Penalties of globalization

Comparative analysis of firms across various industries exhibits an interesting trend. The firms that are operating close home are increasing displaying a healthier business prospects that the renown multinationals. Taking an example of GAP Inc., a clothing retail multinational and Badger Sports Inc. performance analysis exhibit the latter as doing well. The recent spate of losses and closure of GAP stores is a sharp contrast with Badger Sports that is increasingly gaining market share. GAP is a multinational with several stores in the US and around the world (Bloomberg, 2015). Despite its advantage over wider market, it has suffered a setback due to brand management and managerial shortfalls. It is imperative to note that Badger operates mainly in the US and Mexico. Significant local focus has put Badger on the upward performance trend while the GAP is compelled to restructure and rebuild its brand to compete favorably (Wood & Gale Group. 1990). The closure of the stores and mass retrenchment of the workforce is a manifestation of a frustrated and unhealthy GAP. Existing literature portray the failure of GAP as related to brand versus society mismatch. In other words, its emphasis on geographically dispersed activities has overshadowed its efficiency to cope with key elements as innovation and cultural compatibility.

Contemporary business environment is dynamic and competitive. The concept of globalization has overtaken various industries. However, the emerging changes in socio-economic and political factors across the world are steadily redefining fortune of firms. While multinationals enjoyed the multiple gains of globalized value creation activities and markets, the local firms have emerged to secure bigger market share. A comparative performance trend between multinationals and locally operating firms shows an increasing deviation in favor of the latter (Martin, et al.2011). The traditional belief that globalization provide better success prospects in terms of economy of scale, market size, reduced cost of production, and availability of raw materials is facing criticism. Local firms are gaining foothold and displacing the multinational corporations on diverse grounds. There are risks of cultural clashes, creeping complexity, harsh government policies, among others.

Companies operating within the immediate localities have gained a head start in dealing with critical socio-economic and political behaviors of the population. On the other hand, multinationals are increasing facing difficulty in coping, tolerating, and overcoming the challenges within host nations (Wood & Gale Group. 1990). Although emerging markets provide the much needed impetus among firms to go global, the aggressiveness of the local competitors is become a real threat. Latest research on the challenges multinationals face indicates that geographical dispersion of value creation activities, exploration of foreign markets, and centralized co-ordination of activities is undermining the performance of local firms (Martin, et al.2011). The fact is that such far flung operations present a challenge and strains the multinationals. GAP Inc. has been compelled to close up about 175 stores in North America where local firms like Badger Sports Inc. continue to survive and earn revenues. It can evidently be noted that the estimated $ 300m outlets and stores’ cost of closure caused a dent in the financial muscle of the GAP. In fact, the fear of collapse forced GAP shares to slump to 9.3pc down from the latest $38.85 (Bloomberg,2015). Badger on the other hand has studied the local market and noted the increased demand for performance wear. In fact, Bodek and Rhodes lately added the brands of Badger Inc. indicating a healthy business progress. Although profit margin for multinationals remains relatively stable, the underlying health of the companies is poor. In that respect, locally operating firms tend to beat multinationals on critical dimensions of organizational performance. Such key factors include; co-ordination and control efficiency, direction setting, effective innovation, and external orientation. The underlying impact of such deficiencies among multinationals gives their local competitors upper hand and present a formidable competitive challenge that must be reviewed critically.

Local firms have a cultural congruence with the consumers and workforce. It is easier to adjust and fit into the social norms of the people with an ultimate gain of high productivity and market share. On the other hand, multinationals meet harsh and incompatible culture that clash with their corporate policies (Martin, et al.2011). In a bid to cope with the local community, effective co-ordination of activities in line with corporate policy is highly compromised. Dispersed retail stores for multinationals require product customization that attracts additional costs.

The expanded international reach exposes multinationals to co-ordination constraints. For instance, The GAP has part of its failed performance attributed to overemphasis on international frontiers. On the other hand, locally focused firms like Badger enjoy effective and efficient co-ordination of activities as its external extension is limited to Mexico. In that regard, multinationals are facing a complex problem on reconciling competition from local firms and retaining profit margin. While globalization has provided a success platform, its penalties are felt by multinationals.

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