The Business Issues in the Contemporary World Assignment is mainly focused on the challenges of the globalisation by the business houses while expanding their business operations in the overseas market. The companies are expanding their global operations due to the advantages like economy of scale, easy availability of resources, different taxation system, and changes in the taste and preference of the customers, technological developments, growing economy of the emerging markets like China, India etc. Overall the companies can get the larger consumer base which can increase the market share and the turnover of the company.
The reason behind the selection of this topic “Global Challenge” is due to the rising concern of the organisations that are planning to go global or have implemented their global operations. The challenges like the cultural differences, non trade barriers, localisation, meeting the standard while customising the product or service, fluctuation of the currency are influencing the business of the organisation to greater extent.
The Business Issues in the Contemporary World Assignment will highlight the factors driving the organisations to go global, possible challenges faced by the organisation for going global. A case study is being taken based on the global challenges faced by E-bay in China which drives them to close their business, inspection will be done to find the reasons for their failure based on the global challenges, solutions they have taken to improve their business situation and other measures will be highlighted that can improve the situation of E-bay in China. Last part of the report will show a contrast based on the successful global brand Mc Donald’s and certain measures they have adopted face the challenges. Overall the report will give a glimpse of the global challenges and measures that can improve the situation
Global challenges is one of the important issue that the organizations are facing or will face in order to expand their business in the overseas market due to the rise of the globalization and the economic structure of the countries. “Globalisation”implies the process of integration between the countries and their culture with each other. Cross border relationship is the essence of globalisation. The business houses are expanding their market in the overseas countries in order to attract more people and to achieve the economies of the scale (Westerfield, 2014). Moving global and connecting all the customers are becoming the major business objectives. Free movement of the products or service across the borders with the globalisation ensures peace and harmony among the countries. For instance brands of UK and USA are targeting the emerging markets in order to achieve the increasing growth and opportunities like cheap and competent labour, huge population etc which are making the organisations global. The organisations like World Trade Organisation are also playing an important role for maximising the international trade and also aim to reduce the barriers of the business.
Contribution of the factors influencing the businesses to go GLOBAL
The factors that are responsible to influence the business houses to move global are as follows:
- Trade barriers are getting reduced due to the initiatives taken by the United Nation in the form of the General Agreement on Tariffs and Trade (GATT). This agreement implies that the members have to follow the unified tax structure or quotas for enhancing the international trade.
- Rapid advancement in the technology improves the communication which gives advantage to the business houses to expand their market and to attend the customers effectively. More than half of the population in the BRIC countries are using the internet and for which the application of the social media is increasing which are giving opportunities to the organisations on the ground of promotion and feedback collection.
- Trading blocs are increasing between the countries which abolish the non tariff quotas for the goods which are influencing the business house to expand their market or focus to the export activities.
- Multinational companies are growing rapidly due to the huge opportunities relating to the larger customers base, cheap availability of the resources, economies of scale due to the different taxation structure etc. The human resources in the emerging countries like China, India, Philippines are enough competent and skilled and thus the companies of UK and USA are outsourcing their work in this countries in a low remuneration. (Bank, 2010).
Challenges faced by the businesses for going GLOBAL
Apart from the benefits and the advantages there are major challenges facing by the companies for going global. These challenges are needed to be identified and analysed in order to overcome the challenges effectively. The challenges that the companies are facing are as follows:
- Consideration of the taste and preference of the people in the concerned country are very much different from other countries. In this respect the organisation have to understand the taste and preference and tailor their product as per the local taste and preference. Thus the standardisationis the major issues faced by the companies (Hopkins, 2011). The below picture can help to understand process that the product is being developed and then the localisation factor influence the design of the product to meet the taste and preference of the concerned market.
- Non trade barriers like the trade quotas, import duties, embargo used to influence the business decision of an organisation. Suppose certain restrictions of exporting raw sugar in India towards UK and USA, restriction of the exporting bananas of Philippines to USA and Australia used to affect the globalisation and the business. Apart from that embargo which is the prohibition in the trade due to the negative political relation are also the challenges. For example, US have restricted the trade with Cuba around many years.( Pfaller, 2010)
- Cultural differences are critical impact of the global environment. The culture of the people in one country is totally different in another and for that the organisations that have failed to understand this factor have faced significant loses. For example, we all know Kellogg’s is a popular brand in the ready food segment but it has failed in India when they have launched their corn flakes. After a research they have found that Indians used to prefer hot milk rather than the cold milk and the cornflakes by Kellogg’s are suitable for the cold milk. So consuming cold milk in the western countries is different than in India. There are also the incidences of success. For instance Mc Donald’s have excluded their beef items from the dishes of India and in some part of the countries they are only providing the meals for the vegetarians which are triggering their sales growth in the country India.
- One of the major challenges that the business houses are facing is the fluctuation of the currency. The companies in Africa are facing a significant crisis due to the high operational cost. The downward trend in the currency of Africa in comparing to US dollars is increasing the cost due to the import of the machineries and technology. In this case the organisations are suffering in respect to the global perspective. (Jordaan, 2010)
- It is true that the companies are going global in order to access the markets or new customer segments which will give benefits to the business. But the organisations are facing challenges on the ground like flexibility in the overseas market. For attracting the market, allocating the resources for meeting the consumer’s requirement and also to design the channels for the business brings challenges to the business. Failing to meet the requirements will bring loss for the organisations.
Case Study on Global Challenge
E-bay is an US based organisation catering in the online shopping segment having nearly around 157 million users by adopting E-business models of Business to Consumers and Consumers to Business. The head-quarter of the company is in California and the major product portfolio is the electronic gadgets, accessories, beauty products, furniture etc. The management of E-bay has decided to expand their market in China due to witness the high growth that is around 7.7%. But the company has failed in China not because of product quality or awareness of the online buying practices but for the localisation. The loss was so high that the management of E-bay has decided to close their website and the business in China.
Major Findings for the Loss
The loss which was incurred by E-bay in China is due to the global challenges which they have failed to understand before starting their business operation in China. The reasons that have come up for the failure of E-bay in china are as follows:
- Localisation is the main issue that they have neglected in China. The domestic online company Alibaba has beaten the E-bay on this ground. Almost 80% of the market share belongs to the Alibaba in China. The localisation is the phenomenon which attracts the people of the country towards the products by attaching the local sentiments or culture they are habituated. In this circumstances, Alibaba has opened a platform named “Taobao” which is the Chinese term specifying the treasure. This has attracted the Chinese people by creating the interest and excitement among them. The website of Alibaba is in Chinese and e-bay has not implemented any option to change the language from English to China. This is also one of the motives behind the localisation factors. (Hope, 2015).
- The colour and the design that the Alibaba has implemented is Orange and Red which are the common colours in China as they have the historical value. The red colour is the symbol of the communism and this is evenly attached with the sentiments of the people in China. In this respect E-bay has failed to understand the significance of the culture which is one of the global challenges.
- The tie ups of E-bay for the payment facilities is restricted only to Pay Pal, credit card and debit card of some banks which are very few. But on the other side the domestic company Alibaba has merged with all the banks of China for establishing the factors of convenience among the people. So the global challenge of selecting and designing the intermediaries is there. Along with that e-bay was charging high price to the local sellers or vendors for displaying their products in their website. This has de-motivated the local sellers to give their advertisement and maximum of the sellers have withdrawn their advertisements from their websites.
Measures taken by E-bay
After carefully analysing the situation E-bay has came up with measures to overcome the loss. The measures include:
- E-bay has tied up with the local Chinese brand Xiu.com in order to attract the Chinese people towards them. (BBC, 2012).
- Secondly e-bay has changed their pricing policy for the business parties like the local sellers or vendors while displaying their products in their websites.
- Customisation or localisation is the main factor that the E-bay has to take care by implementing the Chinese touch in their website by changing the language options to Chinese as 99% of the people used to speak in Chinese.
- Strategic alliance is needed to be considered in China. The local organisation can give important information, market insight and other demographic factors which will be necessary for E-bay to formulate their business strategy. (Mussa, 2013)
- E-bay must consider the reach and availability factor by considering all the banks and payment modes to establish the convenience in the online shopping of e-bay.
- Sponsorships in the major events like badminton can help to draw the attention of the people of China which will influence their purchase
- Sellers must be given extra facilities like sound return on their products which will attract more sellers for their websites. More choices will attract the customers towards their business
Contrasting with Mac Donald’s
Mac Donald’s is one of the largest fast food chains in the world and it also a US based company operating across the 119 countries with 36, 535 outlets across the globe. So the business of Mac Donald’s is also global and thus the challenges will also be there. But they have successfully faced the challenge and increase their global sales around 5% and the consolidated income has also increase around 7% in the last quarter of 2015. The reason behind the success is due to the identification of the global challenges and accordingly undertaking the proactive measures to meet the challenges. The aspects they have considered are as follows:
- The tag line of Mc Donald’s is “Global, but local”. In this tagline they are defining the fact that being a multinational company they are offering the product based on the local taste with the standard quality that is associated with a global reputed brand. So they have understood the localisation factor and implemented their strategy based on the standardisation which becomes acceptable for the overseas market. (Phillips, 2012).
- Balancing between the products are also the effective steps adopted by Mc Donald’s in competing the global challenge. Along with the old menus like Big Mac or Chicken Mc Nuggets they have also develop new product lines in coffee and certain healthier items which are attracting more customers in the overseas market.
- Sponsorships to the college events, becoming the media partners in many countries help the people to consider the brand Mc Donald’s during the purchase.
- In order to meet the cultural challenges Mc Donald’s consider the culture variable during the strategy implementation. For example in India they have restricted the beef and the pork items from the menu. In some state of India they are also providing vegetarian menu. Apart from India Mc Donald’s used to sell beers in their outlets. In this way they have understand the culture of the particular country and places their product in the mind of the customers strongly.
- Mc Donald’s has given their emphasis to the franchising system to support the globalisation. Franchisees are been given rewards, training opportunities based on their overall performance. In this way Mc Donald’s is retaining their control over the franchisees and also maintaining their strong brand image globally.
In this Business Issues in the Contemporary World Assignment we can get a clear picture of the globalisation and its challenges towards its business. Globalisation is the mechanism which integrates the culture, social factors of one country to another. The rise of the Multi-national companies is the examples of it. The companies are going global due to the advantages like economy of scale, easy availability of resources, different taxation system, changes in the taste and preference of the customers, technological developments etc. Overall the companies can get the large consumer market which can increase the market share and the turnover of the company. But with that advantages there are several challenges which ate companies are facing like the different culture, different taste and preference, localisation factor, meeting the original standard by customising the product, fluctuation of the currency, economic slowdown of the countries etc. In this report we have observed the failure of E-bay in China due to the global challenges and the success of the Mc Donald’s while identifying the challenges at initial level. Considering the challenges and undertaking the measures in a proactive way can only help the organisation in facing the global challenges.
Bank., D. (2010). Globalisation and Sustainable Development. UNEP
BBC. (2012). eBay targets growth in China with a new partnership. [Online] Available: http://www.bbc.com/news/business-20307571, Accessed as on 23.6.2016.
Hope., K. (2015). The challenges of going global. [Online] Available: http://www.bbc.com/news/business-33224596, Accessed as on 23.6.2016.
Hopkins., A. (2011). Globalisation in World History. Random House.