Organizational Issues In Global Context Method

Factors that affect firm’s strategies while expanding

Discuss about the Organizational Issues In Global Context Method.

The modern-day life of a global leader is more difficult than ever. They need to motivate a group of employees who are from very diverse backgrounds with different cultures, they need to increase the productivity, efficiency and achieve the targets set by the board. Externally, they must face a global environment which is complex and ever changing, shareholders are always on a look out for better opportunities they must give them a reason to stay by exceeding their expectations (Baum & Oliver 2015). This all comes along with a consideration that they must work with people from different background who have very different ways of getting the work done.

Jet travel opened an all-new frontier to do business, the constraint of time and reach was solved in an instant and then internet took it one step further. Organizations saw an opportunity to go global and set up businesses in countries which were even unheard off and earn even more income. But as organizations begin to diversify the problems they face also intensify such as employee issues, personal conflicts, company structure, team problems etc (Bartlett, 2011). clearly, no business model works best for all organizations because of the opportunities and challenges they face based on the kind of business they are in. Another reason why single model doesn’t fit all the global companies is because of their different histories, culture, structure and management. Companies which have grown organically on its own without acquisitions have a potential of scale and scope and align different workforces under one roof but find it much more difficult to adjust their products and services as per local needs. Whereas, the companies which have grown mainly on Mergers and acquisitions find it easier to tailor their products as per local needs but very difficult to align a workforce which comes from diverse background behind a single value system and strategy (Glaister, 2014).

Being global brings clear opportunities and benefits such as building new markets, access to newer technologies, new suppliers, new partners and above all more income and profits. But being global also bring a set of issues such as factors to consider while going global, different models to follow in different countries, different legal environment and so on. This report aims to find out the issues which an organization faces in the global context.

Expansion model of firms from developed countries vs Firms from developing economies

International business is very different from business in home country there are host of issues which the company faces when going international which they don’t have to face otherwise, some of them are:

Standardization of products: The very first factor to consider when going global is the quality of the goods and services, firms going international needs to offer high quality of goods and services to maintain a strong foothold in the market. Every country has its own standards of quality that needs to be met to sustain in the market with high competition (Bleek & Ernst, 2015). Quality without consistency is no good, companies along with good quality needs to maintain consistency in their goods, which means every product should be the same. To do this a dedicated quality control department needs to be set up to ensure quality check through rigorous product testing.

Flexibility: When entering foreign markets, it is essential for the business to be able to change and adapt its marketing plans, production and business plans as per the market requirements. Drastic changes in the demand patterns might add to lot of challenges therefore, it is advisable to be open to new suggestions as every country has its own form of producing and marketing goods (Burgel, Murray, 2010). Companies have to adapt to local culture and trends to find an optimum balance between what it wants to achieve and the means to achieve them.

Language and cultural differences: When expanding into local markets there are no such considerations to be taken as businesses are already acquainted with the culture but while expanding in the foreign markets it is of utmost importance to understand the culture and language. Employees of the organizations must learn new language or find a representative to guide the business growth strategies (Cavusgil & Evirgen, 2011). There are instances when bold firm strategies have failed in marketing the product while subtle hints in some countries have done wonders. These differences can only be understood through research or by consulting local agencies.

Market readiness: While entering newer markets its readiness plays a very important role in the success of the organization. There should be demand of the product which the organization is trying to sell, if there is no demand for the goods organization can suffer huge losses (Contractor & Lorange, 2015).

Another point is availability of substitute goods in the market, if there are goods which directly compete with the product of the organization and are available at a cheaper price it is very difficult to sustain. Therefore, before entering, analyzing the markets and formulating strategies accordingly becomes very important (Lindquist, 2015).

Organizational Structure: Having an organization structure that is aligned to the local market is very important. Strategies which support the expansion plan needs to be clearly defined and implemented effectively. Some strategies include finding buyers for the products, setting up a local branch or foreign branch, selection of buyers if production is to be done locally, availability of raw materials, hiring local employees etc. Strategizing these decisions is a major factor to consider while expanding.

Rules and regulations: Every country has its own set of rules and regulations regarding FDI, taxation, quality etc. which the business must consider and take care off before expansion and production process to go underway. It is advisable to consult a legal counsel in the host country to understand the nitty-gritties and then formulate the business strategies to make the process smoother (Lei & Slocum, 2015).

Investment and capital: International expansion is not an easy and cheap task, it does not happen overnight. Time and money are needed to take the business beyond the geographical markets. For expansion business, must have sufficient capital to infuse in the activities of the foreign markets. If the capital is to be raised various financial decisions are to be taken like, whether to raise equity capital or debt capital, what would be the Return on investment, what would be the payback period  after having considerable amount of research it is to be decided if expansion would be a good decision or not (Geringer, 2015).

Expansion model of firms from developed countries vs Firms from developed economies

Corporations in developed economies have a greater advantage while expanding business because of the following reasons:

Easy accessibility to capital: Corporations in developed economy such as US, Germany, UK have an easier access to capital because of their large business. Since the business already established in developed economies have a huge sales and profit due to higher purchasing power of the population. This allows them to invest huge amount of capital into expanding their business. They have deep pockets to absorb losses arising from the business in developing economies, these companies have the capacity to offset the losses in developing economies by the profits generated from the developed countries (McDougall, Shane, & Oviatt, 2013).

Corporations in developing economies do not enjoy such liberty as they don’t have multiple income sources and must spare capital from the existing business therefore, they make decisions when they are certain of making profits. This limits their growth prospects due to shortage of capital.

Strong Brand name: Corporations from developed economies enjoy a greater advantage in terms of their brand name, due to the wide existence in various countries and huge consumer base. Having a strong brand name helps in easy acceptability by customers in the host countries, high bargaining power with buyers, suppliers and even governments, ease in raising additional capital and existing confidence in the buyers. These corporations do not have to incur high marketing costs to increase awareness about their products as they are already very famous in the international markets (Adler, 2007) and thus, creates a pull demand from the buyers in the host country. This also allows them to charge premium over their products. Firms from developing countries do not enjoy such privileges and must start from the scratch. By building their brand name and raise expensive capital. The only way to succeed and compete with such multinational corporations is to deliver products which exceed customer expectations and provide greater value for money.

Strong technological prowess: Multinational corporations in developed economies have a strong technology in terms of its research and development, whereas the firms from developing economies do not have such technological advantage. Global multinational organizations constantly through its R&D innovates newer products and processes which help them drive down costs and increase profit margins. This let them grow exponentially because of lower cost of production and easier access to markets. Firms even enjoy economies of scale which other corporations do not enjoy (Mahoney, Trigg, Griffin & Putsay, 2011).

Selection of foreign partners: Firms that enjoy strong brand name gets better foreign partners who have enough resources to invest in the business when it needs to increase the scale of operations, this is because multinational corporation brings technology which helps the local partners to grow and give global name for themselves. Whereas, companies from developing countries find it very difficult to find local partners whose mission align with theirs. This influences the model of expansion where multinationals increase its scale exponentially while firms from developing countries take it slow and expand only when they feel it’s the right time (Mohr & Spekman, 2013).

Backend infrastructure: Companies having operations in developed countries have a very strong back end infrastructure in terms of logistics, delivery skills, handling demand fluctuations and warehousing etc. this makes it easier for them when expanding into newer markets to replicate the existing systems with few minor changes. Firms in developing countries due to poor infrastructure do not have advantage over backend infrastructure but they have an advantage when it comes to adapting to the local needs and demand fluctuations. Because of lower per capita income and tough economic situations companies in developing economies have a competitive advantage and thrive in such environment which becomes difficult for the multinationals (Doutriaux, 2012).

Companies from the developing economy avoid the traditional method to expand business by opening its subsidiaries, they either enter business in niche segment or they enter through M&A in the host nation. As they usually do not have enough resources to build from the start. Most of the times it is seen such companies try to revamp the existing business which matches their business plans and enter through mode of acquisition (Glaister & Buckley, 2011). Whereas, the firms in developed nations due to easier access to capital, technology, strong brand name, support from local partners and strong back end infrastructure follows a traditional approach of forming subsidiaries and expand into newer markets.

The global challenges of leadership within organizations can be very difficult within the context of global roles. As the leaders, must motivate a diverse workforce to keep ahead of the competitors and exceed the expectations of the stakeholders (Krubasik & Lautenschlager, 2013).

Managing Diverse Workforce: Due to firms operating in multiple locations throughout the world they employ people from different backgrounds of life, raised in different cultures, different educational qualifications and it becomes very difficult to align their interests with the organizational interest under one value system and strategy. Each employee has unique characteristic by a host of attributes such as experience, religion, social norms etc. To lead effectively the managers, need to understand the influence of such factors on the behavior in the functioning of the organization (Hamel, 2015).

Distributed team members: In the global scenario where production happens in one country while marketing happens all over the globe, customer service executives are in one country while customers are all over the world. Raw material is sourced from all over the world. Managing all the verticals of business activities becomes very difficult because of different geographies and times zones (Hamel & Prahalad, 2015). Managers must keep the communication channel clear and open especially when the face to face communication is limited. Managers often struggle in defining the clear roles and responsibilities because of which employees do not have clear idea to what is that they are responsible for. Since, employees in different locations have different reporting standards and officers it becomes extremely important to provide right leadership support to each one of them to keep them motivated.

Managing Change within laws: Managers must understand the business, its products and must have an acumen to perform in the environment which is ever changing because of technology, consumer demands, competition and laws of hiring and firing in different countries. Temporary and part time workers play a very important role in today’s work force. Laws regarding these workers differ from countries to countries. For ex. Indonesia, doesn’t have a concept of part time workers they only recognize full time workers and have a law that part time workers are entitled to same benefits as the full-time workers. Such issues are of concern for organizations which work in different countries as they must adhere to different laws of the lands.

The main motive of any business organization is to earn profit which is only possible if the product succeeds in creating demand for itself and for that it is very necessary to create marketing strategies. But before creating those the following factors are to be taken into consideration:

Language: Language here in particular refers to translation, companies needs to pay very close attention when marketing their products in the countries other than home country. There have been various cases where companies had to face serious financial losses because of advertising mistakes. For ex when Coca-Cola entered china the name translated to “bite the wax tadpole” because of which they never really succeed in entering the Chinese market later after the research they had to launch a campaign telling the meaning. General motors suffered the same with their car named Nova which meant “it won’t go” in North America and it was complete failure. Therefore, when entering foreign countries, it is advisable to research and then market the products accordingly (Jones-Evans & Westhead, 2014).

Taste: Entering the foreign markets for some companies can be very difficult because of the country’s eating habits. McDonalds and KFC who globally serve only non-veg menus had to change their complete menu and add veg burgers and remove beef burgers from their original menu as in India beef consumption is considered off limits. Therefore, adaptability is necessary to enter such markets (Mitchell, & K. Singh, 2014).

Regional values: Many times, a country may have an extreme regional difference which are to be taken into account when entering such countries. For ex in Canada they have a large French speaking population in Montreal and Quebec that are very different in cultures than rest of the country which speaks English, therefore, companies have to individually target these two regions by marketing the products in French.

Investment restrictions: Many countries like India have restrictions on the amount of FDI which can be brought in by the companies. For ex Walmart from last so many years has been trying to enter Indian market. But Indian regulations of not more than 51% FDI is allowed in multi Brand retail, also out of all the raw materials purchased by the company 30% must be sourced from Indian enterprises which Walmart is not agreeing to therefore, such issues are hindrances towards the entry of Walmart in Indian market. Companies which comply to such regulations can do business in such countries (Trompenaars, 1997).

As technology gets more advanced the world has become more closer and becoming smaller day by day. The business or companies that market their product and services effectively in foreign markets, gain from the huge potential that they offer them. Therefore, the marketing team of the companies must consider the following factors before deciding upon the marketing strategies (Eisenhardt, 2015).

Conclusion:

Organizations now a day are going global with all the benefits that come from going international there are hosts of factors which an organization must consider before entering foreign nations such as standardization of products, investment and capital, market readiness, organizational structure and also rules and regulations of different lands. Organizations from developed nations and developing nations both are expanding their business but have different models of expansion because of the environment in which they function are completely different. Firms from developed markets have an easier access to capital, a strong brand name, better technology, easy availability of local partner and better backend infrastructure, whereas, firms in developing nations have a better adaptability towards local situations which helps them formulate strategies which suit the local needs (Mowery, D. C., I. E. Oxley & Silverman, 2014). Doing business in different countries also bring host of issues for the organizational leadership such as managing the diverse workforce which belongs to different cultures and backgrounds, with globalization different verticals of organizations are in different countries creating coordination between verticals a difficult task as they are situated in different geographical time zones and face to face interaction is negligible. With such a fast-moving environment, the laws of the land also change which must be complied by the organizations. There would be no existence of the companies if they won’t earn profits and that is possible by successful marketing of the products which can be done by taking care of following factors such as taste, language, regional values and investment restrictions. For an organization to be successful all the above-mentioned factors are to be taken care off and then strategies to enter foreign markets are to be formulated.

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