Advantages And Disadvantages Of Regionalization On Contemporary Businesses
Question
Task: Write a report presenting the major advantages and disadvantages of regionalization on contemporary organisations.
Answer
Executive Summary
Regionalisation is considered as a managerial tool by the organisation in business globalisation. The report on advantages and disadvantages of regionalization has maintained a layered format that has covered the key findings, analysis and suggestions for the current scenario. In terms of the key findings, the benefits of regionalisation include access to new culture, access to new talent, access to new markets, and increased flow of capital. On the contrary, drawbacks are high investment costs, confusing legal system, foreign worker exploitation, and international recruiting. Theoretical analysis has been possible due to the involvement of Porter’s Diamond Theory and Uppsala Model. In terms of suggestions, the possible strategies, such as consultation with legal advisor, contractual working, industrial collaboration, and translator hiring have been mentioned for the identified drawbacks.
1. Introduction
Regionalization refers to the tendency of forming the decentralised regions. The current report on advantages and disadvantages of regionalization is revolving around the ways, in which, regionalisation is related with business globalisation. The important roles of innovation and knowledge management in regionalisation are discussed with the help of the organisational contexts. The critical discussion is going to be made by focusing on advantages and disadvantages of regionalization on contemporary organisations. Porter’s Diamond Theory and Uppsala Model are going to be the two most important areas of the report, throughout. Further suggestions are identified so that the disadvantages or the challenges regarding business globalisation can be resolved tactfully by the organisations.
2. Key Findings
2.1 Basic concept of regionalization
Regionalization is all about dividing a nation into provinces of states. Based on the view of LaGamma et al. (2018) in regards to the advantages and disadvantages of regionalization, it can be mentioned that in politics, regionalisation is indicative towards the process of segregating a country into smaller jurisdictions. The key purpose of this division is to transfer power from the central government to all the regions.
Figure 1:Landscape of regionalization
(Source: Paj?k, Kami?ska & Kvilinskyi, 2016)
In this study of advantages and disadvantages of regionalization, it is stated that in case of businesses, regionalisation is used as one of the managerial tools so that the certain needs of particular areas can be met, significantly (Morrone, 2018). With the help of an exemplary scenario, the perspective can be portrayed better. For instance, one of the Australian retail giants, Woolworths, is having a total of 995 stores across the country (Woolworths, 2020). With the help of the unique operational strategies at these stores, Woolworths makes sure to meet the specific needs of different areas in Australia.
2.2 Significance of innovation and knowledge management in regionalization
2.2.1 Innovation
Innovation indicates the creative thoughts, new idea and new imaginations to form a method. As influenced by Michie (2017) in regards to the study of advantages and disadvantages of regionalization, innovation helps to translate an invention into a product or service so that it can create value to customers. In order to follow the geographic segment or regionalisation, the firms focus on using new ideas to meet the needs of particular areas. For example, Woolworths’ retail stores, which are in urbanised areas, offer self check-out facility to customers (Woolworths, 2020). The reason is due to the hectic official schedule of people that provides them less time to spend on buying daily grocery products. On the contrary, in case of the stores in rural areas, the typical format of retail purchasing is practised for satisfying the people. Therefore, it can be said that self check-out is an innovation that is implemented by Woolworths to meet the customer needs in urban areas of Australia.
2.2.2 Knowledge Management
Knowledge Management is vital as it helps to boost organisational efficiency in the process of decision-making. As stated by Hanson et al. (2016), the key purpose of knowledge management is to make sure that every employee has access to all expertise information. It helps to make a smarter workforce, which is capable of making quick informed decisions beneficial for the firm. The key processes in knowledge management are finding, collecting, assessing, organising and sharing information (Michie, 2017). The information can be in terms of the documents, resources, procedures and employee skills. In order to follow regionalisation in business, the firms focus on developing both centralised and decentralised structures. For instance, through a centralised structure, the headquarters share information with several branches of Woolworths in Australia. On the other hand, by the means of the decentralised structure, information is gathered, classified, analysed and shared among the Woolworths stores located in different areas of Australia.
2.3 What are the advantages and disadvantages of regionalization?
2.3.1 Advantages
In order to discuss the relationship of regionalisation with contemporary organisations, there is a significant requirement of identifying the advantages globalisation brings to the firms. They are as follows:
Access to new culture, business globalisation allows organisations to get access to a new culture. For instance, another popular Australian supermarket is Coles, after Woolworths. China is one of the key emerging markets and thus Coles can expand business in this country. By expanding in the country, Coles can access the Chinese culture so that the customer needs can be better understood (Witt, 2019).
Access to new talent, from the same organisational context of Coles, it can be stated that for opening the new business in China, the company needs to focus on practising diverse workforce. The diverse workforce is effective in increasing productivity level with a larger range of skills at Coles.
Figure 2: Advantages
(Source: Knudstorp et al. 2017)
Access to new markets, by expanding business in the emerging market, Coles can be benefited in accessing to new markets. For instance, in case of the premium cuts of beef, Coles can target the market of Chinese middle class (Smith, 2019).
Increased flow of capital, increased trade to more diverse and larger markets helps to generate greater revenue and profit. For instance, while Coles will have access to the emerging market, premium cuts of beef can help to generate higher revenue at the end of the year. As a result of it, the business will be able to identify the increased flow of capital (Monnet & Puy, 2016).
2.3.2 Disadvantages
Due to business globalisation, the key challenges that are faced by organisations are as follows:
High investment costs, for opening a new plant or purchasing a franchise in a new country, there is a necessity of a lump-sum of amount. For instance, in order to open a new store in China, Coles will have to pay a huge amount to maintain a healthy relationship with the Chinese government. Apart from that, operational investment is also there to start business in the new country (Monnet & Puy, 2016).
Confusing legal system, the legal system can create major difficulty for the firms in globalisation. For instance, the governmental policy for environmental protection or reduction of greenhouse gas is different in Australia and China. The Chinese regulation may have more strict restrictions in legislative norms. This, the main issue can arrive in terms of proper understanding for Coles.
Figure 3:Disadvantages
(Source: Witt, 2019)
Foreign worker exploitation, based on the organisational context of Coles, it can be said that for targeting the Chinese middle-class people with its premium cuts of beef product, lower pricing is essential. Lower pricing is indicative towards the lower costs, for which, the Australian company will have to search for cheap labour sources. However, due to tough competition, Coles may face major difficulties in implementation.
International Recruiting, during international recruitment, culture can create a big issue for companies. For instance, in case of Coles, to recruit employees in China, language is one of the factors that may create a problematic situation. Major misunderstanding can take place while the HR of Coles will communicate with the Chinese applicants for employment. In addition to that, there can be a problem in managing the payroll in the new country. Along with that, changes in employment-related laws can bring a challenge in human resource management (Knudstorp et al. 2017).
3. Analysis through Theoretical Frameworks
3.1 Porter’s Diamond Theory
In accordance with this theory described in this study of advantages and disadvantages of regionalization, the national competitive advantage is understood with the help of the certain factors available. According to Gunarathne & Senaratne (2018), this theory explains the significance of government in improving national position in the globally competitive environment of economy. The national competitive advantage is in terms of the organisational abilities. The main factors that make a company internationally competitive are discussed below based on the exemplary organisational context:
Figure 4: Porter’s Diamond Theory
(Source: Vlados, 2019)
Firm Strategy, Structure and Rivalry, in case of this foremost factor, it can be specified that the Australian supermarket, Coles, can adopt a different strategy (for example, a special team of HR, who have vast knowledge on Chinese culture and traditions) of human resource to manage the recruitment in China. It will be helpful for the organisation in staying competitive in the new country (Gunarathne & Senaratne, 2018).
Demand Conditions, as per the second factor, the key aspect is that Coles need to understand the demand of the target market (for example, the middle-class market for premium cuts beef). It will help Coles to grow in the new market more improved quality and innovation. The preliminary process in understanding the target market is to know the size of the market, first.
Factor Conditions, in terms of this factor outlined herein advantages and disadvantages of regionalization assignment, Coles will have to focus on its key resources, such as, human and capital resources including technological innovation. This will support Coles in being internationally competitive through its resources.
Related and Supporting Industries, in turn of this factor, Coles need to identify the domestic suppliers, who will support the Australian retailer in expanding business in the new country. It will make sure that Coles will not have to depend on the suppliers in China, entirely (Vlados, 2019).
Government, as the Chinese government is the biggest challenge in business globalisation, Coles will make sure to build a positive relationship with the government by paying a huge amount. In addition, the company will ensure that its expansion will also be benefited for the development of the Chinese economy.
Chance, several external factors, such as, terrorist attacks and natural disaster can bring the issue for the expansion strategy. However, Coles’ key focus will be on maintaining a healthy relationship with the government so that during such events, proper support can be expected.
3.2 Uppsala Model
As per this model, the internationalisation process of firms is required to be based on an organised and systematic strategy. As opined by Vahlne & Johanson (2017), the organisations first select the nearby markets with low commitment to enter.
Figure 5: Uppsala Model
(Source: Coviello, Kano & Liesch, 2017)
In the exemplary organisational context, the principle of this model is discussed below:
From the earlier discussion above within this study on advantages and disadvantages of regionalization, it has been observed that for expanding business in China, Coles will have to go through with several investments and risks of external uncertainties. Thus, it will be more beneficial for the organisation if it ties with one of the Chinese supermarkets first. After making a steady growth in this market, Coles can focus on opening its store.
4. Recommendations based on the study of advantages and disadvantages of regionalization
In order to manage the globalisation-induced challenges, the possible creative solutions for the organisations are as follows:
High investment costs, for dealing with higher investment costs, such as, paying governmental and other operational costs, an organisation can focus on partnering with another organisation from the same industry. It will help to make a steady growth in the new country so that based on the initial outcomes; further decision of globalisation can be undertaken.
Confusing legal system, in order to deal with this challenge, an organisation needs to consult with both of its official legal advisor and the same in the new country. Their advice will help the firm in properly understanding the legal difference and proceeding accordingly.
Foreign worker exploitation, in case of dealing with this challenge, an organisation is required to come in contractual business with a third party organisation, which will be supplying human resources. Precisely, outsourcing human resource will allow the organisation to have the cheap labour sources because the third party will be liable to act as per the demand of the firm.
International Recruiting, for solving the language-related issue, there is a requirement of hiring a translator in a new country. For example, during recruitment, a translator can join the interviewing panel for maintaining a better communication among interviewer and interviewee. As discussed earlier, human resource outsourcing is already taking care of all the employment-related aspects.
5. Conclusion
Based on the key findings and analysis, it can be concluded that regionalisation is associated with globalisation while it comes to focus on the business landscape. The report has been made sure to discuss the importance of innovation and knowledge management in regionalisation. Several advantages and disadvantages of regionalization have been portrayed in terms of the business globalisation. In order to analyse the disadvantageous aspects of globalisation, the theoretical frameworks have helped make a vivid standpoint for solutions. Additionally, further recommendations have been made to help understand the firms that the practical strategies are essential to mitigate the challenges during business globalisation or internalisation of expansion in a new country.
References
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