The global environment and its challenges present a substantial risk zone for businesses. Furthermore, the development trend of the business focuses on the direction of globalization, implying that in order to expand more, businesses need to adapt to the global environment. Globalization, in general, stands for processes of interaction and integration between people, organizations, and governments. The 2020 pandemic empathized the negative consequences of globalization, where businesses’ dependence on foreign suppliers put them at risk of suspension of activities in the conditions of limited global connectivity. The article by Contractor (2022) suggests that overcoming business risks associated with future events like the COVID-19 pandemic requires an even higher level of globalization and integration of the world’s economies.
The article focuses on the pandemic’s influence on many businesses’ supply chains and how foreign supply delays caused a significantly reduced number of new products. The author defines that the logical development of trends for business in the post-pandemic world is an increased level of nationalism and protectionism (Contractor, 2022). However, by limiting the numbers of suppliers and reducing the geographical diversification, international businesses are more likely to face increased costs of producing goods than positive changes to financial security. On the other hand, continuing the globalization trend will provide more business development opportunities. Thus, with higher levels of globalization, the overall international business will be safer as there will be more suppliers and manufacturers on the market.
Taking Risks and Making Profits Within the Dynamic Business Environment: Response
The theme of globalization and its impact on the business world directly relates to the complexity of the dynamic business environment and the various risks and challenges entrepreneurs face in the modern economy. While there are more direct ways in which the business world is influenced by changes in the world economy and politics, such as politics, international business cooperation can overcome political barriers in the future. In particular, the author suggests that through increased globalization and international business cooperation in the future, the world will be less affected by events like the COVID-19 pandemic.
Firstly, considering the aspect of risks and profits in business, the trend for globalization is founded on the basis of the outsourcing business principle. Outsourcing in business stands for the practice of hiring an outside company to perform services or create goods instead of using in-house production. Outsourcing as a business strategy allows for more effective production management and reduced costs. The outsourcing business strategy presents both an outcome of globalization and a factor that supports its further development. Through outsourcing, businesses gain a competitive advantage in generating additional profits instead of spending on employees’ salaries and equipment amortization. With the development of computer technologies, in the modern economy, outsourcing has become common in many other areas besides production. For example, companies can hire IT professionals and sales managers in remote conditions from other countries. In addition to financial savings, such an approach also increases the diversity of employee teams, generally associated with more comfortable working conditions.
However, outsourcing presents one of the most significant risks for businesses as it implies dependence on other organizations and businesses. The COVID-19 pandemic started in China has emphasized the dependence of the world’s economy on China’s manufacturing capacities. Many companies with production facilities in China experienced delays in releasing new products due to local quarantine restrictions and social distancing policies. The article suggests that the post-pandemic protectionism and nationalism policies only cause financial losses. The analysis of risks for multinational enterprises (MNE) indicated that suppliers could manage the risk of having two to three suppliers worldwide with pre-pandemic lower risks (Contractor, 2022). Post-pandemic protectionism and nationalism policies increased MNE’s requirements for products, increasing the number of potential suppliers, but also caused increased costs per unit manufacturing (Contractor, 2022). Therefore, while globalization presents a risk for the business, avoiding international cooperation will cause significant financial expenses and loss of competitive advantages.
As a solution to the problem of risks in globalization, the author introduces several potential improvements to supply chain management. The development of computer technologies and internet communication played a substantial role in forming globalization processes. Therefore, it is logical to suggest that further technology development can improve the supply chain management process. According to Contractor (2022), implementing blockchain technology in contracts will provide real-time information about contracts and their fulfillment progress, which will reduce potential risks for both parties. Furthermore, higher data transfer speed achieved through the integration of new 5G connection technology will ensure prompt communication between suppliers and buyers.
Next, the article defines that digital technologies, such as integrated vendor-buyer computer systems and artificial intelligence analytical systems, will also contribute to the lowered risks of international trade. The article explains that even in modern conditions, suppliers and vendors do not draw enough attention to the development of a unified computer system, even though it can reduce their expenses through more detailed planning (Contractor, 2022). Lastly, the AI analysis tools will greatly improve the ability to pre-calculate risks in contracts taking into account many factors and data for processing, such as weather, political, and competitive conditions.
In conclusion, the article draws attention to the risk management problem in business in the globalization era. The article defines that while international trade and cooperation are associated with several risks, the benefits of cost optimization and savings on amortization present the right directions for businesses’ growth. Furthermore, in the future, with the development of more sophisticated contract systems, businesses participating in international trade and cooperation will face fewer risks than businesses under protectionism and nationalism policies. Lastly, the article demonstrates the nature of risks in business imposed by the dynamic environment and their influence on the process of making profits.
Contractor, F. J. (2022). The world economy will need even more globalization in the post-pandemic 2021. Journal of International Business Studies, 53, 156–171.