Globalisation is an important force that has impacted and continues to affect all aspects of human endeavour. The phenomenon has created diverse challenges for economic development and organisational management. Managers in organisations are confronted with challenges created by global and internal forces thus, affecting the ways organisations are managed. This paper discusses the concept of globalization, looking at some of the challenges of globalisation on today’s organisations.
Globalisation: Conceptual Overview
According to Mussa (2003), globalisation is defined as increasing interaction and integration of activities, especially economic activities, among human societies. This increasing integration of societies and global economies carries great benefits as well as challenges and even harm. Mussa describes globalisation as being an on-going event that has provided opportunities for advancement in trade, investments, knowledge acquisition, exploitation of resources while having negative impacts such as imperialism, slavery, and the spread of epidemics. Globalisation has enabled better lifestyles, longer and higher quality of life for the human society. In terms of economic development, globalisation has had the effect of increasing international and global trade, and re-drawing the ways in which businesses operate and are managed. Adnan, Ali & Ali, (1996) note that globalisation has enabled and drives foreign direct investments as well as the proliferation of multinational corporations (MNCs). These occurrences also create new roles for the state. Investment and technology flows have necessitated economic adjustments and regional trading blocs have been formed worldwide such NAFTA, European Union and AFTA. States have such roles of regulation, planning and mediation, export-processing zones (EPZs) have also been established in many developing countries as policy instruments (Adnan, Ali & Ali, 1996). Globalisation is inevitable and is creating change and the pressure of managing rapid change for organisations (Granell, 2000). In the globalized markets, companies are also under pressure to achieve and maintain competitive advantages in order to be successful (Adnan, Ali & Ali, 1996). Some of the key challenges of globalisation including workforce development, managing change, cultural integration, managing technology and capital flow management are discussed below.
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Challenges of Globalisation
Workforce Development
Globalization has resulted to importation of technologies and expansion of industries, as well as created the need for indigenous workforce development. Human resource development challenges include upgrading available skills to match with rapid change in technology as well as developing talent to respond to the demands of the industry. This involves training and education of the workforce (Adnan, Ali & Ali, 1996). This position is supported by Mussa (2003) who states that economic globalisation has reshaped the workforce by rendering certain skills obsolete through technological innovations. This creates a need to train a new set of workforce that has the capacity to interface with new technologies effectively. Investments in human capital are now critical and manpower training is an integral part of the process of technology transfer. At the same time, workforce training is also necessary for product development and innovation. In order to be competitive, organisations embark on a number of training programs for their staff including formal in-house trainings, the establishment of training institutes as well as other forms of training. Vocational training systems are also being improved and supported by diverse organisations (Adnan, Ali & Ali, 1996; Granell, 2000).
Change Management
Pressures are created for organisations to accelerate their pace of adaption to environmental changes. One of the ways of doing this is through investments in research and development. Research and development enables organisations connect technical creativity with local capacity for innovation. In response to changing consumer and societal demands, research and development helps organizations improve on existing products and processes. Companies are also investing in new technologies as a way of dealing with change (Adnan, Ali & Ali, 1996). Since globalisation intensifies competition, organisations are also facing the challenging of adjusting or changing corporate and operational strategies, management styles and working systems, in order to be competitive (Granell, 2000). The interval between basic research and commercialization is shorter so the ability to adjust or execute business strategies rapidly is important for organisations (Adnan, Ali & Ali, 1996).
Organizational Culture and Cultural Integration
Globalization creates the problem of cultural integration for companies. Effective strategy management involves an understanding of the beliefs and behavior patterns that are pervasive in an organization. Culture is an important strategic issue as organisational culture can support or hinder change and change management. According to Granell (2000), culture plays three major roles: support for strategy, integration of organisational subcultures, and in the case of international alliances – integration of international cultures. Cultural diversity is also an asset that can promote organisational success. For instance, whereas traditional companies had protective, autocratic and hierarchical structures, modern organizations are adopting new structures that emphasize team building, risk taking, assertiveness and personal accountability – in order to adapt to the global culture and derive intellectual capital. Furthermore, because of transfer of skills and personnel, cultural interactions are also inevitable; personnel from different companies may have different cultures even if they are from the same country. The challenge for cultural integration in organisations includes knowledge of organisational subcultures and overall culture, understanding cultures that they interact with, as well as an analysis of the strengths and weaknesses of these cultures. This understanding will enable the promotion of strengths while weaknesses are acknowledged. The implications of these facts for human resource managers in the globalized economy include that such managers are expected to be change agents and facilitators. Thus, a high level of competency for cultural change and integration is important for managers. With good management, cultural integration can be leveraged as a competitive advantage in the organization (Granell, 2000).
Managing Technology
Technology is a special part of the globalisation process, and the ability to manage technological change is critical for organisations (Adnan, Ali & Ali, 1996). Challenges include choice of technology and assimilation. Availability of skilled personnel is also a challenge; for instance, manufacturing organisations may not have sufficient knowledge about a technology they want to acquire. Organisations that do not have adequate information about technology might end up depending on suppliers who have the expertise in the maintenance of such technologies. Organisations have to take into consideration the substantial costs for the acquisition and management of advanced technology. The relationship between technology suppliers and the buying organization may change from a strong need for supplier expertise at the beginning to one of self-efficacy for the organization as it becomes competent in using the technology. Thus, technology management is an important challenge for technology-reliant organisations that spans acquisition, maintenance, cost management, and management of supplier relationships. An organization that is unable to catch-up with rapid technological advancements becomes vulnerable and dependent on suppliers and this can affect their competitive advantage (Adnan, Ali & Ali, 1996).
Global and International Expansion
The emergence of multinational companies (MNCs) is an important feature of globalisation that creates competitiveness among organisations. Managers must have a sound knowledge for global operations. This includes knowing the government programs and support that are in place for the private sector. Organizations are playing roles that go beyond their immediate business success to include important roles in the development of their countries, as well as positioning themselves in global markets. MNCs are also developing host countries or entering into partnerships with diverse countries in ways that generate profits for them as well as strengthen the development of such countries. Thus, understanding global markets and strategies are an important challenge for organisations (Adnan, Ali & Ali, 1996; Mussa, 2003).
Economic globalisation, according to Mussa (2003), has created unique patterns in international capital flows; organisations play major roles in this phenomena. From a broad perspective, countries that have open trade policies towards international trade are noted to have more economic success. This has implications for the organisations that operate in such countries. The determinants of economic growth as they operate within a country or region is also important for the decision-making for organisations; this includes factors such as labour supply and human capital. Instability in the flow of international capital to developing countries also impacts on organisations (Adnan, Ali & Ali, 1996; Mussa, 2003). Globalisation also creates problems such as asymmetric information. This can be due to differences in regulations, practices, culture, language and accounting systems. Managers have to be aware of these environmental factors and adopt effective strategies to meet these challenges within or across borders (Mussa 2003). Globalisation creates the challenge of multi-dimensional cooperation for organisations; within this matrix, organisations have to be able to collaborate with the state as well as with members of the private sector (Adnan, Ali & Ali, 1996). The relationship between states and organisations is evidenced by their impacts on the capabilities of the country as a whole. Organisations have to position themselves to benefit from government incentives and infrastructures. At the same time, organisations develop and manage inter-industry connections to promote mutual profitability and competitiveness.
Economic Risks
Globalisation makes economic risks an important part of management focus as firms expand their operations across borders. Organisations are affected by the economic climate of the country. The economic risks and health of the country in which an organization is located is very important. Economic crisis can impact on managers and investors decisions. For instance, economic crisis can affect outflows of credit and disrupt the country’s international financial relations and domestic environment. Although capital flow instabilities are more important at the systemic level rather than at the level of individual organisations, still the operating environment of the company is affected by the responses put into place to address the crises. Financial institutions must be properly regulated and able to absorb financial losses, or contain risks. This will in turn promote risk taking for investors and managers. As the government takes appropriate steps to safeguard international capital flows, organisations will also benefit from the ensuring financial stability (Mussa, 2003).
Conclusion
Globalisation represents increasing interaction between human societies and integration of activities. Economic integration is a prominent (but not exclusive) feature of globalisation that has implications for organisations. Globalisation is largely driven by technological advancements and carries benefits such as better quality of life, longer life and economic advancement for societies. The phenomenon has enabled advancement in trade, knowledge acquisition and exploitation of resources. Globalisation has also impacted on the way in which organisations operate and how they are managed. The challenges created by globalisation for organisations are both internal and external. Globalisation has created challenges such as change management, management of technology, workforce training and development, diversity management and cultural integration for organisations. At the same time, external features of globalisation such as international expansions, economic environments and collaborative roles with state and other industry actors are important for organisations and managers. Globalisation has expanded the roles of organisations to include participation in state capabilities development, as well as participation in communities for trade such as regional trade regulations and blocs.
- Adnan, A., Ali, S. & Ali, A. (1996). Globalization and competitiveness: The role of the state and private sector in Malaysia. Managerial Finance, Vol. 22, Issue 5, pp. 59 – 69.
- Granell, E. (2000). Culture and globalization: a Latin American challenge. Industrial and Commercial Training, Vol. 32, Issue 3, pp. 89 – 94.
- Mussa, M. (2003). Meeting the challenges of globalization. Journal of African Economies, Volume 12, AERC Supplement 1, 14-34.
