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The feature of the global economy is not the flow of goods, but the flow of capital, people, and information worldwide. With Globalization, time and space is no longer a barrier to making deals in the world. Computer networks permit instant transactions. Along with the increasing speed of transactions and global sourcing of all forms of resources and information, managers are struggling to think globally and act locally ( Rivette 2000).
As the markets become more open; as evidenced by free trade agreements between nations-, more foreign firms are likely to enter domestic markets, thus increasing competition. Since firms are operating in global markets, competitive moves in the domestic market may negatively affect the firm in another segment of the international market. Such increasing amounts and types of competition place pressure on firms to move into international markets in order to maintain their competitiveness in areas where they already operate (Atkinson 2000). Globalization requires intellectual capital as a source of comparative advantage as evidenced by W.W. Grainger headquartered in Lake Forest, Illinois.
W.W. Grainger, Inc. a globally minded fortune 500 company is the leading supplier of industrial products serving businesses and institutions throughout North America with roughly 600 locations. Grainger recently expanded into Mexico and China to source and sell its products. Grainger's decision to go global in this manner reflects the intellectual capital the firm maintains. Knowledge has become the direct source of comparative advantage for selling its products. Grainger's path to success has included global expansion to Mexico and Canada. In recent years, it has entered the Mexican and Canadian markets to both sell and source its products. It has done so by establishing sophisticated distribution networks throughout both countries. In both countries, Grainger supplies customers with a wide variety of local and imported industrial products.
As such, Grainger can continue to remain successful for the foreseeable future by capitalizing on comparative advantages.
Setting up shops in Mexico for example is a function of Grainger's global expansion and sourcing to increase its market share, but also a comparative advantage to the company as well in terms of increase in profit margins. By targeting new customers in new markets, it expands its market reach throughout NA. "By purchasing inventory locally, it arbitrages labor costs, reduces delivery distances and provides customers with products tailored to the respective markets.
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Likewise, W.W. Grainger Inc. has plans to open up a distribution center in Shanghai China. According to Stewart Scharf from business week.com, China has an estimated $30 billion market for maintenance products, with Shanghai accounting for about six-percent of that share. Grainger has been in China for roughly six years. Shah and W.W. Grainger are still not sure how its business model will have to be adjusted due to cultural differences. Since a large sector of China is poorly served, this gives a chance for the company to speed up its expansion plans. Likewise, cheap labor and availability of inexpensive materials in China is their comparative advantage.
As one looks at the types of jobs that have begun to flow into these countries, a general patter begins to emerge. A large number of the job categories involve the export of information and employment growth in return for cheap, skilled labor.
Opportunities/Risk with technology
With continual expansion globally, W.W. can leverage technology to seize further opportunities in the marketplace. Technological change and new technologies are moving at a high speed. From videoconferencing to the internet, technology has made our world smaller and faster moving. The challenge for W.W. Grainger managers is to make sense of what technology offers because not all technology adds value. Managers at Grainger have the opportunity to making technology more viable and productive part of their work setting, especially huge amounts of information in constant movement in expanding countries. They need to leverage information to enhance business performance or else they will be drowned in a wave of ideas, and not ideas. In addition, if W. W. Grainger fully capitalizes on these opportunities mentioned above, there is a possibility of slowed industrial production growth with would negatively impact entering into the markets, especially China. Grainger may be unable to maintain in large customer base, and as a result, facilities may have to shut down.
W.W. Grainger's Inc. Plan for globalization presents the company with opportunities rather than problems. Whether the company expands to China and Mexico, risks as well as opportunities exist. Comparative advantages exist for both Grainger and the countries they are expanding to, which benefit both in the time coming.
Atkinson, A.A, Waterhouse, J.H & Wells, R.B. 1997. A stakeholder approach to strategic performance measurement. Sloan Management Review, 38 (3) 25-28.
Rivette, K.G. & Kline, D. 2000. Discovering new value in intellectual property. Harvard Business Review, 78(1): 54-66.
Scharf, Stewart. 2006. Grainger: Tooled up for Growth. Retrieved August 5th, 2006 from www.businessweek.com
Shah, Sima Manager & Sox-Consultant at W.W. Grainger. Inc.