Globalization is a business proposition that goes back hundreds of years, to companies and countries that took over vast amounts of land, even a country or two, within this practice. It is a means to spread a company’s name, product, and the expansion of the market helps in the area of sales and profit.
The case study opens with the following: “In the past few years, most companies have become aware that they can reduce their cost significantly through offshoring – moving jobs to lower-wage locations… but this practice is just the tip of the iceberg” (Farrell, 2004, p. 83). Globalization is not a new concept, especially not in the world of big business. Sometimes it means that companies work hard to get their product recognized overseas, and sometimes it means that they are going to simply use the lower-wage workers overseas to save their company money. One of the greatest reasons for this quick jump to globalization is that businesses are expected to expand and grow quickly.
The case study has a positive outlook on the impact of globalization if it is beneficial for the company. It notes that to assess how global a company can be, there are three types of factors determine the path of globalization for a business. These factors are product, regulation, and organization. Product is important in determining the location and the advantages of such a business move, in terms of audience and production of said product. In the regulatory sense, a company must abide by the rules of the country to which they are growing. China or Mexico, for two examples, may have different laws about what can be sold, laws for workers, or even laws about how land is acquired. A company must do a lot of research in order to make this move. The third factor, organization, means internal organization: management. It also emphasizes the expansion of the business’ market.
The case study also mentions a very broad plan for a business to expand on when they want to globalize and move forward with this idea of expansion. “After you’ve considered which constraints to globalization can be changed, you need to identify your options for capturing value in the new global environment” (Farrell, 2004, p. 87). There are five stages of ‘global restructuring’ according to the text: “enter new markets, product specialization, value chain disaggregation, value change reengineering, and the creation of new markets. Many multinational companies that have invested money and time overseas have sought to do one of two things: finding a new market, new customers, or to find more sufficient production” (2004, p. 87). The text reads: “the full profit opportunities go well beyond these objectives” (Farrell, 2004, p. 87). One similarity is that all companies want to expand somehow in order to make more money and gain more customers so that they can continuously make more money.
The first three phases mean basic improvements for the company. The first stage means that similar processes used at ‘home’ are employed in the expansion. The second stage is when the company moves to export goods globally or to move production to another country in order to save costs. Stage three means that the companies’ product components are produced overseas, and these countries begin to help in the production of the goods. Stages four and five are “true process innovations and market expansion” (Farrell, 2004, p. 88). Stage four means that the productions overseas begin to receive local consideration. Stage five means that, finally, because of costs being low, the company can offer new products at low prices. These typically penetrate other markets for the company. The five stages of globalization do not have to be followed one by one, in order, for the company to find success in globalization. They each mean market expansion, so globalization is possible with just two or three of these stages put into place.
The case study also discusses how much globalization could mean to a company. There are risks, and there are opportunities for any business decisions. The case study marks that there are three basic opportunities of globalization. The first being the most obvious is the savings in labor costs. The second is, again, in cost reduction: companies reduce costs by merging low-cost labor with high-cost capital. The final opportunity is that local engineers can be hired at a low cost. As well, there are risks. “No one company – whether it’s seeking new revenues or lower costs – has a template for operating successfully in all developing markets” (Farrell, 2004, p. 89). There is always the risk of failure and loss.
Wal-Mart earned $408 billion in revenue in FY2010, a 1% increase from 2009. The company operates 8,416 stores worldwide; with over 4,000 of them in international markets. Wal-Mart stores earned 51% of their revenue from grocery sales in 2010, with sales of entertainment, electronics, and toys a distant second at 13% of Wal-Mart stores' revenue (Kamboj & Kalia, 2011).
The study used Wal-Mart as an example. In the United States, Wal-Mart is a company with the largest revenues in the country; it was built from scratch home-grown company built on the hard work of the founder, Sam Walton. They did not do well in some countries like Brazil and others, and they still cannot get stores in the upper New York area. However, when they took over Mexico’s large market Cifra, they did exceptionally well. Now, the previous workers, and management, are still with Wal-Mart. Wal-Mart is a great example of a wide market and global expansion.
“Wal-Mart earned $408 billion in revenue in FY2010, a 1% increase from 2009. The company operates 8,416 stores worldwide; with over 4,000 of them in international markets. Wal-Mart stores earned 51% of their revenue from grocery sales in 2010, with sales of entertainment, electronics, and toys a distant second at 13% of Wal-Mart stores' revenue” (Kamboj & Kalia, 2011).
Wal-Mart is a company that has used globalization to decrease labor costs, production costs, and a large percentage of people in the United States shop at Wal-Mart loyally – this is now spreading around the world through globalization.
Globalization, for hundreds of years, is something that major companies have been using to expand their markets. This creates new profits, sales opportunities, and product promotion and expansion. Wal-Mart is a company that has had a lot of success with globalization.
Farrell, D. (2004). Assess your company’s global potential. Harvard Business Review, 83-90.
Kamboj, R. & Kalia, S. (2011). Walmart- India vs. China. PRIMA, 2(1), 19-30.