Using an example of an MNC from an emerging market, present an analysis of the opportunities and threats that globalisation creates for decision-makers. What are the main lessons international business managers can learn about the interplay between home and host country differences in achieving success?
Opportunities of Globalization
International business is high on air ever since the concept of globalization has dominated the mindset of the traditional businessperson. The traditional form of business was only restricted to the national level business, which was only related to the international countries for the means of having exports and imports of goods (Werbach 2013). Globalization has brought revelation in the mindset, which has resulted in producing attraction towards foreign trade centres. Many of the companies are now heading to the international countries by means of cross border relations. This happens with the help of Merger & Acquisition. However, globalization has also brought some challenges to such companies as it has several barriers in the way of doing business into the foreign companies (Brush 2012).
Walmart is an American based Company that operates in multiple formats such as hypermarkets, grocery stores and discount department stores. Sam Walton founded it in the year 1962. At present, the Company has approximately around 12,000 stores and in 28 countries. It is noteworthy to mention that Walmart is the largest Company of the world in terms of revenues. It is also the largest private employer in the world (Help.walmart.com, 2017).
This assignment helps in understanding the challenges, which are bound to happen with the globalization. It also educate on how to analyse the success potential of the host country and the foreign country. It also put some important knowledge towards the opportunities and threats, which the globalization produces in front of the decision maker.
Globalization brings many possibilities to an aspiring Company in its targeted country as it narrows down the distance gap in between the places. For example, China and India are two potential markets that are changing the trends for the global market with their powering GDP. This is for such reasons that most of the foreign companies are being attracted towards these regions for the sake of their revenue enhancement and the dominance in their respective industries (Verbeke 2013). However, both China and India are tough place to have foreign businesses because of several different reasons. India is a tough place for the foreign companies because of the expected protests from some of the extremist political parties in the name of nationalism. However, the fact is something different. They just fear of English and foreign people by thinking of the British Age in India. Acquiring a land for setting up plant in India is very tough as numerous political parties do campaigning against the project. For example, Tata intended to have its plant in the Singur, which is in West Bengal; however, it did face a severe opposition from a political party called TMC. China is bit different to India, as it is politically stable; however, the local government policies and the state run union are strong barriers to the foreign trading in the country (Buckley and Ghauri 2015).
Threats of Globalization
The above example shows that Globalization is a good prospect for the business enhancement; however, it also comes with certain challenges, which needed to be mitigated with utmost perfection of management. Following are the list of some of the opportunities that globalization brings to the multinational companies (Casson 2013):
- Expansion of market
- Expansion of customer base
- Enhancement of revenues
- Improvement of the GDP of both the host and the foreign countries
- Strengthening the relationships with the different market in the world
- Enhancing the product line
- Enhancing the economy of both the countries
- Provides a high number of job openings at different positions in different industries
- Strengthening the employability skills by providing the solutions to the employment related problem
- Forming a cultural bonding in between different countries
Despite of all the useful opportunities, which the globalization brings to the world of economy and the multinational companies, it also carries some threats with it. The threats, which it carries with it, make this difficult to the decision maker about making any decisions on the globalization. Probable threats can well be understood with the example of Walmart, which is the largest Company in the world in respect to the revenues. Walmart never gained notable pace in the country, which is the second largest country in terms of economy (Twarowska and K?kol 2013). After 18 years of their business operation in China, it has only 405 stores to its credit. One of the main reasons behind the failure did not understand the style of shopping of the China people. People in China are not always price driven. They are rather inclined towards those products, which reflect the local presence in it. For long-term perspectives, China is one of the most effective retail markets in the world of business. It is the second largest retail market in the world. Walmart in China holds only 2% of the market shares, which is surprising considering the fact that the economy if the country is at the second position in the world of market. The example of Walmart in China gives the best example of the threats, which the globalization can bring in front of the companies (Cavusgil et al. 2014).
Some of the threats in the way of globalization that can fill the decision maker with all sorts of fears are as follows (Wild, Wild and Han 2014):
The cultural values of the targeted country are one potential threat, which retards the decision of decision maker on globalization. Globalization provides solutions to the economy to the multinational companies; however, it also threats for the same that whether the desire would be achieved. The example of Walmart simply indicates the importance of cultural and social beliefs of the targeted country. Walmart failed in understanding the culture of the people in China. This resulted in a big loss to the Company, as the Company is still to leave any significant impression on the Chinese market (Dunning 2012).
Lessons for International Managers
Political parties are another worry for the decision maker in the targeted country for the globalization. This is because of the fact that the political parties play an important role in opposing the flourishing of any international business. For example, the political propaganda behind the set up plan of Tata plant in the West Bengal does present a perfect example of a political threat (Dunning 2013).
Time of entry is another potential worry to the decision maker as it is very difficult to identify the best possible time for the entry into the market. The product, which the foreign companies have come up might not find a favourable response because of the low down market of that particular product. For example, Televisions are best sold during world cups and several other major titles such as Open Titles of Tennis, Football World Cup, Olympic and many more (Dunning 2014).
This is another potential threat, which haunts the decision maker while planning for the globalized business. Companies are needed to have patience while their participation in the targeted country as success might not come as per the anticipation. Walmart again present a good example of a patience level. Despite their slow growth in China over 18 years, the Company is still optimistic about the fats that success can prevail anytime. They believe that China is a potential market. Time will come when Walmart would reinvent its stature in China (Enderwick 2013).
This is potentially one of the most effective factors behind the globalization process of the concerned Company. It is mandatory to have a planned success level while operating in the desired country for the enhancement of business. The short-term success means that the Company is eyeing on an instant response from the customers of the targeted country. On a same note, long-term success means that the Company is eyeing on a long inning in the targeted country. Walmart again present one of the best examples in this regard, which shows no sign of stoppage in the Chinese market despite of its slow growth during its span of 18 years in China (Ghemawat 2013).
This is one of the major problem and a threat to the decision maker on going for the globalized business. China in this context represents a perfect example of a legal proceeding that could even hamper the business. The local government policies in China are not favourable to the foreign companies. The local government policies are more in favour of the local companies that are performing better than the foreign companies are. Local governments try to foster the growth of local companies by allocating suitable and attractive places to the local companies. Infrastructure and location of a store plays an important role in attracting bulk participation from the customers (Hill, Cronk and Wickramasekera 2013).
It is one of the most effective factors, which pose severe threats to the decision maker before going to the global countries. It is not easy to analyse the economic stability of the targeted country as it is volatile and subject to change, which depends on several external factors such as political & legal rules that affect the GDP (Hitt, Ireland and Hoskisson 2012).
Home and foreign countries are very different to each other in terms of several external environments such as political factors, economy factors, social factors, technological factors and many more. International managers can learn from the example of Walmart, which is the largest Company in terms of revenues in the global world. Following are the factors that teach a lesson to the international managers who wish to be globalized in the world of business (Peng 2013):
The political factors in the home country are much favourable than the international parts of world. Most of the countries such as China, India, Pakistan, Bangladesh and many more give preferences to the local companies first. The political parties are supportive towards the local companies; however, they do not feel the same way towards the foreign companies. Walmart did not get any local favours from the government. In most of the Asian countries such as India, Pakistan, Bangladesh and many others, political parties are infused with the spirit of Nationalism. Moreover, this does not provide any easy place to the foreign companies (Jeston and Nelis 2014).
This is one of the strongest barriers to the development of foreign companies in the targeted country. Local governments prefer local companies and try to foster their growth. Walmart has seen the unfavourable action of a government in its China counterpart (Khanna and Palepu 2013).
This is one such factor that bridges a huge difference in between the host country and the foreign country. America is highly superior in technology, which opens up ample of options for moulding the buying habits of customers such as online form of shopping. Online shopping is growing with every passage of time. However, in the targeted country, the technology might not be that superior. It might be unstable, which is a threat to the flourishing of the Company in such region. People in Afghanistan, Syria and Lebanon are technically deprived. It teaches a lesson to the international business managers that technology is vital for the business, which they should never compromise for the means of globalization (McGrath 2013).
Economic stability is another concern for the globalization of the business. America has the strongest economy in the world, which is suitable for Walmart and any other companies to have a great scope in the home country. However, some of the emerging market such as India has unstable economy because of several government rules and regulations that hampers the flourishing of business in the country. International managers should think of this twice before going for the internationalization of their business. They might do better at home; however, they might not perform as per the anticipation in the international market. This is indeed wiser to take examples from few multinational companies and their performances in foreign and emerging market. Moreover, this would help the international managers in planning their globalization process with solid answers to all the probable barriers in the targeted country (Mobley, Wang and Li 2012).
- The first recommendation before thinking of the globalization would be to plan about the timeframing. The right time should be targeted prior to the globalization process. This can be achieved by considering the demand for the chosen product in the targeted country. For example, globalizing a business of ice cream at the time of winter is a big mistake.
- Mergeris another recommendation for the Company, which is intending for the globalization of its business. Merger provides solution against local problems and helps in understand the local flavour. Walmart had already suffered of lack of knowledge of the local culture of the Chinese people.
- The help of the staterun union in the targeted country is another point of recommendation for a successful globalization of a business. For example, the state union of China has anti-American feelings in them. However, Walmart had smartly turned them in its favour by aligning all its activities to the state run union. It helped Walmart in winning the preference of union body, which was one of the reasons behind their localization into the Chinese market.
- A plan for a long-termand short-term success is another key recommendation for the aspiring Company before going to the globalization process. Long-term planning is most preferred, which helps in being patient and sustenance performance of the Company. The profit may be accounted on an annual basis.
- The last but one of the most important parts of the recommendation would be to bring the localflavour in the product line. This is immensely required and very effective for winning the hearts of customers. Nevertheless, it also provides a solid platform to the foreign companies in the targeted country. Walmart failed in becoming local, which resulted in a slow growth of the Company in China. However, Amazon being an American Company is highly successful in India. It has become the ultimate choice of the Indian customers. Amazon also is the largest Company in the United States in terms of revenues.
International business is a good prospect for enhancing the business and improving the economy of the host country. However, it also produces many challenges to the international managers when they opt for going global for their business. Globalization brings numerous of opportunities to the aspiring companies. However, it also constructs several threats in front of the companies that are aspirants of globalization. Globalization has hampered the business of some companies such as Walmart in China whereas it has blessed some other companies such as Unilever in India. It depends on the international managers how they manage all the probable threats that are a part of globalization. Walmart is successful in Mexico and Brazil; however, it could not sustain the same success in China. The 18 years of their journey in China have not produced any substantial benefits to the Company. Moreover, the Company is yet to relive its earned reputation in other parts of world.
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