IBM's Globalisation Challenges: A PESTLE Analysis of Business Impact

This essay explores the impact of globalisation on IBM, analysing the changes in its business environment before and after 2008. The analysis includes examples of how globalisation influenced IBM's operations, strategies, and overall performance. Before 2008, IBM faced challenges from emerging competitors and the need to adapt to technological advancements. Post-2008, the company dealt with increased competition, the rapid pace of technological change, and the effects of economic recession. The essay uses PEST factors to illustrate the political, economic, social, and technological forces shaping IBM's responses. The study highlights IBM's strategic adjustments, such as restructuring, outsourcing, and innovation, to navigate the complexities of the global market. For students seeking similar essays or solved assignments, Desklib provides a comprehensive collection of study resources.

INTERNATIONAL
BUSINESS
ENVIRONMENT

1
Contents
INTRODUCTION.................................................................................................................................2
Example 1: Impact of Globalisation on IBM before 2008......................................................................2
Example 2: Impact of Globalisation after 2008......................................................................................5
Conclusion.............................................................................................................................................8
REFERENCES......................................................................................................................................9

2
INTRODUCTION
Globalisation is a process through which firms or other organisations creates international
influence or start operating on the international scale. Globalisation has affected almost all
the companies in the world irrespective of its size. Nicholas Taleb in his book Black Swan
states that “Globalisation and the interconnectedness it represents create an interlocking and
fragility”. It has affected each and every operations of the firm. After the age of
industrialisation, there were different phases of Globalisation noticed in the world.
Innovations and investments are the new ways of business which have strengthened the
business operations of the company (Grupp and Schmoch, 1999). Even the big Companies
like IBM are affected by the Globalisation process. It has affected the companies in both
positive and negative sense. It is the reason why the IBM became a multinational firm and
right now operates in each and every part of the world. IBM is an American technological
firm having it’s headquartering in New York, United States. This company manufactures and
markets middleware, software and hardware. It also provides consulting and hosting services
in various areas like nanotechnology and mainframe computers. For understanding
globalisation it is important that time period gets divided into phases. 2008 has been a crucial
year in the business of many firms. This is due to the fact that there was huge change in the
environment of business has been noticed. It was a phase when the real beginning of the
economic recession has started.
In the later part of the essay, examples about the way in which globalisation has affected their
business of IBM has been showcased. It also highlights the examples related to this effect
before and after 2008 especially in terms of change in the global business environment
(Narula and Duysters, 2004).
Example 1: Impact of Globalisation on IBM before 2008
IBM became a world leader in the technology market in the early 1950’s. The first benefit
that company gained from globalisation is that it has now operating in 170 nations. IBM has
streamlined their business process in many terms. In 1937, the company started a new phase
of innovations especially in tabulating equipment enabled firm (Ferner, 1997). Organisation
started to process unprecedented amount of information. In the early 1990’s, with the
advancement on the internet technology many companies came up in the IT industry. This

3
was one of the major reasons why IBM faced a business loss of US$8billion in the year 1993
(IBM, 1994). It was one of the biggest financial losses in the American corporate history.
Many competitors like Apple and Microsoft who has captured the market. It was also due to
the fact that the demands of both internal and external stakeholders were changing. IBM
employed more than 60,000 employees all over the world. Company struggled in the form
contracts that it has with its workforce (Aiber, et. al. 2004). IBM hired new CEO to change
the company around. In 2003 they started a project to redefine values of the company which
resulted in three values:
 “Innovation that matters for IBM and rest of the world”.
 “Trust and personal responsibility in all the relationships”.
 “Dedication to every client’s success” (Streeten, 2001).
In the changing business scenario it was not easy for IBM to change its value while ensuring
that there is no effect on the business operations. It was necessary as the company had to face
challenges related to the employees at the world level (Lohr, 2010). Becoming world leader
in the technology become possible due to innovations that it has made over the years. In the
early 1990’s there were many companies that came up in different parts of the world with a
highly different kind of ideas (Paroutis, Bennett and Heracleous, 2014). IBM started facing
challenges through new products that sets them up with the changing global business
demands. For a long time IBM did not understand the fact that due to globalisation many new
companies crossed borders and due to ease in doing business, companies were not able to
capture the larger part of the market. In the year 1993, IBM sales decreased by 20%. In this
loss the major role was played by special multibillion dollar deductions taken because of
production line shutdown, finance early retirement and other restructuring program.
Restructuring was essential so as to meet the global needs of their clients. It was the first time
when revenue failed to cover operating expenses. With the transformation in technology it
was become easier for the companies to understand the dynamics of the global market but at
the same time the technologies were developing at such fast levels that it became difficult for
IBM to match the pace. Company still relied on switching to small, desktop units. Company’s
sales were highly dependent on the profits that company generated with the sales of big
systems (Makinda, 1998).

4
Due to globalisation world was becoming a global village and hence a change in
environmental factors bring changes in other parts of the world. This can be understood by
analysing PEST factors.
 Political: In 1990’s politics of the world changed drastically. At this time many
political bonds were made and broken in various parts of the world. For example after
the end of Cold war, world was not divided into two poles rather a more diversified
local alliances started to form. This has favoured the outsourcing job in the IT sector.
With new and cheap IT hubs like India, many companies like IBM outsourced its
operations in these regions (Wursten and Fadrhonc, 2012). The major thing that IBM
outsourced outside America was related to services that it was providing to its clients.
 Economic: In various parts of the world, economic changes can be clearly noticed.
The downfall of the Japan’s Economy in the early 1990’s was also the major reason
for the decreasing sales of the IBM’s product. The economic shifts can also be noticed
with the fact that economies like India opened itself for the IT market with the help of
initiatives like Foreign Direct Investment. This not only helped IBM in managing its
operations but also helped them with the new market opportunity. Asia itself became
a large market for IBM hence switching to the countries like India was a great step for
the cited firm (Ukpere and Slabbert, 2009). These countries were emerging in terms
of economic strength as well as their talent pool. In India there were many new IT
talents coming up and it was an opportunity for IBM to include them into their talent
pool.
 Social: The social dynamics of the nation kept on changing especially in terms of use
of technological equipment. From personal computers to industrial use of automatic
machines everything changed. There were new entrepreneurs coming up in various
industries who needed core technologies from IBM so as to gain competitive edge in
the market. This was a boost to IBM as it provided company with new opportunity.
Globalisation helped the IBM to sell its products across continents with the help of
new online market (Monk, 2009). Since the demand increased multiple times hence it
provided an upper hand to the company. At the same time it increased competition as
many local players also emerged. An increase was also noticed in terms of the ways in
which companies were selling or marketing its products. It was also done for the
purpose of attracting more people towards their business at the global levels. Due to
globalisation companies started hiring their human resource from different nations so

5
as to strengthen their talent pool (Guest, 1997). But at the same time it was not easy to
maintain the cultural variances at the beginning level.
 Technology: In every six months technology upgrades itself twice as much as it is
today. Matching such a speed of technological advancements was not easy for any
company that too when it is of the scale of IBM. New and disruptive innovation in the
early 21st century especially the ones that are related to the mobile technology made
the growth rate of IBM to fall down. After 2000, it was an age where many new
mobile technologies were coming up and competing with this technology was not so
easier that too when companies like IBM gained its major part of the market through
technologies like Desktop (Holland, Lockett and Blackman, 1997). Till 2005, there
were many new technological hubs getting developed in various parts of the world
and some of the major regions were cities like Bangalore, Beijing, and Seoul etc.
These centres were increasing the reach of companies like IBM as well as it was
reducing the overall cost of operations (Henderson and Venkatraman, 1999). All these
factors had a great effect on the performance of IBM but at the same time it provided
them with the opportunity to expand its sale in the new areas. IBM had to change its
strategies accordingly so as to confront emerging challenges in the business
operations. New product development was one of the major strategies that gave them
an edge in the market (Sennett, 2001).
(Source: Whitney, 2009)

6
Example 2: Impact of Globalisation on IBM after 2008
After 2008, competition became intense and many new firms came up in the industry. The
pace of technological advancement just got double after 2008 especially in term of size of the
products. With most parts of world using advanced technologies, new interconnected world
has come up. The world became a new and bigger global village. This can be understood by
the use of technologies like social media where the world could share everything about
anything. For IBM the impact of globalisation was tougher to understand. This is because the
complexity of the issues in the business has become bigger (Taylor, 2005). There was
challenges related to the things that it promised to its clients. First example of it can be
noticed in terms of increasing competition and decreasing growth rate. It was the effect of
globalisation that new technologies have taken over the old ones. The size of the core
technologies has become smaller and thinner and hence disruptive innovations have become a
bigger challenge. After 2008, there was huge increment in the amount of investment that is
made in the research and development works. The trade liberalisation have empowered new
firms to come up in the industry as well as the increase was also noticed in terms of firms
getting up into IT business. There were many firms who considered the benefits and profits in
the IT market and came up in this industry. Since these firms have large amount of resources
hence stabilising themselves in the new market was never a challenge for the company. The
effect of Globalisation can be seen with the fact that the recession of 2009 which affected IT
industry in the European and America region also affected its business in South African and
Caribbean region. In order to stabilise its business, company started to sell off its wares and
inventory that it was using. The dis investment was performed by the company in various
other parts of the world even where the roots of actual problems did not exist. IBM did this
for reducing the extra expenses that company is making in other parts of the world. They
started investing in the supply chain management so as to strengthen demand and supply
chain which is highly necessary in the modern day global world. Leaders of IBM have to
force the company’s units to reduce the costing. Globalisation made the world a global
village and hence any customer can order anything from any part of the world using online
mediums (Motahari-Nezhad, Stephenson and Singhal, 2009). It has empowered nations and
hence ease of doing business has also increased. This made IBM to find new place of
operations in various parts of the world.

7
(Source: Richter, 2017)
After 2008, there was a sharp increase in the number of laws that were made against the
fabrication and utilisation of resources. It was also to be understood that there was a huge gap
in the demand of the market and what company was providing to its customers. After 2008,
company also tried to make changes in the type of technologies that they were using. All this
can be understood with the help of PEST analysis of the company after 2008.
 Political: The political condition of the world has changed drastically after 2008 and
hence many new trade routes have opened. This has given companies with new kinds
of opportunities (Lohr, 2010). IBM has made many kinds of political ties so as to
grow in terms of business. The conflicts in the middle-east countries have closed
some of the opportunities in the world. With China becoming the new political power
in the world, new political alliances emerged in the world. Many governments have
made rules, regulations and policies so as to attract new investments in the nation. The
countries like India and Indonesia which was previously only known for service
market started to develop itself as a manufacturing hub. Companies selected these
new places so as to reduce the overall cost of operations as well as to bring down the
cost of manufacturing. With the innovation culture spreading in various other parts of

8
the world, governments also started to invest in the infrastructure building so that it
can also support the companies coming to these nations.
 Economy: There was huge economic challenge noticed by many nations in various
parts of the world. After 2008, economies like Europe were never able to make it
strong. The trails of the economic recession in 2009 can be felt in many regions of the
world. This has created and destroyed many economic powers of the world. The
recession affected the expansion of the companies into new areas. This also had
impact on the profit margins of the company which ultimately showed effect on the
overall revenue of the company. This has also created unbalance of trade between
many countries (O'Reilly III, Harreld and Tushman, 2009). Due to globalisation
countries are largely dependent on the each other for support. The imbalance between
various countries has increased the problems for IBM. This is because of the fact that
before 2009 companies tried to manage its loss in one part by covering up in other
part of the world but due to overdependence the situations got worse. If IBM needs to
invest in any new region of the world, they need to have a look on the business
environment in surrounding or neighbouring regions as well. This is due to the fact
that environment change in one part of the world directly or indirectly effects the
business environment in other parts of the world. IBM also needs to look for new
investors so that they can increase their market base and could support their business
operations (Gongla and Rizzuto, 2001).
(Source: Waldron, 2017)

9
 Social: Due to the economic recession, there was a huge unemployment issues arise in
many parts of the world. This forced the governments to plan for their country’s
human resource. For this they started giving preference to the local people in the
private firms. The rules such as H1 visa have also increased the problems for the
company in terms of their talent pool. This is because they cannot hire people from
different parts of the world. Society has changed and so is its demands hence it has
become essential for the companies to rethink about the ways in which they can fulfil
the needs of the market (Notteboom, 2006). IBM is having great image in the industry
hence any failure to stand as per their expectation might lead to huge business failure
for the company. With the increase in global connectivity because of the platforms
like social media, the operations such as marketing have become easier. At the same
time it has also increased the tensions for the company as any negative news also gets
spreads like wildfire.
(Source: IBM Institute for Business Value analysis; Taleb, Nissam Nicholas. The Black Swan,
The Impact of the Highly Improbable. New York: Random House, 2007.)
 Technological: After 2008, there was a change in the technology not only in terms of
its use but with the fact that world become more connected with these advancements.
Development of technologies like IoT has changed the IT infrastructure in the whole
world. This has also affected the privacy and the security concerns of IBM. It can also
be understood by the example that in the past one decade the numbers of hacking
activities have also increase. Such an increase can be dangerous for the companies of
the scale of IBM which has lot of stakeholders associated with it. If the private

10
information related to any of the stakeholders gets leaked, the chances of huge image
failure arise. In some cases it can also lead to financial losses for the company
(Papazoglou, et. al. 2007). Due to globalisation there was a huge increase in the
number of people who have access to the technology. This has created new
opportunities for IBM especially in terms of increasing sale of their products. They
will also have to invest in the mobile technologies so that they can compete with other
global leaders in the industry.
Conclusion
From the above based report it can be concluded that IBM is one of the large American IT
firm in the world. Globalisation made the world more connected and dependent on each
other. In such an interconnected world, the challenges and opportunities for the companies
like IBM have increased. The impact on the globalisation in both the phases has been
different. This was due to the fact that environmental factors in various parts of the world
have also changed. This change has made impact on the business operations. Political and
economic scenarios have changed the trade routes for the company as well as it has affected
the human resource management in various parts of the world. Social and technological
changes have both empowered the firm at the same time it has also effected their business
operations which could also be seen through its performance. In such an environment, IBM
needs to focus on their strengths and competencies so as to improve their performance in the
coming years.

11
REFERENCES
Aiber, S., Gilat, D., Landau, A., Razinkov, N., Sela, A. and Wasserkrug, S., 2004, May.
Autonomic self-optimization according to business objectives. In Autonomic Computing,
2004. Proceedings. International Conference on (pp. 206-213). IEEE.
Ferner, A. (1997). Country of origin effects and HRM in multinational
companies. Human resource management journal, 7(1), 19-37.
Ganek, A. and Kloeckner, K., 2007. An overview of IBM service management. IBM
Systems Journal, 46(3), pp.375-385.
Gongla, P. and Rizzuto, C.R., 2001. Evolving communities of practice: IBM Global
Services experience. IBM systems journal, 40(4), pp.842-862.
Grupp, H., and Schmoch, U. (1999). Patent statistics in the age of globalisation: new legal
procedures, new analytical methods, new economic interpretation. Research
Policy, 28(4), 377-396.
Guest, K.J., 1997. Exploitation under erasure: economic, social and cultural rights engage
economic globalisation. Adel. L. Rev., 19, p.73.
Henderson, J.C. and Venkatraman, H., 1999. Strategic alignment: Leveraging information
technology for transforming organizations. IBM systems journal, 38(2.3), pp.472-484.
Holland, C.P., Lockett, A.G. and Blackman, I.D., 1997, January. The impact of
globalisation and information technology on the strategy and profitability of the banking
industry. In System Sciences, 1997, Proceedings of the Thirtieth Hawaii International
Conference on (Vol. 3, pp. 418-427). IEEE.
Lohr, S. (2010) Global Strategy Stabilized I.B.M. During Downturn. [Online]. Available
at:https://www.nytimes.com/2010/04/20/technology/20blue.html. [Accessed on 13
August 2018].
Makinda, S.M., 1998. Globalisation as a policy outcome. Current Affairs Bulletin, 74(6),
pp.4-10.
Monk, A.H., 2009. The financial thesis: reconceptualizing globalisation's effect on firms
and institutions. Competition & Change, 13(1), pp.51-74.