Global Expansion Management Strategies
Global Expansion Management Strategies
Global world economy can be described as the international wide transfer of capitalism in the past decade. This transfer is been done in all the nations of the world with no restriction from the government. People against Global World Economy argue that it promotes free trade and liberalized market. It thus leads to unemployment in the wealthy nations while creating employment in the poor countries. Supporters of the Global World Economy on the hand argue that free movement of capital spurs investment and economic development in developing countries and it also creates opportunities for employment. It is an economic activity taking place across all the nations of the world, they are interconnected and the consequences would affect all the countries of the world (Waters, 1995). For example the ripples of 2008economic crunch were felt all over the world. This paper seeks to discuss globalization and its importance to the contemporary society. Political and cultural diversities are significant considerations when going global this will also be discussed in the paper. The paper will also seek to exponent the strategies used to attain globalization. It will further identify a country of choice and then give recommendations and suggestions aimed at going global. The paper will then give a summary of the paper and identify possible practitioners who can be helped by this research paper.
Global World Economy
Globalization in today’s world economy is the upsurge of economic integration and interdependence of both the local and original economies all over the world through magnification of movement across the border. The following items define globalization when they cross the border; Goods and services, technologies and capital. Globalization today is characterized by the increasing growing importance of information in all spheres of production activities and marketing. The continuous growth in the development of science and technology is another key feature of globalization today. Globalization of the world economy entirely involves the globalization of finance and production, technology and markets, corporations and labor, organizational establishments and institutions (Boudreaux, 2008).
Since the advent of cross national trade, globalization has been on an expanding trend. It has recorded an exponential rate of growth for the last 2-3 decades under the structures of World Trade Organization and General Agreement on Tariffs and Trade. These two international bodies has led to states of the world to open their borders to trade and reducing any barriers as well as opening their capital accounts and current accounts. Globalization has also been aided by the integration of the economies of the developed world with those of developing nations through Foreign Direct Investments. This has led to lowering and decreasing trade barriers as well as promoting cross border immigration. Developing nations have reaped lots of benefits through globalization, key among them been accelerated income and economic growth. On the other hand globalization has helped in reduction of consumer prices in the developed world. The power balance that exists between the developed and the developing nations has been significantly altered and this has also affected the culture of all the nations. The constant movement of the locations of manufacturing goods has led to movement of jobs across the border, thus necessitating workers in the developed world to change their careers (Hitt, 1999). Globalization has diverse effects to the economy and other related factors of the economy. The following are some of the positive impacts of globalization to the world economy;
Poverty Eradication and Economic Growth:
Poverty levels in the world have gone down due to globalization, whereas the same globalization has led to the upsurge of world’s economic growth. It is worth noting that the per capita incomes of countries that have adapted globalization have continued to experience upward trend since the 1960’s. In the 1960’s their per capita GDP grew by only 1.4% annually, in 1970’s it shot to 2.9% , in the 1980’s the economies grew by 3.5% and in the 1990’s the economy has steadily grown by 5%. In the bid to provide equilibrium the developed nations have experienced a constant decline in their economic growth, in the 1960’s their economies grew by 4.4% and it dropped to only 2.2% in the 1990’s (Waters, 1995).
Countries that have continued to lock the economies of their countries from globalization have significantly undergone economic decline. They have dropped from an economic high of 3.3% in the 1970’s to a low of 1.4% in the 1990’s. It is important to note that this trend of constant economic growth is not due to the India’s and China’s growth of the 1990’s and 80’s. 90% of all countries that have accepted globalization have had an upsurge in their economies. The International Monetary Fund holds that the accelerated benefits of economic globalization are shared across the world. Countries like China have recorded an increase in equality, it should be noted that this is due to liberalization of their domestic market and internal migration restrictions. Forces of international trade have not contributed to the above negativities in China and other countries (Lucas, 2007). Poverty has been significantly reduced; this is evidenced by the 5.4% yearly growth of the poorest population in Malaysia. China which is leading in inequality has also recorded a 3.8% growth in its poorest segment of the population. In the world over citizens living below the poverty threshold set by the United Nations has significantly reduced. Countries that have opened their economies to globalization have narrowed their per capita incomes and hence bridged the gap between the poor and the rich.
Proliferation and spread of Multinational Corporations:
The rise of globalization is directly proportional to the spread of multinational corporations. The corporations have brought about automation in the developing nations; this will definitely slow the growth of non-automated firms and call for retraining of their workers in order to fit into the new changing economy. These multinationals are part of the Foreign Direct Investment that has gone a long way in almost providing a balanced trade between the developed and the developing nations. It is important to note that the coming of these multinational corporations promotes transfer of technology and invention, they do a great deal in the development of infrastructure and other social utilities and it creates lots of opportunities in employment. Through their corporate social responsibility, these multinationals have gone a long way in promoting education, health, and basic community development in the developing nations. Even though critics of the spread of multinational argue that there contribution to the national GDP is insignificant, it should be noted their benefits supersede any corresponding disadvantage. Globalization has done a great deal in promoting the well-being of the citizens of the world.
Cultural and Political Differences
Globalization reduces the significance of nations.
Many countries have organized themselves into trading blocs which have ensured that they reduce the relevance of individual countries. International institutions such as European Union, International Monetary Fund, the G8 and International Criminal Court have assumed the functions of national government hence facilitating the international governments. Managers of corporations that seek to go global need to take into consideration the impact of such integrations and gauge whether they are the best for their businesses or they should avoid working along their structures. This is because in some countries there are waves of anti-western influence. Many of these integrated organizations have their headquarters in the United States of America or in Europe. The managers should ensure that they learn the country’s political landscape including its tolerance levels before venturing into business. For example in the current Ukraine-Russia conflict, the western countries have imposed economic sanctions against Russia while Russia has retaliated by blocking all the trading pacts it has with the western countries (Marsh, 2012). This is a good example that managers should be wary of political dynamics of each country before they embrace globalization.
Even though the world is credited for been a global village, managers of companies should be aware that every country has its sovereignty that should be respected. There are requirements and rafts of legislations that should be adhered to by all trading corporations. Some of these requirements may not be easy to meet; this is now where the managers need to create a close rapport with the individual governments. Some countries may harbor grudges political grudges against natives of another country, managers should be aware of such issues and device ways of providing a lasting solution to such problems. For example there exists bad blood between the citizens of Iraq and Kuwait, occasioned by the invasion of Kuwait by Iraq which led to the gulf war. It may not be easy for a company from Iraq to work in Kuwait and the vice versa. Iraq views Kuwait as pro American while Iraq is anti-western.
Cultural differences are bound to be there in each and every region
One of the greatest challenges that globalization has encountered is cultural dynamics. Even though there is an emergence of a greater American nation, it is not east to blend the diverse culture of the world. Communication and media have done a great deal in trying to harmonize the cultures of the world but this continues to be a challenge. A good example of this is the way the Google group has not been able to penetrate the economy of China. Instead China has developed its own version of the search engine different from the United States based company (Lucas, 2007). China argues that the Google search engine is liberal and therefore, abusive to its population. The culture of China is oppressive and dictatorial management of the country, Google search will therefore, expose and train its citizenry to oppose the undemocratic government. This is the sole reason for the rejection of the Google Company in China.
Managers should have an incisive knowledge on various cultures in order to customize their products and services to fit well in the receptive cultures. For example a manager of a company opening its doors in the United Arab Emirates should be familiar with the Islamic religion. One should understand what to cook, how to cook it, the flavors that should be enjoined in the food and other details. Failure to learn a particular culture and following it to the latter will lead to customers’ rejection and landing into problems with the authorities. It should however be noted that globalization works hand in hand with communication. The world is slowly adapting a similar culture, which is now popularly known as the new great America. People are now talking, dressing and eating in a similar way. This has been done through sharing of information through the old conventional media and now the social media platforms such as Facebook, twitter and many others. It is however, important to note that some societies are extremely rigid and they tend to be conservative thus blocking any change coming their way.
Going Global Strategies
Globalization has been caused by a number of factors key among them been the availability and accessibility of means of transport. People can traverse the globe very easily and in a short time. This therefore, explains the reason why companies are forced to expand globally. Business is all about competition, and various places due to geographical locations tend to be cheaper in conducting business while other are very expensive to conduct the same form of business (Hitt, 1999). Companies therefore, tend to move to areas where they will be able to operate at a low cost and maximize their profits.
Improved transport has made travel very convenient
It is fast, reliable and cost effective. Executive of various companies are able to traverse the globe in search of better economic prospects. For example Microsoft and other software companies located in the United States’ Silicon Valley have been searching for alternative countries where they can do their businesses at a cheaper cost, they have settled in India and Kenya in Africa. On top of other factors this has been occasioned by convenience of transport (Marsh, 2012).
Dynamics of labor
Labor is a very significant factor of production. It determines the success of a company in terms of competence, time and cost. It is for this reason that companies will move from their original locations to other destinations. Africa is considered to be a hub for cheap labor. This would explain why multinational companies have in the last one decade established their businesses all over Africa. Once a company gains access to readily available and relative cheap labor, it is assured of maximizing its profits. In the recent past Africa has been a host to many western companies such as Proctor and gamble, Wal-Mart, Apple and many others (Hitt, 1999). All these companies are scrambling for the available and considerable cheap labor in Africa.
Availability of raw materials
As earlier explained the cost of production determines the profit margins that a company is bound to make. Transporting raw materials to other destination is very expensive and this may lead to the increase in cost of production. Raw materials are usually bulky and thus inconvenient to transport. Companies therefore tend to invest in the close proximity of raw materials. A good example is how the oil companies have set base near the oil wells in Northern Africa, Saudi Arabia and other Oil rich countries (Gupta, 1997). Availability of raw materials in Africa has seen multinationals scrambling for the raw materials. Today Africa hosts more than a thousand multinationals due to its raw material. In the past few decades oil companies were the only ones scrambling for raw materials, today due to the emergence of other minerals such as coal and uranium, diverse companies are constantly setting their base in Africa.
Exploiting gains from economies of scales
sales are everything in business. Companies will always try to focus their markets where they believe they can sell more. This therefore, leads to intense market surveys and market researches. Companies will tend to move to untapped markets where they believe that they will not face intense competition from its competitors. This again explains why many multinationals are moving to Africa and other developing countries in the Far East and Asia. This is because these regions have big populations yet their markets are yet to be exploited. For example the McDonalds and Wal-Mart moved to South Africa at a time when there was an up surging middle class and it was yet to be tapped by any of their competitors (Marsh, 2012). To the two companies this should be a gold mine, because there is little competition if any in the said market.
Strategies to Globalization
As described in this paper globalization is a phenomenon which is so beneficial to the economy. For a company to succeed beyond limits it should work towards globalization. Strategies are however needed in effecting this process of globalization. Here are some of the strategies:-
Learning the Culture: – Learning culture of the host country is so important because the services or products that a company offers should rhyme with the people’s culture. Companies that try to introduce cultures that are different from their target markets fail terribly. For example a pork manufacturer cannot set his base in an Arabian community because they do not take pork. If a company sets such a company it will operate at a loss and it will end up closing shop. While venturing into a new culture companies should invest in serious research (Marsh, 2012). There are situations where an alternative service or product will be preferred to the traditional ones. An example of a region which is used to loaves of bread which are in block form, once a sliced loaf of bread is brought to the market, many customers will opt for the sliced loaf. China was initially great consumers of tea, since it originated from there. However with the advent of coffee China is today the world’s greatest consumer of coffee.
This strategy has the advantage of learning beforehand. A competent manager will be able to learn his market even before he gets into it. Once he enters he will conform to the likes of the region and thus his entry will be seamless.
It is not easy to learn the specific details of people’s culture, it may take some time before one is confident to venture into the market.
Creating a competitive edge: – Managers who wish to globalize their companies, should be aware of the fact that competition is very high. In almost every field there re competitors who are trying to outdo each other. It is therefore, up to the managers to work out strategies that will give them an edge over their competitors. In a market where there is a diversity of choice customers tend to look for the comparative advantage of buying one good or service over the other. For example two barber shops may be charging $5 for a shave, but one of them other than shaving does some massaging and pedicure. Customers will prefer the barber plus to just a barber. Managers could think of packaging, branding or even pricing in order to entice customers.
The advantage of creating a competitive edge is that the company will have a start over the others. This is because the research was done without notifying the competitors. Customers and the competitors will be taken by surprise which will definitely disorient the competitors.
This strategy is only effective at the point of entry. The effect may be neutralized by another innovative idea from the competitors.
Managers should develop a work plan not just a tactic: Going global should start with the establishment of a long term plan that concurs with the company’s vision, mission and its objectives. A manager should also identify the strength of his company against the corresponding challenges. Opportunities of the desired market should also be identified. Before any tactics are employed the specific market should be properly examined and all the necessary expertise put forward to ensure compliance and success (Gupta, 1997).
This is the most appropriate way of venturing into a global market. It focuses on a global approach which is holistic and all inclusive
It is time consuming and requires high technical expertise which may prove to be inexpensive. Companies without proper financing may not be able to articulate it.
Suggestions and Recommendations
A United States based agro chemical company that wishes to expand its market to Africa. The company wishes to expand to Africa especially in Kenya. The company should observe the following in order to venture into the market.
The company should identify the challenges that farmers in Kenya are facing, in order to provide solutions through its products. This would include conducting a feasibility study to identify the crops grown in Kenya, their life cycle and the pest and diseases that affect those crops. It is from this point that the company will know what kinds of chemicals are needed in Kenya.
The company should seek to know the present competitors in the Kenyan market. This should be focused on the efficiency of the chemicals and how do they influence production and growth. It may also include the pricing, packaging and branding. It is from this knowledge that the Agro chemical company will now seek ways of providing an alternative to its competitors. This strategy if well implemented will wipe away the competitors from the market. It is important to note that for any product or service to be preferred over the other should provide an alternative solution.
The US based company should also look at all the agrochemical companies in the Kenyan market and develop all their SWOT analysis. From this analysis it will be possible to understand how each and every company has entrenched itself into the market. A merger may be considered to be the best option or an acquisition. All what is important for the US Company is to make sure that it understands all the dynamics of the Kenya’s agricultural market. This will definitely give the company leverage from the beginning.
Globalization has emerged to be a world’s phenomenon that each company wishes to achieve. There is no doubt that globalization promotes economic trickle down; this is what has been experienced in the developing nations as compared to the developed world. As earlier mentioned, as globalization continues to take charge, economies of the developed nations are constantly losing traction as those of developing nations are aggressively gaining ground. It is therefore; correct to conclude that globalization promotes a possible equilibrium between the rich and the poor. It actually bridges the gap between the two. Companies that wish to reap maximum profits and exploit its potential to the maximum have to adopt globalization. Due to intense competition in business, it is not possible to gain enough profits in a restricted area; it is inevitable that companies have to go global. A competent manager should always be laying a strong foundation with a view of putting the company into a global platform. Here are several ways of going global that includes; Acquisition, Merger and Enfranchising. Strategic management is very vital for the process of globalization, it calls for sobriety and calculated planning.
The other important point is that Globalization is not an event but a process that requires gradual development. This report can be useful to companies that are considering going global. The report recognizes that some companies are struggling in their current locations of operation; they therefore need to lay proper foundations to venture into the emerging markets. Going global should also be done strategically; several factors should be considered to avoid poor judgments. These factors include:- Availability of labor, availability of raw materials, culture of the targeted market, availability of resources and expertise to undertake the global venture. Finally, it is important to note that Globalization has both positive and negative impacts to the world economy, but if properly managed it can be of help to the world’s population.
Boudreaux, D. J. (2008). Globalization. Westport, Conn: Greenwood Press.
Gupta, S. D. (1997). The political economy of globalization. Boston:
Kluwer Academic Publishers.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (1999). Strategic management:
Competitiveness and globalization. Cincinnati: South-Western College Pub
Lucas, L. E. (2007). Unpacking globalization: Markets, gender, and work. Lanham:
Marsh, P. (2012). The new industrial revolution: Consumers, globalization and the end of
mass production. New Haven: Yale University Press.
Waters, M. (1995). Globalization. London: Routledge.