Globalisation and International Trade

Nowadays, we can purchase products made by different countries easily and we are becoming more difficult to find a local good from the market. This is an phenomenon that here is an increasing trend of  international
trade and globalization. Now, let me explain what is globalization and how the international trade take place. According to Kiely, globalization refers to a world in which societies, cultures, politics and economies have, in some sense come closer together. Globalization affect the whole world but it causes positive and negative influences to different countries. In my own opinion, I think that international trade is one of the main reasons causing globalization. The capital, goods and services from different countries exchange across international borders. In this post, i will investigate why there is an increase in international trade, how countries can get benefit from international trade and how international trade affects different countries.

I believe that the advancement of technology transport, internet, multinational corporations, outsourcing are the main reasons why there is a increasing number of international trade in the world. For example, international electronic commerce companies have been more popular for customer shopping. Using Amazon as an example, its headquarter is located in Seattle, Washington, United States. It set up a lot of software development centers in different countries like Canada, UK, Ireland, Netherlands, Romania, India, Japan, China, South Africa allowing the products of company can be sold in these countries. The goods of Amazon can be delivered all over the world due to cheap shipping costs. Some of the products like kindle will be outsourced to the factory in China for manufacturing due to the cheaper labor cost and resource.  The reasons why Amazon sets up factory in China is that Amazon can enjoy competitive advantages and absolute advantages of  China. With reference to Adam Smith's model, China can produce more of a good than competitors , using the same amount of resources. Therefore, the products of China are more willing to export to other countries which have not absolute advantage in order to gain maximum benefits. This leads to an increase in international trade.

International trade can also lead to the benefits for many countries. Because of the limitation of resources and technologies and high labor costs, many countries are more prefer to import goods instead of making goods. For example, oil and energy are only rich in Middle East. Other countries may need to spend high cost and times to explore the oilfield. Therefore, countries are more likely to buy oil and energy from Middle East
instead of extract by themselves. Another example is that US and European companies own a lot of industrial technologies which can help to produce high quality products with lower cost. Mass production of the factories leads to economies of scale which allows them having competitive advantages. So, people will buy the foreign products from US and European companies because of the cheaper prices than the domestic products.

Here I will share some of my personal experience about the effect of international trade. I live in city which is dangerously dependent on imports, with more than 90% of food supply from foreign countries. First half 20 century, we enjoy benefits from importing goods with cheaper price from China. However, due to the economic growth of China, the goods from China has been increased sharply. Nowadays, we need to buy foods with very high price. On the other hands, I am one of the HongKongeses who prefer to buy foreign goods due to the good quality and good services. Leading to an increase inflow of foreign brands, these companies are more willing to pay a high rent for a shop located in city center. This leads to an increase in the rent of the whole city and the tradition shop like restaurants, clothes shop collapse due to high rents. Nowadays, near 80% of shops are occupied by western companies. Hong Kong starts to be westernized and lost it special cultures.

News about High rents in Hong Kong leading to collapsion of local shops:
http://www.scmp.com/comment/letters/article/1299097/high-rents-not-minimum-wage-are-main-reason-rising-prices

I realize that globalization is an unstopped trend due to the increase in convenience of international trade. Recently, the rapid growth in China's economy will lead to a new trend of chinization. Many Chinese brands appear in the world stage.  However, I hope countries should set up policies to protect itself from westernization and chinization otherwise in the future, there will only exist two or three dominant language and few local cultures.

Here is a video discussing whether globalization is good or bad.

Strategy of an organization

When we talk about strategy, what does it mean? I will think about some decisions made towards the target. For example, when i play chess, i will decide which steps i should take and how i can respond to opponent's move in order to win. So, organizational strategy should be steps that have been decided by organization to achieve its objective. Actually, in a much formal way to explain strategy, it is about how people decide to organize the resource to enhance performance of an enterprise. I know that strategy is very important for an organization to arrange its long term directions. 

I have learnt a lot of useful analysis tools in this month and some of the tools have been mentioned in the previous posts, namely, Porter's five force and PESTLE analysis. However, the Porter's five force and PESTLE analysis are only useful for external environment. Here are some new techniques that i have learnt to analyse the internal environment of an organization.I will use Easyjet as an example.

Value chain analysis 

calculates the value added at each stage of a manufacturing or service process

SWOT analysis

summarizes the internal and external issues and help identify potentially useful development

Using Easyjet as an example,   

Strengths: 

1.    Lower training and supervisory costs due to usage of two aircrafts models

2.    Low fares due to greater seat occupancy

3.    Strong e-business

4.    Flights to main terminal airports throughout Europe

Weaknesses:

1.    Only focus on price and convenience

2.    Only focus on Europe

3.    Lack of attracting business travelers

Opportunities:

1.    More people take flights

2.    Vertical and horizontal expansion

3.    Fleet growth with low cost

Threats

1.    High costs due to the increase in the environmental taxes

2.    Increase in the price of aviation fuels

3.    the price and route competition will become more intense. 

Followed by identifying the external and internal environment of an organization, I can make a choice on deciding strategy. The decision making can be made at two different levels, corporate level and business unit level. 

Corporate level  - Overall direction of the organization by using Ansoff''s matrix. The matrix allows marketers to consider ways to grow the business via existing and/or new products, in existing and/or new markets 

Ansoff''s matrix 

Using Easyjet as an example, it uses to three different strategy choices of Ansoff's Matrix.

Market Penetration: 

Easyjet is targeting business travellers with its low cost airfares and frequent flights to popular destinations. The best way to achieve this is by gaining competitors' customers. Other ways include attracting non-users of your product to use more of your product/service, with advertising or other promotions.

Product Development: 

Easyjet has grown by introducing new flight routes 

Diversification: 

Easy group is bringing forward new business ideas for its existing market segment such as easy Internetcafe, and the latest venture easy money.

Business Unit Level - How to compete by using Porter generic competitive strategy. It allows marketers to consider to compete with the rivals in three ways: cost leadership, differentiation and focus. 

Using Easyjet as an example,

It targeted businesses and travel bookers in its UK home market, as well as Zurich and Paris. Easyjet enjoys the cost advantage; therefore, it will choose the strategy in the way of cost focus.

Above, i have pointed out the process of an organization to make strategy decision. We need to keep in mid that the analytic tools for market environment are only reliable in the stable environment. However, the market environments are unpredictable and many factors may affect the organization. For example, clothing industry can be easily affected by the fashion trends and the customers' style.  Therefore, organization should try to adapt the new environments instead of just following the original strategies. I realize that when the organization run their business with their strategies, there will be a lot of problems that will appear. In order to make a flexible management of the organization, organization sometimes need to give up their old strategy by implementing a new strategy that fit in the present. Replacement of strategies will never stop due to rapid change of market environment.

Macro-environment PESTLE analysis

   Before having the lecture of this week, I knew that all organizations need to face the changes of external environment like customer buying style, economic condition and new technologies. However, I did not know how to summarize all the influences into specific terms. After the lecture of this week, I found PESTLE analysis is a technique for identifying the changing macro-environment which will affect all organizations. There are six dimensions of macro-environment, namely political, economic, socio-cultural, technological, environmental and legal. The table on the left provides some factors with related to respective dimensions. Through identifying these factors, companies can help a clear perspective about general influences leading to an easier decision for making  future strategies.

Here is a video defining what macro-environment is: 

   Using H&M as an example, the macro-environment can be identified easily.

Firstly, the political factors of H&M are the areas like business legislation, tax policy, trade restrictions of different countries. Secondly, industrial structure, income distribution, purchasing power, economic growth  can affect how H&M operates and makes decisions. Thirdly, recognizing the needs and wants of different customers and following the fashion trends are the socio-cultural factors which H&M needed to consider.

Fourthly, with related to legal, H&M must obey the National Laws and International and Business Law like H&M needs to avoid using child labor in their production line. Fifthly, innovation, research and development, new products and processes are treated as technological factors. Also, maintaining 10-15% expansion growth is an technique to maintain its expansion permanently. Finally, environmental factors are really effectively affect the decision making of H&M. For example, climate change can lead to change in H&M's production.

   However, I am not really sure that whether PESTLE can be accuracy and useful for an organization. I think that the external factors considered during PESTLE analysis are dynamic and they can change at a fast rate. It will be very tricky to predict how these factors may affect in the future. The uncertainty effects of the factors may also a problem because same situation may not lead to the same effects. Besides, I don't really believe that just simply listing the environmental factors can be a strong reference for making future strategies and I cannot identify the degree of influence of different factors. If I can find the accurate figures and information to prove and support my PESTLE analysis, the figures will be quickly out of data. The cost of maintaining the newest information of macro-environment will be costly. I strongly believe that PESTLE analysis is not an useful tool when I do strategy planning.

   I personally suggest that if there are accuracy of the data collected, timely updates to accommodate changes, PESTLE analysis can be a viable technique. I also emphasize that during the strategy planning, macro-environment is one of the factors we need to consider. Internal environment and micro-environment need to be investigate simultaneously in order to produce an better future plan. 

The five competitive forces that shape strategy

Suggested article that i was suggested to read this week was THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY written by Michael E. Porter. Talking about what power lies in a business situation, we can easily know who you are competing with and what you should also consider. It talks about five main elements you need to consider when you wanna run a business. The five forces -- Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution, Threat of New Entry -- have been identified which will be faced in any industry.


It is very interesting that direct competition is not the only threat in a industry, it changes my mind about the mean of potential competitor. When i think about competition, i will only think about the companies selling and providing the same products and services instead or others. Because direct competitor is the one who directly affect your source of customers and income. However, now i knew that supplier, buyer, substitution and new entrants can also affect a lot to a company.

Now, if i start a new company, i should study whether new products, services or businesses have a profitable potential or not. Then i can investigate what force is high or low in my industry and figure out method to prevent the price competition and make a maximum profit.

Using my dream company as an example, my company will be an crow-funding company.
Firstly, I need to find out the direct competitor of my company.



Product of Kickstarter










Companies like http://crowdfunding.com/, http://www.kickstarter.com with similar products will be the most challenging existed competitors.
Secondly, the threat of new entry is very high. Because the entrant barrier is very low if you want to set up a internet company. The influx of the new entrant will reduce your market share due to limitation of consumer.
Thirdly, supplier power is very poor in the new industry. Because new backers will exist in the market and the money suppliers are not one but are public. Therefore, the capital source can be sufficient.
Fourthly, buyer power is weak due to supplier meaning buyer. The supplier fund money tot support the project and they enjoy the end product. Even thought there are not buyer, the market can still exist.
Finally, there is nearly no substitution. Because my companies is focusing to specific customer instead of normal, common goods. We create a new product according the customer's wants.

To sum up, five forces will be very useful when i am having market research and am accounting the profitability of my new company.

Models of Management

Last week, i learnt about the purpose of studying models of management. A model means a complex mechanism by identifying the major elements and relationship. There are five different models that can be defined . Firstly, rational goal model is effective in productivity and profit by providing the clear direction leads to productive outcomes. Secondly, internal process model can maintain the stability and continuity of a company by the routinisation. Thirdly, human relations model can lead to commitment, morale and cohesion due to the involvement. Finally, the open system can more effective for the organization's adaptability and external support because continual innovation secures external support.

I am quite interested in the open systems model due to the management method. There is very intense interactions between open systems and its environment. In order to adapt the change of the market, continual innovation need to be achieved to maintain the competitiveness of company. In the market like technology and entertainment, the information flow and new inventions appearance are really quick. Therefore, management of these kind of companies is very important. I think the degree of right of staff is very important to make the organization be successful. Decentralization must be used in the management strategy to ensure staffs have enough space for creation.

If i own a company, i will also implement the open systems model. Because i do think that working environment and assistance from the superior are the main reason leading to the success of a company. If staffs can create the idea with any stress and burden, the quality and efficiency of work can be produced. Imagining that if you are a staff which is allow to do free creation, you will feel happy because you can do what you are interested on with salaries. I don't like my staffs work like a robot, i hope they can think and make their own decision.

Organisational Structures

   This week we were talking about organizational structure, which is a important element within an organisation. Every organisation will arrange their own structure to achieve objectives. There are a lot of basic structures like tall, flat and matrix structures. Different structures have their own advantages and cons. In order to introduce a suitable structure to your own company, the owner need to decide it carefully.

   Even though i don't know much about organisational structure, i believe that a good structure can effectively response to the change of external environment. Because company's decisions are mainly affected by the input. Therefore, a good structure of a company can maintain the stability and coordination. I comment that quick response on local market with effective decisions making can make organization better adapt the new environment. If the power of the organization has been centralized by the headquarter, the decision made to handle the problem will be ineffective or outdated. Penetrating market sense allow organization to get the first-handed advantage.

  However, there are a lot of limitations in the organization structures. If different departments are responsible for respective task, there will be not communication between them. The silo culture will badly affect the innovation and creative of organisations. In order to improve the development of organization, association and coordination with different departments should be involved.

  I have been thinking about a company called 3M which is one of the top 500 companies in the world. I really love the policy of this company, which allow staff to have 15% of their working time for own innovation. Staffs from different departments are willing to share their opinions and idea to each others. The policy of innovation is not only beneficial to staffs but also company. Staffs have a high working incentives and close relationship with others. If some project need to be associated between departments, they can achieve a high cooperative work done by all members of a team.

Here is a link talking about why 3M is so unique comparing with other companies: http://theenergycollective.com/marcgunther/44153/why-3m-unique

  Therefore, I think that a good organisational structure cannot without communication and good power distributions.

Organization and Management

   By examining how organisations operate, how they make decisions, who leads them, what influence they have on society, on ourselves, i have learnt a lot about management and organization. 

   First question is about what organization is. Based on my knowledge, organization is a group of people work together to achieve a goal. However, i discover that organization has their own features that i haven't thought about. There are four elements — people, objective, management, structure — in an organization.

• People
• Meaning organization is made by people
• Objective
• Every organization has something to achieve
• Structure
• Different organizations have different management structure in order to increase the management effectiveness
• Management
• Resource need to be managed, direct and controlled by superior in order to enhance the maximum output.

   Even though organization have their own feature, it is also affected by external environment. For example, feedback and external environment will affect the inputs and the processes of an organization to turn them into output.

   After figuring out the influence of organization, i learnt basic structure of an organization. Organization can be divided into four catalogs which are top, middle management, Operational support, organization support. All of them play their own roles in an organization with overlapping the same tasks between them.

   Management is an separated but related topic, teacher used the research based on Henry Mintzberg to figure out the role of management. He divided it into three parts: interpersonal, informational, decisional.  With other referencing from Henri Fayol, i have a better understanding of managerial activities.

   The main idea of organization start me thinking about organization is indecomposable with management. Because i think of a company ' Valve' which is one of the biggest computing game producer in the world, with the strategy that manager will offer a fixed amount of money for their staff to manage and develop their own products without any monitor. Management started simultaneously, staffs will volunteer and coordinate with others to handle different part of project. In this case, it indicates a fact that organization need management to be operated. No matter it is good or bad management. Product Example of Valve:

Management Style of Valve: http://unnamedharald.hubpages.com/hub/Valve-the-Billion-Dollar-Company-With-No-Managers
   I believe that managers sometime are not necessary to monitor their staffs. Freedom allow staffs to create a epic and excellence creations instead of boring planned products. Creative is something that cannot being controlled and pushed by others, but it is a spontaneous idea which even changes the world. I hope all the organization may allow some space for staffs' creation instead of direct them everything. Human kind have their thinking and feeling otherwise we are just like robots.