Example 1: Impact of Globalisation on IBM before 2008
Globalisation is a process through which firms or other organisations creates international influence or start operating on the international scale. Globalisation has affected almost all the companies in the world irrespective of its size. Nicholas Taleb in his book Black Swan states that “Globalisation and the interconnectedness it represents create an interlocking and fragility”. It has affected each and every operations of the firm. After the age of industrialisation, there were different phases of Globalisation noticed in the world. Innovations and investments are the new ways of business which have strengthened the business operations of the company (Grupp and Schmoch, 1999). Even the big Companies like IBM are affected by the Globalisation process. It has affected the companies in both positive and negative sense. It is the reason why the IBM became a multinational firm and right now operates in each and every part of the world. IBM is an American technological firm having it’s headquartering in New York, United States. This company manufactures and markets middleware, software and hardware. It also provides consulting and hosting services in various areas like nanotechnology and mainframe computers. For understanding globalisation it is important that time period gets divided into phases. 2008 has been a crucial year in the business of many firms. This is due to the fact that there was huge change in the environment of business has been noticed. It was a phase when the real beginning of the economic recession has started.
In the later part of the essay, examples about the way in which globalisation has affected their business of IBM has been showcased. It also highlights the examples related to this effect before and after 2008 especially in terms of change in the global business environment (Narula and Duysters, 2004).
IBM became a world leader in the technology market in the early 1950’s. The first benefit that company gained from globalisation is that it has now operating in 170 nations. IBM has streamlined their business process in many terms. In 1937, the company started a new phase of innovations especially in tabulating equipment enabled firm (Ferner, 1997). Organisation started to process unprecedented amount of information. In the early 1990’s, with the advancement on the internet technology many companies came up in the IT industry. This was one of the major reasons why IBM faced a business loss of US$8billion in the year 1993 (IBM, 1994). It was one of the biggest financial losses in the American corporate history. Many competitors like Apple and Microsoft who has captured the market. It was also due to the fact that the demands of both internal and external stakeholders were changing. IBM employed more than 60,000 employees all over the world. Company struggled in the form contracts that it has with its workforce (Aiber, et. al. 2004). IBM hired new CEO to change the company around. In 2003 they started a project to redefine values of the company which resulted in three values:
- “Innovation that matters for IBM and rest of the world”.
- “Trust and personal responsibility in all the relationships”.
- “Dedication to every client’s success” (Streeten, 2001).
In the changing business scenario it was not easy for IBM to change its value while ensuring that there is no effect on the business operations. It was necessary as the company had to face challenges related to the employees at the world level (Lohr, 2010). Becoming world leader in the technology become possible due to innovations that it has made over the years. In the early 1990’s there were many companies that came up in different parts of the world with a highly different kind of ideas (Paroutis, Bennett and Heracleous, 2014). IBM started facing challenges through new products that sets them up with the changing global business demands. For a long time IBM did not understand the fact that due to globalisation many new companies crossed borders and due to ease in doing business, companies were not able to capture the larger part of the market. In the year 1993, IBM sales decreased by 20%. In this loss the major role was played by special multibillion dollar deductions taken because of production line shutdown, finance early retirement and other restructuring program. Restructuring was essential so as to meet the global needs of their clients. It was the first time when revenue failed to cover operating expenses. With the transformation in technology it was become easier for the companies to understand the dynamics of the global market but at the same time the technologies were developing at such fast levels that it became difficult for IBM to match the pace. Company still relied on switching to small, desktop units. Company’s sales were highly dependent on the profits that company generated with the sales of big systems (Makinda, 1998).
Example 2: Impact of Globalisation on IBM after 2008
Due to globalisation world was becoming a global village and hence a change in environmental factors bring changes in other parts of the world. This can be understood by analysing PEST factors.
- Political: In 1990’s politics of the world changed drastically. At this time many political bonds were made and broken in various parts of the world. For example after the end of Cold war, world was not divided into two poles rather a more diversified local alliances started to form. This has favoured the outsourcing job in the IT sector. With new and cheap IT hubs like India, many companies like IBM outsourced its operations in these regions (Wursten and Fadrhonc, 2012). The major thing that IBM outsourced outside America was related to services that it was providing to its clients.
- Economic: In various parts of the world, economic changes can be clearly noticed. The downfall of the Japan’s Economy in the early 1990’s was also the major reason for the decreasing sales of the IBM’s product. The economic shifts can also be noticed with the fact that economies like India opened itself for the IT market with the help of initiatives like Foreign Direct Investment. This not only helped IBM in managing its operations but also helped them with the new market opportunity. Asia itself became a large market for IBM hence switching to the countries like India was a great step for the cited firm (Ukpere and Slabbert, 2009). These countries were emerging in terms of economic strength as well as their talent pool. In India there were many new IT talents coming up and it was an opportunity for IBM to include them into their talent pool.
- Social: The social dynamics of the nation kept on changing especially in terms of use of technological equipment. From personal computers to industrial use of automatic machines everything changed. There were new entrepreneurs coming up in various industries who needed core technologies from IBM so as to gain competitive edge in the market. This was a boost to IBM as it provided company with new opportunity. Globalisation helped the IBM to sell its products across continents with the help of new online market (Monk, 2009). Since the demand increased multiple times hence it provided an upper hand to the company. At the same time it increased competition as many local players also emerged. An increase was also noticed in terms of the ways in which companies were selling or marketing its products. It was also done for the purpose of attracting more people towards their business at the global levels. Due to globalisation companies started hiring their human resource from different nations so as to strengthen their talent pool (Guest, 1997). But at the same time it was not easy to maintain the cultural variances at the beginning level.
- Technology: In every six months technology upgrades itself twice as much as it is today. Matching such a speed of technological advancements was not easy for any company that too when it is of the scale of IBM. New and disruptive innovation in the early 21stcentury especially the ones that are related to the mobile technology made the growth rate of IBM to fall down. After 2000, it was an age where many new mobile technologies were coming up and competing with this technology was not so easier that too when companies like IBM gained its major part of the market through technologies like Desktop (Holland, Lockett and Blackman, 1997). Till 2005, there were many new technological hubs getting developed in various parts of the world and some of the major regions were cities like Bangalore, Beijing, and Seoul etc. These centres were increasing the reach of companies like IBM as well as it was reducing the overall cost of operations (Henderson and Venkatraman, 1999). All these factors had a great effect on the performance of IBM but at the same time it provided them with the opportunity to expand its sale in the new areas. IBM had to change its strategies accordingly so as to confront emerging challenges in the business operations. New product development was one of the major strategies that gave them an edge in the market (Sennett, 2001).
(Source: Whitney, 2009)
After 2008, competition became intense and many new firms came up in the industry. The pace of technological advancement just got double after 2008 especially in term of size of the products. With most parts of world using advanced technologies, new interconnected world has come up. The world became a new and bigger global village. This can be understood by the use of technologies like social media where the world could share everything about anything. For IBM the impact of globalisation was tougher to understand. This is because the complexity of the issues in the business has become bigger (Taylor, 2005). There was challenges related to the things that it promised to its clients. First example of it can be noticed in terms of increasing competition and decreasing growth rate. It was the effect of globalisation that new technologies have taken over the old ones. The size of the core technologies has become smaller and thinner and hence disruptive innovations have become a bigger challenge. After 2008, there was huge increment in the amount of investment that is made in the research and development works. The trade liberalisation have empowered new firms to come up in the industry as well as the increase was also noticed in terms of firms getting up into IT business. There were many firms who considered the benefits and profits in the IT market and came up in this industry. Since these firms have large amount of resources hence stabilising themselves in the new market was never a challenge for the company. The effect of Globalisation can be seen with the fact that the recession of 2009 which affected IT industry in the European and America region also affected its business in South African and Caribbean region. In order to stabilise its business, company started to sell off its wares and inventory that it was using. The dis investment was performed by the company in various other parts of the world even where the roots of actual problems did not exist. IBM did this for reducing the extra expenses that company is making in other parts of the world. They started investing in the supply chain management so as to strengthen demand and supply chain which is highly necessary in the modern day global world. Leaders of IBM have to force the company’s units to reduce the costing. Globalisation made the world a global village and hence any customer can order anything from any part of the world using online mediums (Motahari-Nezhad, Stephenson and Singhal, 2009). It has empowered nations and hence ease of doing business has also increased. This made IBM to find new place of operations in various parts of the world.
After 2008, there was a sharp increase in the number of laws that were made against the fabrication and utilisation of resources. It was also to be understood that there was a huge gap in the demand of the market and what company was providing to its customers. After 2008, company also tried to make changes in the type of technologies that they were using. All this can be understood with the help of PEST analysis of the company after 2008.
- Political: The political condition of the world has changed drastically after 2008 and hence many new trade routes have opened. This has given companies with new kinds of opportunities (Lohr, 2010). IBM has made many kinds of political ties so as to grow in terms of business. The conflicts in the middle-east countries have closed some of the opportunities in the world. With China becoming the new political power in the world, new political alliances emerged in the world. Many governments have made rules, regulations and policies so as to attract new investments in the nation. The countries like India and Indonesia which was previously only known for service market started to develop itself as a manufacturing hub. Companies selected these new places so as to reduce the overall cost of operations as well as to bring down the cost of manufacturing. With the innovation culture spreading in various other parts of the world, governments also started to invest in the infrastructure building so that it can also support the companies coming to these nations.
- Economy: There was huge economic challenge noticed by many nations in various parts of the world. After 2008, economies like Europe were never able to make it strong. The trails of the economic recession in 2009 can be felt in many regions of the world. This has created and destroyed many economic powers of the world. The recession affected the expansion of the companies into new areas. This also had impact on the profit margins of the company which ultimately showed effect on the overall revenue of the company. This has also created unbalance of trade between many countries (O’Reilly III, Harreld and Tushman, 2009). Due to globalisation countries are largely dependent on the each other for support. The imbalance between various countries has increased the problems for IBM. This is because of the fact that before 2009 companies tried to manage its loss in one part by covering up in other part of the world but due to overdependence the situations got worse. If IBM needs to invest in any new region of the world, they need to have a look on the business environment in surrounding or neighbouring regions as well. This is due to the fact that environment change in one part of the world directly or indirectly effects the business environment in other parts of the world. IBM also needs to look for new investors so that they can increase their market base and could support their business operations (Gongla and Rizzuto, 2001).
- Social: Due to the economic recession, there was a huge unemployment issues arise in many parts of the world. This forced the governments to plan for their country’s human resource. For this they started giving preference to the local people in the private firms. The rules such as H1 visa have also increased the problems for the company in terms of their talent pool. This is because they cannot hire people from different parts of the world. Society has changed and so is its demands hence it has become essential for the companies to rethink about the ways in which they can fulfil the needs of the market (Notteboom, 2006). IBM is having great image in the industry hence any failure to stand as per their expectation might lead to huge business failure for the company. With the increase in global connectivity because of the platforms like social media, the operations such as marketing have become easier. At the same time it has also increased the tensions for the company as any negative news also gets spreads like wildfire.
(Source: IBM Institute for Business Value analysis; Taleb, Nissam Nicholas. The Black Swan, The Impact of the Highly Improbable. New York: Random House, 2007.)
- Technological: After 2008, there was a change in the technology not only in terms of its use but with the fact that world become more connected with these advancements. Development of technologies like IoT has changed the IT infrastructure in the whole world. This has also affected the privacy and the security concerns of IBM. It can also be understood by the example that in the past one decade the numbers of hacking activities have also increase. Such an increase can be dangerous for the companies of the scale of IBM which has lot of stakeholders associated with it. If the private information related to any of the stakeholders gets leaked, the chances of huge image failure arise. In some cases it can also lead to financial losses for the company (Papazoglou, et. al. 2007). Due to globalisation there was a huge increase in the number of people who have access to the technology. This has created new opportunities for IBM especially in terms of increasing sale of their products. They will also have to invest in the mobile technologies so that they can compete with other global leaders in the industry.
Conclusion:
From the above based report it can be concluded that IBM is one of the large American IT firm in the world. Globalisation made the world more connected and dependent on each other. In such an interconnected world, the challenges and opportunities for the companies like IBM have increased. The impact on the globalisation in both the phases has been different. This was due to the fact that environmental factors in various parts of the world have also changed. This change has made impact on the business operations. Political and economic scenarios have changed the trade routes for the company as well as it has affected the human resource management in various parts of the world. Social and technological changes have both empowered the firm at the same time it has also effected their business operations which could also be seen through its performance. In such an environment, IBM needs to focus on their strengths and competencies so as to improve their performance in the coming years.
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