Why do Companies Globalize their Businesses?
Mariam Peyton is a professional Financial Analyst. She holds a Masters degree in Economics. She specialises in financial analysis and forecasting. Her expertise includes studying the financial performance of companies, markets and entire industries looking for trends, insights and information that can help you glean rich insights for use in academic and market research.
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According to the International Monetary Fund, Globalization refers to the rising economic interconnection of among countries, regions, markets, and people through the accumulating volume and variety of cross-border commerce in products, services, international capital flows, and technology and is often considered a phenomenon of the modern era. It involves the expansion of trade, investment, migration, communication, and culture across borders.
However, a historical perspective reveals that globalization has been occurring for centuries, if not millennia, in various forms and degrees. But recently, the growth and development of the global marketplace and relocation of people, technology, services, and goods across borders have increased the concept remarkably.
The world economy has become increasingly global and interdependent in the past few decades, due to factors such as trade liberalization, technological innovation, and geopolitical shifts. This phenomenon has implications for various aspects of economic activity, such as production, consumption, investment, and innovation. The globalization of markets has enabled many firms to expand their operations beyond their home countries and tap into new sources of customers, suppliers, and partners. However, not all foreign-owned companies have been equally successful in achieving high levels of profitability and revenue from their international ventures.
Organizations would wish to expand globally for numerous reasons but the primary goal being the expansion and substantial growth of the company. However, global expansion also entails various risks and obstacles that need to be addressed and overcome. Some of these include cultural differences, legal regulations, market competition, and operational costs. Regardless of the fact that the company might employ an international workforce.
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Why do Companies Globalize their Businesses? Case Study
Key Learning Outcomes
By the end of the case, students should be able to:
- Explain globalization's main drivers and benefits for businesses, such as increased market size, lower costs, innovation, and competitiveness.
- Identify the different modes and strategies of entering foreign markets, such as exporting, licensing, franchising, joint ventures, and foreign direct investment.
- Evaluate the opportunities and challenges of operating in a global environment, such as cultural diversity, legal and political differences, ethical issues, and environmental concerns.
1.0 INTRODUCTION
Globalization has been described as “The process of increasing interconnectedness between societies such that events in one part of the world more and more have effects on peoples and societies far away” (Baylis & Smith 2001 pg 8). It affects various aspects of human life, such as culture, politics, economy, and environment.
According to the International Monetary Fund, Globalization is defined as the rising economic interconnection among countries, regions, markets, and people through the accumulating volume and variety of cross-border commerce in products, services, international capital flows, and technology and is often considered a phenomenon of the modern era. Organizations would wish to expand globally for numerous reasons but the primary goal being the expansion and substantial growth of the company.
Below are some of the reasons why a company may wish to expand globally.
To foster its growth and development: a company may want to expand globally in order to increase its customer base and boost growth and sales. Globalization will help the company to introduce new products to international markets. Globalization also allows companies to diversify their products and services to meet the needs and preferences of different cultures and demographics. For example, Nike globalized its brand with the intention of expanding its business and gaining greater and better revenue in foreign countries.
To reduce costs and increase efficiency. By operating in multiple locations, companies can take advantage of lower labor costs, cheaper raw materials, favorable tax regimes, and economies of scale. Globalization also enables companies to optimize their supply chains, logistics, and distribution networks to reduce waste and improve quality.
To enhance innovation and competitiveness. By exposing themselves to different ideas, technologies, and best practices, companies can foster creativity and innovation among their employees and partners. Globalization also allows companies to access new sources of knowledge, talent, and capital and benchmark themselves against global standards and competitors.
To manage risks and uncertainties. By diversifying their operations and markets, companies can reduce their exposure to political, economic, social, and environmental risks in any single country or region. Globalization also helps companies cope with fluctuations in demand, supply, prices, and exchange rates by spreading them across multiple locations.
Globalization is not without challenges and drawbacks, such as cultural differences, legal complexities, ethical dilemmas, environmental impacts, and social inequalities. However, many companies view globalization as a strategic necessity and an opportunity to create value for their stakeholders.
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