Quiz 14: Growth and Globalization of Services
Any service operation be it processing goods, information or interacting with people faces a variety of challenges in expanding at global level. A firm needs to provide innovative solutions and service due to pressure of market potential and the desire to protect service concepts from competitors through building barriers to entry. Various strategies have been evolved from time to time for firms to grow domestically and expand worldwide. The major challenge of an organization to expand globally is government regulations and bureaucratic red tape. For example in case of FE, it took 3 years to get permission from J to fly from T from M hub. Provisions were made to protect local transport businesses. Control by the government of the host country plays a very important role for any organization to enter their market and create a niche as well as to establish as a brand. Lack of supporting infrastructure is another issue for globalization of services. For example, the opening of MD in M required substantial supplier development. It faced problems of building a commissary to prepare all products for the restaurant and also had to show farmers how to plant and harvest crops needed, like potatoes and lettuce. Labor market norms in the host country, language barrier and differing working habits have its impact on globalization. Various challenges of globalization related to customers, competitors and other can be overcome by following a global strategy (considering the world as one large market), Multi-domestic strategy (oversee offices run by local nationals), and transnational strategy (by adapting to local market and customs and providing services accordingly). Thus before an organization thinks of investing globally, there are a number of factors considered. Statutory regulations, supporting infrastructure and labor market norms in the host country plays are the three main factors considered.
Being a restaurant chain based in another country offering Mexican food, the success of C in M was due to following a global strategy driven by force towards global integration. The force towards global integration was due to factors such as the presence of economies of scale or opportunities to exploit certain global assets or competitive advantages. In case of C the force towards global integration was high. Moreover, local responsiveness was required, thus it moved to multi-domestic strategy with generic international global strategy. This strategy considers the world as one large market that can be approached in a homogenous way or at least integrated across countries. C approached the Mexican market with service offering that matched market requirement. Providing the Mexican food acceptable to locals was the main point in its success. Unlike other food chains this chain didn't have to make too many changes to match customer requirements, for fear of not being accepted. Though an outsider, they were already serving local cuisine. Another reason for its success was economies of scale; while satisfying the customer with what they want, C also had the advantage of procuring raw material and supporting infrastructure to serve them better, including the basic ingredients and providing authentic flavors to customers. Thus, the success of C in a foreign land can be attributed to factors like global integration, presence of economics of scale, and exploiting global assets. Furthermore, presence of local supporting infrastructure too played its part in the success of C.
Franchising is a common vehicle to geographically expand service offerings by attracting investors who become independent owner-operators by a contractual agreement. Having a franchise is beneficial as it involves lower risk of failure, and having a brand name, besides national advertising. Though there are a number of advantages of running a franchise, there are some conflicting arrangements as well. Following are some areas of likely conflict: Autonomy of Franchisee: Autonomy is the freedom to operate the unit. However, franchisor specification is an area where conflict may arise. Specifications like day to day operating procedures, site selection, facility design, accounting system, frequency of inspection of the facility may be some concern points. The right to repurchase the outlet for non-compliance is another area that needs to be considered. Franchisee contract As the power and control are in the hands of franchisor, this raises question concerning the relationship between franchisor and franchisee as well as misuse of the power. Franchise contract should be prepared to protect both parties preserve the competitive strength of the entire franchise organization. Conflict resolution A fair franchise contract will reduce chances of any potential conflict. However different objectives of franchisor and franchisee may raise conflicts on various issues like establishment of fees and profit sharing, and upgradation of franchise facilities and cost sharing. Another concern point is the saturation of a single market area with outlets. Thus, a critical task of the franchisor is the development of policies procedures to handle conflict before it becomes divisive and impairs the entire system.