Responding To The Challenges Of Global Markets Commerce Essay

Globalization is no longer an abstraction but a stark reality, that virtually all firms, large and a small, face. Firms that want to survive in the 21st century must confront this all encompassing force that pervades every aspect of business. In a wide range of industries from automobiles to food and clothing, firms face the pressures of global competition at home as well as in international markets. Choosing not to participate in global markets is no longer an option. All firms, regardless of their size, have to craft strategies in the broader context of world markets to anticipate, respond and adapt to the changing configuration of these markets.

Navigating global waters successfully and establishing direction to guide the firm in an increasingly turbulent world environment is a key challenge facing today’s managers. To date, this has largely been perceived as the purview of large multinationals with diverse far-flung operations in all parts of the global market.(1) Of key importance is the need to remain responsive to local markets, while at the same time achieving global efficiency through integrating and coordinating operations across world markets and allowing for the transfer of learning from operations in one part of the world to another.(2)

For large multinationals with experience in plying global waters, this orientation is not misplaced. However, the conclusions and implications do not apply to firms with limited experience in international markets who are just beginning to target customers in other countries and learning how to build operations in these markets. Today, an increasing number of small and medium-size firms are going global and their concerns are markedly different from those of established multi-nationals.

Firms initially entering international markets will be more concerned with learning about international markets, selecting an appropriate arena to compete, and determining how to leverage core competencies in international markets. Once in international markets, firms have to build their position in these markets, establishing a strong local presence by developing new products and adapting to local tastes and preferences. As the firm expands internationally, it will need to move away from country-centered strategies and improve integration and coordination across national markets, leveraging its competencies and skills to develop a leadership position.(3)

The purpose of this paper is to identify the challenges facing firms in global markets and develop a framework which can be applied by all firms in dealing with these challenges, irrespective of their stage of involvement or experience in global markets. First, the four major challenges (change, complexity, competition and conscience), and the implications for firms in each stage of involvement in international markets are discussed. Then, three key management tools for dealing with these challenges are examined – information systems technology, administrative structures, and resource deployment, and their use in each of the three phases of involvement are outlined.

The Changing Globescape(4)

Establishing a clearly defined competitive strategy to provide direction for their efforts was a paramount concern of managers in the ’80s.(5) As competitive pressures became more acute, management recognized that they needed to develop a strategic thrust geared to securing and sustaining a competitive advantage in their served markets. Effective strategy moves were grounded in assessment of the firm’s current competitive position and identification of the skills and capabilities affording the most leverage in the light of future market developments.(6) More recently, the validity of traditional approaches to strategy(7) and even the value of strategic thinking(8) has been questioned. The transformation of the competitive landscape by broad-based changes in technology, structural changes impacting industry, the emergence of new sources of competition, and increased environmental concerns, have all led to a re-evaluation of strategic thinking and strategy development. In particular, the changing competitive landscape and increasingly turbulent environment suggest the need for new approaches and a broader view of how the organization should respond to changing environmental conditions.(9)

Technology is rapidly altering the nature of competition and strategy in many industries. The global proliferation of relatively inexpensive computing power and global linkages of computer networks through telecommunications have resulted in an information-rich, computation-rich and communication-rich organizational environment. Telecommunications and computer networks are changing the way in which managers work and interact, providing links between country-centered organizations, and permitting technology to be rapidly shared and learning transferred throughout the organization. As a result, speed of technological diffusion and change is rapidly increasing.(10) At the same time, the growing technological orientation of many industries and use of computers and telecommunications technology have created greater knowledge intensity and dependency. Often technological knowledge and rapid product and process innovation is the sine qua non to achieving and sustaining competitive success in the global marketplace.

The telecommunications revolution has also stimulated major structural changes in industries and organizations. Vertically integrated, centralized organizational systems have given way to decentralized, highly fragmented fluid structures, linked by agreements, contracts and working relationships. This has radically changed the nature and basis of competitive advantage and the economics of doing business. At the same time, traditional industry boundaries and demarcation lines are breaking down as business and technologies fuse or converge (for example, communications and consumer electronics, entertainment and education) and new industries emerge, with as yet no clearly defined boundaries.(11)

Competition is also intensifying, as globalization changes the boundaries of competition and new sources of competition emerge. The basis for competition is also changing, as new players are able to enter the market with an ease unknown even ten years ago. Information technology has dramatically transformed the costs of doing business and enabled firms to bypass stages in the value chain, for example, going directly to customers, or outsourcing functions and operations. Such factors have changed the nature of the value chain in many industries, enabling new and non-traditional competitors to enter the market rapidly and compete effectively.

Concern over the impact of industrial activity on the environment has also heightened, adding to the complexity of doing business in today’s world. New forms of packaging, demand for recycling, more efficient use of resources, greater responsibility for protecting the environment, limiting toxic waste, as well as to educate consumers and to develop more “user friendly” products are all compounding the tasks and demands placed on the organization. Increasingly, firms are called upon not only to be environmentally and politically correct, but also to be more responsible citizens in all their activities worldwide.

Challenges Facing Global Markets

Involvement in global markets presents the firm with a number of challenges. These challenges influence competitive advantage in global markets, and in part determine how readily the firm can achieve economies of scale and scope as well as realize synergies from operation in a multi-country environment. In striving to develop a strategy that will make it more competitive, the firm must grapple with four interrelated challenges of global marketing strategy – change, complexity, competition and conscience [ILLUSTRATION FOR FIGURE 1 OMITTED].

The rapid pace of change implies that marketing strategy must be continually monitored and adapted to take into account new economic, technological, political and social realities. The interplay of these forces in different geographic areas creates a new complexity as market configurations evolve, taxing the firm’s ability to manage far-flung and diverse [TABULAR DATA OMITTED] operations. The increasing intensity and accelerated speed of competition, constitutes yet another challenge in the path towards success in global markets. Competitors actions also accelerate change and increase the degree of complexity. In addition, growing awareness and concern with social responsibility and ethical issues, such as environmental protection and conservation, or consumer rights, require that the firm develop a social conscience, and heed this in shaping its global marketing strategy (see Table for a summary of the challenges and responses by phase of international involvement).

Change

Rapid change pervades all aspects of operations in global markets as well as the context in which they take place. Not only are the rates of technological evolution, knowledge obsolescence and the intensity of competition increasing at an alarming pace in many industries, but unforeseen events are dramatically changing the political and economic context in which markets develop and strategies are formulated.

Technological change renders product development, production processes, and experience rapidly obsolete and contributes to escalating investment costs as well as heightened competitive pressures. In the notebook segment of the personal computer industry, for example, the cycle of new model introduction has shrunk to less than three months, rendering models rapidly obsolete and requiring constant vigilance to new product development and attention to keeping ahead of the competition.

The rapid pace of change is further complicated by its increasingly discontinuous nature. Until the late 80’s, change was somewhat predictable and linear in nature. Today, established models for predicting change no longer work in many instances due to the discontinuity of change. At one time, market trends and growth in a developing country could be predicted on the basis of trends in more advanced countries ten years earlier. For example, development of telecommunications networks within a country progressed slowly and required massive investment in wires and cables to connect customers. Today’s cellular technology makes it possible for a country to quickly develop a modern telecommunications system and “leap frog” the wire stage. Further, cellular technology opens up the market for fax machines, personal digital assistants, modems, etc.

At the same time, as customers become more mobile and are exposed to new ideas and patterns of behavior through the new global media, the diffusion of new products and innovation takes place more rapidly. Rather than first being adopted by opinion leaders and then trickling down to other members of society, innovations are now spreading horizontally across countries and societies. No sooner does a new trend or fashion emerge in one country than it spreads rapidly to another. Not only are global marketers agents of change in introducing new and innovative products and services to other countries, but in addition, they must respond to the rapid pace at which societies are changing and market trends evolving.

While the pace of change is accelerating, pushed by the engine of technology and global communication, it is becoming increasingly uncertain and unpredictable-occurring in unexpected ways from unexpected sources. Events such as the break-up of the Soviet Union have had far-reaching, often cataclysmic effects on world markets and the geopolitics of world trade. Subsequent political and economic events dramatically halted the rate of economic growth and foreign investment in the Soviet economy. The break up also had an impact on former trading partners such as India, Cuba, Vietnam, and Northern Korea, forcing them to seek out new markets for their products, and sources for energy, arms, minerals, and other raw materials. It also put a sudden end to the Cold War and ushered in a new political era. Industries such as defense, which fed on the desire to maintain the geo-political balance, declined, triggering the realignment of related and tributary industries such as aerospace, electronics, and vehicles.

A new economic order thus appears to be emerging, characterized by new players and new and more diverse patterns of trade. Yet, all these changing patterns appear fraught with uncertainty, as a surge in one direction is countered by a pull in another. A new instability has crept into world markets, threatening at any moment to tilt the precarious balance of economic forces. Moves toward world economic growth, regional integration or the empowerment of Third World nations, can without warning be thwarted by pressures to retreat behind the bulwark of economic nationalism.

Coping with Change

While there is no denying the rapid pace of change, the consequences differ depending on the stage of globalization. Firms in PHASE 1 – international market entry – are relatively less affected by the uncertainty spawned by change, since their scope of international activity is confined to a few markets. Furthermore, they can pace their involvement relative to the anticipated rate of change, and selectively avoid markets characterized by high levels of uncertainty, such as the Latin American markets.

Firms in the PHASE 2 of globalization – local market expansion – with fairly extensive international operations will have to cope with variation in change. Some markets will be changing rapidly while others will be more stable. These uneven rates of change result in multi-directional pulls as the firm attempts to chart a course through the cross-currents of differential change. The difficulties of change will be exacerbated by the number of markets in which the firm is involved.

Firms in PHASE 3 of globalization – global rationalization – will be affected by pervasive change which impacts all aspects of its business throughout markets worldwide. Given the extent of its global operations, this impact will be felt on a continual basis. Not only must the firm cope with change on a market by market basis, but it must also deal with the interlinkages between markets. Thus, change is a constant reality and mechanisms must be developed to incorporate it into the firm’s overall strategy.

Rapid change has both positive and negative aspects. For firms able to adapt rapidly to the new environment, there are countless opportunities. Those unable to adapt will see their market share dwindle. Firms in the initial entry phase have the luxury of picking and choosing markets that are suited to their core competencies. Firms in PHASE 3 – global rationalization – need to focus on retaining strategic flexibility to cope with the rapid change that is occurring at uneven rates in different markets. One of the key responses is to be able to deploy resources so as to help shape change, rather than being swept along by its forces. Firms in PHASE 2 – local market development – are caught in the middle and face the most daunting challenge in coping with change. They have not fully developed the structural mechanisms to coordinate and control multiple interlinked markets and have greater difficulty re-deploying resources across markets.

Complexity

A second challenge arises from the increasing complexity of managing international operations. Technological advances, on the one hand, enable management to direct, coordinate, and control operations on a much broader and diverse geographic scale and scope than previously possible. Yet at the same time, such advances add further complexity, as management has to master the tools and skills required to handle the burgeoning international infrastructure. As the geographic scope and scale of operations extends further and further, management is faced with the task of directing and controlling diverse and far-flung activities at various stages in the value chain, often in widely divergent environmental contexts. Additional layers of organization begin to creep into the corporate infrastructure and further complicate the global management task. With trends toward regional market integration, management systems are established to direct and coordinate market operations within a region, and to provide an intermediate link between corporate headquarters and local management. At the same time, organizational links between functions in each stage of the value chain are added at a global level to ensure the transfer of ideas, information and experience across geographic areas and to exploit potential synergies worldwide. Similarly, as customer markets become more dispersed, establishment of linkages with customers and suppliers becomes increasing critical in order to coordinate supplying and servicing these markets rapidly and efficiently, and to compete effectively in global markets.

Sometimes links are established with other organizations, in some cases competitors, to exploit newly emerging opportunities in specific product markets or parts of the world. Strategic alliances may be formed with firms to provide desired geographic market coverage, or skills and resources needed to implement a given strategy. In other cases, temporary networks are formed by far flung partners (suppliers, customers, and competitors) sharing costs, skills, access, and operations in global markets through electronic links, utilizing the latest information technology, to take advantage of a specific market opportunity. These networks are fluid and flexible, evolving in response to changing market conditions. Once an opportunity is met, or disappears, so the network will disband.

Spatial market patterns are also becoming increasingly complex. Once the configuration of markets was predominant national in character, surrounded by seemingly impenetrable boundaries. However, the gradual breaking down of such boundaries in many parts of the world, means that markets previously viewed as separated and independent are becoming linked and beginning to function as one.

Contending with Complexity

Complexity in the global environment is a product of contextual factors such as technological advances, diverse social and economic change, and political upheavals. More directly, for the firm complexity is intensified by the scope of its operations in global markets, at different levels of the value chain and how they are arrayed across markets, the interlinkages and interdependencies between markets, and the increased blurring of product market boundaries, both functionally and geographically.

Firms in PHASE 1, tend to face relatively simple operating environments. Control and coordination are straight-forward issues as marketing activities are limited to a few countries beyond the domestic market. Decision making is unidirectional emanating from the domestic market base.

As firms expand their international operations in PHASE 2 and begin to focus their efforts on developing products and services to suit tastes in local markets, they begin to encounter a greater degree of complexity. Coordination and control of activities in international markets become more problematic as the appropriate degree of centralization becomes unclear. Organizational structures become more communication intensive and matrixed to reconcile potentially conflicting goals and differing market conditions in each market. Decision making tends to take place on parallel tracks.

Firms with extensive international operations must develop strategy and conduct business in highly complex environments. Outsourcing of functions and establishment of relational networks paves the way for the virtual organization. Business functions become interlinked and interact to allow for optimal control and coordination of activities on a global basis. Companies such as Ford, IBM, and Bristol Meyers Squibb have begun to evolve organizational structures that will allow them to compete effectively into the 21st century.

Competition

Increasing intensity of competition in global markets constitutes yet another challenge facing companies at all stages of involvement in international markets. As markets open up, and become more integrated, the pace of change accelerates, technology shrinks distances between markets and reduces the scale advantages of large firms, new sources of competition emerge, and competitive pressures mount at all levels of the organization.

As more and more firms venture into global markets, competition proliferates, posing new threats and dangers to be reckoned with. In addition to facing competition from well-established multinationals and from domestic firms entrenched in their respective product or service markets, firms face growing competition from firms in newly industrializing countries and previously protected markets in the Third World, as well as emerging global networks or coalitions of organizations of diverse national origins.

Firms from newly industrializing nations such a Taiwan, Singapore, Korea and Hong Kong are increasingly taking the initiative in competing in global markets, rather than acting as low-cost suppliers to firms in the Industrial Triad. The threat of competition from companies in countries such as India, China, Malaysia, and Brazil is also on the rise, as their own domestic markets are opening up to foreign competition, stimulating greater awareness of international market opportunities and of the need to be internationally competitive. Companies which previously focused on protected domestic markets are entering into markets in other countries, creating new sources of competition, often targeted to price-sensitive market segments.

At the same time, spurred by new advances in communications technology and rapid obsolescence, the speed of competitor response is accelerating. No longer does a pioneer in global markets enjoy a substantial lead time over competitors. Nimble competitors, benefiting from lower overhead and operating costs, enter rapidly with clones or low-cost substitutes, and take advantage of the pioneer’s investment in R&D and product development. Modern communications and information technology also encourage rapid competitor response to price changes, or new distribution and promotional tactics, and further heighten the pace of competition.

Confronting Competition

Not only is competition intensifying for all firms regardless of their degree of global market involvement, but the basis for competition is changing. Competition continues to be market-based and ultimately relies on delivering superior value to consumers. However, success in global markets depends on knowledge accumulation and deployment. Firms that win in the market place will be those that can use information to their advantage to guide the delivery of superior value. Further, the increased blurring of product market boundaries and interlinking of markets means that how value is perceived and by whom is less clear.

Firms beginning to enter international markets are in a position to limit competitive exposure by choosing markets that are free of formidable foes. They can zero in on markets where they have a competitive advantage, such as being the low cost supplier in a price sensitive market. In addition, firms in PHASE 1 tend to be dealing with established competitors that are known quantities, and frequently compete on a single dimension, e.g., cost leadership.

Competition mounts quickly for firms in PHASE 2 as they expand their operations in international markets. Not only does competition increase, but it tends to proliferate and become quite diverse. New competition may enter the market, and existing competitors react to the firm’s actions, requiring adaptation of its competitive strategy. Furthermore, the nature of competition may vary from one market to another. In some markets, the firm may differentiate its products, to beat competition while in others it needs to focus on cost leadership, making it difficult to leverage core competencies across markets.

Firms in PHASE 3 of international market development face intense competition throughout the world. Their far-flung operations will encounter competitors of all types who may mount a frontal attack, or cherry-pick lucrative market niches or attempt to block the firm’s expansion into new markets or market segments. In addition, global markets are often highly interdependent, with actions in one market having consequences for many other markets. The astute global marketer will attempt to gain a competitive edge and take advantage of these interdependencies.

Conscience

The fourth challenge relates to the firm’s moral and social responsibilities in the global marketplace. A host of such responsibilities can be identified, covering a broader spectrum of social and corporate issues. Environmental issues, for example, have emerged as a key theme in the 90’s.(12) Companies have become increasingly aware of the need to take measures to limit destruction of the environment. These include measures to limit pollution of the atmosphere through the emission of gases and other toxic substances, to conserve resources such as paper and plastic, whose production results in environmental destruction, and to produce and design products and packaging which are environmentally friendly.

Such measures need to cover all aspects of the firm’s activities from R&D and production to marketing and service, as well as its operations in all parts of the world. Production should be engineered so as to conserve resources and limit toxic waste. Products should be designed to be free of environmentally harmful substances, such as phosphates and fluorocarbons. Use of recyclable packaging and refillable containers also helps reduce environmental pollution.

Another area of social responsibility of particular relevance in international markets is concern with customer education and general well-being. This is often an important issue in marketing in Third World countries, where disadvantaged or poorly educated consumers are less able to judge the merits of a product or service or understand how to use it. Attention to the potential of promotional material or product information to mislead customers is important. While customers in industrialized nations are accustomed to puffery or exaggerated product claims, and are typically highly skeptical of manufacturer-originated material, customers in developing countries are often less well-equipped or less likely to screen such material. Ability to read or understand usage instructions is another issue requiring attention. Hiring support staff to explain appropriate usage and educate consumers is often an effective approach.

Product safety standards should also meet the most exacting international standards, even in countries where no such regulation exists. This is especially critical in the case of products such as pharmaceuticals, where substantial health risks are present. Firms must take the responsibility to provide accurate information to the industry and regulatory bodies, and to educate consumers and distributors to ensure appropriate usage.

Conforming to Conscience

Intense competition, rapid change, and increased complexity in the global marketing environment make it more difficult, but all the more imperative, that a firm act in a socially responsible manner. Firms in PHASE 1 may find the task simpler than those in PHASE 2 and PHASE 3, as their activities are contained in a small number of markets. They may, however, adopt a somewhat parochial approach to social responsibility, applying the standard of their home market in other countries.

Firms in PHASE 2 are likely to be faced with diverse standards of ethical and socially responsible behavior. These conflicting demands often make it difficult to formulate a coherent strategy for dealing with ethical issues in the different countries. Furthermore, they pose a moral dilemma for the firm in terms of whether and how far the firm should impose the ethical standards of its home market in other countries, where these are perceived to be superior. Differing legal systems and codes of business conduct may further complicate the issue.

In PHASE 3, conscience becomes an all encompassing concern. With operations in large numbers of countries throughout the world and with sales volumes exceeding the G.N.P. of many nations, the global corporation must be highly sensitive to the impact of its decisions. Conscience becomes multi-faceted and requires a consistent global vision and strong corporate leadership, to guide actions worldwide. Decisions that impact the environment, workers, and consumer safety and well being in different markets and parts of the world are also becoming more inter-twined. A decision to move production to a developing country has implications for jobs in other markets and potential pollution of the environment, and may give rise to issues of exploitation of Third World workers, or bribes to local officials and so on. The firm must weigh each of its actions and possible outcomes carefully to ensure that they conform to its global social and moral conscience.

Organizational Responses to Global Challenges

The challenges of global markets imply that managers need to radically transform the organization and rethink the ways in which they respond to the new competitive landscape. Organizational transformation involves three main components: 1) information systems; 2) structure of the organization; and 3) deployment of resources. As shown in Figure 2, each component is present in all three phases, but assumes a focal role in one of them. As the firm expands its presence in international markets it builds progressively on the components to establish the foundation for the organizational response.

Information systems play a key role in shaping the response, not only in providing external linkages to the marketplace, customers, agents and suppliers and other organizations, but also in forging links within the organization and creating strong coordinating mechanisms, and enabling the emergence of new organizational forms. Organizational structures also need to be adapted to respond to the changing dynamics of the environmental and competitive landscape. Firms organized on the basis of vertical, hierarchical structures will no longer be able to respond rapidly enough or to compete effectively, and need to be replaced by flatter coordination-intensive horizontal structures. Finally, resource deployment at different stages of the value chain needs to be orchestrated so as to stretch and tap new opportunities in different parts of the globe, while ensuring global efficiently and counterbalancing risk.

The nature of these organizational changes and the specific function which is most salient in engineering change depend on the stage of involvement in international markets. In initial entry into international markets, the establishment of an effective information system relating to customers, competitors and product markets in different countries throughout the world is critical. As the firm begins to establish a presence in local markets, organizational form takes on increased importance. While it is still important to continue building an effective information system and in particular to emphasize collecting information from local sources, building strong horizontal links between organizational units across countries to provide for transfer of learning and experience and improved co-ordination of operations becomes a key priority.

In the final phase of internationalization, the firm seeks to rationalize operations in world markets and map out a globally integrated system. Attention to the deployment of resources assumes primordial importance. These decisions should leverage the firm’s competitive position in global market exp