Siemens is a multinational company with
operations spanning across 190 countries around the world (Siemens, 2011a). The
company mainly deals in the provision of electronic and electronic engineering
products and solutions. It is reputed to be among the largest companies in the
world with an employee tally of over 400,000 people (OneSource Information
Services, 2011). The sectors in which the organisation operates can be
categorised into six distinct divisions: Healthcare, Energy, Equity,
Investments, Industry, and Siemens IT solutions and services OneSource
Information Services, 2011. In the period ended June 2011, the company made a
profit of €5.67 Billion with sales revenues of € 53.16 billion (OneSource
Information Services, 2011). This is a remarkable achievement in the face of
growing competition from other players around the globe. The company is
headquartered in Germany and it is from here that its global strategies are
formulated (Siemens, 2011). One of the strategic management issues that the
company has to deal with on a regular basis is the challenge of globalisation
and the threats as well as the opportunities it presents for the company.
Globalisation may be described as the
development of a market system where products and services can move across
national boundaries without hindrance (Wade, 2004). It can also refer to the
movement of information, capital, and other factors of production freely across
national boundaries. The concept of globalisation has been around for a while
and is gaining acceptance across the world with most people acknowledging it as
an inevitable reality. Restrictions associated with foreign investments are
increasingly being eliminated through the repealing of the legislations deemed
to discourage their inflow (Wade, 2004; Hudson and Slaughter, 2007).
Globalisation is hailed as the much needed reprieve that the world needs in
ensuring the affordability of products as well as the stabilisation of the
world economy. Prices of products are brought down by the fact that goods from
all countries are availed in the market where the forces of demand and supply
are allowed to determine the pricing. This heightens the level of competition
hence globalisation significantly impacts the strategic management landscapes
of all organisations. The countries whose production costs are lower find it
easy to lower their prices hence occasioning a downward price adjustment among
the competitors (Ronaldo, 2010). This availability of products at lower prices
helps in improving the quality of life and in dealing with some of the world’s
pressing challenges such as high poverty levels. Governance issues are also
heavily impacted by globalisation hence leading to greater accountability and
transparency levels in government.
The impact of globalisation in the
business environment can best be described using the PESTEL model which
outlines some of the main aspects of the macro-environment relevant to business
operations.
The common trend in political factors
relevant to the organisation’s strategic management policies and outlook is the
increased commitment by governments to facilitate free market enterprise and cross-border
transactions. Political systems are seemingly moving towards the embracing of
the concept of market economy where businesses are allowed to operate without
undue interference from the government. Countries that had in the past had a
tight control over the economy like China have visibly made steps to liberalise
their markets (Ronaldo, 2010). The same move is seen across the world as
countries work towards ensuring that their markets remain attractive to foreign
investments. The same applies to the respect for the right of foreign investors
over their businesses. Common threats associated with traditional political
risks of nationalisation and others have virtually disappeared with the growing
realisation of the importance of foreign investments in the national economies
(Ronaldo, 2010). One notable development is the growing influence of
multinationals over the political systems around the world with the practice of
regulatory capture being embraced by multinationals (Travica, 2010). With their
ability to influence political decisions in the national economies, many of the
regulations that would normally affect the conduct of business are quickly
being dissipated. This practice has especially been common in the
communications industry where such influences have led to the deregulation of
the industry in most countries (Travica, 2010). This provides ample room for
expansion among the market players whose profit potential is significantly
enhanced by such moves.
The integration of the world economy has
been such that where a crisis is experienced in one country; the whole world
feels the effect (Baghwati, 2004). This is one of the negative impacts of
globalisation. A good example is the recently ended global economic crisis
whose origin was the USA which ended up paralysing the world economy (Ronaldo,
2010). Similar concerns are being voiced about the Europe debts crisis issues
with fears that the world could be driven into a recession if they are not
effectively dealt with (OneSource Information Services, 2011). The global
economic recession affected virtually all countries around the world with
disposable incomes among consumers being reduced significantly. This forced
people to cut on their spending and divert their reduced earnings towards the
acquisition of necessities. This negatively affected business with
multinationals such as Siemens recording reduced earnings and largely being
forced to reverse their growth forecasts. On the other hand, companies like
Tesco that embraced a creative approach to strategic management viewed it as an
opportunity to capture the market by lowering prices and repackaging products
to enable customers to afford what they wished to have. This is an example of
how strategic managers can turn threats into opportunities. In reference to the
impact of globalisation in ending the recession, it must be appreciated that it
is the same concept of globalisation that led to the quick recovery from the
recession. When compared to other recessions such as the Great depression and
the long depression which took several years to solve, the recently ended
recession lasted for a significantly short period and this was due to the fact
that countries realised the importance of taking a concerted effort while
keeping their economies open to international trade (OneSource Information Services,
2011). The end result was the stabilisation of the economy- a positive impact
on the markets for companies such as Siemens. Globalisation can therefore be
said to have a stabilising effect on economics, hence good for business.
Globalisation has also led to the
increase in competition around the world as businesses take the chance to
expand their operations into foreign markets. The theme of international
expansion is perhaps one that is at the top of the agenda for most strategic
managers who wish to tap into the expanded markets to meet their growth
objectives (Barney, 2010). However, this competition has the effect of
diminishing returns for the businesses. For instance, Siemens had dominated the
mobile phone markets in Germany and in many European countries where they were
able to sell their products at a premium (OneSource Information Services, 2011).
With increased globalisation, an inflow of cheaper phones from countries such
as China and India robbed them of the market share- especially among the lower
end consumers who’d readily opt for cheaper products. The strategic management
response by Siemens was to embrace the idea of forming strategic alliances to
better deal with increased competition. These strategic alliances have fairly
been successful hence enhancing their success in the market. For instance, an
alliance between Nokia and Siemens recently won a bid to provide the Taiwanese
high speed trains with broadband services (OneSource Information Services,
2011). A similar alliance between Siemens and Nokia also won the bid to supply
a Chinese company, Unicom Ltd, with an optical network (OneSource Information
Services, 2011).
The accessibility to raw materials and
the ability to drive down its costs is yet another economic impact of
globalisation on Siemens. To better deal with the issue of production costs
that forces them to hike their prices, Siemens have exploited the gains of
globalisation to set up operations in some of the emerging markets such as
China where the cost of production is considerably low (Siemens, 2011a). The
ability of companies to source for raw materials internationally also enables
them to acquire quality but low cost materials for use in production. This is a
huge advantage to the company is better able to price its products more
competitively and therefore have a better chance of performing in the
international markets.
Globalisation is hailed for the
development and growth of a global culture around the world and this is
affecting their tastes and preferences. It reduces the impetus for expensive
localisation approaches to product development and other strategic management
aspects of the organisation. As opposed to the past where products could only
move in the market when modified to suit the local cultures, many people around
the world are beginning to develop a taste for products in their original state
as produced in their parent countries (Johnson and Whittington, 2011). This is
of course good news to the multinationals that may no longer be under pressure
to modify their products at hefty costs to suit the needs of the national
markets. For instance, the Siemens mobile handsets are used around the world in
their original form (in most markets) without any major product modifications. However,
this positive impact is quickly dissipated by the growing sense of taste for
new innovations. The world population seems to be on a constant lookout for new
innovations and this has been driving the research and development costs of
companies like Siemens high in their quest to remain more innovative than any
other market players (Johnson and Whittington, 2011). Indeed, it must be noted
that Siemens owes it success to its culture of innovation where it continues to
produce some of the best quality products in the market.
Technology is an important tool for
strategic management of the organisation in terms of product development,
operations management, distribution management, and marketing management. Globalisation
leads to the quick transfer of technologies from one country to another with
relative ease. It has become quite easy to get the information needed for
innovations and this places the developed countries at a risk. When the well
guarded technologies are received elsewhere, developing countries can commence
the production of the quality products at reduced costs and therefore be able
compete more effectively based on price (Cohen, 2006). China has proven its
capability in this field with their ability to replicate technological
innovations remaining unmatched in the world (Cohen, 2006). This phenomenon places
multinationals such as Siemens at risk. Having started as an incompetent
producer of technological equipment, China has managed to build its quality to
a level that they can no longer be dismissed as low quality products (Travica,
2010). Technological advancements around the world also make it easy for
competitors to make significant improvements to their products in relatively
short periods of time. Superiority in terms of technology therefore lasts for
only a while before competitors match up to it or develop superior technologies
enabling them to make superior products (Travica, 2010). This places companies
such as Siemens who must continue to out-innovate the competition at risk.
There are fewer guarantees that whatever innovations are made would pay off
before the technologies are replicated or outmatched by the competition.
The problem of counterfeits is also a
product of technological advancements brought about by globalisation. With the
replication of technologies, counterfeiters whose costs of production are much
lower are able to produce goods that are similar to the original ones and sell
at lower prices (Camuti, 2006). This eats into the market share of the main
producers. Siemens has especially been a casualty of counterfeiters who have
been able to produce similar handsets and sold them in the market by taking
advantage of the company’s strong brand. As technological advancements
continue, the problem of counterfeits increase as it becomes harder for
consumers to identify counterfeits.
The concern about global warming and
climate change has impacted the global perceptions significantly. Attention is
increasingly being turned towards initiatives for enhancing sustainable
management of the environment by strategic managers. Siemens has accordingly
been on the fore front in embracing technologies that cause minimal harm to the
environment (Siemens, 2009). An audit conducted in 2010 revealed various
weaknesses in their production processes and revealed areas where wastage could
be cut and the extent to which they could save on energy usage (Siemens, 2011).
The global pressure on environmental sustainability is good for the business as
it also helps it save significant amounts that would otherwise have been
wasted.
Globalisation has led to the emergence
of legal issues whose handling can substantially affect the conduct of
business. The first challenge relates to the presence of counterfeits. Many
legal frameworks around the world are not yet well designed to counter this
problem and this threatens the profitability of businesses globally (De Wit and
Meyer, 2010). However, other gains must be acknowledged such as the
restrictions on the level of shareholding and the repatriation of earnings back
home- with most legislations being increasingly in favour of investors. This is
good for Siemens.
Globalisation may be associated with
various challenges such as increased competition and increased access to
superior technologies by competitors which may threaten Siemens’ continued
dominance. The growing sophistication among counterfeiters globally is also a
threat to the company. The strategic management response to counterfeiting may
include collaboration with governments to arrest counterfeiters and public
sensitisation to enable customers to distinguish between the genuine and fake
products. However, the opportunities provided by globalisation are more
significant. With an expanded market, a more stable global economy and low risk
of political interference by hosting countries, the profit potential remains
high and all the company needs to do is to come up with strategies to ensure
that the opportunities and threats are dealt with as appropriate.
The effect of globalisation on
competition has been very significant. The company is faced with more
competitors than in the pre-globalisation era. With the entry of cheaper
products into the markets, Siemens is faced with the two choices: to lower
their pricing or to brand themselves as producers of premium products. Despite
the presence of cheaper options in the market, consumers continue to have a
significant preference for quality and where the quality must be found at a
premium, consumers will always be willing to pay for it. Quality and durability
go hand in hand. Products of low quality tend to require replacement within a
short time and this implies that they are more expensive in the end (Wheelen,
2008). The company should exploit this preference for quality by branding their
products as premium products and solidify their market leadership.
Innovation is very important in the
strategic management of a multinational like Siemens which is keen in
maintaining its image as a producer of the most innovative products and
services in the market. However, this innovation comes at a cost and there is
always the risk that the cost of innovation may not be recovered before
competition sets in and makes it difficult to realise the benefits. An
alternative approach would be to make use of unique technologies possessed by
competitors in providing the services needed in strategic partnerships and
alliances. The formation of alliances enables organisations to make use of
unique technologies without having to make heavy investments to develop them
and it makes it more likely for the organisations to make good returns (Barney,
2010). The formation of strategic alliances could also enable Siemens to take
advantage of the relationship between its trading partner and their loyal
customers to gain entry into new market segments.
Competitiveness can also be enhanced
through extensive marketing campaigns. Siemens already has a major strength in
that it has a strong brand. Having consistently produced high quality products
for over 100 years, the brand is strong enough to give the company the edge it
needs (OneSource Information Services, 2010). The company should embrace brand
enhancement techniques and solidify its market leadership and create lasting
relationships between their clients and their brand in a manner that is
difficult to reverse even in the face of low quality products. Analysts
indicate that consumers will always be willing to pay a brand premium for
products whose brand they can trust (Barney, 2010). This strategy has worked
for many multinationals in other industries and Siemens should seriously
consider it. The company should also take advantage of the growing political
support for foreign investments to reach out to more markets within the host
economies. Even though the company operates in more than 190 countries, its
reach in the host countries remains low with significant market segments
largely unreached (Siemens, 2011a; Siemens, 2009a). Growth can only be assured
by reaching out to these additional markets through aggressive expansion of
production and distribution.
The rising problem of counterfeits is
one that has been dominating debate on a global scale with losses attributed to
the vice running into billions of dollars annually (Travica, 2010). Siemens’
products too have been counterfeited leading to serious losses of revenue and
market trust. Siemens should embrace a cooperative strategy by joining hands
with their competitors to come up with ways of defeating the vice. This
recommendation is made in recognition of the fact that individual companies may
be incapable of dealing a fatal blow to the vice due to the amount of resources
and intelligence required. An alliance against the vice would allow companies
to tap into each others’ intelligence networks in identifying counterfeiters
and this would make detection efforts much easier. The multinationals should
also use their increasing ability to exert political pressure on governments to
influence them to prioritise the fight against counterfeits and where possible
provide logistical and technical support to the governments to help them better
deal with the presence of counterfeits in the economy.
In relation to the growing concerns
about sustainability, Siemens has already initiated efforts to ensure
conservation in their production processes (Siemens, 2010). This effort should
be complemented through the production of energy efficient products which can
run on less energy and for longer periods of time. Such a focus would help it
win the approval of the market and hence lead to an even better financial performance.
Globalisation can either be positive or
negative depending on how one views it. It presents organisations with serious
challenges such as heightened competition and others. On the other hand, it
provides a wide range of opportunities through the opening up of additional
markets and the lowering of cost of production through the ability to access
cheaper raw materials and labour. Siemens is faced with both challenges and
opportunities arising from globalisation. The main threats arise from increased
competition and the rise of counterfeits which threaten its market share.
However, opportunities arising are equally if not more formidable. Through the
impact of globalisation, the company has been able to expand to over 190
countries with some operations transferred to developing countries where the
cost of production is significantly lower. Further strategies for the
exploitation of globalisation as have been described above should be pursued to
enable Siemens achieve its growth objectives.
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