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MOD003337 Global Business Environment Level 6

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Introduction

The term globalization defined the economy of world, which is generally viewed as international trade being taking place from past several decades. Many researchers understand and view globalization as a holistic approach that have some or the other relation with the general systems of theory, wherein completion of one transaction in one domain significantly influences the transaction of the other domain (Daniels, Radebaugh and Sullivan, 2013). Thus, it can be said that it is a process through which people, government as well as organizations interact with each other. But operating business on the global platform is not easy, it brings upon various challenges and issues. Companies which are heading towards international markets have to face many problems, especially when it comes to SMEs. Talking in relation with the small and medium enterprise, they play an important role in the development of economy of UK. The SME organizations bring lot of benefits such as employment generation, foreign currency, investment, wealth and income distribution etc. Because of all such benefits, the economic growth of a country is possible. There are many nations which are encouraging the setup of SMEs (Yip, 2003).

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Relating to this, the present research report focuses on exploring the wider positions of the SMEs in the global environment. As an advisor to the board of directors of SME fast growing manufacturing organization in UK, an analysis will be undertaken to realize the complexities of operating in the global market and will develop a comprehension of different means to cater with these problems of globalization. for this purpose, the case of SME fast growing manufacturing organization of UK is taken into consideration who has successfully expanded there reach in the markets of Africa, North America and Asia. Now, the company desires to expand in other parts of the world. Pertaining to this, the current research report will significantly explore various factors that drive globalization as well as the significance of digital technology upon globalization. The later part of the report provides the recommendations on ways of overcoming these challenges and issues.

TASK – 1

P1 Analyzing the key factors that drives globalization

Globalization is being defined as a process or act of integration and interaction of people, processes, companies and government of different nations. It is a process which is being driven by international trade as well as investment and is aided by information technology (Jansson and Sandberg, 2008). For each and every company, whether small, medium or large, globalization has become an important need. There are many factors that drive globalization such as commuting, technology, communication economies drive, world demand, environment, open market; however the most important factor among these are as follows:

  • Cost – The current SME manufacturing organization of UK wants to expand in various parts of the world so as to maximize their investment. Company is not able to achieve economies of scale and scope in the markets of one country. Most of the mileage can be achieved from the investment cost. In addition to this, promotion as well as advertising will incur heavy costs across boarders and thus, it is vital to expand in the market that can easily be recognized by the people and have heard about the products and services of the company (Roth and Sinkovics, 2006). It is quite complex for the small and medium enterprise to take important decisions about the right strategies, market segment, product positioning and target group.
  • Market – Comprehending about the advanced economies, the customers are now having similar traits and behavior in relation with aspirations, education, income and utilization of leisure time. Organization want to extent their share in the market and many a times it is possible that they trace out customers which have demand and high purchasing power in a particular nation. On the other hand, it is also equal chance that company might fare best and flourishes more in the markets which are not as sophisticated as the markets of UK. Thus, it can be said that if the company want to expand in other parts of the world and have a global strategy than it does not depicts that they can serve the every part of the world. In order to get success critical decisions as well as choices are required to be undertaken regarding the allocation of resources.
  • Environment – There are many political, social, legal, economic and technological factors that influence the decision of SME manufacturing company to enter into a new market of different nation. Focusing on the economic aspects, the demand for the global products and services is increasing because of the growing wealth and mobility of the consumers, benefits of globalization, transfers of information across the borders and revolution in the technology (Matthias and et.al., 2008). Smaller government in the existing market allows the global organizations to move quickly to capture new market, change direction and create new products and services as per the demand of the situation. Throwing light towards the technology, SME can enjoy benefits from the advanced communication and technologies. SME fast growing manufacturing company of UK can also take the advantage of trading region newer technologies. With the increase in the technology, trends in the globalization are accelerating. For instance, SME can exchange millions of information all across the globe due to telecommunication technology such as telephone, conferences, emails and many more. In addition to this, digital technology has supported the commercial opportunities on broader market scales (Czinkota, 2011). Furthermore, the elements of culture are also exchanged extra-ordinarily. Because of this, people can experience same culture and at the same time can follow the same economic opportunities.
  • Competition – For the purpose of gaining competitive advantage in the market, organizations are required to focus more on marketing in each and every market. Competition is being taken as an important source to achieve sustained advantage by the firm. With the help of competition, firm can upgrade their products and introduce new products and services with a faster pace. Furthermore, leading and fast growing small and medium enterprise can drive the process of globalization. The current manufacturing company is also shifting towards the global direction through creation of demand and supply and global brand chain in order to accomplish those identified demands.
  • Classification pull and push drive – When throwing light on the globalization, there are two main factors that are been discussed i.e. push and pull factors. Push factors are negative factors that cause globalization to take place such as economy, environment and political factors. On the other hand, pull factors attracts the companies to operate other than their own nation such as higher income and standard of living, labor demand and political and religious freedom etc.

TASK – 2

P2 Explaining the complexity of strategic challenges faced by SME in a global environment

  • MNC strategy to be adopted – When operating in the global environment, SME has to face the strategic challenge in relation with the type of international strategy to be followed. Transnational strategy can be adopted if the firm wants to combine global, multinational and international strategies. It implies seeking global integration, operational efficiency on continuous basis. Global strategy includes governing the business centrally through global manufacturing. On contrary, multinational strategy means the subsidiaries of company enjoy local autonomy of business decision making.
  • Global MIS and risks – The main challenge being faced by the SME manufacturing company is partner collaboration and expertise funds. When any organization head towards the global market, it is required to have cooperation from various other companies and suppliers (Peng, 2014). Since, the company is related with the manufacturing sector, they need suppliers for various products and parts. The firm has extended their factories in North America, Asia and Africa and now they want to expand their global reach in other parts of the world. Thus, they now need partners that contained knowledge in relation with the manufacturing concern so that they can have improved quality as well as efficient products in place.
  • Corporate structure – Other than this, the company also faces issues related to partner and supplier relationship management. It is important for the SME Company to have proper communication system and structure in place as it has its presence in the global market. Through this, proper flow of communication will take place amid the suppliers of the raw-materials. In this regards, the company can adopt and use web based services (Rugman and Collinson, 2012).   
  • Supply chain flow – The supply chain management system of SME is quite flexible. They have effective production and assembly line. Furthermore, they make use of just in time technology in order to deliver their supplies. Numerous market opportunities are being available for the firm like capturing the growing market segment as well as developing in the new markets. But, company is more likely to face many risks and challenges too. When company enters in the international market, there might be chance those skills available in that particular location or area does not match up with the skills needed by the firm for the manufacturing purposes (Liphart, 2014). Additionally, the firm is also likely to face up threats from changing regulations of the government regarding the taxes, import and export duties of a particular nation and thus, impacts the supply chain management of the small and medium enterprise.
  • Ethical and governance – Each and every company whether related to service and manufacturing sector, hospitality or travel and tourism is required to follow the ethical practices in order to have smooth flow of their operations. However, the SMEs are generally not able enough to employ resources for to build ethical workplace culture in comparison with the large conglomerates. SME manufacturing company also follows ethical policy in place in order to reinforce and explicit the values of the organization. The company includes ethical values such as honesty, integrity, respect, openness, responsibility and fairness.

Recommendation to overcome these challenges

To overcome the challenges related to global MIS and risk, the company has initiated varied educational and training programs for specialist, technicians and managerial employees in areas where they have their plants so as to give them knowledge about the processes. Furthermore, every business thrives to achieve profit but it should be done in an ethical and moral ways. It is the responsibility of the firm to make the products available in the market at reasonable price. Further, the employees should be compensated with faire wage and safe working environment (Webley, 2003). The manufacturing concern also need to makes sure about proper disposal of waste and does not influence the health of the people of the community.

TASK – 3

P3 Evaluation of influences of globalization on organizational governance and leadership, structure, culture and functions of SME manufacturing company

Positive influence of globalization  

World economic growth

The emerging markets become successful due to increasing privatization of state owned industries. For the purpose of increasing the demand, many companies are expanding to an international level and thus, multi-national organizations come into existence because of globalization. They are playing a crucial role in increasing the global foreign direct investment inflows and leading the economy towards the path of success (Peng, 2014).

Foreign investment

This is considered as one of the most visible positive impact of globalization. Lot many companies have directly invested their capital in various part of the nation and increase the amount of foreign investment in the developing nations. 

Structure, strategy, governance and leadership

The business strategy of small and medium enterprise manufacturing company of UK is product differentiation and therefore, they are positioning themselves as a premium brand in the manufacturing industry. Furthermore, the firm is focusing towards the differentiation strategy through features of advanced technologies and digitalization (A Guide to Starting and Running a Manufacturing Business, 2018). With the globalization, the strategic decisions needs to be taken wisely as many elements plays a pivotal role such as costs, competition, market, environmental factors, customers, demand and supply.

The organizational structure of SME manufacturing firm of UK is not so complex, as it is small and medium sized firm. However, it is a manufacturing unit and thus, it have immense scope of operations. The company has designed such structure that it can respond effectively with the changes taking place in the external business environment of the firm. It is quite obvious that when company steps towards the global market, changes will take place in its structure and these changes are being managed by the company’s team of strategic management (Nummela, 2010).  

Hofstede’s cultural dimension theory 

The culture within the organization can better be understood by the Hofstede’s cultural dimension theory. It helps in evaluating the cross-cultural relations so as to understand the variations in the behavior. There are basically 6 dimensions of culture:

Power distance index

It explains the degree of inequality in the firm

Individualism versus collectivism

Relationship among the employees

Masculinity versus femininity

Distribution of roles between male and female

Uncertainty avoidance index

Ways of managing the stress (Hofstede and Rottgers, 2012)

Pragmatic versus normative

Degree of explaining the inexplicable and nationalism

Indulgence versus restraint

Degree of indulgence of people

Small and medium enterprise sooner or later will face the impacts being posed by globalization. There are certain alternations that will surely going to emerged and thus, seeking support from this tool, the company can manage their cultural diversity. Through this, SME manufacturing firm can reap benefits by generating new ideas, belief and values from diversified people.

Talking in reference with the leadership, globalization has influenced management and leadership style in several ways by competition, customers, market, international employee transfer and increasing level of opportunities. The style of leadership is different in different countries and thus, a leader is required to understand the culture, belief, customs, norms and social standards of that particular nation to become a successful leader.   

Negative influence of globalization

  • Exploitation of resources – As large number of multinational companies are expanding their global reach, it is increasingly exploiting the natural resources. Due to FDI’s and larger investment by foreign companies, the natural and other valuable resources of the home country are in danger.
  • Disparity between the rich and the poor nations –Globalization is significantly compounding the gap between the rich and the poor nation. It is also intensifying the American’s dominance of the world’s cultural and economic markets (Chavan, 2010).
  • Unfair trade practices – Talking in relation with the unfair trade practices; it hampers the economic growth of the nation. In order to cater with the rising demand of the customers and prevalent competition in the market, company engages in fraudulent and unethical methods of business practices.

P4 Evaluating the impact of ethical and sustainable globalization on SME’s functions

Globalization helps in integrating the regional, societies, culture, communication, transport and trade. The process of many small and medium enterprises has headed towards internationalization. People are moving and migrating across boarders in a quick stance (Chavan, 2010). Consequently, it becomes necessary to take into account ethical issues and sustainability in cross-cultural settings. Additionally, it is significant to understand the term from all angles. Small and medium enterprise have come a long way and has also expanded their market in North America, Asia, Africa and is now want to reach in other parts of the globe and thus, ethical and sustainable issues are more likely to emerged in the functional areas of the firm.

  • Production – This is the major function, as the manufacturing of products takes place here in this department. The ethical issues to be considered here basically relates with the responsibility of the firm to ensure that the processes being undertaken by them will not provide any time of hazard to anyone. Furthermore, using chemicals, tobacco and alcohol are not regarded as ethical practices in manufacturing the products (Guide to Starting and Running a Manufacturing Business, 2018). These issues have influenced the working of the firm effectively. The management needs to make sure that each and every process is undertaken considering the ethical laws and practices, otherwise the sustainability of the firm will be in question.
  • Human resource management – The HRM of SME manufacturing company is facing challenges and issues pertaining to the globalization. Diversified people coming from different backgrounds and values make it difficult for the managers to handle. Other than this, child labor, discrimination and fraud are the major issues that have been raised due to globalization. Because of this, the image and brand reputation of the company is getting spoiled, which further results in depressed sales and profits margins.
  • Marketing – Needs and wants of the clients changes with the market and country. This variation in need and demand has given birth of many ethical conflicts related to advertising, marketing, communication, distribution and pricing practices and methods. For instance, ethical issue concerning marketing is fair pricing, distribution, truthful and honest advertising and not using misleading information. The ethical behavior of SME manufacturing company in this area has significantly reaped out positive insolence of customers about the firm’s products and services (Nummela, 2010). 

TASK – 4

P5 Reviewing diverse ways of decision making can work effectively in a global context

When small and medium manufacturing company decides to move or expand their global reach, there are numerous decisions that needs that needs to be undertaken such as market and country to enter, availability of resources and finance, taxes and other duties, pricing and production decisions, marketing tools and techniques and many more. All these decisions require huge attention as they can influence the operation of the business in the global market (Andrea, 2003). Furthermore, the diversification strategy can be the part of decision making depending upon the finance as well as position of the firm. When the management thinks that there primary business has attained the highest level and there are chances that it can decline at the next level, the firm decides to diversify their market. New business will give new growth and prosperity. However, the risk level will depend upon the type of diversification strategy adopted.   

However, there are many common errors that SME manufacturing company incurs while making decisions regarding the above identified elements such as failure to get the reliable information about the market, postponing the important decisions, failing to isolate the main cause of the problem, wrong method of analyzing the information and implementing the decision (7 Steps in Decision Making, 2018). However, all these common errors can be minimized if proper process of decision making is being followed by the firm i.e.

  • Determining the problem
  • Gathering information related to the issue
  • Analyzing the situation and alternative course of solution
  • Developing possible options for the solutions (Some Common Errors in Decision Making, 2018)
  • Evaluating the options and selecting the best solution
  • Acting on the decision or decision implementation

Styles for decision making in global market

  • Analytical – The Company is heading towards expanding the operation in the international markets and thus, this style of decision making is quite important. It involves analyzing large amount of information prior making any decision. The decision makers are also very adaptable and can make right decisions in challenging situations as well (Liphart, 2014).
  • Behavioral style – This style makes sure that each and every one works well and together in order to avoid conflicts. Decisions are being undertaken by working in groups. Together they negotiate the problem and with consensus decide the solution.
  • Rational style – Since the firm is stepping towards the global market, it is vital that there decisions should be balanced and sensible.

P6 Determining and articulating various routes to internationalization SME manufacturing company may adopt, including key barriers

The SME manufacturing company can chose various routes to internationalize their operations and business and these are as follows:

Joint ventures

Ownership is shared with the partners

Foreign Direct investment

Direct ownership in the market to enter

Mergers and acquisitions

Merging home firm with the foreign company (Agarwal, Malhotras and Ulgado, 2003)

Licensing

Making use of property of licensor in the nation they wish to enter

Exporting

Directly selling products in the target country

E-commerce

Buying and selling products through online means or over the internet

The decision reading the type of market entry mode to be selected is based in various factors. There are entry mode selection criteria that need to be considered such as size of the firm, employment, number of international market being served, weight of export in turnover, years of international exposure and experience and finally, turnover. Concerning all these factors, the suitable entry mode for SME manufacturing company is joint venture and mergers or acquisitions, as they size and scope of business is limited (Kim and Hwang, 1992). However, while choosing the option of joint ventures or mergers, the firms is more likely to comes across with certain types of barriers such as:   

Barriers to entry

  • Government regulations
  • Tariffs or taxes on imports
  • Switching barriers
  • Suppliers agreements (Müller and Timofeev, 2016)
  • Zoning and quotas
  • Intellectual property

Conclusion

Consequently, it can be said that small and medium enterprise manufacturing company of UK has successfully expanded its operations in North America, Africa and Asia. Further, to expand in the other parts of the world, the firm is required to consider various factors such as entry mode, strategic decisions, impacts of internationalization etc. if these are considered effectively, growth and success will be at the door step.

References

  • Agarwal, J., Malhotras, N.K. and Ulgado, F.M., 2003. Internationalization and Entry Modes: A Multi-theoretical Framework and Research Proposition. Journal of International Marketing, 11(4), pp.1-31.
  • Andrea, M., 2003. The decision-making process of international market and entry mode selection: a research study of SMEs in the industrial districts of The Marches in Italy. Unpublished doctoral dissertation. University of Scotland.
  • Chavan, S.V., 2010. Ethics and Management – Towards a Spirituality of Business. AIMS International Conference on Value-based Management, pp.11-13.
  • Daniels, J.D., Radebaugh, L.H. and Sullivan D.P., 2013. International Business Environments and Operations. 14thed. Harlow: Pearson.
  • Jansson, H. and Sandberg S., 2008. Internationalization of small and medium sized enterprises in the Baltic Sea Region. Journal of International Management, 14, pp.65-77.
  • Kim, W. C. and Hwang, P., 1992. Global Strategy and Multinationals' Entry Mode Choice. Journal of International Business Studies, 23, pp.29-53.
  • Matthias, F. and et.al., 2008. Cooperative internationalization of SMEs: Self-commitment as a success factor for International Entrepreneurship. European Management Journal, 26, pp.429-440.
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