Globalization and Risk

Globalization and Risk

Introduction

The present global economic recession has affected almost every enterprise, irrespective of its size, location and product offerings. The competition of survival and sustenance has increased further where mistakes are less tolerable. Businesses and organizations face a variety of challenges to compete with and therefore, the role of managers and leaders to guide the company has become more crucial. The two most important challenges faced by an organization are globalization and increasing propensity of risks in the internal and external environment.

Discussion

Challenges faced by an organization

The number and extent of challenges faced by an organization has increased with time. In past times, businesses focused on simply manufacturing and selling a product. Now, companies plan and manufacture or outsource diverse products. Also, the selling process has revolutionized into customer relationship, where they expect after sales services and guarantees from the company. Two particularly important challenges affecting organizational performance are related to globalization and the financial risks present in and around a company's domain.

Globalization is possibly the 'most used and abused, most defined and probably the most misunderstood, nebulous and politically spectacular term over the past and the future years' (Beck, 1999, pp. 37). The concept of globalization is based on the fact that advancement in technology has permitted businesses to carry out operations in more than one country and to promote trade.

Globalization has changed the business strategies and decisions of companies. It has allowed companies to enter opportunistic markets or to deal with local giants in those markets. Although, this seems to be a positive aspect, it has a major drawback. The local businesses, specially small and medium sized enterprises face a threat from the new International giants. A number of research studies have shown that the entry of a multinational company in a market affects the performance of the local competitors and in some cases, they went out of business (Neumark et. al, 2008, pp. 405). Even the companies that survive this competition face a lot of pressure because these globalized companies have attained a very efficient supply chain based on inexpensive suppliers in a number of countries. The efficiency in value chain benefits global companies to offer lower prices than the local companies.

Globalization has also resulted in the implementation of International business strategies like transnational and aggregation. These strategies have complicated the culture of an organization and the markets in which it operates. Companies consider the possibility of making profit in a market or product and starts preparing strategies for it. However, in many case the need to analyze the impact of expansion on organizational culture is not considered. The most prominent effect of globalization is the dilution of organizational culture.

Financial risk is another important challenge for an organization today. The economic recession of 2008 proved that even big companies face the threat of bankruptcy because of the financial risk taken (Murphy, 2008, pp. 2).

The accounting standards prevailing in organizations and the expansion of business in the context of globalization makes it compulsory ...