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Bahria University, Islamabad

Department of Management Sciences

Course
Contemporary Issues in Business
Topic
Globalization as a New Challenge in Today’s Businesses
Submitted to
Sir Umer Chaudhry
Submitted by
Komal Fatima
Iqra Ibrahim
Faiza Almas
Ali Imam
Muhammad Saqib
Class: MBA 3.5
Section: 5A
Date
4th May 2019

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TABLE OF CONTENTS Page No.
1. Introduction to Globalization 4
2. Drivers 5
a) Information Technology 5
b) Innovations 5
c) Increase in buying power 5
d) Consumers Demand 5
e) Competition pressure 5
3. Impact of globalization on economic growth and market opportunities 6
a) Measures 6
b) Classification of economic growth 6
4. Challenges of globalization 7
a) Ethical business practices 7
b) Organizational structure 7
c) Public relations 8
d) Leadership 8
e) Legal and regulatory structure 8
f) Infrastructure 8
g) Technology 9
5. Impacts of globalization on today’s Businesses 9
a) Competition 9
b) Rise in technology 9
c) Employment 10
d) Fluctuation in prices 10
e) Job insecurity in business 10
6. Keys to successful globalization 11
7. Pressures of Globalization 11
8. Strategies for globalization 12
a) Global strategy 12
b) Transnational Strategy 12
c) International strategy 12
d) Multi-domestic Strategy 12
9. Collaborative Arrangements 13
10. Advantages and disadvantages of globalization 13
11. Conclusion 14

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Acknowledgement

We would like to express our special thanks of gratitude to our teacher Sir Umer Chaudhry, who
gave us the golden opportunity to do this wonderful project on the topic “Globalization as a new
challenge to Businesses Today”, which also helped us in doing a lot of Research and we came to
know about so many new things.

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“Globalization as a new Challenge to Today’s Businesses”
1. Introduction to Globalization:
Today the business world has changed the world economy, educational, political and social
aspect in a way that none of us imagined. Globalization is the amalgamation of national
economies whereby the organizations and businesses develop international influence,
communication and world’s culture.

“Globalization is a concept which has become the subject of study and a factor in business the
last few years. However, but the history of globalization starting much earlier, with the early
trading empires. The basis of the expansion of many empires was to acquire resources and value
from countries visited. For example, The Silk Road between China and Europe, the Phoenicians,
the Egyptians; and in our Western tradition, Romans and Greeks—these empires and others in
Asia and other parts of the world were reaching out, sometimes initially, to acquire value as they
explored the world. They brought that value back to a central location, usually the capital of the
empire. That was the beginning of globalization of business.”

The major drivers which drive globalization as an important factor of business are the
opportunities in global market, free-trade, uprising communication, consumer’s demand,
increased technology and innovation and the rising competition in the market among firms.
Many of the firms adopt globalization and is has became a challenge for the businesses today in
the new economy. When a company become global it has some advantages such as more market
share, more opportunities to avail, more brand recognition and more customer; on the other
hand, it does have some challenges that it has to face.

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2. Drivers:
Following are the drivers of globalization:
a) Information Technology:
As it is era of technology everyone has information about every technology and
consumers want ever new technologies in the products and services being offered to
them by different companies. In such technological environment companies must go
global so that they can survive in the current market and can get maximum profits
and market share by retaining more and more customers.
b) Innovations:
In an environment whereby, innovation is increasing day by day, where every
organization is working on research and development to develop more innovative
products for customers so that they can survive in current market situations,
globalization is needed by every organization. Innovation is an important driving force
for globalization that pushes company to make more and more innovative products
to be in the competitive environment.
c) Increase in buying power:
Increase in buying power is an important driving force for globalization, as in most of
the developed countries consumers and customers have more buying power than
ever, now they want to purchase products and services that have competitive
advantages that none of other have in their products. At this stage companies need
to go global to cater those customers and to fulfill their needs and wants.
d) Consumer demand:
In the current market environment consumers have more information about the
products, they are more connected to each other across the world and this global
connectivity leads towards increasing consumer’s demands. Customers now demand
more quality products which may be standardized or customized, increase in
consumer’s demands force the organizations to become global so that they can
provide their customers with the best quality products, fulfilling their demands.
e) Competition pressure:
At this period of time where all the companies are in competition with each other and
some of the companies are outperforming other companies, there is so much
pressure in the market. Every company must work more effectively and efficiently, it
must have competitive advantages in its products, it must have differentiated
products that are unique and innovative than any other products being offered in the
market by other companies. To get all this companies have to become global so that
they can make a place in the markets and can get more market share than their
competitors.

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3. Impact of globalization on economic growth and market opportunities:
The influence of globalization can be easily perceived through the increasing number of
business dealings and the increasing demands of the customers all over the world. Companies
now-a-days want to sell more products that are based on the innovation and technology, they
want to achieve the competitiveness in the market place. Companies today are more
concerned about increasing their revenues and profit margins. The most important impact of
globalization in the businesses is that it creates more opportunities for the businesses
whereby, companies can diversify their products and services according to the needs and
demands of the customers; through this companies can earn more revenues than ever before
which would ultimately result in economic growth of that country. As in globalized
environment companies have different customers with different needs, it creates
opportunities for them to produce different products which allows them to make more
profits. Since globalization creates opportunities for businesses to earn more, the growth of
the countries, in result, would also be flourished.
Following are the measures of the economic growth and the classification of economies:
a) Measures:
Globalization generates opportunities for the countries to increase their economic growth as
the businesses in such countries get expansions. Economic growth is basically the increase in
amount of goods and services produced by a country over a period of time. The economic
growth of a country is usually measured as the percentage change in the Gross domestic
product (GDP) and Gross National Product (GNP). These two measures, if summed up results
in the total amount paid for the goods and services a country produced, but both the
measures are calculated differently. Gross Domestic Product of a country includes the
consumptions, investments, spending, imports and exports etc. Gross National product
includes the products and services that the citizens of that particular country are producing
abroad.
b) Classification of economic growth:
Countries are classified into following three major groups in order to identify their
economic growth:
i. Industrialized Nations
ii. Developing Nations
iii. Less-developed Nations

i. Industrialized nations:
These nations have the economies that have potential for the businesses to grow and to
saturate into the markets. These are the economies which are customer oriented which
means that their main focus is towards meeting the long term needs and wants of
customers. High literacy rate, more usage of technology, higher per capita income and

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higher buying power are the main elements of such nations. United States, Japan, South
Korea, Brazil, Russia and china are some of the examples of industrialized nations.
ii. Less-developed nations:
These nations have extreme poverty, low per capita income, low buying power, low literacy
rates, low standard of living, low usage of technology and limited resources. These are the
nations that do not support businesses due to lack of strong governments, financial
systems and economic systems. These economies are usually based on agriculture and
producing raw material. Most of the less developed countries are there in Africa and Asia.
These nations are also referred to as Least-Developed Countries.
iii. Developing nations:
Developing nations have the economies that have higher per capita income, higher returns
and risks for investments, high standards of living and higher growth opportunities. These
are below the developed nations and above the less developed countries. Some of the
examples of developing countries are Pakistan, Ukraine, Turkey, Chile, Mexico and
Thailand.
4. Challenges of globalization:
a) Ethical business practices:
The most considerable and important challenge out of all challenges that a
Multination Company faces is ethical business practices. Ethical Business Practices
play important role is success and failure of the companies which are operating
globally. The most impact of this challenge is in the areas of labor, production,
environmental stewardship, corruption and regulatory compliance. For example,
Nike’s brand image was impaired with the rumors and reports that it is having low
wage workers and utilizes sweatshops in developing countries.
In the countries whereby, they have weaker rule of law, unethical practices such as
corruption and bribery are more common, although one can cope up with these issues
with the help of national and international laws but sometimes having such unethical
environment forces companies to practice the same things that is why when
companies go global it is huge challenge for them to maintain ethical business
practices.
b) Organizational structure:
Organizational structure is another obstacle for the companies becoming global.
operating in a new geographic region within the same value chain and culture is hard
to do for the companies. Organizations which are becoming global need to invest
more and more and have to develop new strategic business units for controlling
operations while operating in new regions of the world. Organization structures can
be centralized and decentralized, companies have to think logically which of the

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structures can be used and these structures may vary from culture to culture and
country to country.
c) Public relations:
Public image and branding are the most important aspects for the companies
irrespective of either they operate globally or not. Making good public relations within
a new geographic region is a huge challenge for the companies who are operating
globally. To cope up with such issues companies need to have proper insight of the
behaviors and preferences of customers in that particular geographic region.
Companies should efficiently and effectively convey their messages to their customers
to reduce issues while working in a new environment.
d) Leadership:
Effective organizational leadership is an important aspect to make best possible
strategies and planning in a particular region. Organization must have a leader who
can come up with best strategies to get the organization’s goals. It can be a difficult
task for the organizations to attract an organizational leader with all the abilities,
knowledge and skills which are needed to achieve organizational goals and for making
strategies in a particular geographic region.
e) Legal and regulatory structure:
“Every nation has unique laws and regulations governing business. Multinational
Corporations need access to legal expertise to help them understand in-country laws
and comply with applicable regulations. It is important for businesses to understand
the legal and regulatory climate for their industry and type of organization before
entering a new market, so that this information can be factored into the business case
and strategic decisions about where and how to expand globally, as well as strategic
and operational planning to ensure profitability.”
f) Infrastructure:
“Infrastructure includes the basic physical and organizational structures needed for a
society to operate and for an economy to function. It can be generally defined as the
set of interconnected structural elements that provide a framework supporting an
entire structure of development, such as roads, bridges, water supply, sewers,
electrical grids, telecommunications, and so forth. It also includes organizational
structures such as a stable government, property rights, judicial system, banking and
financial systems, and basic social services such as schools and hospitals. A country’s
infrastructure will help determine the ease of doing business within that nation. For
example, a country with poor road conditions and intense traffic may not be the best
place to conduct business that requires goods to be transported from city to city by
land. Poor infrastructure makes it difficult for businesses to operate effectively

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because they have to shoulder additional cost and risk to make up for what the
country’s society does not provide.”
g) Technology:
Technological development of a country has influence over the attractiveness of
investors and businessmen to work in that country, it determines which operations
are possible to be carried out in that particular country or region. While working in
new regions of the world companies may face challenges such as training employees
or workers to work with new machinery ad equipment, poor transportation system
that may cause increase in production and distribution cost, poor communication
facilities and infrastructure and lack of access to technologies that are needed to
perform tasks at daily basis. For example, in a country where there is poor
transportation system it is difficult to do a business in which transportation has a
major role to perform daily activities.
5. Impacts of globalization on today’s Businesses:
a) Competition:
Globalization causes high competition in the market place. The competition can be
associated with price of product, cost of production, technology, product quality,
innovation and differentiation of products. In today’s business environment where
globalization is at its peak, companies are forced to provide high standard goods with
maximum customer satisfaction this would result in gaining more market share than
competitors. Globalization has enabled such competitive environment where every
market player is working hard to outperform its competitors. The businesses which
are producing their products with less cost while offering higher quality are more
likely to capture most of the market share. It can be considered as a positive element
which forces businesses to make the best of best products with higher quality and
provide customers with higher satisfaction. Competition may also have some
disadvantages, but the advantages cancel out those negative effects.
b) Rise in technology:
Businesses now-a-days use lots of technology which is mainly caused by the increase
or rise in the globalization. Many businesses, which are internationally oriented, take
help from technology to attain the opportunities which are present in the market
environment which help them to get more and more market share and to attain
higher values. Technology is one of the important causes that creates competition in
the market and compel the companies to offer more quality goods and services to
their customer in order to survive in the market environment where globalization is
at extreme level. Globalization has increased the use of technology and the speed of
technological transfer. As globalization is increased in today’s businesses every

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business has to adopt this in order to survive in the market. Rise in technology may
causes risk for some of the businesses, the businesses which are investing huge sum
of amount into it need more effective and efficient research and development
management. One of the basic examples of rise in technology is increase in use of E-
commerce in most of the businesses.
c) Employment:
“When businesses become global, they create employment opportunities in the
market. The impact of globalization on employment is a central issue of contemporary
political economy. From the point of view of workers in developed countries, although
globalization is often seen as a threat, increased employment in developing countries
is seen as a major contribution to reducing poverty and meeting the Millennium
Development Goals. However, the impact of globalization on labor markets and the
mechanisms in global economy may lead to job creation. Especially in developing
countries the importance of the relationship between globalization and employment
is increasing. This relationship is surprisingly difficult for many reasons, because
globalization is a multi-faceted phenomenon, and each facet may have different
effects on employment, varying by country, time, industry, policies and the like. It
comes as a part of large array of economic, technical, social, legal and policy changes,
each with interactions and feedbacks, making is difficult to separate the effects of
globalization. In this context, there are a variety of ways in which globalization affects
labor: the most important ones are through increased trade, foreign direct investment
(FDI) and international technology transfer.”
d) Fluctuation in prices:
Globalization creates fluctuation in prices in the market; when becoming global
companies have to produce their products with less cost while offering high quality
and less prices same as their customers are offering to the customers. Demand and
supply of products in global markets have a significant impact on price fluctuations
e) Job insecurity in business:
“In developed countries, the risk of job insecurity is increasing. Globalization has led to
firms outsourcing their jobs to developing countries, which have led to lesser jobs in
developed countries. Outsourcing occurs because businesses want to manufacture
their products at a cheaper rate, which is possible in developing countries such as
India, China where manufacturing costs and wages are lower than highly developed
countries. As mentioned earlier, jobs such as software programmer, accountant etc.
are outsourced to developing countries which has led to a lot of people in the same
profession to lose their jobs.”

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6. Keys to successful globalization:
i. Start with Strategy, not Tactics:
When a business become global it has to think broader since the customers, their
needs and wants, the business environment and customer’s preferences would be
different than that of a domestic region or own country. Businesses have to form long
term strategies and goals rather than short term strategies which are also called
tactics. When one would identify its long term strategies and goals in a global business
environment then the chances of success would be higher.
ii. Understand the Culture:
Understanding the culture while becoming global is a most important element for the
businesses. When one is operating in a geographic region other than his or her own
country they must have a complete insight of the norm, values and beliefs of people
living in that particular geographic region, having insight of the culture may leads the
global businesses to another level of success.
iii. Identify the Competitive Advantage:
Businesses must identify the competitiveness and uniqueness in the products which
they are offering to their customers. The competitive advantage can be less cost of
production and products with lower prices but higher quality, unique and
differentiated products. Competitive advantage help businesses to outperform their
customers and to get maximum market share.

7. Pressures of globalization:
The pressures that the companies have to manage while becoming global are as follows:
i. Global Integration:
Global integration refers to the process of combining differentiated parts into a
standardized whole, it is about maximizing efficiency and lowering costs through large
scale production of standardized goods.
These pressures are driven by the standardization of products that are demanded by
the customers, consumer’s identical needs and increased homogeneity of products.
ii. Local Responsiveness:
Local responsiveness refers to the process of breaking up a standardized whole into
differentiated parts. It includes packaging, product customization, marketing
differences, advertising and price differences.
These pressures are driven by the cultural predisposition- where customers what
products according to their cultures, norms, beliefs and values, nationalism- where
people are more tending to buy the products of their own country rather another’s
country’s products and government policies of the host country.

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8. Strategies for globalization:

a) Global strategy
This strategy refers to the control and centralization of a firm by the corporate office
or headquarter, where the main aim is to reduce the costs. It is used in industries
where the pressure for local responsiveness is low and the pressure for global
integration is high.
b) Transnational Strategy
Transnational strategy is a strategy which allows the companies to produce products
which are according to the customers of that region while achieving the economies of
scale. It is the combination of international and multidomestic strategy. It is the
strategy where the pressures for both local responsiveness and global integration are
high. Unilever is one of the examples of businesses which adopt transnational
strategy.
c) International strategy
It is the strategy whereby the products are produced at the home country and then
and then send to customers in all over the world. In this strategy the value chain is
maintained by the parent company; where the pressures for both local
responsiveness and global integration are low. Nestle is one of the examples of
businesses that adopt international strategy.
d) Multi-domestic Strategy
Multidomestic strategy is where the companies customize their products according
to needs and wants of customers and offer these products in the local markets. This
strategy works well where the pressure for local responsiveness is high and the
pressure for global integration is low.

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9. Options of Arrangements for Global Companies:
The companies while becoming global has the following options for collaborative
arrangement:
i. Licensing:
Licensing is when a company allows another company to use its intangible property
rights such as patents, copyrights and trademarks for a specific period of time and a
specified geographic location, in exchange of some royalties.
ii. Franchising:
Franchising is when a company permits another company to use its trade-mark and
give right to make necessary changings in its assets.
iii. Management contract:
Management contract is also called as outsourcing and it came into existence when a
company transfers its daily basis activities to another company to be done with
exchange of some fee.
iv. Joint ventures:
Joint venture is one of the collaborative arrangements whereby two or more
companies collaborate with each other and one of the companies hold more than 50%
of the project.
v. Equity Alliances:
Equity alliances include mergers and acquisitions in the first one a stronger company
acquire another company which is usually the weaker one and in the later two or more
companies work together by merging all the operations of their companies.
vi. Turnkey Operations:
Turnkey operations are where a company enters into a contract with another
company to use the complete and ready-to-operate facilities. These are mostly done
by the construction companies, consulting companies and industrial companies.

10. Advantages and Disadvantages of globalization:


Advantages:
 Globalization results in improvement and growth of economies globally as firms expand
their businesses across different countries.
 Globalization expands the knowledge of foreign cultures, it helps companies to
understand their culture as these companies have to offer products and services
according to the particular cultures and norm.
 Globalization results in the movement of labor from one place to another. As companies
when become global hire different employees from different regions of the world
according to their skills, abilities and knowledge.

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 Globalization also encourages free trade where there would be no tariffs to be paid by
the companies that are dealing in exports and imports.
 Globalization helps in improving the communication access.
Disadvantages:

 Globalization may not be identified as a good thing for the weaker economies as the
stronger economies are perceived to be influence the weak ones.
 Globalization sometimes causes inequality which means that it makes the developed
economies more strong and richer.
 When globalization occurs, the global brands may weaken the domestic brands and
capture a high market share.
 Globalization can also be a cause of labor drain as while businesses are operating globally
more people are likely to shift from home country to another one.
 Due to globalization some counties may face the problem of loss of culture as
globalization brings culture of another country into it.
 Globalization also causes inflation as when the demands of customers increases the
global brands are likely to increase the prices of products.
11.Conclusion:
Globalization is a new challenge to the business today. Many organizations which want to
expand their businesses and to capture more market have to adopt globalization. In the
current market environment where people are well informed, and they are well defined
about what they need from the producers, companies have to act smartly to get maximum
customers. In increasing technological and innovative environment companies need to
expand their operations by becoming global, companies should make their knowledge
current, they should have proper insight about the market trends, customer’s preferences,
what their competitors are producing and offering to the customers. While operating in a
new geographic region companies need to understand the culture of that particular region.
Since in globalization companies have to do what their competitors are doing to survive in
the market, companies should work-hard to outperform the competitors. Globalization may
cause in price inflation which is considered as the negative impact, so companies should
produce, offer and market products in a way that would not rise such issues. Companies when
becoming global should work in a more efficient an effective manner. Companies while
becoming global, have different options to adopt such as licensing, franchising, mergers,
acquisitions, joint ventures, management contracts and turnkey operations. In todays,
market environment companies need to become global to survive in the market and
becoming global is a huge challenge for these organizations.

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