Discuss about the Global Production Networks and Resources.
The essay is about the international business and the globalization. The essay discusses how a multinational organization from an emerging market runs the business dealing with the all challenges and using significant opportunities that appear due to globalization (Czinkota and Ronkainen 2013). However, it is essential to know why businesses rely more on the international market instead of continuing in domestic market. The basic idea derived from the studies is that the international business comprises a large as well as growing segment of world’s overall business. In today’s business environment, almost all organizations-large and small, are influenced by global events and competition. The organizations choose the international market as they could sell their products to foreign market, which remains as the major source of revenue. They might look for the secure suppliers from foreign countries or compete against the services that come from foreign country. Nevertheless, it is necessary to know how these organizations deal with such competition and how they face the potential threats and use opportunities to overcome.
The purpose of the essay is to evaluate the threats and opportunities in an emerging market and understand how the businesses are surviving against the globalization. Thus, to understand the scenario, the essay focuses on the factual data, which consists of the current events. In order to strengthen the analysis, a business run by BHP Billiton, has been considered. BHP Billiton is one of the leading global resource companies creating long-term shareholder value through the discovery, acquisition, development and the marketing of natural resource. Specifically, the company is well known as “Anglo-Australian multinational” minim, metals and petroleum firm headquartered in Melbourne, Australia (BHP Billiton 2017). The essay goes forward with the discussion on how BHP Billiton deals with the global challenges and opportunities, how managers tackle the foreign markets and how the business stands on the profitable position. Most importantly, the essay focuses on the emerging market-China.
The business in the international environment gains the opportunity to sell its products and services to abroad. This helps them to earn the significant foreign exchange. Hence, the organizations use this foreign exchange as the payment for the imports. As put forward by Pinkse and Kolk (2012), the foreign exchange certainly helps to make the business more profitable as well as strengthen the economy of the country. With a different perspective, Luo and Wang (2012) mentioned that international business makes the highest utilization of the resources. This is possible as the companies produce goods on large range for the foreign markets and they get the opportunities to use the resource from all over the world. The companies use the finance and technology of developing countries and the raw materials as well as workforce of poor nations. Likewise, there are other significant reasons based on which the organizations choose foreign market. However, these grounds based on which the business is established but threats in internal market such as increasing competition, demands of products and unstable economy stand as the major barrier in the profit margin. The companies are exposed to global forces of demand, supply, international market competition.
The BHP strengthens its position in the global market using some significant opportunities. The issue emerging from the focus on globalization is sustainability and the company is addressing this both within its own companies as well as at the international minerals industry level through the global mining initiative. The GMI (Global Mining Initiative) taken by BHP Billion is a significant industry response to the debate regarding sustainable development.
As put forward by Gooris and Peeters (2014), globalization provides several opportunities for development across the globe; however, the growth has no consistency. Conversely, there are some countries, which have observed a rapid growth in the economy. The UK and other Europaean nations, for instance have gained the ability to adopt a rapid growth and reduce poverty. However, Preston and Windsor (2013) has stroke the above-mentioned idea stating that though the globalization has been widely embraced by each nation but the countries should not forget the possible risk associated with it. An increasing risk can be observed in the economy and environmental deprivation
Likewise, BHP Billiton is dealing with the threats from persistently increasing costs from suppliers, including energy, shipping and contract labor cost and labor staffing issues that prevent the organization from achieving the growth and development in China market (Ramasamy, Yeung and Laforet 2012). The company is dealing with persistent political issues in the home country Australia, as the company did not receive the adequate support from the government regarding the infrastructure. Instability in the political environment led to poor infrastructure. It is observed that BHB vastly depends on the growing demand of natural resource of China. The slow progress in the global economy could directly influence the sales and the financial growth of the company. The company needs to enhance its operation to fulfill the growing demand, which remains fragile to meet the high level of profitability with the development of natural resource.
The corporate decision maker of BHP Billiton is largely impacted by the bargaining power of suppliers in labor, material, energy, shipping as well as energy cost. The organization ensures reduced capacity through enhanced operation; the total costs from supplier have also increased. However, the company favors the China market, as the treats of new entrants are relatively low because of the scarcity of natural resources. The market has very limited capacity and supply available in the China market that prevents all new entrants in the market. On the other side, Ou (2012) opined that because of the drop in the commodity prices, the demand of iron and other material from China slowed down by large extent. This remains as the barrier for new entrants but opportunity for BHP Billiton in the current emerging market. The demand of the materials could increase to a small extent but quite impressively. As the emerging market like China is technologically developed, the mining company BHB Billiton holds the developed infrastructure with the advanced technology as well as trained workforce to provide highest quality products to the market. The increasing demand for iron ore, driven by such as China, has fueled an instable global appetite for the community over the past decade. Nevertheless, with the ongoing slow growth in the Chinese economy, the demand for iron ore is expected to reduce, with the prices already tumbling as the industry faces increasing supply for buyers.
The emerging market of China remains as world’s largest iron consumer (Hurst 2015). The economic growth in the country, which is influenced by production and gangbuster and the initiatives to enhance the infrastructure. As the nation has huge amount of ire ore as the export materials, the economy finds the stability.The leading iron ore producer BHP has received the opportunity of meeting the high demand of Iron ore, which has increased by more than 100% in last 15 years (BHP Billiton 2017). It goes from 950 million tons produced annually in 2000 to 2,200 million tons in 2015 (Sun, Zhang and Chen 2013). Nevertheless, the economy of China finally seems to be experiencing changes after two consecutive decades. The iron ore producer like BHP felt the effect as the Chinese steel production is observed to be low in last quarter of 2015. Consequently, the demand in such emerging market is adopted an unexpected shape. Thus, Chinese mills, which would serve millions of internal customers, are now exporting a huge amount of their production.
Globalization has large impact on price of products of BHP on the emerging market like China. As global demand grew because of the increasing industrialization in the nations like China, the price of Australian Iron ore exports of BHP was on average $30 (USD) per metric ton. However, once Chinese demand into its supernova phase in 2009, the average price shot increased to $96 USD per metric ton from 2010 to 2015 (Wilson 2012). Later on, at the peak time, the products of BHP hit high of $180 USD per dry metric ton. As commented by Hasanbeigi et al. (2014), the scenario has change now, the markets forecast that the price of mining products could decrease to 30% in the first quarter of 2017. As the world economy enhances, it increase the demand for mining and other oil products. The issue is when China, the largest driver of this growth, eventually hits a bump in the road; as a result, the economy goes down. Further a substantial decrease in demand for mining the products deflationary force on iron ore prices for a specified period. Nonetheless, when the supply and the demand come back into the balance, the price of minerals and petroleum products could likely to increase.
McDonald, Mayes and Pini (2012) focuses on the current scenario of BHP’s operation in Australia, where iron ore is the backdrop of its economy. The price of Australia’s biggest export earner has halved in jus last few months. This has largely affected BHP’s operation in the home county Australia. Rainnie, Fitzgerald and Ellem (2014) mentioned that for every fall of $1 in the price, the Australian economy experiences the loss of $800 million in foreign income. The company is losing its revenue in the home country. The consequence extends to the loss of thousands workers and the mines have shut down in South Australia. BHP Billiton, which relied on a healthy iron ore industry, has observed the threats.
The managers of international businesses should understand that running operation in the foreign country is a wise choice if the demands of products are high or similar to home country. From the growing popularity of BHP in China, the manager should realize the fact that in the host country the organization could enjoy the access to cheap labor, which remains as the major advantage. As the operation of BHP spread across different geographical areas of China developed its production units in host country with cheap workforce. China is a great example of cheap labor market (Alves 2012). The managers should learn the fact that taxes are other areas where each MNC could take advantage. The emerging market like China offers reduced taxes on exports as well as imports to increase its foreign exposure and develop the foundation for international trade. Therefore, the managers of international business should understand the taxes are the areas of gaining profits but it depends on nation’s operation. However, Hamilton and Webster (2015) commented that the loss to local business could be a possible consequence of international business development.
This happen because the goods of MNCs lead to damage of domestic organization operation. The multinational company prefers to develop their monopoly in the market where it could operate; thus, the killing the domestic business in the home country. For example, BHP Billiton has tremendously been successful in the host country China but it has observed an incredible loss in the domestic business. According to Prior et al. (2012.), the firm forecasted a loss of $5.9 billion and the profit was increasingly driven by a 31% of increase in revenue caused by plunging commodity price. While the emerging market China is expected to boost the growth of BHP, the domestic business is lagging behind.
As BHP Billiton operates in different nations a large sum of money flows to foreign country as the payment toward the profit, which results in less efficiency for the home country as the company is not provide manufacturing cost (de Villiers, Low and Samkin 2014). In addition this, the transfer of capital occurs from home country to foreign country to the foreign country, which is not favorable for the economy. Nevertheless, BHP Billiton in the foreign country like China takes the advantage latest technology, which helps the firm to enhance their technological parameters. Additionally, the managers of international businesses should understand the major disadvantage, which is strict regulation applicable in the host country. The multinational organizations are subject to more laws as well as the regulations than other domestic companies in the emerging market. BHP is not under exemption of trade regulation in China as the company is running the business in other nations. This results in a conflict in the nation.
The above-mentioned discussion helps to learn that there is a significant difference in success between the home and host countries. The multinational firm in the home country generates the opportunities for marketing the products produced in the home country. Hence, the cost of operation such product manufacturing cost, labor cost and technology is less compared to other developed foreign countries. On the contrary, MNC has to invest a large amount of money on operation in foreign country, as the firm has to comply with the industry regulations of the country (Chattopadhyay, Batra and Ozsomer 2012). However, if the firm chooses the emerging market like China where the cost of labor is comparatively less than other developed nations, the company could earn profits from the operation. For example, China is widely known for its low cost labor market and BHP takes this advantage but in other developing nations like UK, the company hast to pay higher cost in labor.
Many MNCs do not survive in the international market due to the stringent regulation, the taxes, unfavorable political environment and many more. The government of host country imposes these regulations since the MNCs do not operate within the host country’s autonomy, they could pose a serious threat to economic and political sovereignty of the host country. These differences slightly confirm that the success is much higher in host country compared to home country. Alternatively, Jenkins (2013) commented that success of home and host country depends on the demand of products and services and the economy. For example, the demand of iron ore and other mining and petroleum products were high in Australia but due to slowdown in the global economy caused the failure of BHP in production.
Conclusion
On the completion of the essay, it can be mentioned that though BHP has been successful in running the operation in the emerging market like China, the company has poor records of profits in other developed countries in UK and US. The cost of running the operation in China is tremendously high than China. This scenario helps to observe that profits of business may not necessarily be high in host country than the home country. Theoretical underpinning of international business helps to learn profit of running the operation in home country high as the opportunities of tax exemption and other regulations. The multinational company gives a boost to the industrial activities of home country and the company prefers to maintain a strong balance of payment of the home country in the future. However, it is worth mentioning that the rage of investment, employment level and income level of the host country increases because of the operation of multinational organizations.
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