Benefits and Threats of Globalization to MNCs

Question: Discuss about the Benefits and Threats of Globalization to MNCs Baja Auto Ltd. Answer: Introduction For the purpose of this assignment, Bajaj Auto Ltd has been selected because it is a multinational company from an emerging economy (India). India is one of the largest emerging economies across the globe with an estimated economic growth of 7.9% on an annual basis, making it one of the largest emerging economic powerhouses (Mallet 2016). Bajaj Auto Ltd is among the leading producers and exporters of two wheelers in India. These have been achieved due to the focus that the company has placed on research and development, intensive investment, and the attempt to deliver products that cater for all the segments of the society. Bajaj Auto Ltd is one of the various Indian companies that have been impacted by the emergence of globalization. According to Haller (2016.), globalization is the process of integrating the societies, economy, political, and religious activities across the world. In this regard, Multinational Companies have taken advantage of the opportunities introduced by global ization to expand their production and marketing in order to increase their profit margins. By venturing into new foreign markets, multinational companies have enjoyed expanded markets and other benefits that come a long with globalization. However, this has not been pure bliss because of the numerous disadvantages that are associated with the impacts of globalization. Therefore, it is clear that globalization presents both threats and opportunities for multinational companies. In this regard, this paper is going to examine the threats and opportunities of globalization to decision-makers using Bajaj Auto Ltd as an example. It is going to conclude by discussing some of the important lessons that should be learned by managers from the host and home country interaction. Analysis of the threats and benefits that globalization creates for decision-makers Opportunities of Globalization to MNCs Expanded market share According to Gutierrez, Spencer, and Zhu (2012), one of the major goals of a business organization is to make profits by expanding their sales volumes. However, increasing the sales volume has been a major challenge for many firms. This has been attributed mainly to the saturation of local markets. The issue of the saturation of local markets has been solved by the emergence of globalization, which has enabled MNCs to gain access to global markets through exports or direct investment into foreign countries. As alluded in the introduction, globalization has led to the integration of world economies, and this has made many countries eliminating trade barrier such are trade tariffs and import duties. This has enabled MNCs to enter into foreign markets where they find a readily available market to sell their products and services. Even it originates from India which is an emerging economy, and Bajaj Auto Ltd has enjoyed the benefits of expanded international market both in developed and developing countries across the globe. The two-wheelers produced by this company are used as means of transport to deliver mails, parcels, and food products in developed countries such as the US, UK, and Canada. They are also used for the similar purpose as well as for human transport in developing countries such as Vietnam and all over other countries in the African continent. In addition to this MNCs such as Bajaj are able to supplement their domestic sales with the international sales, further ensuring large profit margins. In this regard, Bajaj Auto Ltd has found a readily available market across the world, thanks to globalization. Reduces marketing costs Globalization has enabled MICs to sell their products at a reduced cost, and thereby, attracting more consumers, and hence, increased sales. According to Patel and Prajapati (2014), business firms that sell global goods and services have the ability to reduce cost through the standardization of given marketing activities. For example, an MNC can produce a commodity for the global market, and then design or package it differently to fit the taste and preferences of the various market segments that it serves. Bajaj Auto Ltd has been able to reduce its cost of production through the production of differentiated designs of two wheelers to fit the requirements of different target markets. There are different types of two wheelers with different designs to cater to consumers of all economic classes, for example, the Baja CT 100 which goes at a price of $470 that targets the lower class from developing countries. There is also the Bajaj RS 200 which goes at $ 1, 860 and that targets consume rs belonging to the high-income economic level (Fifth Gear Ventures Ltd 2017). In line with these aspects, globalization has enabled Bajaj Auto Ltd to reduce its marketing cost by using the same design of two wheelers, however, by introducing slight distinctive features in them according to the preferences and the needs of their different target consumers across the globe. Access lower-cost workers Through globalization, MNCs have been able to gain access to low-cost workers, and this has significantly helped these companies to reduce the cost associated with production. Bajaj Auto Ltd has grabbed this opportunity by establishing wholly owned subsidiary branches in countries that have low-wage. These include developing countries such as Brazil, Indonesia, Vietnam, and other African countries that have cheap labor. This has helped the company to engage in the mass production of two wheelers, whereby a large percentage of these products are consumed locally in the countries in which they are produced, while other are exported into other countries (those with expensive labor) for sales purpose. This strategy has helped Bajaj Auto Ltd to significantly cut its costs of production of two wheelers. Access production inputs and technical expertise Through globalization, MCs have gained access to technical expertise from foreign countries (Atsmon, Kertesz, Vittal 2011). Due to their capacity, multinational companies have been able to attract the most qualified and talented individuals to work for them, and this has played a vital role in their incessant production of goods and the delivery of high-quality services. Bajaj has been able to hire a talented team of engineers to design, develop and manufacture their product, and this has enabled the company to produce high-quality products that meets the needs of the consumers (Daniels, Radebaugh, Sullivan 2011). Customer satisfaction is core to business success. The present day consumers are sensitive to the quality of the products and services that they consume, and hence, they are willing to pay for quality. Globalization also enables MNC s to gain access to vital production inputs in large volumes. Through access to global markets, MNCs have been able to gain access to production inputs that are not available or are costly locally (Cavusgil, Knight, Riesenberger 2012). Bajaj has gained access to raw materials that are vital for the production of the two-wheelers from developed countries like the US and Germany. Due to globalization, the company has partnered with international manufacturers of two wheelers from these two countries, for example, the Horex of Germany, Ducati of Italy and Suzuki of Japan to get important raw materials and engineers to use in their production processes. This has helped in the production of high-quality products across the globe. Threats of globalization to MNCs Due to the ease with which globalization has enabled MNCs to venture into foreign countries, these companies have established their presence in many countries to enjoy the benefits that are associated with it as already discussed in the section above. However, despite the numerous opportunities that are enjoyed by MNCs as a result of globalization, there are several threats that are also associated with globalization to these companies as discussed below. Stiff competition from other multinational companies One of the major threats of globalization to MNCs is the presence of stiff competition and the availability of substitute goods from other multinational companies (Atsmon, Kertesz, Vittal 2011). Bajaj Auto Ltd is facing significant threats of competition and substitute products from other companies. There are several major Multi-national Companies that produce high-quality two wheeler automobiles that have presented stiff competition for this company. At international levels, Bajaj Auto Ltd faces stiff competition from two wheeler manufacturers such as BMW, Ducati, Honda, Suzuki, and Harley Davidson. These companies have ventured into the same foreign markets where Bajaj has also established itself. Their presence is a serious threat to the market share of Bajaj two wheelers because they offer similar products. Companies such as Ducati and BMW offer high-quality two wheeler products that are of high-quality than that offered by Bajaj. This is a major threat to the performance of Baj aj as a company in the global markets because the customers of the current century prefer to buy high-quality products regardless of their prices (Banutu-Gomez 2014). Availability of substitute products that reduces the market share In addition to the stiff competition based on the quality of the two wheelers that are offered by these companies, Bajaj is also under the threat of the readily available substitute goods that are offered by other multinational companies that manufacture two wheeler auto-mobiles. According to Talaja (2012), the presence of readily available substitute products reduces the market share. In the global market, there are several two-wheelers that are offered at very low prices as compared to those that are offered by Bajaj Auto Ltd. This is a major threat to the existence and the survival of Bajaj Auto Ltd in developing countries with the majority of middle or low class because the majority of the consumers in these markets will prefer cheaper two wheelers. For example, companies such as Suzuki and Honda offer their products at lower prices in the global markets. This has contributed to the reduced market share of Bajaj Auto, and this has a negatively affected Bajaj financially. Cultural and leadership conflicts Due to the impacts of globalization, multinational companies are required to hire employees from different countries in order to achieve workplace diversity, which is vital for high-productivity (Niu Wang 2016). This has brought employees from different cultural backgrounds in the same workplace. This has resulted in various workplace conflicts based on employees and their colleagues, as well as between employees and the management, a phenomenon that has had significant negative impacts on organizational performance. People from different cultural background have different preferred methods of work, for example, there are those employees who embrace teamwork while there are employees who prefer to work individually. Including individualistic employees into a team results into conflicts and poor teamwork, hence, reduced productivity (Richardson West 2010). Similarly, employees who embrace teamwork cannot be productive on their own. The Cultural difference also determines the preferr ed style of leadership within the organization. For example, some employees prefer transformational forms of leadership while some prefer employees prefer democratic or autocratic leadership. The performance of Bajaj Auto Ltd is affected by the difference in culture and preferred leadership styles in the various foreign countries that the company operates in. The major lessons that can be learned by managers of international businesses in the interaction between the host and home country differences to ensure success Taking into consideration cultural difference between home and host country According to Banutu-Gomez (2014), understanding the cultural differences between the home and the host country is a key lesson that international business managers should learn to achieve success. There are several cultural factors that an international manager should understand, for example, the preferred style of leadership in the host country. Leadership inspires employees to achieve what they would never have achieved under normal circumstances. Therefore, it is mandatory that appropriate style of leadership should be implemented in the host country. This will enable the international manager to implement appropriate leadership styles that will ensure employee engagement and high performance (Truss, Shantz, Soane, Alfes, Delbridge 2013). The relevant style of leadership in the host country will also function to appeal to the target consumers; hence, it will attract potential buyers leading to an increased sales volume. In this regard, Bajaj has been keen on learning the various cultural information regarding countries that it ventures into. This has helped Bajaj to identify the different leadership styles of various countries and implementing them accordingly in their subsidiaries to ensure business success. Customers tastes and preferences Consumers are the most important stakeholders in among MNCs. This is because they are the target of the products; hence, the good or service being offered should meet their expectations of consumers in the host country (Van Den Born Peltokorpi 2010). In this regard, international managers of MNCs should identify ways in which to develop their products to fit the taste and preferences of their target consumers. In line with these aspects, Bajaj Auto Ltd has differentiated its products to fit various market segments, for example, they manufacture two-wheelers for different purposes. They have two wheelers that are used for sports and transport purposes. They also manufacture two-wheelers for high and low-income level of consumers. In this way, the company is able to meet the expectation of different class of consumers, hence, successful business. Training and monitoring of employees Drawing from the interplay between the host and home country, international managers should learn the importance of training and monitoring the employees in the host country according to the work ethics and standards of the involved MNC (Peng 2011). Training helps to equip employees with the relevant skills and knowledge that helps them to perform in the workplace, hence, exceptional performance in the market. The training and monitoring of employees in the host countries where Bajaj has ventured have been instrumental in the companys high performance across the globe. This has been successful in its venture in other emerging economies in countries in Asia and Africa, where the technical know-how may be wanting. As a result, this has helped the subsidiary branches to produce high-quality two wheelers that meet the expectation of consumers in the host country. Observation of the rules and regulations of the host country The successful business depends on the observation of the rules and regulations that govern business activities within the host country (Polesello, Amal, Hoeltgebaum 2013). On this basis, international managers should be keen to observe business registration requirements, licensing requirements, and tax requirements to ensure smooth operations within the host country. Bajaj complies with all the legal requirements of operating a business in the host countries that it has ventured in, and this has been a major factor in the success of Bajaj. Conclusion In summary, globalization has led to the proliferation of multinational companies across the globe. Many multinational companies have benefited from the opportunities that come a long with globalization. Companies from emerging economies such Bajaj Auto Ltd have enjoyed expanded markets that have enabled it to increase its sales volume. Globalization has enabled MNCs such as Bajaj to gain access to expertise and technical knowledge that enables it to produce high-quality goods. Globalization also helps MNCs to gain access to inputs and resources of production that are not available in the home country. Despite, there are significant challenges such as stiff competition from other firms that reduces their market share. Globalization has also made available substitutes goods that affect the performance of multinational companies in foreign markets. The interplay between home and host companies bring about significant lessons for international managers to ensure successful businesses. T he interplay helps managers to learn the cultural differences between home and host countries, and this enables the managers to remain sensitive to the cultural values of the host countries. The interplay also enables managers to meet the taste and preferences of consumers in host countries. Finally, the also help managers to observe the legal requirements between the host and home countries, which facilitates smooth and successful business operations. Bibliography Atsmon, Y., Kertesz, A. Vittal, I., 2011, Is your emerging-market strategy local enough? McKinsey Company. Banutu-Gomez, M. B. 2014, The role of culture, language, and ethics in global business, European Scientific Journal, special edition, pp. 231-242. Cavusgil, S. T., Knight, G. Riesenberger, J. R. 2012, International business, The New Realities, Pearson Education Inc, Upper Saddle River, NJ. Daniels, J. D., Radebaugh, L. H., Sullivan, D. P. 2011, International Business Environments and Operations (13th Ed.). Prentice Hall, Upper Saddle River, NJ. Fifth Gear Ventures Ltd., 2017. Bajaj Bikes. Cars and bikes, [Online] 2017. Available at: https://www.carandbike.com/bajaj-bikes Gutierrez, B., Spencer. S. M. and Zhu, G. 2012, Thinking globally, leading locally: Chinese, Indian, and Western leadership, Cross Cultural Management, vol. 19, no. 1, pp. 67-86. Haller, A. P. 2016, Globalisation, multinational companies and emerging markets, Ecoforum, vol. 5, no. 1, pp. 9-14. Mallet, V., 2016, Faster growing India confirmed as most dynamic emerging market. Financial Times Online, [Online] 31 May. Available at: https://www.ft.com/content/06b63142- 2748-11e6-8ba3-cdd781d02d89 [Accessed 22 March 2017]. Niu, Y. Wang, C. L. 2016. Revised Unique Selling Proposition: Scale Development, Validation, and Application, Journal of promotion management, vol. 22, vol. 6, pp. 874- 896. Patel M. K., Prajapati, K. D. 2014, PEST analysis of two wheeler automobile company, Asian journal of research in business and economics vol. 4, no. 4, pp. 109-118. Peng, M. W. 2011, Global Business. (2nd Ed.). South-Western College Pub, Ohio, IL. Polesello, D., Amal, M. Hoeltgebaum, M. 2013. Determinants of International Entry Mode Choice: A Case Study of a Brazilian Multinational, BASE Revista de Administraoe Contabilidade da Unisinos, vol. 10, no. 2, pp. 181-194. Richardson, J. West, M.A. 2010, Engaged work teams in Albrecht, S.L. (Ed.), in Handbook of Employee Engagement: Perspectives, Issues, Research and Practice, Edward Elgar Publishers, Cheltenham, pp. 323-340. Talaja, A., 2012, Testing VRIN framework: resource value and rareness as sources of competitive advantage and above average performance, Management, vol. 17, no. 2, pp. 51-64. Truss, C., Shantz A., Soane, E., Alfes, K. Delbridge, R. 2013, Employee engagement, organisational performance and individual well-being: exploring the evidence, developing the theory. The International Journal of Human Resource Management, vol. 24, no. 14, pp. 2657-2669. Van Den Born, F., Peltokorpi, V. 2010, Language Policies and Communication in multinational companies, Journal of Business Communication, vol. 47, no. 2, pp. 97-118.