International Business and Global Logistics
International Business and Global Logistics
Introduction
Undeniably, the main objective of any business organization is to grow in terms of profitability and market. The high market competition that most organizations face tends to impede the realization of their objectives. Thus, companies adopt different strategies to aid their survival in the markets. Pricing and marketing strategies are the major approaches that most companies use to gain a competitive advantage over their rivals (Dessler & Phillips, 2007). Multinational companies face competition both at domestic and the world markets. Thus, they consider implementing various strategies to enhance their market positions. Besides pricing and marketing strategies, multinationals usually consolidate their markets, concentrate their production, and engage in the formation of international joint ventures to enhance their growth. This paper will answer various questions related to operations of international business organizations.
Multinational companies face fundamental barriers to entry into the global market. Of the critical barriers is the lack of essential resources for production due to lack of endowment with such resources (Lau & Bruton, 2011). In developing countries, multinational companies face the challenges of lack of skilled personnel and technological knowledge which are essential for business operations (Schniederjans & LeGrand, 2012). Inefficiencies of different strategies adopted by various multinational companies prompt them to focus on the strategies they consider more effective in promoting business performance. Joint venture entails undertaking joint business jointly while retaining the distinct identities of the organizations (Lau & Bruton, 2011). Various advantages are associated with this market entry strategy which makes it commonly used by companies seeking to enter the global market
Business operations involve taking various types of risks. Lack of resources in some countries results in high production cost which in turn increase the prices of products and services. High market prices reduce the demand for goods and services. Thus, companies must consider the availability of resources needed for production. The formation of joint ventures enables business organizations to pool resources (Joint ventures n.d). A large pool of resources allows companies to have a large capital base, resulting in high production efficiency. For example, the success of the General Motors has been attributed to the formation of joint ventures with some of its competitors such as Ciami Automotive (Dessler & Phillips, 2007). The General Motors has penetrated almost the entire world market and it is one of the leading multinational companies in automotive (Dessler & Phillips, 2007). The high efficiency of production is fundamental to reducing both operational and financial risks since it helps to lower operational as well as production costs. Besides, the formation of joint venture helps companies to set highly competitive prices for their products, thereby attaining competitive advantage which is crucial for fighting market competitions (Bener & Glaister, 2010).
Operating a business as a joint venture has a significant advantage in reducing market competitions (Sun & Lee, 2013). Some multinational companies have big production advantage than the others. For example, in developed countries, companies may grow faster due to the availability of high technology and skilled labor (Sun & Lee, 2013). Also, multinational companies that use high technology in production tend to offer relatively low prices in the international market, putting companies with high production cost at risk of closure due to lack of demand for their products. The formation of a joint venture helps to promote the financial and technical capacities of companies (Bloch, 2016). According to Bloch, (2016), improved technical capacity enhances the ability of companies to undertake efficient research and development projects to facilitate business growth.
Efficient supply chain management is essential for the growth of the market share of a company. Additionally, the consolidation of the distribution channels promotes the widening of customer base due to improved service delivery efficiency (Joint venture, 2016). The formation of joint ventures eases the distribution of products through improved supply chains management. Also, the supply of complementary products is easy under joint business ventures (Joint venture, 2016). Thus, most companies consider the formation of international joint ventures to ease access to distribution channels as well as the expansion of their growth capacities through the combination of innovative ideas.
References
Bener, M., & Glaister, K. W. (2010). Determinants of performance in international joint ventures. Journal of Strategy and Management, 3(3), 188-214
Bloch, R. (2016). Buy, sell, or join forces? Retrieved from http://www.thehartford.com/business-playbook/in-depth/joint-ventures-pros-cons
Dessler, G., & Phillips, J. (2007). Managing now!: Student text. Boston: Houghton Mifflin Company.
Joint ventures and partnering. (n.d.). Retrieved 31 May 2016, from http://www.infoentrepreneurs.org/en/guides/joint-ventures-and-partnering/
Joint venture agreements can have advantages. (2016). Retrieved May 31, 2016, from https://www.fac-fcc.ca/en/ag-knowledge/business-planning/joint-venture-agreements-can-have-advantages/
Lau, C. M., & Bruton, G. D. (2011). Strategic orientations and strategies of high technology ventures in two transition economies. Journal of World Business, 46(3), 371-380.
Schniederjans, M. J., & LeGrand, S. B. (2012). Reinventing the supply chain life cycle: Strategies and methods for analysis and decision making. United States: Financial TImes Prentice Hall.
Sun, S. L., & Lee, R. P. (2013). Enhancing innovation through international joint venture portfolios: From the emerging firm perspective. Journal of International Marketing, 21(3), 1-21.
Base of pyramid strategy and whether it is beneficial for a multi-national firm
Multinational companies seek to achieve growth through market expansion which promotes their profitability and production volume. They use different avenues in search of markets for their products. The targeted population is an essential consideration when developing growth strategies (Pervez, Maritz, & Waal, 2013). Also, business organizations must consider the consumer behavior as well as the consumption capacity of the population they target to serve. Achrol and Kotler (2012) found that producing for a particular market only cannot help a business organization to grow. Exploration of new markets is fundamental to help them expand their market.
The base of pyramid strategy entails focusing on the world population that earns on two less US dollars or less per day (Reficco, 2013). Reficco established that the largest part of this population exists in the developing countries (2013). Thus, the base of pyramid strategy entails market expansion approach that focuses on poor markets. This strategy has been used by various companies although some multinational corporations are skeptical about the profitability of expanding their operations to these markets. The population that makes up the base of the pyramid is poor, and according to some companies, it cannot consume their products since they consider them superior (Khalid et al., 2015). However, there are various benefits that a multinational firm can get by implementing this strategy.
The population that makes up the base of pyramid consumes different products from what the markets in the developed countries demand (Khalid et al., 2015). Also, the consumption pattern, as well as the proportion the total market that this population makes is different (Khalid et al., 2015). However, this does not entirely mean that there is no potential for profitability in these markets. According to Ilieva (2015), a multinational firm has the resources needed to produce goods and services for the population at the base of the pyramid. However, a firm is required to conduct market research and evaluation of price-product relationship before investing in this population (Ilieva, 2015).
People at the base of pyramid purchase products in low quantities due to their income level. The sale of products in large quantities generates high revenue instantly. However, the quantity discounts associated with high sales volume tend to reduce profits (Prahalad, Freuhauf, & Hart, n.d). Besides, sale in large quantities tends to lengthen the lead period which may also affect the profits of a firm. The sale of products of small quantities is more profitable in long-run since it attracts many customers and it does not involve quantity discounts (Prahalad, Freuhauf, & Hart, n.d). For example, CEMEX Company has heavily invested in developing countries where the majority of people belong to the base of the pyramid, and it has realized a significant market growth (Rugman, 2010). According to the projections of the World Bank, the number of people at the base of the pyramid is likely to increase from four billion to six billion in the next forty years (Rugman, 2010). Thus, a base of pyramid strategy will promote the market growth for a multinational firm.
The informal sector among the poor in the developing countries contributes over 40% of the economic activity. Also, the subsistence activities of the people at the base of pyramid create a large market for products of multinational companies (Ilieva, 2015). According to Achrol and Kotler (2012), the industrial sector in the developing countries which make up the largest part of the base of the pyramid is not well developed. As such, the market in these countries has a big room to accommodate technological innovation. Therefore, adopting a business growth strategy that focuses on the base of the pyramid is a guarantee of success in market expansion and increased profitability.
The exploitation of resources is poor in developing countries due to lack of the advanced technology. Much of natural resources remain unexploited since people at the base of pyramid concentrate on primary production. Importation of raw materials is high in these countries because the cost of exploiting resources us high due to lack of technological knowledge (Khalid et al., 2015). Thus, the potential for business growth is high in these countries. Besides, the level of competition is low since few companies have invested in these countries. Most importantly, labor supply is high at the base of pyramid due to the high population of unemployed, resulting in low production cost. Thus, investing in these countries promises growth capacity and high profitability for a multinational firm.
References
Achrol, R. S., & Kotler, P. (2012). Frontiers of the marketing paradigm in the third millennium. Journal of the Academy of Marketing Science, 40(1), 35-52
Khalid, R. U., Seuring, S., Beske, P., Land, A., Yawar, S. A., & Wagner, R. (2015). Putting sustainable supply chain management into base of the pyramid research. Supply Chain Management: An International Journal, 20(6), 681-696
Ilieva, N. (2015). Doing Business at the Bottom of the Pyramid. What are the potential explanatory factors for successful contribution by Multinational Companies that facilitate sustainable development at the BoP? The case of Nestlé
Pervez, T., Maritz, A., & De Waal, A. (2013). Innovation and social entrepreneurship at the bottom of the pyramid-A conceptual framework.South African Journal of Economic and Management Sciences, 16, 54..
Prahalad, C. K., Freuhauf, H. C., & Hart, S. L. Strategies for the bottom of the pyramid: Creating sustainable development. Retrieved from http://pdf.wri.org/2001summit_hartarticle.pdf
Reficco, E. (2013). 6 reasons companies fail to reach the bottom of the pyramid. . Retrieved from https://www.devex.com/news/6-reasons-companies-fail-to-reach-the-bottom-of-the-pyramid-80719
Rugman, A. M. (2010). Globalization, regional multinationals and Asian economic development. Asian Business & Management, 9(3), 299‐317.
Arguments for and against free trade
Free trade entails agreements between two or more trading partners to eliminate the trade barriers (Overbeek, 2016). Such agreements result in free movement of goods and services to and from these countries. Some countries especially the developing countries enter into trade agreements with countries that produce at low cost for other benefits such as foreign direct investment and donations (Irwin, 2015). As such, the trade balance for these countries tends to be poor. Unfavorable trade balances have severe implications for economic development. High expenditures on imports imply high trade BOP (balance of trade deficits) which is detrimental to the GDP of a country (Overbeek, 2016). Also, the industrial development in these countries is poor due to high competition from foreign products. Thus, they adopt protection policies to protect their industries against high competition from cheap foreign products. Protection has both advantages and drawbacks to the development in some countries.
One of the arguments for protectionism is that domestic industries need protection against external competitions (Hagen, 1958). The efficiency of production due to the use of high technology in developed countries tends to make their products relatively cheap compared to similar products in the developing countries. Additionally, products that become outdated as a result of technological changes are dumped into the domestic markets of the developing countries (Hagen, 1958). High consumption of imports results in closure of local industries leading to high unemployment rates and poverty (Abboushi, 2010). Therefore, protectionism policy is necessary for industrial development in developing countries.
Economic growth and development in most countries heavily depends on the level of industrialization. Domestic consumption constitutes a critical element of the GDP in most economies. Free trade allows countries within a particular region to move goods and services freely into other countries, some of which have infant industries. Due to low manufacturing costs in some countries, imports tend to pose unfavorable competition with local products of countries with relatively high production costs. Additionally, low import prices tend to discourage local consumption, resulting in low GDP value and unfavorable business environment in some countries. Therefore, the implementation of protection measures serves as an effective way of promoting local consumption and business development within an economy.
Corporate and income taxes contribute the largest part of GDP in most countries (Irwin, 2015). Besides, taxes are the main avenue for government revenue. The majority of taxpayers are employed in the industrial sector. Therefore, failing to protect domestic industries will result in loss of government revenues due to the shutdown of major industries. Also, the protection of industries is essential to promote resource exploitation which is crucial for economic growth (Hagen, 1958). For example, the United States imposed protectionists measures by increasing the tariffs on tyres imported from China to protect its tyres manufacturing industries (Coherence & Trinity, 2010). This step was supported by the World Trade Organization since the industry has significant contributions to the economy of America (Coherence & Trinity, 2010).
The stability of industries contributes significantly to the success of industrialization and entrepreneurial development (Roberts, 2006). Also, a stable business environment is fundamental to attract investments in a country. According to Hagen (1958), exposing infant industries to high market competition constitutes a threat to their survival since they produce at higher cost due lack of adequate capital to deploy modern technology in production. Infant industries usually incur high production costs which make their products to be relatively expensive. If these industries are not protected against competition, they will die due to lack of demand for their products. Therefore, protection is essential to shield these industries against high competition and to promote their growth.
References
Abboushi, S. (2010). Trade protectionism: reasons and outcomes. Competitiveness Review: An International Business Journal, 20(5), 384-394
Coherence, P., & Trinity. (2010). EU agricultural protection measures - EU agricultural policy - policy coherence: Trinity College Dublin, the university of Dublin, Ireland. Retrieved May 31, 2016, from http://www.tcd.ie/iiis/policycoherence/eu-agricultural-policy/protection-measures
Hagen, E. E. (1958). An economic justification of protectionism. The Quarterly Journal of Economics, 72(4), 496-514.
Irwin, D. A. (2015). Free trade under fire. United States: Princeton University Press.
Overbeek, J. (1999). Free trade versus protectionism: A source book of essays and readings. United Kingdom: Elgar, Edward Publishing.
Roberts, R. D. (2006). The choice: A fable of free trade and protection (3rd ed.). United States: Pearson Prentice Hall.
Whether companies should start monitoring labor standards within their global supply chain
Supply chains form essential parts of business operations (Trowbridge, 2011). According to Rigby & National Research Council (2003), supply chains constitute great advantage if companies can carefully manage them. However, if the supply chains are poorly managed, they constitute a significant risk for the companies. According to the study conducted by PricewaterhouseCoopers, working conditions pose the greatest risk to the supply chains (Trowbridge, 2011). Therefore, good working conditions must be maintained to mitigate the risk. Monitoring of standards entails performing surveillance to ensure that the best labor output is achieved without violation of labor laws (Kucera, 2002).
Global corporations have been accused of exploiting the developing countries because they take advantage of their low wages as well as weak business regulations to achieve production of low-cost products and services at the expense of their workers' welfare (Rigby & National Research Council, 2003). Many claims have been made regarding the exploitative nature of conditions in most of the supply chains. Monitoring of the labor standards will ensure that working conditions are improved and efficiency of supply chains is enhanced.
International labor organization sets the standards to protect the rights of workers (Reich, Jacobs, & Dietz, 2014). These rights are sometimes violated for the benefits of an organization. Global supply chains are expected to comply with international labor regulations and the codes of conducts set for multinational corporations. Monitoring of labor standards helps to report incidences of non-compliance with the regulations by agents of the supply chains (Kucera, 2002). Additionally, monitoring helps in ensuring that the realization of objectives of the global supply chains does not interfere with the rights of workers. Most importantly, monitoring of the labor standards enhances the capacity of developing countries to enforce labor regulations (Short, Toffel, & Hugill, 2015).
The monitoring efforts reinforce the capacity of governments and international regulations to enforce labor laws. However, it has been claimed that individuals charged with the responsibility of performing surveillance lack sufficient capacity to make reliable assessments of the global supply chains (Locke, 2013). For example, monitoring of Nike’s global suppliers to ensure adherence to labor standards does not produce the desired results since those who are trusted with monitoring task do not perform accurate assessments (Singer, 2012). Also, some global suppliers have interests in hiding the violation of labor standards instead of reporting them. Thus, if companies start monitoring the standards, the management of global supply chains will become more efficient and compliant with the international regulations.
Companies should have good relationships with their stakeholders (Reich, Jacobs, & Dietz, 2014). Suppliers are of central importance to a business organization. Also, labor in an organization is of paramount value. Thus, violation of rights of workers may result in business failure. Maintaining favorable working conditions in the chains of supply should be the responsibility of all stakeholders. Business organizations should focus on both profitability and the welfare of their workers. Egocentrism in some business organizations has resulted in the violation of regulations that govern business operations such as worker’s rights. For example, more than 10% of the suppliers of Gap Inc. in China violate the labor standards (Singer, 2012). If effective monitoring is conducted, such violations would have been reported and appropriate measure to mitigate them adopted. Therefore, it is worth monitoring the labor standards in the global supply chains.
Conclusion
Multinational companies adopt various strategies to facilitate their entry into the global market. One of the common entry strategies is the establishment of joint ventures with other organizations. This strategy has significantly contributed to the success of various global enterprises like Wal-mart. The bottom of pyramid strategy entails business expansion approach that focuses on the poor markets. This policy has promoted the growth of many companies although it faces criticism from different organizations. Protectionism is fundamental to the protection needed for the growth of industries in various countries particularly the developing ones. Infant industries must be shielded against high competition to enhance their survival. Monitoring of labor standards is crucial to protect the rights of workers and ensure maintenance of standards in business operations. Thus, companies should consider performing surveillance in their global supply chains to ensure that labor standards are observed despite the challenges involved.
References
Kucera, David. (2002). International labor standards and foreign direct investment. International Labor Review, 141 (1-2), 31-69.
Locke, R. M. (2013). The Promise and limits of private power: Promoting labor standards in a global economy. Cambridge: Cambridge University Press.
Jacobs, K., Reich, M., & Dietz, M. (Eds.). (2014). When mandates work: Raising labor standards at the local level. United States: University of California Press
Rigby, C., & National Research Council (U.S.). (2003). Monitoring international labor standards: National legal frameworks : summary of a workshop. Washington, D.C: National Academies Press.
Singer, T. (2012). Global supply chain labor standards. Retrieved 31 May 2016, from https://www.conference-board.org/retrievefile.cfm?filename=TCB-DN-V4N10-121.pdf&type=subsite
Short, J. L., Toffel, M. W., & Hugill, A. R. (2015). Monitoring global supply chains. Strategic Management Journal.
Trowbridge, M. (2011). Building superheroes. Inside supply chain management, 22(5), 12-13
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