Monday, February 10, 2014

Benefits and Risks of Going Global

Many companies pursue global production because it offers access to cheaper labor and lower operations costs through the oversea facilities. The authors of Time to rethink off-shoring [1] examines the influence of freight costs arising and wage inflation to the off-shoring. However, going global has a lot more benefits and risks we can explore.


Benefits:
Doing business across the world not only allows the company have the opportunity to access the cheaper market but also gives the company the opportunity to access people who has the knowledge and skills in that area [2]. In addition, going globalization can help the company access to the local natural resources and local consumers’ market. The company can benefit from the local tax regulations and local stipend/ subsidy. Each country has its own competitive advantage, while doing the business globally, the company can easily take these advantages.

Risk:
With these attempting benefits, the globalization does bring some extra risks that the company may encounter. For example, there are some cultural difference among the countries. The company also needs to consider either customize its operations across the countries or standardize its operation. The company needs to find a way to build a unified commitment through the organization.  In addition, the country’s political systems will certainly affect the business operations [3] and so will the local currency exchange rate. The company does not want to build a long-term facility in a political unstable country and does not want to see the local currency depreciated against the home currency.

As above, there are trade-offs between doing business globally and doing business locally. How can the company mitigate these risks? The company can hedge its risks with financial instruments is one way. There are more to explore.

Reference:
[1] Time to rethink off-shoring

[2] International Business: Opportunities and Challenges in a Flattening World, v. 1.0

[3] Challenges of Globalization

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