Managers must understand the nature of the global environment because ongoing changes in that environment are creating a plethora of opportunities, threats. and challenges. As we have seen, the world is moving rapidly toward a global integrated economic system characterized by the emergence of global markets and the development of global production systems. Although countervailing forces are putting a brake on the pace of globalization, and a re-emergence of protectionism certainly could halt the march toward globalization, for now at least the trajectory is well established. If present trends continue, 25 years from now far more countries will have joined the ranks of developed nations. Brazil, China, and India will have established themselves as economic superpowers on a par with the United States, Japan, and the European Union. Barriers to cross-border trade and investment will be lower than they are today. Material culture will be increasingly homogeneous across developed nations, and markets will be more global.
In this global world, managers will increasingly take advantage of opportunities to expand the business of their enterprise into foreign nations, to lower costs by realizing economies of scale from global volume and locating different business activities where they can be performed most efficiently, and to enhance competitiveness by transferring valuable skills within the globally dispersed network of the firm’s operations. In the 1970s and 1980s, Western businesses faced competitive threats from emerging Japanese enterprises. In the next 20 years Chinese, Indian, and Russian enterprises may well emerge as major players in the global economy, entering the markets of Western businesses and presenting Western firms with new competitive challenges. Indeed, this is already starting to occur. In 2005 China’s Lenova acquires IBM’s PC operations, signaling the company’s intention to become a major player in the global computer industry. Similarly, Infosys and Wipro of India have become key competitors in the global market for information technology service, and Lukoil of Russia now operates 1,200 gas stations in the United States. The message in these developments is clear: The world is changing! Even if an enterprise does not do business across national borders, it may still be affected by the entry of new foreign competitors into its domestic marketplace.
Finally, globalization matters because in a global enterprise (and in the future far more firms will be global enterprises) managers will have to grapple with a host of issues that do not occur in purely domestic enterprises, only a few of which we have discussed here. As we have seen, managers in a global enterprise have to decide on entry mode; strategic posture; where to locate different business activities; what to outsource to foreign producers; and how best to staff, compensate, motivate, train, develop, and manage the human capital of their organization. There are also substantive issues associated with deciding the timing of entry into different markets, managing currency exchange rates, adjusting marketing and sales strategy to accommodate country differences, managing globally dispersed supply chains, dealing with different accounting and tax rules, and so on. Taken together, these factors make managing the global enterprise a complex and challenging task, but one that is also exciting for the skilled manager.
Dr. Asare Bediako Adams, FCILG
The author is the Director of Africa Operations for Chartered Institute of Leadership and Governance. He is also the Executive Director of PMRIG Group of Companies and Bedoak Global Ltd and its affiliates. He also serves as a board member of several companies.