Challenges for a Business in an International Market - Essay Example

?CHALLENGES FOR A BUSINESS IN AN INTERNATIONAL MARKET The main goal of a business is to create a market for its products and/or services which will produce substantial income to cover the expenses enough to fund the continuation of its production. Most businesses have been established due to the demand for a particular product or service needed in a particular place. When a business ventures into the international market, there are adjustments that the company needs to make to satisfy the requirements and deliver the requests of the market that it would penetrate and eventually dominate. A number of challenges await a business that aims to conquer the international market. One of these challenges is the existing global trade in a particular location. Global trade has existed since the forefathers of the present generation embarked on a quest to look for new places to offer the products that they had to offer. From the finest spices and ingredients, global trade that occurred during the earlier centuries also offered the finest materials and jewelries and even human labor. The international market has already been penetrated by merchants long before the New York Stock Exchange was established (Czinkota et al, 2009, pp. 50-60). Local businesses have organizational structures that deliberate to be able to achieve holistic goals. There are also instances that the members of the administrative assembly could either be friends or relatives. A member of the organizational structure can personally talk or approach another if there are certain issues needed immediate attentions. Communication is a breeze since it is being carried out on a timely manner and the message or the instruction is carried out with supervision. This type of interaction does not materialize in businesses in the international market (Howes & Tah, 2003, pp. 181-200). Though these international businesses have a local organizational management that looks after the status of the business in the local market, there is an office considered as the headquarters for each of these companies that will look after satellite offices strategically disseminated in various locations worldwide. There are memoranda or circulars that these headquarters will circulate to satellite locations which may not benefit a particular satellite office. Either local management of the affected office will make amends regarding the order or the directive will be disregarded and not be fully implemented (Howes & Tah, 2003, pp. 181-200). Such events happen when there are no direct interactions among the management units and among the administration and employees of the satellite office. Even if the services or the products being offered by a particular business can be considered a success if it is not managed appropriately, the status of the satellite office would be in jeopardy. What has been stated is just an event that could or could not happen. Another possibility is that the managerial structure can be influenced by external issues in the location of the satellite office such as politics and culture. There can be hundreds of possibilities with regards to what may happen in an administration of an international business. These possibilities can occur in any branches or departments that comprise the business. If a business would be venturing in a foreign market, the company should make it a point to assign trusted employees as the foundation of its organizational structure at the foreign market. The success or the failure of the satellite office of a particular business does not solely rely on the quality of the products and/or services that it is offering. It also relies on how competent and efficient the operation of the company is, which includes not only the managerial group of the satellite office but also the people. The managing department’s main goal is to put the mission and vision of the international business while the employees’ main role is to uphold such views and goals (Howes & Tah, 2003, pp. 181-200). Each existing international business needs to satisfy the international market by properly packaging or marketing the products and/or the services that it is offering in a global trade. Again, global trade is affecting international marketing as there are transnational factors present in the trade which may affect the marketing of the business. These factors may vary from the manner with which locals accept a foreign product to the manner with which a foreign product can uphold a level of quality that will satisfy the necessities of the locals (McDonald et al, 2002). An international business should be able to adapt what the local market demands. International marketing occurs almost simultaneously with the global operations and supply chain management. In recent years, foreign businesses had been investing on discovering new ways to improve their products and make it more appealing to the locals. A business can enhance its stature in the international market by doing those measures. In enabling such adaptation, the global operation of the business also improves as the local markets will note what the company is putting in with regards to the needs and demands of the locals (Harzing & van Ruysseveldt, 2008, pp. 65-79). Carrying out the quality of the goods in recent years appears to be more expensive due to the oil price hikes brought about by political and violent events that are happening in oil-producing countries. To cut the transportation and exportation of raw materials used for the end product, international companies need to utilize the raw materials or ingredients which are present at the area of the satellite office. There is a possibility that this will affect the quality of the end product yet it will keep the expenses on a manageable bracket and prevent these expenses from being a liability for the company (Harzing & van Ruysseveldt, 2008, pp. 65-79). It is not only the foreign business that will benefit from such actions. Local manufacturers and farmers will also benefit from this decision. The local market will also be boosted by the action of the international business. This can help the publicity for the company, therefore giving more reasons for consumers to patronize their products. When a transnational company will do such arrangements, it will be a winning situation for both sides, specifically the locality where the satellite office is situated (Harzing & van Ruysseveldt, 2008, pp. 65-79). Human Resource Management also varies when a company deals with global trade. It is more cost-efficient for an international business to hire local employees from the area of their satellite offices. In addition, there are also employees who take commands more willingly if carried out by a local superior. Though the rules and regulations are from an international company, the implementation of the operational procedure is carried out by locals who know their own people. It is not a racist thing however, there are still cultural differences that may not work both ways (Harzing & van Ruysseveldt, 2008, pp. 65-79). On the other hand, with regards to financial management, global trade still makes its presence felt. There are markets that can afford to purchase international products that, though locally-made, still carry out the international trademark. Therefore, the foreign business also implements the international pricelist, not to mention the inclusion of local taxes. Foreign products do appeal more to locals as if there is that distinct aura enveloping the material. These products still carry the awe of the inhabitants every time a product will be presented to them. It is still the same effect that foreign products have every single time it enters a market. This same reaction being observed in the present era is similar to the reactions in the past generations of consumers, thus, it can be noted as a constant factor for the international producers and participants of the global trade (Madura, 2009). Financial management is starting to become a very big factor in the accomplishment or the breakdown of a particular product or company. If the locals would not be able to afford the end product being offered by the business, there will be no more income generated by the company. When there is no income, there will be no business. Therefore, for a business to exist in a particular location, it should take into consideration several factors which will aid its income generation (Madura, 2009). It is not just enough that a product carries out an international taste and trademark to be successful in an international market. The product should also be economical when purchased by the locals. The global trade that the world’s forefathers initiated has already introduced goods and materials even before the oldest man alive at present was born. Emerging international businesses should have a very good transnational marketing package that will offer something new and make locals think that it will be wise to purchase the product even if the amount is quite expensive compared to the local companies which are offering similar or related products. Challenges like global trade, foreign politics, economic and financial challenges and natural catastrophe, environment and war on terrorism affect a particular market, whether local or foreign, as well as whether the business will make or break at the market. The effects of Global Trade and Foreign Politics have already been touched on earlier statements. With regards to the Economic and Financial Challenges, this can also be related to the supporting statements brought about the explanation of the importance in Financial Management. On the other hand, Natural Catastrophe, Environment and War on Terrorism are the challenges faced even in the global trade that happened centuries ago (Hoekman et al, 2002, pp. 42-3). The World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT) scribed 5 basic principles with regards to trade (Hoekman, 2002, pp. 41-49). These principles would be as follows: “1) nondiscrimination, 2) reciprocity, 3) enforceable commitments, 4) transparency, and 5) safety valves.” Nondiscrimination his said to have 2 chief mechanisms. The first component is the Most-Favored-Nation (MFN) rule and the second factor is the national treatment principle. This WTO principle actually applies to products of already developed countries only. There is still a little discrimination in developed countries with regards to products coming from a developing one. On the other hand, developing countries prefer products coming from developed countries rather than their own. The latter statement applies more towards the Eastern market being penetrated by Western products. Eastern locals tend to be more mesmerized by the products created in the West yet being offered in the East. This reaction makes the market of the Western product stronger in comparison to their local counterparts (Hoekman et al, 2002, pp. 42-3). Though this is beyond the control of the WTO, the organization still has the responsibility for making sure that this kind of trade is not affecting local products. Most foreign products do have local counterparts that will surely suffer in the market once the local market is penetrated by the international business. WTO is failing to regulate this principle that they themselves inscribed. Reciprocity is another principle of the WTO. As stated by Hoekman et al (2002, p. 43), “Reciprocity is a fundamental element of the negotiating process.” This is actually regulated more by the respective government of the countries engaging in a trade. Either the governments are being monitored by the WTO or the governments themselves are also thinking of the positive effects the trade will bring to their country. There are instances that these governments do consult the WTO before engaging in a trade from foreign companies. However, most of the time governments just consult their economic advisers with regards to the budding transaction (Hoekman et al, 2002, p. 43). Binding and Enforceable Commitments is the next principle of the WTO. This is the principle that secures markets and assures such trades will occur and flourish. This aids governments in making sure that the negotiated terms will be carried out by parties involved. Once a particular agreement is not reached, the WTO can act towards the amendment of a particular contract which will be beneficial to the concerned parties (Hoekman et al, 2002, p. 43). A contract is a contract and the parties are bound to perform what they have agreed upon. Businessmen are so far true to their words, specifically in terms of agreements with the government. It is considered as a big shame for their company if they do not fulfill their end of the bargain. Countries also have allies that may not go into trade once an agreement with a certain company is breached. That contract alone ties the hands of the companies in the trade (Hoekman et al, 2002, p. 43). Transparency is a very important principle in terms of engaging in trades, both locally and internationally. A trade should be beneficial to the parties involved. Transparency is not just the basic pillar of the WTO but also considered as a legal responsibility. Bearing such gravity, the members of the WTO are then required to perform the following as stated by Hoekman et al (2002, pp. 43-4): “first is to establish and maintain institutions allowing for the review of administrative decisions affecting trade, second is to respond to requests for information by other members, and to notify changes in trade policies to the WTO.” With such legal responsibilities, members of the WTO are bound to follow the proper procedures and apply the basic principles. Though there are still loopholes in the regulation of these principles, it is safe to say that there will be a time that international trade will be equal and open for all regardless of the stature of the business’ originating country or political inclination of the parties involved in the trade. An organization has members with similar goals and beliefs. There will be a point in international trade where products coming from different countries are entertained and accepted worldwide (Hoekman et al, 2002, p. 43-4). Safety Valve is the last of the 5 basic principles of the WTO. There are 3 categories that comprise this principle namely: “a) articles allowing for the use of trade measures to attain noneconomic objectives, b) articles aimed at ensuring “fair competition” and c) provisions permitting intervention in trade for economic reasons” (Hoekman et al, 2002, p. 44). This is also a principle that would secure the interests of the parties involved in certain trades. The safety valve principle complements the transparency principle in assuring that there would be no party that will take advantage of the other. The Organisation for Economic Cooperation and Development (OECD) is “an organization that coordinates policy among developed countries. OECD member countries exchange economic data and create unified policies to maximize their countries' economic growth and help nonmember countries develop more rapidly” (WorldBank.Org, 2004). Such transparencies in economic data will aid businesses to target the most favorable area or market for their products and/or services. With the data being provided for international businesses, opening a franchise in an international location will just be like opening it in a domestic location. Expenses for intelligence and market evaluation will be lessened and the amount allocated for the said aim can be diverted in other liabilities which are needed to be settled. Bibliography Aswathappa, K., 2010. International Business. 4th Ed. New Delhi, IN, Tata: McGraw-Hill Education. Czinkota, M., Ronkainen, I. A. & Moffett, M. H., 2009. Fundamentals of International Business. Brownville, NY: Wessex Publishing. pp. 50-60. Harzing, A.-W. & Van Ruysseveldt, J., 2004. 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