Discuss how globalization and doing business globally are important issues for the contemporary organization.
This section focuses on how globalization and doing business globally are important issues for the contemporary organization.
- The challenges that globalization creates for the business is elucidated in this report
- The meaning and significance of global business is also explained in this study
- The different stages in the phase model of the globalization and the strength as well as weaknesses inherent to each stage is reflected in this study.
- The challenges or issues that occur in the firms while doing business in the international market is also explained in this study.
- The first section highlights on the meaning of global business
- This second section focuses on the stages of the phase model of globalization. The four stages of the globalization phase framework involves- exporting, cooperative contract, strategic alliance and wholly owned affiliates. The strength and weaknesses of each stage is also explained in this part.
- The third section elucidates on the issues that the organization faces while doing business in the global market. These issues involves-legal, language, political, cultural, cost of resource and moral standards.
This part reflects that globalization has both strength and weaknesses. In fact, it not only creates issues but also provides huge opportunity for the contemporary organization. It also shows that although doing business globally creates challenges for these organizations, it also aids in expanding the business globally. However, the need for effective strategy and proper planning by the businesses is recommended in this part.
Global business signifies the enterprise that is dong business across the globe (Peng 2016). With the advancement in technology and expansion of international trade, the business becomes incentivized in selling products as well as services in the international market. It has been opined by Dunning (2014) that, operating business on the global level facilitates the companies to reduce cost, expand share in the market and become highly competitive. Global business facilitates the organizations to access new customers as well as markets. Wider market reach and customer base increases the potentiality of the business in making higher sales and profit. Thus in turn benefits the enterprise to expand their operations into the international markets. Apart from this, global business also increases the competition within the enterprise. As the companies enter the international market, it faces huge competition from the local businesses. However, for gaining higher market share and outperform rivalries, global business are forced to innovate new products of better quality and sell it at relatively less price (Folsom et al. 2012). In addition to this, effective strategy adopted by these businesses also helps them to sustain in the competitive business environment.
Globalization not only impacts the people, enterprise, workforce and customers but also all other aspects including transactional as well as cultural relationships. The phase framework of globalization indicates the stages that the enterprise goes through while selling the product in the global market. The phase framework of globalization mainly begins with exporting and then develops through cooperative contracts stage and strategic alliance to the wholly owned affiliates. It has been found by some researcher that, every enterprise does not follow phase model stages and thereby skips many stages. According to UKEssays. (2018), the enterprise might effectively change the selling of products or services from the domestic orientation to the global orientation by following every stage of this phase model. Exporting is considered as simplest stage of this model as it the less costly method for the enterprise to initially move its product to the global market. However, this stage has been considered as the best approach of expanding the business in the global market. Thus, the four stages of this phase globalization model are illustrated below:
Exporting-Recent evidences reflect that global trade has steadily grown at higher rate as compared to nation’s productivity. Export means selling of domestically manufactured products to the customers in the international market. The main strength of exporting is that enterprises become independent on the domestic market for the sale of the products. However, selling overseas benefits the companies as potential market becomes bigger. In addition to this, strength of this stage is that it helps the enterprise to keep control on the production quality. On the contrary, the risk associated with exporting is increasing barriers in trade, higher financial cost, larger political and legal complexity (UKEssays. 2018). For example, although the fashion industry in Australia exporting their clothes designs internationally helps them to expand their business globally, the cost of shipping increases the product price. Thus, the exported goods become highly expensive and competitive.
Cooperative contract- This stage of this model mainly consists of two generally used kinds involving- Franchising and Licensing. Licensing refers to an agreement where the domestic enterprise or licensor attains royalty payments in order to permit another enterprise or licensee in producing licens. Hanley and Pérez (2012) opines that the utilization of licensing in the industry increases the risk gap. For example, as the licensor gives up their control over product quality or service sold by international licensee, this licensee becomes rivalries. For example, an Australian company Telstra using the licensee stores is located in most cities as well as shopping centers. Besides this, the organizations also have the franchising options. Franchising is basically collection of the companies where the producer and franchisor licenses the business to other enterprise or franchisee. On strength of franchising is that operating system becomes recognized with brand that has been licensed as franchisee. Moreover, the franchise system utilizes precise way to service their customers. But the risk associated with franchising is greater as compared to that of licensing. The franchisor is basically not obliged to renew franchise where the goodwill of the business reverts to their franchisor. In fact, there are some franchises that have restrictions in those places where it might operate the business.
Strategic alliance- This phase refers to the agreement where the enterprise combines vital resources, risk, individuals, technology and costs. Over the last few years, strategic alliance has become more important in global economy. Strategic alliances are mainly of four kinds including- equity and non- equity strategic alliances, strategic alliance, joint ventures and worldwide strategic alliances. Joint ventures has been most general forms of this strategic alliance in which it includes- several enterprises and people in partnerships for specific purpose. The major strength of strategic alliance is that the firms holding complementary assets choose joint venture as means of entering the host market (Warner and Sullivan 2017). On the contrary, this stage involves some risk that includes- clash of enterprise culture, dealing with the conflicting strategies as well as corporate values and cost of coordination. For example, a joint venture recently occurred was merger between vodaphone and 3 mobile that falls under joint enterprise of VHA. VHA basically markets its services and products under the brand of Vodaphone but retains rights for using 3 brand in Australia.
Wholly owned affiliates-This is the final stage of this phase model. These enterprises are basically foreign offices and producing plants, which are owned by parent company. The main strength of this stage is that the parent enterprise gains profit and hence has control over internal facilities. On the other hand, one major risk of application of this stage in business is expenditure of purchasing existing business or developing new operations. In some circumstances including the enterprise specific assets, the wholly owned affiliates might decrease risk of opportunistic partners behavior in some uncertain business environment. For example, MEPAU an Australian enterprise is the wholly owned affiliates, which makes its investments in the New Zealand and Australian energy industry. If this company succeeds, then the payoff might be huge while if they fail the losses also become immense.
Doing business globally is generally the worthy attempt, but it brings with it several issues. Although these companies have the ability to sustain these issues, some of these offset the profit. Although there has been increase in globalization of the business as well as commerce, this poses several issues to the business seeking foreign presence. As a result, numerous strategic aspects are considered in order to sustain in the competitive marketplace. These challenges or the issues that occur in the firms while doing business in the international market is discussed below:
Legal issues- the enterprise doing business globally are sometimes forced to pay extra taxes as well as import duties while importing from other nations (IvoryResearch.com 2018). In addition to this, as the legal issues of the global business is challenging, it leads to fines as well as penalties without appropriate legal advice.
Language issues- Barriers in language is one of the negative aspect of doing business in global market. One of the issues that the global business faces in the recent years is communication. Language barriers occur within several international businesses for doing their business in the global market. It has been opined by Piekkari, Welch and Welch (2014) that, as communication is highly dependent on language, it impacts the business operations of the enterprise. If the executive is from the abroad and do not speak local language, this reinforces huge barriers between this executive and other employees in the organizations. In this case the business then relies on the translators when making the business contracts. However, the intricacies of the contracts are lost while doing this translation. In addition to this, if the business outsources its customer service to another nation, then these customers might struggle in understanding the individuals whose local language is different from their language.
Cultural issues- Varied cultures having different values impacts the performance of the business. It has been evident from recent facts that gender inequality becomes problematic in nations where the women are not provided equal opportunities or rights as that of men. Furthermore, as different styles of marketing in different nations differ, cultures creates huge problem to the business (Ferraro and Briody 2017) Additionally, there are some cultures that do not take contracts seriously and hence this adversely affects the business operations. Therefore, most of the business implements various methods in order to learn cultural intricacies while doing business globally.
Compliance and regulations issues- The consulting organizations that provide services to the multinational enterprises, it creates issues as they have to follow different rules as well as regulations which governs it products and services (Smallbusiness.chron.com. 2018).
Political issues-This is one of the vital challenges that the business faces while doing business in the international market. Political issues signify adverse business consequences owing to the policies adopted by the government or other public sector enterprises. Political issues are also represented in the forms of corruption practices. (Smallbusiness.chron.com 2018). For example, an enterprise might lose contract owing to unethical dealings of government. In addition, if the organization becomes involved in abuses of human rights in other nations, then the companies might attain bad reputation. In order to reduce the political risk, enterprises respond by lobbying the government.
Cost of the resource issues- Enterprises entering the overseas market requires financial investment as well as rise in manpower. Timescales also creates several issues in the organization. As the cost of resources increases while doing business globally, the overall business cost increases. Now a- days, the enterprise takes long- term view as well as build proper timescales into their budget projections.
Inconsistent morale standards- One of the key issues that global business faces at present is maintenance of local ethical standards (Shaw and Barry 2015) The companies doing business in the international market might have inconsistent morale standards as the resources hired might lack ethics.
It can be seen from the above study that although globalization and doing business globally creates issues in the contemporary organizations, it also benefits these enterprises through tax incentives, international partnerships, proper business environment and increases in growth of business. For mitigating these issues, these organizations should make appropriate plan in choosing the location. This in turn benefits the enterprise to make smooth transition while expanding its global footprint. Moreover, the four stages of the globalization phase model also have immense affect on the business. As each stage of this model inherent its risk level, it is necessary for the enterprises to implement these phases in strategic manner. However, the leaders of the organizations should make conscientious planning and adopt effective strategy while doing business globally. In addition to this, they should also analyze the target market and competitors before adopting any practices in the business. Thus, it might help these enterprises to improve their operations while doing business in the global market.
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