Concept of the Global Expansion in Business

Differences between Transnational and Global Organizations

Transnational organizations and global organizations differ because of their organizational structures and nature of operations. Transnational organizations are perhaps the most complex types of organizations because they have a greater level of investment in foreign markets, as opposed to global organizations, which have minimal investments in global markets. Stonehouse (2012) says that the main distinctions between transnational organizations and global organizations exist in their marketing/product strategies. Transnational companies often adopt the same product strategies across their global markets but prefer different marketing strategies (Stonehouse, 2012). Comparatively, global companies often pursue the same marketing strategy, but different product strategies. Therefore, global companies have a more coordinated marketing strategy, but an uncoordinated product strategy (Stonehouse, 2012). The Coca Cola Company is an example of a popular transnational company, which pursues the same product strategy in all the countries that it operates. However, the company markets its products differently across its global markets.

Besides their product and marketing strategies, global firms tend to have a decentralized decision-making structure, while transnational organizations prefer to have a decentralized decision-making system (Remenyi, 2013, p. 466). Concisely, global companies tend to have a central office where a top-down decision-making system suffices because regional offices follow the directions of the central office. Comparatively, decision-making structures of transnational organizations tend to disperse across central or regional offices (Remenyi, 2013). Because of the top-down organizational structure, global companies have a relatively low flow of information, products, and people throughout their regional markets. When a flow of information occurs, it usually occurs from the headquarters to regional offices. Comparatively, transnational organizations have a more balanced flow of communication, which revolves (usually evenly) from regional offices to central offices or from the central offices to the regional offices (Remenyi, 2013).

Comprehensively, the transnational organization has a more polycentric organizational structure where organizational activities are strictly coordinated (D’Andrea, 2013). This strict coordination explains why information communication technology (ICT) is very important for the efficient working of transnational companies. Indeed, the successes of such organizations mainly depend on the coordination and communication of company activities (Kagermann, Österle, & Jordan, 2011). Lastly, based on the evaluation of transnational and global organizations, it is crucial to show that transnational organizations mainly pursue a fragmented organizational structure because they strive to better respond to regional market needs, but global organizations do not necessarily experience this need because they tend to meet a higher need than making a profit (D’Andrea, 2013). For example, the World Organization of the Scout Movement is a global organization that does not necessarily strive to make a profit. Comparatively, Coca Cola Company is a profit-making entity that seeks to address the needs of their global markets. Their objectives and organizational structures, therefore, differ significantly.

Criteria for Expanding Businesses Globally

The business expansion could be an inevitable process if a business grows and supersedes its targets. However, analysts warn that rapid business expansions or slow business expansions could be disastrous for businesses because rapid business expansions may attract many unnecessary operational costs, while slow business expansions may lead to the loss of good business opportunities (Zhou, 2010). It is therefore important to understand the right time to expand a business. The best criterion for expanding a business includes a careful evaluation of internal and external factors that affect a business. Internal factors that may influence the decision to expand businesses include factors that are privy to the organizations. For example, a company’s financial position, organizational culture, vision/mission, and products/services are a few examples of internal factors that affect a company. However, external factors that affect businesses include an analysis of the factors that are not within the control of the businesses. Such factors may include competitive pressure, political factors, economic factors, social factors, and technological factors.

Among existing external factors that affect a business, market factors possibly outline the first criterion for evaluating if a business should become global or not. If there exist market opportunities in the global market, a business should explore ways of exploiting this opportunity. Market factors are therefore very important in influencing the decision regarding whether to be global or not. Certainly, there is no point in expanding into the global market if there exists no opportunity for doing so. Economic factors also come close to the importance of market factors in influencing an organization’s decision to become global. Economic factors are very diverse, but they influence the profitability of a business (mainly) (Lukac, 2008). For example, a business may be hesitant to venture into a market that has a lower currency value because its goods and services would be expensive for the target market.

Similarly, investors may be attracted to a market that has a lower currency value, because low-currency values make it cheaper for producers to manufacture goods and services. For example, many American businesses, like Apple Inc., have exported business to China because the cost of labor in China is low (because of China’s low-value currency) (Rabie, 2013). European companies have also joined this fray as some export their production processes to China and other developing countries (Rabie, 2013). Lastly, besides economic and market factors, social factors would greatly affect an organization’s decision to be global. These social factors may include religion, consumer tastes, and preferences, culture, values, beliefs (among others). Extensive social differences would greatly limit an organization’s success in the foreign market, while little or no social differences would encourage an organization to venture into new global markets. Comprehensively, market factors, social factors, and economic factors would define the first criteria for expanding into global markets.

Immediate Areas of Risk Involved In Global Expansion

Global market expansion is often exciting for many potential businesses that have the capability of increasing their market shares by venturing into new and unexploited markets. However, like many business expansions, global business expansions may create different risks for an organization. Some of the immediate risks of global expansions include operational risks, difficulty in sourcing capital for expansion, financial risks, geopolitical risks, human resource risks, legal risks, foreign currency risks, and cultural inhibition risks (Odell, 2009). Even though some of these issues may manifest as expansion challenges, they present unique risks that may prevent the sustenance of a global market expansion strategy (Odell, 2009). Certainly, when businesses venture into new global markets, they often experience different market dynamics that change the landscape of their operational environments. Often, these changes in the business environment influence the external environment of the business, thereby forcing businesses to adapt to new and unfamiliar market situations.

Some of the potential global expansion risks intertwine with one another or affect one another. For example, human capital risks often intertwine with legal risks (Gregoriou, 2009). Say, if an American company expands into South Africa, it must know South African laws governing the hiring of employees. Such laws may dictate the minimum wage that foreign employers can pay South African workers, the terms and conditions of their contracts, their health status, employees’ responsibilities towards the workers, and other factors that are important to the way employers and employees relate. Different countries, therefore, have different rules of engagement, which foreign companies need to know. These issues are often important because they affect the bottom-line of a company.

Besides legal and human resource risks, another common risk is culture. The acceptability of foreign products and services, for example, mainly depends on the culture of the target market (Mira, 2011). A global company that intends to sell pork in the Middle East, for example, would not succeed in this market because the Middle East is largely an Islamic market (Islam prohibits pork eating). Such cultural risks could therefore severely affect the success of the new business. Financial risks are also immediate global expansion risks that may affect the success of international businesses because they directly affect the bloodline of profit-making businesses – profits. Moreover, many of the risks mentioned above may result in financial risks. For example, cultural risks may exacerbate financial risks if they suppress sales (Rabie, 2013). Nonetheless, generally, financial risks emerge when global expansions fail to meet their financial objectives. Therefore, if a business invests in a foreign market and it fails to succeed, it would have realized financial risks. From this assessment, human resource risks, financial risks, legal risks, and cultural risks emerge as the immediate risks in global expansions.

Wal-Mart

Since its inception, Wal-Mart has grown to be the largest retail company in the world. Sam Walton founded the company as a grocery store in the sixties and since then, the company has floated its shares in the New York stock exchange to become among the biggest corporations in the US and around the world (Bergdahl, 2010). Wal-Mart mainly operates in the retail business, with a firm command of the grocery market. Analysts view Wal-Mart as a hugely successful company and among the top three biggest public companies, globally (Bergdahl, 2010). The companies headquarter is in Arkansas, US. As of 2009, Wal-Mart operated more than 8,700 stores around the world, but most of its retail sales (more than 50%) came from its subsidiaries in North America. Global sales (outside North America) account for about 49% of the company’s revenue (Hill, 2009).

Wal-Mart has a global market presence that spans about 15 countries (mainly concentrated in Europe, South America, and Asia). However, most of its global businesses are concentrated in Europe and Asia. To appeal to different market segments, the company operates under different names in these regions. Unlike its huge success in North America, Wal-Mart has registered mixed fortunes in its global businesses. For example, the company has registered losses in some of its international stores in South Korea and Germany, while huge business successes exist in the UK and China (just to mention a few) (DePamphilis, 2012). The company’s success in most global markets underlies a strong need to expand further into new markets that have been largely unexplored. Africa is one such market.

Wal-Mart could benefit from expanding into Africa because analysts project that Africa’s growing population and expanding middle class present a big market opportunity for many international organizations to exploit (Mossman, 2013). Therefore, like China and India, experts predict that Africa’s market potential is worth paying close attention to (Mossman, 2013). Besides, Africa offers a great opportunity for Wal-Mart to register high growth rates that other developed markets cannot offer. Comprehensively, the one billion people African population largely remains an untapped market opportunity for Wal-Mart to exploit.

References

Bergdahl, M. (2010). The 10 Rules of Sam Walton: Success Secrets for Remarkable Results. London, UK: John Wiley & Sons.

D’Andrea, A. (2013). Global Nomads: Techno and New Age as Transnational Countercultures in Ibiza and Goa. London, UK: Routledge.

DePamphilis, D. (2012). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. New York, US: Academic Press.

Gregoriou, G. (2009). Operational Risk Toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation. London, UK: John Wiley & Sons.

Hill, C. (2009). Strategic Management – Theory: An Integrated Approach. London, UK: Cengage Learning.

Kagermann, H., Österle, H., & Jordan, J. M. (2011). IT-driven business models: Global case studies in transformation. Hoboken, NJ: Wiley.

Lukac, D. (2008).Key Success Factors for Foreign Direct Investment (FDI): The Case of FDI in Western Balkan. New York, US: Diplomica Verlag.

Mira, B. (2011). Reconciling Trade and Culture: A Global Law Perspective. Journal of Arts Management, Law & Society, 41(2), 138-158.

Mossman, M. (2013). Walmart in Africa: Unpacking the Monolithic Market. Web.

Odell, C. (2009). Global Positioning: Managing the Far-Reaching Risks of an International Assignment Program. Benefits Quarterly, 25(4), 23-29.

Rabie, M. (2013). Saving Capitalism and Democracy. London, UK: Palgrave Macmillan.

Remenyi, D. (2013). Proceedings of the 13th European Conference on Information Technology Evaluation. London, UK: Academic Conferences Limited.

Stonehouse, G. (2012). Global and Transnational Business: Strategy and Management. London, UK: John Wiley & Sons.

Zhou, M. (2010). Multidimensionality and Gravity in Global Trade, 1950-2000. Social Forces (University of North Carolina Press,) 88(4), 1619-1643.

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