Product Differentiation Strategies to Overcome Challenges in a Globalised Market
Added on 2019-09-23
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Answer to the above:Globalisation is an economic process that is employed by businesses to expand operations internationally and create their influence on an international platform.International trade and investments drive globalisation efforts of businesses and these efforts are supported by information and communications technology. In this entire process, governments and businesses of different countries interact and share ideas to provide products and services to suit the requirements, preferences, and tastes of a varied customer base. As business rivalries intensify across companies and between industries, businesses are increasingly pressurised to embrace globalisation in the world economy and this is where the impact of globalisation on the operations of businesses becomes clearer. Business operations stand to both gain and lose in the entire process of globalisation.Globalisation has a positive impact on business operations as explained below:1.Access to knowledge: As information flows seamlessly due to the advancement in communications technologies and openness of governments and businesses to exchange information, it becomes easier for business to gain knowledge pertaining to what business processes and best practices are used elsewhere. This way businesses are able to compare their existing business processes and practices with those being employed elsewhere and determine if they need to continue with the status quo or make changes as appropriate.2.Cost-effective resources: Intense business rivalry often intensifies competition between businesses in terms of product differentiation and cost leadership. In industries where product differentiation is not possible, businesses try to achieve cost leadership. In doing so, businesses are compelled to focus on getting resources –such as raw materials, labour, equipment, and even capital – at the cheapest cost to them without a compromise on their quality. Besides, with different countries enjoying competitive advantage in terms of different resources, companies are able to take better decisions as to which resource will be sourced from which country. For instance, information technology firms from the United States have often either opened their offices in Asian countries or outsourced their requirements to companies that are in Asia but do not have a presence in the United States. Asian labour comes across as cheaper than American labour to those companies, and Asian minds often are as competitive or even better than American minds in certain aspects. This is a good example of how, notwithstanding the current American leadership’s “Buy American and Hire American” stance, American companies stand to benefit by employing cheap labour from Asian countries without having to compromise on the quality of labour that goes into the manufacturing of their products or rendering of their services. With cost-effective resources, companies are able to attain cost leadership and compete within many markets.
3.Product differentiation: Besides cost leadership, there could be an opportunity for businesses in certain industries to aim for product differentiation. In product differentiation, the company tries to differentiate its products from not just those of the competitors but also from its other products of its own. A good example is McDonald’s which creates variants of its own existing products based on what the local market needs. Thus, if most of McDonald’s outlets in the United States have menu offerings that have beef content, one can find that McDonald’s outlets have the same menu offerings without beef in countries such as India where there are a lot of consumers who do not consume non-vegetarian food. Thus, by globalising into different markets, McDonald’s has mastered the art of being able to offer customised products that would fit will with local tastes and preferences.Globalisation also has adverse impact on business operations as demonstrated below:1.Issues arising from lower wages: In the process of globalising and competing within abroader business landscape, companies that hire only low-cost labour eventually find themselves under scrutiny and criticism from governments for abusing labour. Eventually, governments come up with minimum wage requirements that are mandatory by law. When this happens, companies are left with no choice but to pay atleast the minimum wages to their labour which earlier settled for wages even lower than the minimum wages. This gradually takes away the cost effectiveness of labour and impacts the overall cost to companies of manufacturing their products or rendering their services. With a certain minimum level of profits required to sustain and survive, businesses are unable to absorb the cost increases and eventually pass along the same to consumers. This can lead to some degree of decrease in the demandfor their products or services in certain markets, especially in those markets where thepopulace is facing poverty.2.Survival issues for certain businesses of small size: Intended benefits of globalisation do not always accrue to small businesses as they sometimes lack the very basic resources that are required to even start the process of globalising in the face of competition. Besides, for them to raise capital from outside sources is often difficult. Eventually, therefore, a few small businesses find themselves at a high risk of losing market share to big businesses that are able to attain cost leadership and / or achieve product differentiation.3.Restrictions imposed by government: With globalisation, a few businesses be motivated to get around laws and regulations governing them in foreign markets. These businesses abuse the legal and regulatory framework to their own advantage in a quest to make more and more profits. As governments learn of corrupt business practices, they impose restrictions in order to safeguard the local businesses and the interests of local consumers. While this restricts corrupt moves from businesses, even those businesses which were abiding by laws and regulations in the foreign markets now suffer. Such businesses, despite having no malicious intent, are burdened by the pressure of increased laws and regulations to be abided by, and are, along with unscrupulous businesses, subjected to more scrutiny. 4.Differing financial reporting requirements: With globalisation, businesses not only produce and sell in foreign markets but also raise funding in foreign markets. This is followed by increased financial reporting requirements meant to satisfy the
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