The Effects of Globalization on Competitive Advantage
Businesses continually face the challenge of remaining competitive in their market. Companies use a variety of techniques to land a higher volume of sales and grab a larger portion of the market share. For some, this means expanding their businesses by outsourcing manufacturing and selling products to oversees markets. However, while they can experience some benefits from going global, they may also encounter a few pitfalls along the way.
When a U.S. company chooses to outsource its manufacturing of goods, it does so specifically to gain an advantage over its domestic competitors. Many other countries in areas such as Southeast Asia and South America offer cheaper labor and manufacturing costs. Workers are paid less, resulting in higher profit margins for the manufacturer. In turn, they can offer lower prices to the consumer, thereby driving up sales. Domestic companies may not have this advantage and offer products with comparably higher price tags.
Additionally, some companies may choose to move their manufacturing operations overseas to be closer to their end markets, wherever that may be in the world. While setting up a new plant overseas may seem costly, the reduced expenses in transportation to deliver goods and the increased speed with which the manufacturer can deliver them to the consumer both outweigh the added cost. Similarly, a company may choose to outsource production of some of its products to already existing facilities owned by other companies. For example, some auto manufacturers outsource the production of specific car models to other auto manufacturers, so that they can reduce costs, get their product to buyers more quickly, and maintain a competitive advantage in the market overall.
In some instances, U.S. companies have stayed financially ahead by discontinuing the manufacture of certain goods because their foreign counterparts were able to produce the goods more efficiently and for less money. As a result, the U.S. companies were not able to compete financially for the sale of these goods. Examples of these goods include high-tech items such as camera equipment, cellphones and computers. Japan and China have taken over these markets, so U.S. companies choose instead to engage in partnerships that encourage trade and the resale of purchased imported goods.
On the downside of globalization, many business analysts express their concern that building factories and transferring manufacturing centers to places such as China allow foreign competitors access to American technology and research and development projects. Many U.S. companies have experienced the negative effects of stolen technology by a foreign country. The result is that the people who were once employees or partners become competitors in the same market, thereby reducing any competitive advantage the U.S. company gained originally by going global. Some companies contend that keeping the technological advancements and new developments within our borders ultimately sustain a competitive advantage for U.S. companies. They believe research that leads to new product creation, production and distribution continues to grow the job market and the bottom line for domestic companies.
With U.S. shoppers having access to products from all over the world, companies need to be tuned in to the demands of their customers, including maintaining excellent customer service. If a consumer is not satisfied with the quality of a product or service they purchased, they are likely to look elsewhere. Within a highly competitive marketplace, it is easy to find another product or service to replace a favored brand and potentially one offered at a lower price. Companies that are aware of consumer trends and desires need to remain flexible and adjust their marketing, customer service and manufacturing efforts to maintain customer loyalty and their competitive edge in the market.
Many companies have chosen to target domestic customers by appealing to a sense of pride in American manufacturing quality. To ward off competitors from around the globe, businesses market their products as "Made in America," and thereby create a demand for high-quality products that supports jobs at home. Even if the products are a bit more expensive, the desire to support domestic businesses and local workers gains the advantage for American companies in the global economy.