DRIVERS AND CHALLENGES OF GLOBALIZATION
Drivers and Challenge of Globalization
Businesses in the 21st century have dramatically undergone more organizational, structural, and management alterations than ever before. For the past decade, the globalization of companies has become synonymous with many companies worldwide. Globalization can be described as the elimination or lifting of trade barriers enabling trade across national borders, thus fostering improved integration of production processes as well as capital markets, cultural exchange, the flow of financial resources and labor as well as goods and services among various countries resulting in expanded international trade and economic growth (Michie, 2019). Similarly, businesses’ internationalization means developing organizations beyond their domicile countries and establishing their business ventures in other countries. Further, the acquisition or export of goods across countries can be described as international or global trade.
Besides, the urgency and need for global trade have been brought up by a myriad of factors emanating from efforts to maximize output while minimizing input for businesses effectively. These factors aim to catapult the organizations into contemporary elevated plateaus of effectiveness and efficiency to improve productivity and profit. Additionally, as the organizations are becoming global, so are the constituent entities, including employees, management, and structural model. They have also become more diverse than ever. However, the impacts and challenges of businesses going global are enormous, overwhelming, and unmatched. Thus, this discussion carries out a systematic analysis of a case scenario utilizing Choi Fung Hong Company Limited, a successful company selling personal care products in Hong Kong. It focuses on expanding to other countries like mainland China, Europe, and Ultimately, America, to delineate and clearly outline critical drivers of globalization and its complexities while operating on the global platform.
Key driving factors
Most importantly, globalization has been massively favored by an unprecedented paradigm shift that occurred in the face of neo-liberalism. Many countries, including the developed or the developing, have embraced and adopted the notion of free markets. Ostensibly, this has served as a significant contributory factor and an incitement to globalization due to the vastly expanded world trade and demand brought about by the markets’ opening. As a result, it gives a chance to companies like Choi Fung Hong Company Limited to expand in other countries without having stringent international regulations and state laws to contend with. Instead, the company is just required to be compliant with laid down guidance of business operations in the host country. Besides, rising competition has enormously contributed to businesses’ internationalization (Nica, Manole, and Potcovaru, 2016, p73). For instance, is a personal care product manufacturing company, Choi Fung Hong Company Limited, faces competition from other local production companies in Hong Kong.
For this reason, the company is faced with intense pressure to diversify and look for other markets internationally. Finally, the robust advancement in technology has been an unstoppable driving force towards globalization. Implementing cutting-edge modern technology in various sectors like communication hence enabling international and global business governance, is instrumental. Besides, most businesses are attracted to technologies that will foster efficient and effective production, distribution, and management hence maximizing profits. Likewise, there have been notable disparities in the cost of operations, products, and services brought about by globalization. By far, economies of scale play a significant role in the global market due to the mass production of goods hence lowering the costs. Also, the free movement of labor has tremendously reduced the costs of human capital in businesses. Labor is one of the critical and essential parts of business operations. Eventually, reduced costs translate to minimized input and maximized output.
SWOT analysis
Strengths
It boosts economic strength. Due to globalization, the company will benefit tremendously from the favorable business environment on a global platform. Expansion of Choi Fung Hong Company Limited to worldwide market tags along with a spectacular array of accrued benefits. For instance, the company could move its production to a country where the production cost, including labor, is cheap hence boosting the profit margins. Moreover, moving into other countries, for example, mainland China will provide a broader market, exponentially enhancing the probability of high-profit margins.
Weaknesses
Globalization compromises the effective management and governance of businesses. Ostensibly, the training and development of international managers is an upward task. Subsequently, it can, at times, become a limitation to the intended operation of a business. Therefore, Choi Fung Hong Company Limited enjoys management levels while operating in Hong Kong, the domicile country. However, upon expansion to other continents like Europe, management may be overwhelmingly affected due to more extended hierarchies, diversification, and more extensive geographical coverage.
Opportunities
Indeed, the internationalization of businesses offers an excellent opportunity for growth and development through cultural diversification. The convergence of employees’ cultural and social aspects from varied backgrounds creates a perfect platform for interaction and interrelationships. Fundamentally, an organization with a robust cultural structure has an excellent opportunity to weather and survive many atrocities present by the international business community. Having a cross-cultural workforce at Choi Fung Hong Company Limited increases the possibility of having a global outlook. The ability to recognize, embrace, and respect different cultural beliefs and practices within a business setting is critical and often a prerequisite for steady and continuous growth and development. Thus, the Hong Kong Company should diligently carry out a detailed assessment in its intended countries of expansion to understand the people’s values and beliefs, which is instrumental in determining an establishment. Further, marketers apply such possibilities for creating products with a global appeal, which would preferably sell worldwide.
Threats
It is of paramount importance to note that globalization presents significant threats to businesses, including political and legal pressures. Different policies enacted by the host government, such as minimum wage laws, environmental preservation, and tax laws, can limit business operations’ effective execution. If unfavorable, minimum wage laws, which dictate the amount of money to be remitted to employees, coupled with tax laws, could incapacitate the business rendering it unprofitable. Similarly, an intention to establish a business venture in Afghanistan and Iraq by Choi Fung Hong Company Limited would be inhibited by the constant civil wars and other politically fueled ill-doings hence not viable for business. Likewise, relocation to a place like a mainland China where stringent measure against the internet exists legally can pose a threat to the business forcing it to relocate.
Complexities, Opportunities, and Challenges
As global marketing and business establishment, growth and development are becoming a norm, it is necessary to look for sources and links of competitive advantage for the venture based upon opportunity identification for differentiation (Agus and Ismail, 2016 pp44-61). Most importantly, businesses face complexities while operating on the global platform. Among them is adopting the local laws and regulations of the host country. Understanding and operating under those laws may prove challenging, while unnecessary regulations guiding trade and tax implications may be adverse for business. Further, the situation is exacerbated by the international accounting systems which monitor and assess compliance with the international tax laws, tax systems, and rates.
Additionally, a global pricing strategy for products is a challenge that many companies face because prices can determine a company’s competitiveness and relevance in the market. On the other hand, businesses face an unprecedented multitude of challenges related to their supply chain management (SCM). As opposed to the traditional supply chain model, when a single line between the supplier and the customer was enough to get the job done, modern businesses have been marred by many complexities (Ge et al., 2016 pp228-238).
The challenges of offshore production, global supplies, duties and taxes, international custom barriers, and the many documentation procedures have gravely affected businesses due to globalization. Certainly, the global pool in the wake of internationalization consists of vast numbers of suppliers, partners, carriers, customers, logistics channels, countries, and many legal requirements to fulfill successful transactions. All these parties’ pressure can be overwhelming and perplexing, particularly to the company’s bottom line costs. As a result, the supply chain is increasingly being evaluated and assessed based on transportation costs, customer service, inventory management, product fulfillment, and the most crucial availability in multiple locations globally. For instance, Choi Fung Hong Company Limited’s expansion to India in search of cheap labor would tremendously improve production and boost profit margins. However, the processes involved with the customs, duties, taxes, and logistical support to move the personal care products to other countries renders it even more expensive. Therefore, in globalization, it is challenging to efficiently and effectively operate a business in the international arena without implementing the much-needed differentiation and diversification knowledge.
Recommendations
Cross-departmental collaboration is essential and instrumental towards addressing critical challenges in the SCM and benefitting fully from all the opportunities that have been presented by globalization. Building networks and teamwork will drive the efficiencies which act as a prerequisite to the successful movement of goods from one country to another hence optimizing the supply chain management structure.
Additionally, adopting and installing the correct IT and TMS systems, coupled with a robust global trade compliance program, is paramount. Besides, proper technology enhances communication between the involved parties hence the timely and correct passage of information. Further, a well-interconnected logistics system can source for customers and suppliers while simultaneously handling the clearance with the involved custom and duties departments.
Finally, the company can consider working with a global trade counsel who possesses personal firsthand information and insight into international businesses’ legal issues. These legal gurus have mostly developed successful programs in various corporations and can adequately train individuals from multiple departments. Equipped with expertise, any company employee will minimize losses while maximizing profits by easing SCM’s complexity and overall global trade.
References
Agus, A., and Ismail, R., 2016. The Importance of Training In Supply Chain Management on Personnel Differentiation and Business Performance. World, 7(1), pp.44-61.
Ge, H., Nolan, J., Gray, R., Goetz, S., and Han, Y., 2016. Supply chain complexity and risk mitigation–A hybrid optimization–simulation model. International Journal of Production Economics, 179, pp.228-238.
Michie, J., 2019. The Handbook of Globalisation: introduction and overview. In The Handbook of Globalisation, Third Edition. Edward Elgar Publishing.
Nica, E., Manole, C. and Potcovaru, A.M., 2016. Competition in the worldwide workplace: economic globalization and labor rights. Journal of Self-Governance and Management Economics, 4(3), p.73.