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

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MGMT2101

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STEPHEN FOSTER

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

Executive summary

 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)

   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 don’t 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 country’s 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. For 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 P’s, 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)

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     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.

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