With the rise of globalisation, what are the effects on Business 2 business organisations Essay Example

With the rise of globalisation, what are the effects on Business 2 business organisations? Essay This essay will look at how B2B organizations are effected by globalisation and how these businesses need to adapt if they are to succeed in their new environments. More specifically, the essay will look at the effects of globalisation on B2B organizations in the Asian / pacific markets. Examining the threats, opportunities, difficulties, limitations and the importance of localization from a marketing perspective. Introduction Firstly, to analyse the effects of globalisation on B2B organisations, we have to understand what these terms actually mean. Globalisation can be defined as the growing integration of economies and societies around the world. This integration is a result of lower transport costs, reduced trade barriers, faster communication of ideas and rising capital flow. (Kotler Armstrong, 2001). Business marketing can be any activity that Facilitates exchanges involving products and customers in business markets (module 1, 2003) We will write a custom essay sample on With the rise of globalisation, what are the effects on Business 2 business organisations? specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on With the rise of globalisation, what are the effects on Business 2 business organisations? specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on With the rise of globalisation, what are the effects on Business 2 business organisations? specifically for you FOR ONLY $16.38 $13.9/page Hire Writer A strong marketing base is essential for any B2B organization venturing into a new country, but identifying that base can be complex due to different social and demographic structures, especially for western business entering the Asian markets or visa-versa. (Dixon Karboulonis, 1999) Due to cultural, economic and demographic reasons, the target market segments will vary greatly from country. Because of this, it is strongly recommend for a business to invest in primary research and to examine secondary research before producing a business strategy for the new market. A business entering a new market place has to answer a number of questions. What are the present and potential market segments? Who are the key Potential customers and major competitors, and what are the main environmental factors? Due to the cultural background of a country The B2B interactions vary greatly. A study of 62 Australian operations multinational companies, 42 by the U.S or Europe and 20 by Japanese firms. The study revealed that factories owned by Americans and Europeans contained equipment that was manufactured in a wide variety of countries, unlike the Japanese-owned factories whereby the overwhelming majority of equipment came from Japan ( Herbig Milam, 1994) For a business considering exporting to Japan or setting up a base in Japan, information like this would be critical to its success. This demonstrates how imperative it is to conduct Qualitative, exploratory research in order to determine consumer/business behavior and social psychology. Studies have shown established relationships among values, attitudes and consumer purchase behavior. Often, U.S. executives wrongly assume that the only significant barrier between them and their overseas counterparts is language. This is not the case, analysts say. In fact, differences in culture may be the most important factor to consider in global B2B. (Dublish, 1999) One of the key factors that American businesspeople dont seem to get is deal-making is done very differently depending upon the culture. While the American executive may rely on legal formalities and financials to decide on a deal, the Spanish or Japanese executive often prefers a lengthy getting to know you approach, says Katrina Teague of Lionbridge. Deals are made over long lunches, not on a handshake. (Forsythe, Jai-Ok Kim, Quigliang, Sook Jae, 2002) Effectively selling a product overseas in a foreign market requires more than just finding a local distributor. What is less frequently understood is the significance of truly localizing, or adapting, content or a product to meet the linguistic, cultural, and other needs of a target market. This is a process that differs from internationalization, which is generalizing a product so that it can handle multiple languages and difference without the need for redesign. Localization involves individually tailoring a product to a specific market, in a process that goes beyond mere translation. Businesses that incorporate a localization component in the early stages of their global strategy will be positioned far more competitively than businesses that do not. (www.harvardbusinesonline.com ) Knowledge of a countrys social and cultural aspects is also critical. Certain jokes, symbols, or colors that are completely acceptable in the West may cause offense in a foreign market, or vice versa. Fo r example, when an American company tried to sell its toothpaste in certain Southeast Asian markets by emphasizing that it whitens your teeth, it discovered that many local residents chew betel nuts to deliberately blacken their teeth, which they find attractive. (www.B2Bglobalization.com) Globalization and increasing complexities of localization, in both technical and non-technical departments, have driven the rapid expansion of the localization industry. Rough estimates of the size of the industry range from $11 to $30 billion. The 20 largest IT companies annually leverage total localization expenditures of around $1.5 billion to generate sales in excess of $50 billion. ( Haley, 2000) There is a diverse array of service providers that can be classified as comprising the localization industry, including translation or language tool vendors, software engineers, and consultants. Despite its importance, localization is still too often regarded as an afterthought, so each time businesses move into a new market they have to start the process over from the beginning. This slows the entire process down, creates repetition of effort, and is a wasteful use of resources. It is essential that companies include localization as part of their globalization strategy from the beginning. Taking a long-term perspective on localization could save businesses money in avoiding duplicated workloads. Globalization and localization should function together as companies develop globally while carefully tailoring products and services to specific markets. (Haley Tan, 1999) Pricing a product or service for a new market can be very risky, and there are a lot more dimensions to consider when developing a pricing strategy. The business must understand laws, government and competitors of both the foreign market and domestic market. Of the four marketing Ps, price is probably the most overlooked. But as Global competition becomes more intense, pricing will become much more of a weapon against competitors. There are eight major market and environment factors, which influence a business pricing policy. (Kotler Armstrong, 2001) Income levels and market segments is the first factor. Prices should ideally suit the market which the business operates, taking into consideration local markets variables and realities. In many countries such as China there are more than one target segment, this is a result demographic, income levels and geographical factors. Competitive structure of a market will also have to be considered. Will competition be local or international, or will you be the sole supplier, in which case there will be a much greater flexibility in a firms pricing strategy. The length of the Channel structure is also a determining factor in price. The length of a channel structure is likely to be greater. This will particularly affect the cost for final user of the product. A Business also has to be aware of what is known as Gray markets. This situation occurs when entrepreneurs take advantage of the price difference, which exists, between different countries. If the difference is great enough the entrepreneur will purchase the product in low price countries and re-export these products to more highly priced markets, Thus undercutting profits of manufacturer or other retailers. (Bingham, F.G ; Gomes, 2001) Environmental factors such as Foreign exchange rate and inflation rate will also play a part. Exchange rates pose the greatest threat to international trade and will often determine profitability. Individual businesses have no control over exchange rates and can only hope to manage them. Business in countries with high Inflation, are face with the threat of a continually devaluing local currency when trying to convert to the sellers currencies. This makes it difficult to translate costs. Other environmental issues such as Price controls and can also be involved in determining price. Price controls are imposed by the government and will often include price ceiling and floors. Factors such as this will only add to the complexity of global pricing. (Bingham, F.G ; Gomes, 2001) The meteoric rise of the Internet and global markets has effectively created what is known as the Eighth Continent, a virtual landmass with a population of almost a billion Web consumers and business users around the planet. (www.cio.com) Web globalization will remove geography from the competitive equation, says Tom Dwyer, Aberdeen group Web Globalization Research Director. It enables Web buyers to select products and services based on the relevance, appeal, and comfort level of a suppliers Web site, whether its the local Wal-Mart or the Carrefour on another continent. An Aberdeen Group report predicts that around 80% of multi-national B-to-B companies will globalize their Web sites by 2004 in order to penetrate or optimize business in global markets.(www.cio.com) . Faced with the rapid decline of English as the primary language on the Web, companies are promoting technologies, professional services, and best practices to efficiently and effectively deliver localized, customized, corporate messages and content to businesses across the globe. By 2005, it is estimated that only a third of all Internet users worldwide will be English speakers. Despite this, over 96 percent of all e-commerce Web sites are currently available only in English. Forrester Research, claims businesses that present their Web sites solely in English are losing up to $10 million in potential sales per year. On the Internet, as in the real world, there are cultural and social aspects to consider. For example, in many countries there is still a reluctance to use credit cards for on-line transactions. Alternative payment mechanisms, specific to that market, must be found and made available. People are also predictably more comfortable dealing with amounts in their local currencies as opposed to U.S. dollars. Above all, seek local review and validation of your overseas site. All good Web designers recommend user testing, this is particularly imperative in the international market because of its greater diversity. Use local offices, partners, suppliers, distributors or outside consultants to test and validate, it is important for a business to take into consideration that usability is an issue that is important to review often. (Pae, Samiee Tai, 2001) Politics can produce both opportunities and threats for a B2B organization. Taxes, tariffs and price controls are often encountered, but some government also give incentives, such as tax reliefs and grants, these approaches are usually used by governments to revitalize areas that have high unemployment rates. Addressing Legal Hurdles Some of the thorniest problems in globalization. Things such as copyright and trade regulations can restrict doing business overseas. One of the toughest issues here is the variation and fluctuation of international tax rules.( Dibb, 1996) The 90s were an era of unceasing, accelerating, global social and economic integration. During the period, world trade in goods nearly doubled in value, to $6.4 trillion in 2000, and thousands of companies put all their eggs in one basket and bet their future on exports. Heads of state and political leaders such as Al Gore celebrated globalization with speeches, preaching the endless benefits of integration. Businesses ran advertisements featuring Buddhist monks surfing the Internet from remote mountain top abbeys. Today, however, much of that initial expectation and optimism has evaporated. Synchronized economic slowdowns in Asia, Europe and the United States, the three pillars of global commerce, have put a stranglehold on international trade. The World Bank estimates that last year global trade underwent one of the most severe decelerations in modern times. Violent anti-globalization protests have become regular events all over the globe.(Dixon Karboulis 1999) So, with all the problems that face a business that is looking to venture into new markets, what are the benefits of doing so? What opportunities, does this present to the business? Well, its quite simply, Revenue. For example, China is a relatively untapped marketplace. It also has a population of around 1 billion, over 70 cities with populations over a million. As a Rapidly developing economy, a business that manages to establish a significant market share early on, is likely to reap massive financial rewards in future years. But to do this the business needs to beat competitors to these new markets; to heighten brand awareness; to shorten time to market; to improve collaborative efforts and knowledge management; to lower the cost of doing business; and to focus on customer satisfaction. Section 2 Introduction The Business I have chosen to examine, with regards to the effect of globalization is Everton Football Club, my home team. The question may be asked, how does globalisation related to a medium sized soccer team from the north of England, and more specifically how do they relate to the Asian and pacific marketplaces? They are not exactly the team on everyones lips. Well, at the beginning of this season, Everton signed a sponsorship deal with Kiejan telecommunications. A Chinese mobile phone firm which, despite only catering for its domestic market, produced over 5 million units last year. This sponsorship was primarily aimed at Boosting Kiejans profile in Soccer-mad China. As part of the deal, Everton FC received two Chinese international players, superstars in their own country but unknown everywhere else.(www.toffeeweb.com) The effect of this deal was to make Everton arguably the most popular club in the world, a bold statement perhaps, but the deal made Everton the most supported team in China, And with television rights to the Everton games purchased by Chinas state television channel, Evertons popularity rocketed. (www.Evertonfc.com) In the past season Everton have received staggering viewing figures. For example, Everton FC Vs Manhester City, not a particularly big game by any standards, but with the two Chinese players making their debut for the Everton first team, the game received viewing figures of around 600 million- yes, that was million. (www.toffeweb.com) Now, getting to the marketing aspect of this. There is a population of over a billion people, half of which have definite consumer buying power. This presents Everton with an incredible merchandising opportunity. Everton are aiming to sell Everton FC club-shirts to around one in every thousand potential customer through b2b relations with sporting retailers and locally based manufactures throughout China, and with Everton scheduled to make a summer tour of China, that target is by no means unattainable. Environment Demographic/economic China, as a market place, has a massive with 1 billion consumers. Despite being one of the largest countries in the world in terms of geographical size, its cities are among the most densely populated. Despite the recent recession in the Asian economy, China is still booming, with the purchasing power of the average consumer skyrocketing. Other demographic factors, such as changing family structures, in-forced by government regulations of one child per family, will also have an impact on Evertons marketing approach, as this would alter the spending habits of the average consumer household. (Kotler Armstrong, 2001) Social/cultural The global rush of businesses to China will inevitably fail to produce good returns over the long-term if conducted without the appropriate respect for Chinese business and economic culture, if conducted in a manner that indicates short-term thinking and engagement, or that derides or ignores Chinese abilities, experience or values. Due to the varying cultural and social attributes in different parts of China, it is important to localize aspects of regional business functions, so that Everton can deal with distributors and retailers in the most appropriate and effective manner, thus, hopefully building good B2B relationships. Political/legal The picture of China is of a prosperous market that will successively build on principles of liberalizing and de-regulating key aspects of the economy, a consumer sector that offers the prospect of massive markets for the right products, and that is looking for an active economic relationship with the rest of the world. Commercial operations in China can draw on an ever more-liberalized market and economic structure and a political apparatus that increasingly values foreign capital and seeks engagement with potential foreign investors and employers. Market Benefits sought The major potential benefit for Everton, is the access to a potentially lucrative emerging market. The first European club to enter into such a sponsorship deal for the first time in a long while, the deal is allowing Everton to lead the way. The deal allowed two of Chinas best players to come to Everton, and will have access to the cream of their youth players (two this season; two next) Thus, almost guaranteeing further support from China in years to come. 85 MILLION people watched Li Tie sign his contract to come and join Everton. (www.evertonfc.com) Television rights deal may well flourish. Suddenly, there could be a massive demand for Everton FC matches. A tour in the next close season may also prove to be very lucrative for Shirt sales. China will soon become the worlds largest garment exporter; all investors want to go there because of the low labor costs, This will be reflected in the Everton profits, with Puma Corp. manufacturing the T-shirts in China.About 15 million people work in Chinas garment and textile industry. (www.asia.news.yahoo.com) China is the biggest exporter of clothes and textiles to the European and North-American market. One fifth of the garment exports come from China. Foreign investors are interested in China because of the very low wages. The Government has little concern for human- rights and only responsibility for it on paper. (www.asia.news.yahoo.com) What they know? It is possible that the Chinese players might not even make the first team, but their presence at Everton will significantly increase the chances of selling replica shirts in a country with a population of more than one billion, (The London Times) A win-win situation- Soccer aside, the sponsorship likely makes great sense for both Kejian and Everton, London Times analyst Lai said. Off the back of the World Cup interest, sponsoring a soccer team actually seems like a very good idea, you probably get more bang for your buck, he said. Kejian may be a little-known player that serves its home market. But it may not stay that way. level of involvement Decision makers and influences- The efficiency of China logistics as a distributor may in some part effect price, due to transportation costs supply and demand trends. i.e. if the Distributor failed in dispersing the appropriate amount of goods. . A new distribution agent in Hong Kong has been appointed and China Logistics expect to increase market penetration in the Hong Kong market. They expect the turnover and contribution from the Puma division (manufacturer of Everton FC replica shirts) to increase significantly. This may influence the establishment of sales to retail outlets in Hong Kong for Everton Replica Shirts. (www.puma.com) The main decision makers will be the Marketing Dept. of Everton FC. Accompanied by partners such as Puma. Competitive description of competitors What is the target market? . Potential competition is easily identifiable: any European/ American football club, media or other football/sporting business organization that is looking to capitalize on the enormous opportunities now available in China, With a cumulative TV audience of over 2 billion for the three matches played by China in last years World Cup dwarfing all other markets, the profile of football in China has never been higher and the potential never more obvious. (www.teamtalk.com) As European soccer clubs look to the Far East to protect and increase their revenues China presents a tantalizing but testing option. Clubs in the top divisions of the English, Italian, Spanish and German leagues are among those who are increasingly looking to develop and implement strategies to build their brand profile in a market whose appetite for European football continues to grow. Opportunities The overwhelmingly clear opportunity for Everton, is simply the huge potential market that is available. If a reasonable market segment were to be established it would bode well for future finances. To curb the booming population of China the Government has passed regulations limiting families to one child each. The result is a nation of very spoilt children. Known in China as little emperors. Children are be showered with gifts, candy, anything they pretty much want, this is a result of what is known as six pocket syndrome. Six adults, including parents, grandparents etc. indulging each individual child. The average Beijing household now spends around 40% on their beloved only child. (Kotler Armstrong, 2001) This is perfect for business like Everton, whereby the majority of purchases are for Children and teenagers. Also the Government is looking towards economic growth as a priority, therefore laws and deregulations are often bias towards the business. Television is also a major opportunity, with 500-600 million tuning in to watch games, television revenue could be huge. Theats The main threat lies with competition, either from other sports, such as the NBA or other soccer clubs. There has been a recent surge again in anti-globalization and its apparent exploitation of workers. A constantly increasing group of companies, like C A, Reebok and Walt Disney, have drawn up their own Codes of Conduct in response of the increasing criticism of consumers.(www.asia.news .yahoo.com) Even if Everton did implement a code of conduct, the problem still arises that with these Codes is that they arent monitored by independent organizations. Basic rights like a live able wage and the rights to form independent trade unions are hardly ever included in the Code; the retailers give us the guarantee that they respect basic human rights. They claim to respect national law as a minimum and to do often more. In the case of China this offers opportunities as well, because on paper the national law is biased towards the business. Strengths A major strength for Everton is there reputation as a cool club, also; their affiliation with a well-known Chinese manufacturer has given the club their greatest weapon in penetrating the Asian market. Having Two Chinese International players is a definite plus for Everton FC, but there is another player drawing huge attraction to Everton, and hes not Chinese. 17yr old Wayne Rooney. The youngest first team player in Evertons 125yr history, youngest player to score for Everton, youngest player (then 16) to appear and score in the premier league and youngest ever England international player. If thats not enough, he has been hailed as possibly the greatest player in the past 20yrs by the likes of the Pele, Ronaldo, Beckham, Wenger and the England team coach, Also winning sports personality of the year award after only 10 premiership appearances. He is and will, certainly become a massively marketable asset for Everton around the world, much like David Beckham is today for Manchester United. The Localization Standards Industry Association is the major industry trade group that represents global companies. Founded in 1990 and based in Switzerland, LISA provides professional support for the development of enterprise globalization guidelines, best practices, and business standards, Acquiring the help of an organization like LISA, would be very beneficial for a club like Everton who have never tried to establish themselves in a foreign market before. (www.lisa.org) Weaknesses- Evertons main weakness is there lack of primary research and knowledge to effectively segment and particular target audiences. Also, this research needs to be done so that they can localize aspects of their marketing strategy such a Chinese club Website. It would be beneficial for Everton to localize strategies early on to avoid repeating effort, and save money. Finances are another weakness, despite the potential for massive growth; the club needs the initial investment to establish distribution networks etc. Last year, the club only recorded a small profit, and that was derived from selling players. Recommendations There are three main strategic options available to Everton at this point in time, each having their advantages and disadvantages. The First option would involve minimal expansion into China, concentrating more on the domestic market. This would in some ways be considered as the safe option. B2b marketing relationships with retail outlets and distributors in the domestic market have been firmly establish for many years and provides a constant flow of income. Diverting human resources and finance to China could result in loss of market share in its domestic market. Despite this option being safe, it does not allow much consideration for expansion, because the domestic market is already considered as fully saturated. The second option would be to invest heavily into venturing and establishing B2B networks in China and to pursue a differentiated marketing strategy. With regards to Evertons business portfolio, the prospect of China may be considered as a Question mark. This is because expansion into China would require a high degree of investment, but appropriate investment could easily turn that Question mark into a Star, with high market share and high growth rate. Again, this option provides the greatest potential from a revenue perspective, but expensive primary market research would need to be done to specify the target consumers and to develop a successful localizing marketing approach, which would be necessary when dealing with cultures as different as China Another aspect that would need to be addressed, would be if Chinas interest in soccer is sustainable or simply just a cultural fad. The Third option would be for Everton to venture into China, but establish an undifferentiated strategy, whereby its marketing strategy would be very similar to its domestic market. This approach would be used for its minimal or non-existent financial input into developing a localized approach. Although, this approach would be very risky, and at best only a short-term solution as it does not consider local values, contexts, or the general nature B2B relationships. I believe that the second option would be the best approach for Everton FC, Simply because if the clubs expansion into China is approached with a long-term perspective, while considering cultural, demographic/environmental and economic aspects, it will produce the greatest financial rewards, and may establish Good B2B relationships. Also, television rights that will accompany Evertons expansion into China will offset the majority of short-term costs. The third option is less costly, but would simply be to risky, as it would effectively be trying to market a product blindfolded, totally unaware of the environment. So what action would need to be done? With regards to price, Everton has to consider, both Chinese and English governments, laws, markets and competitors. Being a county with such low costs, they will have to be careful not to sell the product to cheaply and effectively create Gray markets, but not to expensive for the average consumer. The six pocket syndrome of many Chinese families will hopefully allow the mark up price to be reasonably high. Promotion, this will most likely have to be localized to China, and its different target segments. Taking into account differences in language in income levels of end consumers, values and trade practices. There will have to be a great deal of primary qualitative and quantitative research to specify these factors. Place, establishing a geographical base location will be important, and will have to consider proximity to manufactures, distributors and business markets. There should also be a website to provides B2B access to Everton, from anywhere in China. It is important to make sure the website is localized to China if they are to fully benefit from it. Positioning, due to Evertons reputation as a club, and their affiliation with Kiejan, the club has already established an appealing space in the minds of potential customers in relation to competitors. Also television broadcasts of games will increase Evertons exposure as a brand. My recommendation will not be able to address issues such as economic down turn, fluctuating exchange rates and high inflation. This is because these factors are out of the control of Everton. They can only hope to manage them. But, due to the size of the Chinese market the exchange rate is usually quite stable, and Asia appears to be moving out of the economic slowdown. On a final note, one of my favorite sayings is that fortune favors the brave, and this may ring true especially for Everton if they decide to take the plunge into Asia. The Benefits in 15 years time could be almost inconceivable.