Archives for posts with tag: Globalization

by Merlin Hernandez

Strategic objectives clearly enunciate what an organization wants to accomplish within a given time-frame, usually the financial year. The strategic plan will lay out the pathways and processes to achievement. Defining the organizational culture as an important element in developing ways to direct the business strategy is often overlooked. The beliefs, attitudes, and values that permeate the organization will ultimately determine the quality of relationships among employees and between employees and outside stakeholders. Good employee morale, exemplary customer service, and supplier support will flow from shared beliefs and values among leaders, managers and employees about the importance of collaborative relationships to business goals.

Workforce size, skills mix, and job functions are key areas of planning, and would include standards for productive efficiencies, performance standards, and benchmarks. Selection for an optimal match of skills to organizational needs may be achieved through any combination of cognitive tests, work samples, situational tests, personality inventories, background checks, or follow up interviews. Performance is evaluated for impact on stated objectives in terms of results, cost-efficiency, value to the strategic direction, and best practices in the industry.

In many instances, however, staffing is a feature of matching skills and experience to job requirements with little emphasis on strategic fit to the corporate vision as articulated by the culture of the organization. But employee recruiting and selection are critical components to strategic management as businesses need to identify and hire the people most qualified to execute their plans. An appropriate selection method is where there is an optimal match of skills to the job but just as important is a personality and character fit. An employee who is a good cultural fit works well within existing organizational values.

The organizational culture refers to the general consensus about goals, and pathways to achieve them within the context of the environment in which the organization exists. It may be seen as an amalgam of differentiated perspectives with the corporate will to establish harmony. But organizations are living, breathing organisms, more especially so in an era of global interactions. Ambiguity is therefore inevitable and pervasive, change is constant, and consistencies are problematic. Underlying this is the understanding that relevance is often subject to interpretation and ambiguity. In order to attain clarity of purpose, the norming factor might be to channel ambiguity outside of the core values of the organization through consensus i.e. to develop a consensual matrix of attitudes and beliefs that serve as a common motivational base for members.

In a culture of diversity, this has strong significance as each perspective tends to be well-defined and finding consensus becomes a real challenge. Moreover, consensus tends to be a feature of shifting paradigms. This might be somewhat mitigated by a structural overlay that imposes some kind of stability. The organizational structure is thus an outgrowth of the organizational culture and is really the hybridization of perspectives harnessed for operational efficiency. The structure is then the engine through which work is coordinated by methods that include lines of authority, span of control, areas of autonomy, specialization, work teams, cross-functional channels etc.

Furthermore, there needs to be the recognition that organizational culture is a fluid concept and that structural change should always remain a strategic option. Globalization has forced many companies to recognize that what goes on in Tokyo, Dubai, Beijing, or London affects currency exchanges, the cost of raw materials and energy, competitiveness, and profit potential. They are thus compelled to do business with one eye on global changes while utilizing different skill sets in order to maintain competitive edge. Holding on to old ways of doing business, or to an organizational culture that is not responsive to these changes would prove detrimental.

Business strategies for goal achievement will then need to emanate from both pragmatic and contextual considerations and all the elements and processes to successful goal attainment must be aligned. Staffing decisions is one of the key elements to strategic alignment.  The people who will execute strategic plans must fall within the person-environment fit to the corporate vision in order to maintain coherence with its structures.

A major issue is that the recruiting function is not seen as strategic and HR is not typically invited to contribute to business strategy. But recruiting the right candidate to meet strategic goals needs a keen understanding of corporate goals and priorities. A people strategy is an integral part of overall strategy. It synthesizes corporate values with core competencies to create a performance culture where financial, operational and people assets converge to achieve corporate goals. A stronger argument for staffing fit would be that staffing should be the bridge that spans culture, structure and strategy.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. For more information on this topic, please send enquiries to businesssolutions1168@gmail.com

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by Merlin Hernandez

 

Emerging business practices among global partners often attempt to superimpose alien cultural values and practices on local standards and traditions. There is often the assumption by western societies that pathways to development in less-developed economies involve the adoption of western models, policies, and similar projects. It is an ethnocentric view that applies western-biased value judgments to foreign cultural traditions and indigenous growth models.

This presents ethical dilemmas that arise in the tradeoff between economic growth and political self-determination. Large multinationals have long taken advantage of the growth potential of so-called emerging markets through cheap labor for manufacturing and/or indigenous micro distribution networks that have intimate knowledge of localized channels. But little consideration is given to the value of these communities to the corporations’ cost efficiencies and distribution networks i.e. host economies are vital components to increased profits but not sufficiently valued to warrant investment in their socio-economic condition.

Traditional economic measures of societal development (GNP, GDP) have come under criticism for their failure to fully accommodate quality of life (QOL) factors to real development. This has resulted in the development of social indicators which are slowly infusing measurements for ethical business practices into the mix, particularly in a cross-cultural context. Multinational corporations may be ethically bound to participate more directly in the development of host economies by seeking to engage governments in a dialogue on how they might improve the lives of those who will comprise the labor force or provide ancillary services.

Current globalization practices are not geared towards the macroeconomic changes that empower the world’s poorer people. These relationships do not support better working conditions, improved wage structures, easier access to education, nutrition or health care. It is a business model that remains essentially one-sided with profits funneled back to the parent company. So while growth is generated in the poorer economy, ownership still rests with the developed world and the populations of host nations do not benefit from the long term advantages of their productivity.

Economic colonialism results from the wanton imposition of business models and policies with a profound profit motive that serves to enrich only the major corporations operating in these less-developed economies.  Global businesses have used these localized systems with little regard for the QOL considerations of their micro partners. It gives an appreciation of the Chinese model for global integration which has a clear focus on China’s needs in the equation with a web of regulations and allowable practices designed to support the growth of indigenous Chinese businesses.

A more ethical approach on the part of multinationals would involve the building of meaningful partnerships through the recognition of the developmental needs of the local economy. Corporate proactivity may take the form of micro entrepreneurship schemes through facilitating uncollaterized micro credit for small factories and micro distributors as well as businesses like bakeries, laundermats, groceries, drug stores, feed stores, agribusiness – ventures that will grow with the new job opportunities and higher standard of living of small towns and villages.

Responsible and ethical marketing practices would then view host economies not merely as emerging markets – a passive construct – but as emerging participants in the global business environment with the capacity to be producers as well as consumers. Partnership with government agencies can see new schools and health centers to more efficiently serve the needs of the community.  Community micro distribution channels that benefit the market penetration objectives of the multinational partner will see higher living standards translate into higher sales volumes. It would indeed be a win-win all around – for producer, intermediary, and consumer.

Global expansion will then be governed by the need for large western corporations to be instrumental in improving living standards, and initiating social enterprise as well as inclusive capitalism projects. This would help to develop local expertise and small businesses, and facilitate business training and access to micro credit that will support economic growth and social empowerment, the building blocks of self-determination.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. For more information on this and other topics, please send enquiries to businesssolutions1168@gmail.com

by Merlin Hernandez

 

Companies make the decision to enter the global arena when forces in the domestic trade threaten profit margins and some overseas location presents opportunities for higher profits.  The company may need to reduce costs, expand its customer base, or wants to spread its competitive risk and reduce its dependency on a single market. By going international many companies have sourced cheaper raw materials, reduced their labor costs, and established centroid and logistic efficiencies that have exponentially increased profit margins. In finding an overseas market with needs that match its product mix with limited adaptability and similar client profiles, a business might hedge its risk and increase returns.

Some of the most common assumptions made by US businesses seeking to enter an international market, and issues that have proven problematic, are that conditions of operation and the rights and privileges enjoyed domestically would apply. But different social, cultural, economic, legal, and political systems often characterize the unfamiliar territory encountered, and the customer profile or manufacturing conditions can very different from the domestic environment. In doing business overseas, differences in language, religion, ideology, living standards and even acceptable attire may be so divergent from what is known as to necessitate a period of cultural immersion and sensitivity training in the “SLEPT” factors before employees are sent abroad. SLEPT is an acronym for the socio-cultural, legal,economic, political and technological differences in the new workspace.

An understanding of the proposed venture in terms of lifestyle options, business culture, regulatory climate especially with regard to foreign investment and property ownership, profit repatriation, as well as tax regimes, is necessary before entry. Issues of intellectual property protection, grey markets, and level of crime are also important considerations in overseas manufacturing. A company must also possess the management expertise to do business in an international market, the assurance of compatible currency usage and financial flows, and stable exchange rates that are tied to international currency markets.

Many overseas markets have regulatory and cultural climates that are vastly different from the way business operates in the US. US companies would be subject to the laws and regulations and cultural norms of host countries as well as whatever special arrangements or treaties are established. Those arrangements are usually a feature of some kind of compromise between the business practices of the host country and the US. Before entering an overseas market, it is important for US companies to have an understanding of the environments and business protocols of these countries and operate their business in compliance with both formal and informal practices. Google learned that the hard way in China and was forced to step back and re-strategize before re-entry, losing momentum and potential revenue in the process.

There may be various technical and administrative regulations that apply to goods entering a foreign country – legal requirements regarding the technical specifications of a product may mean changes made to the product before it meets the import standards of an overseas market. The same may apply to goods manufactured abroad and being imported into the US for domestic distribution. Businesses also need to factor dual taxation, ground transportation, shipping, and warehousing. Goods (raw material, finished product) entering or exiting  a foreign country are subject to the added costs of customs control and import duties (where applicable) and  there are further complexities associated with payment and foreign exchange, transportation logistics, distribution, and insurance.  The role of documentation and good communication assumes added importance to prevent misunderstanding and costly litigation. There is generally more extensive use of the fax and e-mail than the telephone because of different time zones and the challenges of different languages. All of these issues in addition to fluctuating exchange rates and exchange control regulations can increase costs and affect profit projections. 

New market entry involves substantial resource expenditure that factors market needs, product, geography, income and population demographics, political, and economic issues among other things, and may require unconventional marketing and product development options in response to cultural differentials. Marketing programs depend on the type of entry option chosen, the degree of product standardization or adaptation indicated, familiar modes of communication, and efficient distribution channels suited to the market. Strategies will need to recognize unique consumer behavior and expectations in the new market, level of brand development needs, competition, and the political/legal environment. In short, cultural differences and target market within the culture determine the kind of marketing program to be applied. Setting up operations in an overseas territory or outsourcing manufacturing can face even greater hurdles. 

Operating internationally can be as complex as it is rewarding and it demands the management and technical expertise of international business professionals. It is a decision that requires great investment of time and resources to gain the desired competitive advantage which may be obtained through one or a combination of several options: 

• Direct Investment – Setting up production facilities in the new market which may  bring competitive and regulatory advantages in labor and material costs,  taxation, pricing, and market penetration.

• Joint Ventures – Establishing a partnership with a local firm that will offer similar  benefits as well as immediate expertise on the business climate.

• Licensing – Selling the right to produce and market the company’s product(s) in the new market according to specifications.

• Direct Exporting – Goods produced in the home market and exported directly to retailers or large clients like hotels.

• Indirect Exporting – Finished goods exported to intermediaries/distributors and dealers for re-sale.

• The E-commerce Option – Direct marketing using country-specific content and  

services via the Internet.

 

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Reversal of Globalization

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by Merlin Hernandez

There are several trends which are certainly slowing down, if not reversing, the rapid pace of globalization. There is evidence of protectionism, nationalist sentiments and renewed economic regulations as a response to the recent economic crisis as well as other risks involved in operating in a globalised world. Acting globally has become the norm for most companies and there are benefits to be derived from a global reach. When faced with some of the risks associated with a globalised economy, however, government and companies are increasingly reverting to a more nationalistic and protectionist stance.

The recent economic crisis has certainly heightened the strength of some of anti-globalization trends as we see moves toward insourcing, more vigilant tax regimes, and tighter immigration oversight. While these types of reactions are unlikely to reverse globalization, they may well slow its development and can lead to more uneven development for the smaller, more vulnerable economies. Globalization has built deeply integrated connections between societies and economies that will not be broken easily and in many ways has become a defining and permanent feature of world economic relationships.

Attempts to temper economic and political fallout from global integration can roll back the gains of developing economies through job losses, reduced disposable incomes and spending power, lower GDP and economic stature – all of which will negatively impact the more vulnerable economic partners. As less developed economies shrink and people seek jobs and opportunities beyond their home ground, issues of immigration, national security, and strained social infrastructure become concerns of larger metropolitan economies.

Resurgence of Nationalism

As the global economy shrinks, economic nationalism is emerging as attractive to US and EU governments and business. But a globalized economy does not have to mean total integration with the world economy. The key will be strategic integration with the international economy as a factor of national planning in ways that seek to balance two critical factors – immigration and capital flows.

Recent nationalist policies have affected migration flows which can place additional strain on developing countries in the fight against unemployment. On the one hand there is the risk of a significant shift of much needed expertise away from developing countries to more established economies. Increasing unemployment, reduced entrepreneurship and expertise as well as lower spending power as a result of the new wave of protectionism by larger economies will exacerbate economic constriction in the developing world. Further unbalance in the world economy can have a negative effect on political stability and security interests. An increased demand for aid and crisis intervention can be expected.

Many developed countries are already restricting the supply of visas, except for the highest skills, and reducing immigration as a whole, which is a critical aspect of globalization. There is also the possibility that an overreaction in restricting migration (technical experts, migrant workers) may in fact lead to a further slowing of domestic growth in countries like the US, as well as a reversal of this element of the globalization process.

Monetary Rationalization

Following 9/11, nationalism also became the driver that threatened the flow of global capital. It is not new for global economic contraction to restrict capital mobility. But the historical effects of such policy on global savings and investment balances in the world economy would indicate a serious look at alternative strategies. The single currency idea which has been forwarded at different points in the debate might be revisited. Even with the dialing back of the globalization thrust, national currencies and global markets do make strange bedfellows. A multinational currency is worth consideration.

The US dollar is not only a national currency, it has become the primary international reserve and vehicle currency. With rising economic nationalism, capital management within the national interests of each economy would tend to lean toward more short term capital movements during periods of economic instability. But that does not factor depreciation that could drive capital out of individual currencies. Of course an appreciation of a particular currency will conversely attract capital into those assets. It is a scenario that may be characterized by wide swings in exchange rates which can only compound transnational financial instability. It does make the case for the need to operate under the umbrella of an internationally agreed financial framework to mitigate further global financial fallout.

Faced with these barriers and growing resistance to globalization trends at home, some multinational corporations are rethinking their outsourcing and offshoring strategies, giving more weight to nationalist reputation along with political and transport risks associated with widely dispersed supply chains. Furthermore, the current period of crisis and indebtedness in rich countries, along with rising reserves and assets in sovereign reserve funds from both developed and emerging economies have changed the nature of global investment supply and demand. Emerging financial players, such as China, now have the opportunity to buy global assets, more specifically assets in developed countries. These relationships will not be easily reversed. It all translates into globalization being here to stay but requires a strategy for global economic and monetary rationalization.

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by Merlin Hernandez

Small businesses typically develop their risk profiles from past experience and management judgment. But current economic challenges would indicate the need to look beyond what is known for their long term survival. Smaller enterprises are increasingly finding lucrative opportunities overseas. Size and capitalization are no longer impediments to operating globally as information technologies have so reduced time-cost considerations as to afford small and medium enterprises (SMEs) entry to doing business internationally.

The globalized environment and its increased interdependence, however, has funneled a rise in the sources and speed of risk transmission in vital areas such as financial markets, energy, internet, and logistics to require an altered mind set in assessing risk. For example a distant earthquake or typhoon that causes internet disruption or extensive damage to port facilities can cause significant rupture to the supply chain or short term market potential. Additionally, the effect of the global financial crisis on capital markets, and the new global politics of debt and its impact on economic growth, taxation, credit markets, regulatory changes, and political stability bring greater uncertainty into the global business and investment climate.

In spite of what has been described as anti-globalization sentiments, SMEs are still finding that globalizing operations is worth the risks to reduce costs, improve efficiencies, and increase profits. Even for SMEs that choose not to ‘go global’ these risks may still affect their operational efficiencies. A well-structured global strategy can offer better supply chain management, opportunities to exploit overseas market niches, or centroid manufacturing advantages in order to compete more effectively. But in the dynamic world of contemporary business, new types of risks are always immanent, and firms need a risk management protocol that constantly scans the environment for new threats. This makes risk identification as a feature of historical data analysis limited in its ability to mitigate challenges in an ever-changing landscape.

Risk management plans also fall short when they are siloed within the business life cycle, phase, project, or unit in an approach that strategizes for causes and their direct effects. Failure derives from attempts to minimize the effects of those causes without accommodating the full long term strategic perspective, changes in the operating environment or new opportunities for competitive advantage that might arise out of those risks.

Since business activities remain organic and interrelated for long term efficiencies, risk management should take an aggregated approach with management action focused more on root causes rather than immediate causes, using integrated mitigation strategies for wider organizational benefit in the longer term. Contingency planning, disaster management, and a change management orientation would additionally provide an agile response matrix for greater risk tolerance and mitigation in a contemporary risk management approach.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. She has extensive experience in International Trade. For more information on this topic, please send enquiries to businesssolutions1168@gmail.com

by Merlin Hernandez

Intellectual Asset Management is a key driver to adding economic value to a business – managing patents, trademarks, invention disclosures, licensing agreements, and conflicts can achieve unmatched efficiency with patent annuity and trademark renewal payments. IP Risk Management has become central to strategic decision-making as business environments have become more global with increased competition, and the uncertainty of doing business in unfamiliar territory. In today’s age of rapid information transfer, any industry would find that protecting its tangible and intellectual property rights for designs, processes, and products is a challenge that requires a specific risk management protocol.

In the automotive industry, global expansion has meant cheap labor, a less-regulated environment for manufacturing, and new markets. But with globalization has come the culture of Intellectual Property (IP) theft, referred to by the FBI as the crime of the 21st century. Illegitimate goods (knock-offs), where designs are stolen, copied, and sold as cheaper abound. Sub-standard products compete successfully with original manufacturers. Original Equipment Manufacturers (OEM’s) in the Automotive industry spend millions in Research and Development for new products and components only to discover a competitor’s cheap knock-off under a competing brand name, with the original product barely dispersed in the marketplace.

China, as an emerging economy has been seen as a major culprit. It is the fastest growing automotive market and one that US auto manufacturers cannot ignore for the manufacture and marketing of vehicles and replacement parts. In 2004 GM filed suit against China’s Chery Automobile Co. for alleged piracy. The less expensive Chery QQ was almost identical to the GM/Daewoo Spark which was behind in sales because of a later launch – GM believed that Chery acquired its research by nefarious means and did not have to make the large R&D investment.

For the automakers and other businesses pursuing globalization initiatives, IP infringements and threats to profit margins revolve around piracy of designs and plans, counterfeiting of newly developed products, and the stealing of finished goods. A baseline strategy for businesses seeking global expansion is to conduct international business only with countries that are signatories to the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). This is administered by the World Trade Organization (WTO), and part of the General Agreement on Tariffs and Trade (GATT). The courts in these countries have an obligation to protect treaty provisions.

But this is a bare bones strategy and the loss of market advantage as a result of IP theft as well as the financial loss in terms of R&D investment and projected revenues indicates the need for a comprehensive approach to the risks arising from IP violations. These risks can extend to brand damage when inferior products are confused original manufacturer brands and issues of perceived liability that can hurt the corporate image. All of these can threaten expansion and developmental initiatives which could result in lost opportunities.

IP protection has to be given strategic priority with loss prevention measures, heightened security and non-compete agreements, and close market vigilance for infringements, among a host of risk management measures necessary to protect the business from inevitable exposure in many overseas environments.

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by Merlin Hernandez

A free trade agreement establishes a type of trading bloc where members agree to reduce or eliminate tariffs, quotas, and preferences on most goods and services traded among them. The North American Free trade Agreement (NAFTA) is a treaty between the US, Canada, and Mexico that became effective in 1994. It provided preferential tariffs for certain products. As of January, 2008, all remaining duties and quantitative restrictions were removed. As a result, trade among the three member states has soared with US goods and services traded totaling $1.6 trillion in 2009. Canada and Mexico were the top two purchasers of US exports in 2010. NAFTA countries were the second and third suppliers of goods to the US in 2011.

The basic assumption in considering comparative advantage is that partner countries can maximize output and allocate resources more efficiently. But key variables are specialization and trade in which all partners have some comparative advantage. In the case of NAFTA, while both Canada and Mexico offer expanded markets for US goods, based on proximity and consumer desire, the partnership remains unequal. With an educated workforce, and a business environment that is strong on R&D and IT competitiveness, Canada offers an investment partnership at fairly equitable levels of mutual benefit. Mexico, on the other hand, has a fast growing population and high unemployment. The government needed to create jobs which provided a ready market for US technology and capital equipment manufacturing as well as investment opportunities for US business.

Many analysts have seen NAFTA as a double-edged sword for Mexico. Though 80% of Mexican exports enter the US, cheap US food imports from a subsidized agricultural sector has devastated the Mexican agro economy, increased unemployment, and marginalized rural populations. This, while the immigration debate in the US continues to ignore the connection between the NAFTA fall out and the increasing numbers of Mexicans entering the US, both legally and illegally, in order to earn a living. Furthermore, Mexican comparative advantage for its output within the NAFTA relationship has shifted in relation to China and cheaper Chinese imports into the US. Of additional concern for Mexico is that US outsourcing of jobs to countries like India has negatively impacted job growth. This means that the opportunity costs to being a partner to NAFTA is much higher for Mexico than it is for Canada. This has led Mexico to pursue other trading agreements with China, Japan, and countries in South America.

For the US, however, the shift in jobs for industries like automobiles, textiles, and consumer durables to Mexico to take advantage of lower labor costs, contributed to high unemployment increases at home. The large scale outsourcing of consumer goods to Asian countries further decimated the US labor market. It also reduced the bargaining power of US workers, based on labor supply and demand, and set the trend of lowering wages in order to compete with US-Mexican and US-Asian output. Increased labor and shipping costs for Asian manufacturing this past year has seen some US businesses rethinking the Asian option. Moves by the government to enhance tax collection will also reduce the attractiveness of the Asian outsourcing option. This could be somewhat to Mexico’s advantage with some employment gains. But countries like China and India remain emerging markets that are too large for US industry not to have a presence. Mexico is likely to remain the stepchild under the NAFTA umbrella and should be lauded for pursuing ex-NAFTA partnerships like Mercosur.

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The other side of Outsourcing – Published  2012/11/13