Introduction and discussion
The term globalisation refers to the process by which world markets have become integrated through global communication, transportation and trade ties. The past two decades have witnessed rapid increase in globalisation due to dramatic technological developments. People find it easier to trade internationally due to improved means of transportation and communication. (http://www.investorwords.com/2182/globalization.html)
Thus the phenomenon of globalization has become a very common in the recent years. Every company operating in any part of the world is lured by this phenomenon. Following are major contributors to globalization namely
One of the greatest contributors to globalization in the recent years is the convergence in the life styles and tastes of the people around the world. Unlike 20th century, people around the world think in more or less the same way. In 20th century MTV was a channel watched by the western youngsters. Today it is liked by a young man living china as much as a young man living in California. Burger king and McDonald's are no more restaurants just found in America. We see burger king and McDonald's in Russia and china in great number. Gucci, Armani, Coca Cola and Microsoft which were western brands in the past have now gone global.
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One of the points of concern for the managers in the recent years has been cost. The need to produce products and provide service at lower cost is another reason for the increased globalization. This has been a continuous focus around the world on research and development and innovation. This resulted in the costs to go rise significantly. In order to reduce cost and operate more efficiently, companies had to go global.
In recent past countries around the world have followed the policies of deregulation and liberalization. This resulted in reduction of tariff barriers, unrestrictive trade and investment policies, compatibility in technical standards, privatization in previously state dominated economies and shift to open market economies from communist systems. This lured the companies around the world to expand their area of operations, gain the economies of scale and maximise their profits by going in these economies.
Another factor that contributed to an increased globalized world is the increased competition across the borders and continents. More globalized competitors had advantage of cost over the less globalized ones. This intensified the trend of globalization. (Knight & Marshall, 2008)
The 20th century was called the century of Europe and America as the most economic growth concentrated within this region. Europe and America was the hub of major economic activity where most firms based their operations and their products and services were exported to the rest of the world. However, the recent years have seen a global power shift hence Europe and America are no more the sole leaders of the world economy.
This shift of the power is directed from west to east fundamentally due to the demographic , socio economic and political changes within countries like Russia, china, India and middle east. These countries are rich in natural resources and have emerged as the biggest winners. Therefore it is shifting demography strongly suggest that the current century belongs to Asia. (Meredith, 2007)
It is important that we explore the factors that resulted in a power shift from Europe and America to Asia with some relevant examples. Here we will take china and India as an example. Both India and china are rich in human capital with the population of over two billion. The human capital gives them a competitive advantage due to low cost labour. It is for this reason that most companies which had based their operation in Europe and America are now shifting to India and china. Although Europe and America still are the biggest consumer markets and have the advantage of greater purchasing power which the companies with the Asian counties should exploit. On the other hand Asian countries, with their increasing per capita income of the population are in a position to expend their operations on global level.
However for global companies, the low cost labour will no longer be a source of competitive advantage in the long run as this competitive advantage will be diluted as more and more companies will move their operations towards India and china. It is therefore important for the companies to go global to achieve economies of scale. This will also enable them to reduce their business risk and increase their shareholders wealth.
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Given the available opportunities to go global, there are challenges that need to be dealt with. Many companies doing very well in Europe tried to go global but failed. The obvious reason behind this was that they did not do enough research before doing so. Three questions that companies need to ask before going global are; 1. Could the global strategy generate substantial benefits enough for our firm? 2. Do we have abilities to achieve those benefits? 3. Will the benefits outweigh costs? (Alexander & Korine, 2008).
Given the ground situation, any well thought out move to go global has its advantage. But any such move must be made keeping in mind the specific circumstances of the company. Otherwise such move can jeopardize the local business as well. "For example Redland, a UK manufacturer of concrete roof tiles, expanded around the world to leverage its technical know-how beyond its home market. But it often sought opportunities in countries (such as Japan) where local building practices provided little demand for concrete roof tiles. Thus, there was no value in transferring its technology to such markets." (Alexander & Korine, 2008)
An analysis of own capabilities & resources is also important. Any move to go global without analysis of capabilities & resources required would be suicidal. "For example Taiwanese consumer electronics company Ben Q's acquisition of Siemens's mobile devices business failed because Ben Q lacked integration skills. It couldn't reconcile the two companies' incompatible cultures or integrate R&D activities across the two entities. Ben Q's German unit filed for bankruptcy in 2006". (Alexander & Korine, 2008). Here I will agree with the opinion in Asfand's paper that a company going global need to keep in mind the cultural differences of every country. While formulating a global strategy, formulators should keep in mind that the work force that they are going to hire in different countries will have their different working style and different set of attitudes. In addition to this they should also keep in mind the fact that the markets they are going to serve have different set of cultural values.
An attempt to go global entails huge costs. A careful analysis of the related costs and benefits is very important. This analysis should be carried out keeping in mind the time value of money, inflation of specific country and competitive situation in each country. Companies from India and China specialise in software, engineering and manufacturing. With the low cost manpower available and research & development in these countries, these companies indeed do qualify the basic criteria for going global. As they are already operating successfully in their home countries, any successful expansion will add to their profits. They certainly do not lake capabilities and with adequate strategy formulation and efficient operation, they can win cost benefit balance.
Thus first step to go global is to define a well-planned global strategy. The key to success to global strategy are;
Development of core strategy
Internationalizing the core strategy
Globalizing the international strategy.
(Knight & Marshall, 2008)
Development of core strategy involves the decisions about the type of products or services, type of customers, target markets, core competitive advantage, how functional strategies will support the core business strategy and decision about investment. Core strategy needs to be focussed and well defined. A focussed strategy ensures the sustainable competitive advantage and growth in longer run. The internationalization of strategy begins with the expansion of business beyond the home boarders. It involves the decision about selection of target market. This selection is based on type of industry in which the company is operating, regional legal requirements, tariffs & quotas, local culture, language, climate and taste. Internationalization of strategies is followed by the globalization of the strategies in order to integrate the competitive advantage. Globalization of strategy involves careful analysis of the particular aspects which are to be globalized. The extent to which a company needs to globalize its strategy depends on the industry in which it is operating, difference between countries and the product or services offered. A fully multi local value chain may result in a company losing its competitive advantage based on a low cost leadership but on the other hand multi localization may in itself be a source of competitive advantage.
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For companies coming from developing countries, it is not very easy to compete globally. In addition to a well formulated global strategy they need the backing of their governments. Companies from India and china have recently made great global moves. In order to compete globally and stay competitive in longer their governments need to formulate national strategies that help these companies.
It's a fact that there are areas where India and China need to cooperate with each other. China is 17% of the world's population but owns only 0.8% of the oil reserves. Its economy is growing at a great speed and with the passage of time its energy requirement will increase greatly. India is also one of the greatest oil consumers. With the ever depleting oil reserves, the energy crisis will become worst which can halt their economic growth. These developing countries need to cooperate with each other to work out plan to meet their energy needs. A good step in this regard could be formulation of consortium of oil importing countries through which they can resolve their issues relating to international oil market. (Ahmad, 2008)
India and china have long standing border disputes which need to be resolved. Restrictions over FDI and visa issuance are other areas where these countries can improve. Good cooperation in economy, trade, science and technology and R & D between these two countries can lay the foundations for the companies from these two countries to flourish globally. (Ahmad, 2008)
Globalization is a way of systematic integration, recruitment and redeployment of resources which can bring about complete or partial economic parity amongst the members of the global system. No country of the world can isolate itself through trade barriers, tariffs or restrictions on FDI. The only way to meet this phenomenon in a good way is to face it by making policies and strategy that help face it in a way that is advantageous to each country. Economic border will not be a reality in the days to come. It is also a reality that we are witnessing a great economic shift from west to east. The future lies with Asia and fast growing economies like China and India. The greatest sources of economic shift are qualified manpower and R & D, which greatly favour China and India. With the most vital resources in the world, companies from china and India are best positioned to go global and compete globally. However it is important to consider the appropriate globalization strategy which minimises their risks and maximises the exploitation of opportunities offered by global markets.