In the recent past, businesses have seen a change in the economic setting. The domestic market is no longer able to meet the demands of the globalized people. Businesses have developed to ensure it thrives in the age of globalization. This development has made many domestic businesses become a household name worldwide. Besides globalization, an improved communication technology has also been a key factor in the success of these globally operating organizations. This allows efficient communication and swift access to global markets.
However, in order to operate globally, an organization faces many challenges which include HR issues, financial problems, cultural differences and legal issues. In order to succeed, a multinational firm is expected to comply with the host country’s laws, regulations, policies, customer preferences and business practices. Management of operations globally across different cultures and varying market requirements is both challenging and full of opportunities. In the wake of increasing competitiveness and complexity of the global operations, companies are endeavoring to formulate a standard business process plan along with better management of HR and global assets. Multiple research has been done on the subject of managing global operations successfully. Various success factors have been enumerated which can enable a business to lower product cost, increase customer response and yield surplus for the firms. Various convincing insights have been presented by the experts who have managed to present a set of best practices for successful global operations.
Key Differences between Global Organizations
International business comprises of dealings which are formulated to be carried out across international borders in order to meet the aims and goals of a business company or an organization. These dealings and transactions are classifies in different interrelated forms. The main types of businesses which organizations carry out at global level are import or export of a product or a commodity, and direct investment into foreign market. Foreign Direct investment or FDI comes in various types depending on the nature and objective of investment. These include joint ventures and wholly owned subsidiaries. Additionally, global businesses also carry out transactions in the form of licensing, contracts management and franchising.
Imports and exports are the simplest form through which an organization can indulge in global operations. Import deals with purchase of consumer goods or raw materials directly from international markets or through distributers or sales agents. On the other hand export means sale of products or raw material in international market through distributors to directly to the customers. An organization indulges into import export business due to varying reasons. A product may be readily available in one country and its demand in other countries may necessitate its export. Conversely, a country may be capable of producing an item cheaply than other countries, which necessitates import of this item by other countries. Licensing is a process in which a licensor allows a foreign firm (licensee) to use its logo or patent for business purposes. The arrangement bounds the licensee to pay some percentage of the profit to the licenser and this arrangement enables a local firm to grow its global business rapidly. This is arrangement is also beneficial for the licensor as it cuts shipping and transport cost for the company. An example of same may be licensing of formula of a soft drink to a foreign soft drink producer, which entails that the foreign soft drink producer can manufacture the international brand locally instead of importing readymade beverages. Franchising is another type of licensing whereby; a franchisor allows its trademark or logo to be used by franchisee for royalty or percentage of profit. However, a usually, a greater commitment is required in this type of licensing both in terms of financial investment and otherwise as well. An avid example of franchising is the franchise of McDonald’s which also variations in taste according to local customs. One of of FDI is “wholly owned subsidiary”. This type of organization is completely owned by a foreign company and therefore involves many challenges in direct international investment as compared to other forms of transactions. However, most governments receive this kind of foreign investment with open hands as FDIs are a source of enhancing economic condition of the country apart from providing new job opportunities for the local populace. A joint venture is a business agreement formulated by more than one companies with a foreign government in which every group is the owner of some portion of the business and shares profits and losses according to their shares. This kind of transactions helps companies to gain knowledge regarding best practices and cultures of other organizations. An example of joint venture is the alliance of Ford with Mazda and PSA Peugeot Citroen with Dongfeng Motor Corp of China.
Responsibilities of Organizations operating Globally
Organizations doing businesses globally utilize the resources of the society in which they are doing business in order to gain productivity and surplus. This puts the organization in a state of inter-dependency with the society and therefore entails certain responsibilities towards the society in general and the stakeholders in particular. Increasing concern over these kinds of responsibilities has also forced governments to make regulations regarding employee rights, equal opportunities, laws regarding consumer protection etc. The stake holders in this entire scenario are many and of varied nature. They can be categorized as: customers, employees, local communities, governments, intermediaries, suppliers and financial communities.
Customers are the most important stake holders in the business and must be respected by the organizations by accomplishing their due share of responsibilities. For example, provision of items which have long term negative effects on the health of customers e.g tobacco is an ongoing debate. However, experts have enlisted various responsibilities of the organization towards customers. Provision of good money value, sale of products which are durable and safe to use, good after sales services, sufficient supply of merchandise for lasting contentment, balanced advertising standards and provision of complete information to customers are few of the responsibilities of an organization. The organization is also responsible to its employees for providing good working conditions, fair promotion systems, justifiable working hours and opportunities to progress in life and career. For the local communities, global organizations tend to be friendlier. This may just be a business tactic to gain favors but should be upheldby the organizations at all times. The organizations have great responsibilities towards the governments of operating regions in the form of abidance by the rules and regulations, providing for economic development of the region and proving vital for skill development for the population. For intermediaries and suppliers, the global organizations should develop fair trading standard and abide by the terms of contract. Shareholder are another important category which has to be ensure by the organization that their investment is in safe hands and would yield benefits. They must be presented with complete information and should be given the right to question any step taken by the organization. Destruction of eco system is another area of concern for the governments and global businesses should abide by the regulations pertaining to this issue. The cost of following these regulations inhibits organizations to take short cuts however; the long term destruction of the eco system should always take top concern.
Global Marketing Strategies
Businesses operating globally involve themselves in innovative marketing strategies in order to fulfill the requirements of consumers abroad and gain a strong foothold in the global marketplace. A business firm which aspires to pursue global strategies for marketing, most of its elements, not only the products are globalized. It includes communication setups, distribution and pricing strategies, positioning and segmentation. Some experts also agree that operations of a company are of similar nature anywhere in the world and therefore, they employ similar kinds of strategies everywhere. Some companies employ global category of product strategy in which the organization competes in a single category of product e.g food items, and produces various shades of the product according to the requirements of local customers. This strategy is best for such markets where few products are available across markets. Others may opt for segment marketing in which the company seeks to target a segment of customers by collecting their preferences through surveys or loyalty cards. Different brands or products can be developed through this strategy with some standardization. Yet other companies may like to pursue the strategy of marketing mix. In this kind of strategy, the company allows mixture of marketing strategies e.g promotion, distribution, place, pricing etc. In this category, companies apply various kinds of sub categories e.g. global strategies pertaining to product, advertising and branding. Organizations tend to globalize only those elements of marketing mix which are issue of mainly tough global judgment powers.
Impact of External Factors on Organizations
In the present global scenario, businesses are widely affected by the economic conditions of the country, technological advancements, government policies and legal issues. A collection of these factors is known as business environment. As such, this environment comprises all the external factors which affect or influence the business and operations of an organization. The economic environment in which a business operates therefore means the economic condition of the country, economic anatomy of structure, monitory policies of the governments, capital market organization, business cycles and endowments. Successful businesses are able to identify the economic environment of the country and strategize marketing policies in accordance with the prevailing economic conditions. National economy plays an important role in the economic environment of the country and influences the business of an organization to a great deal. The economic factors which tend to affect the business of an organization include poverty levels, unemployment in the country, income rates, interest rates and inflation. The economic environment consists of factors that affect consumer purchasing power and spending patterns. Economic factors comprise trade cycles, price hikes, number of people unemployed in the region, interest rates, and income. For instance, the business of an organization is influenced by income of the consumers to a great deal. A high income rate means higher buying power for the consumers and therefore a higher yield for the company. Conversely, poor population would not be able to give a higher yield to the company. Similarly, high inflation rates also put a bar on the purchase power of the consumers with low income. All the economic factors are somewhat related and affect the businesses in the community. As the government is able to raise the income of the consumers, they tend to spend more on food commodities and the level of spending on housings does not change.
Governments around the world take concrete steps to attract more and more foreign investment into their countries in order to prosper socially and economically. A healthy and stable economy with low interest rates, low inflation and high income not only projects good government fiscal policies but also attract international businesses in the country. Various policy changes are implemented by the governments on periodic basis to avoid economic slumps and keep the economy stable. Governments take these steps because they consider it best for stability of economic environment and continued growth of the economy of the country. These steps are taken by the governments in the form of two strategies: fiscal policy and monetary policy. Fiscal policy is basically the taxation and expenditure policy of the government aimed to lower unemployment, lower inflation and sustain economic growth. This policy can be implemented by lowering taxes and increasing the government spending thus increasing the national income or by increasing taxes and lowering spending thus contracting national income. The purpose of monetary policy on the other hand is to buy or sell debt of nation, altering restrictions on credit and altering interest rates. Due to correct implementation of monetary policy, governments are able to control inflation and provide a conducive environment for the businesses.