Globalisation in the world economy impacts upon business operations
It is evident that globalisation brought a positive impact on business operations. They provide an array of cost-effective resources. It provides a wider exposure to product differentiation. Not only this globalization gives excess to immense knowledge to almost every business. However, everything has its own pros and cons and globalisation is not an exception. It came with a set of disadvantages too. They include issues arising from lower wages, inconsistency due to difference in financial reporting, restrictions on trade due to varied policies, survival issues for small size businesses etc. The assignment presented here states how globalisation is affecting business operations and how it is being handled by senior management decision-making.
- Globalisation has a positive impact on business operations as explained below:
- Globalisation also has an adverse impact on business operations as demonstrated below:
- Given the benefits and drawbacks of globalisation for business operations, there are certain implications for decision making by senior management.
Globalisation is an economic process that is employed by businesses to expand operations internationally and create their influence on an international platform.
International trade and investments drive globalisation efforts of businesses and these efforts are supported by information and communications technology. In this entire process, governments and businesses of different countries interact and share ideas to provide products and services to suit the requirements, preferences, and tastes of a varied customer base.
As business rivalries intensify across companies and between industries, businesses are increasingly pressurised to embrace globalisation in the world economy and this is where the impact of globalisation on the operations of businesses becomes clearer. Business operations stand to both gain and lose in the entire process of globalisation.
Globalisation has a positive impact on business operations as explained below:
Access to knowledge
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Globalisation also has an adverse impact on business operations as demonstrated below:
Issues arising from lower wages
Survival issues for certain businesses of small size
Restrictions imposed by the government
Differing financial reporting requirements
Given the benefits and drawbacks of globalisation for business operations, there are certain implications for decision making by senior management.
- In the absence of globalisation, senior managements were not really required to worry about cultural dynamics. However, with globalisation, managerial decisions are influenced in part by cultural dynamics. Managers need to have an understanding of how people can differ in terms of their cultures and how people would react to managerial decisions.
- With globalisation also comes the need to deal with governments outside the home country. Foreign governments always pose a political risk that changes in their policies may have an adverse impact on the presence of a business in a foreign country where the business is being operated. Thus, with globalisation, senior management will have to be extra cautious with decision making so as to ensure that their companies do not end up going against laws and regulations.
- Decisions related to which products or services to offer in a foreign country are influenced not just by what local consumers there would prefer but also by taxes being levied on those products or services as well as whether or not they are allowed in the first place in the foreign countries.
- Product designing decisions also become complex as companies compete in a globalised market. For instance, carmakers may not have to worry about bumpy roads or potholes in countries such as Australia or the United States but such failures of roads would be a major worry in countries such as Bangladesh or India. So, even if car makers make the same car model and decide to sell it across countries, they may have to make sure that the tyres fitted onto their cars are suited exactly to the road conditions prevailing in countries where the cars would be sold. Thus, cars in Bangladesh or India would need tyres that are much more robust than the same model cars in Australia or the United States.
- Funding for businesses would have been from sources within the home country if it were not for globalisation. With international financing alternatives available, senior management has to consider regulations related to raising of funds from overseas as well as any related governance and reporting requirements.
- Senior management also faces more complex challenges in relation to human resource decisions in a globalised world because there would be different labour regulations to adhere to in different countries. For instance, certain governments have strict laws in place prohibiting child labour. Governments also have in place mandatory requirements related to a minimum age of those being employed in certain industries. Then there are governments that have laws in place to ensure minimum wages to everyone.
- Information and communications technology, despite having advanced over the years, are at a heightened security risk. Managerial decisions, thus, need to be focused on ensuring adequate spending on making information and communication systems secure.
- Marketing decisions also require more carefulness on part of senior management since the same advertisement (about a certain product) which is well-liked in, say, the United States, would not necessarily go down well in conservative countries like, say, Iran.
- Decisions related to supply chain and logistics need to consider the differences in regional time zones as well as the varying degrees of speed with which products and services will move through the supply chain as it is spread across countries. Any uncertainty in a country which handles a part of the supply chain will affect managerial decisions regarding the movement of product and services.
- Senior management in companies with business operations spread globally also have to take into consideration the risks posed by fluctuating exchange rates. The direction in which exchange rates move will influence not just their expenses incurred while importing from foreign countries but also their revenues when they export to foreign countries. The higher the exchange rate fluctuations, the higher will be the impact (whether adverse or favourable) on the cash position of the business.
- Finally, senior management will have to consider in their financial reporting decisions the requirements set by country-specific GAAP or IFRS in order to cater to the reporting needs of external users. This exercise calls for either having suitably qualified accountants on the company’s payroll or hiring a professional accounting firm to provide financial reporting services.
Hamilton, L. and Webster, P. (2015). The International Business Environment. 3rd ed. New York, Oxford University Press.
Baron, D. (1997). Integrated strategy, trade policy, and global competition. California Management Review, 39(2), pp. 145-169.
Muciimi, E. and Ngumo, E. (2014). Implications of Globalization for International Business: A Multi-Sectoral Approach. International Journal of Science and Research, 3(4), pp. 68-78.
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Apart from the advantages and disadvantages of globalisation on business operations, there is much more you may need to know. In order to understand the concept of globalisation and business management in detail, you can read more about topics like factors causing globalization of business, the impact of globalisation on consumers, the impact of globalisation on business ethics and strategy etc. If you need someone to explain these topics in a precise way you can rely on our assignment experts.
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