Financial Objectives - Essay Example

What are some of the issues the host foreign country could face as a result of the expansion? Issues faced by Host Country in Global Expansion Due to diversified norms, values and beliefs, when a company plans to expand globally, it is encountered by numerous issues. When a company deals with other foreign companies and their governments, they need to be aware of the cultural differences and its impacts on their business. They have to set financial objectives, rules and regulation, code of ethics, business goals etc. tapping into the foreign countries may lead to the following issues to the host country: Diversified cultures of international markets. Political and social climate of foreign countries. Local taxes and regulatory systems. Currency risk and Foreign exchange management. Transfer pricing and supply chain management. Local workforce. Diversified cultures of international markets Cultural differences substantially impact the way companies do businesses. It is important to be aware of the disparities that will be at your disposal in the target market. When expanding into international market, the accustomed norms, values and behavior of the local citizens mustn’t be ignored. A bottle of American whisky can be an offense in middle-east countries. Political and social climate of foreign countries A stable political and social system can be beneficial for the company which intends to expand whereas; unrest and destabilized political system can create new issues for it. Local taxes and regulatory systems It is crucial to determine whether the tax regime for international businesses is friendly or competitive. Corporate tax rate with low headline is always appealing for the companies. Currency risk and foreign exchange management Companies must determine whether the local currency is stable or volatile. It should also stumble if currency hedging can be obtained at a reasonable cost. Transfer pricing and supply chain management Development of effective supply chain helps to generate the company’s cash flow more quickly. Brief information should also be gathered regarding the transfer pricing policies of the foreign countries. Local workforce Effective communication of the local workforce has the ability to make or break the progress of business. It is the foundation of success for every business. Right people at the right location that is, financers, staff, suppliers, regulators, quality of customers can provide a competitive edge to the business. 2. Explain what cultural barriers and diversity issues are commonly encountered by international/multinational (MNC) and global organizations.  Cultural Barriers and Diversity Issues MNCs usually promote consumerist culture by producing standard commodities for diversified cultures. Yet, culture often become barrier and creates distances. The following are the primary reason of diversified cultures all over the world. Communication and Language Barrier- Different languages are spoken in different countries which become a hindrance for MNCs. It is an essential means of communicating with customers, retailers, suppliers etc. therefore, language often becomes a barrier in diversified cultures. Religion- Religious backgrounds usually have substantial impact on the individuals. People do not psychologically and emotionally accept something which is not aligned with their religious values. This often becomes hindrance for MNCs while tapping into diversified nations and cultures. Accustomed/diversified Culture- Socio-cultural differences, norms, beliefs, values, attitudes, perceptions congregate to form a certain cultural background of a country. These aspects vary from country to country and therefore construct a diversified nature of the world. 3. Why has diversity become such an important topic in the international arena? Importance of Cultural Diversity Cultural diversity plays a vital role for a company. The criteria diversifies customer groups on the basis of gender, race, ethnicity, age, educational background, beliefs, lifestyles, language, geographic origin, physical and cognitive capability, cultural background, economic class etc (Seyman, 2006). Multinational organizations have to deal with these issues everyday as their businesses are expanded all over the world. Negating any of these elements can result in huge losses and failures. The answer to how cultural diversity can be completely overcome cannot be given easily. According to Seyman, (2006) cultural diversity management model should be developed by every multinational company is order to cope up with these issues. Keeping all these issues in view, organizations need to craft themselves according to the demands and requirements of their customers. Companies cannot offer quality services and product to their customers if they do not understand the cultural differences among diversified groups of customers, each having its own individual identity and varying demands. Ignoring or misunderstanding the cultural differences can lead to serious disasters for the company therefore; multinational companies need to have comprehensive information regarding the target market and its history in order to avoid any unpleasant incident. Example of Pepsi has given earlier, which shows the importance of cultural differences. Localization and standardization is being done by MNCs to promote the concept of similar products in different type of markets. 4. What can occur when issues related to multiculturalism and diversity are ignored in an international company?  Negating Cultural Differences Companies need to acknowledge all the issues which might arise while expanding their business in international market. Each and every point mentioned above has its own importance and negating them can cause serious failures to MNCs. There have been numerous examples of MNCs which overlooked these dimensions and it resulted in huge losses to them. Pepsi’s failure in Taiwan is one such instance. They ignored the pitfall lying under different meaning of different languages. Pepsi’s slogan reads as, “Come alive with the Pepsi’s generation”. When translated in Chinese, it gives different meaning and sounded like, “Pepsi will bring your ancestors back from death” to Taiwanese. Companies make such mistakes when they eagerly want to brand themselves with similar identity in both domestic and foreign markets. Chinese pay sincere honor and respect to their ancestors and this act of Pepsi offended them. Thus, Pepsi lost huge volume of customers. 5. Describe at least 2 economical and 2 political issues that may arise during global expansion and proposed methods of addressing them.  Economic Issues Economic indicators Gross National Product (GNP), Gross Domestic Product (GDP), and per capita income firmly gauge to consumer purchasing power. While expanding, MNCs need to consider if there are potential customers in their target market who can actually buy their product. This information can easily be acquired from the economical data of a country. Economic Risk A country’s ability to pay off its financial obligations is defined as Economic Risk. Every MNC operating overseas face some level of economic risk. Managers continually reassess the economic risk of the company operating in such country. There are four common ways of assessing company’s credit worthiness; Quantitative Method, Qualitative Method, Hybrid of these both and Checklist Approach. Political Issues The political environment determines how multinational companies will manage to conduct business operations in the foreign country’s territory. Political forces affecting the business are: Nature of business-government relationship Attitudes of Politicians' and bureaucrats' toward foreign investment may also vary. They may be willing to open up a business in Ireland, hostile to commence a business in areas like Russia, or wish to open but face complexity in country like Romania. Tariffs and Quotas All businesses need to abide the laws, bureaucracy and rules and regulations, of the foreign countries. Tariffs are governmental taxes imposed on the imported and exported goods whereas Quotas are the maximum quantity of goods that can be imported or exported. MNCs need to research on this area as well in order to find where they can export or import the maximum quantity of goods on reasonable rate of taxes. 6. Explain the importance of and the implications of each of these items in PPQ Parts’ expansion plans to Germany and Japan.  Economic and Political Issues-Germany Expanding PPQ Part’s in a country like Germany would not be a good idea as Germany nowadays, is already encountered to debt crisis and its economy is getting destabilized. Germany is already suffering from global slowdown. Its GDP in the second quarter of this year has decreased by 0.1% from the previous one. After the market turmoil and debt wrangling of Italy, for both political and economical reasons, world can’t count on Germany. And therefore investors are reluctant to invest or expand in Germany. Political pressure has also increased due to the downfall of economies of other euro partner countries. Economic and Political Issues-Japan On the other hand, Japan’s currency i.e. Yen is appreciating day by day which doesn’t show a good sign to expand business in Japan. When remittances will be paid in dollars and it’d be converted into Yen, the amount will get lesser and therefore it will hamper the profitability of businesses being operated in Japan. Due to the global recession, Japan’s economy has also gone sluggish. References Ernst & Young. The Institute of Chartered Accountants. (2010). Business Briefing Series. 20 issues for businesses expanding internationally. Retrieved from http://www.slideshare.net/CharteredAccountants/thoughtleadershippaper-businessesexpandinginternationally International Management. (n.d.). Retrieved from http://www.referenceforbusiness.com/management/Gr-Int/International-Management.html Seymen, Oya Aytemiz . (2006). The cultural diversity phenomenon in organisations and different approaches for effective cultural diversity management: a literary review. Cross Cultural Management: An International Journal, 13(4),296-315. Read More