Impact of Globalisation on the Functions of Corporations

In this post, let us now discuss the impact of globalisation on the functions of corporations. Corporations are today altering their strategies and are reorganising their operations to cope up with the altered scenario whether it is their production process or location, Finance, Product strategy, Marketing, HR policies, etc. Organisations have included the following changes:

·      Designing in Global Environment: It is important to note that in case managing product development processes was a challenge earlier, it is not getting any easier as companies continue to accept global design strategies. Global designing has cost benefits that are very appealing to today’s manufacturer, but it also adds latest Product Lifecycle Management (PLM) challenges and intensifies prevailing problem areas like that of safeguarding intellectual property.

·      Production Location Selection: Jeffrey Immelt of GE Medical Systems (GEMS), pressed for acquisitions to build up scale as for top global competitors, an R&D-to-sales ratio of at least 8 per cent depicts a vital source of scale economies. But he also executed a production strategy that was intended to arbitrage cost differences by focusing on manufacturing operations—and, finally, other activities—wherever in the world they could be conducted most cost effectively. By 2001, GEMS attained 15 per cent of its direct material purchases from, and had placed 40% of its own manufacturing activities in, low-cost countries.

·      Rationalised Production: Essentially, you should understand that the companies generate different components or varied portions of their product line in different portions of the world to take benefit of low labour costs, capital, and raw materials. This is rationalised production. In a latest, global world, rationalised production is simpler. Now organisations can outsource or can set up their own production units in those regions where it is more economical.

Example: GE used Mexico as a manufacture base for labour-intensive operations. Today, Japanese are selling their cars made in America to the American consumers, while Americans are selling American cars made in Japan. Not only this, British firms are selling English cricket bats which are made in India. Asia manufactures sports shoes for almost all the major shoe manufacturers. Much of the production of motherboards for PCs is located in Taiwan. Japanese brands have less than a 50% share of the US market for microwave ovens but over 70% of the manufacturing is done by Japanese companies. After liberalisation in the economies of India and China, a great shift in location is going on as more and more organisations are shifting their labour-intensive operations to these locations.

Thailand, Vietnam, Indonesia, Malaysia, Philippines, Singapore and Brunei Darussalam are small countries by themselves. But as they became members of ASEAN, the whole region became attractive from a business point of view and more and more companies started establishing their manufacturing units there to take the advantage of low cost and vast markets.

Today, this region is one of the most active business hubs.

·      Vertical Integration: You may already be aware that vertical Integration is a company’s management of the various stages in a value chain of production—from raw material to production to ultimate distribution of the product. As international trade barriers are turning less relevant, organisations can join resources situated in more than one country.

Example: Like Indian petroleum companies who have world class refining capacities import petrol. But under the new system they are allowed to invest abroad and are acquiring oil wells overseas to ensure regular supply of oil in future. Similarly, Shell acquired oil wells the world over and has refineries across the globe.

Companies are vertically integrating themselves. Currently, Videocon attained the picture tube manufacturing capacities of Thomson and got approach to picture tube manufacturing in several countries, involving Europe.

Example: Asian Paints also has its operations in more than 27 nations. Ranbaxy and Dr Reddy’s Lab are also taking locational advantage with horizontal integration like acquiring generic pharmaceutical organisations in the US, Europe, Israel and other nations.

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