Advantages of Globalization

Advantages of Globalization

Globalization is basically is uniting the people of the world. In simple word globalization is integration of the people of the world. Globalization concept based on the sharing of ideas, product, information, technology. Here we would explain economic globalization or impact of globalization on business.

1.    Boost in International Trade

Globalization has boosted the international trade phenomenally. This boost in trade has helped in building new relationship among the countries. The old rival countries have become friend due to international trade. Trade is defining the relationship between countries.

2.    Large Number of Customer

Globalization provides access to the large number of customer. Now whole world is your customer and there is 7 billion people are living in the world, so if you are shoe making company, then your market is 7 billion people.

3.    More Options

Customer has large number of choices and can select the best product for them within given their budget limits. Customers have more options to plan their budget effectively.

4.    Product Quality Improves

Quality product is available to the customer. There is huge competition and everyone wants to get its share, and this share can be got by making customer happy. Thus customer is receiving high quality product at lower prices.

5.    Innovative Products

Globalization has result in the introduction of innovative products. Now a touch screen in mobile industry is a common feature, but some years back, it was a dream. This innovation has brought many facilities to the common man life.

6.    Introduction of Technology & Business practices

Globalization has transferred the modern technology and advance business practices to the developing countries. Now these countries growth rates are touching new skies.

7.    Cultural understanding

Globalization has helped to understand different cultures of the world. This cultural understanding has helped businessman in many ways. product can be designed & marketed as per the cultural requirements of the countries.

Important Factors for Foreign Market Entry

 Important Factors for Foreign Market Entry

There are number of factor considered by the company before taking the entry decision in the foreign market. These factors include size of the firm, option availability, market size, risk assessment, Brand image & Quality, availability of resources and economies of scale & cost. These factors have been explained below;

1.    Size of Firm

First factor is size and capacity of the firm. Large firm go for establishing manufacturing facility, where small firm opt for exporting option. Small firm cannot afford to set an independent manufacturing facility, because it requires huge investments.

2.    Option Available

In liberal economies there is open competition, but in case of controlled economies, there are some restrictions are placed by the government. It means that foreign company cannot set manufacturing facility in all sectors. Some countries also have some export restrictions (exports Quotas etc)

3.    Market Size

Size of market is also one of important factor for deciding the type of entry. For large market like china and India, the direct manufacturing is more feasible than exporting, because exporting is an expensive option.

4.    Different Risk

There are number of risk associated with foreign investment. In case of export the risk are limited (foreign currency exchange risk), where foreign subsidiary is exposed to number of risks which included different political risks (risk of war, political instability, policy change, tax rate change risk) and also face foreign currency risk.

5.    Brand Image

In case of contract manufacturing the brand image and quality is at stake. For large companies brand image and quality has fundamental importance and these companies are most concerned about the quality of product and brand image.

6.    Availability of Resources

Availability of resources (skilled labour, material, technology) is also important factor for deciding entry mode for foreign market. For example a Boeing company cannot be set up in Afghanistan.

7.    Economies of Scale & Cost

Economies of scale and cost are also important factors for deciding the entry mode. It is important to note that labors are cheaper in country like china and India. Therefore many large organizations are setting manufacturing facilities in India & china.

Types of Entry in Foreign Market

Types of Entry in Foreign Market

A company can enter into a foreign company in number of ways. Entry options of company can be explained in term of direct exporting, indirect exporting, contract manufacturing and setting up a manufacturing facility. each entry has its own advantages and disadvantages, which has been briefly mentioned below;

1.    Direct Export

Manufacture may directly export and sell product in the foreign country without any third party. The advantages of direct export include maximum profit, exploring and understanding the market, retention the market. There are also some disadvantages of indirect export, which include high staff cost, high risk exposures, no cost sharing.

2.    Indirect Export

In indirect export the goods are not directly sold in foreign market, rather it is sold through a distributor or other agent. The advantages of indirect export include more market access, limited political risks etc. Disadvantages of indirect export include profit sharing, risk of losing market etc.

3.    Contact Manufacturing

In contract manufacturing company does not establish its own manufacturing facility, rather manufacturing rights (trade mark) is offered to some local manufacturer against fees. The typical arrangement in this regard is to use brand name of the company against fees or royalty. Company can earn more profit with no investment, limited foreign investment risk.

4.    Owned Manufacturing Facility

Organization may decide to set up a fully owned subsidiary in the foreign country. This arrangement has number of advantages like customer relationship, wining public orders, lowering the cost of production. Disadvantages of wholly owned manufacturing facility are more exposure to different kind of risk i.e. foreign currency risk, political risks etc.

Geo Centrism Concept

Geo Centrism Concept

Geo centrism concept is basically combination of ethnocentrism and poly centrism concept of internal business. Geo centrism approach does take into account the local culture and incorporate local requirement in the overall direction or business plans of company.

1.    Combined & Balanced Approach

Geo centrism approach is combined and balance approach of business. It does consider the foreign market as new market with some requirements (Local requirements), but it also values the strategic direction of organization.

2.    Cultural Requirement Considered

Cultural requirement of a market considered for market and other business plans. Organization makes required amendment in overall policies to incorporate local requirements. It means in Geo centrism approach, operational policies can be amended & implemented by local management.

3.    Overall Direction

In this approach overall direction or strategic direction of the organization does not lost, because policies are not totally changed due to local requirement ,rather local requirement are incorporated case to case bases ,and such changes mostly relates to operations, and does not change or effect strategic directions.

4.    Centered & Local Decision Making

In geo centrism approach some decision are made by the central management, and some decision are taken at local level. it means that strategic and major decision are taken by the key management and market and operational decision are made by local management.

Polycentrism Concept

Poly-centrism Concept

Poly centrism approach of doing business internationally is opposite to ethnocentrism approach. In poly centrism approach the local market is given due importance for decision making relating to that market (Local Market). It means each market is independent evaluated for decision making. Characteristics of poly centrism have been explained below;

1.    Value Different Cultures

Poly centrism recognizes the importance of different cultures, and different culture values are incorporated in business strategies and decision making process. In fact new policies are made based on the cultural requirement of local market.

2.    Decentralization

Poly centrism is primarily decentralization concept, and decisions are taken at local level keeping in view the local market conditions. It means local management is empowered to take appropriate decisions under this approach.

3.    Local Research

Local research is conducted for evaluating & understanding the local market & demand.  Such research results are incorporated in business plans of the company. These plans are more realistic in nature.

4.    Total New Market Concept

Overseas market is considered a total new market, and therefore new business plans and policies are required to be framed for new market.

5.    Lack control & Standardization

Poly centrism approach lacks control & standardization within organization. In one organization so may plans and strategies are being implemented. It means it is difficult to set one strategic direction under this approach.

6.    Timely Decisions

Poly centrism concept or strategy of doing business facilitates timely decisions. it means that local management can take all required decision in time, we know that timely decision are critical for cost and damage controls.

Characteristics of Ethnocentrism

Ethnocentrism Concept

Ethnocentrism Concept

Ethnocentrism is an approach for managing the international business. Under this approach local market is primary market and consider for policies making and strategies formulation. Culture differences are not considered for policy making and whole world is considered as one market. Characteristics of ethnocentrism approach has been explained below

1.    Local Market is Focused

In ethnocentrism the local market is focused, and local market is given primary consideration for policy making and local market strategies are applied all over the world.

2.    No Culture Difference

Ethnocentrism gives little value to culture differences, and there is no change in the rules of games for international market.  Ethnocentrism sees world with one eye and standard policies are implemented all over the world.

3.    Centralization Concept

Ethnocentrism approach is basically a centralized approach of doing the business. It means that business is controlled from one point i.e. Head Quarter and policies of Head Quarter are implemented all over the world,

4.    Local Market Research

Ethnocentrism does not offer space for local market research, rather head quarter market strategies are followed in local market. It means marketing department work cannot device the market strategies.

5.    Effective Controls

Ethnocentrism approach or strategy helps in managing the organization more effectively. Due to standard policies and procedures, there is no confusion, and controls are well defined and more effectively implemented.

6.    Standardization

In Ethnocentrism approach, there is   standardization of product and polices. There are number of associated advantage with standardization are achieved by organization. These advantages include clarity, integration of organization etc.