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INTRODUCTION

Globalization describes the process by which regional economies,


societies, and cultures have become integrated through
communication, transportation, and trade. It is the integration of
national economies into the international economy through trade,
foreign direct investment, capital flows, migration, and the spread of
technology.
Globalization, by definition, is the integration and democratization of
the world's culture, economy, and infrastructure through transnational
investment, rapid proliferation of communication and information
technologies, and the impacts of free-market on local, regional and
national economies.
The phenomenon of globalization has created a dichotomy of
perception dividing the world into plethora of apprehensions and
appreciations due to the intense velocity which the information about
people, products, nature, environment, politics and economy disperses
across borders, across countries and nations creating virtually one
world into a global village.
Here the golden words of late Dr. Mahbub-ul-Haq provides the true
vision:

"Globalization is no longer an option, it is a fact. Developing countries


have either to learn to manage it far more skillfully, or simply drown in
the global cross currents."

Globalization is multidimensional and impacts all aspects of life–


economic social, cultural and political. Globalization in production and
labor markets is leading to increasing outsourcing of parts,
components, and services. The drive towards market liberalization has
rapidly accelerated the pace of globalization during the past decade.

Theoretically
• Globalization opens up markets and ensures competition
• Removes inefficiencies and leading to greater growth.
• Ensures specialization takes place in areas of comparative
advantage.
• For labor abundant economies this means increased employment as
well as growth.

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CAUSES OF GLOBALIZATION AND ITS HISTORY

The origin of globalization can be traced back till the 16th century
when the West started to explore and discover for the new worlds and
continents, bringing the English to India in form of East India Company,
there first multinational was born for us and the rest is recorded
history. The process of global economic integration was perpetrated at
the behest of World War II and the first Great Depression, when the
leaders of Britain and the US fumbled with the idea of reconstructing
the war-torn world monetary system with a focus on favoring free of
capital internationally, turn endure a liberal, capitalist world at the end
of war to counter the shadows of Socialism and Marxism. To promote
the new monetary world order, a conference was convened in July
1944, at Bretton Woods, New Hampshire, to create the world's most
powerful institutions: the International Bank for Reconstruction and
Development (the World Bank), and the Internationally Monetary Fund
(IMF). With the development of international financial markets in 1970s
and the debt crisis of developing countries, several developing
countries opted for stabilization and structural adjustment programs,
to qualify for the loans from IMF and WB. The first IMF/WB Structural
Adjustment Loan (SAL) was given to Turkey, in the backdrop of
appropriate market oriented policies, accompanied with
conditionalties, in 1980. These programs in a nutshell were aimed at
liberalization of developing-countries markets. The reforms and
conditionalities imposed laid basic foundation to open economies to
steer the mechanism of economic integration giving birth to the most
controversial of all among international organizations, the World Trade
Organization.

EFFECTS:
Globalization has various aspects which affect the world in several
different ways:

Industrial
Emergence of worldwide production markets and broader access to a
range of foreign products for consumers and companies. Particularly
movement of material and goods between and within national
boundaries. International trade in manufactured goods increased more
than 100 times (from $95 billion to $12 trillion) in the 50 years since
1955. China's trade with Africa rose sevenfold during 2000–07 alone.

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Financial
Emergence of worldwide financial markets and better access to
external financing for borrowers. By the early part of the 21st century
more than $1.5 trillion in national currencies were traded daily to
support the expanded levels of trade and investment.

As of 2005–2007, the Port of Shanghai holds the title as the World's


busiest port.

Economic
Realization of a global common market, based on the freedom of
exchange of goods and capital.

Almost all notable worldwide IT companies have a presence in India.


Four Indians were among the world's top 10 richest in 2008, worth a
combined $160 billion.In 2007, China had 415,000 millionaires and
India 123,000.

Job Market
Competition in a global job market. In the past, the economic fate of
workers was tied to the fate of national economies. With the advent of
the information age and improvements in communication, this is no
longer the case. Because workers compete in a global market, wages
are less dependent on the success or failure of individual economies.
This has had a major effect on wages and income distribution.

Political
Some use "globalization" to mean the creation of a world government
which regulates the relationships among governments and guarantees
the rights arising from social and economic globalization.
Politically, the United States has enjoyed a position of power among
the world powers, in part because of its strong and wealthy economy.
With the influence of globalization and with the help of the United
States’ own economy, the People's Republic of China has experienced
some tremendous growth within the past decade. If China continues to
grow at the rate projected by the trends, then it is very likely that in
the next twenty years, there will be a major reallocation of power
among the world leaders. China will have enough wealth, industry, and
technology to rival the United States for the position of leading world
power.

Among the political effects some scholars also name the


transformation of sovereignty. In their opinion, 'globalization
contributes to the change and reduction of nomenclature and scope of
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state sovereign powers, and besides it is a bilateral process: on the
one hand, the factors are strengthening that fairly undermine the
countries' sovereignty, on the other – most states voluntarily and
deliberately limit the scope of their sovereignty'.

Informational
Increase in information flows between geographically remote locations.
Arguably this is a technological change with the advent of fibre optic
communications, satellites, and increased availability of telephone and
Internet.

Competition
Survival in the new global business market calls for improved
productivity and increased competition. Due to the market becoming
worldwide, companies in various industries have to upgrade their
products and use technology skillfully in order to face increased
competition.

Ecological – the advent of global environmental challenges that


might be solved with international cooperation, such as climate
change, cross-boundary water and air pollution, over-fishing of the
ocean, and the spread of invasive species. Since many factories are
built in developing countries with less environmental regulation,
globalism and free trade may increase pollution and impact on
precious fresh water resources (Hoekstra and Chapagain 2008).On the
other hand, economic development historically required a "dirty"
industrial stage, and it is argued that developing countries should not,
via regulation, be prohibited from increasing their standard of living.
London is a city of considerable diversity. As of 2008, estimates were
published that stated that approximately 30% of London's total
population was from an ethnic minority group. The latest official figures
show that in 2008, 590,000 people arrived to live in the UK whilst
427,000 left, meaning that net inward migration was 163,000.

Cultural – growth of cross-cultural contacts; advent of new categories


of consciousness and identities which embodies cultural diffusion, the
desire to increase one's standard of living and enjoy foreign products
and ideas, adopt new technology and practices, and participate in a
"world culture".
Some bemoan the resulting consumerism and loss of languages. Also
see Transformation of culture.
Spreading of multiculturalism, and better individual access to
cultural diversity (e.g. through the export of Hollywood). Some

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consider such "imported" culture a danger, since it may supplant the
local culture, causing reduction in diversity or even assimilation.
Others consider multiculturalism to promote peace and understanding
between people. A third position that gained popularity is the notion
that multiculturalism to a new form of monoculture in which no
distinctions exist and everyone shifts between various lifestyles in
terms of music, cloth and other aspects once more firmly attached to a
single culture. Thus not mere cultural assimilation as mentioned above
but the obliteration of culture as we know it today. In reality, as it
happens in countries like the United Kingdom, Canada, Australia or
New Zealand, people who always lived in their native countries
maintain their cultures without feeling forced by any reason to accept
another and are proud of it even when they're acceptive of
immigrants, while people who are newly arrived simply keep their own
culture or part of it despite some minimum amount of assimilation,
although aspects of their culture often become a curiosity and a daily
aspect of the lives of the people of the welcoming countries.

Greater international travel and tourism. WHO estimates that up to


500,000 people are on planes at any one time. In 2008, there were
over 922 million international tourist arrivals, with a growth of 1.9% as
compared to 2007.

Greater immigration, including illegal immigration. The IOM estimates


there are more than 200 million migrants around the world today.
Newly available data show that remittance flows to developing
countries reached $328 billion in 2008.

Spread of local consumer products (e.g., food) to other countries


(often adapted to their culture).

Social – development of the system of non-governmental


organisations as main agents of global public policy, including
humanitarian aid and developmental efforts.

Technical
Development of a Global Information System, global
telecommunications infrastructure and greater transborder data flow,
using such technologies as the Internet, communication satellites,
submarine fiber optic cable, and wireless telephones
Increase in the number of standards applied globally; e.g.,
copyright laws, patents and world trade agreements.

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NEGATIVE ASPECT
Income inequality:

The globalization of the job market has had negative consequences in


developed countries. “Mind workers” (engineers, attorneys, scientists,
professors, executives, journalists, consultants) are able to compete
successfully in the world market and command high wages.
Conversely, production workers and service workers in industrialized
nations are unable to compete directly with workers in third world
countries. Work flow changes so that poor countries gain the low-
value-added element of work formerly done in rich countries, while
higher-value work is retained; for instance, the total number of people
employed in manufacturing in the USA declined, but there were great
increases in value added per worker.

This has resulted in a growing gap between the incomes of the rich and
poor. This trend seems to be greater in the United States than other
industrial countries. Income inequality in the United States started to
rise in the late 1970s, however the rate of increase rose sharply in the
21st century; it has now reached a level comparable with that found in
developing countries.

Brain drains:

Opportunities in rich countries drive talent away from poor countries,


leading to brain drains. Brain drain has cost the African continent over
$4.1 billion in the employment of 150,000 expatriate professionals
annually. The Associated Chambers of Commerce and Industry
(Assocham) estimates that the brain drain of Indian students cost India
$10 billion per year.

BENEFITS OF GOING GLOBAL

Selling globally opens up the way to lucrative large-business


customers. If you do not cover all geographical areas, you cannot
engage large-business customers, who, themselves, are all established
globally. And unless your company can address these large customers,
you will not be able to negotiate better prices from your suppliers,
prices that your competition will obtain from volume.
Going Global will benefit you in:
• Increased sales.
When domestic sales are good, it is time for you to start

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exporting.
• Higher profits.
Your profits can rise faster, if your company's fixed costs are
covered by domestic operations.
• Reduction of dependence on traditional markets.
You can strengthen your company by diversifying into
international markets.
• Diversified markets.
Companies that market internationally can take advantage of
booming export markets.
• New knowledge, experience and enhanced domestic
competitiveness.
Expand your horizons! Often, new ideas, new approaches, new
marketing techniques learned from exposure the global
marketplace can be successfully applied domestically.
• Global competitiveness.
Today, many companies outside your country are entering your
local market, as they are exporting worldwide. Exporting paves
the way to global competitiveness.
Another advantage of going global is that it creates jobs, productivity
growth and generates wealth. You can also tap potential investors if
your business is exposed worldwide. By finding new foreign markets,
you can insulate seasonal local sales and you can have cost cutting by
doing global outsourcing.

Your business will not stay dependent on the existing market if you go
global. By having a wide scale market, you can easily find new markets
and producing dynamic sales.

With this new venture, you are open to new ideas, new strategies, new
markets and the confidence to dominate the world with your business
Disadvantages
* It could lead to a more rapid depletion of exhaustible natural
resources.
* It is a long distance trade and as such it becomes difficult to maintain
close relationship between the buyer and the seller.
* Each country has its own language. As foreign trade involves trade
between two or more countries, there is diversity of languages. This
difference in language creates problem in foreign trade.
* Foreign trade involves preparation of a number of documents which
also creates difficulties in the way of foreign trade.
* Some restrictions are imposed on export and import of commodities.
These restrictions stand on the progress of foreign trade.
* Foreign trade involves a great deal of risks because trade takes place
over a long distance. Though the risks are covered through insurance,
it involves extra cost of production because insurance cost is added to
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cost

Advantages of a Small Business in the International


Market

There are only about 290 million people in the


United States, but there are 6 billion people
across the globe. Think about the profit if you
can capture even if a small fraction of that
huge market. But unfortunately most of the
small businesses never think about expanding
their reach beyond national borders. Even
though the number of small business
exporters has tripled in the last decade, only
a fraction of the total small businesses are
into exporting.

Why there are so many small business


companies missing the boat to huge global
markets?
Primarily because the journey involves a few initial struggles, which
discourage a small business entrepreneur.
These are:
• Financing is often difficult to find.
• Many entrepreneurs do not know from where to get started.
• Often businesspeople fail to understand the cultural differences
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between international markets.
• The bureaucratic paperwork may also discourageProofreadi an
entrepreneur. ng

OPPORTUNITIES & PROBLEMS:


HOWEVER….The Internet, global communications, and an increasingly
complex global supply chain have opened opportunities for smaller
U.S. firms to supply goods and services to global markets and to larger
U.S. companies that trade in those markets (Griswold, 2007). Ac-
cording to the Office of the United States Trade Representative, 95% of
the world’s consumers live outside the United States (Buchanan,
2007). That is three-quarters of the world’s spending power, which
represents a huge potential market for U.S. producers in general and
for hundreds of thousands of U.S. small businesses in particular. The
finance company Intuit has released a report on the future of small
business, predicting that those in the skilled trades and crafts will re-
emerge as an influential force in the coming decade, using technology
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and globalization to help them expand. Many of these new artisans will
be small and personal businesses producing specialty goods for an
increasingly larger pool of customers. The report, sponsored by Intuit
and written by the Institute of the Future, predicts the emergence of
an economic structure that will drive new business collaborations,
creating greater opportunity and profitability for small businesses
(Small Business Heyday, 2008). Despite these predictions and the
increased demand for American goods and services, many small
businesses and entrepreneurs have not realized their potential for
global trade.

On the domestic side, U.S. small businesses are faced with


unprecedented foreign competition as they compete with low-cost
suppliers from abroad. On top of this, small business owners and
entrepreneurs realize that a customer can now surf the Internet for
lower-cost products originating from anywhere in the world. While
many small businesses and entrepreneurs would like to tap into the
global marketplace, they may be reluctant because they are
intimidated by the impact of globalization on domestic business
conditions and by a number of barriers to export markets.
Several studies focus on the obstacles facing small exporters based on
surveys and other observations. The Export-Import Bank of the United
States, the official U.S. credit support agency, conducts annual
competitiveness surveys. The surveys indicate that the number-one
concern of respondents is getting paid for their goods and services. A
Forrester Research study found that 85% of small-and-medium sized
companies with an online presence said that they cannot fill orders
internationally, citing shipping as the number-one obstacle (Koch,
2007). Other reasons cited by small business owners for avoiding
international markets include lack of information, the high cost of
entering export markets, and competition with larger companies. What
small companies must realize is that for every obstacle or limitation,
there are solutions in the form of private or public support and
resource programs (Koch, 2007).

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Getting paid for goods and services
Collecting payments from customers can be a big problem for small
companies, but there are avenues available to help overcome this
barrier. One of the safest ways to collect is by wire transfer before a
product or service is delivered. The explosive growth of the Internet
has leveled the playing field globally, but the Internet also makes
entering international markets easier for U.S. small businesses and
entrepreneurs. The Internet and the resultant improved
communications between global suppliers and prospective buyers help
make it easier to set and negotiate prices. Better communication and
agreements make it less likely there will be miscommunications when
it comes to payments. One such advantage is e-mail communication,
which is faster and cheaper than past telephone communications, and
provides a paper trail to document the communication in case there is
a dispute about prices and payments (Exporting Process Complicated,
2007). Businesses can also seek payment terms that provide
guarantees to the exporter. One of Ex-Im Bank’s most popular
products is credit insurance, which protects the small business owner
in the event of buyer default (DeBaise, 2006). A policy covers commer-
cial risks, such as buyer bankruptcy and slow payment, along with
some political risks, includ-ing war and terrorism (Czurak, 2007).

Shipping and filling orders


Sometimes, the complexities of doing business on a global scale can
feel overwhelming, says Tom Travis, author of Doing Business
Anywhere: The Essential Guide to Going Global (2007). Travis wrote his
book to help global entrepreneurs understand business opportunities
and avoid expensive mistakes. One of his recommendations for doing
business overseas is to take advantage of trade agreements (5 Basics
You Need to Know, 2007). Steve Preston, administrator of the U.S.
Small Business Administration, agrees that free trade agreements
eliminate or reduce tariffs, duties, and quotas, and work to create a
level playing field for U.S .companies. Free trade agreements also
reduce non-tariff barriers which can make exporting very difficult for
small business, Preston said. These barriers, from excessive paperwork
to the inconsistent enforcement of customs policies or valuation of
imports, require fixed costs that can be prohibitive for small businesses
(Kilkenny, 2008). A government resource that may ease shipping
concerns is the Ex-Im Bank, which provides a program for protection of
overseas shipments. The bank’s web-based service helps U.S.
companies buy insurance covering shipments of goods or services to
other countries quickly and easily (DeBaise, 2006).

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Lack of information about foreign markets
Learning about foreign markets is often complex and constitutes a
major barrier for small business owners who want to enter
international markets. Fortunately, a wide array of programs and
resources is available to small businesses from federal agencies,
including the U.S. Department of Commerce …. Some small businesses
create strategic alliances with foreign business partners. Others
engage the services of commissioned brokers or export management
companies to help market their products.

Costs to export
Costs, of course, are always a concern for small businesses and with
entry into global markets comes the need to finance the purchase of
inventory, labor, and other associated costs, such as working cap-ital
financing. Ex-Im Bank and the Small Business Administration offer joint
working capital loan programs that provide guarantees (up to 90%) to
private commercial banks for small businesses to assist their entry into
global markets. Recently, privately owned merchant finance
companies have be-gun to finance trade by providing purchase order
financing (Koch… 2007). Ernst & Young publishes business guides for
more than 40 countries, covering governance, compliance, fraud,
outsourcing, and tax advice (Trembley, 2008).

Competition with larger companies


Small businesses are always concerned about competing with larger
companies and this concern is magnified in the export arena. However,
while larger companies have more resources, they also tend to have
larger, fixed infrastructures. Flexible smaller companies, on the other
hand, can be more responsive in many ways, including shifting
resources when necessary. Another way of competing with larger
entities is through special services. Customization can be achieved
only by using non-standard methods, which is much easier for smaller
companies. At the opposite end of customization is specialization - for
instance narrowing a product line - which can also be a competitive
marketing advantage (Wiersema, 2007). The aforementioned Intuit
report notes that small businesses will be better positioned than larger
companies to provide customers with highly targeted, customized, and
relevant products. The report also states that increased computing
power and access to big business infrastructure – as large corporations
increasingly tap small business for collaboration – will lower barriers to
entering new markets and reaching customers (Small Business
Heyday, 2008). Even as small businesses encounter these and other
barriers, they are well-positioned to over-come the obstacles. Besides
the fact, however, the majority of the market lies beyond the borders
of U.S. there are many other compiling reasons behind why a small

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business should try to go beyond national borders. Believe it or not,
there are many advantages for a small business in the international
market, than huge corporations. For example, exporting products can
absorb excess inventory, soften downturns in the domestic market and
extend product lives. It can also spice up dull routine work of a
business.
Small businesses have several advantages over large businesses in
international trade. They are:
• Overseas buys enjoy dealing with individuals rather than with
large corporate bureaucrats.
• Small companies can usually begin shipping much faster as there
is no huge queue.
• Small companies provide a wide range of suppliers.
• Small business organizations can give more personal service and
more undivided attention, because each international account is
a major source of business to them.
These are some of the compelling reasons why you, as a small
business entrepreneur should think positively and seriously about
taking your span of business abroad. No matter what others say, if you
think that you have what it takes to expand, then you should go for it.

Advantages for Multinational Corporation in global


market:
Globalization provides lot of advantages for multinational companies.
The basics of globalization are which country can produce which
product of high quality on low price. For example, Sony Corporation,
Japan, have very high cost of manufacturing TV in Japan. But this cost
is very low in China. Similarly, Liver Brother's manufacturing Lux in
England at a very high cost, but in Thailand, it is very cheap. In
globalization, China can manufacture TV for Sony to sell in all worlds.
Similarly Thailand can manufacture Lux soap for all worlds. To be a
successful company in globalize world of marketing, it require high
quality product on low cost and availability throughout world. The
brand name will not contain the name manufacturer country. Only the
corporate name is required like Sony Corporation, Liver Brother's etc.
The multinational companies require one large manufacturing unit in
one country instead of having many plants in every country. This will
save cost.

Responding to the challenges of global markets: change,


complexity, competition and conscience
C. Samuel Craig; Susan P. Douglas.

Globalization is no longer an abstraction but a stark reality that

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virtually all firms, large and a small, face. Firms that want to survive in
the 21st century must confront this all encompassing force that
pervades every aspect of business. In a wide range of industries from
automobiles to food and clothing, firms face the pressures of global
competition at home as well as in international markets. Choosing not
to participate in global markets is no longer an option. All firms,
regardless of their size, have to craft strategies in the broader context
of world markets to anticipate, respond and adapt to the changing
configuration of these markets.
Navigating global waters successfully and establishing direction to
guide the firm in an increasingly turbulent world environment is a key
challenge facing today's managers. To date, this has largely been
perceived as the purview of large multinationals with diverse far-flung
operations in all parts of the global market. Of key importance is the
need to remain responsive to local markets, while at the same time
achieving global efficiency through integrating and coordinating
operations across world markets and allowing for the transfer of
learning from operations in one part of the world to another.

For large multinationals with experience in plying global waters, this


orientation is not misplaced. However, the conclusions and implications
do not apply to firms with limited experience in international markets
who are just beginning to target customers in other countries and
learning how to build operations in these markets. Today, an
increasing number of small and medium-size firms are going global
and their concerns are markedly different from those of established
multi-nationals.

Firms initially entering international markets will be more concerned


with learning about international markets, selecting an appropriate
arena to compete, and determining how to leverage core
competencies in international markets. Once in international markets,
firms have to build their position in these markets, establishing a
strong local presence by developing new products and adapting to
local tastes and preferences. As the firm expands internationally, it will
need to move away from country centred strategies and improve
integration and coordination across national markets, leveraging its
competencies and skills to develop a leadership position.

The purpose of this paper is to identify the challenges facing firms in


global markets and develop a framework which can be applied by all
firms in dealing with these challenges, irrespective of their stage of
involvement or experience in global markets. First, the four major
challenges (change, complexity, competition and conscience), and the
implications for firms in each stage of involvement in international
markets are discussed. Then, three key management tools for dealing
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with these challenges are examined - information systems technology,
administrative structures, and resource deployment, and their use in
each of the three phases of involvement are outlined.

The Changing Globescape


Establishing a clearly defined competitive strategy to provide direction
for their efforts was a paramount concern of managers in the '80s. As
competitive pressures became more acute, management recognized
that they needed to develop a strategic thrust geared to securing and
sustaining a competitive advantage in their served markets. Effective
strategy moves were grounded in assessment of the firm's current
competitive position and identification of the skills and capabilities
affording the most leverage in the light of future market
developments. More recently, the validity of traditional approaches to
strategy and even the value of strategic thinking has been questioned.
The transformation of the competitive landscape by broad-based
changes in technology, structural changes impacting industry, the
emergence of new sources of competition, and increased
environmental concerns, have all led to a re-evaluation of strategic
thinking and strategy development. In particular, the changing
competitive landscape and increasingly turbulent environment suggest
the need for new approaches and a broader view of how the
organization should respond to changing environmental conditions.

Technology is rapidly altering the nature of competition and strategy in


many industries. The global proliferation of relatively inexpensive
computing power and global linkages of computer networks through
telecommunications have resulted in an information-rich, computation-
rich and communication-rich organizational environment.
Telecommunications and computer networks are changing the way in
which manager’s work and interact, providing links between country-
centred organizations, and permitting technology to be rapidly shared
and learning transferred throughout the organization. As a result,
speed of technological diffusion and change is rapidly increasing. At
the same time, the growing technological orientation of many
industries and use of computers and telecommunications technology
have created greater knowledge intensity and dependency. Often
technological knowledge and rapid product and process innovation is
the sine qua non to achieving and sustaining competitive success in
the global marketplace.

The telecommunications revolution has also stimulated major


structural changes in industries and organizations. Vertically
integrated, centralized organizational systems have given way to
decentralized, highly fragmented fluid structures, linked by
agreements, contracts and working relationships. This has radically
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changed the nature and basis of competitive advantage and the
economics of doing business. At the same time, traditional industry
boundaries and demarcation lines are breaking down as business and
technologies fuse or converge (for example, communications and
consumer electronics, entertainment and education) and new
industries emerge, with as yet no clearly defined boundaries.

Competition is also intensifying, as globalization changes the


boundaries of competition and new sources of competition emerge.
The basis for competition is also changing, as new players are able to
enter the market with an ease unknown even ten years ago.
Information technology has dramatically transformed the costs of
doing business and enabled firms to bypass stages in the value chain,
for example, going directly to customers, or outsourcing functions and
operations. Such factors have changed the nature of the value chain in
many industries, enabling new and non-traditional competitors to enter
the market rapidly and compete effectively.

Concern over the impact of industrial activity on the environment has


also heightened, adding to the complexity of doing business in today's
world. New forms of packaging, demand for recycling, more efficient
use of resources, greater responsibility for protecting the environment,
limiting toxic waste, as well as to educate consumers and to develop
more "user friendly" products are all compounding the tasks and
demands placed on the organization. Increasingly, firms are called
upon not only to be environmentally and politically correct, but also to
be more responsible citizens in all their activities worldwide.

Contending with Complexity


Complexity in the global environment is a product of contextual factors
such as technological advances, diverse social and economic change,
and political upheavals. More directly, for the firm complexity is
intensified by the scope of its operations in global markets, at different
levels of the value chain and how they are arrayed across markets, the
inter-linkages and interdependencies between markets, and the
increased blurring of product market boundaries, both functionally and
geographically.

Firms in PHASE 1, tend to face relatively simple operating


environments. Control and coordination are straight-forward issues as
marketing activities are limited to a few countries beyond the domestic
market. Decision making is unidirectional emanating from the
domestic market base.

As firms expand their international operations in PHASE 2 and begin to


focus their efforts on developing products and services to suit tastes in
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local markets, they begin to encounter a greater degree of complexity.
Coordination and control of activities in international markets become
more problematic as the appropriate degree of centralization becomes
unclear. Organizational structures become more communication
intensive and matrixes to reconcile potentially conflicting goals and
differing market conditions in each market. Decision making tends to
take place on parallel tracks.

Firms with extensive international operations must develop strategy


and conduct business in highly complex environments. Outsourcing of
functions and establishment of relational networks paves the way for
the virtual organization. Business functions become interlinked and
interact to allow for optimal control and coordination of activities on a
global basis. Companies such as Ford, IBM, and Bristol Meyers Squibb
have begun to evolve organizational structures that will allow them to
compete effectively into the 21st century.

Competition
Increasing intensity of competition in global markets constitutes yet
another challenge facing companies at all stages of involvement in
international markets. As markets open up, and become more
integrated, the pace of change accelerates, technology shrinks
distances between markets and reduces the scale advantages of large
firms, new sources of competition emerge, and competitive pressures
mount at all levels of the organization.
As more and more firms venture into global markets, competition
proliferates, posing new threats and dangers to be reckoned with. In
addition to facing competition from well-established multinationals and
from domestic firms entrenched in their respective product or service
markets, firms face growing competition from firms in newly
industrializing countries and previously protected markets in the Third
World, as well as emerging global networks or coalitions of
organizations of diverse national origins.

Firms from newly industrializing nations such a Taiwan, Singapore,


Korea and Hong Kong are increasingly taking the initiative in
competing in global markets, rather than acting as low-cost suppliers
to firms in the Industrial Triad. The threat of competition from
companies in countries such as India, China, Malaysia, and Brazil is
also on the rise, as their own domestic markets are opening up to
foreign competition, stimulating greater awareness of international
market opportunities and of the need to be internationally competitive.
Companies which previously focused on protected domestic markets
are entering into markets in other countries, creating new sources of
competition, often targeted to price-sensitive market segments.

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At the same time, spurred by new advances in communications
technology and rapid obsolescence, the speed of competitor response
is accelerating. No longer does a pioneer in global markets enjoy a
substantial lead time over competitors. Nimble competitors, benefiting
from lower overhead and operating costs, enter rapidly with clones or
low-cost substitutes, and take advantage of the pioneer's investment
in R&D and product development. Modern communications and
information technology also encourage rapid competitor response to
price changes, or new distribution and promotional tactics, and further
heighten the pace of competition.

Confronting Competition
Not only is competition intensifying for all firms regardless of their
degree of global market involvement, but the basis for competition is
changing. Competition continues to be market-based and ultimately
relies on delivering superior value to consumers. However, success in
global markets depends on knowledge accumulation and deployment.
Firms that win in the market place will be those that can use
information to their advantage to guide the delivery of superior value.
Further, the increased blurring of product market boundaries and
interlinking of markets means that how value is perceived and by
whom is less clear.

Firms beginning to enter international markets are in a position to limit


competitive exposure by choosing markets that are free of formidable
foes. They can zero in on markets where they have a competitive
advantage, such as being the low cost supplier in a price sensitive
market. In addition, firms in PHASE 1 tend to be dealing with
established competitors that are known quantities, and frequently
compete on a single dimension, e.g., cost leadership.

Competition mounts quickly for firms in PHASE 2 as they expand their


operations in international markets. Not only does competition
increase, but it tends to proliferate and become quite diverse. New
competition may enter the market, and existing competitors react to
the firm's actions, requiring adaptation of its competitive strategy.
Furthermore, the nature of competition may vary from one market to
another. In some markets, the firm may differentiate its products, to
beat competition while in others it needs to focus on cost leadership,
making it difficult to leverage core competencies across markets.

Firms in PHASE 3 of international market development face intense


competition throughout the world. Their far-flung operations will
encounter competitors of all types who may mount a frontal attack, or
cherry-pick lucrative market niches or attempt to block the firm's
expansion into new markets or market segments. In addition, global
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markets are often highly interdependent, with actions in one market
having consequences for many other markets. The astute global
marketer will attempt to gain a competitive edge and take advantage
of these interdependencies.

Conscience
The fourth challenge relates to the firm's moral and social
responsibilities in the global marketplace. A host of such
responsibilities can be identified, covering a broader spectrum of social
and corporate issues. Environmental issues, for example, have
emerged as a key theme in the 90's. Companies have become
increasingly aware of the need to take measures to limit destruction of
the environment. These include measures to limit pollution of the
atmosphere through the emission of gases and other toxic substances,
to conserve resources such as paper and plastic, whose production
results in environmental destruction, and to produce and design
products and packaging which are environmentally friendly.

Conclusion

Regardless of where the firm is on the path towards globalization, it


must respond to the forces shaping the global environment and the
challenges they present. The precise nature of the challenges
continues to change and the form they will take in the twenty-first
century remains uncertain. It is however clear that to be successful;
the firm must be an even more astute marketer than in the past. The
necessity to respond quickly and appropriately to opportunities and
challenges throughout the world places a premium on developing an
effective global strategy.

An increasingly turbulent environment poses new challenges to


managers that require different organizational responses depending on
the degree of involvement in international markets. The firm's
information system and its use of technology, facilitates initial
involvement in international markets and establishes the foundation
for subsequent expansion. As the firm expands its involvement in
international markets, the organizational structure must evolve to
coordinate operations in diverse and far-flung markets. Finally, as the
firm seeks to consolidate its position in global markets, the ways in
which it deploys resources throughout the world takes on paramount
importance. To succeed the firm must become an organic process that
continually evolves, adapts, and responds to the changing realities of
the global marketplace. Firms that are able to do this will prosper;
firms that do not, will wither.

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