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1. Globaliztion & international trade theories
Explain Globalization is the process of creating relationships, interactions and integrate among the economies, societies, cultures, people, companies, and government of the different countries, a process driven by international trade and investment support by information technology. This process is influence on environment, on cultures, on economic development, international trade and human well being in the around world. As result of the globalization changes came into effect in various aspects;
Economic (international trades)
According the above mentioned areas, the concept globalization is help to develop different areas. But, as a result of globalization negative effects are
Influence on Economic liberation by different nations and unions.
Brain drain - Most of intelligent people move around the world without remaining mother countries. Such as Business managers, Doctors, Engineers and Scientist, etc.
Common Disease - Spreading the disease across the world than the past.
Financial Crisis - global financial crisis will make more impact on the different economies. Ex. Economic down turn in USA made huge impact on the all over the world.
Increase income disparity among the different countries. and create multicultural impact
Illicit trading and increased breaking international and country laws will.
When it further analyzed globalization
Famous writer Peter Dickens says about the globalization the following manner;
"A qualitatively different process in which there is a functional integration of internationally dispersed activities" ("Global Shift")
The "Global Shift" book was explained two type of concept which is related in each other. Those are;
Further he explained following changes in his books
Extension of production chains across national boundaries
Pattern of foreign direct investment (FDI)
The creation of supranational organizations
Technology acting as engine of economic transformation
The development of unit of enterprise through the spending of multinational enterprises.
The impact of the particular industries on transferring cultures, lifestyles and personnel across national boundaries. Therefore we can be concluded;
As a result of globalization ,the governments and individuals in the industrialized nations increased growth potential capacity in globalize economy
Government policies more focus towards to the economic development, stable of the economy ,increasing the employment, reduce social inequality, social fairness and promotion of small firms, increased harnessing of innovative technologies and attracting foreign investment
Always make difference in incomes and living standards within the different nations.
Practices and standardization of global governance more and more influenced on global businesses authorities.
Different professional bodies influence on the different areas and bring more concepts widening scope the subject. Ex CIMA, AMA, CIM they changing their subjects to adapt globalization concept.
Increased unemployment among the people the unskilled, poorly educated.
Need more and more multi skilled people to manage the different haphazard and environmental changes effect on the business.
Effect of globalization is that creating an international trading opportunities as well as disadvantage for all the countries in the world. As result of dealing in international trade & business, different theories and concept have been developed by different expertise. Among those most popular theories are;
Mercantilism theory - This theory mainly highlighted nations should have accumulated financial wealth in the form of gold, by encouraging export and discouraging imports. That is defined as mercantilism. Mercantilism theory is portrait other measures of the countries in relation to international trade. The following criteria considered as irrelevant to determine trading capacity of the nations or country. Well being, living standard and human development. This theory was applied by UK, Netherlands, and France during 1500 and 1700. Those countries practiced zero sum game (means that world wealth was limited and that countries only could increase their share at expenses of neighbors). In mercantilism countries economic development was prevented because of stopped import inside to country.
Absolute advantage theory - This theory was developed by Adam smith who highlighted that any country has an absolute advantage produces greater out put of good or service than other countries using the same amount of resources. Further Adam Smith is highlighted there should not be international trade restrictions such as quotas and tariff to prevent the international trade and it is essential flow goods and services according market forces. Absolute advantage theory contradicts against to mercantilism theory. Problem with this theory is that if there is not any absolute advantage with a country, international trade might be happen.
Comparative advantage - This theory was introduced by David Recardo in 1817.This is an ideal concept that is can apply for international trade and to develop international trade policies. Therefore this very important theory if any nations entering into the international trade. Here main principles that highlighted in comparative advantage are country should specialized in producing and exporting the products in which is has comparative or relative cost advantage compared with other countries and should import those goods in which is it has comparative disadvantage. Out of such specialization country could gain the greater benefit by applying that. Here mainly take into considered opportunity cost and specialization (maximum out put with limited resource). For instance Japan is highly specialized in producing car because of they are very good technology, required resources. But the Japan could not have capacity to produce TEA, there not specialized in that sector. On the other hand Sri Lanka is not having capacity to produce cars but they can produce TEA, they specialized in that area. Therefore we can see that, both country is specialized two different sectors by using those core competencies better this export those products based on that specialization.
Product life cycle theory - 1960 Raymond Vernon developed this theory called international product life cycle theory. Under this is stressed that, a company will begin to export its products and take foreign direct investment as the products move through its life cycle. As an example in the mother country product is in the decline therefore, they could not generate sales and profit as earlier. At that time they are looking for another market to introduce that product to sustain in that business. That market is most probably international market.
Porter diamond theory - This is introduced by Michel Porter and He highlighted that competitive advantage in the aspect of clusters of industry based where the competitiveness of one company is related to the performance of the companies and other factors such as valued additions in value chain, customer relationship. To get finalized this used coulters of successful industries in 10 important trading nations. Here porter shows that six broad factors incorporated with this theory. Those are;
Human resources, physical resources, knowledge resources, capital resources and infrastructure. Specialized resources are often specific for an industry and important for its competitiveness. Those specific resources can be created to compensate for factor disadvantage.
in the domestic market can help create a competitive advantage, when there is sophisticated home market buyers pressure firms to innovate faster and encouraging create more advanced products that those of competitors
Related and supporting industries
Under this factor related and supporting industries are producing inputs which are important for innovation and internationalization .These industries provide cost effective inputs as well as participate upgrading process which they are using in currently. Thus stimulating other companies in the chain to innovate.
Firms strategy, structure and rivalry
Firms strategy, structure and rivalry constitutes fourth determinant of competitiveness. The ways, in which companies are generated or created, set goals and monitoring is important for the success. But the intensity of rivalry creating pressure and innovations to face competition.
Government can influence
Government can influence or support each of the four determinants of competitiveness. In clearly government can influence supply condition of key production factors, demand conditions in the market and competition between firms. As well as government can intervention at local, regional, national or supranational.
Events that are occur in the outside of control of a firm. They are important because they are creating discontinuities in which some gain competitive positions and some lose.
This theory is plays an important role in the analysis of modern international trade in terms of nation's competitiveness. Here the major examples are Coca cola, Standard chartered, Uniliver and Nestles few of companies which are showing nations competitive advantage.
1.2. Benefit and challenges of globalization
As a result of globalization the following major benefits are gained by Honda;
Entering into new markets - As result of globalization different economies are open to the other countries products. That leads entering into new market.
Increasing their sales - another benefit that is can gain help to increase their sale. That's leading to increase the profitability of the business.
Tax benefit - some of the countries are giving tax free benefits, tax holidays, and tax exemptions to promote foreign direct investment. That is helping to increase the company stake and profitability of the country.
Opportunity to gain cost advantage - In the country like India and china, labor cost is very law. As result of that cost of production can minimize and help to increase profitability also.
Help to develop strategic alliances - such as joint ventures, mergers, acquisitions, takeovers and tide up agreement, management contract, joint promotion and mega marketing campaign. Which are helping to increase the brand awareness and brand visibility of the in that particular country or region.
The following challenges will face by Honda in the global economy
Overriding agreement - in this case Honda company play dominating role, they have override firodias agreement when entering into Indian market. As a result of that emerged conflict between two parties and both parties suffer due to that agreement.
Effect of different risk. The following major risk can be identified via that;
Once reach global market is approached will face different cultural barriers. As an example of in India is different cultures and different languages within the countries, as well as way of thinking and attitude is totally different compare to other countries therefore
Effect of changes in exchange rate
This very crucial factor is in the international business. Effect of exchange rate is directly affected on the profitability of the company as well as creating loss on company. Because of money appreciation and depreciation derived by economic activities like import and export.
Threat from natural environmental risk
Some of natural environment effects are making huge impact business. Cyclones, heavy raining, flood, snow are directly affected on plant operations and product distribution. Not only that, it is created huge losses on any company. For instance flood and cyclones are making heavy effect on the business operations. Even those cases cannot insure to manage that risk.
Changes in Interest rate risk
Interest rate makes huge impact on cost borrowings. This is directly affected on financial cost of business and profitability. As well as, it will make impact on the cost of material and components ultimately that will leads to reduce the profitability and raise the price of the product.
Labour turnover rate
Highly trained or experience staff might acquired by competitors by giving high salaries as well attractive benefit. This issue directly affect on plant operations, raising new staff training and development.
Trade secret and leakage of information
There risk to leak trade secrets and top importance information (financial and non financial) which are directly influence on decision making and operational activities of business. Such information leakages strengthen competitors. It is very good opportunity for them attack on weaker areas. Some situations if the Inland Revenue get to know about that information, tax issues will are begun.
Threats from competitors
If competitions is goes up that effect on the company market share and profitability of the company.
Behaviour of Employees
Negligence, Omissions, fraud, judgmental errors, less knowledge of operations and decisions making might create high risky situations where create huge loses, impact on reputations and loosing the customers.
1.3. Assessing theoretical frame work for international of international trade and globalization in terms of a supporting organizational structure may Honda employing
Most suitable theoretical framework work for Honda is application of the porter diamond theory. In case highlighted
Human resources, physical resources, knowledge resources, capital resources and infrastructure are having honda in their business Ex. Technical Know - how and brand resources.
Sophisticated home market buyers pressure firms to innovate faster and encouraging create more advanced products that those of competitors. Ex Toyota and Nissan bigger competitors which they influence on the buyers behaviors.
Related and supporting industries
Provide cost effective inputs Ex. low cost metals supplied by suppliers to produce bike and cars.
Firms strategy, structure and rivalry
Intensity of rivalry creating pressure and innovations to face competition. Ex. Firoid company applies different marketing strategies to protect their home market and increase the sales. Ex Dealer awareness program and door to door campaign.
Government can influence
Government intervention has significantly involved protecting Firoid company when changes happen in the agreement.
Events that are occur in the outside of control of a firm. They are important because they are creating discontinuities in which some gain competitive positions and some lose.
2. Analyzing the Honda internal and external environment and make recommendation to achieve the organizational goals
This would be totally change;
No of political parties and their leader's philosophy towards economic development.
How extent interfere the international problems. Ex.USA involvement very high as world powerful country.
Not only that government grants, capital allowance, tax releases can be done by government base on the level of indutry.
Political risk analysis - Changes political environment is directly affect on the key strategic decision of the business. Role of the government and supporting for the business is depending on economic policy and foreign trade policy and relationship with the external countries. Under this are need to carry out the following analysis .Each country where Honda is operating need to analyze political risk and government changes, support and contribution auto making industry. Here this analysis help the following areas;
Nationalization - once political party has changed, they might be look their local products as well as more close and friendly countries investment and their business keep up their relationships.
Taxation policy - Every budgeting reporting period tax such as corporate tax, VAT capital allowances, etc.
It is describing economic style of the country, market free, or closes economy and mixed economy. On the basis of those economic the following areas will be changes.
International trade policy
Contribution of different section for GDP and GNP.
Banking & Finance market. (Exchange rate)
Business cycles - Need to look, whether there is economic depression or boom to decrease or expand production of the companies.
Regulation on tax and layers of tax.
Inflation in the economy ex. developing countries is having unpredictable inflation rate.
Interest rate and foreign exchange totally changed automobiles cost of production and prices
Consumer behavioral difference (such as decision making, response on promotion and advertising)
Demand pattern is totally depending on the disposable income of the peoples for automobile sector.
Market size & growth (Country like India size and growth is very high for auto mobiles, specially for bike in low income segment )
Peoples diversity would be totally different according to the following factors
Education (Highly developed countries peoples education makes difference among the people than developing courtiers. Language
Culture & norms
Risk taking attitude
Technological environment has made huge effect on auto mobiles industry. That has produced several advance featuring vehicles such as hybrid vehicles, solar power using vehicles, High security system integrated vehicles, automatically driven vehicles, new piston and engines are producing all the industry players to face competition. As well as technological environment creating new distribution channels such as make an online ordering for car, new technological application for motor vehicle assembling or develops user friendly features.
Auto mobile business is making huge impact on physical environment; those are
Air pollution - Carbon emissions, Gas emissions and the other harmful air is released when driving auto mobile. Therefore to reduce those types of effects, some countries have applied different tax.
Sound pollution - This is another effects that happening in that environment. In the developing countries and developed countries millions of vehicles are pressing horn butut. That is creating huge sound effect during the traffic jam. Now trend is producing eco friendly bikes.
As a result of those changes that is emerging sound of environment protection organizations. s well as they try to take legal action against company to protect environment.
Any economy is having different taxes for their development. Such as
Social protection taxes
Port & Airport levy
These might be totally changed at the above mentioned levels. effected for companies
Public laws are also making difference at the above levels. Ex. Consumer protections rules and regulations, sales of goods and service, insurance law are highly creating impact on the automobile industry.
Same as the above. Different nationals, as well as EU also and Globally custom rules and regulation are totally different
It is totally difference country to country and EU level as well as global level.
Shipping rules regulations
The following regulations apply for seaport security.
Port Layout and design
Staff background checking
Theses practice cannot be seen at all the international shiports.
Supply chains regulations
Global level much more concern about those regulations;
Distribution of goods
Secure warehousing of goods
From the warehouse and airside retail store.
Staff security and stock control
Description of diversity
Diversity of the market, brands and competitors
Develop marketing intelligence system
Analyze regular changes in the market and brand , market players
Develop the firms strategies to reinforce the market share to beat companies by using marketing mix (7ps)
Economic environment changes
Scanning economic environment.
Developing EIS (economic information system)
Predicting changes in the economic environment.
Listing to and hear expert opinions regarding future economic diversification.
Social environment changes
Analyzing the different countries Education, Language, Culture, education, experiences, Motivation towards to works, risk taking attitudes towards works.
Review HR policies based on those regional differences.
Implement develop strategies and review the strategies to evaluate whether it best fit with that region peoples diversification.
Political environment changes
Analyzing the different countries political parties and their policies towards economic, business, education, health, legislation, etc.
Analyze who and which parties will come to power.
Develop strategy based that changes
Additional areas need to be analyzes by the Kinetic Honda
Company financial position
This can analyze via balance sheet. by looking at financial position of the company can be determined level of short term and long term liquidity, gearing level, efficiency of capital employed, etc. This is very important for the company in terms of marinating stability.
Industry cost structure
Industry cost structure is help to determine the cost of the production, pricing policy, marketing investment and new product developments. Not only FIRODIAShas to identify future emerging cost and their adverse effects to develop cost minimizing strategies, while maintaining substantial level profit.
Contributors of Company capital and return
One of the most important sides is capital structure that drives dividend policy, profit retention rate and new expansion, power of creditors in businesses, level of capital investment in business. Owners of capital expecting substantial return on the business as well company expect to expand business future; these two objectives are clashing each other. This must be care fully analyzed to minimize interest gaps.
This also making huge impact on the FIRODIASbusiness, if the competitors carry out mega promotion or produce fuel efficient and sophisticated featured car make huge impact competing segment. Competitors tried create barriers to prevent new market opportunities by using merging and takeover strategies. On the other hand they try to attack existing distribution channels by using different strategies.
Cost of capital Return On Investment
To create sustainable business growth and substantial return to investors as well company itself need to analyse cost of capital
As well as firms can apply tools of five forces analysis to get analysed firms strength and weakness. Those 5 forces are;
Analysis of the five forces effect on FIRODIAS
Threat of new entrants
new entrants determinant factors are;
Economic of scale
Car industry is having high fixed cost to recover need do high sales volume which means high BEP. FIRODIAS is a one of big player market where they can gain high economies of scale comparing other players. Those main reasons are;
Technology that they using
Level of market segment
Distribution channel efficiency
Productivity of labor
New entrants can't afford the high fixed cost at the initial stage therefore very limited chance to enter into car market.
Wider range of brands
Different market segment covered by FIRODIAS by offering different brand, Which is creating entry barriers to another player. Only that they can gain niche market opportunities.
FIRODIAS has already developed their distribution channel and having wider market coverage .In this situation also very low chance to take dealer choice for new players. To get their attention need to pay premium for distributors.
High level of Capital investment
Auto making industry major key driving factor is how much of amount is going to invest for this business. Especially, continuous R & D need to keep customers with the business. If the existing player already acquired high volume of sales, very low potential to recover amount of capital invested in business via sales.
Bargaining power of suppliers
FIRODIAS is large auto maker of the industry; therefore FIRODIAS buy high volume of inputs (metals, irons, plastics, tires, electrics components) from suppliers. In this situation there is no high bargaining power for suppliers. Because of supplier sales and profitability might depending on this level sales..
Threat of substitute
Major substitutes are;
This is also making effect on GMs existing market. To minimize this threat FIRODIAS needs to go for that market segment.
Bargaining power of customers
Having Low have bargaining power of customers due to following reasons
FIRODIAS has offered different variety of product range for the customer - many choices.
Different price level
Prices are somewhat high other players compare to GM
Product quality and safety is most important factor for car users - FIRODIASis in the strong position
The above reason create l very low potential to barraging for customer in existing car market.
Rivalry amongst current competitors in the industry
Rivalry amongst current competitors are Toyota, Honda, Benz, in the industry is determining factors are
market growth rate
Business environment uncertainties and
As per above mentioned factors FIRODIAS is in well secured position at the end of stage. This due to their major market driven campaign.
3. Analyzing soft and hard systems methodology
In the soft component is considered as people and companies relationships. Such as culture, value, belief among the people. That is directly affected on to move forward company as whole or move backward.
Hard component of the Company can be considered as method, production, process,
4. Analyzing and assessing the success of Honda business strategies
Honda business strategy was to approach the Indian market by using the stake of Firodia Company.But that strategic alliances and joint agreements that they have developed was already failed, due to failure of the Firodia and their performance was not expected level therefore in that aspect they were failed. But ultimately Honda won the mortor cycle segment.
5 & 6. Discuss principle of corporate governance and ethics and assessing impact of corporate governance on Honda.
The principles of corporate governance mainly concern was due financial crisis in the world and in the region. Poor corporate governance is turned business formidable and high risk level. As well as it is creating an effect on the whole economy of country. As an example, in USA Enron and worldcoms are the collapsed businesses due to poor corporate governance. Therefore principles of corporate governance is creating good environment for the companies to run the business very smoothly. The following major principle are apply for the corporate governance
Principle 1: Performance Orientation
This principle is highlighted that, objectives of any business emprise is to enhance economic value for all the share holders by using resources efficiently and effectively. A company that meets this shareholder value creation objective will have greater internally generated resources, improve forecasting environment, community and social obligations such pay taxes on time, reward, train and retain key staff as well as enhancing employee satisfaction. A key focus is is human capital strategy that is lead corporate success.
Principle 2: Nomination and Compensation Committees
A key success factor is the quality of leadership of an enterprise. A nomination committee with a written mandate and terms of reference consistent with good practice may ensure the selection of directors and a chief executive officer (CEO) of the highest caliber. Comprising mainly of independent directors, the committee should have a written definition of independence, inclusive of both subjective and objective criteria. A compensation committee should set the compensation policy for directors and senior management, commensurate with performance measured against comparable industry benchmarks and key performance
Indicators such as economic value added.
Principle 3: Disclosure
To ensure transparency, companies' annual reports should disclose true and fair accounting information prepared in accordance with applicable standards; consider substance over form in the presentation of accounts; disclose and discuss all material risks; disclose and explain the rationale for all material estimates; show manner of compliance, or explain deviations, if any, with applicable corporate governance codes; discuss goals, plans, and progress; and provide access to the register of shareholders showing beneficial ownership. In addition to annual disclosures, enterprises should comply with applicable continuous disclosure requirements. Disclosures should be timely and adequate to enable investors, third party analysts, or rating agencies to assess the quality of corporate governance and the true financial condition of the enterprise.
Principle 4: Audit Committee
14. Audit committees with the following attributes are more effective: composed solely of independent directors, at least two of whom should have the requisite knowledge of accountancy, financial analysis, and financial reporting; at least one member should have a good understanding of the business of the enterprise; have a written mandate and terms of reference; engage only independent external auditors who should be answerable to the committee; and require that a suitable system of internal control and risk management is embedded into the fabric of the company; and focus on the substance of underlying transactions.
Principle 5: Code of Conduct
All enterprises must have a written code of business conduct and establish systems to ensure
That it and all applicable laws are followed in letter and spirit.
Principle 6: Conflicts of Interest
Directors owe a fiduciary duty to the company that requires them to act in the best interest of the company. Actual and potential conflicts of interest should be identified, disclosed, and explained in sufficient detail to enable valid judgments to be made on their adverse impact. The persons who are conflicted should not participate in discussion and decision of the issue in question, nor be entitled to vote on any resolution where they are conflicted. Related party contracts should be disclosed in the annual report.
Principle 7: Environmental and Social Commitment
There is an inextricable relationship among the objectives of corporate performance, social development, and environmental protection. Enterprises, to be sustainable, will need to recognize and effectively deal with this triad of concerns, which, at times, may conflict with each other.
Principle 8: Conduct of the Board of Directors
Directors are expected to preserve and enhance shareholder value. Their effectiveness can be enhanced if they are legally empowered, have the requisite qualifications for the board committees on which they sit, make the needed time commitment, given the appropriate directorship training, are suitably compensated, receive proper notice of meetings, have the right to propose agenda items, consult each other privately in the absence of management and executive directors, and provided with appropriate information to enable them to perform their monitoring role and evaluate the performance of directors. They should be proactive and diligent.
Principle 9: Responsibilities of Investors
The pursuit of good corporate governance in investee enterprises is a risk management tool. Institutional investors, general partners, and fund managers have a fiduciary duty to actively monitor and vote on issues vital to the success of enterprises in which they invest as guardians of the savings entrusted to them. Enterprises will find it helpful to communicate with them, deliver in a timely manner true and fair disclosure reports, and remove impediments from voting by all shareholders by taking advantage of modern communications and follow a one-vote for one-share policy. The fair treatment of minority shareholders must be ensured and large institutional investors should lead the pursuit of shareholder rights
Principle 10: The Role of Directors in Turnaround Situations
Directors of troubled companies must play a proactive role in turnaround situations, but avoid preferential treatment of creditors, or trade when the company is insolvent.
Honda must follow the principle 9 responsible for the investors. Because of they have broken that principle.
Honda had broken down principle of 6 (Conflicts of Interest).therefore they must follow that principles also
As a ultimate conclusion Honda must follow the all corporate governance principles
7. Analyzing the implementation of organizational goals
Working forces planning
50 teams has sent shop to shop and door to door
Kinetic has changed their credit policy
Improve mileage of scooters
KEL increased their sales by 20%
Kinetic used agents to reach semi urban and rural areas. Ex reached Ghandinagar and Anhamdatbadh.
Customer satisfaction camp.
Brand promotional campaign arranged by Kinetic