Individual Research Essay of International Business Environment crouse
Opportunities and Threats Created by Globalization A Case of Samsung Electronics
Opportunities and Threats Created by Globalization A Case of Samsung Electronics
The term “globalization” is an important phenomenon, whose impact has been felt far and wide. The greatest impact of globalization has particularly been felt in the business environment, where it has acquired an emotive force (Osibanjo et al. 2014, p. 1). Today, there is an ongoing debate among policy makers, business managers and industry analysts concerning the benefits and threats associated with globalization. Even as the debate continues to rage, there has been a consensus in literatures that globalization presents both opportunities and threats that decision makers, especially managers of multinational enterprises need to understand as they seek to take advantage of globalization. South Korea’s Samsung is one of the fastest growing technology companies from an emerging market that has taken advantage of the opportunities presented by globalization to explore markets beyond its domestic market (Samsung 2017). This essay analyzes the opportunities and threats that globalization creates to decision makers with reference to Samsung Electronics. In developing the essay, the paper begins by defining the concept of globalization and proceeds to analyze the opportunities and threats that globalization has created for Samsung Electronics. The third part of the essay presents the lessons that multinational business managers can learn from interplay between home and host country differences in achieving success.
Concept of Globalization
The concept of globalization has many connotations and is defined differently depending on the field. The term globalization has been defined as the integration of the world economies mainly through financial flows and trade (Steger 2013, p. 4; Steger 2010, p. 6). Boudreaux, D. J 2008, p. 2) defines the term globalization as the movement of people and knowledge (technology) across borders. Osibanjo et al. (2014, p. 1) define the term globalization as the integration of cultural and political matters. Although the term globalization means different things to different people and fields of study, the common denominator is that globalization broadly means integration of world economies, trade, finance, culture, politics, environment and people aided by technological developments.
Opportunities Created by Globalization
Multinational companies are arguably the greatest beneficiaries of globalization. Although literatures indicate that globalization sometimes impact on multinational companies in a manner that managers of those companies might not like, there is agreement that globalization has created numerous opportunities for multinational companies. The first greatest opportunity that globalization has created for multinational companies are providing them with access to market opportunities. Steger (2010, p. 12) notes that globalization has provided multinational companies with access to markets that they would otherwise found difficult to access in the past. The integration of world economies and trade has resulted in the elimination of trade barriers and tariffs that made it difficult for companies to expand their businesses to foreign markets. Because of globalization, there has been an increased trend towards the formation of regional and national economic blocks and this has resulted in the elimination of past trade restrictions and tariffs while opening up the world for business and trade between nations and this has created opportunity for multinational companies to expand their markets beyond their domestic market to foreign markets, where there are attractive opportunities. Samsung is an example of a company from emerging market that has benefited a great deal from globalization that has enabled the company to have access to market opportunities in foreign nations. Today, Samsung operates in more than 60 countries across the globe and the company continues to expand its market (Samsung, 2017). Few examples of these markets include the UK, China, the USA, Malaysia, and Nigeria, Brazil and India, just to name but a few. The company’s financial reports indicate that most of Samsung’s sales and profits are generated from its subsidiaries in foreign nations while its home country Korea generates only a small fraction of Samsung’s revenue and profits and this underscores the extent to which globalization has benefited Samsung by enabling it access markets that it could otherwise not able or found difficult to access (Samsung 2015).
The internet is the other aspect of globalization that has created opportunities to multinational companies by increasing their market access. According to Statista (2017) report, more than 3.5 billion people have access to the Internet. The rapid propagation of the Internet of the Internet has turned the world into a virtually global community. Accordingly, because of the Internet, multinational companies are now able to get access to customers from anywhere in the world as the digital platforms, such as websites allows customers to order products from a firm from anywhere in the world and have them delivered by airplanes or ships to their doorsteps in a matter of days or few weeks. This is an excellent opportunity for multinational enterprises that stands to increase their customer base by reaching out for overseas customers (Sledge 2006, p. 81). The propagation of the Internet in the world has particularly created opportunity for Samsung, which has created an online retail platform, where customers from across the global can order its products and have them delivered in a matter of days. Without the Internet and its propagation in the world, Samsung would have still depended on bricks-and-motor stores for sale of its products and this would have restricted its customers to only countries, where the company has physical stores and distributors for the sale of its products (Samsung 2017). According to Samsung’s annual report, online sales have become a huge source of revenue for the company (Samsung 2015).
The other area that globalization has created opportunity for multinational enterprises is in access to labor. High cost of production is one of the biggest challenges that most companies face. However, the challenge of high cost has been lessened by globalization that provides multinational companies with the opportunity to access cheap labor from foreign markets (Steger 2010, p. 26). With globalization, big companies are now able to outsource or off-shore by either hiring employees cheaply from foreign countries or moving their production facilities to low-cost countries. In the last few decades, there has been a rush by multinational companies that are off-shoring by relocating their manufacturing facilities to low-cost nations to take advantage of low cost of labor and raw materials in such nations (Stiglitz 2002, p. 45; Ionescu & Dumitru 2011, p. 92). Samsung is an example of multinational companies that has been taking advantage of the opportunities provided by globalization by moving its manufacturing facilities to low cost countries. Initially, Samsung established relocated its manufacturing facilities to China because of the low cost of labor and materials. However, because of the rising labor cost in China, Samsung has been forced to move its production facilities in China to Vietnam, a low-cost country by putting up a $2 billion manufacturing facility in 2014 that it hoped to enable it make up to 120 million handsets by 2015 (Bloomberg News, 2014). Samsung has also made similar moves by building manufacturing facilities in Egypt and South Africa whose cost of raw materials and labor are still relatively lower than South Korea.
Globalization also creates opportunity for decision makers of multinational companies by allowing businesses to partner with other companies across the global for reasons such as enjoy economies of scale, acquire technological knowhow in partner and market growth among other reasons (Haller 2016, p. 11). Today, a lot of European, American and Asian firms have formed corporate partnerships that spans across the globe. Samsung is an example that has benefited from such opportunity created by globalization. Just recently, globalization provided Samsung with the opportunity to partner with China Mobile for 5G (Min-hyung 2016). The partnership has been strategic as it is expected to enable Samsung penetrate into the biggest telecommunication market in the world. At the same time, China has just entered into a partnership with American telemedicine provider American Well with the aim of creating a new and advanced level of healthcare service (Mack 2017). The partnership deals that Samsung has entered into in recent years have been made possible by globalization of the world markets.
Globalization also offers multinational companies with the opportunity to reduce their tax burdens through transfer pricing. With globalization, companies are not able to reduce their tax obligations by shifting profits to tax haven countries where their subsidiaries are located and this allows multinational companies with huge profits after taxation (Hill 2005, p. 29). Big multinational companies, such as Google, Apple, Ikea, Microsoft and Starbucks have been taking advantage of tax havens created by globalization to dodge paying huge taxes through transfer pricing and this has enabled these firms remain with huge profits that would otherwise be paid in form of taxes (Turley 2011, p. 97). Samsung is the other company that takes advantage of globalization by shifting its profits to tax haven countries, such as Switzerland.
Threats Created by Globalization
The above analysis has indicated that globalization has created numerous opportunities for multinational companies like Samsung. However, globalization has also exposed multinational firms to certain threats. The first main threat faced by multinational companies because of globalization is increased competition. With globalization, companies no longer compete only with domestic firms in their home country, rather with several other multinational companies. (Goldsmith & Mander 2003, p. 31). In the case of Samsung, the Korean company now operates in a saturated and highly competitive business environment because of globalization. In Korea, for example, Samsung has had to compete with giant technology companies, such as Google, Microsoft, Sony and Apple among others and the same applies to in foreign markets, where the company still faces competition from these multinational firms, among others.
Political and legal risks are another threat that multinational companies are exposed to because of globalization. Political and legal factors are some of the external environmental factors that affect businesses. However, different countries have different laws and regulations governing how businesses operate. In some countries, political instability exposes multinational companies to risk of business being destroyed or lack of market (Sledge 2006, p. 86). Additionally, high taxes charged in some countries are another major political threat that multinational companies are exposed to when operating in a foreign nation. Samsung is case example whose manufacturing facilities have been exposed to political and legal risks. For instance, Arab Revolution that swept across Arab countries beginning 2009 affected Samsung businesses in Arab countries, such as Egypt, where the company operates a manufacturing facility (Samsung 2015).
Additionally, globalization also exposes multinational firms to cultural risks. According to Geert Hofstede, the national culture of a country of a country has a big impact not only on how companies conduct business, but also on the consumer behaviors. Globalization has resulted in increased emigration and immigration of people to different parts of the world and this has resulted in culture change (Goldsmith & Mander 2003, p. 96). Because of this, multinational companies are finding it difficult defining their market because of culture change and this exposes them to the risk of failure. Samsung face a lot of challenges when it comes to dealing with different cultures. For instance, Samsung has been forced to design products and provide services that are tailored to suit the needs of consumers from different culture and this has been costly to Samsung.
Moreover globalization creates a threat to multinational companies by exposing companies to global financial crisis. Because of globalization, economies are more integrated with no country operating in isolation. Because of this, when the economy of one country is affected, this affects the economies of other countries that trade with that country. The interdependence between economies of the world became clear during the 2007/2008 global economic crisis. Although the crisis started in the U.S., the crisis spread to the rest of the world because of globalization and this has seen some economies continue to struggle, which threatens the success of multinational firms (Stiglitz 2002, p. 73). Samsung is among the multinational companies whose performance was adversely affected by the global economic crisis that started in the U.S., notwithstanding the fact that it is a Korean company.
Lessons That Multinational Business Managers Can Learn From Interplay Between Home And Host Country Differences In Achieving Success
Businesses are affected by the external environmental factors that differ from one nation to another. The home and host country business environments differ politically, economically, socio-culturally, technologically, legally and environmentally. These differences present both opportunity and threats (Ionescu & Dumitru 2011, p. 89). For instance, the growth of the economy of a foreign nation, couples with political stability and technological developments makes a foreign nation attractive for investment. However, political instability, high corruption index, wide cultural distance and tough laws, such as high taxation can be a threat to business (Hill 2005, p. 51). Therefore, managers of multinational businesses, such as that of Samsung can learn from the differences by identifying the opportunities that are presented in the foreign market and exploit them but at the same time take appropriate measures to overcome the threats that host country may present to a multinational company. For instance, when entering a foreign market whose culture is far from that of the home country, it is important that managers of multinational companies to align their business strategies according to the national culture of the host country in order to succeed (Goldsmith & Mander 2003, p. 14). For instance, when entering the Chinese market, Samsung was forced to align its human resource, product and service strategies to suit the prevailing market conditions of China.
Globalization is a great phenomenon of the 21st century. As discussed in the paper, globalization creates both opportunities and threats to multinational company’s decision makers. The opportunities created for multinational enterprises include access to new markets, access to cheap labor, partnerships and tax shifting opportunities. However, globalization also creates political, legal, economic and cultural threats to multinational businesses. Multinational companies need to understand interplay between home and host country differences in terms of politics, economic, social, technology, economic and legal environment. This is because the differences in external environment present opportunities that can be exploited and threats that need to be overcome to achieve success.
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