Globalization - Positive and Negative Impacts on International Business - Assignment Example

? International Business Table of Contents Globalization 3 Multinational 4 Glocalization 4 National 5 Differences between Globalization, Multinational, Glocalization and National 5 Positive and Negative Impacts on International Business 7 Selection and Formulation of Strategies 12 Business-Level Strategies 18 References 23 Globalization Globalization is the procedure of extending social relationship across the globe. These extensions used to arise from the movements of ideas, things and people. The term globalization cannot be defined in terms of integration or internationalization. Globalization depicts the interaction across several cultures of different macro-social forces (Dasgupta, 2004, p.214). These forces include economics, religion and politics. Globalization can corrode and globalize the characteristics and individualities of a local cluster. Globalization is the scheme of interface among the economies and countries in order to develop and grow the global economy. The term globalization has been increased since the mid of 1980s. In the year 200, the IMF have identified four fundamental aspects of globalization, such as dissemination of Knowledge, Trade and Transactions, migration and movement of human beings and capital and investment movements. Moreover, several environment challenges like, cross-boundary air and water pollution, climate change, and over fishing is directly and indirectly linked with globalization. Globalization has able to influence and strengthen the power of several intuitions, such as World Bank, International Monetary fund and World Trade Organization. The global business outsourcing has significantly increased due to the globalization. Several countries face challenges as they tend to maximize positive outcomes from globalization. They did not bother about the minimization of necessary elements. Due to globalization, the control of consumers over the suppliers from other foreign countries gets weaker. Multinational A multinational corporation is a corporation, which is registered in more than the host country. The multinational corporations both manufacture and sell products and services in various countries (Gitman and McDanniel, 2008, p.52). Moreover, the multinational corporations have business operations in more than one country. The first ever multinational corporation was the East India Company. These multinational corporations play an important role in globalization. Business practices of multinational corporations in several countries can overcome the unemployment problem of the nation. Moreover, it helps to increase the GDP growth rate of a country. Multinational corporations can have exerted controversial political and economic power in some countries. As a result, critics have viewed these multinational corporations distrustfully and sometimes seek to have host countries inflict restrictions on them. Accountability is also a challenge for Multinational Corporation. These organizations’ annual revenue over and over again exceeds the Gross Domestic Product of several developing countries. It will affect the financial and economic structure of a country. Glocalization Glocalization is a combination of both the terms globalization and localization. It is a business terminology for the adoption of goods and services to each culture and locality in which it used to sell. This term and process is very much similar to internationalization. This term was first introduced in late 1980 in global market. The increasing restaurant chains in global market is an example of globalization, but the change of menus in several countries in order to attract the people of particular countries is an example of Glocalization (Hesselbach, J., 2011, p.2). Organizations, individuals and households are trying to maintain the social networks that used to combine the long-distance and local interactions. The declaration of particular locality, such as a state or a city or a town is used to consider as a world territory, with rights and responsibilities on a global scale. Before implementation of Glocalization process, the multinational organizations need to conduct effective market research in the specific country. It takes huge time period to conduct market research as the researcher has to analyze economic, political, social, legal, environmental and technological aspects of a country. National National Business is a bunch of commercial activities that used to conduct within a commercial entity or a nation. The national business conducts the economic transactions inside the border of a home nation (Miller, 2012, p.596). A domestic or a national business particularly has the advantage that, the business organizations have to deal with the local customs, local rules and regulations, local tax system, local people, local currency and local socio-cultural activities. Differences between Globalization, Multinational, Glocalization and National Globalization, Multinational, Glocalization and National these four terms have several important impacts on the international business. In order to achieve the objective of the study differences between these four strategies have been described below. Globalization is the procedure of extending social relationship across the globe. These extensions used to arise from the movements of ideas, things and people. Globalization depicts the interplay across several cultures of different macro-social forces. These forces include economics, religion and politics. Globalization can corrode and globalize the characteristics and individualities of a local group. In terms of Multinational, a multinational corporation is a corporation, which is registered in more than the host country. The multinational corporations both manufacture and sell products and services in various countries. Moreover, the multinational corporations have business operations in more than one country. Glocalization is a combination of both the terms globalization and localization. It is a business terminology for the adoption of goods and services to each culture and locality in which it used to sell. This term and process is very much similar to internationalization. National Business is a bunch of commercial activities that used to conduct within a commercial entity or a nation. The national business conducts the economic transactions inside the border of a home nation. These are the definition and the differences can be easily rectified. Globalization takes mass demand of global market into account, where Glocalization integrates both Globalization and Localization or National and operates within a global and domestic niche market. Localization or nationalization takes the demand of domestic market into account. Multinational Corporations can use the above strategies in order to achieve success in both global and domestic market. Globalization process only considers the quantity of a product. Glocalization process considers quantity and value of a product in order to sell the product in large quantities with superior quality. In terms of Nationalization, the domestic or the Multinational Corporation believes in Value and quality in a product. Greater globalization may result falling costs of Trade. In terms of Nationalization or Localization Higher Trade Costs can separate the competitive market. In terms of Glocalization, a glocal goods or services cane face huge competition from both international and domestic brands in a better way as it fulfils several local demand at lower cost. Organization’s high global edge is very much responsible for this. The organizations can achieve cost benefits from standardization process. The international business faces competition from the successful and established National brand. Glocalization represents high notoriety of a multinational corporation. For an example, McDonald’s has established its restaurant chain in several countries. It is an example of globalization strategy. Doing business in more than one country of McDonald’s is an effective example of Multinational. Preparing food menu and serving food items according to the local traditional culture of particular country is an example of implementing Glocalization strategy. Coca Cola had acquired the leading soft drink company named Thumbs Up in early 1980 in India in order to get the established customer base, target market, supply chain and source of raw materials easily and effectively. This is an example of Nationalization of Coca Cola. Positive and Negative Impacts on International Business Globalization, Multinational, Glocalization and National; these four terms have several negative and positive impacts on international business. Positive Impact of Globalization on International Business Due to globalization, the selling and purchasing of goods and services has increased around the globe. In order to be competitive in global market, government of several countries have upgraded the level of technology. It has only occurred due to globalization. Moreover, globalization has helped to influence the multinational organizations. Large and leading organizations refer to the nations where the subsidiaries reside as congregation countries. Globalization has a significant impact on the rising multinational organizations. Globalization has able to influence and strengthen the power of several intuitions, such as World Bank, International Monetary fund and World Trade Organization (Siriner and Nenicka, 2009, p.135). The global business outsourcing has significantly increased due to the globalization. Countries like India, China and Philippines have tremendously benefited by the help of global business outsourcing. Globalization allows several countries to source the manpower in limited cost. Last but not the least; globalization has played a major role in order to influence several civil societies like the NGOs around the globe. Due to globalization, the speed and distribution of global aid has been increased significantly. Negative Impact of Globalization on International Business Several countries face challenges as they tend to maximize positive outcomes from globalization. They did not bother about the minimization of necessary elements. Due to globalization, the control of consumers over the suppliers from other foreign countries gets weaker. Countries used to outsource with the help of globalization in low-cost. Therefore, the quality and quantity of employment in a country may get decreased. It may create unemployment problems. Due to globalization several environmental challenges may be created as globalization is highly responsible for the depletion of natural resources, drastic climate change and despoliation of the environment. Moreover, due to globalization Fiscal, monetary and regulatory differences may be remained. Positive Impact of Multinational on International Business The positive effects of multinational corporations reach the business, individuals and governments with varied and substantial impacts that have personal and financial implications. The positive impact of multinational corporations, whether the outside or inside of a MNC is an ongoing debate to a global discussion. Business practices of multinational corporations in several countries can overcome the unemployment problem of the nation. Moreover, it helps to increase the GDP growth rate of a country. Government influences the multinational corporations as it helps in FDI. This foreign direct investment has helped in job growth in several developing and third world countries. Current Issues of Multinational on International Business Multinational corporations face many several issues regarding profit maximization, meeting market demands, and adapting technological changes. The multinational corporations should follow current trends and events of various countries where they used operate. Political restructuring in South Africa, China’s economic liberalization, and socio-cultural trends in Europe are the effective examples of incidents that are important in order to operate in these countries. Accountability is also a challenge for Multinational Corporation. These organizations’ annual revenue over and over again exceeds the Gross Domestic Product of several developing countries. It will affect the financial and economic structure of a country. Multinational corporations can have exerted controversial political and economic power in some countries. As a result, critics have viewed these multinational corporations distrustfully and sometimes seek to have host countries inflict restrictions on them. Concurrent hard works to endorse free trade and protect domestic industry from overseas competition are one of the most serious issues in international business today. This dispute nearly derailed the GATT Uruguay Round consultation. Logical property rights are other vital issues. Global business is delayed when companies fear that their trademarks, copyrights and industrial secrets will be violated in foreign countries. Countries which fail to protect these rights may be avoided, and thus may suffer from limited foreign investment and access to cutting border technology. Environmental guard efforts are another global business issue. In the business background, this matter centres, in part; on the scope of natural resources in less developed countries need to be exploited for the advantage of developing and developed countries. Positive Impact of Glocalization on International Business There are several positive and negative impacts of Glocalization that may or may not be influence the international business. There are several significant advantages of Glocalization. This process helps the multinational organizations to attract the customers more effectively. It makes the business process more flexible and helps the multinational organizations to maximize their business profits. For an example, as it is discussed earlier that establishing restaurant chain in several countries is the example of globalization process of McDonald’s. Creating menu and serving foods according to the tradition of those countries is the example of Glocalization. Moreover, by this Glocalization several multinational corporations have adopted different countries ethical laws and regulations. It helps these organizations to avoid ethical issues and ethical costs. Organization ethical laws, labour laws, land policies come under the business ethics laws. Negative Impact of Glocalization on International Business If any multinational corporation tries to implement Glocalization process in business practices, they have to face several challenges which are highlighted below. Before implementation of Glocalization process, the multinational organizations need to conduct effective market research in the specific country. It takes huge time period to conduct market research as the researcher has to analyze economic, political, social, legal, environmental and technological aspects of a country. The multinational organization needs to invest huge capital, skills and determination in order to conduct the market research. Therefore, it is feasible that this process is not time consuming. Moreover, if the Glocalization process does not bring success to business then it will be total waste of time, capital and hard work. Therefore, it is highly recommended that the organization should carefully analyze the international market place in order to implement the Glocalization process. Positive Impact of National Business on International Business There are several positive impacts of National or Local business on the international business. For an example Coca Cola is a leading multinational company. In the early 1980 the organization has decided to expand their business practices in India. At that point of time, a domestic company Thumbs Up was the market leader in the soft drink industry. It was difficult for Coca Cola to achieve maximum percentage of market share. Therefore, they had decided to acquire the business of Thumbs Up. It became profitable for both the National and Multinational Company. In terms of the multinational company, here Coca Cola can operate successfully in Indian market. Coca Cola had already got the established client base, effective suppliers, key resources, employee strength and all kind of required business aspects of Thumbs Up. Moreover, they have started sell Thumbs within the umbrella branding of Coca Cola. Beside of these, Coca Cola had able to sell the other products considering the established customer base and target market. It is an effective example of positive impact of National Business on the International Business. Joint venture with Local or domestic business or acquiring a domestic business is profitable for the Multinational organizations. Negative Impact of National Business on International Business An established and growing national business will always have a negative impact on the international business. As a domestic business have several advantages. The business organization has only to deal with local clients, local laws and regulations, local tax structure, local people, local customs and local currencies. Therefore, it is difficult for the international business to adopt the cultural, environmental, political and economical changes in several countries. Moreover, the Multinational organizations may have to face several political, legal, environmental or economical challenges from the Domestic firm in terms of global expansion. At the end of the day competition is the key factor and it is sure that the Local business always enjoys the competitive advantages over the multinational corporations. Selection and Formulation of Strategies International marketing can be described as the process through a company looks to enter the international market. The company looks to make the products available to the international or foreign customers. Companies are usually to look to enter the international market to expand the business. In this section different international strategy formulation would be discussed. Also case studies would be used to analyze different barriers to entry aced by companies while entering the international following certain strategies and how the companies managed get over the barriers. Multinational Strategy Formulation When a company starts to focus and target consumers located in more than one country with special emphasis on each of the targeted markets, the company can be called as a multinational company. Such companies are likely to have manufacturing units or even sales offices, subsidiaries or franchises in various countries. Examples of such multinational companies are Samsung, LG electronics, Pepsi, etc. However, here it is to be added that the efforts of such companies are not coordinated. For example Pepsi India has no coordination with Pepsi China although both of them are a part of the same multinational company. In 1998 the president of PepsiCo got a letter from one of the leaders in BJP Mt. George Fernandez. The letter was actually a strict warning about how one of the major rivals of Pepsi had to leave India. The letter also stated that if Pepsi decides to enter the country the fate would be the same. However, Pepsi did not change the plans of entering the country. Pepsi also started a strategic alliance with the R P Goenka (RPG) group and submitted a proposal to the government. But the proposal was rejected by the government based on two major grounds. In the mean time the strategic alliance had also ended. But Pepsi did not lose hope. The company submitted another proposal to the government. Add to that the company started to setup vegetable and fruit processing plant in the Zahura village of Punjab. This type the company used another approach. The company stated that Pepsi was well aware of the social and political unrest of Punjab. But the company also knew there are various progressive farmers in that part of the country. Pepsis stated that the processing unit provides source of income to youth and the people of Punjab. This will reduce the unemployment. Thus the company would play a big role in reducing terrorism. Also in the process India embraced the LPC policy in 1990 and the Pepsi entered India as Pepsi India was formed. Globalization Strategy Formulation The main focus in case of formulation of globalization strategy is on allocation of resources on global basis without segmenting the corporate (Like Pepsi India and Pepsi china). Resources, manpower, company philosophy, objectives are formulated on global basis. But all these are done keeping local needs in mind. According to experts such companies identify the similarities and relative differences and adopt a global view point. Such companies adapt to the local conditions and modify the offerings as per the need of the respective local customers. One such example is of Ranbaxy. Ranbaxy Laboratories Limited is a pharmaceutical giant. The company was founded by Dr. Gurbax Singh and Ranjit singh. The company remained mostly as a local business company till 1990. But things stated to change once Parvinder Singh became the CEO of the company. Under the leadership of Parvinder Singh the company started to go global. Parvinder Singh started to expand the business in UK, US, Asia through joint ventures and acquisitions. Ranbaxy had stated a joint venture with a company called Eli Lilly in 1993 in India. Those products were marketed in Nepal, Srilanka and India. This was the first step towards globalization. Soon the company formed another joint venture with Guangzhou China Ltd to from Ranbaxy Guangzhou Ltd (RGCL) in China. In 1995 the company acquired a Thai pharmaceutical company called Unicher and formed Ranbaxy Unicher Co. Ltd (RUCL). The company used to import more than 45% of the products from India. Today Ranbaxy has top class manufacturing units in seven countries such as India, Malaysia, china, USA, Vietnam, Nigeria, and Ireland. The foreign manufacturing units are mainly developed to meet the needs of the local customers. But the Indian manufacturing unit is used to meet the needs o the global agencies. Some of the agencies are FDA-USA, MCA-UK, and TGA-Australia. Such agencies have thoroughly monitored and approved the manufacturing units of the company. The units are also registered the products for quality, safety and efficacy. Mr. Singh also saw a huge potential in the European market. The European market was quite attractive due to the high health care costs and aging people. In order to make account of this opportunity Ranbaxy started a subsidiary in the UK namely Ranbaxy UK in 1996. Ranbaxy also acquired another company called Rima Pharmaceuticals in UK to sell some generic products in UK. Ranbaxy entered the market in US through subsidiaries such as Ohm Laboratories Inc and Ranbaxy Pharmaceutical Inc. However, the company made sure that such expansion activities do not affect the company philosophy and culture. The international operations of the company are extended in four regions such as India (the main base), Middle-East, Europe, Africa, CSI, South America, North America and Asia Pacific (Wenderoth, 2009, p. 359). Glocalization Strategy Formulation Glocalization is a combination of globalization and localization. This term first appeared in the articles submitted by economists from Japan. Glocalization can be described as the tampering of the effects of the local condition on the global force. It is the interaction between the local and global dimensions. Glocalization calls for an organization to think globally, but act locally. Glocalization is mostly visible in the global food market, automobile industry, publishing business etc. In this case the Glocalization business strategy of McDonalds in India has been discussed (Henry, 2008, p. 89). As India embraced the LPG policy the international food chains tried to enter the virgin yet highly potential Indian market. In the year 1996 McDonalds entered India through a joint venture with two companies: Hard Castel restaurants and Connaught plaza. McDonalds India developed special menu to target the vegetarian population of India. The company also focused on the fact that it does not offer beef or Pork. McDonalds offers items made from chicken, fish and vegetable products. This showed that the company has respect for local culture. The company also focused on the needs of the local target market. The market segment of McDonalds was- parents visiting with children, teen agers looking for a place to hang out; Business customers may order products for office parties. While developing the marketing strategy in India McDonalds considered some basic areas. These included- the while eating out market including the restaurants, pubs, hotels, etc. The company also focused on the fast food restaurants providing food products like sandwich, chops, etc (Nargundkar, 2010, p. 275). The last t the most important sector targeted by the company was the burger house sector. This included burger king, Wendy’s, Wimpy as well as other small burger outlets. The company broke down the long term objective into small term milestones. The products offered McDonalds’ included Tikki Burger, Mc-Aloo, McPuff, Veg-Pizza, Chicken Mcgrill. This way the company was able to target both vegetarians and non-vegetarians. The average price of the vegetarian products ranged from Rs. 20 to 48. The non-vegetarian items were ranged on the higher side (on average 45-50). McDonalds mainly relied on advertising and promotions. Mainly the company targeted the kids. Also the company came up with various loyalty schemes to attract customers and increase loyalty. The outlets of McDonalds’ were very well spread, especially targeting the places near malls or theaters. The company believed in franchising when it came to expansion. The employees of the company have standard uniform. The employees are friendly and believe in providing prompt services to increase customer satisfaction. Here it is to be added that the company focused on training and development to ensure that the employees understand the corporate culture of the company. It is also believed to be a corporate culture. The manufacturing process of the company is quite transparent. The whole process is made visible to the customers. Add to that the end product is delivered to the customers by making sure that the hygienic standards are met. The products are also delivered in a prompt fashion. The company looks to make the services tangible through attractive interior designing and excellent employee decorum. McDonalds had understood that the people of India are very much close to the culture and social values. Therefore the company focused on various activities to give something back to the community. One of the most famous activates included Ronald McDonald House (RMHC) to improve the health conditions of the children. All in all the company focused on building brand, crating awareness, developing mad maintain relationships that would lead to increased sales and market share. National Strategy Formulation National strategy focuses on only home country market i.e. the domestic market. Most of the companies start as national or local companies targeting local or national level customers only. However, it is to be added that national markets have become saturated. If a company carries out business within boundaries only then the company had to deal with domestic as well as foreign companies. The product development and distribution strategy of such companies depends upon local customers only. Such companies adapt for of an ethnocentric approach. Business-Level Strategies Strategy has been derived from the Greek word called ‘Strategia’. Strategia means the art and science used by the troop leaders to gain competitive advantage. In the context of modern business strategy can be defined as the science and art of developing, implementing, monitoring, evaluating and controlling a set of cross functional business level decisions to achieve desired organizational objective. The Porter’s Generic strategy model is one of the key business strategies used by several companies round the globe to identify key strategic concepts. This model was invented by Michael Porter. The two main strategic concepts are competitive scope and competitive advantage. In section of the study looks to provide a basic understanding of the model as well as to provide an insight as far as the implementation of the model is concerned from the international business perspective. The four basic strategies identified are cost leadership, differentiation, focus and differentiation focus (Brown, 2009, p. 209). Cost Leadership Strategy The cost leadership strategy is the low cost producer in an industry for a certain level of quality. In this case the company sells the products at an average industry price or below a price than that of the competitors to earn high amount of profit. Such strategy is adopted by marketers targeting a broad market. Some of the possible ways the companies earn cost advantage or leadership is through gaining access to raw materials at a low cost, optimal outsourcing, gaining process efficiencies and vertical integration. Companies that are able to gain cost leadership usually enjoy various strengths. Some of the strengths are being discussed as followed. The companies enjoying cost leadership may be able to gain access to the capital needed to make investment in the assets related to production. Such investments may act as barriers to entry to companies looking enter the industry. Add to this the company may be able to achieve skills needed to design products to conduct efficient manufacturing and efficient and robust channels of distribution. However it is to be added that each generic level has certain risks. Cost leadership strategy is also not an exception. One of the threats of adopting cost leadership strategy is the possible threat of price war that may affect the company as well as the industry and the customers. One of the prime examples of firms using the cost leadership strategy is the largest retailer in the world; Wal-Mart. Wal-Mart is the largest and lowest cost suppliers of many products. Walmart is known as EDLP i.e. Every Day Low Price. The retail giants are able to achieve cost leadership by such innovative pricing strategy. This helps the company to gain economies of scale. This also acts as a barrier to entry. However, this needs to be added that Wal-Mart has a huge variety of goods. Therefore the company does not sustain incur losses by flowing the EDLP strategy. Differentiation Strategy Differentiation Strategy is the development of products or services that provides unique benefits to the customers. Customers perceive such products as better than the competitors. The reason for such perception is due to the value added by the unique attributes of the products. The companies following such strategy may have the luxury of using premium pricing. The extra profits gained by the company help in recover the added cost incurred by the company during the production of products having unique features. Companies following differentiation strategy enjoy strengths in the form of access to better R&D, high business and consumer reputation for better quality and innovation. The risks associated with the companies following differentiation strategy is that the limitations may occur due to the changes in the customer tastes. One prime example of companies following the differentiation strategy to great example is Nike. The product offered by Nike is not cheap by stretch of the imagination. But yet people really like the products offered due to innovative design. Branding helped Nike to develop a unique image in the customer’s mind. Also here it should be mentioned that swoosh of Nike happens to be one of the best logos. Some other companies that are following the differentiation strategy to enjoy great success include Coca Cola and Adidas. Differentiation Focus Companies adopting differentiation-focused strategy may able to pass higher costs to the customers as the substitutes of products offered by the companies are literally non –existent. The companies that follow the differentiation focused strategy usually are able to modify a wide range of product ad launch the products in a relatively narrow market segment. Such market segments are quite well known to marketers. One of the major risks associated with this strategy is the limitation and lack of scope when it comes to targeting new market segments. Prime examples of companies using such strategy are Ferrari or Rolls Royce. Such companies offer quality products at premium costs. However the target market segment of such companies is quite narrow. In case of the two companies mentioned it is the high income group. Also due to the nature of the offerings of the company the market segment cannot be changed. Cost Focus Companies following the cost focus strategy target the narrow market segment. The companies attempt to gain cost advantage within that segment only. Companies using cost focus strategy often tends to enjoy a high degree of customer loyalty due to the reduced prices. Also as the market is narrow the consumers have little bargaining power and option to switch to other companies. The bargaining power of the suppliers is also low as the number of players competing in the market is quite less. One of the companies that have adopted cost focus strategy is IKEA. The company combines good quality of products coupled with low prices. References Brown, L. 2009. Marketing and Distribution Research. New York: Ronald Press Company. Dasgupta, S., 2004. Changing Face of Globalization. London: Sage. Gitman, L., and McDaniel, C., 2008. The Future of Business. Stamford: Cengage Learning. Henry, A. 2008. Understanding Strategic Management. Oxford: Oxford University Press. Hesselbach, J., 2011. Glocalized Solution for Sustainability in Manufacturing. New York: Springer. Miller, R., 2012. Fundamentals of Business Law. Stamford: Cengage Learning. Nargundkar, R. 2010. Marketing Research. New Delhi: Tata McGraw Hills Private Limited. Siriner, I., and Nenicka, L., 2009. Globalisation: Dimensions & Impact. London: Ismail Siriner. Wenderoth, M. 2009. Particularities in the Marketing Mix for Service Operations, London: GRIN Verlag. Read More