Global Factors

Definition: 

Firms that move into global markets require changes to their operational processes, which increase drastically in complexity, scope and cost. 

The advantages of ‘globalising’ a firm include access to enormous consumer markets, access to cheaper input supplies. 

The additional costs and financial complexity must be accounted for by the operations team in order to ensure costs are contained and that the firm remains profitable.

• Global Sourcing: Globalisation has created opportunities for firm’s to access supplies without the constraints of proximity. Delivery costs and times are reduced (containerisation). 

  • Benefits include: cost advantages, access to technology, labour specialisation. 

  • Problems can arise from different regulatory frameworks, longer lead times, risk of damage / loss, increased storage / distribution costs, complexity of inter-firm communication, and financial complexities.

• Economies of Scale: Producing for a global market brings benefits from ‘scaling up’ production. Cost per unit decreases as production volumes increase. Larger firms are able to change lower prices due to more efficient production, simply from scale.

• Scanning and Learning: Making systematic and strategic observations of global best practice in operations. Undertake research (tertiary and industry) to apply knowledge to improve operational performance. Diverse experience from global contexts can assist a firm to grow flexibly and responsively to global trends.

• Research and Development: Global research and development is essential for global firms to gain and maintain a competitive edge over rival global firms. Small advantages in product innovations or operational processes can lead to increased revenue and profitability. R&D is costly, but enables a firm to create leading edge technology, to be the first-mover in a category (self-driving cars), to meet needs of consumers. Governments provide incentives for firms to innovate (through grants, and tax concessions). Related to Balance Sheets and Capitalising Expenses.