The Challenges Of Globalization In Business Commerce Essay

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Globalization is defined as set of beliefs that foster a sense of connectivity interdependence and integration in the world community.(Christopher, 2005) the towers of globalization are open trade and vital civil and legal institutions that uphold individual and group rights while facilitation social and economic integration. Globalization is a set up a world community that is prosperous and tolerant, and on process that enhances and strengthens global understanding and improves the quality and effectiveness of business, professional, and personal interactions through unrestricted access to world commodities, technology, and information.

Globalization is not synonymous with trade volume and export profits, it is an orientation that seeks to enhance and strengthen global understanding and effective business, professional and personal interactions. ( Larsen , 2007)

Naturally question arises in our mind what are the reasons for globalization?

A company explores global production for a variety of reasons. While there are costs associated with managing and operating a multinational organization, many companies pursue global production because it offers several benefits

(1-a ) Access to cheaper labour and operation costs is one of the most common reasons for location production facilities overseas, labour rates vary considerably among nations. Therefore , for many specific types of production activities, it is cheaper for companies to produce overseas than to extend in their home countries. For many specific types of production activities , it is cheaper for companies to produce overseas than to expand in their home countries. For example , many manufacturing facilities have been set up in china and Bangladesh to take advantage of those countries, lower labour costs. Similarly, many telephone and internet-based customer support centres have been established in India during recent years of lower operating costs.

(1-b ) Sometimes, companies locate their facilities in another country to get access to the knowledge and skills of people in that country. For example, many information technology-based operations have recently been established in several eastern European countries and in india because of the vast pool of highly skilled workers in those areas. It should be noted that access to knowledge and skill does not necessarily come at lower cost. Switzerland, Germany, and Japan are examples of countries where companies locate facility to get access to populations who are highly skilled in financial services, engineering and technology , even though the labour costs are higher.

( 1-c ) Yet another reason for globalization of industries involves access to resources, certain parts of the world are rich in natural resources. For example, many of the minerals-based in south American countries, which have some of the word's largest mining industries.

( 1-d ) Globalization also allows companies access to new markets, by locating facilities in new countries firms can market their products and services to a new set of customers. Therefore , firms always look for growth opportunities abroad. For example, we can see the outlets of many well -known America brands. For examples McDonald's , Marriott, and star bucks around the world.

( 1-e ) Facilities at strategic international locations can also reduce logistics and distribution cost. A foreign location can become a hub for distribution of a firm's products to markets in the neighbouring region. For example, apple, Sony, and other electronics producers operate distribution and warehousing facilities at various strategic locations in north America, Europe, Asia and the rest of the world.

( 1-f ) Sometimes firms locate their facilities internationally to take advantage of tax and financial incentives provided by local governments. To encourage development, many emerging nations have established "tax-free production zones" within their borders. The companies operating within these zones get significant tax rebates and access to cheaper capital. For example, the software development facilities of many international firms are located in SEEPZ,(Santacruz electronics export processing zone) Mumbai, india. because of very attractive tax incentives provided by the local government.

( 1-g ) Finally, firms also locate internationally for political and industry-specific reasons. For example, by locating a production facility in a country, providing employment, and participating in various community activities, a firm can slowly become "local" rather than stay a "foreign" entity. For example, Holden cars are commonly considered to be Australian , but they have been part of the general motors family since the 1920s.

Globalization increasing world-wide integration of markets for goods services labour and capital is caused by developments in modern communication technology such as internet, TV, telephone etc. Transport mechanisms, free international capital flows, changes in economic, cultural, political, social and legal systems.


Today large number of international companies have reconfigured their supply chains during the last decade. The most prominent drivers behind this have been global rivalry , increased focus on market requirements, advances in information and communication technology (ICT), and development in international fright transport systems. Global competition has forced the companies to relocate their plants and distribution centres in order to be both competitive and cost-efficient . In some industries example the automotive and electronic industries, the focal company requires inventory close to the focal company's assembly plants. In other cases, firms are moving their manufacturing operations to low-cost countries in order to be more cost-efficient. The German car industry has step by step moved to Poland, Hungary, the Czech republic, and south Africa, similarly most of the shoe and fashion industries have moved their labour-intensive activities to the far east. Market requirements also force firms to reconfigure their supply chains the increased pressure on time-to-delivery requires firms to be in close proximity to their customers, not necessarily in terms of physical distance, but in terms of time 24-28 hours lead-time demands in Europe are for example, quite usual in several industries. This situation often means that firms have to reconfigure their distribution centres structure in order to meet these requirements. In the same vein, reorganized their production and distribution systems in order to be agile enough to and or logistics is a strategy, which can be used to achieve flexibility and rapid response when addressing changes demand, production postponement means that modular components are produced point downstream in the supply chain, closer to the customer example at the logistic centre of a third party. Logistics postponement is understood as a centralization of inventory, to a single distribution centre or to a few regional distribution centres until the actual orders are received. At this point, the finished goods are shipped by rapid distribution to the customers. Full postponement is the delay of manufacturing until the order is received and after the assembly process. The customized products are shipped directly to the customers. Dell's direct distribution concept is a prominent example of full postponement.

finally, the development of highly efficient and rapid transport systems is an crucial factor in restructuring the supply chain. The removal of trade and customs barriers in the eu has had a substantial impact on the transport industry mergers. Acquisitions and strategic alliances have resulted in the evaluation of competitive global transport as well as logistic operators based on hub-and spoke systems, merge-in-transit and cross docking, the increased outsourcing of logistics activities to third party logistics providers is another significant trend in the transport industry.


Supply management is the coordination of production, inventory , location ,and transportation among the participants in a supply chain to achieve the best S of responsiveness and efficiency for the market being served.( Brindley,2005)

Difference between traditional logistics and supply chain management

Traditional logistics

Supply chain management

Traditional logistics occurs within the boundaries of a single organization

Supply chain refer to networks of companies that work together and coordinate their actions to deliver a product to market.

Its focuses on activities like procurement, distribution, maintenance, and inventory management.

Supply chain management covers all traditional activities and also includes activities such as marketing, new product development, finance, and customer service.



how and when to move product


how much to make and how much to store


where best to do what activity


what, how and when to produce


the basis for making these decision

Fig:- 1 responsiveness versus efficiency

The right combination of responsiveness and efficiency in each of these drivers allows a supply chain to "increase throughout while simultaneously reducing inventory and operating expense" ( Cohen,2005,)

(4.1) production

Production is first driver is supply chain management, production refers to the capacity of a supply chain to make and store products. The quickness's of production are factories and warehouses. The fundamental decision that mangers face when making production decisions is how to resolve the trade -off between responsiveness and efficiency. If factories and warehouses are built with a lot of excess capacity, then can be very flexible and respond quickly to wide swings in product demand. Factories where all capacity is being used are not capable of responding easily to fluctuations in demand. On the other hand, capacity costs money and excess capacity is idle capacity not in use and not generating revenue. So the more excess capacity that exist, the less efficient the operation becomes.

Example:- Dell

Dell claims that the capacity of the limerick factory is huge and it has yet to tap into it all. There is a by ready for future capacity, and some free space. Dell has planning to double the server line's capacity in the next quarter.

as per above theory, dell has little bit different, dell's factory has no warehouses also dell does not built a single computer until it has been ordered and credit 'credit cleared because they want to take any chances. According to dell, automation prevents dynamic change. Dell orders are receiving by business units and downloaded every 15 minutes. The orders are then put into a factory planner, which takes an inventory snapshot and generates material requests. Dell's suppliers respond to these requests within two hours. All the suppliers have local hubs, and are obliged to have two weeks of stock ready.

Factories can be built for manufacturing of product focus, a factory that takes a product focus performs the range of different operations required to make a given product line form fabrication of different product parts to assembly of parts. (Sheikh, 2003)

The factory has five assembly lines for desktop PC, two for notebooks and a server line. However, all the lines can be changed according to demand. Lines 4 and 5 are flexible and can build portables or desktops as per demand. The process begins in the kit area, moves to the build area, the may go to the custom factory line for anything not usual that need to be done. Dell assembles the system and does a quick test, to make sure the order is correct early on . This aims to verify the product rather than validate it. The test takes five to six minutes, the unit goes back on the conveyor belt. After this, dell breaks the seal on the unit, loads the software and makes sure the applications run correctly. This takes four hours for a desk-top. Technicians roam the area to finds fails as soon as possible, and find out the reason. If one unit fails it could hold up 50 units behinds it. Next the labels of authenticity are added, naming companies such as Microsoft and into the unit then gets a general clean, goes in a box, and a barcode label is put on the box. Then, 10% of the products are audited on a random basis, to verify all the work processes done in the cell. Dell wants to ensure it's not affecting its liability or the customer experience.

As with factories , warehouses too can be built to accommodate different approaches such as stock keeping unit( SKU ) storage,. Basically in SKU all of a given product is stored together. On the other hand in job lot depot, all the different products related to the needs of a certain type of customer or related to the needs of a particular job are stored together.

Dell has 40 bay doors at the far side of the factory. As there are no warehouses the completed products go right out the gates. The model is continuous flow manufacturing where parts come in, dell built the products and they go out the other side.

"New technologies for supply chain management and flexible manufacturing imply that business can perceive imbalances in inventories at an early stage- virtually in real time and can cut production promptly in response to the developing sings of unintended inventory build up." ( Chang, 2004)

4.2) Inventory

Second driver in supply chain management is inventory. Inventory is circulate throughout the supply chain and includes every thing from raw material to work in process to finished goods that are held from row material to work in process to finished goods that are held by the manufactures, distributors , and retailers in a supply chain. Holding a large amounts of inventory allows a company or an entire supply chain to be very responsive to variation in customer demand. However, the creation and storage of inventory is a cost and to achieve high levels of efficiency the cost of inventory should be kept as low as possible.

Example:- HP imagine and Printing Group

Hp imagine and printing group is the global leader in inkjet supplies and printing products . In its initial employment of multi-echelon tool, the inkjet supplies organization slashed on-hand inventory by 20-30%. Hp uses the tool to factor in time-phase forecasts, forecast accuracy, manufacturing yields, stage times, and other variables to generate target safety stock at an item-location level, as well as total pipeline levels. Updated parameters are fed back once a quarter into hp's ERP system for execution.

Previously, general practice was to designate all products at a location similar weeks of supply if they had similar volume or were at a similar life cycle. Stage. With the multi-echelon tool, n hp found it was carrying too little inventory for items with special packaging, which had lumpy demand, and too much inventory for low-virility, high volume packaging operations. The group also found that for items with long lead times, it had to increase buffer inventory at certain points in the supply chain, but that by doing this the overall service levels to customers could be improved. In aggregate, this new approach both reduced inventory list and improved customer satisfaction.

4.3) Location

Location is third driver in supply chain management. A location approach that emphasizes responsiveness would be one where a company opens up many location to be physically close to it customer base. Efficiency can be accomplished by operating from only a few locations and centralizing activities in common locations.

Example :- Toyota Motor

Toyota's motor running manufacturing operations at different location globally such as Argentina, Australia, Bangladesh, brazil, Canada, china, Colombia, Czech republic, France, india, Indonesia, Kenya, Malaysia, Mexico, Pakistan, Philippines, Poland, Portugal, south Africa, Taiwan, Thailand, turkey, UK, USA, Venezuela, Vietnam. But all these activities are control and centralize from the Toyota's headquarter Japan.

Fig2. Worldwide Location (Toyota, 2009)

(4.4) Transportation:-

Fourth driver in supply chain management is transportation. Responsiveness can be achieved by a transportation mode that is quick and flexible. Many companies that sell products through catalogs or over the internet are able to provide their products, often within 24 hours. Efficiency can be emphasized by transportation products in larger batches and doing it less often. The use of transportation modes such as ship, rail and pipelines can be very efficient, transportation can be made more efficient if it is originated out of a central hub facility instead of from many branch locations.

Example:- FedEx

Transportation management has become the most outsourced component of supply chain management and FedEx as well .

Fig:-3 FedEx transportation management process (FedEx, 2009)

From above fig it is clear that FedEx receiving customer order by telephone or by internet tools like shipment visibility, web order entry, event management /altering etc. Web-based management of customer order allows customer to review, confirm and even change order attributes, no just once but at multiple stages before dispatch. Then customer can view inventory motion, receive event alerts as they occurs, as supply proactive notification to customers before an event becomes an unexpected and unpleasant surprise. And then order transfer to FedEx transportation management, which perform various roles like, verification of order, planning for dispatch, financial settlement and operational reporting that can reduce administrative costs further more FedEx monitor customer compliance , validate order accuracy, and employ sophisticated planning processes to minimize overall transportation expense. FedEx also give customer the confidence of knowing that there is a group of dedicated , experienced professional making sure customer shipments come and go as planned. With such kind of visibility and peace of mind, FedEx can deliver reliability to customers, then FedEx transportation management pass the tender with various options such as FedEx express, FedEx ground, FedEx fright, FedEx custom critical, FedEx trade networks, after that status for delivery transfer to again FedEx transportation management and finally FedEx transportation management load plan to shipper facility. Shipper facility at FedEx transportation management is very flexible which help customer for lower transportation expense through a process of consolidation, aggregation, mode selection, and service levels. Shipment management at FedEx transportation delivers customer products where, when, and how they want.

According to my opinion if supply chain management is not FedEx core business, it can take too much attention away from what is. And that is not the way to stay competitive in today's apparel marketplace, where late arrivals can mean lost sales and excess inventory.

(4.5) Information:-

The power of this driver grows stronger each year as the technology for collecting and sharing information becomes more widespread, easier to use, and less expensive. Information is the basis upon which to make conclusions regarding the other four supply chain drivers. It is the connection between all of the activities and operations in a supply chain. This will also tend to maximize the profitability of the supply chain as a whole. That is the way that stock markets or other free markets work and supply chains have many of the same dynamics as markets.

Example :- Procter and Gamble

In the 1990's, P&G, began to research this phenomenon after a series of particularly erratic shifts in ordering up and down the supply chain for one of its most popular products. Pampers disposable diapers. After determining that it was highly unlikely that the infants and toddlers at the ultimate user level were creating extreme swings in demand for the product, the review team began to work back through the supply chain. It was found that distributors orders showed far more demand variability than found at the retail stores themselves. Continuing through the supply chain, P&G's order to its supplier, 3m, indicated the greatest variability of any of the supply chain linkages. Four causes of this phenomenon were identified .

Demand forecast updating, order batching, price fluctuations, rationing within the supply chain.

Information is used for two purposes in any supply chain such as coordinating daily activities related to the functioning of the other four supply chain drivers , production , inventory, location, and transportation. The companies in a supply chain use available data on product supply and demand to decide on weekly production schedules, inventory levels, transportation routes, and stocking locations.

Forecasting and planning to anticipate and meet succeeding demands. Available information is used to make tactical forecasts to guide the setting of monthly and quarterly production schedules and timetables , information is also used for strategic forecasts to guide decisions about whether to build new facilities, enter a new market or exit an existing market,

Information in supply chain management, "much like money, is a very useful commodity because it can be applied directly to enhance the performance of the other four supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generate by the operations of the other four drivers."(Gattrona,2009)

5. Conclusion

In conclusion i would like to emphasize that effective supply chain management requires simultaneous improvements in both customer service levels and the internal operating efficiencies of the companies in the supply chain. Customer service at its most basic level means consistently high order fill rates, high on-time, delivery rates, and a very low rate of products returned by customers for whatever reason. Internal efficiency for organizations in a supply chain means that these organizations get an attractive rate of return on their investments in inventory and other assets and that they find ways to lower their operating and sales expenses.

There is a basic pattern to the practice of supply chain management. Each supply chain has its own unique set of market demands and operating challenges and yet the issues remain essentially the same in every case. Companies in any supply chain must make decisions individually and collectively regarding actions in five areas such as production, inventory, locations, transportation, and information.