UNIT:18 - Global Business Environment

P1 Analyse key factors of cost, market, environment and competition that drive global commerce and trade in the SME

There is a presence of many factors that put an impact on the manufacturing SME which is as follows;

Competition– the manufacturing SME is most likely to face competition not only in UK but in other nations as well. The competition may also be from large companies who are manufacturing shoes of similar design and type such as Nike, Adidas and under armour. In this regard, the competition can thus be managed by the company by involving in advertising and marketing activities so as to increase consumer awareness.  

Cost – This is one of the most essential factors that aids in driving the trade and commerce within UK as well as other nations where the company has established itself as per the case study. Costing for making shoes and footwear is inclusive of materials, machinery, labour, advertising, production management, taxation, research and development among others. The need here is to set the cost structure in such a manner that the firm is able to earn substantial amount of profit as well. Things are required to be taken care as the company has established itself in other nations as well being Africa, North America and Asia (Doh, McGuire and Ozaki, 2015). It can face challenges with respect to labour cost in these nations if it increases with the passage of time on account of government policies, decrease in supply, labour union among others. This may put an impact on the supply chain and production facilities in the nation. Issues may further arise if the change in labour cost forces the company to relocate to other nations.

Environment – it is very essential for the manufacturing SME to focus on the environmental factor and adhere with the concept of environmental sustainability. This is as consumers now days prefer products of those firms who have the presence of low carbon footprint. Moreover the government regulations are also strict in this area which may impact its overall trade. For example, the company should be careful about the chemicals that are released from the factories on account of leather tanning and dyeing process used in shoe making and how they are disposed off. Issues may arise if people report of skin and heart ailments due to the polluted water if the waste is disposed in water (Fleisher and Bensoussan, 2015). Hence the company officials should be vigilant in this regard.

Market – As there is a presence of established shoe brands in UK hence the company may expect growth in emerging markets like Asia and Africa as compared to the developed ones. The research studies have revealed that growth in footwear market of emerging nations was 2 billion dollars in 2010 which doubled to 4 billion dollars during 2015 (Hemphill and White, 2016). Other than this, female segment can also provide growth prospects to the company in the coming times. This future scenario should be used by the company for driving drive global commerce and trade through increase in sales and revenue figures.

P2 Explain the complexity of strategic challenges faced by the SME when operating in a global environment 

Many kinds of strategic challenges can be faced by the company while it operates within the global business environment. These are as follows;

• Environmental concerns – This is a significant source of challenge for the manufacturing unit as every nation has its own set of local and regional regulations when it comes to einovrnment. These can be in the area of using certain materials that are environmental friendly; disposal of waste; worker exposure to harsh atmosphere, sunny or humid climate among others. The recycling programs etc. may add to significant cost factor for the company thereby acting as a strategic challenge.
• Increase in labour cost- Increasing labour cost in most of the nations is quite challenging for the company as significant amount of cost is involved in creating demand in new nation, understanding government policies, making contact with supplier among others. A recent study in this regard has revealed that there is an increase in cost of labour in Chinese nation. As the company has expanded itself in Asia hence this news can pose a significant challenge for the company. The need may be to make a move towards low cost nations like Indonesia, Vietnam among others (Forsgren and Johanson, 2014).
• Rising competition – The shoe manufacturing company will not only face competition from the small firms that are producing the similar design and offering footwear in same prices. The competition will also be from well-known brands such as Nike, Adidas and Under Armour that has significant presence not only in UK but all over the world (Doh, McGuire and Ozaki, 2015). It is however true that market segment may be different in terms of buying power but still the firms are a threat for the company. Hence the firm should focus on keeping the price low and lay increased emphasis on quality to garner consumer base in a short span of time.
• Shortage of skilled labor – the present century is facing a big challenge with respect to the exit of Baby Boomers from the workforce that had a presence of valuable skill set with them. Reports have further suggested that there will be around 3.5 million manufacturing jobs over the next decade (BeynonDavies, Jones and White, 2016). This may add to significant amount of pressure for the company as the need will be to fill up the current positions. In this regard, automation and robotics may do the work of filling up the labour gap but still humans with the necessary skill set is required to solve the problems, analyse the issues and also manage the output.
• Staff issues – it is very essential for the manufacturing company to treat its labour in the best possible manner. This is as if this does not happen then legal proceedings may start against the company which may further impact its overall brand image. Similar such situations occurred with Nike where there was a presence of incidents in its Indonesian factories that the workers were suffering from issues like sexual and verbal abuse; lack of medical care as well as overtime issue on a compulsory basis. Problems also arose in its factories of Pakistan; Health and Safety negligence in Vietnam etc (Yılmaz and Yılmaz, 2016).All these led to a global boycott campaign against the company which decreased its overall brand image, sales and consumer loyalty. Nike was a big firm hence it was able to maintain its sustanability but as the present shoe company is an SME hence the problems may be more for it.

P3 Evaluate the influences of globalization on organizational governance and leadership, structure, culture, and functions within the SME

The process of globalization has put a huge impact on the overall operations of the SME shoe manufacturing firm in the areas of leadership, structure, culture, and functions.

Impact on leadership – Globalization is most likely to put an impact on the overall working of the company. This is as the firm is in a need to create global leaders who can work in all kinds of cultural differences. They should also have an increased awareness about legal, regulatory as well as economic system of various nations or at least those where they are most likely to work. The firm id required to hold training sessions for the employees in this regard so that they do not face any issue while working with global teams. Information should also be provided about trade barriers, competitive landscape; consumer type; governmental regulations where the firm is planning to send its leader (Fleisher and Bensoussan, 2015). Oral as well as verbal communication of the person should also be good enough so as to interact in a better manner. The present times sees a huge need for this step as on account of the case study the firm has expanded itself in UK, Asia and Africa.

Impact on culture – Seeing the present business environment the company should start adhering with Adhocracy culture that is based on the principle of team work in a dynamic and creative manner. Leaders of the company are required to develop innovation within the team members and should also make them take risks when the need arises. As the footwear market is a highly competitor one, hence the need is to create new products and services to attain goal of growth. This can be done by making the culture an open one and promoting individual initiative and freedom. Moreover, as the company has expanded itself globally hence it is most likely to deal with cultural diversity (Fleisher and Bensoussan, 2015). Hence the employees must be trained so that they respect the diversity of other staff members in the area of ethics, values, culture and religion in a wholehearted manner. It is most needed so as to avoid the situation of chaos and conflict within the firm.

Impact on structure – Due to the impact of globalization the firm is required to adhere with decentralized management structure. This is most likely to provide the benefit with respect to using the local management team   and being conversant with the overall market.

Impact on functions – globalization process and its impact on the company can only be managed if it invests in technological innovation to manufacture shoes. The technology should also be used in taking right orders and delivering the shoes to the consumers in a timely manner. Its usage can further be seen in communication systems so as to aware the consumer about the brand and product offering; work on consumer feedback and making a direct connection with them. Seeing the presence of cultural diversity in organization on account of globalization the need is to work on company culture as well and make it a friendly one (Yılmaz and Yılmaz, 2016). It should also focus on interactions, creativity and a drive to innovate so as to reap better results in terms of less employee turnover and more productivity.

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P4 Evaluate the influences of ethical and sustainable globalization on organizational functions of the SME

The business working in the present times is based on the concept of ethical and sustainable globalization which has further put an impact on the overall function of organization. In this regard, the company is required to adhere with safety norms within its manufacturing plants so as to cause no harm to employees. There should also be a safe disposal of waste so that surrounding areas that are within the vicinity of factory are not impacted in a negative manner. The management officials of the company are further required to ensure that no malpractices in form of sexual, verbal or physical assault take place with the employees (Voigt, Buliga and Michl, 2017). This also includes making them work for long hours, not providing any form of compensation, and denial of holidays among others. Such malpractices if comes to public notice can cause a decrease in the overall brand image of the company. The people may not prefer buying products of the firm which may affect the overall sales figures and reduce the overall profitability. 

Other than this, principles of openness and transparency are also required to be maintained with respect to disclosure of financial information, profit and loss statement and payment of taxes on a timely basis. If this does not happen then the company may face legal consequences that will not benefit the future sustainability of the company (Klingner, Nalbandian and Llorens, 2015). The legal process may go on for a long period of time which may lead to loss of sales revenue and tarnish the image as well. Issues may further arise with respect to its expansion plans in other nations.

The management thus thrives hard to make company as the most ethical one. This is as one issue in terms of ethical standards may impact the operations of the company for a long time. Same situation happened with Nike as well as the employees malpractices done by supplier still haunts the company even after a time span of 20 years (House and et.al. 2013). Although Nike worked a lot to uplift its image but the issue remained in the minds of consumers and government.

The company must also adhere with the norms of environment sustainability as well. In this regard, it can be part of Detox Challenge launched by Greenpeace in order to make the suppliers avoid dumping of chemical waste in the water bodies. This will not only make the area toxin free but also enhance the image of the company as the one that cares for the environment. It must also strengthen the overall research and development departments to develop shoes that produce the least possible carbon footprint (Klingner, Nalbandian and Llorens, 2015).  It can further ensure that its procurement staff and manufacturing team works on the concept of lean and green by making an attempt to make a balance between cost and revenue figures so that highest possible net operating profit can be attained. Overall the firm should commit itself on various areas such as improving the overall environmental impact of its operations. Maintaining transperancy in the financial reporting; ensuring towards creation of decent work conditions for the staff among others (Smith, Rees and Murray, 2016).

P5 Evaluate the different ways decision making can work effectively in a global context.

Different ways can be utilised by which decision making can be effective for the new SME.

Command decision making is the one where management decides without making a consultation with the team members. This type of decision is effective in those cases when things move at a quick pace and is in a need of immediate guidance. For example, certain quick decision may be required in the company when a sudden power failure or technical fault takes place in one of the manufacturing unit (Li, Mobley and Kelly, 2013).   If others are consulted then it may led to further delay in the process thereby affecting  the work flow hence the technical manager will give command to the staff as to how the issue is to be resolved.

Then is the collaborative decision making where the management may gather the team members and ask for a feedback about any specific issue in hand. The management will make a final decision but viewpoints can be gathered from the team members so as to find out the best suitable solution in the current scenario. It can further assist in collecting important details about the situation and informing the decision to the employees. For example, a situation may arise when the company faces lot of product recalls (Fleisher and Bensoussan, 2015). The employees may then be enquired about the feedback given by consumers and issues faced by them. The market research team can also be consulted so as to gather data from social media about the product. The final decision is then in the hands of manager about what is to be done with the issue but is done on the basis of data collected.

Consensus based decision making can be regarded like a democratic vote where the leaders enquire the team members and ask them to vote about a specific case. Decision making is then done on the basis of collected votes that are in majority. Such decisions can be taken in the shoe manufacturing SME on a day to day basis. These can be in the areas of installing a new machine or equipment in manufacturing (Doh, McGuire and Ozaki, 2015). The employees who would be working on the machine can give votes on its consent as to whether a new machine is needed by them or not. Final decision will then be based on how many employees are in favour of it.

Then comes the area of Convenience decision-making which takes place when the leader is surrounded by colleagues who can be trusted. The decision making is left in their hands while the management side lines him from the process.  This strategy is quite advantageous in terms of increasing the overall decision making of employees and empowering the team members towards the process. It further assists in making the employees responsible and motivating the team members by making them feel that there decision is important for the firm.

P6 Determine and articulate the various routes to internationalisation an organization may adopt, including key barriers.

There is an existence of various routes by which the firm can internationalise itself in many nations. The concept as well as the associated barriers for the manufacturing company is discussed below;

Acquisition - One strategy that can be used by the SME is acquisition strategy that can help the company in getting access to market. However it is required that the company gets aware about the laws that are there in the target nation. For example, the China have put huge restrictions on the foreign ownership process. In the similar lines. Developed nations like USA has laws which are to be followed during acquisition. The strategy can also be a costly affair and may further led to integration issues that may arise in the office as well (Fleisher and Bensoussan, 2015).

• Exporting – this route for internationalisation can be used by the shoe manufacturing SME in order to export its products to their countries from its factories. This will not only assist in avoiding expenditure spent on setting up new plant in the nation but will also give it a chance to focus on other areas such as marketing, packaging, putting labels as well as deciding the price of the product (Yılmaz and Yılmaz, 2016). However the company can face many barriers in from of lack of control over the products once they are exported followed by absence of any knowledge about the market where export has been done.
• Green field venture – This strategy focuses on establishment of new as well as wholly owned subsidy in the foreign country by working on the facilities from the scratch. The process is quite advantageous for the firm as it will assist in the overall expansion plan and there will also be a flexibility for creation of IT system according to needs of the company (Doh, McGuire and Ozaki, 2015). The entry barrier with respect to building up the infrastructure is high thereby making it not so cost effective.
• Partnerships and Strategic Alliances – Another best way for the company is through strategic alliance with a local partner in that nation where it wants to base its operations. This is most likely to assist the company in getting a know how about market conditions, government regulations, culture and traditions as well as ways of doing business as per political and economic scenario (Klingner, Nalbandian and Llorens, 2015). This techniwue can reap advantages for the firm in Middle East nations where there is a need of local partner on a mandatory basis so as to start the business. This strategy can however result in barriers such as absence of direct control over the operations in foreign nations; difference in partners goal and sharing profit.

The set of above strategies discussed above leads to the conclusion that the route that has been selected for internationalisation is dependent upon a lot of factors like tariff rates; costing and pricing involved; government rules among others. The management officials should thus select the strategy as per there goals, objective and future requirements.

Conclusion 

A conclusion can be drawn from the above report that there is a presence of various factors in form of costing, market, business environment as well as presence of rival firms that drive the process of global trade for the shoe manufacturing SME. Along with this, there is also a presence of many strategic challenges that put an impact on overall working and are inclusive of rising labour cost, environmental concerns, competition among others. Globalisation process further puts an impact on leadership, cultural ethos, structure and overall functioning of the company. In this regard, the need of the firm is to create global leaders as well as a cultural diversity that can help in meeting the changing requirements of market.

References

• BeynonDavies, P., Jones, P. and White, G.R., 2016. Business Patterns and Strategic Change. Strategic Change. 25(6). pp.675-691.
• Doh, J., McGuire, S. and Ozaki, T., 2015. The Journal of World Business Special Issue: Global governance and international nonmarket strategies: Introduction to the special issue. Journal of World Business. 50(2). pp.256-261.
• Fleisher, C.S. and Bensoussan, B.E., 2015. Business and competitive analysis: effective application of new and classic methods. FT Press.
• Forsgren, M. and Johanson, J., 2014. Managing networks in international business. Routledge.
• Hemphill, T.A. and WHITE III, G.O., 2016. The World Economic Forum and Nike: Emerging ‘Shared Responsibility’and Institutional Control Models for Achieving a Socially Responsible Global Supply Chain?. Business and Human Rights Journal. 1(2). pp.307-313.
• House, R.J. and et.al., 2013. Strategic leadership across cultures: GLOBE study of CEO leadership behavior and effectiveness in 24 countries. Sage Publications.

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