Globalization is the transition from the economies of separate countries to the economy of international scale. The tendency in the era of globalization can be traced through particular characteristics that describe the current state of the economy in the world. All countries are situated on different levels of economic development, where developed countries are at the stage of globalizing economy through multinational corporations (MNSs). The main arising issue within the operational process of MNCs is the process of adaptation when entering new markets, specifically in developing countries. The clash of cultures is especially apparent when the local cultural and regional dimensions are ignored, resulting in failures competing within the local markets. In that regard, this paper addresses the issue of globalization, in the context of assessing the potential of operating globally and operating in emerging markets.
The main reasons for any changes in business processes and strategic expansions are increasing profits and reducing costs, and in that sense, entering new markets, whether local or global is no different. Taking offshoring as an example, where it can be considered as one of globalization’s manifestations, the main aspects was decreasing the costs. (Farrell, 2004). Nevertheless, the potential to going global might have a wider context related to the potential of the industry of the operated business. Assessing the potential of going global can be conducted through by calculating “the ratio of the annual value of global trade (which includes trade in product components as well as final goods) to the annual value of industry sales.” (Farrell, 2004). If the potential is high, there is a great opportunity to obtain “a new consumer base consisting of hundreds of millions of people.” (Prahalad and Lieberthal, 2003).
The cost saving opportunity in labor is not the only beneficial aspect for going global. There are the opportunity to save from redesigning the production process, increasing production shifts, and using the intellectual rights in low-wage environments. In that sense, the saving process cannot be overestimated, where companies can save up to 70% of their total costs (Farrell, 2004). Definitely, these calculations can be considered ideal if not for the existent pitfalls that should be considered thoroughly, especially in the context of emerging markets.
In the debate of which party is more beneficial from globalization, emerging markets or MNCs, many considerations should be acknowledged in terms of local specifics which are mostly related to the developing nature of many countries. When developing marketing strategies the cultural environment of each market is of great importance. Failures in acknowledging such differences could be related either to the lack of information or the inability to correctly translate the acquired information into effective marketing strategy. In that sense, incompatible brand establishment could be considered as one of the possible consequences of incorrect marketing strategy (Prahalad and Lieberthal, 2003). Companies overestimating the influence of the western in general and the popularity of their brand in particular, can result in losses until getting the right approach.
The economic environment is also an important indicator of the possibility to adapt to the market. In that sense, incorrect estimations might result in positioning the products for the layer of the higher niche of consumers. Accordingly, the expenses associated with introducing a product which is low-cost, but unfamiliar to the local market might overcome the potential profits that will be gained on the long term. Thus, in the formulation of which side should be adapted to the preferences of the other, the companies should acknowledge that “Changing developed habits is difficult and expensive.” (Prahalad and Lieberthal, 2003).
The adaptation to the local market is not limited to products, services and marketing strategies, where there is a necessity to assess the cultural aspect when varying leadership positions in the company. In that regard some aspects that should be considered, but not limited to, are: the appreciation of local nuances, the share of voice at corporate headquarters, the level of specialists’ preparation, and the ability to adopt new corporate cultures (Prahalad and Lieberthal, 2003).
Forming joint ventures and alliances can be seen not only as a method of methods of entering new markets and exploit the gained experience in the market, but also as a way of overcoming bureaucratic processes. Nevertheless, venture and alliances should be made with consideration to the different expectations and goals of each party. It should be understood that each party will seek its own benefit in such alliances, a factor that should considered and used effectively MNCs. Effective mix of global and local assets, labor and capital should be utilized for both sides (Barber and Strack, 2005).
It can be seen that the globalization can open numerous opportunities, which were previously limited by geographical borders. Nevertheless, poorly thought-out approach can result in clashes with local cultural aspects that are existent within each emerging market. The consideration of such aspects can prove to be vital when going global, as well as the consideration of the potential of the industry in general. Additionally, it should be noted that the opportunity to considerably reduce costs should be utilized to raise the quality level of the products and services, and in that sense, be beneficial for both the companies and the markets.
- BARBER, F. & STRACK, R. (2005) The Surprising Economics of a “People Business”. Harvard Business Review, 83, 80-85+.
- FARRELL, D. (2004) BEYOND OFFSHORING: Assess Your Company’s Global Potential. Harvard Business Review, 82, 82-90.
- PRAHALAD, C. K. & LIEBERTHAL, K. (2003) The end of corporate imperialism. Harvard Business Review, 81, 109-117.