Analysis into challenges facing international business

CONTENTS TABLE

1.1 Introduction
1.2 Challenges facing international business
1.2.1 Globalization
1.2.2 Strategic Choices for International Business
1.2.3 Culture and the Costs of Doing Business
1.2.4 The Impact of Political Risk
1.2.5 International Trade Theory
1.2.6 National and International Accounting
1.2.7 Difference in Office Hours
1.2.8 Software and Hardware Support
1.2.9 Difference in Regulations
1.2.10 Language Barrier
1.2.11 Different Standards
1.2.12 Innovation
1.2.13 Supply Chains
1.2.14 Information Overload
1.2.15 Infrastructure within the Foreign Country
1.2.16 Corruption Amongst Foreign Officials
1.2.17 Pricing
1.2.18 Tariffs and Quotas
1.2.19 Company is Not Flexible

2.0 Conclusions

REFERNCE

INTERNATIONAL BUSINESS

1.1 Introduction

One of the keys to business success is the ability to trade internationally and participants on regularly try draw ways of how to tackle the challenge of remaining competitive while growing the business by going global.

Expanding internationally can be an attractive and lucrative business proposition, and international business, across both developed and emerging markets, offers a wealth of new opportunities. it is important to recognize that organizations need to improve their game in order to engage effectively with their clients, who themselves are established in the global businesses.

1.2 Challenges facing international business

As the prospect of international business looms, there are challenges faced which include;

1.2.1 Globalization

Globalization refers to growing economic interdependence among countries as reflected in increasing cross-border flows of three types of commodities: goods and services, capital, and knowhow (Govidarajan & Gupta 2000).

It may also refer to the closer integration of the countries and peoples of the world …brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders (Stiglitz 2002).

Globalization is divided into globalization of markets and globalization of production (Hill 2005). Market globalization implies a standardization of products across the world as national barriers become less and less relevant while globalization of production refers to the sourcing of goods and services to take advantage of a difference in the factors of production (land, labor, capital).

Globalization has significantly impacted on the business environment, prompting the development of the multi-national enterprise (MNE). The governance of the MNE is recognized as being different than that of a national company. For instance, Bartlett and Ghoshal (1998) have introduced the influential concept of the transnational model, which allows the transfer of knowledge developed and jointly shared on a worldwide basis. In order to create a successful global business, Bengley and Boyd (2003) have underlined the importance of a global mindset, defined as the ability to develop and interpret criteria for business performance that are not dependent on the assumptions of a single country, culture or context. Corporate management must not automatically assume that the culture of the home office is equally applicable elsewhere (Bradley 2005). An important new development in the international business arena has been the rise of ‘mini-multinationals’ – small and medium size enterprises that do business on a global basis (Hill 2005).

1.2.2 Strategic Choices for International Business

There have been numerous emphases by scholars on the importance of adopting a global strategic approach to business. The optimal strategy for tackling global markets has been a matter of dispute. Often scholars propose an evolutionary view of strategy, which goes from a simple international strategy to sophisticated transnational solutions (Hill 2005).

Under the international strategy framework, international business is not a core interest of the firm. The company simply decides to “go international” and often sets up an international division that deals with the non-domestic business of the company. As the international business develops, the company may decide to source some components from overseas, and to standardize some of its products. As Briscoe and Schuler (2004) point out, when a certain critical mass develops, the company must choose other, more complex strategies of tackling the international market.

As a company’s international presence increases, often a multi-domestic or localization strategy develops. Under this strategy, the company sets up subsidiaries in several countries, which tend to operate independently from each other and often relatively independently from the headquarters (Briscoe & Schuler 2004). This type of strategy emphasizes local responsiveness, but this is often achieved at the expense of costs and possibly quality.

When MNEs grow in size, they could reach a level where ‘global standardization strategy’ may be a strategic choice. The global strategy was promoted by Levitt (1983), who considered that globalization naturally results in uniformity of consumer taste. In this framework, a company could achieve significant economies of scale by producing the same standard product at a global level.

In addition to overall strategic choices, a company seeking international business must consider the method of accessing international markets. At a very simple level, a company may choose to invest in foreign firms (Briscoe & Schuler 2004). A company could restrict itself to exportation of goods or to franchising, which is type of quality or brand export. In more involved strategies, a MNE may choose to establish an equity joint venture with a local or global company, or to create a whole-owned subsidiary.

1.2.3 Culture and the Costs of Doing Business

Different countries have different cultural values and standards. Culture is the collective programming of the mind which distinguishes the members of one human group from another. Hofstede (1984) identified the main dimensions of culture that affect work practices in different countries: Power distance, uncertainty avoidance, individualism vs. collectivism, masculinity vs. femininity, long vs. short-term orientation.

Uncertainty avoiding countries tend to have solid legal frameworks and strict rules of doing business (Pagell & Halperin 2001). In such countries, thorough auditing tends to be carried out to ascertain compliance with rules (Hill 2005). These countries tend to have uniform accounting procedures and low disclosure levels (Gray 1988). Coming from a different cultural perspective, an international business may find it costly to adapt to the national standards and rules of the country it wishes to do business in. Paradoxically, uncertainty avoidance can also translate into unethical practices as persons seek to secure a more certain result through corruption (Husted 1999). In terms of entry modes into the country, businesses may find that uncertainty avoidant countries favor solid frameworks such as established subsidiaries or local ownership, which are more costly and risky.

Masculinity vs. femininity also tends to influence business costs. For instance, high masculine cultures have been associated with unethical practices (Vitell et al 1993). Feminine cultures could result in higher secrecy and conservatism in accounting and finance (Salter & Niswander 1995).

Religion has an important impact on doing business. For instance, Hill (2005) noted that Islamic culture encourages private enterprise and the right to private property. This implies that doing business in Islamic culture may have reduced political risks, whose prevention can become costly.

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