Globalisation

We now communicate and share each other's cultures through travel and trade, transporting products around the world in hours or days. We are in a huge global economy where something that happens in one area can have knock on effects worldwide. This process is called globalisation.

What is globalisation?

Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange. Globalisation has increased the production of goods and services. The biggest companies are no longer national firms but multinational corporations with subsidiaries in many countries.

Globalisation has been taking place for hundreds of years, but has speeded up enormously over the last half-century.

Globalisation has resulted in: increased international trade a company operating in more than one country greater dependence on the global economy freer movement of capital, goods, and services recognition of companies such as McDonalds and Starbucks in LEDCs

Although globalisation is probably helping to create more wealth in developing countries - it is not helping to close the gap between the world's poorest countries and the world's richest.

There are several key factors which have influenced the process of globalisation:

Improvements in transportation - larger cargo ships mean that the cost of transporting goods between countries has decreased. Economies of scale mean the cost per item can reduce when operating on a larger scale. Transport improvements also mean that goods and people can travel more quickly.

Freedom of trade - organisations like the World Trade Organisation (WTO) promote free trade between countries, which help to remove barriers between countries.

Improvements of communications - the internet and mobile technology has allowed greater communication between people in different countries.

Labour availability and skills - countries such as India have lower labour costs (about a third of that of the UK) and also high skill levels. Labour intensive industries such as clothing can take advantage of cheaper labour costs and reduced legal restrictions in LEDCs.

Transnational corporations

Globalisation has resulted in many businesses setting up or buying operations in other countries. When a foreign company invests in a country, perhaps by building a factory or a shop, this is called inward investment. Companies that operate in several countries are called multinational corporations (MNCs) or transnational corporations (TNCs). The US fast-food chain McDonald's is a large MNC - it has nearly 30,000 restaurants in 119 countries.

Examples of multinational corporations

Shell

A Shell filling station

The majority of TNCs come from MEDCs such as the US and UK. Many multinational corporations invest in other MEDCs. The US car company Ford, for example, makes large numbers of cars in the UK. However, TNCs also invest in LEDCs - for example, the British DIY store B&Q now has stores in China.

Factors attracting TNCs to a country may include:

• cheap raw materials
• cheap labour supply
• good transport
• access to markets where the goods are sold
• friendly government policies

Positive impacts of globalisation

Globalisation is having a dramatic effect - for good or ill - on world economies and on people's lives.

Some of the positive impacts are:

Inward investment by TNCs helps countries by providing new jobs and skills for local people. TNCs bring wealth and foreign currency to local economies when they buy local resources, products and services. The extra money created by this investment can be spent on education, health and infrastructure.

The sharing of ideas, experiences and lifestyles of people and cultures. People can experience foods and other products not previously available in their countries.

Globalisation increases awareness of events in far-away parts of the world. For example, the UK was quickly made aware of the 2004 tsunami tidal wave and sent help rapidly in response.

Globalisation may help to make people more aware of global issues such as deforestation and global warming - and alert them to the need for sustainable development.

Negative impacts of globalisation

Critics include groups such as environmentalists, anti-poverty campaigners andtrade unionists.

Some of the negative impacts include:

Protesters in London

Globalisation operates mostly in the interests of the richest countries, which continue to dominate world trade at the expense of developing countries. The role of LEDCs in the world market is mostly to provide the North and West with cheap labour and raw materials.

There are no guarantees that the wealth from inward investment will benefit the local community. Often, profits are sent back to the MEDC where the TNC is based. Transnational companies, with their massive economies of scale, may drive local companies out of business. If it becomes cheaper to operate in another country, the TNC might close down the factory and make local people redundant.

An absence of strictly enforced international laws means that TNCs may operate in LEDCs in a way that would not be allowed in an MEDC. They may pollute the environment, run risks with safety or impose poor working conditions and low wages on local workers.

Globalisation is viewed by many as a threat to the world's cultural diversity. It is feared it might drown out local economies, traditions and languages and simply re-cast the whole world in the mould of the capitalist North and West. An example of this is that a Hollywood film is far more likely to be successful worldwide than one made in India or China, which also have thriving film industries.

Industry may begin to thrive in LEDCs at the expense of jobs in manufacturing in the UK and other MEDCs, especially in textiles.

Anti-globalisation campaigners sometimes try to draw people's attention to these points by demonstrating against the World Trade Organisation. The World Trade Organisation is an inter-government organisation that promotes the free flow of trade around the world.

Porter's Generic Strategies and Ansoff's Matrix

Porter's Generic Strategies

A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus.




Cost Leadership corresponds to the “no frills” experience, like the low-cost airline carriers, who choose the cost leadership strategy to achieve competitive advantage. Differentiation, on the other hand, corresponds to the luxury providers, like Rolls Royce or Ferrari or Gucci, Armani or Prada. These companies provide uniquely desirable products or services to their customers. Focus is about market segmentation by offering a specialized product or service in a niche market.

Porter later refined his model further subdividing the Focus strategy into two components: “Cost Focus” and “Differentiation Focus”.




1. Cost Leadership

In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average.

2. Differentiation

In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.

3. Focus

The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.

The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser's target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segments.



Ansoff Matrix



To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below:

Ansoff's matrix provides four different growth strategies:

Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.

Market Development - the firm seeks growth by targeting its existing products to new market segments.

Product Development - the firms develops new products targeted to its existing market segments.

Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.



Selecting a Product-Market Growth Strategy

The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.

Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy.

A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share.

Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.

PESTLE and SWOT Analysis

A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental(external marketing environment) factors that have an impact on an organisation. The result of which is used to identify threats and weaknesses which is used in a SWOT analysis.

PESTEL stands for:

• P – Political
• E – Economic
• S – Social
• T – Technological
• E – Environmental
• L – Legal

Lets look at each of these macro-environmental factors in turn.



All the external environmental factors (PESTEL factors)



Political Factors

These are all about how and to what degree a government intervenes in the economy. This can include – government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law, trade restrictions and so on.

It is clear from the list above that political factors often have an impact on organisations and how they do business. Organisations need to be able to respond to the current and anticipated future legislation, and adjust their marketing policy accordingly.

Economic Factors

Economic factors have a significant impact on how an organisation does business and also how profitable they are. Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of consumers and businesses and so on.

These factors can further be broken down into macro-economical and micro-economical factors. Macro-economical factors deal with the management of demand in any given economy. Governments use interest rate control, taxation policy and government expenditure as their main mechanisms they use for this.

Micro-economic factors are all about the way people spend their incomes. This has a large impact on B2C organisations in particular.

Social Factors

Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of the population. These factors include – population growth, age distribution, health consciousness, career attitudes and so on. These factors are of particular interest as they have a direct effect on how marketers understand customers and what drives them.

Technological Factors

We all know how fast the technological landscape changes and how this impacts the way we market our products. Technological factors affect marketing and the management thereof in three distinct ways:
New ways of producing goods and services
New ways of distributing goods and services
New ways of communicating with target markets

Environmental Factors

These factors have only really come to the forefront in the last fifteen years or so. They have become important due to the increasing scarcity of raw materials, polution targets, doing business as an ethical and sustainable company, carbon footprint targets set by governments (this is a good example were one factor could be classes as political and environmental at the same time). These are just some of the issues marketers are facing within this factor. More and more consumers are demanding that the products they buy are sourced ethically, and if possible from a sustainable source.

Legal Factors

Legal factors include - health and safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety. It is clear that companies need to know what is and what is not legal in order to trade successfully. If an organisation trades globally this becomes a very tricky area to get right as each country has its own set of rules and regulations.

After you have completed a PESTEL analysis you should be able to use this to help you identify the strengths and weaknesses for a SWOT analysis.



Now you have the PESTLE context you can use this output to map out a SWOT analysis. SWOT stands for:

• Strengths
• Weaknesses
• Opportunities
• Threats

A traditional SWOT analysis would take the context of the PESTLE and analyse how these factors may emerge/impact.

This may be an interesting exercise but often doesn’t lead to anything apart from four lists that are filed away and forgotten.

A SWOT analysis should be a useful tool for planning and marketing strategy. Identify your strengths and weaknesses first because they may suggest some of the opportunities and threats later. There is a tendency for people to play the ‘opposites game’ whereby an opportunity might be identified and then a converse threat that ‘it might not be taken up’. This is not a threat, threats have to exist now in the present – this is a RISK associated with taking that opportunity and this should be recorded in the risk register.

A better way to map this output more directly into a project plan and/or strategy is to use a 3×3 grid, arranging your strengths, weaknesses, opportunities and threats in the labelled boxes. Then come up with some ‘mini strategies’ in the four boxes in the bottom right corner of the matrix, addressing the questions outlined.

Organisational Strategy

Mintzberg's 5 Ps for Strategy

The word "strategy" has been used implicitly in different ways even if it has traditionally been defined in only one. Explicit recognition of multiple definitions can help people to manoeuvre through this difficult field. Mintzberg provides five definitions of strategy:

• Plan
• Ploy
• Pattern
• Position
• Perspective.
• Plan

Strategy is a plan - some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation. By this definition strategies have two essential characteristics: they are made in advance of the actions to which they apply, and they are developed consciously and purposefully.

Ploy

As plan, a strategy can be a ploy too, really just a specific manoeuvre intended to outwit an opponent or competitor.

Pattern

If strategies can be intended (whether as general plans or specific ploys), they can also be realised. In other words, defining strategy as plan is not sufficient; we also need a definition that encompasses the resulting behaviour: Strategy is a pattern - specifically, a pattern in a stream of actions. Strategy is consistency in behaviour, whether or not intended. The definitions of strategy as plan and pattern can be quite independent of one another: plans may go unrealised, while patterns may appear without preconception.

Plans are intended strategy, whereas patterns are realised strategy; from this we can distinguish deliberate strategies, where intentions that existed previously were realised, and emergent strategies where patterns developed in the absence of intentions, or despite them.

Position

Strategy is a position - specifically a means of locating an organisation in an "environment". By this definition strategy becomes the mediating force, or "match", between organisation and environment, that is, between the internal and the external context.


Perspective

Strategy is a perspective - its content consisting not just of a chosen position, but of an ingrained way of perceiving the world. Strategy in this respect is to the organisation what personality is to the individual. What is of key importance is that strategy is a perspective shared by members of an organisation, through their intentions and / or by their actions. In effect, when we talk of strategy in this context, we are entering the realm of the collective mind - individuals united by common thinking and / or behaviour.

Porter's 5 Forces Analysis

Porter's 5 Forces

Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation.

This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation’s current competitive position, and the strength of a position that an organisation may look to move into.

The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms.

3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness.

4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives in response to price increases. This reduces both the power of suppliers and the attractiveness of the market.

5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.

Example

Martin Johnson is deciding whether to switch career and become a farmer – he's always loved the countryside, and wants to switch to a career where he's his own boss. He creates the following Five Forces Analysis as he thinks the situation through:

The threat of new entry is quite high: if anyone looks as if they're making a sustained profit, new competitors can come into the industry easily, reducing profits. 

Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut. 

Intense competition puts strong downward pressure on prices. 

Buyer Power is strong, again implying strong downward pressure on prices. 

There is some threat of substitution. 

Key Points

Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more general situations. 

It works by looking at the strength of five important forces that affect competition: 

Supplier Power: The power of suppliers to drive up the prices of your inputs. 

Buyer Power: The power of your customers to drive down your prices. 

Competitive Rivalry: The strength of competition in the industry. 

The Threat of Substitution: The extent to which different products and services can be used in place of your own. 

The Threat of New Entry: The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down). 

Management Styles

Leadership – a new definition definition

The ability of a superior to influence the  behavior of subordinates and persuade them 

to follow a particular course of action.

Power –

Power –French and Raven (1960)

•Legitimate power –comes solely from the position the superior holds in an organization

•Reward power – comes by means of promotion, salary increases and it interesting assignments

•Expert power – comes from the leader possessing superior superior knowledge knowledge of the matter 

under discussion discussion

•Referent power – comes from the fact that subordinates identify with the leader and respect him/her

•Coercive power – comes from forced actions and potential for punishment

Participative Leadership

•Involvement in decision ‐ making improves the  understanding of the issues involved by those who must  carry out the decisions.

•People are more committed to actions where they have  involved in the relevant decision‐making

•People are less competitive competitive and more collaborative collaborative when  they are working on joint goals.

•When people make decisions together, the social  commitment commitment to one another another is greater greater and thus increases increases  their commitment to the decision.

•Several people deciding together make better decisions  than one person alone.

Democratic

•In the democratic style, the leader involves the people in the decision‐making, although the process for the final decision may vary from the l deader h i avng the fi l na say to them facilitating consensus in the group.

•Democratic Democratic decision decision‐making is usually usually appreciated appreciated by the people, especially if they have been used to autocratic decisions with which they disagreed.

•Democratic style can be problematic when there are a wide range of opinions and there is no clear way of reaching an equitable equitable final decision.

Situational Leadership

•Assumptions - The best action of the leader depends on a range of situational situational factors factors.When a decision is needed, an effective leader does not just fall into a single preferred style.

Hersey's and Blanchard's classic Situational Leadership® model of management and leadership styles illustrates the ideal development of a team from immaturity (stage 1) through to maturity (stage 4) during which management an leadership style progressively develops from relatively detached task-directing (1), through the more managerially-involved stages of explanation (2) and participation (3), to the final stage of relatively detached delegation (4), at which time ideally the team is largely self-managing, and hopefully contains at least one potential management/leadership successor.

Transformational Leadership

•One of the methods methods the Transformational Transformational Leader uses to sustain motivation is in the use of ceremonies, rituals and other cultural symbolism. Small changes get big hurrahs, pumping up their significance as indicators of real progress.(CultureCreators)

•Overall, they balance their attention between action that creates progress and the mental state of their followers

Management Theories

Schools of Management


The emphasis was on trying to find the best way to get the most work done by examining how the work process was actually accomplished and by scrutinizing the skills of the workforce.

The classical scientific school owes its roots to several major contributors, including Frederick Taylor, Henry Gantt, and Frank and Lillian Gilbreth.


Frederick Taylor


often called the “father of scientific management.” Taylor believed that organizations should study tasks and develop precise procedures. As an example, in 1898, Taylor calculated how much iron from rail cars Bethlehem Steel plant workers could be unloading if they were using the correct movements, tools, and steps. The result was an amazing 47.5 tons per day instead of the mere 12.5 tons each worker had been averaging. In addition, by redesigning the shovels the workers used, Taylor was able to increase the length of work time and therefore decrease the number of people shoveling from 500 to 140. Lastly, he developed an incentive system that paid workers more money for meeting the new standard. Productivity at Bethlehem Steel shot up overnight. As a result, many theorists followed Taylor's philosophy when developing their own principles of management.


Taylor devised four principles for scientific management theory, which were:


1. The development of a true science of management,


2. The scientific selection and training of workers,


3. Proper remuneration for fast and high-quality work


4. Equal division of work and responsibility between worker and manager


School of Human Relations


Elton Mayo founded the Human Relations Movement. Experiments undertaken by Mayo took place at the Hawthorne plant in the USA during the 1930s. His work illustrated that if the company or managers took an interest in employees and cared for them, it had a positive effect on their motivation. When managers took a greater interest in employees they felt more valued and empowered. His work also showed that employees often work best in teams. He also showed that they were more motivated if they were managed and consulted more.


Managers have responsibility for motivating individuals and their teams. Important elements of this include:

• Communicating and explaining the ARM vision, values and strategy to all team members so everyone is working to the same level.
• Providing appropriate training and induction for new employees as well as coaching for all in order to develop skills, confidence and self-reliance.
• Carrying out one-to-one meetings and employee reviews to assess performance and set personal and team objectives.

• Putting in place succession planning for the team and manager roles to ensure long term performance.

Personal development is a key HR strategy at ARM. Regular reviews encourage individuals to reflect upon the contributions that they make whilst providing feedback and support that enables them to develop their professional capability.


System Approach

The major features of the approach to the study of management may be summed up as under:

1. A system consists of inter-related and interdependent parts.

(2) The approach emphasises the study of the various parts in their inter-relationships rather than

in isolation from each other.

(3) The approach brings out the complexity of a real life management problem much more sharply

than any of other approaches.

(4) The approach may be utilised by any of the other approaches.

(5) The approach has been utilised in studying the function of complex organisations and has been

utilised as the base for new kinds of organisation.