Globalization and Changing Market Trends - Essay Example

GLOBALIZATION AND THE CHANGING MARKET TRENDS An Assessment of the Extent of Occurrences of the Globalization of Markets Levitt was keen in analyzing significant global changes brought out by technology and globalization as early as 1983, alongside the emerging changes that went along with these. He expressed that there are two vectors that shape the world, particularly technology and globalization, in which the former helps determine human preferences while the second helps determine economic realities (Levitt 1983, p. 11). A similar shift of perception is required from countries, companies, and people, in responding to these changes seen twenty-five years ago, when personal computers, laptops, and mobile phones knew no massive abounds yet. Levitt (1983, p. 10) described these changes as compelling and necessary in that regardless of how much preferences evolve and diverge, they as well gradually converge and form markets wherein economies of scale lead to reduction of costs and prices. This may be assessed at present as already happening, in which the converging global market has created a conduit of goods and services available at almost the same prices for different countries. Stressing that the world is flat, as Levitt used it- figuratively, at least - opts to become competitive in a global market where regional, historical, and geographical divisions are increasingly becoming irrelevant. Globalization is suggested to have created a playing field in which the world is flattened, thereby allowing all participants to level off with one another and participate equally in the global market. Competitive playing fields are leveled between industrial and emerging markets, which is a product of a convergence of workflow software and of personal computer with fiber-optic micro cable, not known to human race twenty-five years ago. The surge of technology is likened to a jet plane that zooms upward, changing economic activities of domestic and global markets. Levitt indicates in his literature that the world is increasingly and inevitably becoming one, putting the multinational corporations into obsolete position, which were abounding at the time the literature was written. Levitt had a keen and clear foresight with his assumption that companies that do not adapt to the new global realities will become victims of those that do (p. 11). This has become a reality at present, in which products that do not cope with the demands of globalization and technological advancement will certainly find themselves in financial collapse. This is the reason why Kodak and Mitsubishi have to align their photo developing techniques with that of a digitalized method, since using the old film developing technique will surely assail the companies with lower income due to inability to keep track with new technology. Strategic management of firms should hence be congruent to the changing global markets. Currently, the world's needs and desires have been irrevocably homogenized as an outcome of globalization, a trend not existing in 1983, of which Levitt had been keen to make a foresight. In his views, he stated that this homogeneity makes the multinational corporation obsolete and the global corporation absolute (p. 3). This may have been true had the multinational corporations not kept up with the growing demands of a globalized market. However, due to their ability to keep up through market research, multinational corporations are still able to hold their positions strongly, updating their product lines and technology alongside current trends. Similarly, more and more European counties trail the path to offshore some or all of their operations with the advent of globalization. In this regard, foreign direct investment increases, which involve transfer of operating capacity for functions like production and transportation (Gampenrieder, 2006). Offshore strategies provide companies the capabilities to aim for distinctive, sustainable, and competitive advantages that require relocation of operating capacity, as well as periodic adjustment (Gampenrieder, 2006). It is said that offshoring is indeed one of the symptoms of the expanding the globalization process and involves transfer of certain services supporting the fundamental activity of a company (Nesterak and Hobora, 2004). It resonates with Levitt's foresight of expanding market cohesiveness and developing into global commonality due to globalization (p. 3). Similarly, Levitt's claim that global corporations are absolute could be seen in outsourcing, which continues to change the way companies look and operate around the world, which sees through a new wave that is somewhat different, with IT job making up the first major wave of outsourced labor. More companies are sending abroad payroll, secretarial, and other jobs of "back end office" nature, indicating the flow of the business process (Bortnicker, 2008). There is a seemingly preponderance of jobs that are being outsourced to overseas locations The Ross Perot for example, is a company that outsource their payroll generation, management, and reporting for companies, so that they will be able to focus their full resources on core activities (Bortnicker, 2008). In the Nike experience, the strategy gave it an opportunity to outsource its workers from outside, alongside portions of its operations; hence creating jobs for the outsourced company. At present, the tremendous changes caused by globalization on how companies manage their resources brought about an option in which organizations may outsource at least some of their functions, indicating global commonality. Outsourcing can make the loads of work lighter and may prompt the company to focus on the core activities of their organization. This ability, along with cost cutting, has generally been the main benefits of organization. Friedman (2005) emphasized that with the cabling of the Indian continent, massive offshore outsourcing with diverse tasks have taken place, and more of it is expected to follow. In this view, American companies started to flock to India and the Philippines for technology support, as well as to Singapore, China, Korea, and Vietnam for industrial workers (White and Tastle, 2006). The concept involves the transfer of a non-core task from one company to another, specializing on such task, with an objective that such task will be performed more effectively and efficiently. A survey conducted in 1998 presented significant reasons that prompt companies to outsource. They include reducing and controlling operating costs, improving company focus, gaining access to world-class capabilities, free internal resources for other purposes, internal unavailability of resources, accelerating reengineering benefits, making capital funds available, risk sharing, and cash infusion (Outsourcing Institute, 1998). It is also imperative to recognize factors for successful outsourcing, such as alignment to business strategy, management support, culture, infrastructure, contracts, strategic partnership, governance, and economics (White and Tastle, 2006 in Fjermestad and Saitta, 2005). The current global setting allows companies to split their service and manufacturing activities into components, each of which working in the most efficient and cost-effective manner (Friedman, 2005). This is aligned to what Levitt foresighted twenty-five years ago, in which it was held that a thousand suggestive ways attest to the ubiquity that the world sells goods of the best quality and reliability at the lower price (p. 3). This lowering of prices, an almost distinctive event in the globalized market, accrues to what Levitt claimed as an outcome of the global market convergence. What Levitt saw was the future which globalization has put into onset, slowly but surely materializing at present into the dissolution of geographical, regional, and historical barriers into cooperating bodies toward participatory business. Globalization has been the key concept of this participatory business, delineating all barriers that used to govern countries of the world. With the global market now requiring people and nations to function in leverage, a flattened arena of market availability and functioning is shared by different countries regardless of economic status, regional origin, and culture. It is apparent that global corporations have continued for long and remained true to the foresights of Levitt because of their eventual necessity in the market development. It is a general rule at present that companies and firms in the globalized market seek to realize benefits and address the issues of cost savings, cost restructuring, quality improvement, knowledge, contract, operational expertise, capacity management, risk management, and focus and core competency (Norwood, et al., 2006). All of these were mentioned by Levitt in a simpler phrase, "producing and selling goods of the best quality and reliability at the lowest price" (Levitt 1983, p. 11). It is a general rule that all companies aim for profit, and one effective way to ensure this is by decreasing the labor costs of a product by employing low-wage workers. Many U.S. firms are now contracting out in developing countries in which workers there may be paid lower than their American counterpart is. However, some argue that outsourcing of jobs exploits the lower-paid workers and a contrary view holds that more people benefit from it through employment. The dissolution of divisions caused by globalization- historical, geographical, and cultural - is apparently seen at present in the globalized market processes wherein important company tasks are transferred, such as telephone customer service, human resources management, or settlement of accounts of bank transactions to countries with quite different culture. Complete reconstruction of organizational structures through reduction of vertical links' chain has taken place as both a cause and effect of globalization. Firms have yet to consider their sourcing possibilities in the advent of globalization, in which they have to be more competitive in the global transaction. International trade provides lower prices to consumers and at the same time offers new opportunities for producers - both workers and firms - in their quest for expansion into foreign markets (Norwood, et al., 2006). A good example of a nation that is now into offshoring is India, which was unheard of for exporting high-value services. At present, finding an Indian software programmer customizing sophisticated software applications for worldwide businesses has become a common scenario. This sight is only congruent to Levitt's foresight of a flat world in which all nations are leveled in the global market, destroying all barriers that used to divide them such as race, culture, history, regional affiliation, and geography. The considerations of the effects of globalization and technological developments require two trends that call for attention - the rise of China as the world's manufacturer and the rapid growth of traded services involving technology-intensive processes and employing high-paid white-collar workers (Trefler, 2005). Further, the onset of computerization made work processes to be digitalized, giving way for routine, and work that is specifically broken into separable tasks by skill set (Aspray, et al., 2006). There are certain activity areas in which globalization produces cost reduction, thereby creating tremendous and advantageous benefits for the company. These are on the aspects of provision and costs of goods and services that are being purchased, introducing common procedures and reports, precise cost calculation in time approximate to a real one, reduction of production and sale costs, reduction of human resources costs, and flexibility of planning processes (Nesterak and Hobora, 2004). Levitt is hence correct in the claim of a requirement for sales opportunities in similar segments of demands in order to achieve the economies of scale necessary to compete. It is likewise congruent to his claim that global equivalents are present in the globalized market, subjecting even price to global competition. Analysis of the Globalization Links with Strategic Management Globalization onsets allow for firms and organizations to keep steady and up-to-date operations through an extensive and comprehensive market research that would enable them to be with the trend at all times. Market research is always a part of strategic management, which leads the organization towards correct and appropriate planning and implementation and gives a direction of the path that it is trailing. In the current global market demands, strategic management should likewise be in consonance with the current global market activities and must be able to swiftly flow with the globalization trend in order to survive and shine from the rest. During the previous years, strategic management was confined within the domestic needs of a company, serving the needs of its domestic clients and stakeholders. However, the same direction cannot be undertaken by the organization and expect itself to thrive in the midst of globalization and a growing technological advancement. The firm should likewise shape its strategic management schemes towards these immediate concerns and remain a beaming business in global competitiveness. Accenture in a Globalized Market: A Case Study Accenture, a British company, is an example of a business that allows its client companies to leverage low-priced labor in Eastern Europe and China, without having to go through the pains and risks of pioneering in those markets. In 2005, it employed 19, 000 people in China, India, and the Philippines with its offshore strategy, which has been the direction of its strategic management scheme. It has dramatically expanded its global delivery network by actively recruiting key locations throughout its global delivery network with the aim of defending and extending its position in the marketplace (Ilet, 2005). Its chief operating officer, Steve Rohleder, emphasized that if they get into a situation in which a specific location (e.g. India) has reached saturation from salary and cost structure standpoints, the company has the flexibility to grow a different location. This location is not limited to China or the Philippines alone, but may also be expanded in Eastern Europe and Latin America (Ilet, 2005). In 2005, its net revenue for its fiscal third quarter year has mounted to $ 4.08bn, considered the highest in the company's history (Ilet, 2005). Accenture gains economies of scale by servicing multiple clients from the same facilities or nearby and consequently accepts the risks of establishing offshore centers (Ilet, 2005). It is already using offshoring to reduce the costs of supporting their applications, reduce total cost ownership, and leverage the skills of their service providers so that the entire company may be consequently propelled toward high performance (Accenture, 2007). Application development and maintenance has been the biggest line item in Accenture's IT budget, considering a central focus in its ongoing effort to drive cost out (Accenture, 2007). Hence, in search of an immediate relief, the company has turned in to offshoring its IT work, in which labor arbitrage advantages has significantly caused rapid results. This is so since offshoring creates a high-value approach to application, built on a foundation of labor arbitrage (Accenture, 2007). In its pursuit to reduce cost, the company seeks for a high-value approach to application outsourcing. It believes that if companies want to attain high performance through an application outsourcing strategy, a fundamentally different operating model is a necessity. The company's recent High Performance IT Research made pressures on the IT function more headstrong, such as creating greater value from IT investments, improving customer satisfaction, and delivering more business functionality faster. Moreover, Accenture foresees that in the next era of application outsourcing, it will correspondingly achieve lower total cost of ownership for its applications along with lower labor costs. The issue laid in its offshoring its applications involves not only buying capacity, but leveraging the skills and expertise of a service provider as well, which acts as a business partner (Accenture, 2007). References Accenture, 2007. Outsourcing: you're offshoring. Now what Accenture. Aspray, W., Mayadas, F., and Vardi M. (eds.), 2006. Globalization and offshoring of software. A Report of the ACM Job Migration Task Force. Association for Computing Machinery. Bortnicker, C. , 2008. American jobs: the changing face of outsourcing. Retrieved on June 14, 2008 from http://www.minyanville.com/articles/hoofy-india-boo-Outsource-business-bco/index/a/16263 Fjermestad, J. and Saitta, J., 2005. A strategic management framework for IT outsourcing a review of the literature and the development of a Success Factors Model. Journal of information Technology Cases and Applications. Friedman, T. , 2005. The world is flat: a brief history of the twenty-first century. Farrar, Strauss, and Giroux. Gampenrieder, E., 2006. Supply chain Management viewpoint - Moving east: offshoring operations to achieve global high performance. Accenture. Ilet, D., 2005. Accenture rides offshoring wave. Retrieved on June 18, 2008 from http://news.zdnet.co.uk/itmanagement/0,1000000308,39208857,00.htm Levitt, Theodore, 1983. The globalization of markets. Harvard Business Review. May/June. Nesterak, J. and Hobora, D., 2004. The evolution of offshoring services in Central Europe. Retrieved on June 14, 2008 from http://64.233.179.104/scholarhl=en&lr=&q=cache:UrGNV4Sa5y4J:www.opf.slu.cz/kfi/pb2000/cz/2004/proceedings_2004.pdf%23page%3D76+Offshoring+and+Accenture Norwood, et al., 2006. Offshoring: an elusive phenomenon. National Academy of Public Administration. Outsourcing Institute (1998). Top ten reasons for successful outsourcing. Survey of Current and Potential Outsourcing End-Users, The Outsourcing Institute Membership. Retrieved on June 14, from Trefler, D., 2005. Policy responses to the new offshoring: think globally, invest locally. Industry Canada's March 30, 2005 Roundtable on Offshoring. White, B. and Tastle, W. (2006). The IS model curriculum and outsourcing: a call for revision. Proc ISECON, Dallas. Read More