Impact of Globalisation on Value Chain
Describe about the Managing Value Chain for Development of Global Value Chains.
The development of Global Value Chains (GVCs) reflect on the globalisation strategies of the business institutions such that they tend to offshore the support and non-production functions along different international regions for helping in enhancing the level of its competitive potential in the international target market. The outsourcing of different functions associated to marketing, sales and distribution and in some cases the production functions contribute in both reducing the business and organisational cost and also in gaining the benefits of employing localised resources and skills for meeting of business and organisational objectives (Butollo, 2015). The restructuring of the existing businesses based on incorporation of outsourcing functions relating to the development of international production, marketing, distribution and sourcing units contribute in enhancing the level of competitive advantage for the firm. The GVCs to be successful however are required to operate in an integrated fashion for meeting the holistic objectives of the firm (MacDonald, 2014).
The paper focuses on reflecting on different considerations associated to the development of the Global Value Chains or GVCs. It also focuses on understanding the impacts of such considerations in influencing the global paradigm of the organisation’s value chain.
Competitive Advantage Considerations
Globalisation of the existing value chains generates competitive advantage owing to the development and incorporation of information and communication technology (ICT) based tools and processes. The use of ICT tools ideally contribute in automating supply chain and logistics functions, development of applications like computer aided tools for designing of products and different components and also the development of production equipments that would operate in an automated and computerised fashion. The development of the above processes would contribute in the flow of needed information along different parts of the global value chain in a faster fashion and also requiring reduced governance. Further, the development and use of internet technology also contributes in reducing the barriers of entry of firms to enter a foreign market and also gain enhanced participation in global value chains. However, the above attributes in turn may create new barriers and risks for entry of further new firms in the market (Zúñiga-Arias, 2007).
Further, globalisation of value chains also contributes in enhancing the level of competitive advantage through the development of outsourcing initiatives by the firms involved in manufacturing and assembling industries. The manufacturing and assembling firms focus on enhancing their potentials regarding product development and marketing functions while outsourcing the procurement and manufacturing functions. Further, the larger sourcing and supplier firms in turn outsource the sourcing functions to other small and medium suppliers. The above processes ideally help in enhancing the economies of scale for the manufacturing and production industries. Firms gain competitive advantage in terms of enhancing product diversity and assortments and also based on their focus regarding development of the existing branding efforts through considerable marketing and promotional functions. Further, the growth of intangible functions associated with growth of fashion and design trends, innovation of new types of products and processes and also novel brand identities rightly requires the growth of division of labour and specialisation (Federico, 2006).
Competitive Advantage Considerations
The globalisation of the value chains are observed to help the exporters gain effective access to financial resources than other firms that tend to operate in an isolated fashion spread over a global network. The availability of finances to exporters is due to the presence of increased credit across the different parts of the global value chain. However, the emergence of events like global financial or liquidity crisis tend to transfer financial shocks across the international production and supply chain network that in turn tend to dry up the sources of credit for the exporters (Warrier, 2011).
Further, apart from the lack of availability of financial credit the firms also tend to suffer from lack of potential capital owing to factors like the existence of short-term credit and also the increasing cost of loans. The costs of the loans are essentially influenced by two prominent factors like the rate of interests charged on the loans and the requirements for different types of collaterals. Existence of high amount of interest rates signifies that potential investments containing increased rate of returns and also having reduced risks are considered to be highly feasible in nature (Blyde, 2014).
Again, the existence of increased collateral requirements is observed to create problems for the small firms to apply and gain loans. Exporters operating across the global value chains are deterred owing to the lack of availability of needed working capital. The reduction in the availability of effective working capital confers greater risk to the exporting firms and also makes them face the difficulty for generating needed payments. The lack of availability of proper finances makes it difficult for the producers and the investors to generate considerable amount of investments for enhancing productivity through the use of different types of tangible and intangible resources (Raman, 2010).
The enhanced use of information technology in the development of global value chains contributes in the generation of needed value additions. The incorporation of information technology resources and infrastructure potentially contributes in development and generation of effective networks that is conductive for the development of Global Value Chains or GVCs. Use of effective technological applications for supply chain functions in the global value chains contributes in the generation of automated replenishment functions. Further, the use of technological systems like Point-of-Sales (POS) and other Enterprise Resource Planning (ERP) systems like SAP contribute in the development of agile supply chain systems that not only help in procuring the right quality and quantity of merchandises for generating customer satisfaction but also in reducing down the sourcing and storage costs. The use of information technology enabled sourcing and supply chain system makes the retail and other enterprises customer and market responsive in nature (Smith, 2014).
Similarly, the development of electronic commerce and omnichannel marketing platforms contributes in helping the business enterprises reach a larger section of consumers in the target market. The retailers and suppliers can focus on the use of social media networking platforms and other applications like electronic mails to continually communicate with the customers and gain their feedbacks and suggestions regarding different categories of merchandises. It thus helps in sourcing the right pattern and design of merchandises that would contribute in meeting of consumer demands (Sehgal, 2010).
Moreover, the use of electronic procurement and sales systems also contributes in reducing the lead times for the merchandises to reach the customers from the end of the suppliers and manufacturers. The timely flow of information and suppliers through the use of the information technology mediums helps the retailers in making adequate and effective planning functions regarding diverse merchandise categories and thereby in reduction of storage cost and lead times. The incorporation of information and communication technology tools in development of Global Value Chains thus ideally contribute in the generation of needed competitive advantage (Li et al., 2006).
The development of Global Value Chains requires strategic developments to be introduced regarding the human resources dimension. The organisations are required to focus on integrating the strategic objectives of the firm with the human resources recruitment and training functions such that the right quality of personnel can be hired and developed for enhancing the strategic competitiveness of the organisation. The hiring and training functions of the firms are required to be standardised based on global industry standards for gaining access to potential human resources (Palevich, 2012).
Further, the human resources that are focused on being recruited by the firms are required to possess multitasking abilities, skills and knowledge such that the same would help the firms in reducing manpower cost required for meeting the different types of business and organisational functions. The human resources policies of the firm are also required to encourage the individuals to communicate and collaborate with each other both through the use of virtual and physical mediums. Development of teamwork and networking between the human resources are required for helping in the fulfilment of departmental and business objectives (Morana, 2013).
The human resources department of the firm needs to focus on the development of a knowledge portal such that the same can encourage the employees for sharing their views, knowledge and experiences regarding different functions like sales and customer services and also regarding different products and business policies. The development of the knowledge portal can thus help in making the employees operate in an updated fashion regarding the meeting of business and customer servicing objectives in an effective fashion. The human resources department also needs to focus on the incorporation of effective motivation, appraisal, employee engagement, promotion and retention tools such that the same can help in attracting and sustaining potential employees in the business institution. Similarly, the business managers of different departments are required to work in an integrated fashion with the human resources manager for planning of the right kind of employee layout for adequately meeting the objectives of the firm (Wang, 2012).
The functioning of the firms and industries along the global value chains are required to be conducted in a flexible fashion to match the cultural needs of different regions. The cultural parameters are required to be evaluated based on the employment of cultural models like that of Hofstede’s Cultural Dimensions.
The Power Distance paradigm of the Hofstede’s Cultural Dimensions model ideally reflects on the power distance culture between the subordinate and higher organisational authority of the firms. Some cultures reflect the existence of higher power distances while some as reduced power distances as the prevalent work culture of the firms. Likewise the firms operating in the GVCs are required to ideally reconstruct their organisational culture relating to the prevalent power distance culture of the regions (Luo, 2013).
Secondly, the Hofstede Model also reflects on the parameter of Singularity and Collectivism wherein in some regions the employees are encouraged to work based on a team culture while in others they were encouraged to work in an individual fashion in meeting of departmental and institutional objectives. Likewise, the firms operating in the GVCs set up in different regions are required to ideally match with the singularity and collectivist culture for designing the work groups in meeting of unit and institutional objectives.
The third dimension of the Hofstede Model reflects on the parameter of masculinity and feministic work culture wherein the organisations operating based on the masculine culture essentially encourage the employees to fulfil their personal ambitions and career drives. The feminine work culture reflected by certain firms operating in specific regions reflects care of employees for their colleagues and peers operating in the firm. GVCs operating on a regional basis are thereby required to ideally imbue the masculine or feministic culture as reflected by the regions in terms of carrying out the institutional and business functions (Nair et al., n.d. ).
Fourthly, some organisational cultures reflect the meeting of short-term goals while other organisational cultures essentially focus on highlighting and meeting of long-term business and institutional goals. Likewise, the GVCs focusing on operating on diverse regions are required on designing the business and organisational policies for adequately meeting of short or long-term business goals on a needful basis (Dekker et al., 2013).
Finally, some regions tend to reflect a risk aversive culture while some regions on the contrary focus on undertaking of business risks while aiming to meet the business and organisational objectives. Likewise, the GVCs operating in such regions are required to effectively incorporate the organisational culture for designing the business and organisational culture of the firms in being risk aversive or being ready to counter potential business risks (Dekker et al., 2013).
The global value chains or GVCs are required to be effectively integrated along the domestic economic systems of the diverse regions. Effective and potential links developed between the GVCs and the domestic economies rightly helps in the increased diffusion of the knowledge resources, technological potentials and technical know-how generated by the foreign investors. Foreign investors are observed to resist the formation of such integration and networking with the local economies owing to different types of constraints that tend to range from economic to technological parameters and also based on gaps regarding regulatory and policy paradigms, quality gaps regarding the merchandises sourced from local and regional suppliers and also other gaps associated with shortage of needed skills and availability of specialised workforce (Federico, 2006).
The socio-political and economic policymakers are required to focus on the development of such policies that would contribute in the intensification and growth of global value chains in the domestic regions. Effective policies are thus required to be designed by the local governments for attracting considerable amount of foreign direct investment (FDI) to the different sectors and industries. The investment attraction policies are required to be designed in an adequate fashion that does not tend to affect the situation of the domestic players. Similarly, the economic and social policymakers are also required to understand the impact of attracting GVCs on augmenting the living standards of the regional people through promoting growth of employment opportunities, increase in wage and compensation structures, development of economic conditions and also in enhancing of social and economic security. The integration of the GVCs with the domestic economies are also required to be essentially carried out regarding development of democratic, human and labour rights and also in promoting gender and social equality in the region (MacDonald, 2014).
Human Resources Considerations
The development of the Global Value Chains (GVCs) requires the fulfilment of corporate social responsibilities relating to the enhancement and sustaining of quality and safety parameters regarding sourcing and trading of products to the customers. The food and non-food products sourced and sold by the retail establishments are required to ideally meet the safety and nourishment standards as set by the regulatory authorities pertaining to the different regions. Further, the firms and industries operating under the GVCs are also required to potentially abide by the regulatory and legal mechanisms relating to trading of different categories of merchandises, employment laws and trading hours (Morana, 2013).
Similarly, the GVCs were also required in meeting the environmental objectives related to the development of Carbon Footprints for contributing in reducing the emission levels of carbon dioxide and other greenhouse gases from different factory, retail and distribution centres. CSR and environmental audits are also required to be conducted at the factory establishments and also by the suppliers for reflecting on the meeting of the different types of CSR objectives. The GVCs are required to focus on the development of the social and economic situation relating to the regions where it had set up its branches (Nair et al., n.d. ).
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