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Discuss reasons why a large company in one country might wish to 'go global' and the various ways it could expand its operations overseas.
Globalization can be defined as "The growing economic interdependence of countries worldwide through the increasing volume and variety of cross border exchanges in goods, services, international capital flows and technology". This is a definition as validated by the International Monetary Fund.
Globalization is not a new sensation, but lately, the progress of the world economy and relocation of people, technology, services, goods etc across the borders have increased phenomenally.
The world economy has become global increasingly and has thereby become interdependent. Few foreign owned companies have accomplished greater profits and revenues from outside their domestic markets than their own. Eg: The aggressive expansion of Toyota in US, Europe and China.
Organizations would wish to expand globally for numerous reasons but the primary goal being the expansion and substantial growth of the company. Irrespective of the fact that the company might employ international workforce or it tries to find newer and more prospective markets abroad, a global strategy definitely helps in business expansion.
Expansion: Many companies start their expansion in international markets mainly for growth. In order to increase the customer base, growth and sales of the company it is important to expand the company internationally and introduce newer products to the international markets. Eg: Nike is a global brand which expanded its business to gain greater revenue overseas.
Workforce: In order to find cheaper source of labor i.e., to reduce labor costs companies expand their business internationally. Eg: Software companies like Microsoft look for outsourcing services in heavily populated countries like China and India where labor is available easily and to a very less cost than in sparsely populated countries like USA.
Hunt for Resources: Companies expand globally to explore resources that are not available in their domestic markets or if it is cheaply available internationally. Eg: Oil resources are cheap and easily available in the Arab nations than in places like India.
To Diversify: Several companies expand globally in order to broaden their marketing. By selling multiple products in many different countries it substantially reduces the risk of instability due to political and economic factors of a single country.
View Points: Another main reason why companies wish to go global is they get to widen their workforce and get newer and innovative ideas. If a workforce is comprised of employees from different backgrounds and cultural diversities, it can bring in newer concepts and ideas which can eventually help the company grow. Eg: IBM recruits employees from different backgrounds on a consistent basis because it believes that this provides a competitive advantage which proves to be innovative and thus, beneficial to the customers. [ [i] ,]
Companies also go global in order to benefit from the earnings obtained from foreign exchange and also to emphasize on building up their brand internationally.
A classic example which reinstates all of the above factors is Coca-Cola. Between 1803 and 1904 coca cola was enjoyed as a popular brand in just United States alone. Post 1904 coca cola began its global expansion and even since there has been no look backs. The product was modified into several different designs to suit global as well as local markets. The company focused on brand building and also earned exuberant revenues from foreign exchange. As on today Coca-Cola has 92800 employees worldwide, with over 3300 different beverages sold in over 200 different countries. It has been one of the most successful companies in global markets surviving for over 124 years. [ [ii]
There are several strategies that the companies require to focus on before entering the global markets. Some of the common factors that are necessary for consideration are:
Size of the markets that are being targeted and their growth
The degree in which the product can be likely accepted eg: competitiveness, market access, brand names etc.
In order to be successful in global marketing it is essential to chart out an international strategy in comparison to that of the domestic markets. This gives a fair idea as to what essentially needs to be focused on.
International strategy is the continuous and comprehensive management technique designed to help companies operate and compete effectively across national boundaries. While companies' top managers typically develop global strategies, they rely on all levels of management in order to implement these strategies successfully. The methods companies use to accomplish the goals of these strategies take a host of forms. For example, some companies form partnerships with companies in other countries, others acquire companies in other countries, others still develop products, services, and marketing campaigns designed to appeal to customers in other countries. Some rudimentary aspects of international strategies mirror domestic strategies in that companies must determine what products or services to sell, where and how to sell them, where and how they will produce or provide them, and how they will compete with other companies in the industry in accordance with company goals][ [iii] ]
Differences between Domestic and International Strategy [iv]
Source: World Bank
Different currencies and exchange rates
Stable and uniform
May be variable and unpredictable
May be unstable
Skilled workers available
Skilled workers may be hard to find
Generally a single language
Different languages and dialects
Many media, few restrictions
May be fewer media and more restrictions
Several competitive modes
May be inadequate
Several other strategies which need to be employed for successful globalization are:
Geography-Based: This categorizes companies which pursue globalization in areas with common linguistic and cultural ties. Eg: Canada and England for US companies, African countries for French companies etc.
Product-Based: This category is for companies which produce products that are not necessary for local customization i.e. companies distribute their products globally whenever a demand rises for them.
Customer-Based: Companies follow major clients to serve local customers efficiently with a range of products. Eg: Logistics and inventory management offered by fed-ex
Internet-Based: Companies define their web presence in order to have an edge over their competitors to reach out numerous markets.
Organizations can choose to globalize in different countries by 5 distinct ways.
By exporting their products i.e by tangible goods trading
Through international investments or trading-companies may wish to choose through foreign investments directly by allowing them to control the assets or they can elect portfolio investments based on stock analysis.
By joint ventures or formation of strategic alliance with local partners: This helps the international companies overcome their technical and cultural difficulties as the local markets prove to be the host and help address the problems with ease.
By licensing or franchising: This is giving away the brand names, logo, copyrights etc of the company to another company in exchange to royalty that is being paid.
By establishing a foreign branch or foreign subsidiary of the company
Despite these advantages labor unions, human rights groups' environmentalists do not favor globalizations. Some of their disadvantages are:
It destroys the environment and undermines cultural diversity
It lowers labor standards and turns the workers into slaves especially of the developing nation.
It suppresses human rights and promotes narcotics, terrorism etc.
It also takes away jobs from the older countries.
Thus I firmly believe that despite its disadvantages, Globalization in recent years has become the definite future path for the industries in order to be successful. Like John Zeglis President of AT&T, said in 1999,"There are two kinds of companies in the future: those that go global and those that go Bankrupt". Hence globalization is a necessity for a futuristic company to be successful