INFLUENCE OF OPPORTUNITIES AND THREATS OF GLOBALIZATION ON DECISION-MAKING
Influence of Opportunities and Threats of Globalization on Decision-Making
INFLUENCE OF OPPORTUNITIES AND THREATS OF GLOBALIZATION ON DECISION-MAKING
Influence of Opportunities and Threats of Globalization on Decision-Making
Globalization is the process of international integration that emerges from the trade and cultural exchanges between countries (Christopherson & Martin, 2008 p.345). It has led to the expansion of markets hence an increase in the quantity of goods and services production. Various corporations have taken advantage of this opportunity to venture into new markets hence expand their operations across national boundaries. This however attracts various threats as well as opportunities that affect the direction of the corporations. The external business environment offers major challenges to corporations due to their inability to control conditions in order to suit their operations. Instead, corporations therefore need to adjust their operations continuously to suit changes in the external environment. The international market comprises of several players hence every business must work towards being the best by gaining a competitive edge in order to survive and thrive in the industry. Opportunities and threats are the external factors that every organization should observe since they dictate its direction. SWOT analysis is a useful tool in conducting an industrial analysis to determine the position of the organization in relation to other organizations in the same industry. This essay analyzes the influence of globalization threats and opportunities on the process of decision-making. It will assess the magnitude of influence these factors have on the operations of a multinational company as it designs a plan to penetrate foreign markets.
Wal-Mart Stores Inc. is the multinational company that will assist in the in-depth analysis through exploration of the global and local environment’s influence on its decisions. This will involve an assessment of influential factors within the home country as well as the host country.
Wal-Mart Stores Inc. is an American multinational corporation operating under the name Walmart in the retail industry. It operates a chain of discount department stores, grocery stores, and hypermarkets headquartered in Bentonville. The company founded in 1962 operates 11539 clubs and stores in 28 countries across the globe. It is the largest company by revenue and the world’s largest private employer with 2.2 million employees. The corporation’s journey of growth began after its incorporation in 1969. It expanded to become a regional power in the 80s before expanding further to become a renowned multinational corporation.
The company has operated since 1962 meaning it has a long history of experience in the retail industry. Its reputation has grown over the years of consistent quality services to its customers across the globe. Its market share has hence increased due to the growing number of customers that consume its products in the 28 countries. Its wide range of products offered in the stores contributes to the high-level customer satisfaction across its outlet stores. The company therefore has a high level of influence due to its presence in several countries with different cultures. Operating in a large scale ensures that it enjoys economies of scale where it increases its capacity while reducing costs (Telo, 2013 p.121). This has increased its profit margin by increasing its revenue base and reducing operational costs. The high number of employees has played a major role in provision of quality services to customers and other stakeholders.
Globalization has opened up the international market by making it easier for corporations to do business with other countries. Walmart is an example of corporations that have benefited from opening up of the market and it has the opportunity to expand its operations further. Technological advancements offer an opportunity for the corporation to expand its operations further and easily monitor operations across the globe (Oyvat, 2011 p.132). It also offers the opportunity for the corporation to run its operations exclusively online hence cut down on operational costs. This would reduce the number of employees and the amount of rental expenses spent on renting physical stores.
Operating a multinational company opens Walmart to several challenges due to difference between the home country and host countries. It faces cultural challenges in handling customers with different cultural values (Hofstede, 2000 73). Its products and services may suit one group of consumers but may not work across the globe due to lifestyle differences. Standardization of products and services therefore threatens to lower the level of customer satisfaction hence lowering its market share. Walmart faces competition from local firms that have tailored their products to suit unique needs of certain markets. This is a major challenge since the corporation has to adjust its products continuously to suit the culture, beliefs, and lifestyles of local communities. Operating in a large scale threatens the quality of services offered to customers due to absence of personalized services.
This essay explores factors that influence a multinational corporation’s decision-making process that determine its operation strategy. Opportunities and threats in both the home country and host country affect the strategy adopted by a corporation (Laufs & Schwens, 2014 p.73). There also exist differences in these markets that shape the decision-making process of such organizations since they dictate adjustments needed in operations to suit unique market needs. The analysis therefore follows the following theoretical framework:
Factors within the firm influence the strategy adopted by an organisation in regards to its current operations as well as plans of expansion. The environment within the country in terms of legal, political, and socio-cultural factors also influence the expansion strategy of the organisation. It therefore becomes important for the organisation to assess both internal and external factors when expanding within the local market. Expansion into foreign markets also requires consideration of these factors since the organisation will have to deal with both local and international factors. (Chan, Finnegan & Sternquist, 2011) explores the drivers of retail performance at the firm level as well as country level. This further leads to an assessment of retail strategy and globalisation of retail business on an organisation’s performance. The findings and conclusions indicate a strong relationship between the speed of expansion and growth in sales. A negative relationship exists between growth in sales and several sales formats. Retailers venturing into less developed nations characterised by a high disposable income prove more successful. This means that the country’s environment determines the success level of an organisation. Accommodating factors within the country will ensure a high level of performance and vice versa.
Globalisation presents numerous opportunities for firms seeking to expand their operations beyond the home country’s boundaries. The management needs to consider the opportunities available due to the expansion of the market over a larger geographical area. Increased access to markets and labour are the main opportunities that accompany globalisation (Acosta, 2010 p.57). Expansion of the market enables the firm expand its operations in order to satisfy the growing demand for its products. This results into high sales volume as the firm sells more units. The firm however needs to assess its pricing model to suit the foreign market as well as the local market. Pricing adjustments are necessary due to differences in the economic capacity of consumers in the new market. Venturing into a country with low economic development requires the firm to consider the different needs of consumers in this area as well as the level of their disposable income. Consumers in such a market require basic commodities such as food and may lack the income to spend on luxurious products. This means that the management should decide on an appropriate pricing system for the market as well as the types of products going into the market. Availability of labour in new markets means that management has to assess training needs of the potential employees and create suitable recruitment plans. The plan will enable attraction of the right people to work for the firm and facilitate the operation of the firm in its new territory. Opportunities presented by globalisation influence decisions of pricing, human capital management, and the type of products offered to the new market.
Competition is a familiar element for every business operating in an industry with other major players. However, expansion of the market translates into intensified competition as other firms identify opportunities in the new market. It becomes a scramble for the new territory hence the need to make tactical decisions that will give the firm a competitive edge. (Dreher, Gaston, Jozef & Martens, 2008 p.66) suggests that competition emerges from firms in the foreign market who are familiar with the market’s dimensions as well as foreign firms seeking to invest in the new market. Firms already established in this market have an upper hand since they have an experience with the economic, political, and social factors within the market. Globalisation also opens up local markets to foreign interaction, which accompanies cultural exchange (Savitz, Shackman & Fitzgerald, 2016 p.11). This has an effect of the perception of consumers as they adopt new lifestyles from foreigners. Firms therefore have to deal with changing consumer preferences and adjust their products and services accordingly. The marketing strategy of the firm therefore requires frequent adjustments to cover changing lifestyle changes. Frequent market research is also necessary to identify the needs of consumers and track their changes over time. Globalization therefore does not only present opportunities to firms but also poses threats that require firms to adjust their competitive and marketing strategies in order to succeed in penetration of new markets.
Challenges Faced By MNCs
Multinational corporations face numerous challenges in their expansion into foreign markets due to the high level of uncertainty accompanying this expansion (Robinson, 2000 p.79). They face management challenges since the firm expands its operations through opening new branches. Management has to keep up with this expansion or else the corporation faces the threat of collapse. Through venturing into new markets, the corporations face complicated laws and regulations necessary for them to operate in these markets. These laws regulate how the corporations conduct business in these markets, which may disadvantage them in many ways. Regulations dictate the quality of products offered by the corporations as well as additional compliance requirements such as environmental protection. The laws work in the favor of local firms and protect these firms from stiff foreign competition, which has a negative implication on multinational corporations. Such laws and regulations may disqualify some corporations from operating in a certain market hence denying them the opportunity to enter the market. Additional taxes are also major challenges facing multinational corporations that undergo double taxation in some instances (Smith, 2003 p.15). This reduces their profit margin significantly hence affecting the economic value of expanding operations into the foreign market. Economic factors also pose a major challenge to the corporations since they affect the performance level. Poor infrastructure for instance is a major challenge for corporations expanding into developing countries that experience a lower level of economic development. Walmart’s experience offers a perfect demonstration of challenges facing multinational corporations in their journey of expansion into foreign markets. It has faced various challenges in its globalization journey that have significantly affected its operations. Its penetration of Chinese market for instance has hit political, economic, and cultural obstacles since its commencement in 1996. It has had troubled relationships with politicians, legal troubles due to product violations, cultural differences, and poor economic infrastructure. The economic downturn in Mexico has also had major financial implications to the corporation’s performance. All these factors demonstrate the challenges multinational corporations face when operating in foreign markets.
Role of Home and Host Country Differences
Multinational corporations operate in both the home and host countries hence deal with environments in different countries. These environments differ from one country to another in terms of the economic, political, legal, and cultural factors. Economic differences emerge due to different development levels between countries. Economic factors include income levels, infrastructure development, living conditions, and educational level among others (Samimi & Jenatabadi, 2014 p.33). These factors dictate the revenue of the firm and require adjustment of financial plans and strategies. Political and legal factors involve the governance of the host country in terms of their policies, laws and regulations (Kline, 2005 p.114). The host country may have very different laws and policies from the home country requiring the organization to make major adjustments in its operations. Some laws and policies may negatively affect operations by providing a long list of compliance requirements meant to regulate the firm’s operations to a certain level. Cultural factors determine the language, religion, and lifestyles of consumers in a certain market. Difference in culture will require the firm to adjust its products and services to accommodate the unique needs of consumers in the host countries. Walmart has faced major challenges presented by difference in the home market and the host market especially in the Chinese market. Poor economic infrastructure is a major challenge in developing countries due to the low level of technology that interferes with the organization’s supply chain efficiency. Walmart has faced problems in understanding and dealing with the complicated political structure in china leading to major problems. Strict legal restrictions have also landed the corporation in problems leading to payment of fines. Cultural differences qualify as the paramount challenge since Chinese people have a very different culture from the west. The company has invested many resources in understanding this culture and incorporating its elements in its products and services. Market differences therefore pose a challenge to multinational corporations since they must adjust their operations to accommodate necessary changes.
Lessons to International Business Managers
International business managers have major lessons to learn about the opportunities and threats presented by globalization. Opportunities offered include a wider access to market and labor that works towards facilitating the expansion of operations. These promise to expand the business and increase the revenue base of the firm. However, expansion of operations attracts a wide range of challenges to the management, as it needs to adjust its management styles and strategies. The management team should therefore anticipate challenges that accompany globalization through including them in the revenue and growth projections (Samuels, Wilkes & Brayshaw, 2000 p.97). Anticipating problems enables the team to plan for uncertainties so that the team is ready to deal with these challenges upon their occurrence. Management requires a competitive strategy to deal with stiff competition that accompanies globalization (Leleur, 2012 p.109). This strategy will enable the firm succeed in new markets despite the stiff competition. Market research is also necessary for any firm venturing into a foreign market to enable familiarization with consumer needs and preference in the area. It also enables the firm to keep up with changing consumer preferences influence by interaction of people from different regions. Consumers in Africa for instance may adopt the western lifestyle hence developing new needs such as modern fashion trends. These factors are important to consider when planning the entry into a new market since they influence the performance of the firm in these markets. Success of the firm therefore relies on the ability of management to identify and address changing market dynamics.
Opportunities and threats that accompany globalization largely influence decisions made by multinational corporations. Globalization offers the opportunity of growth hence the need for organizations to create plans that take advantage of this opportunity. Threats posed by the expansion of operations into the foreign market require firms to create strategies that will enable them stay ahead of competition. Differences in market dynamics require the firms to undertake extensive research to assess consumer needs and track their changes. These differences pose a challenge to management of multinational corporations since it requires extensive adjustments. Operations therefore differ from one market to another depending on the structure that works best for each of them. Management therefore has several lessons to learn from this essay since decisions made must address these differences as well as changes that accompany globalization. Expanding into foreign markets should therefore not be an impulsive decision but should involve intensive research planning to avoid future problems.
Acosta C 2010, Global engineering: Design, decision making, and communication, Boca Raton: CRC Press.
Chan P, Finnegan C, Sternquist B 2011, ‘Country And Firm Level Factors In International Retail Expansion’, European Journal Of Marketing, vol.45, no.6, Pp.1005-1022.
Christopherson S, Martin R 2008, The World Is Not Flat: Putting Globalization In Its Place, Cambridge Journal Of Regions, Economy And Society, Vol.1 No.3 Pp.343-349.
Dreher A, Gaston N, Jozef W, Martens M 2008, Measuring globalization: Gauging its consequencies, New York: Springer Publishers.
Hofstede G 2000, ‘The business of international business is culture’, Elsevier Journal, pp.67-89.
Kline J M 2005, Ethics for international business: Decision making in a global political economy, New York: Routledge.
Laufs K, Schwens C 2014, ‘Foreign market entry mode choice of small and medium-sized enterprises: A systematic review and future research agenda’, Elsevier Journal, Vol.2, No.3, Pp.36-47.
Leleur S 2012, Complex strategic choices: Applying systematic planning for strategic decision making, London: Springer Publishers.
Oyvat C 2011, ‘Globalization, wage shares and income distribution in turkey’, Cambridge Journal of Regions, Economy, And Society, Vol.4, Pp.123-138.
Robinson RD 2000, International business management: A guide to decision making, Hinsdale: Dryden Press.
Samimi P, Jenatabadi HS 2014, ‘Globalization and economic growth: Empirical evidence on the role of complementaries’, Plos One, Vol.9, No.4, Pp.11-42.
Samuels JM, Wilkes FM, Brayshaw RE 2000, Financial management and decision making, London: International Thomson Business Press.
Savitz R, Shackman J, Fitzgerald SP 2016, ‘The impact of national culture on corporate diversification’, International Journal of Business and Globalization, Vol.1, Pp.5-27.
Smith A 2003, ‘Meeting the challenges of globalization’, Journal Of African Economy, Vol.12, No.1, Pp.14-34.
Telo M 2013, Globalization, multilateralism, Europe: Towards a better global governance, Farnham: Ashgate Publishing Limited.