Globalization's impact on international business competitiveness and Italian firms

Global Business

When businesses go international, they have to operate in a more competitive, uncertain, and risky business environment. The forces present in the Global environment bring a number of challenges for the businesses; making it more difficult for them to maintain their market share, enhance profitability, and keep the customers satisfied (Cherunilam, 2007). To compete successfully and ensure a sustainable future in the international markets, business organizations have to analyze these forces carefully and strategize accordingly. Globalization has also impacted the way countries use to recognize themselves as internationally competitive and advanced than other countries (Tellis, Stremersch, & Yin, 2003).

This paper presents a comprehensive discussion on the positive and negative impacts of Globalization and the efforts which nations and business organizations make in order to become internationally competitive and keep up pace with the Globalization. The paper starts with a brief description of different environmental forces that are an integral part of Globalization and then discuss them for Italy as a nation and its local business organizations that have entered into international markets to expand their businesses.

Impacts of Globalization on Countries and Businesses

Globalization has not only impacted the way businesses compete with each other, but also espoused nations to come forth and prove themselves as internationally advanced and competitive (Cherunilam, 2007). However, the fruitful results of Globalization do not come alone; they bring a number of complexities and challenges which these nations and businesses have to face in the course of international competitiveness (Tellis, Stremersch, & Yin, 2003). There are a large number of forces that are present in the international environment; including political, legal, economical, social and demographical, technological, and environmental forces. These forces make up an immensely complex environment for the nations and business organizations (Kotler & Armstrong, 2008). The following sections discuss the complexities and adverse impacts of Globalization in the light of these environmental forces:

1. Political, Governmental, and Legal Forces:

The political conditions, governmental behavior, and legal environment are the most critical forces in the international environment. When a business organization operates at the domestic level, all of its business operations are under the rules, regulations, and laws of the local government (Cherunilam, 2007). Converse to this, if it expands its operations in the international markets, it has to adhere to the laws and regulations of the country which it targets for those operations. Generally, these laws and regulations are totally different from those of the local government (Hill & Jones, 2007).

Similarly, the political conditions of the target country may also vary as compared to those in the home country. If there is political instability in a country, it leaves negative impacts for the local as well as foreign businesses. It discourages the foreign investors to come and invest in that country by tightening the laws and regulations for their businesses. When businesses expand into international markets, they look for a stable political environment and a positive behavior of the government towards them (Kotler & Armstrong, 2008).

2. Economic Forces:

Every country has its own economic environment which shapes the earning and spending patterns of its general population and affects the way businesses operate, invest, and grow. In an international environment, the impacts of economic forces directly hit the profitability and growth of foreign businesses (Cherunilam, 2007). Due to Globalization, international corporations have to face varying economic environments in different target countries. The most significant factor in the international economic environment is inflation. It not only increases the costs of doing business in the international markets, but also makes it difficult for the organizations to compete with the low cost leaders and other well-established and competitive businesses (Lambin, 2007).

In the Global business environment, businesses have to become more cost efficient and gain higher market share than their competitors in order to strengthen their position in the industry (Cherunilam, 2007). The Inflationary pressures present in the Global environment badly hamper the growth, cost leadership, and other competitive strategies of these businesses (Kotler & Armstrong, 2008). Another factor in the global economic environment is the industrial growth of the target country. If a business intends to offer its products in an international market, the growth of its respective industry is a critical factor in its long-term future in that market (Hill & Jones, 2007).

The biggest example of Global economic forces is the most recent financial crisis in the world markets. It badly hampered the growth of businesses around the world; irrespective of their country of origin, nature of business, or size of their operations. Globalization; if on one side creates attractive opportunities for businesses to grow internationally, bring a number of unexpected challenges at the same time. If organizations do not strategize to take these challenges as opportunities, they fail to compete with the other industry competitors effectively and profitably (Tellis, Stremersch, & Yin, 2003).

3. Social, Cultural, and Demographical Forces:

A company's products must meet the requirements, life styles, and preferences of their target consumers. In an international environment, a company must provide something very unique in its products in order to establish its brand among general consumers. This is because the social, cultural, and demographical forces have a direct impact on the acceptability of a certain product in a country. Due to Globalization, the level of competition has increased up to a large extent. Now, businesses not only have to compete with their local manufacturers, but also with highly competitive international brands. The lifestyles and preferences of consumers in the new target country may make the product successful, or otherwise totally fail. Therefore, organizations have to analyze these preferences and social factors if they have to establish their presence in that country.

In a Global environment, there is another risk for businesses that they may not find a considerable percentage of potential consumers for one or more of its products. It means they may have to retrench their product line or minimize the level of production in order to save costs and ensure a good match between the demand and supply (Hill & Jones, 2007).

4. Technological Forces:

Technological forces are another significant part of the Global environment for businesses and nations. Any new technological advancement in one country directly impacts the business operations of organizations in all the other countries around the world. If an organization does not improve its operations according to the current market and technological trends, it stays behind than its competitors who upgrade their operations and invest in technology (Kotler & Armstrong, 2008).

In the international business environment, only those organizations survive that invest heavily in their Research and Development processes and take the new technological advancements as a competitive strategy against their international competitors. In the Global business landscape, the level of competition is very high which makes it imperative for businesses to re-think their current business processes and invest in new projects (Cherunilam, 2007). Organizations have to bring more advanced and innovative features in their products in a view to capture more and more customers from the target markets (Tellis, Stremersch, & Yin, 2003).

5. Environmental Forces:

Global business environment is much more risky and uncertain for organizations and countries than the domestic environment. It is more difficult for businesses to analyze the complexities and issues present in this environment (Hill & Jones, 2007). The different environmental factors may pose big threats to a business in all the aspects of its operations and activities. These threats; if not managed effectively, can significantly impact the sales growth and profitability of that business which ultimately throws it out of the market (Tellis, Stremersch, & Yin, 2003).

Examples of Italian International Businesses

During the last five to ten years, a large number of Italian-based organizations have gone international. They greatly benefitted their businesses from Globalization and expanded business markets. Some organizations chose to merge with larger organizations in new markets while others set up their production units on their own. This section discusses the examples of a few renowned Italian businesses which have expanded their operations, increased their market shares, became more competitive, and improved their stakeholders' value -- all as the result of Globalization.

Ferrero is one of the biggest examples in Italy when it comes to international expansion. It is an international Group mainly engaged in the production, marketing, and sales of a variety of food and confectionary items and drinks. For the last few years, Ferrero has been pursuing an international business growth strategy. It has recently set up new production units in Poland, Germany, and Belgium to serve the customers in these countries and the adjacent regions. According to Financial results of 2011, the Earnings before Tax of the Group were declined by 4.1% due to bad economic conditions in different target countries. However, the Ferrero International supported the growth of the whole Group with its new projects in different potential markets in the Asian and European region (Ferrero, 2012).

Ferrero:

Ferrero offers a variety of food items that best match the requirements of its customers all over the World. It understands the social, cultural, and demographical differences that each of its target market possesses. Moreover, it sets up new projects after carefully analyzing the economic situation, political and governmental forces, and the overall business environment in every new region. With the help of Globalization, Ferrero has made tremendous growth in its international projects that were set up with a huge initial investment of about 382 million Euros in 2011 (Ferrero, 2012).

San Pellegrino:

San Pellegrino is another example of internationally competitive Italian brands. It has recently won the Confindustria Awards for Excellence for being the best beverage brand of its type around the world. As a part of its international growth strategies, San Pellegrino has started an international recognition campaign (Water Coolers Europe, 2012). This campaign mainly aims to create brand awareness among the new potential customers of the company. The brand awareness campaigns have brought positive results on the sales and profitability of the company. Moreover, San Pellegrino has targeted some new markets where it intends to expand in the coming years (PRWeb, 2010).

Benetton & Prada:

In addition to the consumer good markets, Globalization has also impacted some other sectors of the Italian economy. Benetton and Prada can be taken as the most eminent examples from the fashion industry of Italy. Benetton -- a renowned brand in the fashion apparel industry has been showing a rapid business growth for the last few years. This growth can be attributed to the sales of its fashion apparels in more than 120 countries of the world (Funding Universe, 2012). Benetton has been serving the worldwide customers with its 6500 stores; all of which are fully equipped with the modern apparels and outfits for all age groups. The positive impact of Globalization can be seen on the product line of Benetton; it has customized its clothing line according to the social patterns and life styles of its target consumers in the international markets (Benetton, 2012).

Similarly, Prada has also taken positive impacts from Globalization in the form of high level of sales growth and acceptability in the Asian, American, and European regions (Prada, 2012). The most significant growth has been seen in the Chinese markets where the sales volume is being expected to increase up to three times in the next 12-18 months period. The business setup in the rest of the Asian region is also on its growing pace; a sales growth of about 50% is expected in the coming year (Global Times China, 2011). After entering into international markets, Prada has realized that its products do not match the income levels and life preferences of a big percentage of the total consumer market. Reason being, the products offered by Prada are considered premium-priced in the world markets which restrict a large number of consumers from buying Prada brand.

Conclusion

Global business environment affects the economies and businesses in both positive and negative ways. On one side, it enables them to thing strategically, become internationally competitive, and grow with full strengths and competencies. At the same time, it brings a number of challenges and threats in different aspect of their operations (Hill & Jones, 2007). The major forces present in the Global environment are political, economic, social, technological, and environmental forces; all of which have a direct impact on the growth of business and competitiveness of nations (Kotler & Armstrong, 2008).

Italy -- one of the most developed nations in the world has taken great advantages from Globalization and internationalization of its local businesses. It has revived from severe recession and economic downturn and stood up in the row of top industrial economies of the world. Italian businesses have also benefitted from Globalization by expanding their operations into potential countries, setting up production and operational units in foreign markets, serving greater number of potential customers, and increasing their brand loyalty, sales volume, and profitability at Global level (Dconti, 2012).