Business Organizations in Global Context
Introduction
Globalization presents both opportunities and challenges for businesses in their operations in a global context as a result of the varied factors that are market as well as sector and industry specific. In that respect, businesses find themselves facing a complex situation that requires devising of suitable strategies in their local and foreign ventures due to market integration and international trade. In this consideration, this analysis seeks to demonstrate business organization activities and factors in a global context. To achieve this, the analysis considers a UK based Oil and gas organization; BP with a potential venture into the Chinese market and begins by offering an evaluation of industry, sector and market differences as well as ethical and environmental concerns that face organizations. The analysis then provides an overview of the impact of external factors on an organization in addition to the impact of the global factors on business organizations. Finally the current issues affecting businesses operations are analyzed with recommendations for suitable strategies that can be applied to address them.
Body
- Differences between global business operations
- Differences between businesses in different sectors, industries and context
Different sectors, industries as well as organizations have different practices depending on the specific environment within which they operate. Some of the key differences are notable in the operations systems, organization structures, and value chain as well as market operations. With different sectors having varied needs as well as regulations, businesses seeks to serve the needs and adhere to the regulations hence marking the differences. In that respect, the Chinese market is marked by significant differences between the sectors and industries due to their differences. Some of the key sectors in the markets include oil & gas and the financial sectors. The key mark of the industries differences includes the industry regulations as well as the organization’ structures. In addition, sectors and industries in different countries face different environment and conditions hence have significant differences that require businesses to devise suitable strategies in their venture and operations in the international market. (Parker 2005) A perfect example for the UK industries can be the oil and gas industry whose organizations have structures and operating systems that suit the industry’s nature. In that respect BP provides a good example with an integrated operating system and value chain which is suitable for extraction, processing and marketing of its products. This is a structure that marks the organizations in the industry in respect to the unique industry nature and needs. (BP, 2013) On the other hand the Finance sector has a different structure needs for organizations from its unique nature that requires stringent control and regulations. As a service provider in the market that is prone to the economic status of a country as well as other organization’s operations, the organization has a suitable organization structure that allows external authorities supervision like the bank of England control on the banking institutions as well as other financial regulators. (Economist, 2011) This is in contrast to the oil and gas industry operations which are less regulated hence the industry’s ability to set own prices and production quantity unlike the finance sector whose pricing in terms of interest rates is highly regulated. (Barclays, 2013)
- Responsibilities of organizations operating globally
Ethical responsibilities require business to carry out their operations in a manner that reflects fairness, justice and consideration for the other stakeholders’ interests. In their operations in pursuit of financial and operational success, businesses tend to apply unethical practices which negatively affect the community in general despite their success. In that respect, different industries, sectors as well as countries have established ethical standards and codes to be followed by organizations in order to ensure fair and just operations. (Parker, 20005)
In that respect, a demonstration of the kind of ethical issues that face organizations in a global context involves the operations of Chevron in the energy industry as well as oil and gas sector and Times Warner Inc. which is a leading organization in the entertainment industry. Both organizations which have a global presence with their operations and services having a global reach face unique ethical challenges and issues that are industry specific. In its operations, Chevron as an organization in the oil and gas industry faces ethical issues that have mainly riddled the industry including the issue of employees’ health which is negatively affected in during extraction and processing of oils and gas. In addition, the industry has been marked by controversies regarding the welfare of the communities within which the organizations extract their resources with the organizations been demonstrated as ones which seek to maximize on their profits with little regard to the communities. (Chevron, 2013) On the other hand Times Warner Inc. faces unique ethical issues regarding the organization’s products like the sale of addictive games and programs as well as marketing to children. The ethical issue face the organizations in the entertainment industry in their advertisements which targets the wrong audience like children as they seek to maximize their profits. (Times, 2013)
Environmental
With increasing concerns over the global environmental degradation, businesses have found themselves in situations that require a balance between their operations and environmental conservation. The environmental problem has taken a global interest with authorities and institutions calling for environmental friendly operations as well as business practices. Therefore, businesses have to face different regulations as well as codes of conduct in different countries and markets in respect to environment conservation. Perfect examples of the environmental issues facing organizations in the global context is the carbon emission, waste water and vegetation as well as landscape destruction that face the oil and gas industry players in their extraction process. This has been an environmental issue that has gained a global concern over its global reach and effect. On the other hand, the entertainment industry is less affected by the environmental problems and issues hence marking the differences between the two industries. Therefore, Times Warner Inc. operations are less affected by the environmental problems compared to Chevron’s operations. (Chevron, 2013)
- Strategies by organizations operating globally
In a bid to address the differences in the market as well as the industries, businesses device strategies to enhance their operations and performance. In that respect, different issues require specific strategies in addressing the ethical and environmental concerns. This has been done by businesses by adapting the set ethical and environmental standards and codes as well as devising their standards. In addition, businesses set their standards as well as establish effective corporate governance systems that ensure that their operations not only serve their interests but also address the wider community of stakeholders’ interests. In the UK market, BP have adapted stringent code of conduct and established an effective corporate governance system to deal with issues like the Oil spill that negatively affected its operations. (BP, 2013b) In addition, the ethical issues as well as environmental challenges facing the oil and gas industry has resulted to stringent regulations on industry operators setting standards as well as promoting innovation by the players like the invention of Shale gas extraction which is more environmental friendly. This has been applied to mitigate problems like the Gulf of Mexico Oil spill that involved BP. (Chevron, 2013) On the other hand; Times Warner has to apply strategies that involve reaching the right target audience with their services and advertisements in order to solve the ethical problem of advertising to children as well as selling addictive games. The strategy is also applied to be in line with the industry’s ethical code and principles set by the regulators which discouraging such practices. (Times, 2013)
- Impact of external factors on organizations
- Effect of national economy’s performance on business activities
Factors specific to a National economy’s performance have some impact on business operations since their performance greatly depends on the national economy performance. Some of the key economic factors that reflects the national economy’s performance as well as have a significant impact on business operations include the economic growth rate, inflation, exchange rate, unemployment and income level. (Kotler & Armstrong, 2004)
GDP growth is a measure of the economic activity as well as wellbeing of the society as a continued growth is a prerequisite for economic development which is growth of key infrastructure. Therefore, suitable economic growth results to increased business activities hence enhancing business performance while poor economic growth negatively affects business growth. In respect to the Chinese market, the impressive economic growth that the country has enjoyed presents a great opportunity for a business venture by the BP. (National, 2013)
Exchange rate fluctuations determine the value of the revenues that a business repatriates from its foreign investments as well as the value of exports and coast of the inputs sourced from the international market. Therefore, the exchange rate control in the Chinese market by the government tends to reduce the exchange rate risk whereas the UK market has a significant risk with its exchange rate being left for determination by the market forces. (CIA, 2013)
Unemployment rate in an economy determines the level of disposable income that is available to support business growth. Therefore, a low unemployment rate is a reflection of an economy that has a significant disposable income to sustain business operations. In respect to the Chinese market, the unemployment rate is relatively high compared to the UK hence presenting a market that has relatively low income level. (Trading Economics, 2013)
Inflation rate is the general rise in prices which determines that consumer’s purchasing power. With a low inflation rate, consumers have a higher purchasing power hence a greater ability for the economy to sustain business operations. Therefore the difference in the inflation rate between the UK and the Chinese market has an implication that the Chinese market has a relatively low purchasing power compared with the UK. (Trading Economics, 2013)
- Government measures to influence business activities
In the face of globalization, governments have resulted to devising strategies that influence business operations as means of enhancing their economic performance. Some of the key measures include:
- Foreign direct investments policies that promote foreign organizations and investments in the country. This increases business operations in the country as well as competition in the industries.
- Free trade policies which promotes free movement of goods and services tend to promote interaction between different markets with goods produced in other markets having an opportunity to flow into a market without much restrictions
- Tariffs and quotas have been used b\y governments to restrict some products access into their markets hence promoting their local industries and businesses. Such tariffs have been significantly applied in the Chinese market in a bid to promote domestic industries.
Subsidies have been used by governments to promote key industry operations with the industry players being offered incentives to increase production or export. (Porter, 1980)
- Impact of global factors on business organizations
- Impact of Global integration on business organization
Global integration has some impacts on the markets as well as the industry players as follows
- It presents large markets for businesses where they can access wider markets for their goods and service
- The businesses have different tastes to serve with their products and services
- Different cultures from the different countries determines the business activities that organizations adapt for different markets hence their organization systems
- Different regulations in different markets that are presented by integration presents challenges to businesses as they have to address different market needs hence a need for the organizations’ systems to adapt to the regulatory environment.
- Integration results to increased competition for businesses hence a need to have organization systems that enhance their competitiveness like the integrated operation system that BP adopts in the competitive markets where the organization has a complete values chain system with extraction, processing and marketing of its goods.
- Integration enhance skills and labor mobility hence increasing business access to key skills and labor hence enhancing its organization system in a bid to enhance its effectiveness. (Parker, 2005)
- Effects of international trade on domestic products and service
Positive effects
Technology transfer from one country and economy to the others is enhanced through international trade hence improving business efficiency and performance.
International trade presents market opportunities in foreign countries hence the ability for businesses to increase their operations scale, enhance their sustainability as well as enhance their performance.
With international trade, businesses are capable of growing their brand equity which have a great significance in their performance. (Porter, 1980)
Negative effects
Although international trade has positive effects, it also has some negative effects on local economies as well as businesses depending on their relative nature and development stages. Some of the negative effects include:
Loss of market share by domestic businesses to the foreign organizations is also a significant effect of international trade with increased market entry by multinationals.
With international trade, organizations experience increased competition from increased entry by foreign firms in a market. Therefore, an entry into the Chinese market where the government have some international trade restrictions will meet competition but of a relatively low nature compared to the other markets where the governments are in full support of free international trade.
International trade increases a business exposure to international market risks including political and economic fluctuations. Therefore, in its venture into China, BP would be exposed to the country specific risks. (Fred, 2011)
- Impact of global economy on businesses
- Significance
Globalization presents opportunities for business expansion by opening up markets for foreign ventures as well as enabling partnership between organizations.
- Complexity
Globalization also presents challenges to businesses due to the complexity of the systems involved. This includes the different regulation sa well as conditions in different markets.
- ICT application
ICT plays a great role in enhancing globalization with businesses heavily relying on technology to connect their operations on a global platform. (Parker, 2005)
- Current issues affecting business activities
In their operations in a global market, businesses are affected by various factors that determine the current issues in a market. Some of those factors include social, political, technological, environmental as well as legal and regulatory factors. In respect to the BP and its operations in the international market as well as in its prospects for a venture into the Chinese market, the key factors include:
- Social
- Political
- Technological
- Environmental
- Global environment
- Appropriate strategies
As a means of addressing the current issues and enhance its performance in the international operations, BP should have strategies including:
- Promoting innovation to present more advanced products and production means that address the environmental concerns
- Adopt more ethical production and market operation practices that promotes its acceptance in the society and by consumers
- Enhance promotion and marketing activities in order4 to tackle the increasing market competition
- The business should establish an effective corporate governance system that meets the requirements of the ethical and corporate governance codes in order to improve its brand image and equity in the face of ethical and governance concerns in the international markets.
- With increased competition, the organization should adapt the differentiation strategy where its products and services will have differentiated qualities hence gain a significant market share and have a niche market (Fred, 2011)
Conclusion
The analysis has demonstrated the effect of globalization on business operations with various factors including global and economic being analyzed for their impact on business operations. The analysis have also demonstrated key differences between the Chinese market with other markets including the UK where BP has operations and recommending suitable strategies for addressing specific issues that face businesses in a global context.
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