect of goods traded between industrial economies and those exported from developing to the developed nations did not benefits so much, despite the different problems and discriminations, there are chances of developing countries benefiting from trade. Basic trade theory argues that poor people gain from trade liberalization. Developing countries have a comparative advantage in abundant, low cost unskilled labor. If they concentrate on goods whose production is simple and labor intensive, greater integration into global markets should increase their exports and output, raising the demand for unskilled labor and raising the incomes of the poor relative to those of the non-poor. The countries on the higher rungs benefit most, but even those on the lower rugs should see poverty fall. And free trade should also help poor consumers-without trade protection, local prices should fall to world prices. Due to globalization, there should also be benefits for employment from a liberal financial regime. Removing restriction on capital flows should attract more FDI, creating more jobs for the poor by integrating them into international system of production (UNDP, human development Report, 1997, P.88). Critics of globalization argue that it contributes to growing inequality and further impoverishes poor nations. As an economics philosophy, globalization allows multinational corporations based largely in the USA, Europe and Japan to exploit their dominant position in foreign market. By exploiting low wage labor, companies are able to complete more effectively on world markets. Competitive pressures intensify and companies seek to cut costs further, this can put downwards pressure on such wages. In political terms, critics of globalization see the world being dominated by big business. Multinationals put pressure on their home governments to promote their interests in their dealings with other countries, thereby heightening the domination of rich countries over poor. Critics are less damning of the cultural aspects of globalization. They see the world dominated by multinational brands, western fashion, music and T.V. rather than globalization fostering a mix of cultural expressions critics suggest that cultural differences are being replaced by the dominant (western) culture of the day. At present the momentum within the global economy is for barriers to come down. This is having the profound effects on both multinationals and people of the world. Globalization based on the free play of comparative advantage, economies of scale and innovation, has produced a genuinely radical force in the true sense of the world. It essentially amplifies and reinforces the strengths, but also the weakness of market capitalism, its efficiency, its instability, and its inequality. If we want globalization not only to be efficiency - boosting but also fair, we need more international rules and stronger multinational institution (global policy without democracy speech by Pascal Lamy, EU trade commissioner given in 2001). So it has been evident that globalization has ultimately affected internal and external dynamics of an organization. Part-B. To counter the adverse condition and to enhance the benefits of globalization companies in different geographical areas with different strength & weaknesses must adopt the policy which may be more suitable for that particular organization. KPMG in the UK is a leading provider of professional services including audit, tax, financial and risk advisory. KPMG in the UK has over 10,000 partners and staff working in 22 offices and is part of a strong global network of members firms. In order to achieve result the company named KPMG one of the largest professional service firms (accounting firm) in the world has changed itself to counter the effects of globalization and to mitigate the effects occurred due to widespread change in the business environment. KPMG's profit in fiscal year 2007 was 447 million pound and is undeniably, a success story: yet this is a business facing an increasingly competitive environment on a global basis: and knew that it faced more in the future. Over the years the firm had grown, prospered and amalgamated with others to become a huge enterprise it was. From 1993 to 1997, Colin Sherman was the UK senior partner of KPMG and has been responsible for the review of strategy and the program of change that had taken place in the UK in the 1990's like many other partnership firms, KPMG has emphasized on powerful, influential individual partners, skilled in their areas of professional expertise and with strong personal relationship at senior level with clients. At the beginning of the 1990's a partner would typically had been a chartered accountant with 10-15 years of experience in the firm working and having specialist in areas like audit or tax. But apart from being a successful firm it has some problems like responsibilities within the organization were ill defined control system with lots of paradoxes, poor discipline & partnership structure and problem with the discipline structure of audit, tax, and consultancy and so on. In early 1990's the expectations of client were changing: however, they expected their advisors to understand the problems they faced and to be able to provide a range of services to meet their needs. In the process of change in 1995, KPMG announced that it planned to in cooperate that part of its audit practice dealing with companies listed on the UK stock exchange or in the regulated financial services industry. This move provided KPMG a competitive edge over its competitors. In one of the major initiatives, in 1996, a new UK board of PMG came into existence. Its brief was strategic rather than operational, with board members selected for their ability to contribute to the strategy of the firm. KPMG's move to become an advisory firm is about creating a clear a leading position in the market. In early 1997, Colin Sharman took over as an international chairman of KPMG. He was succeeded as UK senior partner by mike rake. Both knew that the challenge of change remained high. By late 1997, this was especially so because they knew that KPMG would face a major change in the structure of competition. Coopers and Lybrand and price water house, two of its major competitors had announced their intention to merge to form a partnership twice KPMG's size. In 1997, KPMG had practices in 156 countries through out the world; more than their competitors. In 1997, the view was that the main challenges for KPMG's international strategy into the millennium were two fold. The first was how to develop a coherent strategic approach to service delivery across the world, given the globalization of so many existing and potential clients. The second was many of the major opportunities for growth were in areas of the world in which neither KPMG nor competitors had well-established practices- for example, Eastern Europe. 'Standing still' was not seen as an option because, as competitors sought growth internationally, this would effectively mean loosing share and market standing in the eyes of international clients. A lack of growth would also, very likely, have implications on ability to attract the best people into the firm; slow growth would mean diminishing authorities- or at least perceived opportunities- to advance in the firm. Now looking at the compulsions of growth KPMG in 1997, has taken some global initiatives, project global was about trying to achieve a consistent international approach in management consulting project. The global tax vision was again, attempting to provide a consistent international dimension on the tax practice. KPMG has to look at the developing area of the world - Asia Pacific's tiger economies, the re-structured economies in Eastern Europe and dynamic growth there. Despite KPMG size, the major challenge was finding the money to spend for international development and information systems infrastructure. This included the development of a global knowledge management system, automation of audit systems and up to 100 million dollars on India and Eastern Europe alone. By the end of 1997, a new mission statement had developed from the values initiatives. KPMG is the global advisory firm whose aim is to turn knowledge into value for the benefits of its clients, its people and its communities. Now in continuation to its global vision, KPMG has developed quickly a more common international approach to IT, HR and marketing. As the international scene is changing fast, KPMG viewed that in terms of global development, the option of doing nothing was really not acceptable so merger with Ernst & young was on its way but finally after few months of negotiations this has not happened. Finally in 1998, an international executive team, with Paul Reilly, a US partner, as CEO, was appointed with responsibility for managing the global strategy. The team identified the following priorities in developing a global frame work: knowledge management across the world : and in particular means of ensuring that KPMG extended the frontiers of its shared knowledge; information technology on the global basis not only for purpose of control but also to share the knowledge upon which KPMG has to develop; global human resource policies and in particular international partner development; marketing and in particular KPMG's global image and positioning; finance and investment planning; and global communications both within the firm and outside. These priorities form the agenda for the first meeting of the international executive team (IET) in mid 1998 and they were priorities which continued to guide the global development. One of the major priorities that IET addressed was how to serve its global clients. At KPMG four global lines of business has been established and these are financial services, consumer markets, industrial and automotives and information, communication and entertainment. Within these global lines of business are 95% of KPMG's global clients. The role of international center at KPMG is to support the work on global clients and also to support targeting and proposals to win and retain more global clients by providing a central impetus to the energy and quality of such proposals. Now to provide best service to global clients in a globalize environment, KPMG formulated seven key practices to serve their global clients. The right team in the right place empowers all the global and national lead partners to draw at any time from the top rank people of KPMG anywhere in the world to meet the needs of global and national clients. This condition again force them to recognize that longer term international relocation may be the best solution and lead partners and key members of client service teams should be prepared for such moves. Sharing and applying knowledge of the clients business: lead partners and key members of the client service team have a responsibility to keep at the fore front of their line of business through attendance and participation in industry conferences, trade events, KPMG's business schools and other forum where industry expertise is developed and shared. Knowing the state of the relationships leads to understand the nature of relationships with clients and evaluate it on the basis of formal or informal, demanding or relaxed, social or business with carefully matched with culture and expectations of the clients. Systematic account planning has also been considered to all current products and services of KPMG to ensure the clients requirement must be fulfilled effectively. It has been found that clear and unambiguous personal targets are the foundation for success. It is vital KPMG should think and act globally. This is why at KPMG; an element of the financial remuneration of lead partners is now based on global as well as national performance. Looking at the need of the hour, a suit of collaboration tools is being made available to help client service teams such as web based software called k client provide powerful means of engagement management and communication with clients. Finally teams seek out and make use of the best practices. Apart from these globalization induced changes KPMG has restructured its traditional organizational structure. There are three major areas where KPMG business flourished and these are US, Europe and Asia - pacific. The restructuring facilitated that firm has transfer power from national practices to these three national partners. In the process of restructuring KPMG, has separated its consultancy practice from the rest of KPMG. As we are experiencing that global business environment is changing at a fast speed and to match with the speed companies have to formulate the strategies which should be flexible and easily adaptable. Restructuring of KPMG has posed a real challenge to KPMG. KPMG is not US dominated firm and three powerful countries are - US, UK & Germany dominating. But the cultural differences within these three and the audit has developed in these three is entirely different. Corporate finances are critical to KPMG in the UK but not in the US. Some European practices have successful legal practices in UK but not in US. These differences are barriers to globalization and hence regionalism makes sense. The firms which are dominated by us like PWC, EY, and Deloitte-Touch have more command and control but KPMG being non-US dominated have distinctive management practices. KPMG's greatest challenge is continuing to attract and retain the best people that are to minimize turnover of employees. At present a very competitive marketplace for talent, Clients are very much visible. In addition, KPMG has the challenge of aligning our talent with the best opportunities in the marketplace as it continues to drive the highest levels of quality and professionalism. At the same time, KPMG has to become more and more efficient. Complacency in today's risk management arena is no longer an option given increased volatility in financial markets, business cycles, and market needs. Organizations and the competitive environment also have grown more complex. Leaders face intense pressure to improve performance, reduce operating costs, and optimize revenue streams. Regulatory scrutiny has drastically intensified. Transparency in risk management practices in this business environment is paramount. Global companies are looking to risk and controls management to become more strategic and forward-looking, with a focus on creating, as opposed to merely preserving, value. References: 1. Business week/Harris pole (The survey result were published in Business week, April 24) 2000. 2. Dess. G. & Beard, D. 1984. Dimensions of Organizational Task Environments, Administrative Science Quarterly, 29: 52-73. 3. Drucker, Peter, F. (1990), The new realties, London, mandarin, 1990. 4. Ebrahimi, B. 2000. Environmental Complexity, Importance, Variability and Scanning Behavior of Hong Kong Executives, International Business Review, 9: 253-270. 5. Global policy without democracy speech by Pascal Lamy, EU trade commissioner given in 2001 6. Guisinger, S. 2000. A Curmudgeon's View of the Discipline of International Business, paper presented at the Academy of International Business, Phoenix, AZ. 7. Guisinger, S. 2001, From OLI to OLMA: Incorporating Higher Levels of Environmental and Structural Complexity into the Eclectic Paradigm, International Journal of the Economics of Business, 8: 257-272. 8. Hambrick, D. 1982. Environmental Scanning and Organizational Strategy, Strategic Management Journal, April & June, 159-174. 9. Mascarenhas, B. 1982. Coping with Uncertainty in International Business, Journal of International Business Studies, 13: 87-98. 10. Mitchell, Charles, 2000, International Business culture, California, World trade press, P.37. 11. UNDP, 1997, Human development Report, P.88 Read More