Challenges posed by globalisation in operations management of a global

company

1. Introduction
In today’s business world, the firms that are operating globally are facing the task of
getting the best possible outcome for its shareholders. The firms’ managements are trying
to utilize resources from different parts of the world to sustain the competitive advantage.
However, operating in such a global scale, the company would face challenges as
follows:
1.1 Product & service design
Although the attraction of expanding business to gain economies of scale is high, it is not
always easy to expand globally. The products cannot just be boxed and shipped to be sold
overseas. The products produced in a home country need to be modified and adjusted
according to the export country need. For example, the cars produced in England are
relatively smaller than their American counterparts. People in the USA like to drive
bigger cars and the bigger cars are more affordable in the USA due to cheaper fuel prices.
The cars in USA also have more features in the cars than that of UK cars. Automatic
gear, air-conditioning and carpets are standard for American car market whereas
consumers have to pay extra premium to get these features added to their cars in Europe.
If European or Japanese car makers want to export cars to USA, they would have to
adopt those US standards. These changes might result in reduced profit margin or even
loss for the company.
3.2 Culture
According to Hofstede (1991) culture is “collective programming of the mind” that
distinguishes the members of one group from another. Culture is learned and shared
within social collectives. A distinction can be made between organisation and national
culture. Both the cultures affect the business in some way. The national culture often
force the business organisations to modify their business products/services and the
procedures of running the business. It has a big impact of creating an organisation culture
within an organisation which is operating in different countries. The organisation cultures
sometimes vary from country to country. We can draw the same example of car
manufacturers here. Since the US car market prefers bigger car, the European car
manufacturers will be forced to produce bigger cars for US car markets if they wish to
survive there. Here the culture of gas guzzling American cars is forcing the Europeans to
adapt.
3.3 Legal issues
Legal requirements in a different country often dictate improvement and modification of
the home country product. For example, it is a legal requirement in USA for the cars to
be fitted with airbags and catalytic converter. But this is not often the case in the
countries like china and India. So if the car manufacturers in China or India wish to
export their products to American market, they would have to fit those extra features
stated above. This would cause more complexity in production planning and control, thus
making the process less efficient.
3.4 Supply chain Management
With the increase of global business, the global supply chain management has become a
common phenomenon. The global supply chain management encounters some challenges
which are not so common in a domestic supply chain management. Below are some of
the challenges that are prevalent in global supply chain management.

(a) Cost

The first thing a company needs to consider when it goes global is the cost issue.
Although locally produced product may give a cost advantage for some aspect of supply
chain, the company need to consider the tax implications, costs of space and other
expenses related to doing business overseas. The company would need to find a balance
between outsourcing and home production advantage. Sometimes it would work out
cheaper to produce products in a different country due to cheap labour but then the
quality of the product maybe compromised due to lack of skilled labours in a foreign
country.

(b) Time

Time is another big issue that poses a challenge to global supply chain management. If
overseas employees are chosen, they may not be equally skilled which might cause
disruption in production and result in delay. Sometimes political situations, inefficiency
in port may cause delay as well. Few other factors can play part in delay too, for example,
red tape in some countries might mean that customs clearance take longer time. Also
natural calamities can cause unexpected loss while shipping the products to different
countries.

(c) Distribution:

The global supply chain often negotiates the challenge of distribution across the globe.
By being global the distribution process requires complex process of engaging production
facilities in different parts of the world, a number of warehouses and distribution centres.
If the supply chain isn’t maintained correctly it creates bullwhip effect which creates a
huge gap between demand and supply eventually.

(d) Supplier selection

When the firms start operating globally, an important step is to organise the supplier
selection and management processes. Some of the things firms do is to measure and rate
the performance of the suppliers in terms of delivery time, prices, flexibility,
improvement processes and quality.

According to Pilkington (2007), supplier development teams are another way that firms
can implement lean supply ideas. Here, the central firm in the chain has a group of
specialists it can send out to smaller firms in the chain to help them develop better
systems and technologies. This sharing of expertise is very much part of the lean
approach and benefits both sides of the relationship. However, it may be hard for some
firms to develop this level of openness after having worked in the more confrontational
price-dominated environment of the purchasing function.
(e) Information

The information is a vital component of global supply chain management. In a global

company it is often hard to keep the free flow of information running. The information
integration is imperative for the marrying up of systems and process through the supply
chain and transfer valuable information about demands, forecasts, inventory and
transportation.

(f) Location of the plants

Locations of plants are another consideration for global supply change management. It is
sometimes quite difficult to supply products from just one plant in the home country. A
foreign plant can save costs. Also sometimes it is easier to manage a plant which is
situated where the sources of raw materials are. This saves a lot of transportation cost.

3.5 ERP & Information System

Companies with global presence also face problem when implementing enterprise
resource planning (ERP) and information systems across the organisation. In a company
with global presence, it is quite often found that, every country’s operations are managed
differently to other. If that organisation decides to implement ERP across the
organisation, it requires a serious change in the organisation culture as well as how it
operates.

In a study on Nestlé by Tom Steinert-Threlkel (2006), the author examines the challenges
faced by Nestlé while implementing an ERP across the organisation.
According to the case study, between 1994 and 1999, Nestle increased it’s spending on
information systems from $575m to $750m. In April 2000, the CEO had enough with its
SAP R/2 ERP software which was allowing thousands of different configured supply
chains, multiple methods of forecasting and demand, and innumerable ways of invoicing
customers and collecting payments. These inconsistencies were having a negative impact
on Nestlé’s profits. So Nestle launched a $2.4bn initiative to compel its markets heads
around the world to adopt a single set of business processes and systems for procurement,
distribution and sales management.

The project was to be called GLOBE (Global Business Excellence) which was to
harmonise processes, standardise data and standardise systems. All of the Nestlé’s
business units worldwide were to use the same processes for making sales commitments,
establishing factory production schedules, billing customers, compiling management
reports and reporting financial results. The worldwide business units were no longer to be
permitted to adhere to local customs for conducting business except in cases where the
laws of a particular country required they do so. The project was launched on 4th July,
2000 and was to be implemented by December 2003.
After studying the experience of the competitors and receiving feedback from consultants
at PricewaterhouseCoopers and deployment experts at SAP the project leaders found out
that the parameters of the project had to be adjusted. GLOBE required a larger staff, more
funding and a larger window of time than the executive board had allotted. In the end the
budget was changed to $3.2bn and the target was changed to implement the new
standardised system in ‘majority of company’s key markets’ by the end of 2005.

The project leader recruited 400 executives from Nestlé operations from around the world
and got them to write down 1000 processes, divided into 45 sets of solutions that focused
on disciplines such as planning or financial reporting. These solutions were finalised after
careful scrutiny of the GLOBE managers.

The biggest challenge that came across the project was changing the culture of the
organisation across the globe. The managers resisted the idea of giving up control over
their business processes to participate in a centralised solution. They thought
standardising the back office across the globe was impractical.

But by mid 2005 the company could see the benefits of implementing the financial
reporting system and after a few more slight hiccups; the system was operational in 80%
of Nestlé’s units by the end of 2006.

3.6 Quality planning and control

Total Quality Management (TQM) is an effort to improve all components of a business

simultaneously. Most of the challenges faced by TQM implementation in a locally based
company multiply when TQM is applied in a globally based company. One of the biggest
challenges in TQM is to guide the change towards the right direction. The challenge is
even bigger in an organisation with global presence. According to Huq (2005), TQM
implementation requires changes in structure, system, and process as a necessary
precondition to achieve improved business performance and changes in employee
behaviour. As we have seen from the Nestlé case study, it is quite difficult to change the
systems and processes of a company with a global presence. Moreover, it requires a lot of
time to implement.

3.7 Political

Political environment of a country can pose a challenge to a company’s globalisation

initiative. If we consider IT products, some of the countries have strict control over IT
infrastructure than the others. When Google and Yahoo! moved to China, they had to
modify their search engine and other services according to the strict guideline of the
Chinese government. In India, when Coca Cola was planning to build a water purifying
plant for its drinks, there was a huge outcry as the plant was supposed to be built on a
farmland and the local people opposed to the government’s decision to allocate farmland
to a global soft drink giant. There were also allegations against Coca Cola that they were
contaminating the water and causing damage to the environment in several parts of India.
Coca cola eventually had to go to Indian high court to restore their right to operate on
Indian soil.

3.8 Uncertainty

Global business endeavour can pose uncertainty in the business infrastructure. If a

company has multinational presence, one country’s economic or political condition can
affect the whole company’s performance. For example, there was a recent slump in dollar
valuation in the United States. If a British company has a plant in the US, when its profit
is transferred from USA to UK it will be lower than expected due to the weak US dollar
exchange rate.

The unexpected incidents of one country can affect the multinational and trans-national
companies as well. For example, after 9/11, lot of multinational companies lost their
share value in NYSE. It also forced many companies into bankruptcy.

More recently in 2007, Barclays bank of UK who had invested $1bn in US sub prime
mortgage lender New Century were caught up after the sub prime mortgage crisis in the
USA. The sub prime mortgage crises emerged in the USA as the interest rate rose and the
price of the property decreased. (Times, 03/03/2007)

Some companies, who don’t have much international exposures, can also be affected by
this kind of financial problems. For example, British lender Northern Rock faced a
similar crisis when the US sub prime mortgage market collapsed. Northern Rock, who
used to gain it’s fund via short term Commercial paper and used to lend for longer term,
got caught up by the liquidity fear by it’s customers who had started withdrawing their
savings from Northern Rock accounts. Northern Rock had to borrow $20bn to keep the
bank’s liquidity.

Local companies who have global influence or heavy reliance on global political and
economic climate are also vulnerable. For example, after the SARS break out in South-
East Asia and Iraq war in 2003, Singapore Airlines which was the most profitable airline
of Asia ran into loss of $312m. The SARS also affected tourism industry of many
countries in South-East Asia including Thailand, Hong Kong and Singapore. (BBC,
30/07/2003)

4. Conclusion

Globalisation is the all pervasive phenomenon in today’s business world. Even a small
company can gain the advantage of globalisation by operating its call centre from a
different country and provide its customer with the required services at a cheaper cost.
Although it is quite difficult to manage a company with a global presence because of the
various challenges in the integration of operations management of the company’s global
infrastructure and culture, the merits of globalisation in today’s business organisations
can not be ignored.