The recent years has seen more and more companies outsourcing either there entire production processes or part of it. Most of them are attracted to opportunities on the global market that they may not enjoy if they carry out their manufacturing process on the local market (Washburn & Huang, 2009).
An explanation of the implications of global integration on business organizations
For one there is the need for the company in question to consider the costs of tooling, pricing, and duration of agreement. Problems normally arise between the distributor and the vendor in relation to who is to bear the initial costs of the project under consideration. Suppliers may be unwilling to incur initial costs not unless they consider the project worth investing into. There is the need for the parties involved to agree on how each one will be reimbursed as a result if investing or incurring costs on the same (Selko, 2011). Problems can also occur when deciding on whether or not the pricing of the project can be increased. This has even led to termination of contracts before their expiry. In such cases, provisions for reimbursement of tooling costs are always necessary (Washburn & Huang, 2009).
Product liability and insurance is also one of the issues a company that intends to outsource needs to consider (Finkelstein, Hambrick & Cannella, 2009). This is an important issue especially if the foreign manufacturer deals with the entire production process. Most companies could wish that the foreign manufacturer to take the risks relating to the injuries to property or persons of a product produced abroad (Ritzer, 2011). However, there are situations when this is not possible especially when dealing with foreign manufacturers who do not provide insurance. With this being the case, it is imperative for the company in question to consider insurance costs when negotiating the price of outsourcing. Tail coverage is also very important considering the fact that people might still consume the products even after the expiry of a contract. Basically, there is the need for the company and its foreign counterpart to come up with strong policies on how they intend to deal with issue of insurance to avoid problems in the future (Washburn & Huang, 2009).
Equally, there is the need for the company with the intentions to outsource to consider the issue of product warranties. Insurance is intended to insulate the company in question in regards to liability arising from personal injury. On the other hand, warranties stipulate who is to deal with customer complains, for example, when the issue of defective product arises. Foreign companies that receive outsourcing contracts may be unwilling to provide warranties on designs as this is determined by the outsourcing company (Sakarya, Eckman & Hyllegard, 2007). Nonetheless, there is the need for them to warrant materials and workmanship in any occasion. The warrant should stretch for a reasonable time to guarantee the reliability of the product in question. It is also essential to address issues such as who is liable to cater for transportation costs relating to the return of a product. There are also companies that may require sufficient discretion when dealing with customer issues. This can easily create tension hence the need for the parties involved to work closely with one another when trying to solve customer disputes (Cherunilam, 2010).
Similarly, a currency fluctuation is also one of the issues companies that outsource production processes abroad need to consider to be able to avoid problems or losses (Kuada & Sorensen, 2010). There are companies that might prefer using their local currency when making payments to the foreign firm. It is normally advisable for companies to ensure hedging especially when dealing with large transactions where the buying price is dominated by foreign currency (Washburn & Huang, 2009).
Trade name is also an issue that needs to put into consideration. The company needs to specify that the foreign firm is allowed to use it logo as well as name. It is also imperative for it to specify the extent to which the foreign firm can enjoy such privileges to avoid the issue of the firm misusing its name or logo for its own personal gains (Lockstro%u0308m, 2007).
Another issue that needs to be considered by a company with the intention to outsource part of the entire production process of its products is intellectual property (Cohen, 2001). It is essential for the firm to determine the extent to which the foreign firm can own its intellectual property. There are cases when firms have found their selves in problems for example, the foreign firm using its intellectual property to create its own products for sale without the prior consent of the company (Scheide, 2003).
How the global economy affects business
Globalization enhances competition between the local traders and foreign markets of similar markets (Stewart, 2001). Few businesses have been left in monopolistic position since there is high mobility of products in the global economy. This competition has resulted to falling of commodity prices. This is a great advantage to average citizens since they can access quality products at affordable prices. The operation of a marketplace has transformed from the early position where consumers were price takers. Rather, they are the price givers. This is also an advantage since individuals are able to save more from their income (Özsomer & Prussia, 2000).
How information and Communications Technologies have facilitated globalization
Acquisition and dissemination of information has been improved with the advances in communication technology (Bertho, Crawford & Fogarty, 2008). The availability of interaction and information hubs such as the internet has changed the way education is juxtaposed. Unlike the olden days, it is now possible to have virtual classes and distance learning programs. New and improved ways of interaction have emerged and enhanced social relations (Wu, 2006). Advancements in telecommunication have enabled people in different parts of the world (million miles away) to interact and share ideas within few seconds.