The Impact Of Globalisation On The Value Chain

Impact of Globalisation on Value Chains

Working individually to evaluate the impact of globalisation on the value chain. Please see the following details:

While globalisation has been a major driver of industry economics for the last few decades, it does not explain all of the pressures and challenges facing companies in the early 21st century — general changes in industry structure and competition, the rapid rate of technological and cultural change, the need for environmental sustainability and changes in demographics have also had huge impacts.

The growth in global sourcing and supply often levels the playing field for adding worldwide value. Companies need at least to consider, if not implement, global value chains as their predominant mode of business. The reality of globalisation and the accompanying increase in competition has forced most companies into making efficient gains. Value chain structures are essentially virtual organisations with flexibility to meet changes in customer value expectation and in the way in which value is delivered.

Evaluate the impact of globalisation on the value chain based upon your own experience and the knowledge you gained from reading the required resources. Support and justify your evaluation of the impact of globalisation on the value chain by including information related to:  competitive advantage considerations  financial considerations , technological considerations.  human resource considerations , cultural considerations , political and economic considerations  corporate social responsibility  considerations  references should be at least 15 .  please read the uploaded file carefully and the marking rubrics.

Globalization refers to a process where companies, people, and government integrate and interact through international trade and investment initiated by current technology. Michael Porter, on the other hand, defines value chains as a model where business access raw materials, enhance value to the raw materials through several methods to create a final product that will meet the consumers’ expectations (Gereffi et al., 2001, p56). Most firms conduct value chain analysis to be more competitive in the global market. However, globalization has largely impacted the value chain analysis of different transnational companies across the world. Therefore, it is advisable that companies consider specific measures in handling issues that are affected by globalization within the organization

Competitive Advantage

One of the effects of globalization on businesses is that it increases competition. Companies have been able to increase their operations locally due to E-marketing. Moreover, organizations can venture into new international markets. This not only enhances the level of competition locally but also on an international scale. However, globalization gives firms a platform for increasing their competitive advantage. According to Michael Porter, one of the ways a business can improve their standard of competition is through product differentiation (Cho, 2013, p45). Marketers can research on the consumer needs and specifications to develop diverse products that meet the various requirements of the market.

Competitive Advantage

Another strategy that globalization favors is cost differentiation and leadership. Companies can reduce operational costs, such as distribution and transportation expenses through online marketing. Moreover, they purchase raw materials and other essential resources from regions and countries that sell them at a low rate. For example, due to depleted oil reservoirs, some countries purchase unrefined oil. They process and purify it to sell to both the local and international markets. Lowering the production costs helps in reduction of the market price. Manufacturing of low priced products without compromising the quality of goods and services increases competitive advantage.

Companies that can penetrate the international market have a higher level of competition. They not only target a wider scope of consumers but also experience increased brand awareness. Through the supply of high-quality products, they gain a good reputation and greater consumer loyalty. Consequently, there is increased growth and profitability (Elms & Low, 2013, p7).

Globalization has affected the financial considerations of business. Unlike the locally operating businesses, the international organizations require more money to finance its operations. This is because it is more expensive for agencies to innovate products continually, to meet the CSR expectations of customers, and attain environmental, labor and ethical expectations. The demand for goods in an international market is also higher than that of a local market (Tabrizi & Tseng, 2007, p90). Therefore, a company is required to raise more money when operating globally than when operating locally to meet the demands of their customers successfully. The inability to meet the financial demands of international operations makes it difficult to function effectively because its competitors can attain a higher market share.

Globalization helps increase the choices that a business has in raising the capital required to run the operations efficiently and effectively. Companies can borrow money from international institutions, such as banks from other countries. This is possible since globalization has promoted trust amongst businesses located in different countries. Organizations are thereby able to take advantage of this to reach the high financial requirements.

Companies also have an opportunity to examine the value of the various currencies in different nations. Data collection suggests that they can borrow currencies considered stable and take advantage of the forex markets to ensure they get the optimum value of the borrowed amount. The ability to borrow from different countries also gives the companies an opportunity to consider the interests charged by international institutions. Thus, they choose the institution that charges the least interest rates (Gereffi, 2005, p9).

Financial Considerations

Globalization has also affected the technological considerations of value chains of organizations working at a global level. For an organization to meet the demands of the international market, it has to ensure that the technology it uses in the production of goods and services is up-to-date. Obsolete technology places the competitors at a better position in the market since their products are of higher quality. Failure to incorporate new technology in manufacture and production of goods and services decreases the competitive advantage that an organization may have over its competitors. For an organization to benefit from the technological advancement, it should capitalize on the new technology. An organization cannot benefit from technological advantage for long. This is because other agencies in the industry also understand the importance of investing in the latest technology (Stringer & Le, 2008, p167). Globalization has acted to ensure that companies copy each other regarding the technology used thereby decreasing the competitive advantage of technological innovations that organizations at a local level enjoy.

The marketing technological considerations of businesses have also been affected by globalization. Organizations have to consider the marketing strategies that they use carefully to ensure that their methods are effective. Similar to manufacturing methods, marketing methods have to incorporate the latest technology. These methods help to ensure that a company reaches the targeted market. A company that does not consider incorporating technology in its marketing strategies may find it difficult to penetrate international markets or to gain a market share in the global market. This is unlike a company that operates in the local market. It can successfully market itself using methods that do not require technology to execute such as door-to-door marketing. Marketing methods employed at the international level include social media marketing which requires an internet connection to run (Humphrey & Schmitz, 2000, p34).

Due to the world operating as a global village, cases of people moving from one country to another due to employment have increased. The migration does not only favor individuals who move from the third world to the developed countries but also from the developed to the developing ones. Consequently, it has facilitated the increase of the employee selection pool during the recruitment process. It also improves the workforce diversity as people from different ethnic background work together. Globalization has also favored the increase of female workers. Unlike in the past where most employees were male, today women have also ventured the male-dominated careers. The diversity has facilitated a composition of a variety of talents, skills, and knowledge in the workplace. Organizations that have a unique and rare composition of skills and talent tend to produce unique products and services, hence increased sales (Elms & Low, 2013, p90).

Technological Considerations

Organizations can take advantage of this changing trend in the workforce through recruitment of employees from different parts of the world. In the case it,  Possible due to the available advanced technology, where applications and interviews can be held online. This would not only help in the development of higher quality brands but would also facilitate the penetration of the brands of the company into various international markets. However, diversity can be a source of conflict and discrimination practices as people from one race or sex consider themselves superior to others. Thus, it is important that firms develop an induction program that helps in familiarization o employees to the business environment, and assignment of specific duties and responsibilities to specific personnel. A training program would equip the employees with the required skills and knowledge on how various operations are conducted. Assignment of rewards, such a financial benefits, and recognition would promote workforce synergy. Moreover, incorporation of teams would maximize the usage of the available talents in the firm (Knorringa & Pegler, 2006, p473).

The culture of the target market is a major determinant of the type and quality of products and services an organization produces. Before entering a new market, organizations have to conduct a market research on the various cultural practices within the country that could influence the product design (Kotler & Armstrong, 2007, p85). For example, an organization within the fashion and design industry would depend on the consumer considerations and references that are shaped by culture to develop the drawings. In Saudi Arabia, for instance, the designers take into account the Islamic beliefs, where a woman is expected to cover her body and head. This is unlike the designs that people in the UK and New York wear, where women are free to wear short clothes that expose their bodies. Production of products that do not take into consideration the social and cultural practices of the target market results in a bad brand image and reputation due to reduced consumer satisfaction.

However, there is a growing concern for the increasing existence of a mass culture. Through the social media, persons are exposed to the cultures of new regions. For example, there exist Facebook pages that guide persons on their eating habit. Members of the group, who may be different areas of the world, after gaining the knowledge incorporate it into their lives. Moreover, after interacting with persons of various nations, individuals tend to embrace and adapt to their culture. Another factor that has facilitated the mass culture is the ease of transportation. After individuals visit and interact with citizens from other countries, they tend to embrace their culture. For example, it is common to see Americans dressed like Indians, or Africans using different European products. In the business world, mass culture facilitates mass production. Instead of organizations having production sites in other countries, they opt to produce large quantities of similar products that are exported to different regions (Sturgeon, 2013).

Human Resource Considerations

Globalization has an impact on the political systems of various countries. Due to governments conducting their operations, such as documentation, through computer systems, they are prone to hacking by terrorists. Upsurges in terrorist attacks are evident in the world (Knight, Gary & Cavusgil, 2004, p130). For example, ISIS has a record of attacking India. Terrorism increases insecurity and political instability, hence discouraging international companies from venturing the local markets. This is because the operational costs in unstable countries are high. This leads to increased market price, hence reduced sales level.

Since the political systems of nations are different, businesses should consider the legislature governing the target markets. Some of the laws target at protecting the consumers while others promote environment sustainability. Other laws include taxation, tariffs, and quality standards of products. Lack of adhering to set laws could result in penalties and damaged reputation. Moreover, brands could be banned from countries if they violate the quality standards (Kucera, 2004). Thus, organizations have to operate not only according to the laws set by the country of origin but also the hosting one.

Globalization has facilitated the interlinkage of the economy of different countries, thus influencing the inbound logistics and operational costs of companies. There exist numerous trade unions in the world. Regional unions such as COMESA and ECOWAS enable countries to export various products without payment of tariffs. Other unions favor not only the flow of goods but also the movement of labor between the nations. Thus, a citizen from member states can work in other countries without permits. The European Union is an economic integrated association that controls the economic status of the countries. Thus, an impact on one country affects the others. For example, shortage of food and medication in one nation would result in companies from the member states increasing their produce to meet the growing demand. Moreover, since the countries use the same currency, positive or negative factors from one country affect the region (Hutson, Sinkovics, & Berrill, 2011, p23).

The USA, on the other hand, is a political and economical integrated union. The political changes regarding the economy have an impact on all the member states. The economic performance of one State has an impact on the overall performance. Thus, the federal government intervenes in the economic performance of every state. Therefore, before entering into a new country, organizations have to evaluate the restrictions that various trade unions pose. Such would help in forecasting the needs and potential factors that would have an effect on the industry. Moreover, there would be an assessment of the various costs the organization would incur in establishing itself in the new market and the expected performance. Thus, there would be the development of strategies for improving marketing activities and reduction of operational costs. Nonetheless, organizations have to assess the global economy since it is interlinked. For example, the great depression that started in New York spread to the whole world (Organization for Economic Co-Operation and Development, 2008, p23).

Cultural Considerations

Another effect of globalization on the corporate social responsibility is the increased awareness of the buyers to suppliers on the CSR standards that they expect corporations to meet. On the other hand, most organizations demand that vendors respond to their CSR standards to do business with them. The CSR standards for organizations vary depending on their locations and the culture of the society they operate in. Consequently, it may prove expensive for the suppliers because each agency may have different standards, thus meeting all their expectations may require more input. Despite being expensive, the suppliers have to adjust their operations to meet the required standards because failure to do so primes to loss of customers, and thus a decreased market share in the global market. For example in Kenya, a flower company adjusted its ethical standards to meet its customer’s ethical standards, which are in line with the UK’s ETI. The UK supermarket that the flower company did business with required the Kenyan flower company to comply with the ethical standards that guided it to do business with it (Lund-Thomsen and Nadvi, 2010, p5).

Organizations that venture the international market have to comply with the set international labor laws, which are more strict than the local ones. The adjustments required for these organizations are often expensive. For example in Cambodia, a garment manufacturer adjusted its labor standards to meet the international labor standards as per the requirement of the international market. Although the company previously followed all the labor laws of its country, it had to adjust its standards to meet the international standards to survive in the international market (Lund-Thomsen and Nadvi, 2010, p5).

Conclusion

Evidently, globalization has had an impact on different components of the value chain. They include technological, financial, economic, political, human resources, cultural, competitive advantage, and corporate social responsibility aspects. International organizations have to adjust their operations to meet the wide range of CSR and cultural expectations, financial and technological needs. They are affected by the economy and political stability of every nation either directly or indirectly. They can also increase their competitive advantage from the different backgrounds and experiences of their diverse workforce. A company operating at the international level has to strategize carefully to ensure that all its operations target at increasing its value. 

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