LO1. Examine the core factors which drive globalisation.
LO2. Discuss the strategic complexities associated with operating in a global environment.
LO3. Explain how operating in a global market influences an organisation’s structure, culture and functions.
LO4 Analyse the influence of globalisation on organisational decision-making and strategy.
Shell is an international energy company with expertise in the exploration, production, refining and marketing of oil and natural gas, and the manufacturing and marketing of chemicals. Royal Dutch Shell was established in 1907. It's headquarters in The Hague, the Netherlands, however, the company is operated in the UK.
The company’s strategy is to strengthen its position as a leading energy company by providing oil and gas and low-carbon energy as the world's energy system changes. Shell's main purpose is to power progress together with more and cleaner energy solutions. With the rising standards of living for a growing global population likely to continue, will foster demand for energy, including oil and gas, for years to come. Due to change in technology, the need to tackle climate change means there is a transition underway to a lower-carbon, multi source energy system. The company seeks continuously to increase its operating performance, and maximise sustainable free cash flow in order to emphasis on health, safety, security, environment and asset performance, as well as adhering to ethical business practices and compliance principles.
"To constantly offer shareholder value by: Manufacturing and delivering oil products and services to fulfil the needs of our customers; It is achieving operational excellence; promoting our business in a safe, environmentally sustainable and economically optimum manner; Employing a diverse, innovative and results-oriented team motivated to offer excellence"
In your Global Business Environment (GBE) lessons, you have learned the methods, drivers, approaches and the strategic complexities associated with global business environment. To develop knowledge and understanding, you are required to write an essay to critically analyse the global business environment, including the opportunities and challenges emerging in global business organisations.
Your essay should be well researched adequately referenced using the Harvard referencing system. You are also required to produce a bibliography using the Harvard referencing system. The recommended word limit is 2,000 to 2500 words, excluding the bibliography.
An introduction to the concept of globalization.
A critical evaluation of the key drivers of globalization and their impact on global business environment in terms of benefits and challenges.
A critical overview of global business environment, including opportunities and challenges faced by organizations such as Shell.
Using the scenario of Shell Plc given above, you need to make a detailed research on how globalisation influences organisational structure, culture and functions. You are required to examine how globalization influences decision making and strategy in context to global business. Use appropriate theories and models used to analyse the impact of globalization on organisational structure and culture.
You are required to provide an essay which critique strategies that can be adopted by organisations operating in a global business environment, making valid and justified recommendations of how they should adapt their organisational structure and decision-making processes. The recommended word limit is 2000 - 2500 words.
A brief explanation of how globalization influences corporate governance and leadership, and organizational structure, culture and functions.
Analyze how ethics and sustainability influences organizational functions.
Global business environment is mainly associated with international interactions of an organisation beyond the boundaries of its domestic country that create influence on its business operations. The concept of globalisation together with technology advancement and intercultural effectiveness are the reasons that has foster the level of global business and lead to a high level of competitive dynamics and increasingly integrated environment (Ali and Khan, 2019).
This report is basically based on a discussion over global business environment and the selected organisation for this purpose is Royal Dutch Shell Plc commonly known as Shell which is a well established international energy company having expertise in production, Exploration, refining and marketing oil and natural gas and also deals with manufacturing and marketing of chemicals. This assignment includes an analysis of key factors that act as driver of global commerces and trade and include components like cost, market, competition and environment. Beside this an explanation about complexity of strategic challenges encountered by an organisation while operating at global level is also included. Further, influence of globalisation on organisational governance and leadership, culture, structure and function are also there together with evaluation of ethical and sustainable globalisation. At last, this report also includes evaluation of ways of decision making and various routes to internationalisation.
1.0. Introduction to concept of globalisation
Globalisation is a process that is mainly associated with the enhanced interaction and integration among people, organisation, economies and government at a worldwide level that has facilitated global cultural, economic and political interconnectedness. Globalisation has facilitated easy spread of technology, products, jobs and information across national borders and diverse culture that has fostered free trade around the globe that has increased opportunity for industries having potential to earn huge profit while operating at global level through increased demand and high tech inventions (Berman and Dalzell-Payne, 2018). The global business environment basically represent an environment exits in different sovereign countries including various internal and external factors like suppliers, customers, value chain, competitors, political, legal and many other factors that are exogenous to home or domestic environment of a company. This increasing integration among nation and economy has created many opportunities for a global business organisation through providing assess to a wider market area and more customers but also lead to many threats and issues related with higher competition level and other dynamic factors (Andotra and Gupta, 2016)
1.1 An analysis of key drivers of globalisation
Shell is also among such organisation that is having potential and capability of successfully operating at global level. Shell is a multinational energy company having its headquarter in Netherlands and incorporated in UK having specialisation in production, exploration, refining and marketing of oil and natural gas. The Shell organisation is having its business operations in more than 70 countries of world that includes many regions of Africa, Asia, Europe, UK, North America and Australia. The main mission and aim of Royal Dutch Shell is to strength its position at global level through manufacturing and providing oil products and gas and low carbon energy to become a leading energy company (Colpan and Jones, 2019). There are various factors in a global market that act as key drivers of global trade and commerce have impact on business environment of an organisation creating both benefits and challenges.
The key drivers of globalisation and their implication on Shell Plc is provided below:
Cost- This driver of globalisation is associated with souring efficiency with increase in productivity of organisation. The opportunity to attain the level of global scope economies and differential cost reflects the cost globalisation driver that motivates company to operate at global level. As cost of operation vary from country to county that offer an advantage to business firm to expand in the regions which are offering better economies of scale (Dabelko and Conca, 2019). For instance: the economies of India and China are offering an advantage of relatively cheap labour force together with assess to efficient technology thus, creates an advantage for Shell Plc to operate in these countries to have economies of scale and objective of cost efficiency in production.
Market- Another driver of globalisation that facilitate enhancement in global trade and commerce is associated with market as it offers a customer base and more opportunity to expand thus, encourage organisation to operate at global level. Market drivers include the customer distribution pattern and emphasis on the regular occurrence of customer needs to have a standardised product which can fulfil the similar needs of customers at global level. Shell Plc is dealing in oil and gas products that is desired and required by people of all country thus, created an opportunity for Shell plc to expand its operations at global level to attract larger number of customer from various countries that includes Nigeria, China, Hong Kong, Singapore, India, Ireland, Nordic countries and other regions of Africa, Australia and North America to have better productivity and profitability (Debroux, 2017).
Competitive drivers- High level of competitive diversity and firms, industrial revolution and efficient technology exists at international market that act as competitive globalisation drivers that has created boost in international trade and commerce through enhancing potential of organisation. These industrial revolution and better technology also facilitated Shell to operate at global level to get better position and remain ahead of its competitors at global level.
Beside this there are various forces that exists in global business environment which acts as main drivers of global trade and commerce are as follows:
Political forces- These factors are mainly an indicator of political stability and polices governing the operations of business organisation in a nation. A stable political environment with flexible tariff or zero tariff and other trade barriers always attract an organisation to expand at global level while a strict polices and unusable political environment hamper global trade. For instance, the Bureau of custom of Philippines has claimed 7.34 billion pesos unpaid excise tax from Shell on the basis of some bound tariff charges because of that Shell goes to court over Philippines Excise tax that has hampered and created a threat for its operations at global level (Shell Goes to court over Philippine Excise Tax Dispute, 2020).
Technological forces- It is mainly associated with the level of technology and innovation together with phase of automation exists in a nation which attract an organisation to operate at global level to get assess to better technology to have efficiency in its operations. For instance, the markets of China and US has attracted Shell organisation as they are having the potential of fast growing technology that facilitates many effective way to manufacture and produce oil and gas product with cleaner and low carbon emission energy (Dubey, 2016). Thus, a nation or foreign market with well developed technology always create opportunity for global business environment through providing effective way of communication, manufacturing and other operations for Shell plc.
Threats lead by these drivers
- Threat of competition- The increased level of integration among economies has increased the threat of higher level of competition for Shell as now it needs to enhance its capabilities and potential level to compete with other big multinational organisation at global level.
- Higher administrative cost- The various political polices together with tariff barriers and lengthy trade procedure has lead to increase in administrative cost of Shell plc to operate effectively at global level. Beside this threat form various environmental acts and rules is also creating a challenge for Shell plc at global level.
Opportunity lead by these drivers
- Better expansion opportunity- The integration and better interaction among cultures and nation in global business environment facilitates better growth opportunity for Shell to expand its business operations in various countries of world to have better productivity and profitability.
- Efficient technology- The global business environment facilitates assess to better and more innovative technology which lead to optimum use of resources and increase efficiency of all the operation of Shell plc that facilitates achievement of target of cost efficiency in operations.
2.0 An explanation on the complexity of strategic challenges faced by global businesses
There are various challenges and problems that are faced by an organisation while operating at global level. Some of these strategic challenges faced by Shell Plc are as follows:
Tariff barriers- These barriers mainly indicate the controls, duties and taxes implemented by a nation on its exports and imports (Gawin and Marcinkowski, 2019). Insatiability and random changes in tariff rates and trade polices together with anti-dumping duties and defensive strategies creates biggest challenge for Shell Plc while operating at global level. For example: the Bureau of custom department of Philippines has claimed around 7.34 billion pesos unpaid excise tax on imports of some gasoline products from Shell plc for which it is petitioning the court of tax appeals in Philippines that has adversely affected its functioning and operations at global level (Shell Goes to court over Philippine Excise Tax Dispute, 2020).
Administrative Policies- The bureaucratic rules and administrative polices and procedure of every country varies from each other that creates huge challenges and problems in global trade (Hamilton and Webster, 2018). Shell plc is having its operations in more than 70 countries of world out of which many having too lengthy formalities and administrative procedure that has make it difficult for Shell to operate effectively at global level. For instance: The import and export trade policy and administrative procedure of China are quite complex which is based on international six figure key and many specific import procedures and custom harmonised system is also their which has made it challenging for Shell to operate its business in China and other countries with lengthy administrate procedure (IMPORT CUSTOMS PROCEDURES IN CHINA, 2019).
Considerable Diversities- Another barrier faced by multinational organisation in global business environment are associated with language, religious and other cultural diversities that make it difficult for international marketers to operate in an efficient way. At global level and in foreign markets considerable level of social and cultural diversity is faced by Shell plc related with diverse needs habits, preference, expectation, language, buying capacity, consumption pattern, etc. of customers that makes it difficult for this organisation to properly understand the behaviour of customers at global level (Kahiya, 2019). For example: there are around 6000 languages in world among which China in the largest in terms of native speakers having only 6% people who can speak English thus, created many communication issues for Shell to effectively operate in the markets of China due to diversity of language (8 Challenges for Companies Going Global?, 2020).
Political interference- The higher level of disturbance by strict and unstable political forces of a nation creates threat in global business environment for international organisation through creating more barriers and control over global trade. For instance: the recent Brexit issues has adversely affected the operation and function of Shell plc in European countries through making trade relation and policies more stricter and difficult.
Diversification strategies- Selection of most suitable diversification strategy together with opting a profitable market is always difficult and challenging for an organisation. For instance: all the countries are now becoming more conservative towards environment and nature thus, Shell must includes new product with cleaner and low carbon emission energy to effectively operate at global environment (Kasemsap, 2016).
Supply chain complexityâ At global level it become more difficult and complex to have an efficient supply chain network because of physical distance and unawareness of petrographical areas of foreign nation. Shell organisation is also facing this strategic challenge of supply chain complexity as it does not have much information about supply network of all countries which has increased the issue related with involvement with some unethical or illegal suppliers that can lead to consequences in future. For instance: In 2005, shell had a big supply chain transformation to resolve this complexity in supply chain through including use of standardising practises and technologies (How Shell executed its supply chain transformation, 2019).
2.1 A critical analysis on the strategic challenges caused by globalization on risk, diversification strategies and supply chain
While operating at global level many risk and strategic challenges are faced by organisation related with administrative policies, diversities, political interference, adoption of diversification strategy and complexity of supply chain. Shell plc is also facing issues related with administrative policies as it is difficult to fulfil all the criteria of lengthy administrative and trade policy. Beside this, it is also difficult for Shell plc to operate in a country having diversified culture and language as it made communication and integration with customers and clients more difficult. Furthermore, the biggest risk and issues faced by Shell is associated with selection of most suitable diversification strategy to expand its business more effectively (Lane and Maznevski, 2019). Complexity of supply chain and maintenance of continuous supply chain flow to keep a balance in supply and demand of product is also difficult for shell because of physical distance and unethical suppliers operating at global level.
2.2 A critical evaluation of the global business environment
It can be evaluated form above discussion that globalisation has lead to better integration and connection between economies and country at global level that has facilitated many opportunities for organisation. Globalisation has lead to better expansion opportunity and also facilities use of efficient technology to have engagement in productivity and performance of organisation. Apart from this, many risk and challenges are also associated with globalisation that includes higher competition level together with complex supply chain and administrative policies. Thus, it can be concluded that with proper analysis of global market and selection of a profitable and suitable diversification and supply chain strategy an organisation can avail the opportunity of better expansion lead by globalisation. The threats lead by these factors of globalisation includes strict political policies together with implication of environment protection act. Besides this the level of competition is also enhanced by globalisation for Shell organisation. The cost of operating at global level is also high which also lead to a threat for Shell company. The various key factors of global business environment lead to benefits of Better expansion opportunity through integration and better interaction among various cultures and nation at worldwide level in global business environment that facilitates better growth opportunity for Shell to expand its business operations in various countries of world to have better productivity and profitability. Beside this assessment to better technology is also facilitated by drivers of globalisation for Shell organisation.
3(a) An evaluation of the influences of globalisation on organisational governance and leadership
Organisation for Economic Co-operation and Development (OECD) is an international intergovernmental economic origination in which their are 36 members which was founded in 1961 which includes forum of countries that defines themselves as nations committed to democracy and market economy. These OECD or UK code is basically a implication of globalisation that makes it easy for organisation like Shell to easily compare policy and experience atmosphere of various nations to seek answers to common problems associated with foreign expansion. These OECD or UK code has created influence on organisational governance and leadership of Shell as it become necessary for this organisation to meet and fulfil all the policies and criteria of OECD or UK code. It also lead to an influence on leadership of Shell as it pressurises them to become more democratic and adopt better strategies and policies to meet the situation and circumstance of global market economy.
b) An evaluation of the influences of globalisation on organisational structure
Organisational structure basically represent the design and framework of an organisation which includes the scalar chain and different functions and operations and also provide a description about accountability and responsibility of various employees and managers. The globalisation has lead to adoption of functional structure in Shell organisation so that it can properly coordinate its functions and various activities going on at different location and also facilitates better way of communication to eliminate the chance of chaos and confusion among various functions and departments while operating at global level
c) An evaluation of the influences of globalisation on organisational culture
The global market has lead to many influence on Shell that can be evaluated with the application of Mc Kinsey 7s framework that has lade to adoption of product diversification strategy by Shell together with functional organisational structure that facilitates better clarity and transparency in its work at global level. Beside this, a smooth and less complex system with recruitment of highly skilled staff is also made by Shell to have a competent workforce to effectively operate at global level (Tuleja, 2016). Further use of democratic leadership style and role culture is also made by Shell to have an efficient communication among workforces and mangers and to properly bifurcate role and responsibility of all employees to have better clarity in operations at global level.
d)An evaluation of the influences of globalisation on organisational functions
Globalisation has lead to influence on organisational function of Shell as it has lead to enhancement in competitive pressure that create a pressure on Shell to have more effectiveness in its organisational functions to get a better and superior position in global market. Besides this, as the political, social and environmental factors are showing their perspective towards conversation and protection of environment therefore, further influence is lead on functions of Shell as it become essential to adopt such technology and operations that facilitates low carbon emission and should also need to develop more creative and cleaner form of energy to attract a wider section of customers. At global level, it also become essential for Shell to have better communication and distortion channel that facilitates an better interaction with customers at global level and also ensures a better balance and coordination among various activities and functions of Shell to operate effectively in the international market.
3.1 a) An evaluation of the influences of ethics on organisational functions
Globalisation has facilitated better interaction and connection among economies that has lead to many opportunity but at the same time many risk and challenges related with global commerce and foreign trade are also emerged (Wei, Thurasamy and Popa, 2018). Therefore, the concept of ethical and sustainable globalisation has become essential that lead to many influence on organisational functions.
Ethical globalisation is mainly associated with the right and wrong doings and activities of an organisation while operating at global level. It aim at reducing social threats and ethical issues which are lead by globalisation that includes threats and risks like smuggling, hacking, human trafficking and other illegal practises and cyber crimes associated with advancement in technology and free sample foreign trade that are lead by globalisation. The ethical globalisation has lead an influence on organisational functions of Shell plc as it facilitates more emphasis on having a better check and control over trade policy and systems while operating at global level to eliminate the chances of having unethical practises in foreign markets (Ali and Khan, 2019). Ethical globalisation has brought the focus of functions of Shell on basic human needs and lead to a better credibility with public and employees through management of business operations in a more ethical way that lead to protection of society and customers. Shell should have proper use of technology and safety measures to protect its global customers from issues of hacking and other cyber crimes together with an effective supply network to eliminate and reduce the illegal activities like smuggling of products.
b) An evaluation of the influences of global sustainability on organisational function
Sustainable globalisation is mainly associated with the expansion of business operations at global level through fulfilling needs and expectation of all stakeholders in a way that meet the requirements of current as well future. Sustainable globalisation has facilitated influence on functions of Shell through making it more principle centred and through leading a transformation in approaches of doing business at global level (Andotra and Gupta, 2016). To meet its economic, social and ecological responsibility which are three pillars of sustainable globalisation, Shell has adopted an strategy of producing and leading development of low carbon and cleaner energy product to reduce the amount of damage created on environment. Beside this, steps are also taken by Shell to have better mutual decision making and effective activities and functions that meet and fulfil the expectation and requirements of all stakeholders and associated parties that includes its customer, directors, employees, suppliers and overall society and environment.
3.2 (a) Application of McKinSey 7S Model on organisational structure in case the of Shell Plc
Globalisation has lead to a significant influence on organisational governance and leadership, structure, culture and functions (Mawejje and Sebudde, 2019). To evaluate the influence of globalisation on governance and leadership, structure, culture and functions of Shell Plc use of Mc Kinsey 7s framework is made an explanation of which is provided below:
Mc Kinsey 7s framework
It is tool used by an organisation to assess, check and monitor the changes lead in internal situations and factors of an organisation to keep it properly aligned and well coordinated with business environment and its objectives (McKinsey 7s Model, 2019). The main 7 elements of Mc Kinsey 7s framework that is reflecting influence of globalisation on leadership, structure and other internal factors of shell are as follows:
Strategy- This element is mainly associated with the creation and development of plans and strategies that are essential for an organisation to have better competitive strength at global level. Shell is adopting suitable strategy of product diversification through creation of low carbon and cleaner energy product and solution to expand at global market that are more conservative towards nature (Ozturk and Cavusgil, 2019).
Structure- It basically represent the design and framework of an organisation which includes the scalar chain and different functions and operations and also provide a description about accountability and responsibility of various employees and managers.
System- It is associated with procedure and process adopted while operating day to day operations within an organisation. Globalisation has exerted an influence on Shell to have a smooth operating system to properly handle various activities and functions at global level (Rofiq and Pramono, 2019).
Skill- This element is a representative of capabilities and qualifications of manpower to operate functions of organisation more effectively. Globalisation has made it necessary for Shell to maintain a high level of skills in its employee thus,, regular training is provided by Shell to its employees to sharpen their skills and competencies.
Staff- To effectively perform and operate at global level a talented and competent staff and workforce is necessary. Therefore, it can be evaluated that globalisation has make it necessary for Shell to recruit a skilled and well qualified employees to maintain its efficiency at global level.
Style- This element is associated with the leadership and management style of an organisation. To operate effectively at global level Shell has adopted democratic leadership style together with scientific management approach so that proper co-ordination and management of all activities can be done at global level (StankoviÃâ¡ and NovakoviÃâ¡, 2019).
Shared value- This element is mainly associated with the culture and shared beliefs of an organisation. To ensure proper bifurcation of reasonability and activities among employees at global level to have clarity and transparency in its work, shell organisation has adopted implication of role culture in its organisation.
b)Application of Hofstede's Cultural Dimensions theory in the case of Shell Plc
Use of Hofstede's Cultural Dimensions culture dimension is made by Shell organisation to develop better understanding about difference in culture across countries and also state its impact in business strategy and lead to selection of better option for expansion at global level. The various dimensions of Hofstede's Cultural in context of Shell plc are as follows:
Power distance index- Shell should operate in nations that support low power distance index as it facilitates a flat organisational structure and encourage participative style of management therefore, yield a positive and equal atmosphere.
Individualism v/s collectivism- Shell should select a nation which support collectivism as it lead to grater emphasis on achievement of gaols and targets of whole group and organisation. On contrary, individualism emphasis only on attaining personal goal (Suder, 2019).
Uncertainty avoidance index- It represent the extent to which uncertainty and ambiguity is tolerated in a nation. Shell must operate in a nation that has low uncertainty avoidance as these countries more openly and efficiently accept foreign organisation and there are lax rules and regulation which is advantageous for Shell plc.
Masculinity v/s Femininity- Concentration on wealth building, distinct genders role, assertive etc. are the characteristics of Masculinity nations while fluid gender roles, concentration on quality of life and modesty are associated with femininity nation (Trad and KalpiÃâ¡, 2017). Therefore, to provide better quality of life to its employees together with fluid gender role, Shell plc should operate in Femininity nation.
Indulgence v/s Restraint- These are the representative of extent and perspective of a society towards fulfilling their desires. Shell should expand its business operation in a indulgence nation as it allows better opportunity and free gratification to enjoy life and have better growth.Â
Application of Hofstede's Cultural is also necessary in Shell plc to adopt and select a nation that is most suitable and profitable for expansion of its operation. It can be evaluated that low power distance nations is suitable for Shell as it lead to better organisational structure together with collectivism that emphasis on group targets and well being of organisation. Beside this, a low uncertainty avoidance index lead to lax regulation and rules together with femininity characters that facilitates modesty and concentration on quality of life. Expansion of business operation by Shell in an indulgence nation lead to free gratification and better opportunity for growth and success.Â
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4.0 (a) An evaluation of different ways decision making can work effectively in a global context
Decision making is a process of making an effective choice through identifying a decision on the basis of gathering information and assessing various alternative resolutions. Use of a set by set decision making process is made by Shell to make a more deliberate as well as thoughtful decisions on the basis of relevant information and through properly defining all the possible alternatives. Basically there are four types of decision making methods that can be used by Shell Plc to have effective decision making which are as follows:
Command- Under this method one person who is having main authority and charge of functions is responsible for making all decisions (Berman and Dalzell-Payne, 2018).Â
Consult- Under this method a person or head make decisions after making consult from other and on the basis of proper discussion made among team members.
Vote- Under this method of decision making the final result and outcomes is based on voting done by the group.
Consensus- It is a time taking decision making process where negotiation are made to reach a mutual decision on which all the associated parties are agreed.
Scoring- Under this method views and onions of various individuals and associated parties are compared in order to reach moat suitable and viable decision.
The importance of effective decision making for shell while operating at global level are as follows:
- Lead to effective analysis and evaluation of all possible alternative to select most suitable option that facilitates maximum and best possible use of available resources.
- Rational and effective decision making lead to increase in efficiency through leading high returns and eliminating wastage (Colpan and Jones, 2019).
- Decision making also enhance and facilitate better innovation through helping in developing new ideas, product and process.
The different ways of decision making that can work effectively in a global context
The various ways that can be adopted by Shell to make it decision making more effective at global context are as follows:
- Have a flexible decision making process in which changes and modifications can be easily made to meet the requirements of changing global business environment.
- Use of Empirical decision-making process can also be made by Shell to have specification and excellence in its decision making process in order to have a better performance at global level (Dabelko and Conca, 2019).
- Bide this, use of centralised decision making can also be mace by Shell better coordination and control among decisions and process of organisation operating at different location.
- Use decentralised decision making process can also be made by Shell to have some fast decision making process at various locations in order to overcome some adverse situation which facilitates delegation of authority to heads of department.
- Further creation of a constructive environment together with proper communication channels are also an effective way to have better decision making at global level by Shell plc.
(b) Ways (strategies) to enter global markets
Internationalization is a process of designing goods and services to meet the customers in various countries and make a design in that way so they can be easily modified according to the user so that an organisation easily achieve the goal and earns a higher returns. Shell, follows a various modes to enter in the international market that described below.
It is a common and an easiest way to enter in the international market by manufacturing products in the home country and sale a proportion of that products in foreign markets. Therefore, many organisation start their expansion by selling their products in foreign country by using this method (Debroux, 2017). It is an easy process used by the Shell company to grow their footprints beyond their nation of domicile.
An important benefit regarding exporting of products is that, an industry avoids to open an outlet in a foreign country for which they typically sign a legal agreement with a local merchandiser. It helps in achieving an experience regarding the local culture, values and language used in the foreign countries and it will help firms to manufacturer product in the home country according to the foreign customers demand and export to the user.
The major barrier that comes in exporting the offerings is the high transportation cost which also affect the environment (Degadt, Lambrecht and Broekaert, 2019). At the same time, some organisation avoids internationalisation because countries charge tariffs on the exporting products which affect the net income of many firms. To overcome this drawback Shell company, manufacture their offerings regionally i.e. serving several countries from one facility.
It is an legal agreement involving two company wherein a firm authorizes another one by issuing a licence regarding the use of its intellectual property i.e. brand name, production process, technology, patent, copyright, trade- secret etc. Licensor (proprietor owner) is the one who granted permission to licensee( foreign party) to engage in an activity which is otherwise legally void (Dubey, 2016). Shell use license because to help other refiners to develop their business utilizations and this also help it to expand it.
Trump Card of licensing is that it earns a maximum income by providing the available technologies and services to the licensee. At the same time, it capture the new market that is not available by export from existing facilities and also helps in rapid expansion without risk and large capital investments. Shell, give the licensee of new research & development technique to foreign party for capturing overseas market.
Major barrier that comes in the license process is that there is a fear of losing reputation and trademark by an incompetent partner. Another one is that in a licensing agreement there is no guarantee of revenues (Ferraro and Briody, 2017).In context of Shell, firstly they learn foreign country culture, values and according to that they signed the licence that somehow reduces the fear of losing reputation.
It is a process of arranging the pool of resources by two or more than two commercial enterprise for the purpose of achieving the desired goal and there is no limitation of involvement of more than two companies at a time. In this stage participants intentionally shares rewards, ownership, risks, rules and regulations (Gawin and Marcinkowski, 2019). In context of Royal Dutch Shell, joint venture plays an important role in business expansion at a development stage and it also distinguish it from other companies.
The benefit of joint venture is that a company earns a profits at very low cost and shares a risk , losses and expenses among them . The respected Transport company Shell share the risk and technology with the Netherlands petroleum company Royal Dutch for enjoying a maximum profit which is the oldest joint ventures.
The major problem that comes in joint venture is arising conflicts among the partners because of different culture, values, beliefs, language which affects the development and growth. Here the management of Royal Dutch Shell creates a friendly environment and ensures that everyone is treated fairly to reduce this problem (Hamilton and Webster, 2018).
The other two strategies that can also be adopted by Shell to enter a new global market are as follows:
Piggybacking- It is a method that involves working of two non competing companies together in order to cross sell others companies product in their home country.
Use of this method by Shell lead to a low risk method that involve use of little capital (Kasemsap, 2016).
The barrier associated with this method involve a higher degree of trust that allows other partner to take lager control over ones product and functions.
Franchising - It represent a continuing relationship in which a franchisor provides some licensed privilege to a franchisee to effectively conduct a business at some global market.
Use of franchising provide a expertise and also lead to sharing in risk of loss for Shell organisation.
A risk of copying and duplicating product and threat of theft of copyright is always there in franchising method (Kahiya, 2019).
c) A critical evaluation of the key barriers to globalization and recommendations to overcome them
The key barriers that are associated with doing business internationally includes high transportation cost and tariff barriers in case of exporting, fear of losing reputation and trademark in case of licensing together with high fear of loss. Beside this, chances of having conflicts and chaos among partners is a key barrier associated with joint venture. Following recommendations can be made for Shell to overcome these barriers while entering in a market at global level:
- Should have an effective supply chain network to have better transportation of products and technology in new market to overcome the barriers of exporting.
- To overcome the barrier of licensing it is suggested that it should properly analysis all the legal provisos and procedure associated with licensing system to protect its reputation at global level together with proper market analysis to overcome the fear of loss (Lane and Maznevski, 2019).
- Use of an effective written agreement is suggested for Shell to overcome the issues of chaos and conflicts with partners in case of joint venture and also to overcome the barriers of piggybacking as it facilitates clarity in functions of both party.
- Properly implication of trade and copyright laws can be made by Shell to overcome the barriers of franchising related with risk of duplicate product.
(d) A critique of the strategies adopted when entering the global market
Among the following strategies, use of joint venture strategy is most suitable and recommended for Shell as it facilities sharing in risk together with an expert and specialisation in decision making process. Use of a Empirical decision-making process along with proper coordination and mutual strategy formulation is also recommanded for Shell as it lead to better balance in organisation and also facilities effective and specialised decision making for better growth and expansion of business at global level (Mawejje and Sebudde, 2019). An effective decision making strategy makes Shell organisation capable to meet and easily overcome the barriers and threat related with dynamic factors of global market.
On the basis of above report it can be concluded that there are various drivers like cost, market, competition etc. that lead to an influence on global commerce and trade. Proper evaluation of various factors of global market like political, social, economical , etc. are necessary before entering global market to have better understanding about possible opportunity and threats. Various strategic challenges like administrative policies, diversity, supply chain complexity, etc. are prevailed in global trade. Further, it can be concluded that globalisation lead to an influence over leadership, structure, culture and other internal factors of an organisation. Ethical and sustainable globalisation lead to an influence on functions on organisation to make it principle oriented and effective. At last, it can be summarised that there are various ways to enter an international market like franchising, exporting, joint venture, etc.
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