Introduction (Globalization and Global product)
Globalization is the process in which businesses and technologies spread throughout the world. It is the worldwide movement toward economic, financial, trade, and communications integration.
In business, when an established company that is catering to a particular region opens out beyond local boundaries and starts catering to markets in other regions worldwide, it is said to be globalizing. There can be two ways In which an organization might start doing international marketing. Either it can supply the product with the same specifications throughout the world, known as a global product, or it can tailor the product to suit the needs in different parts of the world. The latter is known as localizing the product.
There are many examples of global products such as Coca-Cola, Pepsi, Kellogg’s breakfast cereals, Wella hair care, etc. For instance, Wella is a company that is based in the United States owned by consumer product giants Procter & Gamble but its products are available throughout the world with the same specifications. Mc Donald’s, on the other hand, also has its burgers available globally but the difference is that it uses localization to fit the needs in different parts of the world e.g. in India there Mc Donald’s offers a wider variety of vegetable burgers and minimum beef as having beef is against the religious beliefs of Hindus.
Factors that support or impede the localization or globalization of products/services and promotion
Four drivers support or impede the localization or globalization of products and services in an industry. Here are those drivers explained.
It depends on the degree of homogeneity of customer needs when globalizing or localizing products/services and promotion. If the customer needs are identical, globalization could be carried away easily, otherwise tailoring of the products, services or promotional campaign would be necessary depending on how different the clientele is in other regions.
When it comes to globalizing a product, the existence of global distribution networks is very important. Without it, a company would not be able to globalize its products or services. The wider the distribution networks are spread globally, the more products and services could be globalized.
Why would any company want to go global unless it is beneficial for it? The potential for cost savings is one of the very important factors that are considered when aiming for the globalization of products and services. These include the following:
- Potential for economies of scale. When products, services, or promotions go global, they are produced in far greater numbers than they were when they were being offered in a specific region only. This makes the fixed costs associated with the production of the product spread out and therefore results in a lower variable cost.
- Transportation costs add up to the costs of producing the items. Therefore if the transportation costs are very high, a company is likely to not opt for globalization as that would increase costs and decrease profit margins for the company.
- The product development costs themselves restrict or support the localization or globalization of products.
- The potential for economies of scope, the process of reducing the cost of resources for an individual project by spreading the use of these resources and skills over more projects, also acts as a supporting factor for globalization and localization.
Government policies play a major role in making globalization possible and attractive for business organizations. They include:
- Trade policies that favor business industries such as market liberalization and lesser taxes.
- Common and fair marketing regulations and compatible technical standards in different regions would support globalization for companies.
- Privatization policies are adopted by the government.
- The greater is the competition in an industry, the higher are the chances of that industry globalizing.
Determining the financial structure for a global business
A financial structure is a collection of financial markets, intermediaries, and instruments in function. Countries demonstrate different levels of banking, production composition, and development of capital and financial market. These structural frameworks tend to be inflexible which is why global businesses need distinct financial makeups to gratify for their various financial requirements.
The economic structure, availability of capital, cultural factors, and the level of financial risks are some of the determining factors for a financial structure of a business. A financial structure also depends on the relationship between the management as well as the shareholders.
Advantages of large companies have over smaller companies
Large companies have many advantages over smaller companies when choosing a mode of entry strategy. Larger companies have many more resources as compared to smaller companies. These resources include capital, manpower, level of technical expertise, etc. All of these are vital for any company and the more of these a company has, the stronger it is.
Larger companies have bigger production plants. This means that there are many benefits to the company due to economies of scale in terms of reduction in overall costs. Cheaper products give the company a competitive edge when entering other markets.
Capital, for any company, is like water for us. Without it, a company would not be able to survive, let alone expand and enter other markets. Larger companies have an edge over smaller companies because they are usually in a stronger financial position. This, along with the higher level of technical expertise, makes them attractive for foreign countries to associate with them in joint ventures. Governments are also keen on aiding larger companies as they are more likely to provide better and more reliable services to the customers which would improve their standard of living.
Also, when large companies enter into foreign markets, they are more likely to be in a dominant position compared to the competitors, and hence have a more promising future. Smaller companies, however, face risks and tough competition from the larger companies and could end up being washed out of the market.
Factors that drive a company to continue in, expand, or exist in its chosen market
The following factors affect the plans of a company to continue in, expand, or exist in its chosen market.
The economic conditions, such as income levels, interest rates, inflation, and the stage of the general business cycle could drive a company to make decisions about its future. For E.g. A higher inflation rate in an economy means higher growth, as prices rise due to a rise in demand which in turn depends on income levels i.e. output levels. And therefore, where there is an economy with higher growth means higher profits for companies. Hence, companies would like to continue in, expand, or exist in an economy with a higher inflation rate.
It is in the hands of the government of every country to influence what organizations can and can not do. So if a government introduces new policies that go against the interests of a certain company, that company would not want to invest in that country. Also that companies would want to invest in a country where the political conditions are good and there is general stability in the economy.
Socio-cultural and Demographic Conditions
Naturally, a company would expand its operations or enter new markets only if the culture and demographic conditions of that market compliment the products and services offered by that company.
Coulter, s. P. (2005). Management. Pearson Education.
Hofstrand, D. (2007, march). Economies of scope. 2008. Web.
Kul B Luintel, M. K. (2008). Financial Structure and Economic Growth. Web.
Mode, F. M. (n.d.). Foreign Market Entry Mode. 2008. Web.
strategy, g. b.-g. (n.d.). global business – global strategy. 2008. Web.