Table of Contents
Globalization is a modern phenomenon which is a concept which is existent in modern times mainly due to trade and migration across the national boundaries. The scale of interaction on the business front is world-wide. Essentially, new trends have emerged with regard to international markets, production and the nature of competition between the corporations that operate globally. Globalization is traced in a period beginning in 1880 as a result of the development of transport and communication infrastructure that aided the long-distance traders (Rodrik 2011, p 22). The actual visibility of the phenomenon was after the Second World War when there was an increase of international trade and a reduction of the tariffs charged to the business community. The modern change that is existent in the society is innovations in telecommunication sector such as the internet that has revolutionized business operations with the integration of different societies through the mobile gadgets and computers. The focus of this essay is a PEST framework in understanding the challenges that modern businesses face as a result of globalization.
The PEST framework generally involves an analysis of a firm`s external environment with relation to the foreign markets. The business leaders are able to understand the available opportunities and threats in a particular niche and what it portends for the business future. The powerful transformation of the international market needs proactive business managers who will exploit new developments rather than just survive or in other cases oppose the developments, for example, the innovation in technology (Rothaermel 2015, p 39). Furthermore, PESTEL tool is crucial in the analysis of new markets under the new world phenomenon of globalization by businesses expanding their operation to emerging markets and other unexplored niches.
Globalization as a concept has been contextualized around the various aspect of human development and relationship today. The concept is viewed in the realm of internationalization, liberalization of markets, and universality of ideas. Modernization of different parts of the world and opening of borders for natural migration among people is also a crucial factor that is making globalization a reality among the global community (Holton 2011, p 27). Noteworthy, globalization creates attractive business opportunities but at the same time presents risks and threats that organizations operating in the international business must avoid thriving in this market niche.
The political factors that influence international business environment
Modern businesses faced a myriad of challenges that emanate from the instability of the political environment. Prospective countries that are involved in protracted conflict makes it difficult for firms to operate due to the risks of vandalism to their business establishment. Furthermore, political actors are crucial in legislating laws and regulations that are attractive to the international business community hence giving them incentives to increase direct foreign investment in the country of interest (Weatherly, and Otter 2014, p 21). The taxation policies adopted by the government are central in making its area of jurisdiction a favorite destination for the foreign investors setting up businesses in a particular country. Notably, the political factors that affect the macro-environment for modern businesses involve other aspects of the market such trade agreements and preferential treatment to some of the products spearheaded by countries’ chambers of commerce to create an attractive business environment. The foreign trade regulations that are adopted by the state actors’ acts as a deterrent or a compelling factor to the multinationals that want to establish subsidiaries in certain parts of the world. The political situation in the country may also affect the consumer confidence levels as a stable economy is desirable for a predictable future for the business.
Technological Factors
Technology has improved business operations in modern times, reducing the operating costs incurred by the businesses as most activities have been automated reducing the human resources needed to accomplish particular tasks. Globalization has made it easy for the sharing knowledge across the world and governments that invest in research and innovation have contributed immensely in bettering their economies as they reap great benefits when knowledge is applied in the economy. However, under the current global society technology is changing very fast and what is used today as an innovation may be obsolete in the near future. The comparative advantages that the companies have because of their possession of superior technology are short-lived because better innovations are introduced every day around the world.
The rapid nature of technological innovations and the opening up of markets for the global corporations has led to the creation of an international economy that has permeated the national boundaries impacting heavily on the local economies. Modern businesses are affected by the disruptive technologies that may render their businesses irrelevant within a short period of time presenting a major challenge that is difficult to predict and curb (Ueda 2010, p 75). The problem of intellectual property rights has become contentious as most governments do not have a comprehensive policy on regulating the technology industry mainly due lack of expertise and disinterest in conducting research on how best to control disruptive technologies and protect the rights of the innovators.
Another common challenge that modern businesses face is slow adoption of technology by governments in some markets that international organizations are interested in venturing. Furthermore, companies are using a lot of resources to train their human resources on the modern skills that are required to implement technologies in their operations. The competitiveness in the global stage is changing with time and companies have to invest heavily in technology and most of them have employed people who are tech-savvy hence this is becoming an obstacle to the flexibility to change amid a loss of competitive advantage (Dunning 2013, p 57). Technology is influence how organizations relate to the global society with risks involved as a result of impactful social networking sites such as Twitter and Facebook that may oversight the operations of a firm in particular area.
Economic Challenges that face businesses in age of globalization
The issues that arise in this case are the economic stability of the region that a company management wishes to invest in terms of interest rates forecast. The level of inflation in prospective countries that global companies have plans on investing are affected by the global crisis because globalization has led to interaction among countries through international money markets and trading(Mathews 2002, p 13). The per capita levels in the destination of investment are important because they determine the purchasing power of the consumers which is also linked to the global economic factors that are affected by the wave of globalization. Noteworthy, the Gross Domestic Products of regions that have embraced globalization concepts such as market liberalization and creation of free trade areas have been impacted heavily by global competition affecting the local industries (Czinkota et al. 2015, p 55). The international corporations operating in unrestricted local jurisdictions have a competitive advantage in terms of experience and resources hence preventing the start-ups from thriving as there is intensive competition. The exchange rates in the markets of interest are critical because they affect distribution and production of goods.
Under globalization different economies in the world are interdependent and this causes downturns in some other countries to impact on another part of the world and this has been evident in times when the world biggest economies experienced recessions. The workers right has also been a major problem in contemporary times as companies outsource labor from the developing world with conflicts ensuing as a result of lawsuits (Sklair 2012, p 19). The issue of employment disparity has raised tensions among nations leading to the creation of laws on tariffs that are harsh to the business people.
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Social Challenges as a result of globalization
The social dynamics in different parts of the world have affected the way businesses are operated due to change in tastes, preferences, and lifestyles of people because of aspects relating to cultural import and modern trends. Moreover, the demographics of different parts of the world are changing with time and corporations have to conduct market research before expanding to different parts of the world because this could be detrimental to their success and furthermore, it requires capital investment. The level of income and education of particular market segment as businesses will incur a lot of financial resources in educating the clients of the products they are offering (Lechner and Boli 2014, p17). The challenge posed by globalization in this area is that it has led to income inequality in different parts of the world as multinational is accused of giving a raw deal to the third world employees compared to their home countries.
The global society in the age of globalization has not embraced aspects of religious tolerance and hence, consumer attitudes are influenced by their faith hence making such markets to be closed to investors that may introduce products that are embraced in other parts of the world. Under globalization, some of the policies that focus on the social well-being of the communities that host organizations have been internationalized and the global society has expectations on businesses that have to be me at the shareholder`s cost(Dunning 2014, p 51). The attitudes of people from a particular society on issues such as consumerism affect the modern businesses directly and hence proper social research has to be done by the business to understand their target market.
The social unification of economies around the world has been for a long time been viewed as a ploy to exploit the undeveloped countries by multinationals that originate from the developed world. The modern businesses, especially in the developing world are bearing the impacts of dumping by multinationals when bringing inferior products in these markets offering very low process to the consumers (Chaney and Martin 2013, p 43). The sustainability of the domestic companies in a very competitive global market has been a major challenge because they cannot match the innovation of the international corporations and hence the chance of survival is minimal. Globalization has led to an increase in the level of income inequality and hence people who are not economically empowered lack the purchasing power impacting negatively to the modern businesses. Moreover, modern businesses must deal with the peculiarities of the consumers from different parts of the world, especially, where culture plays a vital role in determining the tastes and preferences of the consumers.
The domestic markets in some countries have been liberalized to allow foreign companies to operate making supernormal profits while the local companies are closing business. The competitive strategies in various markets around the world have been deregulated and the start-ups are feeling the pinch of competing with already established companies. Another social aspect that emerges as a challenge is that in some parts of the world ethnicity, religion and other cultural factors are diluted by the globalization trends and hence brand loyalty is not achieved easily and hence businesses have to invest in intensive marketing.
Culture has a fundamental role in the operationalization of business in the global society and organization must invest in social research so as to understand the dynamics of cultural change in the age of globalization. Cultural sensitivities in particular environments are some of the barriers that global corporation faces in venturing into new, markets as failure to understand these underlying issues can be detrimental to successful investments in where cultural relativism is a distant ideology. Globalization has led to the universalization of American civilization but this has been accepted in part and hence international businesses are facing the challenges with regard to language barrier making transactions complex and lengthy (Hirst et al. 2015, p 31). Modern businesses have to adopt cross-cultural behaviors in their environment as it helps in ensuring that there are respect and understanding of the value systems in the different business environments. Business leaders in the global environment must appreciate the various value systems and the phenomenon in the cultural front such as consumerism and social mobility and how they will impact the business processes.
The PEST framework on the current trends on globalization reveals that businesses have been influenced positively and negatively by the developments in the global society. The most rigid factors that are challenging most organizations are mainly political in nature as regulations by the government deterring foreign investments cannot be challenged by the private entities. Most governments today are acting against the spirit of internationalization by creating barriers to entering their markets by introducing tariffs and heavy taxation to the foreign investors (Mimiko 2012, p 63). The change in approach by the government is informed by the trickle-down effects on their economy and money markets as a result of global financial crises. Moreover, globalization has made the international market to be very competitive which is unhealthy for the start-ups as they lack experience and hence their survival chances are very low.
Conclusively, modern businesses have to change tact as the international business environment is changing very fast because of technology that has enabled people from different parts of the world to integrate and interact closely. Innovations are being launched by companies on day to day basis hence the skills that are relevant today will have no use tomorrow. Businesses have to invest in technology intensively and train their employees to be tech-savvy so as to have a competitive advantage that will assure the businesses of survival. Essentially, corporations must exploit the opportunities created by the integration between countries and better conditions that are reached through international trade policies entered by their home countries. Companies operating in the global stage must make investments in social capital through the implementation of CSR strategies that are important in marketing their products to consumers that value environment and philanthropy as part of the cultural value system. Globalization will indeed open up more opportunities but the business organization must be cautioned against the negative effects of this new development.
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