¶ … Globalization on Firms Expansion in Foreign Markets
The objective of this paper is to advance knowledge on globalization using empirical evidence to present the impact on the expansion of firms on foreign markets. By drawing support from different kinds of literature, the paper argues that the globalization acts as two-edged swords: Globalization is both beneficial and detrimental to firms with reference to the acquisition of foreign markets. Thus, firms are required to design effective business strategies and innovations to enjoy market opportunities from global markets while carefully managing inherent risks and threats associated with globalization. (Amonrat,. & Patriya, 2007).
Impact of Globalization of Firms Market Opportunities
As firms extend their businesses outside their home countries to access markets, well, services and resources across the borders, the negative and positive effects of globalization are increasingly affecting them. Globalization is defined as an ongoing economic, social and political process among nations. (Clougherty, 2001). Global events affect almost all firms, and as firms enter the international markets, complex and diverse issues of globalization are affecting them. Loecker, & Goldberg, (2014) argues that firms performances within a global market environment are based on performance theory. Typically, firms are faced with global competitive threats leading to an intensified competition in the global marketplace. While firms may face global market uncertainties, however, the global competitions assist firms in improving their business performances. The theory of comparative market advantages also argues that firms are to specialize in the product and services they believe they will derive competitive market advantages. (Clark & Knowles (2003). For example, firms in India are specializing in the production of IT product and services. Moreover, China provides cheap labor services for the U.S. companies. Thus, many U.S. firms are outsourcing their IT functions to India and manufacturing activities to China thereby enjoying the global market benefits.
"The World Bank found that wages have generally been rising faster in globalizing developing countries than in rich ones and faster in rich ones than in non-globalizing developing countries. The point is that the fastest wage growth is occurring in developing countries that are actively increasing their integration with the global economy." (Brooks, Weathers ton, & Wilkinson 2012 p 314).
Amonrat, et al. (2007) argue that globalization delivers an increased market and investment opportunities to firms. Typically, development of IT (information technology) and removal investment barriers have provided firms the opportunities to seek for international markets and derive tremendous investment opportunities globally. Globalization has also assisted firms to outsource their productions to various locations to enjoy lower costs of operations giving them the opportunities to offer their products at lower prices. Moreover, the globalization has enabled firms to have access to many untapped markets globally. With the advancement of information systems and communication, firms are able to achieve efficiencies in their business operations. (Czuchry, & Yasin, 2001)
Despite the immense benefits associated with globalization, Chetty, (2014) argues that firm's expansion to international markets is fraught with risks and uncertainty. For example, firms face planning problem decisions when expanding internationally. They are faced with decisions whether to operate alone or partner with other companies. In many Asian and Latin American countries, some governments have mandated foreign companies intending to establish in their countries to establish business partnerships with local firms before being allowed to operate.
Brooks, Weatherston, & Wilkinson, (2012) believe that globalization is gradually eroding permanent employment opportunities because many employers are taking the advantages of globalization to tap contract labor across the globe thereby reducing full-time employment opportunities. The contemporary issue is that employers outsource their works outside their countries using contracting employment strategies to source for labor making full employments categories to decline. The employment strategy is particularly rampant among service-based categories. For example, one-third of people working in the European Union works as contract workers. The issue is particularly worse in the UK where employers offer contract employments to over 2 million people. This employment strategy is likely to increase in the future because the internet has assisted many employers in securing labor globally taking this advantage to lower the labor costs. Although, this employment strategy has made firms reduce their costs of operations thereby increasing their profitability, nevertheless, an increased in the contracting employment opportunities has reduced the number of permanent employment opportunities offered to people in their home countries. For example, many U.S. companies prefer setting up their manufacturing companies in Asian countries such China and India to lower the labor costs. A sudden change in employment contracts has left many people globally with temporary employment rather than the permanent employment opportunities....
(Courtney, 2001).
Despite the identified shortcomings of globalization, Awuah, & Amal. (2011) believes that globalization assists firms to pursue international business strategies that offer wide market opportunities across the globe. A reduce in trade barriers has facilitated business among nations. However, the impact of globalization remains controversial. While some people claims firms derive immense benefits from globalization, some people believe that globalization affects firms in a negative way. Using Chile as an example, many SMEs in Chile have exposed to international competition assisting them to enjoy better performances as well as generating employment opportunity for people. Moreover, globalization has assisted firms in India to derive comparative market advantages in a software industry.
" Conditions do seem to improve in many countries over time. In Vietnam, it has been estimated that wages have increased five-fold in recent years. Developing countries such as India, China, Vietnam, and Bangladesh have all benefited from global production."(Brooks, Weatherston, & Wilkinson 2012 p 314).
However, the success of the Asian companies in the international markets is based on the support they enjoy from their governments.
b) Analyze the global interaction between Transnational Corporations, Governments, and Global institutions
The major impact of the globalization is an increase global interaction between governments, transactional corporations, and global institutions. For example, governments across the globe have facilitated globalizations through the formation of global institutions such as European Union, World Bank, World Trade Organization, and OECD. (Deardorff & Stern, 2002) The interactions of these global institutions have facilitated global standards such as electrical standards and patent standards breaking trade barriers across nations. At an industrial level, the globalization has increased a global production, global brands and global competitions among firms. For example, transactional corporations such as Coca-Cola, McDonald, Adidas, and Toyota have established their presence across the globe in both developed and developing countries. Moreover, the globalization has enhanced an increased cross-border merger and acquisitions. The transactional corporations across the globe have been able to have access to global mass markets thereby increased their competitive market advantages. For example, many transactional corporations have formed alliances and partnership with other multinational corporations across the globe to operate successfully in global markets. (Farnham, 2005).
More importantly, the globalizations has facilitated increased interactions among governments to facilitate international business transactions among firms. For example, EU (European Union) has become a political-economic organization that consists of 28 member nations. Typically, the EU has facilitated the interactions among the governments of the member states to maintain environmental standards. The organization has also facilitated free movement of goods and services.
c) Analyze the differing impact of, and responses to, global economic transition and transformation on the part of specific regions and states.
The major impact of globalization has been viewed in the way it has facilitated the economic development of EU member countries. Dustmann, and Frattini, (2014) argue that the United Kingdom has derived significant economic benefits from being a member of EU within the last decade. For example, the European Union migrants have contributed more than £20 billion to the UK public finance between 2001 and 2011. Moreover, the migrants have facilitated an improvement of the UK productive human capital that would have cost the UK government more than £6.8 billion subsidies on education.
Dustmann, and Frattini, (2014) point out that positive net fiscal contribution of EU migration to the UK is totaled £15 Billion since 2001. Moreover, the net fiscal contribution of non-EU immigrants is £5 Billion. However, the net fiscal contribution of the British citizens was negative during the same period. Similarly, the Republic of Ireland has derived immense economic benefits from becoming a member of European Union since 2001. (European Commission, 2010). Typically, Ireland membership of EU has facilitated the economic development of the country. Before joining the EU, the Republic of Ireland was an agricultural-based economy, and at present, the country has moved from an agrarian economy to a technologically developed country driven by global exports and hi-tech industry. The Ireland EU membership has improved the country agricultural sector and opening the country products to the continental markets. The EU single market policy has also attracted global buyers to the Ireland products and services. At present, Irish firms are competing on an equal footing with the UK businesses making the Irish companies be attracted to the U.S. investors and investors from non-EU countries.
Conclusion
This paper investigates how globalization affects the expansion of firms in foreign markets. The paper identifies benefits and shortcomings of globalization. However, the study argues that benefits that firms derive from globalization are higher…
