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.

Drawing upon appropriate sources of information, critically evaluate how increasing pressure for globalisation in the world economy impacts upon business operations. Identify the implications for senior management decision making.
Answer to the above:
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

As information flows seamlessly due to the advancement in communications technologies and openness of governments and businesses to exchange information, it becomes easier for business to gain knowledge pertaining to what business processes and best practices are used elsewhere. This way businesses are able to compare their existing business processes and practices with those being employed elsewhere and determine if they need to continue with the status quo or make changes as appropriate.

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Cost-effective resources

 Intense business rivalry often intensifies competition between businesses in terms of product differentiation and cost leadership. In industries where product differentiation is not possible, businesses try to achieve cost leadership. In doing so, businesses are compelled to focus on getting resources –such as raw materials, labour, equipment, and even capital – at the cheapest cost to them without a compromise on their quality. Besides, with different countries enjoying a competitive advantage in terms of different resources, companies are able to make better decisions as to which resource will be sourced from which country. For instance, information technology firms from the United States have often either opened their offices in Asian countries or outsourced their requirements to companies that are in Asia but do not have a presence in the United States. Asian labour comes across as cheaper than American labour to those companies, and Asian minds often are as competitive or even better than American minds in certain aspects. This is a good example of how, notwithstanding the current American leadership’s “Buy American and Hire American” stance, American companies stand to benefit by employing cheap labour from Asian countries without having to compromise on the quality of labour that goes into the manufacturing of their products or rendering of their services. With cost-effective resources, companies are able to attain cost leadership and compete in many markets. 

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Product differentiation

Besides cost leadership, there could be an opportunity for businesses in certain industries to aim for product differentiation. In product differentiation, the company tries to differentiate its products from not just those of the competitors but also from its other products of its own. A good example is McDonald’s which creates variants of its own existing products based on what the local market needs. Thus, if most of McDonald’s outlets in the United States have menu offerings that have beef content, one can find that McDonald’s outlets have the same menu offerings without beef in countries such as India where there are a lot of consumers who do not consume non-vegetarian food. Thus, by globalising into different markets, McDonald’s has mastered the art of being able to offer customised products that would fit well with local tastes and preferences.

Globalisation also has an adverse impact on business operations as demonstrated below:

Issues arising from lower wages

In the process of globalising and competing within a broader business landscape, companies that hire only low-cost labour eventually find themselves under scrutiny and criticism from governments for abusing labour. Eventually, governments come up with minimum wage requirements that are mandatory by law. When this happens, companies are left with no choice but to pay at least the minimum wages to their labour which earlier settled for wages even lower than the minimum wages. This gradually takes away the cost-effectiveness of labour and impacts the overall cost to companies of manufacturing their products or rendering their services. With a certain minimum level of profits required to sustain and survive, businesses are unable to absorb the cost increases and eventually pass along the same to consumers. This can lead to some degree of decrease in the demand for their products or services in certain markets, especially in those markets where the populace is facing poverty.
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Survival issues for certain businesses of small size

Intended benefits of globalisation do not always accrue to small businesses as they sometimes lack the very basic resources that are required to even start the process of globalising in the face of competition. Besides, for them to raise capital from outside sources is often difficult. Eventually, therefore, a few small businesses find themselves at a high risk of losing market share to big businesses that are able to attain cost leadership and/or achieve product differentiation.

Restrictions imposed by the government

With globalisation, a few businesses are motivated to get around laws and regulations governing them in foreign markets. These businesses abuse the legal and regulatory framework to their own advantage in a quest to make more and more profits. As governments learn of corrupt business practices, they impose restrictions in order to safeguard the local businesses and the interests of local consumers. While this restricts corrupt moves from businesses, even those businesses which were abiding by laws and regulations in the foreign markets now suffer. Such businesses, despite having no malicious intent, are burdened by the pressure of increased laws and regulations to be abided by, and are, along with unscrupulous businesses, subject to more scrutiny. 

Differing financial reporting requirements

With globalisation, businesses not only produce and sell in foreign markets but also raise funding in foreign markets. This is followed by increased financial reporting requirements meant to satisfy the information needs of various external users within both the home country and the foreign markets. External users can range from a lender to a government agency. To exacerbate the situation, each country has its specific GAAP (or Generally Accepted Accounting Principles) framework and this means extra resources being used or spent in preparing different sets of financial statements for all the different countries where the business operations are carried out. While the framework of IFRS (or International Financial Reporting Standards) tries to address this problem by requiring consistent presentation of financial information, not all countries and not all businesses are still fully prepared to adopt the IFRS for reporting financial information of businesses. 

Given the benefits and drawbacks of globalisation for business operations, there are certain implications for decision making by senior management. 

  1. 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. 
  2. 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. 
  3. 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. 
  4. 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. 
  5. 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.
  6. 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. 
  7. 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. 
  8. 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. 
  9. 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. 
  10. 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. 
  11. 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. 


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Thus, globalisation, with its advantages and disadvantages, has its own unique influence on the decisions of senior managers. Failure on part of the senior management to incorporate the unique considerations introduced by globalisation into business decisions could be to the detriment of the business operations in foreign countries. 


Paul, J. (2011). International Business. 5th ed. Delhi, PHI Learning Private Limited.
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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