IBE-2500

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17Opportunities and Threats of Globalization

Opportunities and Threats of Globalization: Analysis of Cemex Company

Introduction

Over the past decades, multinational corporations have taken a large market share in the global market. Multinational corporations commonly referred to as worldwide enterprises are organizations that control and own production and manufacture of goods and services in one country or more other than their native country. Typically, multinational corporations export and import goods and service, make vital and significant investments in overseas states, selling, buying licenses in foreign markets, engage in contract manufacturing, and finally open assembly facilities in foreign markets.

Until recently, multinational corporations from developed economies dominated the global market as well as creating opportunities, expanding and indulging in foreign direct investment in developing economies of Africa and Asia. Multinational companies from industrialized economies like the United States, Britain, and other economies invested in emerging markets and contributed much knowledge and experience to other multinational companies in emerging markets. Recently, the trend where multinational companies from developed economies controlling the global market have drastically changed with multinational corporations from emerging markets taking charge of the global market.

MNCs from developing and emerging economies are currently expanding and acquiring assets and companies in developed countries. The impact of MNCs in emerging markets cannot be ignored because of the tough competition they are giving to MNCs in industrialized economies. The emerging market MNCs’ influence and control have increased considerably, and majorities of them have developed into household names across the globe. By learning from the multinational corporations of developed economies, multinational corporations from emerging markets have turned out to be major global players. Similarly, external forces like low labor costs, and government assistance make multinational corporations in emerging market to expand their influence in the global market share. An example of a multinational corporation in an emerging market is the CEMEX. The document presents an analysis of the threats and opportunities CEMEX decision maker face as well as analyzes the main lessons that international business managers learn from different markets.

Theoretical background of multinational corporations

Internalization theory

The internalization theory analyses international business behavior. The theory mainly focuses on market imperfections in the product markets. The theory focuses on transaction cost theory, which states that transactions occur in institutions if the transaction costs are higher than internal costs in the free market. The theory further suggests that internalization results to bigger and many multinational enterprises since knowledge is a public good. According to Forsgren, (2013), pp.100-120, the internalization theory, internalization occurs when multinational corporations and firms perceive that benefits exceed costs. Moreover, when internalization leads to overseas and foreign investments an organization might have to incur commercial and political risks due to market exoticism. The risks are denoted as the additional costs of doing business abroad. When the additional costs are much higher, multinational corporations have to outsource or license production to other firms or produce at home and export to foreign markets.

Eclectic paradigm theory

According to Cantwell, (2015) pp. 67-90, eclectic paradigm theory is an economic theory also known as the OLI-model or framework. The theory is an improvement of the internalization theory. The model combines several international theories (Cantwell, (2015) pp. 67-90). Besides the organization structure of a firm, the theory adds other three factors, which are important for multinational corporations. Advantages of ownership, location and internalization are the key factors that determine the success of multinational corporations in foreign markets.

Ownership advantages like a trademark, entrepreneurial skills, production techniques and returns to scale are the competitive advantages that a multinational establishment has to seek before engaging in foreign direct investment. Location advantages like the existence of raw materials, low tariffs wages further adds up to the competitive advantages for a firm that consider going multinational. Internalization benefits occur when a firm decides to manufacture their own products other than licensing or partnership with other firms. The theory holds that the three conditions are necessary for the success of an international business entity.

CEMEX company overview

CEMEX Company is a Mexican multinational corporation that deals with the manufacture of cement (Hoyt, (2015) pp.45-70). The company provides building material around the world and ensures that it provides high quality and reliable products to their consumers in more than 50 states and maintains trade correlations with over 100 countries. CEMEX is ranked in the seventh place in the world. Over the past years, CEMEX has had a history of acquiring domestic firms within Mexico and expanding on multination markets. Similarly, the CEMEX organization seeks to increase their influence in the global markets through merging and licensing other companies.

To date, more than 55 percent of its main operations and activities operate outside Mexico. The company has moved into South and Central America, Asia, Egypt. Recently, the CEMEX Company acquired assets in the Czech Republic hence allowing it to expand its market in Europe. CEMEX Company unlike other top competitors in the industry is an example of a multinational corporation from an emerging market. At the time when CEMEX went multinational, Mexico was a developing country that lacked Foreign Direct Investment. However, CEMEX Company was bold enough to go for multinational markets outside Mexico.

The multinational corporation aims to develop and deliver high quality and best solutions in cement as well as transforming individual ideas into reality. Besides, CEMEX is committed to making the cement industry grow as well as contributing to nation building by producing high-quality cement around the globe. CEMEX missions are to support the cement industry through contributing to economic growth and infrastructure development. Moreover, its mission is to form a foundation of stronger and stable relationships among its stakeholders. Moreover, the main goals of the multinational corporation are to make the cement industry a leader in the global market through producing excellent cement by use of environmentally friendly products and technologies, maintaining safety and health standards and giving back to the society.

The multinational corporation has core values that dictate how the firm operates in the global market. The main values that denote the company’s behavior are to ensure safety, focus on consumers in order to strengthen customer relations hence encouraging brand loyalty. Besides the other values include pursuing excellence, act with integrity and transparency and finally leverage their global knowledge with all CEMEX companies around the world. These values will help CEMEX increase its competitive advantage in the global market.

Opportunities and threats that globalization creates for CEMEX decision makers

Globalization refers to the process of increasing integration and corporation of diverse economies. Generally, globalization mostly involves the interrelations and integrations of national economies (Hart, (2015), pp.66). Globalization is a complex issue and influences decision-making process of multinational corporations and can bring benefits or costs. Globalization brings opportunities as well as threats for decision maker of multinational corporations. For sustainability and profitability, multinational corporations in emerging markets should ensure that their top managements utilize their strengths and take up any opportunity that the international market presents. Similarly, corporations like CEMEX should also ensure that their weaknesses never turn into threats.

Opportunities

New global markets

Globalization has provided the decision maker with the opportunity of reaching new markets and reaching different sets of market segments. By collaborating with other companies and setting up new firms in foreign markets, CEMEX decision makers have had the opportunity of diversifying and increasing their customer base (Hart, (2015), pp.67-90). New global markets like Africa, Asia, and Europe, are among the emerging markets that the multinational corporation can take advantage. Statistics indicates that most of CEMEX competitors do not operate in African states; consequently, global markets of Africa would be an appropriate destination for CEMEX. For instance, Egypt in Africa provided an opportunity for investment.

Free trade

Globalization has created a way for countries to exchange goods and services. Decision maker of multinational corporations like CEMEX has had the opportunity of ensuring that their company produces goods that they have a comparative advantage (Hill, et al., (2015), pp.100-120). Since globalization encourages free trade, multinational company’s decision makers have the opportunity of producing goods at lower costs, provide consumers with a variety of goods, increase their economies of scale and compete more effectively (Goldstein, (2011) pp. 56-80). Free trade helps reduce barriers like tariffs, and taxes among nations.

Skilled and competent labor force

Globalization encourages mobility and free movement of labor. Increasing labor migration enabled by globalization presents more opportunities for multinational firms. The mobility of labor has advantages to both the receipt countries and the workers (Rugraff et al., (2011), pp.150-167). With globalization CEMEX, decision makers can import skilled and competent workforce from other parts of the world and hence improve their delivery of services.

Increased investment opportunities

Investment by multinational corporations plays a big role in emerging markets. Globalization further enables companies to invest in foreign markets outside their domestic markets (Hitt et al., (2012) pp.50-100). Globalization has enabled decision makers to make informed decisions about the best destinations for investment. For instance, globalization has enabled CEMEX decision makers to learn more about the risks and opportunities of diverse market segments hence come up with the best investment destinations.

Access to information

Information technology and globalization have a correlation. With globalization and easy movement of information across the world, decision makers in multinational corporations have had the chance and opportunity of accessing new sets of information from other corporations. For the case of CEMEX, their decision-making has greatly improved due to globalization. According to Gerardo et al. (2014) pp.77-99, Globalization has enabled them to obtain more information and knowledge, which would be imperative in improving their production activities as well as improving quality for their consumers.

Better understanding of diverse cultures

Globalization allows the transmission of ideas, cultures, values and expressions. Cultural globalization has allowed decision makers to get a better understanding of various cultures and ideas of different people around the world (Beugelsdijk et al., (2014), pp. 1638-1646). Understanding other people’s culture will enable CEMEX decision makers to operate culturally and maintain foreign market values. Globalization further gives decision maker the opportunity to understand overseas values and attitudes as well as get adapted to global cultural trends that influence the profitability and sustainability of multinational corporations.

Increased competition

Globalization has the impact of bringing out greater competition among firms. Previously, monopolies ruled the market and compromised on quality. Increased competition in the global market is a threat to decision making. Decision maker in International Corporation is faced with the problem of increased competition. Critical thinking is now a major task for many firms. For instance, due to globalization, CEMEX has continued facing strong competition from both regional and national brands in South America as well as around the globe. All major competitors of the firm are increasing their operations in Mexico. As a result, decision makers in CEMEX are facing tough competition caused by globalization.

Political problems and insecurity

Multinational firm face several political risks, which affect decision-making (Panić, (2011), pp. 102-120). Political problems may take many forms from terrorism to national government actions like regulations. Many companies have had reduced profitability due to political instability in host countries. If a host country is experiencing civil strife or wars, most of its political decisions prevent capital flow of multinational corporations operating in those regions. Decision maker for MNCs already established in politically unstable regions must ensure that they have legal basis to cover them in an event of disruption of operations. The top management of CEMEX for instance has had to purchase political risk insurance to cover their operations in case of political instability in their target countries.

Economic uncertainties

Globalization encourages free trade around the world. However, random movement in the global market by MNCs is compromised by economic uncertainties, which acts as a threat to decision-making processes (Blanchette et al., (2011), pp.40-60). Changes in interest rates, wages, commodity prices, and exchange rates are the common types of economic threats that policy makers in CEMEX should put into consideration before investing in new markets. Economic risks are likely to lead to financial risks and crisis for multinational corporations. Decision makers are therefore forced to adopt policies, which can help the companies in case of financial instabilities. For instance, MNCs managements have had to adopt flexible sourcing policies, select low-cost investment sites to be able to manage wages or diversify strategies to manage their currency risks.

Resource risk

International markets and overseas markets may lack skilled workforce or adequate technology important for MNCs. Decision maker of multinational corporations may get a challenge when recruiting the right labor force to work in a particular location. CEMEX, for instance, can face problems of poor communication and transport networks if they consider investing in some African markets (Vargas et al., (2016) pp.24). To overcome the threats associated with resource risks, decision makers of multinational corporations should ensure that they integrate global human resource who would aid in identifying, recruiting and training suitable personnel that can help unite the culturally diverse employee into one employee community.

Increased cost of research and development

For more profits and sales, multinational corporations should invest more in research and development. As MCNs from developed engage in research and development Vargas et al., (2016) pp.24 suggests that to improve on their industrial capabilities, the decision maker in MNCs from emerging markets would have to think of more efficient ways that would increase their competitive advantages.

Lessons international business managers can learn about the interplay between home and host country differences in achieving success

International businesses seeking to operate in international markets have understood the differences between their home country and host country since it has an impact on their performance and success (Heinecke, pp. 10-15, 2011). Managers have the role of investigating factors, which may have impacts on the success of the business and learn from those factors. Some of the lessons and factors that managers learn include:

Appreciate culture difference

According to Beugelsdijk et al., (2014), pp. 20, culture is defined as the way of people,
which differentiates them from others or those specific norms, values, and beliefs of a group of people. Managers of multinational corporations like CEMEX should appreciate the diverse culture for the success of the company in foreign markets. The difference between home country and host country may create problems, which may make the success and profitability of a business tough (Beugelsdijk et al., (2014), pp. 1638-1646). As a result, managers should make an effort and show the interest
in learning the cultural values and norms of a host country to show that they respect the beliefs and values of those host countries. Failure to respect other people’s culture may result in failure and loss.

Understand business ethics

The business managers who operate businesses in abroad markets should understand that countries have different rules that regulate business operations, and they should strive to learn the rules and adhere to those regulations. Managers must ensure that their operations in a foreign country follow the government laws and policies. For instance, multinational corporations that aspire to invest in Islamic countries have the mandate to learn how women are treated and viewed.

Importance of language and communication

Communication is imperative for business success (Brannen, (2014), pp.495-507). The ability to communicate in the host country’s language is an added advantage for a manager. Brannen, (2014), pp.495-507 further explains that communication barriers and inability to understand client’s information is a disadvantage and can lead to business failure. Business managers of CEMEX Company should realize the importance of learning the primary or national language of a host country in order to communicate effectively with potential business partners.

Conclusion

Multinational corporations from emerging economies are taking over from MNCs from developed economies. CEMEX Corporation in Mexico is among the organizations from emerging economies. Globalization affects decision-making in multinational corporations. Globalization supports free trade, creates new global markets, present investment opportunities, allow a better understanding of diverse cultures. Besides globalizations risks the threats of insecurity, economic uncertainties, resource risks and increased competition. Consequently, managers in multinational corporations have to ensure that they appreciate diverse cultures, respect business ethics and improve on communication for success.

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