This report focuses on the benefits and threats of the globalization of markets and production. Factors that influence business internationalization strategies are brought to light explaining the specific impacts of each factor. Benefits of this trend are discussed using Walmart to back the study. The challenges of globalization are also discussed in detail. Having discussed the benefits and challenges, strategies implemented by multinational companies to thrive in the face of these realities are discussed.
International commerce provides vast opportunities to businesses. The number of multinational companies continues to rise in line with economic globalization. This type of globalization involves the interlinking of economic systems and markets to form a global economy and a global market respectively. As a result, businesses are seeking to exploit the opportunities presented by globalization. Supply chains of multinational companies go the boundaries of their mother countries. They span the globe with the aim of accessing inputs as well as the market for goods and services. The global business environment is complex, and the success of a multinational company is dependent on the extent to which the environment is understood. This environment presents both opportunities and threats. To effectively tap the capacities presented by the global economy, multinational companies emphasize on not only exploiting the opportunities but also taking cover against the possible threats. Walmart is a good example of a company that has managed to implement successful global strategies.
Walmart is an American retailer whose operations are spread across the globe. The company was established in the year 1962 by Sam Walton as a small grocery store (Soderquist 2005). The company has since then expanded its operations not only in the United States but also globally. Currently, the company is present in 28 countries operating over 11000 outlets (Pope & Pope 2015). Walmart is the world’s biggest company based on revenue. The company is also the world’s largest employer creating employment for 2.3 million people. Walmart uses 59 different brands in its global operations (Pope & Pope 2015). In the United Kingdom, the company operates under the ASDA brand. The company has been aligning its strategies with the globalization forces, and this has led to great success.
Globalization of market and production is influenced by complex environmental factors. The success of multinational companies is influenced by the extent to which corporate strategies are in line with these factors. Failure to incorporate the realities of the environment in strategy formulation impedes the ability to confront globalization forces. Forces influencing globalization of market and production include social-cultural, political, and financial factors.
The economic environment has a far-reaching impact on the globalization of market and products. Economic forces influencing multinational companies include the exchange rate, taxation rate, and level of income. The development of foreign exchange market has fuelled the globalization of market and products. The US dollar has gained worldwide acceptance as the currency for denominating international transactions. This feature has encouraged multinational companies to participate in the global economy due to the ease of carrying out international transactions (Crane & Matten 2016). Globalization has led to the formation of a global forex market that is comprised of numerous interlinked currency markets. Governments and regional trade blocks have been reviewing taxation policies with the aim of streamlining international trade. However, not all taxation interventions favour multinational companies. The level of income influences the purchasing power. A rising level of individual’s income in developing countries has increased the purchasing power that has, in turn, attracted multinational companies.
Social, cultural factors influence globalization of production and market. Some of the key social-cultural factors influencing globalization of products and markets include social institutions, beliefs, population, tastes and preferences, and the prevailing value systems. The global business environment is characterized by complex social-cultural elements that can compromise internationalization of operations. According to Guo & Gallo 2017, international strategies are only effective if they are in line with the social realities of the host market. Marketing strategies must consider the language and tastes and preferences of the host market. The language, value system, and various social-cultural institutions influence the human resource practices.
Political factors have a substantial impact on the globalization of production and market. Systems of government and the level of political stability vary across countries. For instance, the US, China, and the UK have systems of govern that differ. While the US and the UK have democratic systems of government, China’s system of government is largely autocratic (Guo & Gallo 2017). The regulatory environment is clearer in democratic governments than in autocracies. Regional politics have impacts on the globalization of production and market. Brexit will have an impact on multinational companies interacting with the UK and the EU environment. Similar dynamics are present in other regions since relationships among countries keep changing. Walmart has been aligning itself with the global political environment, and this has led to immense success in exploiting opportunities in the global retail sector store (Soderquist 2005).
The financial environment has direct impacts on the globalization of markets and products. Globalization of banking and insurance sectors, as well as stock markets, has been supportive of the internationalization of business operations. According to Filatotchev, Bell & Rasheed 2016, banks have extended their services beyond their mother countries, and this has increased flexibility in providing banking services to multinational companies. Internationalization of capital markets enhances the ability of multinational companies to raise capital.
Exploiting the international market and extending production activities has some benefits and it is these benefits that have been motivating companies to go global. Walmart and other companies have managed to exploit these benefits, and this has provided an impetus to increasing investment in the international market. Walmart’s expansion strategy focuses more on expanding internationally since it already has a heavy presence in the United States. Its presence in the UK retail sector is also big since ASDA is UK’s third largest retailer based on the market share store (Soderquist 2005). The many benefits of internationalizing operations continue to motivate the company and other multinational companies.
Expansion opportunity is one of the key benefits of going global. Growth is one of the main goals of a company. Growth is in terms of revenue, profit, market share, asset base and other aspects of the business. Internationalization provides a valuable growth opportunity. Successful firms exploit their home markets before going global. According to Crane & Matten 2016, firms exploit international opportunities when the local opportunities are fully exploited or when it is cheaper to exploit foreign opportunities compared to local opportunities. Walmart decision to exploit the international retail market was made after establishing outlets from coast to coast in the US. Globalization enables companies to make more revenue and profits as it gives access to international customers that increase the company’s market share.
Going global provides a valuable opportunity in human resource. Employees perform a crucial role in a business process, and they determine the realization of organizational goals. Going global gives a firm access to talents from the global labour market. Walmart’s operations in foreign markets are carried out by managers from the host country. However, the company sends some expatriates to supervise the implementation of the company’s vision and core values. Globalization provides an opportunity to improve workers’ skill s through exchange programs. It also enables a company to access diverse talents that foster creativity in the work environment.
Going global provides access to new capital sources. Lack of capital is one of the major factors inhibiting business progress. According to Filatotchev, Bell & Rasheed 2016, globalization of market and production gives companies access to vast sources of capital. In other words, companies can tap capital from the host country’s capital markets, financial institutions, and individual local financiers. For instance, Walmart’s operations in the UK are financed by local financial institutions. However, the company has in the past injected resources Asda especially when this subsidiary was facing problems. Going global therefore creates a good environment for exploiting diverse sources of capital.
Going global supports innovation that is a key business success factor. Globalization promotes innovation in specific ways. Firstly, it increases competition in the business environment that leads to the implementation of creative strategies to address competition. Innovation is crucial for business survival, and this has made many businesses to make huge investments in research and development with the aim of making breakthrough inventions to help the company navigate through the competitive environment. Walmart has faced stiff competition in its global operations. In the UK the company faces cut-throat competition from Tesco and Sainsbury’s. The two retailers are the UK’s first and second largest retailers respectively based on market shares (Massengill 2013). The existence of competition has forced the company to implement creative strategies to support market share growth. Secondly, going global give companies access to diverse talents who introduce new ideas in the business process. These ideas are diffused to departments in the home, and foreign countries and this practice lead to companywide improvements.
Although there are many opportunities created by the globalization of market and production, many threats confront multinational companies. These threats hinder successful exploitation of global business opportunities. Some of the challenges facing multinational companies include human resource problems, political threats, financial risks, and competitive threats.
Human resource management in global operations is an uphill task for many multinational companies. Human resources in the global labour market are diverse, and this reality necessitates the implementation of flexible human resource systems and strategies. The right global human resource practices factor the diversity in the workforce making it easy to respond to the needs of different groups in the workforce. Creating HR policies and strategies that reflect the global workforce diversity is a nightmare. Most companies end up experiencing inefficiencies in exploiting the workforce due to the failure to understand the dynamics of the global labour market. Walmart has been facing labour relations problems in its domestic and global operations. As a result, strikes have occurred leading to heavy losses in some outlets. Multinational companies also face a problem in accessing the right skills. According to Detomasi 2015, most of developing markets are characterized by a shortage of essential skills, and this poses a serious human resource problem. In such a case, a company is forced to invest in training and development which is a costly engagement. Walmart has an elaborate training and development program aimed at ensuring its workforce has the right skills (Soderquist 2005). Despite the existence of this program the company continues to face difficulties in identifying the right workers to spearhead its vision in the global retail sector.
Political threat is a major challenge to the globalization of market and productions. Government systems define the regulatory environment that governs operations of multinational companies. Democratic systems of government are characterized by changes in regimes that are also accompanied by major changes in business policies. As a result, multinational companies experience difficulties when striving to comply with major policy changes (Crane & Matten 2016). Some of the common policy changes include wage policies, gender and inclusion policies, and environmental policies. Alterations in these areas have negative impacts on multinational companies and in most cases lead to losses. In the past, Walmart has faced serious problems emanating from changes in the regulatory environment as well as non-compliance with the existing regulations. In 2013, Asda the company’s main subsidiary in the UK got in trouble with food safety regulators for selling horse meat in the beef category. The company has also faced serious non-compliance issues, especially with labour regulations.
Going global poses serious financial threats to companies. These threats are related to capital and foreign exchange. Although globalization of the financial sector has been realized in some parts of the world, some hindrances impede raising capital in foreign markets. There are also some capital mobility barriers that compromise the free movement of financial resources from one country to another. Foreign exchange volatility poses a serious threat to multinational companies (Filatotchev, Bell & Rasheed 2016). Financial statements are translated to the host currency in line with the requirements of the international financial reporting standard. With its numerous branches across the world, Walmart faces serious currency risk emanating from converting financial statements of its subsidiaries to the US dollar.
Competition is a serious threat to companies seeking to go global. Exploiting international opportunities implies that the company is exposed to both local and foreign competition. International trade barriers continue to reduce, and this is exposing businesses to competition regardless of whether they are practicing international business. Walmart faces fierce competition in its foreign operations. In the UK, the company faces stiff competition from Tesco and Sainsbury’s. The competition is so intense that Walmart is unable to increase its market share in the UK retail market (Massengill 2013). Competitive rivalry can drive weak multinational companies out of the market.
Companies going global implement strategies aimed at enduring opportunities in global market and opportunities are exploited and at the same time taking cover against the possible threats. Effective internationalization strategies focus on entry, financing, and human resource. Implementing effective strategies in these areas has enabled Walmart and other multinational companies to succeed the challenging international business environment.
The fitness of market entry strategies determines the success of internationalizing business operations. Different market entry strategies include piggybacking, joint venture, buying a company, licensing, and franchising among other strategies. Walmart has been assessing the environment before deciding on the market entry strategy. In some countries like Canada, the company has direct investments where it carries out operations under its name (Massengill 2013). However, the company buys retail companies in the host countries carrying out operations in a distinct name.
Financing international operations require effective strategies that position a company favourably to exploit capital opportunities as well as overcoming international financing barriers. Walmart uses a capital mix comprising of equity and debt. The company‘s strong financial position supports easy market entry. Debt financing is exploited later after operations start running (Massengill 2013). Understanding the financing environment enables multinational companies to implement a sustainable financing strategy.
The right human resource strategies enable multinational companies to overcome HR threats that face international operations. Effective HR strategies in the international business environment consider the diversity that is present in the global labour market. Walmart has in the past implemented effective HR strategies that have supported the company to address challenges that face multinational companies when managing the human resources (Massengill 2013). The company emphasizes on using local talent to carry out its vision in the foreign market. Emphasis is also put on managing skills to ensure workforce possesses the right skills. The practice of using expatriates in foreign markets is common across sectors. These expatriates play a crucial role in making foreign employees understand what the company stands for.
Globalization of markets and production has been on the rise. The globalization of business is influenced by political, social cultural, economic, and financial factors. These factors create both opportunities and threats that influence business strategies. The benefits of globalization of markets and production include an expansion avenue, human resource opportunities, access to capital, and innovation opportunity. The main threats include human resource problems, political threats, financial risks, and competitive threats. Walmart and other multinational companies have been implementing strategies aimed at supporting exploitation of these opportunities and at the same time seeking to reduce the impacts of the identified threats. The main strategies focus on entry, financing, and human resource.
List of References
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Filatotchev, I., Bell, R.G. & Rasheed, A.A., 2016. Globalization of Capital Markets: Implications for Firm Strategies. Journal of International Management, 22(3), pp.211-221.
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