The Global Environment: Business Drivers and Challenges

Table 15.1 lists the business drivers in the global environment that are leading all industries toward global markets and competition.

The global business drivers can be divided into two groups: general cultural factors and specific business factors. Easily recognized general cultural factors have driven internationalization since World War II. Information, communi­cation, and transportation technologies have created a global village in which communication (by telephone, television, radio, or computer network) around the globe is no more difficult than communication down the block. The cost of moving goods and services to and from geographically dispersed locations has fallen dramatically.

The development of global communications has created a global village in a second sense: A global culture created by television, the Internet, and other globally shared media such as movies now permits different cultures and peoples to develop common expectations about right and wrong, desirable and undesirable, heroic and cowardly.

A last factor to consider is the growth of a global knowledge base. At the end of World War II, knowledge, education, science, and industrial skills were highly concentrated in North America, Western Europe, and Japan, with the rest of the world euphemistically called the Third World. This is no longer true. Latin America, China, southern Asia, and Eastern Europe have developed pow­erful educational, industrial, and scientific centers, resulting in a much more democratically and widely dispersed knowledge base.

These general cultural factors leading toward internationalization result in specific business globalization factors that affect most industries. The growth of powerful communications technologies and the emergence of world cultures lay the groundwork for global markets—global consumers interested in consum­ing similar products that are culturally approved. Coca-Cola, American sneak­ers (made in Korea but designed in Los Angeles), and Cable News Network (CNN) programming can now be sold in Latin America, Africa, and Asia.

Responding to this demand, global production and operations have emerged with precise online coordination between far-flung production facilities and cen­tral headquarters thousands of miles away. At Maersk, a major global shipping company based in Copenhagen, Denmark, shipping managers at Copenhagen and other locations can watch the loading of ships in Rotterdam online, check trim and ballast, and trace packages to specific ship locations as the activity pro­ceeds. This is all possible through an international satellite link.

The new global markets and pressure toward global production and operation have called forth whole new capabilities for global coordination. Production, ac­counting, marketing and sales, human resources, and systems development (all the major business functions) can be coordinated on a global scale.

Frito-Lay, for instance, can develop a marketing sales force automation sys­tem in the United States and, once provided, may try the same techniques and technologies in Spain. Micromarketing—marketing to very small geographic and social units—no longer means marketing to neighborhoods in the United States but to neighborhoods throughout the world! Internet-based marketing means marketing to individuals and social networks across the globe. These new levels of global coordination permit, for the first time in history, the loca­tion of business activity according to comparative advantage. Design should be located where it is best accomplished, as should marketing, production, and finance.

Finally, global markets, production, and administration create the conditions for powerful, sustained global economies of scale. Production driven by world­wide global demand can be concentrated where it can best be accomplished, fixed resources can be allocated over larger production runs, and production runs in larger plants can be scheduled more efficiently and precisely estimated. Lower-cost factors of production can be exploited wherever they emerge. The result is a powerful strategic advantage to firms that can organize globally. These general and specific business drivers have greatly enlarged world trade and commerce.

Not all industries are similarly affected by these trends. Clearly, manufactur­ing has been much more affected than services that still tend to be domestic and highly inefficient. However, the localism of services is breaking down in telecommunications, entertainment, transportation, finance, law, and general business. Clearly, those firms that can understand the internationalization of their own industry and respond appropriately will reap enormous gains in pro­ductivity and stability.

Business Challenges

Although the possibilities of globalization for business success are significant, fundamental forces are operating to inhibit a global economy and to disrupt international business. Table 15.2 lists the most common and powerful chal­lenges to the development of global systems.

At a cultural level, particularism, making judgments and taking action on the basis of narrow or personal characteristics, in all its forms (religious, na­tionalistic, ethnic, regionalism, geopolitical position) rejects the very concept of a shared global culture and rejects the penetration of domestic markets by foreign goods and services. Differences among cultures produce differences in social expectations, politics, and ultimately legal rules. In certain countries, such as the United States, consumers expect domestic name-brand products to be built domestically and are disappointed to learn that much of what they thought of as domestically produced is in fact foreign made.

Different cultures produce different political regimes. Among the many dif­ferent countries of the world are different laws governing the movement of information, information privacy of their citizens, origins of software and hard­ware in systems, and radio and satellite telecommunications. Even the hours of business and the terms of business trade vary greatly across political cultures. These different legal regimes complicate global business and must be consid­ered when building global systems.

For instance, European countries have different laws concerning transborder data flow and privacy from those in the United States. Transborder data flow is defined as the movement of information across international boundaries in any form. In 1998, the European Union adopted a Data Protection Directive that broadened and standardized privacy protection in E.U. nations, and al­lowed for the transfer of personal data to systems located in the United States and other nations where these systems met European privacy standards. The General Data Protection Regulation (GDPR), which went into effect in May 2018, provides additional privacy protection for European citizens and applies to all data produced by EU citizens, whether or not the company collecting the data in question is located within the EU, as well as all people whose data is stored within the EU, whether or not they are actually EU citizens. (Review the discussion of GDPR in Chapter 4.)

Cultural and political differences profoundly affect organizations’ business processes and applications of information technology. A host of specific barri­ers arise from the general cultural differences, everything from different reli­ability of phone networks to the shortage of skilled consultants.

National laws and traditions have created disparate accounting practices in various countries, which affects the ways profits and losses are analyzed. German companies generally do not recognize the profit from a venture until the project is completely finished and they have been paid. Conversely, British firms begin posting profits before a project is completed, when they are reason­ably certain they will get the money.

These accounting practices are tightly intertwined with each country’s legal system, business philosophy, and tax code. British, U.S., and Dutch firms share a predominantly Anglo-Saxon outlook that separates tax calculations from re­ports to shareholders to focus on showing shareholders how fast profits are growing. Continental European accounting practices are less oriented toward impressing investors, focusing rather on demonstrating compliance with strict rules and minimizing tax liabilities. These diverging accounting practices make it difficult for large international companies with units in different countries to evaluate their performance.

Language remains a significant barrier. Although English has become a kind of standard business language, this is truer at higher levels of companies and not throughout the middle and lower ranks. Software may have to be built with local language interfaces before a new information system can be successfully implemented.

Currency fluctuations can play havoc with planning models and projections. A product that appears profitable in Mexico or Japan may actually produce a loss because of changes in foreign exchange rates.

These inhibiting factors must be taken into account when you are designing and building international systems for your business. For example, companies trying to implement “lean production” systems spanning national boundaries typically underestimate the time, expense, and logistical difficulties of making goods and information flow freely across different countries.

Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16^th edition.