Risk Management in Global Supply Chain

Introduction

Companies and businesses can face many challenges when exporting their services and products. There are several risks which businesses need to consider. They need to identify the risks, make a plan how to solve them and come up with different kind of solutions. That’s all part of global business nowadays. 

What are the factors that force risk taking?

Whether we like it or not, risk is an integral part of life. Some people may view it as a challenge that may lead to improvement or success, while others see it as a reckless activity. In business, entrepreneurs associate risk with potential danger or loss, but true entrepreneurs take risks. Most successful businesses took great risks not because they were reckless but because it’s the only step to take to move forward. As customers’ demands change, so should the products or services that a business offers. Thus, it’s necessary for business leaders to come up with new and innovative ideas to keep up with the changing times. Continue to change for the better with new and fresh ideas, that’s the only way to be innovative. While tossing in something new is quite uncertain, it will help you move forward and see what will work and what will not. (Sarigumba n.k.)

For example, Microsoft would not have made it at the forefront of the gaming industry if not for their iconic gaming console: the Xbox. In 2001, when the Playstation seemed to dominate the gaming console market, Microsoft decided to go up against it with Xbox. This is not only the risk they took, but also they spent twice as much of their marketing budget. Now, Xbox has become a staple for console gaming, already on its 3rd generation unit with the Xbox One, and has sold more than 24 million units in 2016. Another good example is Google – while studying for a Ph.D., Google co-founders, Larry Page and Sergey Brin almost gave up on running their start-up company because it takes too much of their time. In fact, in 1997, Page almost sold it for $1.5 million. Today, their company is already among the most valuable companies in the world, and perhaps their product is the most relevant thing on the internet right now.  Had they given up, the internet wouldn’t be as convenient as it is now. (Sarigumba n.k.)

How to identify the risks in export business?

Exporting can be a risky business. Operating in an unfamiliar, foreign market will always throw up new challenges to navigate, however established a business may be in its domestic market. The difference between success and failure when doing business overseas is being prepared. There will always be risks when entering a new market but identifying those risks ahead of time and putting measures in place to manage those risks can help to minimize their impact on the success of your business overseas. (Export Finance Australia n.k.)

According to Export Finance Australia, export risks can be quite different depending on which country your business is exporting to. However, there are common risks all business should be aware of when doing business in international markets:

  • Political risks. An uncertain political environment can hamper export operations in a number of ways. A trade embargo could affect delivery of goods, civil war or political violence could affect the safety of your staff and partners. Political instability could result in defaults on payments, confiscation of property and assets, and blockages in transfer of earnings.
  • Legal risks. Legal requirements and processes can vary significantly across different markets, so conduct research and receive legal advice to understand your legal position. Some common areas of difference, includes: local contract law, patent registration and IP requirements, product liability laws, dispute resolution processes and operational health and safety laws.
  • Operating risks. Exporters need to become familiar with the operating environment of new markets. Some important things to look out for are industrial relations policies and practices, permitting rules and import requirements.
  • Currency exchange risk. When the currency of the seller and the buyer are different, any change in the exchange rate has negative effects on one of the two actors. If the sale is made with the currency of the buyer, the risk is supported by the seller who can see the benefits of the sale melting due to devaluation of the currency of the customer. The evolution of the exchange rate can have several economic and political backgrounds that are not necessarily predictable. (Credit Tools n.k.)

Example with the realization of a business between the seller “Elec” based in France and a buyer “MT” in Great Britain:

Case amount : 10 000 GBP or 11 976 EUR.

The exchange rate is 1,1976 EUR for 1 GBP.

Immediate delivery and billing of 10,000 pounds per Elec the March 25th. The bill has a due date of May 15th.

If the 15th of May, the exchange rate is 1,08 EUR for 1 GBP, the amount of 10,000 pounds paid by MT is 10 800 euros only, which generates a loss of 1,176 euros for Elec. (Credit Tools n.k.)

How to mitigate/reduce risk in export driven business?

Fortunately, there are many resources available to help mitigate risks when exporting. 

According to BDC, avoiding economic and financial risks:

  • Buy credit insurance to protect against a range of risks including customer bankruptcy or non-payment, contract cancellation, issues with currency conversion or transfer, and more.
  • Diversify your export markets. If you export to 10 markets instead of one, you can shift your efforts to other markets when one goes through a downturn.
  • Understand the types of foreign exchange risks that you may face in global markets and how to measure your exposure. Fluctuations in currency exchange rates can take a large bite out of your profits.

To help avoid social risks, ensure that you and your employees are well versed in spotting signs of potential corruption and terrorist financing and have a plan in place to deal with these risks.

While no one can accurately predict when and where political events may disrupt trade, buying political risk insurance can help protect your assets from a number of political risks. (BDC n.k.)

According to Export Finance Australia:

  • Seek advice. Your bankers, lawyers, insurers and accountants will be able to give you advice about the risks you may encounter in overseas markets. It is also a good idea to try and find someone who has dealt in the country before so you can learn from their experiences – you may be able to find such an organisation through your industry association or business chamber.
  • Make an assessment. While it is impossible to predict the occurrence of specific risks, it is possible to make a reasonable assessment of the likelihood and impact of most scenarios that could affect your business. You should also rank the likelihood and importance of different risks to identify critical areas of focus.
  • Develop risk management strategies. As with any other business risk, you then need to identify the steps you can take or measures you can put in place to avoid or mitigate the risk or minimize its impact. Ensure your risk management strategy is as clear and simple as possible, and that everyone in the business is aware of what they need to do. It’s also important to regularly monitor the risks that have a potential to affect your business, as the likelihood of impact may change over time.

Risk is an inherent part of doing business overseas. Different countries will have different risk profiles and it is important that you fully understand the risks associated with the markets you are operating in, and plan for them. A solid risk management strategy will help you mitigate risks and minimize the impact they are likely to have on your business. (Export Finance Australia n.k.)

To go forward and grow as a company, taking risks might be worth it. Once you identify risks carefully and really take all possible factors under consideration – being prepared what and if something goes wrong you will have solutions for that kind of situations – you are all set to take that maybe well-needed risk. Bigger the risk, better the profits.

References

BDC – Business Development bank of Canada. N.k. 3 common risks to guard against when exporting. URL: https://www.bdc.ca/en/articles-tools/marketing-sales-export/exportation/pages/common-risks-guard-against-when-exporting.aspx

Credit Tools. N.k. Manage risk in export business. URL: https://www.creditmanagement-tools.com/manage-risk-in-export-business-c8.php

Emadrahim. 2016. The benefits of risk management planning. URL: https://pmcenter.bellevue.edu/2016/06/19/the-benefits-of-risk-management-planning/. Accessed: 19.6.2016.

Export Finance Australia. N.k. Four risks for exporters – and how to overcome them. URL: https://www.exportfinance.gov.au/resources-news/news-events/latest-news/2017/april/four-risks-for-exporters-and-how-to-overcome-them/

Sarigumba, R. N.k. Reasons Why Companies Should Embrace Taking Risks. URL: http://www.iamwire.com/2017/04/reasons-why-companies-should-embrace-risk-taking/151742

Advertisement

The inevitable evolution of growth

Introduction

Today’s food industry and the way it works is changing with a rapid speed. More and more companies are forming strategic alliances to drive operational efficiencies as well as drive down costs. The other reason to this kind of alliances are that it is a reaction to fierce competitive conditions and structural changes from the shift towards online market and continually going-on-discounts. 

The effects of strategic alliances

This pressure to remain competitive is leading many in the industry to form strategic alliances — sometimes with competitors — to keep pace with heightened customer expectations. Doing so, however, comes with its own set of challenges, making risk management and insurance critical components of these arrangements. (Marsh)

These alliances can be beneficial, allowing collaborating companies to:

  • Improve product development: Two minds are better than one. When two similar or complementary companies collaborate, they can bring different resources to bear, which can lead to real transformation. Rather than creating “separate but equal” standard products, they can unite to create truly innovative products that will move the needle for both companies.
  • Reduce costs: Innovation is not cheap, but it can cost less in a strategic alliance. The aligned parties can split the cost of procuring or implementing new technology and share facilities, which can reduce redundant capital expenditures for expensive technology and equipment at separate locations, and benefit from economies of scale along their supply chains. Ultimately, if a collaborative project fails, it usually costs less than if the parties were going it alone.
  • Enter new markets and grow more easily: Strategic alliances can speed up research, development, and production of new products and up the momentum on distribution of longstanding products debuting in new markets. Collaborating parties can piggyback off one another’s already established production or distribution platforms in specific locations. As such, companies are able to overcome production barriers and local cultural and operational obstacles that would otherwise hamper speed to market. (Marsh)

Unfortunately, strategic alliances often fail. Nearly half of the respondents to a 2014 study on strategic alliances by the CMO Council and Business Performance Innovation Network reported strategic alliance failure rates of 60% or more. (Marsh)

Figure 1. Mckeon 2014

A strategic alliance can bring its own risks. While the agreement is usually clear for both companies, there may be differences in how the firms conduct business. Differences can create conflict. Further, if the alliance requires the parties to share proprietary information, there must be trust between the two allies. In a long-term strategic alliance, one party may become dependent on the other. Disruption of the alliance can endanger the health of the company. (Kenton 2019)

In a summary, there are lots of benefits when forming strategic alliances, like improving product development, reducing costs and easier way to enter into new markets. And risks like failure in the management style and problems in the relationships between two companies. In addition, this kind of changes in the market will be tough for the suppliers, especially for the small suppliers. For example, Tesco and Carrefour, both have loads of own-brand-products. Once they form the strategic alliance, they want to reduce the costs and most likely keep producing more own products since it will be cheaper. Therefore, the small suppliers might suffer and lose the contracts to these food giants. 

Joseph Schumpeter’s theory of growth is one tool to understand and explain the strategic alliances. According to Schumpeter in a world characterised by a high degree of risk and uncertainty, only businessmen of exceptional ability and daring will be able to undertake innovations and launch enterprises and exploit opportunities for profit. (Ayesha) Schumpeter’s definition explain in one way, perfectly what is causing strategic alliances: the aim to get more profits and survive in today’s business world when creating new kind of forms of companies.

The causes of food inflation

Figure 2. FAO

During the last 5 years, the annual food price inflation in the world has decreased from 5% in 2014 to 4% in 2018 with divergent trends at regional level. (FAO)

Cost-push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials. Cost-push inflation is determined by supply-side factors (cost-push inflation is different to demand-pull inflation which occurs due to aggregate demand growing faster than aggregate supply). Food inflation causes this kind of cost-push inflation. (Pettinger 2016)

Figure 3. Pettinger 2016

According to The Balance (Amadeo 2019), there are five causes of inflation in world food prices. They will drive up food prices in the long run. There are also short-term factors that affect supply and demand. Those include the weather, animal diseases, and catastrophes. The following four reasons drive prices higher over time: 

1. High oil prices raise shipping costs. Food gets transported great distances. You can expect high gas prices about six weeks after an increase in oil futures.

Oil prices also affect farming. Oil by products are a significant component of fertilizer. That contributes 20% of the cost of raising grain. Between 2001 and 2007, high oil prices added 40% to the cost of growing corn, wheat, and soybeans. 

2. Climate change creates more extreme weather. Its cause is greenhouse gas emissions that trap heat, causing air temperatures to increase. Hot air absorbs more moisture. It rains less, water from lakes and rivers evaporate, and the land dries up. When it does rain, the water runs off the land instead of getting absorbed into the water table. That creates floods.  

3. The U.S. government subsidizes corn production for biofuels. That takes corn out of the food supply, raising prices. America now uses 40% of its corn crop to make ethanol. That’s up from 6% in 2000. 

4. The World Trade Organisation limits the amount of subsidized corn and wheat that countries can add to global stockpiles. The United States, the European Union, and some developing countries heavily subsidize their agricultural industries. Farmers in those countries receive an unfair trade advantage. The WTO limits stockpiling to lower this edge. But it also reduces the amount of food available in a shortage. That increases food price volatility. 

5. People around the world are eating more meat as they become more affluent. It takes more grain to feed the animals needed for meat-based meals than is necessary for grain-based meals. Higher demand for meat means higher grain prices. Over time, this could offset lower United States demand for meat and dairy.

Food inflation is not unequivocal subject. There are several major factors and some smaller ones to make impact on it. It is happening all over the world and something has to be done to slow it down. Climate change talk is very hot subject at the moment. More and more things are being done in the companies to slow down the climate change. There is still lot to improve to stop it. Trends affect a lot to how people are consuming and in that way it affects on the prices of the food. 

List of references

Amadeo, K. 2019. Why Food Prices Are Rising, Recent Trends, and 2019 Forecast. URL: https://www.thebalance.com/why-are-food-prices-rising-causes-of-food-price-inflation-3306099. Accessed: 25.6.2019.

Ayesha, J. Schumpeter’s Theory of Economic Development|Economics. URL: http://www.economicsdiscussion.net/economic-development/schumpeters-theory-economic-development/schumpeters-theory-of-economic-development-economics/30174

Food and Agriculture Organization of the United Nations (FAO). Inflation in consumer price index for food. URL: http://www.fao.org/economic/ess/ess-economic/cpi/en/#.XdUjQi2Q1QJ

Kenton, W. 2019. Strategic alliance. URL: https://www.investopedia.com/terms/s/strategicalliance.asp. Accessed: 5.9.2019.

Marsh. Emerging Risks Spur Strategic Alliances in Manufacturing and Automotive Industries. URL: https://www.marsh.com/us/insights/research/manufacturing-and-automotive-alliances.html

Mckeon, M. 2014. 9 Challenges to Developing and Managing Strategic Partnerships. URL: https://www.powerlinx.com/blog/strategic-partnership-challenges/. Accessed: 15.9.2014.

Pettinger, T. 2016. Cost-push inflation. URL: https://www.economicshelp.org/blog/2006/economics/cost-push-inflation-2/. Accessed: 19.20.2016.

Pettinger, T. 2016. Food inflation. URL: https://www.economicshelp.org/blog/2578/economics/food-inflation/. Accessed: 10.1.2016.

Improper distribution of Tasks and Functions in an Inefficient Management

Introduction

The article ‘Why everything breaks when you reach 25 employees’ tells what happens when a company starts to grow and have more employees. It describes well that once your company starts to have more than 25 employees, the information flow will be slower. That is the time when really need to consider how to structure your company. There are several different organizational structures, for example the traditional hierarchy, flatter organizations, flat organizations, flatarchies and holocratic organizations. (Lighthouse)

How to define Internal Business Processes in a Value Chain?

Tool you can use to analyse your internal business processes in a value chain is Porter’s value chain model. Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage. In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through differentiation advantage will try to perform its activities better than competitors would do. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits. (Jurevicius 2013)

With this analysis tool it is easier to make a big picture of the company and go through each section carefully. To make everything work in a value chain, the basics need to be in order, starting with the employees. It is very important to hire the right people for your company. People who are passionate, work hard and agree the company’s values and ideology. Once you have people who really enjoy working in your company and they feel that their job and input is important, your company will nourish. The other thing, which is important once the company gets bigger, is that the information flow is efficient. If information, orders or strategies are not clear, things will get messy since employees will feel that they might not know what and how to work. Or if there are some problems, the information won’t reach the right people, who could solve the problems.

Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most important source of differentiation advantage. On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed. (Jurevicius 2013) After your firms’ infrastructure and HRM are clear, the next step is to check that the technology and procurements are in good place. Technology is evolving now faster than ever, therefore it is important to follow the latest trends and what other big companies are doing. Technology could also mean in this case the platform that the company is using for communication inside the company to keep things on track. 

In order to keep your company on right track is that your procurements are in good shape. Procurement describes all those processes concerned with developing and implementing strategies to manage an organisation’s spend portfolio in such a way as to contribute to the organisation’s overall goals and to maximise the value released and/or minimise the total cost of ownership.  Procurement is a more comprehensive term than purchasing, which is more focused on the tactical acquisition of goods and services and the execution of plans rather than the development of strategies. (Rogers)

The process left to be considered is manufacturing. All the different phases in the manufacturing need work efficiently. If one part of the processes is failing, it will affect to others. Same rule will apply to any other part in the value chain. Therefore, it’s important to have good infrastructure in your company so that everything is clear and things will run efficiently.

How to implement an efficient Internal Business Process?

“A good business process is going to be well-documented so that it is a common playbook that the organization can refer back to,” says Erin Greilick, a senior consulting partner at Strata Leadership. “[It’s] developed enough that the members of the team can repeat what it is that is involved along the process of developing whatever the piece of work is that they’re focused on.” (DeBara 2019)

Here are a few steps according to Slack, that can take your company to new levels of efficiency:

1. Identify what’s working—and what’s not

Getting that initial feedback from key stakeholders—people who are actually using the process day in and day out—can give executives invaluable insight into what processes in their business need to be streamlined.

2. Set your baseline and your goals

Once you’ve identified a business process that you want to improve, you need to determine where exactly you’re starting from and where you hope to end up.

3. Leverage your team and build a roadmap for success

The next step is building a roadmap for getting from point A to point B. Greilick says leaders should look at how the business process has been functioning so far and then ask themselves, “How would it need to change in order for us to be quicker, more effective, more productive?”

So if you’re looking to improve a financial approval process, he explains, you don’t want too many finance people on that cross-functional team. Mix in people from marketing and IT and other departments. Getting a wide variety of views on the business process can help you develop a comprehensive and innovative game plan for streamlining it—which can achieve better and more effective results.

4. Look for opportunities to automate

Automation is a cornerstone of digital transformation. It’s one of the fastest and easiest ways to not only increase efficiencies in your business processes but to make each process more engaging and fulfilling for your team. According to a McKinsey report on productivity and automation, “About 60 percent of all occupations have at least 30 percent of constituent activities that could be automated.”

For example, is your client services team spending hours every week gathering contact information from potential business leads? Chatbot software can automate the process of gathering that initial lead information—and free up your team’s time to actually pitch those leads. Is your human resources director spending a good chunk of her time inputting benefits information for new team members? Invest in a human resources platform that allows employees to input their information directly—and free up your HR director to work on more high-level projects.

5. Roll out your new process and continue to gather feedback

You’ve identified a business process that could be improved, worked with your team to develop a plan to improve that process, and identified opportunities for automation. Now it’s time to pull the trigger and implement the process within your organization.

Once you’ve rolled out a new business process, it can be tempting to think “mission accomplished” and pat yourself on the back for a job well done. But it’s important, Greilick says, “Once you institute that process that you let people know, ‘Hey, I need feedback.’”

An essential aspect of effective change management is putting people first. So part of building the most efficient business processes is fostering an environment in which your team feels empowered to deliver honest feedback. “You have to have norms and behaviors that will support a true mindset of collaboration within a company,” says Kuczmarski.

Let your team know that your new business process isn’t set in stone. Schedule regular check-ins with stakeholders to get their feedback on how the process is working (or not working) and what you and your leadership can do to continue to improve and streamline it.

Summarizing Slack’s different steps, it is extremely important to gather feedback all the time – this process never ends. Once you gather the data continually and follow what is really happening inside the company, you will already gather good insight. Then you know how to use the data and what to do with it. Figure out ways to improve the processes which are not working. If you are having problems with employees, it is extremely important to keep their motivation high and let them know that their input is appreciated. All the processes go hand in hand, and if one process is failing, it will affect the whole process of the chain at some point.

References

DeBara, D. 2019. Make your business process more efficient in 5 simple steps. URL: https://slackhq.com/business-process-management-steps. Accessed: 21.5.2019.

Jurevicius, O. 2013. Value chain analysis. URL: https://strategicmanagementinsight.com/tools/value-chain-analysis.html. Accessed: 25.4.2013.

Rogers, P. Procurement. URL: https://www.scm-portal.net/glossary/procurement.shtml

Why everything breaks when you reach 25 employees. URL: https://getlighthouse.com/blog/company-growth-everything-breaks-25-employees/

How mission and values are affected by company’s vision?

Introduction

TOKYO—In the 1960s, Fujifilm Holdings Corp. was a regional presence just starting to widen its focus globally and playing a distant catch-up to photographic-film leader Eastman Kodak Co.Fujifilm couldn’t have maintained revenue if it focused only on digital imaging, says CEO Shigetaka Komori. But in the subsequent 50 years that have relegated film to the margins, Kodak failed to keep pace, filing for Chapter 11 bankruptcy protection on 2012, while Fujifilm has transformed from a fairly narrow photographic supplier into a diversified company with significant health-care and electronics operations. What Fujifilm did was to look further than simply moving to digital photography from analog. Instead, the company tapped its chemical expertise for broader uses, such as drugs and liquid-crystal display panels. Cosmetics, as well: It seems the process for stopping photos from fading can be used on skin, too. (Inagaki, K & Osawa. J. 2012)

In today’s fast-paced world, companies are struggling to keep up with the rapidly changing demand of customers. Fast decision making is essential skill to have nowadays since businesses are changing all the time and. You need to be willing to take risks if needed to keep your company alive.

How businesses can research and identify the new market trends? 

In today’s business environment, sustaining growth and profitability is never a guarantee. Technological and scientific advances shorten life cycles of products and services, business models change and new competitors appear from outside the industry. This constant instability makes it necessary to seek new business opportunities. (Euromonitor International, 2017)

According to Euromonitor International, there are eight analysis types to identify market opportunities:

  • Consumer segmentation – To understand your demand, you must identify consumer segments that share common characteristics. These characteristics can be “hard” variables such as age, gender, place of residence, educational level, occupation and level of income or “soft” variables such as lifestyle, attitude, values ​​and purchasing motivations.
  • Purchase situation analysis – Looking at distribution channels, payment methods and all other circumstances that involve purchasing decisions can teach you how consumers buy and how you can position your product appropriately. Offering new shopping alternatives may bring new customers. For example, vending machines offering snacks like yoghurt and individual juices have been introduced in the hallways of the subway of Santiago de Chile, promoting on-the-go consumption.
  • Direct competition analysis – In addition to analysing demand and purchasing situations, it is important to analyse supply. Knowing the existing players in the market where you are competing or going to compete is important when evaluating opportunities. 
  • Indirect competition analysis – Opportunities can also be found by analysing substitute industries. For example, thanks to the decrease in airfares, airlines may look for opportunities in consumer segments currently supplied by other means of transport.
  • Analysis of complementary products and services – Companies should monitor the performance of other companies’ products, which are complementary to their own. For instance, a packaging company should monitor sales of products that it could potentially package, while a company producing coffee machines should gather insights on the evolution of different types of coffee sales. Trends in complementary markets should be taken into account when making investment decisions.
  • Analysis of other industries – In some cases, the objective of companies is not to continue operating within an industrial sector but to expand a certain business model or philosophy.  For example, a British holding of companies, Easy Group, started maximising the occupancy rate of flights with the airline Easy Jet. Easy Group understood that it was preferable to sell a seat at a lower price than not selling it at all. Easy Jet opted for a rate management model that depended on the occupancy rate of flights and the time remaining until the day of the flight. With this business model, it managed to increase occupancy rates. Easy applied the same model to cinemas when it created Easy Cinema and then with buses for Easy Bus. In any case, to enter a new industry it is important to learn about competition first: market sizes, market shares, growth rates, unit prices, per capita sales and brands positioning.
  • Foreign market analysis – When a company operates in a mature or saturated market, exploring other countries may lead to additional opportunities. Markets in different countries grow at different paces for several reasons, including disparities in the level of economic development and local habits. Knowing the evolution of per capita consumption of a given product in a given country can serve as an indicator of the maturity of the product’s life cycle. Having information on the size of the market and competitors in other countries will help to estimate the business potential.
  • Environment analysis – Market opportunities can also be identified by analysing changes in the environment with technological and scientific developments generating new business opportunities. For example, the growth of the Internet and smartphones’ penetration has enabled the arrival of companies with new business models such as Airbnb and Uber. 

There are many things to take under consideration when predicting the market trends. One more to add on the list is to make the most of digital tools and analytics to assess the industry behavior. Social media is huge thing nowadays and you can get the idea what consumers want and what is or will be trending. You can also reach many consumers with interesting and original campaigns in social media and make new trends by yourself as well. The most important thing again is to react fast to hints of what will be the next big thing. Overall it is crucial to follow what is happening in the business world and what other companies are doing – to follow the conversations and if possible, to participate to the discussions. It’s essential to understand consumer’s buying process, analyze the data you have about it. It is important to take under consideration the supply and demand theory about pricing and quantities of products you are making.

How can companies adapt to market changes?

Change is inevitable not only in life but in business too. As long as the people and the technology are progressing, so should the businesses around them. Hughes defined change as “any alteration in the status quo”. It is the start of a revolution, may it be small or not. If they do not adapt to their environment, the competitive edge they offer to their customers would likely be gone. The importance of adapting to change in business should be noted by owners. They should know what changes need to happen so that they can still provide a great experience for their consumers. Benefits of change in business can be seen in easy situations like how technology is adopted by most of them. Another example is the online world. As people are getting more preoccupied with other things, many of them do not go to physical stores but shop online. Because of this, many brands and businesses have adapted to it and made accounts in different social media and created their own website. As a result, those who adapted well to it have increased their revenue by far better than those who still have not. (Chua, 2019)

Great success story beside of Fujifilm is Amazon. They started as an online marketplace for books. Later on, they started to sell pretty much everything from clothes to electronics. Nowadays the company is also focusing and developing artificial intelligence which is far away from the online store for books. Now Amazon is even creating supermarkets where you can just walk-in, collect what you want to buy and your smartphone is acknowledging what you put in your cart and after you can just walk out from the store and the money goes from your bank account. What Amazon has done and is doing all the time, is adapting to new market changes. Like Fujifilm, it has reacted to rapidly evolving world. Either you adapt or you will in worst case scenario lose your company. 

The mobile giant Nokia has different kind of story. They used to rule the market, and then something happened. They had created the first mobile phone with touch screen, but they thought that no one would want to have this kind of phone. What happened is that Apple came and published this kind of product first – and it was a success story which is still continuing. Nokia had the technology that could have kept them be the market leader even now, in 2019. They failed to read the market trends and adapt to changing business world.

There are few theories and models about adapting and renewing your business model. One is Kurt Lewin’s change model. Kurt Lewin developed a change model involving three steps: unfreezing, changing and refreezing. The model represents a very simple and practical model for understanding the change process. For Lewin, the process of change entails creating the perception that a change is needed, then moving toward the new, desired level of behavior and finally, solidifying that new behavior as the norm. The model is still widely used and serves as the basis for many modern change models. (Study.com) Here are the three steps in Lewin’s model:

Unfreezing

Before a change can be implemented, it must go through the initial step of unfreezing. Because many people will naturally resist change, the goal during the unfreezing stage is to create an awareness of how the status quo, or current level of acceptability, is hindering the organization in some way. Old behaviors, ways of thinking, processes, people and organizational structures must all be carefully examined to show employees how necessary a change is for the organization to create or maintain a competitive advantage in the marketplace. Communication is especially important during the unfreezing stage so that employees can become informed about the imminent change, the logic behind it and how it will benefit each employee. The idea is that the more we know about a change and the more we feel it is necessary and urgent, the more motivated we are to accept the change. 

Changing

Now that the people are ‘unfrozen’ they can begin to move. Lewin recognized that change is a process where the organization must transition or move into this new state of being. This changing step, also referred to as ‘transitioning’ or ‘moving,’ is marked by the implementation of the change. This is when the change becomes real. It’s also, consequently, the time that most people struggle with the new reality. It is a time marked with uncertainty and fear, making it the hardest step to overcome. During the changing step people begin to learn the new behaviors, processes and ways of thinking. The more prepared they are for this step, the easier it is to complete. For this reason, education, communication, support and time are critical for employees as they become familiar with the change. Again, change is a process that must be carefully planned and executed. Throughout this process, employees should be reminded of the reasons for the change and how it will benefit them once fully implemented. 

Refreezing

Lewin called the final stage of his change model freezing, but many refer to it as refreezing to symbolize the act of reinforcing, stabilizing and solidifying the new state after the change. The changes made to organizational processes, goals, structure, offerings or people are accepted and refrozen as the new norm or status quo. Lewin found the refreezing step to be especially important to ensure that people do not revert back to their old ways of thinking or doing prior to the implementation of the change. Efforts must be made to guarantee the change is not lost; rather, it needs to be cemented into the organization’s culture and maintained as the acceptable way of thinking or doing. Positive rewards and acknowledgment of individualized efforts are often used to reinforce the new state because it is believed that positively reinforced behavior will likely be repeated.

Like we can see through companies like Fujifilm and Amazon is that once you adapt to change you have the possibilities to keep up with the changing world and keep your company alive. Nokia on the other hand shows what can be your company’s fate if you don’t adapt to market changes. Business world has always been crucial, but in today’s world even more because the technology is evolving faster then ever before, consumer’s demand more and faster things to happen and new startups are coming to the markets all the time. The competition is very high, and if you don’t keep up with the market changes and trends you will fail to succeed. Companies need to get creative to be able to diversify their business and products. Fujifilm did amazingly when applying their already existing technology into something totally new, like skin-care products.

References

In-text reference: (Euromonitor International, 2017)
List of references: Chehtman, A. 2017. 8 ways to identify market opportunities for business growth. URL: https://blog.euromonitor.com/8-ways-identify-market-opportunities-business-growth/. Accessed: 23.6.2017.

In-text reference: (Chua, 2019)
List of references: Chua, F. 2019. Adapt or die: The importance of adapting to change in business. URL: http://customerthink.com/adapt-or-die-the-importance-of-adapting-to-change-in-business/. Accessed: 28.1.2019.

In-text reference: (Inagaki, K & Osawa. J. 2012)
List of references: Inagaki, K & Osawa. J. (2012). Fujifilm Thrived by Changing Focus. The Wall Street Journal. January, 20, 2102. http://www.wsj.com/articles/SB10001424052970203750404577170481473958516. Accessed: 20.1.2017.

In-text reference: (Study.com)
List of references: Hartzell, S. Lewin’s 3-stage model of change: unfreezing, changing & refreezing. URL: https://study.com/academy/lesson/lewins-3-stage-model-of-change-unfreezing-changing-refreezing.html.

The Collision of Two Cultures

Introduction

American Factory is a 2019 American documentary film directed by Steven Bognar and Julia Reichert. The documentary is about Chinese company Fuyao’s factory in Moraine, Ohio. The Chinese company bought a closed factory which used to be owned by General Motors. In the documentary you can really see and feel the collision of two different cultures – American and Chinese. Documentary is a very good example on how companies should know the new markets where they are entering. There are many things which are affecting, for example, to worker’s expectations, how things are done in different businesses in different countries and how regulations work. (Bognar & Reichert, 2019)

The effects of political environment to management system 

There are many external environmental factors that can affect to different businesses. It is common for managers to assess each of the following factors closely. The aim is always to take better decisions for the firm’s progress. Some common factors are political, economic, social and technological also known as PESTEL analysis. (PEST, 2015)

The political environment is perhaps among the least predictable elements in the business environment. Political system is different in each country and it affects a lot to country’s culture and in people’s visions. It is very important for firms to observe and track the political environment. The firms should follow how political systems are developing and/or changing in the countries where the firms operate. They should also follow what is generally happening all over the world since political changes might affect also in other countries, economics and businesses.

In this very case, there are two very different countries which have different political systems. The United States is federal republic where democracy is appreciated and China is socialist republic run by a single party, the Communist Party of China. Besides, China has socialist market economy which affects to the country’s businesses, nationally and abroad. It has created a system in which private and public companies, market prices and planning prices, protection of private property and communist ideology, competition and state intervention, simultaneously coexist. (Aversa) 

Political systems have lots of power which affects to management system. In the documentary you can really see the socialist background in Chinese CEO’s as well as Chinese managers and worker’s behaviour. For them work is the most precious value and they think that a person should sacrifice all for it. For them the free time is not valued as much as for the Americans. The managers think the American workers are lazy because they only work around 8 hours per day and have loads of free time. The Americans are also very worried about the work safety which means a very different thing for the Chinese. The managers don’t want their workers to be part of the work unions in the States. The Chinese managers think that unions will make their work more difficult, slower and that it would cost lots of money for them. For them time is considered to be money – things and work should be rolling non-stop. 

The hierarchy, related to political system, is different in China. In China people appreciate and are even scared of people who have more power than they do. For everything there has to be permission from the boss and the worker’s work very long hours and they barely have any free days. The whole management style could be measured with Human Capital, which is a measure of the skills, education, capacity and attributes of labour which influence their productive capacity and earning potential. In agriculture and manufacturing, human capital was easier to measure. The human capital of an assembly line worker could be measured in simple terms of productivity – e.g. the number of widgets produced per hour. In a job, such as management, important characteristics will be factors such as interpersonal skills, ability to work in a team and the creativity to problem solve. (Pettinger, 2017) In the document the managers care about quantity over quality and safety, they just think that workers should be more efficient and work more. They don’t really care how workers feel, or do they have enough free time to sleep and have more energy for work. Besides, the workers would have more productivity if they would keep having balance between the work and spare time.

Culture’s influence into leadership styles

Culture is the characteristics and knowledge of a particular group of people, encompassing language, religion, cuisine, social habits, music and arts. (Zimmermann, 2017) Culture has enormous impact on how we see the world. Our own culture gives as a base of believes and values. Americans value family, freedom and individuality. Chinese value wisdom, honesty, loyalty, and filial piety.

China has collectivistic culture, which means that social rules focus on promoting selflessness, working as a group is important, you need to do what’s best for society as well as families and communities have a central role. Collectivist cultures are usually contrasted with individualistic cultures. Collectivism stresses the importance of the community, while individualism is focused on the rights and concerns of each person. Where unity and selflessness are valued traits in collectivist cultures, independence and personal identity are highly stressed in individualistic cultures. (Cherry, 2019) The United States is considered to be individualistic culture, where individual is prioritised over a group. For Americans it’s very important to work and also have the free time. They care about their rights, for example, in this documentary about the safety and rights to be part of the union. Americans can’t realize how the Chinese can work non-stop hardly without any free time. In the documentary some Americans are visiting Chinese factory and are shocked about the safety regulations. That some people collect broken glass with normal gloves, which don’t protect their hands at all.

Chinese value the society and whole nation over individuals. For them it’s more important that how to make the company succeed. Managers are more tough in China and they make decisions based on the results and money, more than thinking what’s best for the workers. In the documentary some Chinese managers are talking bad behind the workers who are actively supporting work nations. They made some of the people work alone so that they could say they are lazy and fire them because of weak work results. Of course, this kind of behaviour, is not only linked to collectivistic culture – at times, it can be seen in individualistic countries.

The culture affects quite a lot into different leadership styles. The culture enhances different believes, ideas and ways, how to work. Naturally, it also affects to leadership styles. In some countries it’s good to keep the distance between bosses and workers, bosses work alone and don’t let workers speak up. Some bosses involve workers into brainstorming and really want to listen them to know how they see the work and what they would do differently. There are many different ways how to handle things. There’s no one and right way to lead people since the cultures are different. Though, it’s important to find the balance where company is doing well, employees feel that they are important and someone values their work as well as overall results are great.

How to benefit from different cultural work ethics

Work ethics include not only how one feels about their job, career or vocation, but also how one does his/her job or responsibilities. This involves attitude, behavior, respect, communication, and interaction; how one gets along with others. Work ethics demonstrate many things about whom and how a person is. Work ethics involve such characteristics as honesty and accountability. Essentially, work ethics break down to what one does or would do in a particular situation. The begging question in a situation involves what is right and acceptable, and above board, versus what is wrong, underhanded, and under the table. (All about philosophy)

You can learn a lot from different cultures, good and bad. The beautiful thing is that after managers, employees and companies can collect the best ones and try to follow those work ethics. For example, it is important to follow safety regulations because those are important to many people and they will also affect how willing employees are to do the job. In the documentary some workers refused to do some jobs because they didn’t want to risk their fellow colleagues. 

Although it is not easy to decide which ones are again the right work ethics to pick up from different cultures, since it is very collective how people see them. Especially in this documentary, we have two very different cultures. Even though Americans and Chinese are explaining their own work ethics to each other, it is not easy to think from other person’s perspective.

References

In-text reference: (All about philosophy)
List of references: All about philosophy. What are work ethics? URL:
https://www.allaboutphilosophy.org/what-are-work-ethics-faq.htm

In-text reference: (Aversa)
List of references: Aversa, G. Socialist Market Economy. Bankpedia. URL:
http://www.bankpedia.org/index.php/en/126-english/s/23712-socialist-market-economy

In-text reference: (Bognar & Reichert, 2019)
List of references: Bognar, S. & Reichert, J. 2019. American Documentary.
URL:
https://www.netflix.com/fi-en/title/81090071

In-text reference: (Cherry, 2109)
List of references: Cherry, K. 2019. Understanding collectivist
cultures – How culture can influence behavior. URL:
https://www.verywellmind.com/what-are-collectivistic-cultures-2794962 . Accessed: 13.10.2019

In-text reference: (PEST, 2015)
List of reference: PESTLE analysis. 2015. Political factors affecting
business. URL:
https://pestleanalysis.com/political-factors-affecting-business/ . Accessed: 24.2.2015

In-text reference: (Pettinger, 2017)
List of references: Pettinger, T. 2017. Human capital definition and
importance. URL:
https://www.economicshelp.org/blog/26076/economics/human-capital-definition-and-importance/ . Accessed: 22.9.2017

In-text reference: (Zimmermann, 2017)
List of references: Zimmermann, K. 2017. What is culture? URL:
https://www.livescience.com/21478-what-is-culture-definition-of-culture.html . Accessed: 13.6.2017