Advantages and disadvantages of globalization
Discuss about the Strategic Imperatives and Resource Constraints.
Globalization can be defined as the process with the help of which organizations and businesses starts operation on an international scale and develop a worldwide influence. In other words, globalization provides amplified interaction between organizations or people on an international scale as a result of the advances in technology related to transportation and communication (Beck, 2018). It is an economic process of integration that has aspects related to society and culture. Furthermore, it also involves goods and services along with the economic resources of technology, capital and data. Globalization is the rapid movement towards the international economic integration when there is consensus on principles, processes and political values.
The globalization of businesses has led to the expansion of business by the companies from a single country to a number of countries. The main advantage of globalization is with respect to the developing countries as it allows them to catch up to the developed nations through increased diversification, manufacturing, improvements in the standard of living and economic expansion. However, there are some disadvantages of globalization. The disadvantages vary from climate change, global warming and overuse of natural resources to economic downturns and wealth disparities.
There is a social, political, cultural and legal phenomenon of globalization. In social terms, greater interconnectedness is represented by globalization among the global populations. Politically, the political activities of the countries have shifted to a global level with the help of intergovernmental organizations such as World Trade Organization. Culturally, exchange of values and ideas among cultures is represented by globalization along with a trend towards the path of single world culture. With respect to law, globalization has led to the alteration of the manner in which international law is formulated and enforced (Hirst, Thompson & Bromley, 2015).
There is a great impact of globalization on businesses. Globalization acts as the stabilizing and developing force which offers opportunities abroad along with unforeseen future risk. The improvements in internet and other technology along with the growing national footprint of business and communication improvements have fostered the growth of businesses due to globalization. Furthermore, globalization allows the business to find the appropriate target market where it can conduct its business activities or outsource or offshore the activities for obtaining cost advantage.
The report considers the case study of Microsoft. Microsoft managed its vital parts of global internal IT operations by signing a deal with Infosys Technologies of India. Specific services were included in the agreement such as management of databases, technical assistance, devices and software applications. The deal resulted in the enhancement of capabilities of Infosys for helping the customers in leveraging Microsoft innovations and adoption of new technologies. E-mail support services and live chat support services are offered to the customers for resolving their queries.
Social, Political, Cultural, and Legal aspects of globalization
This report focuses on the impact of globalization on today’s business along with the facts to be considered by the international managers for the purpose of staying ahead in the game. Moreover, this report highlights how outsourcing and offshoring have contributed to globalization along with identifying the challenges, opportunities and problems presented by globalization with the help of the case study of Microsoft.
The impact of globalization on today’s business can be broadly categorized into two categories namely production globalization and market globalization. Production globalization assists a business in sourcing services and materials from other countries for the purpose of gaining advantage from the differences in prices in different nations. This in turn allows the business to provide products and services to the customers at lower prices due to reduced cost of production. Moreover, jobs are also impacted by production globalization as they are shifted from one country to another. In usual cases, such shift is from comparatively developed country to less developed or underdeveloped countries for obtaining the advantage of lower wage rates and cost of production.
On the other hand, market globalization allows a business to reduce the barriers to selling in various countries other than its home country. International selling of products is facilitated by market globalization since lower tariffs result in lower consumer prices and fewer restrictions for the products at the time of entering the foreign market.
The competition among businesses increases as the result of globalization. Such competition relates to the cost or price of the products and services, technological adaptation, target market, etc. the market share of a company significantly increases when it is capable of producing at lower costs. Due to growth in competition, foreign brands and companies have been compelled for improving the standards maintained by them along with the benefits provided to the customers. This is has resulted in the positive impact on the businesses. However, there are some negative impacts of the competition such as the closure of small domestic businesses due to increased competition from established foreign brands (Steger, 2017).
Rise in Technology- Significant rise in technology levels has been witnessed due to globalization. A number of internationally and entrepreneurial oriented firms have obtained technological assistance for the purpose of exploiting the business opportunities. Moreover, many businesses have started making the use of e-commerce procedures for increasing their business reach.
Technology is considered to be the tool which facilitates competition and quality of products and services. The overall speed of technological transfers and technological have also improved the process of globalization. However, globalization has also created risk for a number of companies belonging to capital-intensive markets which in turn have increased their requirement for R&D management and efficient technology.
Impact of globalization on businesses
Economies of Scale- With the increase in globalization, the companies become capable of exporting labor and production processes that are not so profitable and results in the specialization of labor that is comparatively more profitable. When the factory jobs are driven out of the country, the business frees up highly technical capital which assists in pursuing high degrees of efficiency which in turn increases their economies of scale. Moreover, the business acquires the economies of large-scale production by selling the products across continents.
Employment- The process of globalization has provided jobs to a number of people belonging to different countries. Globalization has also created the concept of outsourcing. The developed countries aim to reduce their costs by outsourcing the work related to marketing, software support, accounting, etc. to developing countries such as Nepal, India, Pakistan, etc. therefore globalization reduces the costs of the business and offers job opportunities to a number of countries (Dau, Moore, Soto & LeBlanc, 2017).
Fluctuation in Prices- the increased competition due to globalization has caused fluctuation in the prices of the products offered by businesses all across the globe. For example, China produces low-cost products in comparison to other countries which have necessitated other firms to reduce their costs for maintaining the loyalty and satisfaction of the customers. This is the negative impact of globalization as it causes reduced capability to sustain social welfare.
Job Insecurity in Business- Businesses have started outsourcing their jobs due to globalization which in turn has increased the risk of job insecurity. This has caused a reduction in the number of jobs in developed countries. A lot of people have lost their jobs due to the outsourcing related to accountancy and software programming to developing countries. This is done for achieving the advantage of lower wages and production costs in relation to highly developed countries.
International managers have an important role to be performed for dealing with the process of globalization. The global operations of the company are required to be managed by the international managers. It is the responsibility of the international managers to make the best possible effort for taking the business at new heights at the global level by acquiring the leading position in the market (Appendices 2). Therefore, there are a number of facts which the international managers must know for staying ahead in the game.
Understanding of the Company’s needs abroad- Globalization offers an opportunity to the business to expand its operations in the foreign market. However, the business must identify the needs of the foreign customers in order to facilitate customer satisfaction. Therefore, they should aim at conducting surveys in the target markets so that the needs and requirements of the target customers can be identified. Further, such needs will require being analyzed so that conclusion can be derived regarding the changes to be made in the production processes for providing satisfaction to the customers.
Role of international managers in dealing with globalization
Global Business Strategy– International managers must know that the global business strategy should be different from the national business strategy. The difference is due to different adaptations and product standardizations in the global business. The company is required to create the value of the business in international market. The pressure of globalization and the increased global competition requires international managers to adopt the strategies relating to cost leadership and product differentiation. They can consider entering into joint ventures and mergers and acquisitions which will allow them to obtain the knowledge of the partner business regarding the target market (Stadler, Mayer, Hautz & Matzler, 2018).
Management strategies- For expanding the operations in new markets, the international managers should undertake certain management strategies for understanding the differences in the internal and external business environment. Moreover, they should make the use of Five Force model and SWOT analysis for analyzing the market (Luthans & Doh, 2018).
Global Strategic Thinking- international managers are further required to adopt a global perspective by thinking strategically regarding the management of the business by making the use of people belonging to diverse cultures and different parts of the world. They should develop the skills for cross-cultural management which is the most important aspect of conducting business globally.
The term outsourcing can be defined as the contracting with the third party service provider for the completion and management of a defined amount of work for a pre-decided cost, time and level of service. On the other hand, offshoring can be defined as the relocation of the activities of an organization to an independent service provider or a wholly owned subsidiary in another country (Lambregts, Beerepoot & Kloosterman, 2015).
The case study of offshoring by Microsoft to India provides that it managed its vital parts of global internal IT operations by signing a deal with Infosys Technologies of India (Appendices 3). Specific services were included in the agreement such as management of databases, technical assistance, devices and software applications. The deal resulted in the enhancement of capabilities of Infosys for helping the customers in leveraging Microsoft innovations and adoption of new technologies. E-mail support services and live chat support services are offered to the customers for resolving their queries.
As far as the case study of Microsoft is concerned, outsourcing and offshoring are resulting in increased globalization as it is further attracting the big companies belonging to developed countries to take the advantages offered by India. The workforce of India is considered to be immensely talented. Moreover, India has the largest pool of technical and professional talent. Flexible pricing options are offered by India with consistent premium quality. Furthermore, attractive IT strategies and stability is offered by the Indian Government. Companies also get time zone advantage from India as it is capable of providing 24/7 services.
Such outsourcing and offshoring were possible with the help of globalization, however, now outsourcing and offshoring are assisting in the mobility of globalization. Globalization has caused social transformation of the country and has increased unity. Outsourcing and offshoring have left its impact on the global market which is considered to be the signs of globalization. Exchange of services are involved in outsourcing and offshoring, it results in increasing the international flow of capital. The spread of multiculturalism is also promoted along with increased individual access to cultural diversity. The international cultural exchange is undergone by the employees in outsourcing firms due to their working in diverse environments. Such facilitates have also contributed towards the growth of global telecommunications infrastructure. This, in turn, has instigated improved global connection among various countries. The impact of outsourcing and offshoring are regarded as the fastest development in the field of business that produces a number of advantages. The developed technological sector of India has proved to be an area of opportunity to the talented workforce of the country by offering a number of employment opportunities.
However, globalization has presented certain challenges, opportunities, and problems to Microsoft in undertaking offshoring activities. The success of Microsoft is the result of the technical assistance provided by Infosys technologies but such success was not easy to be achieved. Such challenges, opportunities, and problems have been discussed below.
Microsoft has outsourced its own business to Infosys Technologies of India thereby causing loss of jobs in the own country to skilled individuals. However, the outsourcing jobs are mostly performed by college graduates which leads to high turnover when they get a better job. High turnover in Infosys has proved to be a challenge for Microsoft as it results in wastage of time in training new individuals for the job. The lack of transparency maintained by Infosys Technologies relating to costs and margins was also a challenge for Microsoft as it becomes difficult to determine the actual profitability at the end of the contract. Moreover, work productivity in India is hampered by negative behaviors and attitudes due to unclear management concepts which also affect their working relationships (Shrivastava & Rajesh, 2017).
Microsoft case study further helps to identify that a number of opportunities are offered as a result of globalization. India is regarded as the dominant force as far as software development is concerned and therefore, is capable of offering a number of opportunities to the businesses. The companies can also create an IT start-up in India as it supports IT through a number of schemes and application of normal laws. Moreover, an agreement can be entered into by big businesses with the company belonging to a developing nation that offers cost advantage and the required skills. By offshoring the work to India, Microsoft became capable of getting the best as India is named for its outstanding technological sector.
The offshoring of IT related services to India has caused problems for the home country of Microsoft i.e. America. This is due to the fact that it has made India more competitive due to its capable IT sector. The major motive behind offshoring was to gain competitiveness in the market. The outsourcing and offshoring have further enhanced the technological sector of India making it a competitive country. Now more and more companies are offshoring their work to India to gain the advantage of its workforce talent. The cultural barriers along with the difference in time zone act as a major challenge while offshoring and outsourcing work to India. There is a difference of more than half day from the North American geographies which created problems for establishing communication with the management of Infosys Technologies regarding the contract (Manning, 2014).
Therefore, IT offshoring to India created some challenges and problems for Microsoft. However, it also offered some opportunities in the form of optimum technological assistance in the world. The case study of Microsoft acted as the best example which explains the contribution of outsourcing and offshoring to globalization along with the identification of challenges, opportunities, and problems presented by globalization. The businesses that deals with work related to outsourcing in India have their unique strength.
Conclusion
Therefore, it can be concluded that there is a great impact of globalization on today’s business. Globalization benefits the businesses in terms of providing the advantage of lower cost of production and wage rates along with removing the barriers to selling. However, the impact of globalization is both positive and negative. Globalization increases competition, technological levels and provides economies of scale to the businesses. On the other hand, it also results in fluctuation in prices, job insecurity, and outsourcing of job opportunities to other countries.
Some facts should be kept in mind by the international managers for staying ahead in this competitive world. Firstly, they should understand the needs of the target market so that they can modify their products in accordance with the requirements of the target customers. Then they should adopt global business and management strategies by entering into joint ventures and mergers and acquisitions and making the use of Five Force model and SWOT analysis for analyzing the market. Moreover, global strategic thinking should be adopted for conducting global business.
The report also provides that there is a great contribution of outsourcing and offshoring to globalization on the basis of the case study of Microsoft. Microsoft managed its vital parts of global internal IT operations by signing a deal with Infosys Technologies of India. However, globalization has presented certain challenges, opportunities and problems to Microsoft in undertaking offshoring activities. Globalization resulted in further development of the technology sector of India while providing the services to Microsoft. On the other hand, it provided a cost advantage to Microsoft by offshoring the activities to India where there is an availability of a talented workforce at lower wages.
References
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Shrivastava, S. and Rajesh, A., 2017. Managing performance better: advent of a new appraisal system at Infosys Limited. Human Resource Management International Digest, 25(3), pp.26-29.
Stadler, C., Mayer, M.C., Hautz, J. and Matzler, K., 2018. International and product diversification: Which strategy suits family managers?. Global Strategy Journal, 8(1), pp.184-207.
Steger, M.B., 2017. Globalization: A very short introduction(Vol. 86). Oxford University Press.
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