Globalisation can be viewed at the country, industry, or firm level, according to Anthony Giddens, a sociologist, globalisation is defined as “the worldwide interconnection at the cultural, political and economic level resulting from the elimination of communication and trade barriers” Introduction
Every organisation dreams to be multinational enterprises (MNEs), and if it’s not the global environment is forcing companies regardless of their location or primary market base, to consider the rest of the world in their competitive strategic formulation. Firms cannot isolate themselves from or ignore external factors such as economic trends, competitive situations, or technology innovation in other countries if some of their competitors are competing or are located in other countries. With the world becoming a global village firms are faced with competition from foreign companies who have operations across geographies, in their local markets. At the same time, firms are no longer catering only to the customers in their local markets. They are increasingly catering to customers from various markets and geographies. These changes in business environment made globalisation of operations a must for firms to sustain their competitive advantage. Today firms need to have diverse operations to be fast and flexible to demands of customers from different geographies. They also need to become multinational to exploit all possible advantages in terms of cost and technology available to foreign firms to sustain in their business and continue the growth. The classic example of multinational operations can be seen in the automobile industry. The major competitors (Diamler Chysler, Ford, GM, Toyota, Honda, Nissan and Volkswagen) all compete in the major world markets and manage their value chains from a global perspective. The globalisation at the original equipment manufacturer (OEM) has forced the large component manufacturers such as Bosch, Delphi and Denso to globalise their operations.
Why globalise operations
In changing business environments the global operations are helping firms to sustain their growth and increase profitability of business. We now examine what motivates firm to expand operations globally. The factors that shape global environment for a firm and drive its operation to global destinations can be grouped in to four categories as per Four Forces Framework for globalisation of operations. These forces are discussed below: Global Market Forces: Customer demand in various countries may call for a firm to have local experience of production and customise products for various markets. This also helps firms to be able to respond quickly to customer orders and customisation needs in any market that they serve. Further to sustain growth of the firm it has to look for newer markets. The size of economy of a country may act as a limiting factor for saturation in growth of the firm. Nokia is a classic example in this case. The population of its home country Finland is 5.3 Million which is lesser than new mobile phones sold per month in Indian market (around 8 Million per month). Technological Forces: Competitive success depends more and more on how quickly and effectively a firm incorporates new product and process technology in to the design and production of its products. This needs for speed has prompted companies to locate more production and R&D facilities abroad, closer to suppliers of advanced technological knowledge in production. Firms have gone for collaboration for technology sharing or located operations in to countries with cost effective technological resources. Tata Motors looking for globalisation of their operation acquired high end technology operations of Jaguar and Land Rover. This gave them access to access to sophisticated technologies in high quality automobile production which they can use for their operations in India as well. Global Cost Forces: Global cost advantages can be...