Globalization is the diversification of a company’s portfolio of geographic markets. McDonald’s, Costco, The Coca-Cola Company, Starbucks, and ZARA are 5 companies that successfully expand beyond their domestic markets
There are many advantages to globalization, including 1. the ability to access new markets, 2. access lower-cost inputs, and 3. developing new competencies (such as benefiting from knowledge proliferation, keeping up with new technologies, and acquiring, developing, and integrating new skills) to improve companies’ organizational visions and objectives. Xiaomi is a Chinese designer and manufacturer of consumer electronics that utilizes globalization. By 2015, the development of smartphones in China entered a passive state since approximately 95% of China’s population already owned a smartphone. This resulted in smartphone brands becoming more competitive, weakening Xiaomi’s competitive power. Therefore, Xiaomi entered the international market to access new markets.
However, there are also many disadvantages to globalization: 1. the liability of foreignness, 2. loss of reputation, and 3. loss of intellectual property. Xiaomi suffered a loss of reputation for misleading consumers with incorrect sales figures in Taiwan (aka. the Trust Crisis) and for product patent deficiency in India. Regarding the Trust Crisis, Xiaomi conducted “hunger marketing” by holding flash sales of smartphones. They misrepresented the number of phones sold and closed online sales prematurely, resulting in a fine from the Taiwan Fair Trade Commission. Regarding the Product Patent Deficiency, Xiaomi was partnered with the local operator Telecommunications. Unfortunately, with global partners comes knowledge spillover, and Xiaomi was accused of violating a patent for a telecommunications technique. The court prohibited Xiaomi from importing and selling phones in India until the dispute could be resolved, which caused their single-quarter sales in India to drop. The court adjusted the ban, prohibiting Xiaomi from importing or selling only phones that contained components related to the dispute.
To make the most of globalization, one must 1. carefully vet suppliers. By conducting regular screenings, it can ensure suppliers follow ethical standards (ie. not using child labor) which mimizes the loss of reputation. 2. While it is helpful to engaging in knowledge sharing to develop new competencies, one must maintain adequate barriers between global partners to minimize the risk of knowledge spillover. 3. It is better to conduct business in countries with lower-cost inputs that also that share similarities with your own. This reduces the risks associated with unfamiliarity in foreign markets. Commonalities include cultural factors (ie. religious beliefs, race/ethnicity, language, and societal norms/values), administrative factors (ie. colonial ties, free trade agreements, autarkic policies, and corruption levels), geographical proximity, and economic factors (ie. consumer wealth/income, labor costs, resource availability, infrastructure, and organizational capabilities).
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