Examining and Evaluating the Globalization of Globacon Nigeria
|✅ Paper Type: Free Essay||✅ Subject: Business|
|✅ Wordcount: 4774 words||✅ Published: 1st Jan 2015|
Modern global businesses have to satisfy a myriad of conflicting demands coming from different directions. In a competitive world, firms use integrated controls to preserve corporate standards and strategies, which help attain economies of scale. They also make certain innovative decisions that help in sustaining the growth of the business and create competitive edge over the other firms in the industry. Some of these core decisions is on participating more actively in the local and global market, while bearing in mind that to operate efficiently and effectively on the global platform needs sensitivity to indigenous market situations, adaptability under varying circumstances, and responsiveness to new prospect. Multinational companies increasingly face intense competition globally. In these emerging situations, companies seek to implement strategies that will improve and sustain the growth of their business. Because of this, multinational companies are changing the way they structure their businesses, changing their modus operandi in order to conform to today’s business environment. For today’s business managers the need to understand this strategic motivation for change is of utmost importance. For they to be responsive, there must be concern not just for the now, but also for the company’s unforeseen future. This entails planning, organizing, directing, and controlling resources and managing a diverse labour force in a way that will be beneficial to all structures of businesses internationally.
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Overview of Globacom Nigeria Limited
Globacom Limited is a Nigerian multinational telecommunications company headquartered in Lagos, Nigeria, a privately owned company and one of Africa’s fastest growing telecommunications company. Globacom is the market leading mobile service provider in Nigeria and operates in the neighbouring West African states (Globacom Limited n.d.). According to (Globacom Limited n.d.) it is reputed to be one of the fastest growing mobile service providers in the world, and aims to be the biggest and best mobile network in Africa. The telecommunication industry in Nigeria in particular and the world at large characterized by huge investments in technology and is exposed to rapid fluctuations in the market environment, such as consolidation of both telecom operators and network providers. The providers are competing for the limited number of customers, present on the global stage. Competitors can be either large multinational companies, such as Vodafone, or small regional companies, such as MTN, Zain etc. The global industry performance is largely dependent on continued growth in mobile and fixed communication in terms of both number of subscriptions and usage per subscriber. Moreover, the current merging of the telecom, data, and media industries changes the conditions in which the telecom operators do business. Consequently, the competitive environment is changing and novel strategies, addressing the new market conditions, are developed. Now in its bid to meet the organisational aims and objectives, the company wants to know the possibility of increasing its participation in the local and global market. Thus, this paper seeks to outline the key issues involved in localisation and globalisation, strategic decisions involved and implementation challenges with Globacom as reference.
THE CONCEPTS OF GLOBALISATION AND LOCALISATION
Globalisation is a term that denotes the process of strengthening political, economic, social and cultural relations across the world. Different authors and scholars have tried to define or explain globalisation. (Ohabunwa 1999), understands globalisation as a development which is analytically reforming interactions among different countries by eliminating bottlenecks in the areas of communication, commerce, culture. According to (Ohiorhenuan 1998), globalisation is the widening and deepening relations of national economies into a worldwide market for goods and services, especially capital. (David 2009) Sees globalisation as international way of doing business using strategic decisions based on global profitability rather than local considerations. Generally, globalisation is the integrated and co-ordinated approach by which industries evolve from multi-national to global competitive structures through trade, financial transactions, and exchange of information, ideas, technology, and the movement of people. Localisation on the other hand is the opposite of globalisation. Localisation entails that multinational companies recognises national economic issues and are locally responsive in meeting local demands. With this perspective in mind, (Meyer and B.D.Wit 2004) opined that managers in the international departments of multinational companies, should then be permitted to be responsive to particular local conditions. Arguing a case for localisation, (Chen Jun 2008), stated that companies localise their operations because of the various differences and political obstacles between different local markets, and that the cost of neglecting or disregarding ‘local uniqueness’ in preference to that of global setting is too high. The choice of increased participation in the local and international market has its advantages and disadvantages. The advantages of global are cost-based, maximizing economies of scale and reducing repetition of processes and materials, thereby realizing efficiency. The advantages of localization are on the other hand are revenue-based, promoting variation to reach all customer positions and customer satisfaction (Buckley & Ghauri, 2004).
Porter,(1989) a proponent of global convergence perspective, argued from an international integration angle in his article ‘The competitive advantage of nations’ that the world is becoming globally integrated but that the competitive advantage of a company is dependent on a combination of both its national circumstance and its strategy of harnessing it. He further opined that it behoves on the company to seize the opportunity of competitive advantage existing in its country.
However, a globalisation perspective that is becoming more globally accepted by both the academic world and decision makers of multinational companies is that of Douglas and Wind who does not agree with the principal assumptions of the global standardization philosophy. Firstly, they opine that there is absence of evidence about uniformity in global customer taste, as there is diverse customer behaviour and taste even within the same country. Secondly, Differentiation as against low price strategy is more profitable and can reduce over competition in the industry. Thirdly, economies of scale of product is not the only credible reason for global convergence, research and development, marketing and after sale service sometimes are even more important than production. There is a consensus that multinational companies should not just focus on one side of the divide, but try to adjust the balance between localization and globalization. Multinational companies should deal with the problem differently according to different strategic contexts. (Douglas and Wind n.d.). Consequently, from the analysis, it is clear that the study of the dilemma of localization and globalization is approachable from different angles. The magnitude of globalization is different from country to country and there is no one best organizational response to globalization, every organization should balance those factors dynamically and find the strategy best suited to their company.
For a firm to participate in local and global environment, some underlying internally and externally issues have to be analysed, rationalised and dealt with according the situation on ground. Meyer highlighted some paradoxes that exist and are instrumental to final strategic decisions by multinational companies.
Globalization and localization
Multinational companies are facing the paradox of globalization and localization in breaking into each emerging market. Generally, there are various ways on how multinational companies organise its global activities: The first according to (Chen Jun 2008) is global convergence perspective, which lays emphasis on taking advantage of their corporate resources and attaining global interactions, while the other is international diversity perspective, which lays focuses on adapting to local difficulties. According to (Tallman and Yipp 2001), the three basic strategic issues involved in multinational companies operating globally are geographic spread, localisation and global integration. The question here lies in whether companies should consider the global market in its entirety or recognise the local market structure as its main stream of business.
Profitability and Responsibility
The dichotomy (globalisation and localisation) pushes the companies into understanding their purpose in business. Different businesses have different visions and mission as seen in their various statements. According to (Meyer and B.D.Wit 2004), some of their motives is to maximise profit for the owners (a shareholder value approach), or to meet the requirements of the general populace (a stakeholders values approach). In deciding on increased participation in the market, Globacom will have to decide which is more germane to its core values.
Why Firms Globalise
From the discussion, companies that decide to globalise, or use global strategies will have some beneficial consequences such as gaining new customers for their products and services, other advantages are:
According to (Yip, Mintzberg and Quinn 1991), companies can reduce costs by pooling production or other activities for multiple countries. They further opined that other methods such as exploiting lowers factor cost i.e. moving manufacturing activities to countries with low costs, moving production between countries to take advantage of lowest costs at a particular time, also reduces costs.
Excess capacity and economic risks can be absorbed through foreign operations (David 2009)
There will be increased competitive advantage as companies will act as checks and balances on each other.
With joint venture programs, companies will learn the culture, technology, and business practises of the host nation.
Global savings distributed more efficiently as countries higher productive capacity for capital e.g. UK, can borrow from countries with excess fund.
(David 2009), also stated that economies of scale can be achieved as ‘large scale production and better efficiency allow higher sales volume and lower price offerings.’
Other factors such as economies of scale in production, purchasing, faster accumulation of learning from operating worldwide, decrease in transportation and distribution cost, reduced cost in product adaptation, and the emergence of a global market segments have encouraged the competition on a global scale.
However, the decision to globalise has some inherent drawbacks. Barriers such as governmental policies and institutional limitations, tariff barriers and duties, transportation cost, variances in customer preference and demand, are some of the drawbacks enumerated by (Douglas and Wind n.d.). Seizure of foreign operations by nationalists as stated by (David 2009), is one of the disadvantages. The economic changes fashioned by globalisation have brought about business displacements and job losses in many countries, changed the commodity composition of trade and led to distortions in local consumption patterns, thereby bringing about relative price changes that local consumers find difficult to adapt. Globalisation has also led to a situation where financial disturbances emanating from one country quickly spreads like wildfire to other countries with destabilizing consequences. (Obadan 2004).
STRATEGIC GLOBAL DECISIONS
In order to achieve an objective, aim or goal, every business must have a strategy. There is no common or single definition of strategy as it relates to and can be applied to many contrasting fields such as marketing ,economics, investment, military, gaming, and as well as corporate global environment. Strategy can however be generalised to mean a plan of action, thought out in advance, aimed at achieving a particular objective, with particular reference to gaining competitive advantage for an business over other businesses in the same industry. (Barney and Hesterly 2010) , defines strategy as a theory by a firm on how to gain competitive advantages.
(Mintzberg 1988), proposed five definitions of strategy
Plan – A conscious thought out course of action, a guide made in advance before implementation.
Ploy – made with the intentions of outsmarting other competitors.
Pattern i.e. a consistent and accurate behaviour resulting from the plan. This can be realised, unrealised and emergent strategies.
As a position i.e. the way, a company positions itself in the market in terms of locating particular product brands at particular markets.
Perspective i.e. the fundamental way of doing things in the business and way the managers of the company perceive the world from the company’s point of view.
(Lewis 1999), added a sixth definition, by defining strategy as ‘a process of sensing, analysing, choosing and acting.’ According to (Johnson and Scholes 2007),”‘Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations”. They also posited that there are different strategies used at different levels of a business.
Corporate Strategy – is concerned with the generally purpose and scope of the business to meet consumers’ expectations. Investors’ interactions in the business environment, has an influence over and is a guide to strategic decision-making within the business. Corporate Strategy is also part of the mission statement of most firms.
Business Unit Strategy – This deals more with how a business competitively successfully a business is in a particular market. It is about the strategic decisions of choice of products, customer satisfaction, competitive and comparative advantage over competitors, development or creation of novel ideas and opportunities.
Operational Strategy – This handles the issue of how each the component parts of the business is organised in other to deliver the corporate and business-unit level strategic direction required for growth. Operational strategy therefore focuses on subjects of resources, processes, and people.
Companies can use any or all of these strategies but also have to bear in mind that there are some globalisation drivers affecting the prospective use of global strategy. Lewis et al (1999) opined that managers shoul d be able to recognize when these drivers provide opportunities to use these strategies. In explaining thes drivers, Lewis et al (1999) said that Market drivers, are those characterised by homogenous customer needs, global consumers, global channels of distribution and transferability. Cost drivers on the other hand are the drivers that are dependent on the economies of the business and are characterised by economies of scale and scope, learning and experience, sourcing efficiency, favourable logistics and product development costs. Governmental drivers are those dependent on government policies and an influence over the use of all the other global strategies. It comprises of favourable trade policies, compatible technical standards and common marketing regulations. Finally, they named competitive drivers as those comprising of the interdependency of countries and globalised competitors. Although these drivers are individually powerful, they are not on their own formulae for sure success. A combination of two or more can be viable in an economy. Lewis et al (1999)
Creating a global strategy involves an initial step of an environmental analysis of political, economic, social, and technological trends that are pertinent to operating on a global level. (Kotler 1998), claims that this analysis is useful strategic tool for learning the direction a business is going with reference to its growth or deterioration, business position, potentials.
Political factor: These refer to government policies such as the degree of intervention in the economy. Political decisions can have an effect on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy. African governments are taking steps in opening their economies to international trade. Most countries have started trade and exchange liberalization process, eliminating multiple exchange rates and nontariff barriers, and reducing the degree of tariff protection.
Economic factors: These include interest rates, taxation changes, economic growth, inflation and exchange rates. , the restructuring of many African economies is gaining momentum. Throughout the continent, government intervention in economic activity is on the decline. Administrative price restrictions and agricultural marketing has been widely eased up.
Social factors: Changes in social trends can affect the demand for a firm’s products or services and the availability and enthusiasm of the work force.
Technological factors: new technologies create new products and new processes. There can be cost reduction, improvement in quality and innovation through technology. These developments can have a positive effect on consumers as well as firms concerned.
Environmental factors: this includes weather and climate change. Fluctuations in temperature can have a negative on many industries including the telecoms industry. With the advent of global warming, there is greater environmental awareness and this is becoming a significant concern for firms to ponder.
Legal factors: the legal setting in which firms operates determines the progress of the business. With ever-stringent laws in the telecoms industry on provision of services, Globacom will have to improve on its service provision.
The managers of Globacom need to think about the factors that are likely to change and in what direction and which factors will have the greatest influence on them.
PORTER’S FIVE FORCES
According to Michael Porter (1985), for a firm to seek for a favourable competitive placing in any industry, it will have to find out how attractive the industry is. To be able to analyse any industry’s attractiveness, either domestically or internationally, there are five competitive forces: the threat of new entrants, the bargaining power of suppliers, the bargaining power of consumer, the threat of substitutes and the intensity of rivalry competitors. The five forces is the focal determinant of the industry profitability, as they have tremendous influence on price, costs and profits of the product. (De wit & Meyer, 2004: p.259)
Porter’s five forces model
The threat of new entrants: In the telecommunication industry, the threat of new entrant is relatively low as the stringent barriers high initial cost of start-up and fixed cost associated with the business is extremely high. This works to the advantage of Globacom and others in the industry.
Bargaining power of suppliers: There is a myriad of telecommunication companies worldwide but there limited number of telecommunication equipment suppliers in the industry. Here, Globacom is disadvantaged as there are limited alternatives.
Bargaining power of consumers: bargaining power is high in this industry because of presence of many competitors. In Nigeria alone there are about ten telecommunication companies fighting for the same customers. Globacom is only at the moment differentiated in price and customer loyalty.
Threat of substitutes: in the telecoms industry, threat of substitution is high as all the telecoms companies sell virtually the same product and or services. Globacom should determine the extent of customer switchover and try make customer satisfaction a priority. However, other companies in the industry may decide to go into price war, which reduces the profit margin of the companies involved.
Degree of rivalry: the telecoms industry is a highly competitive as each company is trying to outdo the other in other to increase their subscriber base. Here as stated before, Globacom should have customer satisfaction as its watchword.
Managers of Globacom should as a matter duty identify the key aspect or elements of each competitive force that influences the firm, assess how strong and vital each element is for the firm and decide whether the combined strong point of the element is worth the firm entering or staying in the country.
Globacom has used this model as a strategy. Since growth is of core importance to the company, it has shown this by rolling out different services such as Glo mobile, Glo gateway, Glo 1, and Glo broad access, across West African sub-region (Globacom Limited n.d.). Globacom is using the strength of large customer base and name to keep itself in the forefront of the telecoms industry.
PORTER’S GENERIC STRATEGY
Multinational companies are able to achieve competitive advantage, mainly through differentiating their products and services through low costs. Companies can broaden their market scope or they can focus on a refined target in the market. According to (Porter,1989), strategies allow companies to gain competiive advantage via three bases : cost leadership, differentiation and focus.
It is imperative for companies to use the cost leadership strategy if they try to become low cost producers in their industry. Globacom pricing strategy is among one of the best in the industry in the sub-region. The other telecoms companies are trying hard to meet the price standard set by Globacom and this makes it easier for them to locate to other countries. N Nigeria, they have the lowest price tariff coupled with other added services. Globacom is also one of fastest growing companies in the industry it showed tremendous growth through sale of 600,000 sim cards in its’ first ten days of operation in republic of Benin (Cellular-News 2008), and planned to capture 30% of the 11 million subscribers within a short period of its’ commencing business in Ghana (Oruame 2008). Differentiation as used by many firms cannot in the telecoms industry as virtually all the product and services are similar in nature. However, the per-second billing method for calls, has been used by Globacom to differentiate its’ product and services. Globacom on the other hand is not pursuing the focus strategy as it is directing its’ effort in a particular section of the industry.
Companies pursuing the strategic generic model, have to make a choice between cost leadership and differentiation and avoid the stuck in the middle syndrome, which results in poor financial performance (Porter, 1980). Globacom does not pursue either low cost strategies or differentiation. It merges both techniques as its’ strategy.
THE ANSOFF’S GROWTH MATRIX
(Lewis 1999), in citing Ansoff (1965), opined that the tool is used in detecting options available to firms wanting to widen their competitive edge, as it helps these businesses decides the strategy they will use in their product and market growth. Some of these options include:
Ansoff’s growth matrix
Market Penetration (Existing product) (New product)
Market penetration: This focuses on increasing market share of existing products into existing markets. The objectives of this option are to maintain or increase the market stake of current products through combining competitive pricing strategies, advertising, and sales promotion, ensure supremacy of growth markets, increase usage by existing customers
Market development: This is a growth strategy where companies want to sell its existing products into new markets through new geographical areas, new product sizes or packages, or new distribution channels.
Product development: this is the growth strategy where a business creates new products for augmenting existing products in existing markets.
Diversification: This is the growth strategy where businesses introduce new products into new markets. However, for a business to implement a diversification strategy, therefore, it must have a knowledgeable idea of its gains and accompanying risk.
Globacom as a company uses this strategy extensively as seen in the number of countries it had moved into within a short span of time, the number of products it had introduced into these markets and the rate of diversification. However, it needs to monitor the trend in customers, demands in other to be responsive to them.
PRODUCT LIFE CYCLE
Most products pass through for basic phases i.e. introduction, growth, maturity and decline. From a strategic point of view, knowledge of the product’s life cycle helps a company to manage the introduction of a new product. (Barney and Hesterly 2010), speaking from an international perspective, opines that that the product life cycle of a product or service can be at different stages of its life cycle in different countries. Consequently, the resources developed by a firm during a particular stage in the life cycle of the product in the home market to the same stage of another product in the international market (Barney and Hesterly 2010). The PLC of a product consists of introduction, growth and maturity, and companies use this to analyse and assess how they believe their product will perform through its PLC and the marketing strategies and marketing mix implemented at each stage. (Lewis 1999), warned that firms that do not pursue strategies appropriate to the life cycle stage of their product, might lose competitive advantage. Globacom is increasingly expanding its range of products to retain its competitiveness in the market and hence important that they invest make sure their customers demand are satisfied.
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Every strategic model is an instrument used for gathering strategic information from the international perspective and a process for perceiving a number of different futures for any organisation. Undeniably, globalization for the telecommunication industry is a persistent trend. The international low cost of both material and labour, the low price of the resources, and the most advanced technological expertise are all required for increasing competitiveness in the industry. Furthermore, for these firms to be able to manage the intricacies involved in globalization entails including new tools, structures and strategic models added to the ones already in use as the knowledge and application of strategic models is a prerequisite for the survival of any business in its industry. Globacom should adhere strictly to the laws of the relevant strategies and integrate them into the corporate business model to ensure and sustain its leadership role in the telecoms industry. Managers have to decide how to modify their products, make changes in their marketing policies to suit the situation on ground, formulate human resource practices and business strategies to deal with national differences in culture, language, business practices, and government regulations. In addition, managers have to decide how best to tackle the threat posed by efficient foreign competitors entering their home market and how to effectively and efficiently enter a foreign market and create a positive impact.
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