Review of Article: The Impact of Globalization on Legitimacy Signals
Ivanova, O., & Castellano, S. (2011). The impact of globalization on legitimacy signals. Baltic Journal of Management, 6(1), 105-123.
This article looks into the challenges that face organizations operating in a transition environment as they assume global perspectives. The paper uses a theoretical framework to bring out the importance of using signals for small organizations that they use to inform their evaluating audiences of their intentions to move into a global environmental layer. The authors point out that in reference to previous research on organization environment, organization can simultaneously adapt and shape their new environments. The paper discusses Small and Medium Enterprises (SMEs) characteristics in relation to larger organizations, looking into the liabilities that the SMEs face as they evolve into global organizations. Finally, the paper discusses the survival of SMEs that have fully transformed into global organizations.
The paper informs the reader that globalization presents a rich diversity of the operating environment of an organization. The diversity emerges as the organization operates in many markets and offers a wide product range. The interaction with new entities in different markets also presents a diversity of challenges and opportunities for the organization. As SMEs move to a new global environment, they face heightened turbulence and munificence levels. The author notes that, Supra-national institutions like the World Trade Organization (WTO), lead the attempts to organize the global business environment for multinational enterprises. However, they attempts face obstacles from the same organizations and nation-states as they seek to protect their interests in trade agreements. They indicate that currently, SMEs have a similar chance, as large organizations, of taking their operations to a global scale. Technology and globalization have made it possible to conduct business around the world without having to incur exorbitant costs of expanding an organization. The advent of the internet has created a chance for local firms are part of the global business environment without moving out of their country borders.
Previously firms remained in their local markets until they became saturated or they were threatened by the entry of a multinational corporation. Globalization has brought in a new basis for competitiveness, the possession of a unique resource. Therefore, firms possessing a unique resource become competitive both in their home market and in the global environment. As organization embrace, the new global environment they have to deal with the new opportunities and challenges of international financing, mobility of labor changing social conditions (Walker, Walker, & Schmits, 2003).
Organizations moving into foreign markets become liabilities to their host countries because they are yet to learn the host’s culture. The main contribution of the paper occurs in the area of the liability as it explores cases where organizations engage in international activities without leaving their home countries. The authors define the new liability as the ‘liability of market newness’. SMEs leadership has to understand the legitimacy of their organization in international environments to access resources necessary for survival. To reduce the liability to market newness, SME leaders have to demonstrate that their firms are competent and have the characteristics required meeting global partnership requirements. Other than the liability of market newness, the SMEs moving to global activities face a liability based on the context of origin. SMEs coming from transition economies into the global arena have to defend their legitimacy and face the challenge presented by the high uncertainties of transitions. The authors recommend that such organization rely on sending legitimacy signals to their international counterparts in addition to adapting to the new environment.
This paper has presented a new field, the signaling theory of legitimacy that should be empirically researched. It presents key concepts to for analysis by leaders wishing to move their origination to global environments. The paper is limited because it leaves out a discussion of large corporations originating from transition economies that face different challenges.