International Business Environment - Assignment Example

? International Business Table of Contents Table of Contents 2 Executive Summary 3 Introduction 4 Samsung: A Brief Overview 5 International Business Environment and Domestic Business Environment: A comparison 6 Challenges of Samsung in the Global Market Place 7 Samsung’s Approach to Cope up with Competitors 9 Implication of these Differences 12 Optimum Methods of Organization Management and Effective Communication System 13 Conclusion 15 15 Reference List 16 Executive Summary International business is often dubbed as the business activity that takes place across the national borders. International business is simply defined as carrying out the business operation across the globe and not limiting the business transaction within the domestic markets. The business transaction that takes place within this context is transfer of goods, services, managerial knowledge, technology as well as technology from one nation to the other. However, the big question is what is the reason that made companies to take their venture on the global scale? The answer is not just the intention of the companies to expand the business volume, but companies are actually experiencing extreme difficulties to sustain in the market place with only domestic operation. Thus, international business not only worked as a factor that helped in business expansion but acted as a saviour of business as well. Moreover, the opening of the world economy and globalization has fostered the companies to embrace international expansion. The study intended to investigate about the features of international business environment and the way it differs from the domestic business environment. In addition, it also tried to assess how the chosen company Samsung deals with competition in the overseas market. The key findings of the study are that Samsung generally uses competitive pricing, mass targeting and product differentiation strategy to deal with the competition of overseas market. Introduction The notion of international business can be traced back to the early 1960s. During this epoch, several multinational enterprises emerged as a centre of focus and interest for the economists as well as general public. Majority of the literature from this era has been able to provide only a time bound perspective about this phenomenon (Campbell, 2009; Kapil, 2011). Paradoxically, economist of this phase treated multinationals as the by-products of the post world war II. It has resulted into global financial integration, improved the communication system and along with that developed the transportation technologies. From the point of view of common people, international business was seen as a way of making business expansion (Dooley, Guy, Goymer, Richards and Richards, 2006). Since that phase, the impact of international business on the global economy was phenomenal. Companies that started to operate on a global scale were truly signified as ‘multinationals’ (Nelson, 1999; Onkvisit and Shaw, 2004). With the expansion of European and East Asian firms in the international markets, a new cross-national strategic partnership came into existence. The historiography of global enterprises was tremendously enriched by some of the eminent scholars such as Mira Wilkins, D. K. Fieldhouse, Peter Hertner, Shin'ichiYonekawa, among others, who not only threw light on the origins of multinational business on the twentieth century, but have also linked their scholarly works with the wider reinterpretations of the business evolution dynamics. One of the interesting facts of international business is that since the 1960s, the international business environment is being controlled by a single country thereby reflecting a single - nation dominance (Clifton, 2012). For example, the phase of 1880 to 1914 was dominated by the United Kingdom, whereas 1950s and 1960s were dominated by the United States. However, the scenario drastically changed after the 1960s as the world experienced continual growth of the multinational operation and reflected a steady shift in the external factors (Cherunilam, 2010; Adler, 2010). This is the reason why international business is also adjudged as a venture that encompasses imports and exports (Wilson, 2010). But international business every time does not stand for importing and exporting of goods and services. There are several other ways through which a company can actually carry out cross border transaction. According to eminent scholars such as Rowald (2012) some of the most common ways pursued by companies apart from importing and exporting are licensing (providing license to a company in the host country and authorizing them to manufacture and market goods and offer services), joint venture (entering into the host country by tying up with a company of the host country), foreign direct investment (directly investing in the host country) and wholly owned subsidiary (opening a subsidiary in the host country and allowing production and distribution but keeping full control over the operation) (Pride and Ferrell, 2004). This study intends to investigate about the features of international business environment and the way it differs from the domestic business environment. On identifying these differences, the study will underpin the impact of these differences on the firms. In order to do so, the study will at first select a company which has international operation and will investigate the issues in the context of the company. Once the issues are identified, the study will recommend optimum methods for organized management and effective communication system that will be effective for international business as well as for the chosen organization. The next half of the study will provide a brief synopsis of the chosen organization. This will help in better understanding of the project and will help in relating to the findings. The company chosen is Samsung. Samsung: A Brief Overview Samsung Group is a South Korean based multinational conglomerate. It is currently headquartered in Samsung Town, Seoul, South Korea. The company comprises of a number of affiliated businesses and subsidiaries, majority of them functioning under the brand name of Samsung. The company came into existence in the year 1938 and was founded by Lee Kun-hee. Some of the best sellers of the company include chemicals, precision instruments, Apparel, electronic components, medical equipment, consumer electronics, ships, telecommunications equipment, and semiconductors. Apart from the products, the company is also active in the field of services (Samsung, 2013). The services offered by the company are construction, advertising, entertainment, hospitality, financial services, medical services, information and communications technology services, retail. The total revenue of the company for the financial year 2012 was US$ 268.8 billion and the net income for the same financial year was US$ 26.2 billion. Samsung has presence in almost every part of the world and its employee strength is 425,000. As of the latest 2012 rankings, Samsung has been positioned as the 4th largest company in the world in terms of revenue earned (Yahoo Finance, 2013). It has been articulated in a number of reports and articles that Samsung played imperative roles in the economic development of South Korea. Samsung contributes to 17% of the overall GDP of South Korea (Yahoo Finance, 2013). In addition to economic development, Samsung played imperative roles in influencing the political landscape, culture and media activities within the country. In the context of business expansion, the company marked its first presence in the year 1990, when it entered countries such as Malaysia, Taiwan, UAE and Taipei. Soon the company became one of the largest producers of memory chips and other hardware devices. One of the most encouraging facts about the company is that it did not focus on a single product, rather put in equal efforts for every business venture. This strategy paid off to a great extent as the results clearly reflect the colossal growth of the company. International Business Environment and Domestic Business Environment: A comparison There are several differences between the domestic business environment and international business environment. The differences however emerge in the form of both opportunities as well as challenges for the company. Within the domestic context, a business is generally affected by a combination of legal, economic, cultural as well as political factors explicit to the nation or domestic environment. This is principally because of the fact that these factors are beyond the control of the businesses, but can obviously respond efficiently in order to minimize the negative impact. Despite the complications, domestic business is simpler than international business. A business operating in several parts of the world needs to understand the culture, wants and tastes of the countries individually in order to get success. This is because the nature of consumer dynamism will obviously differ among the countries. According to eminent scholars a company operating across national borders need to deal with fives set of factors namely domestic external, domestic internal, foreign external, foreign internal and the international business environment that comprises of agreement, treaties and conventions. Hence, the global market dynamics are governed by the interaction of all these factors. Another thing which can be concluded from this aspect is that the major difference between international and domestic business lie in the differences of the operating environments. Some of the other key differences between international and domestic business is that in international business a company has to abide by the customs and cultural factors. On the contrary, no such differences are experienced within the domestic business environment. Apart from another major difference is observed in the form of selling procedure. For example, a company with domestic operation does not alter their selling and distribution technique across the whole country but the techniques are changed when operating cross border. For example, Samsung focuses more on exclusive store-selling in countries such as the UK and US, but for countries such as India and China, the company greatly depends upon intensive distribution and retailing. Apart from the marketing aspect, changes also become evident in the field of management practices and working environment. The operational differences also become visible due to the differences in interest rates, taxation, currency, inflation as well as the technical infrastructure of the company. Despite several compliance issues and challenges of the international marketplace, a company with global operation seeks to create new values and that in turn assists in creating a global brand image. Lastly, a major difference experienced by companies about the domestic and international business environment is the competitive landscape. Usually, companies experience a radical shift in competition levels when operating across the border. Challenges of Samsung in the Global Market Place In the context of Samsung, it experienced various differences as well as challenges while functioning in the overseas market. The major challenges appeared in the form of political and legal issues. The company has faced different types of political and legal issues in its global business venture. Due to the problems faced by consumers and their subsequent complaints to the regulatory authorities Samsung had to face legal issues. For example, the US government has banned the selling of various Samsung products in the country just after the Apple won the case against Samsung’s infringements of the patents. In addition to political and legal issues, Samsung also had to deal with internal problems in their overseas locations. These internal challenges in the global business environment were mainly associated with labour issues. For example, in countries such as China the company was alleged of employing child labour for their operation. As a result of that the reputation and brand image of the company was negatively affected. Another instance that adversely affected the brand image and reputation of the company was the allegation of Apple against Samsung about the infringements of the patents. In order to deal with these issues the company has appointed media spokesperson and public relations officers. Interestingly, the company also succeeded in surmounting these issues. Moreover, the company also took several other communication strategies that minimized the negative impact and their harm on its brand reputation. The management of the global workforce is also a major issue. Despite appointing managers to manage people of the overseas locations, the company experienced major difficulties in managing the global workforces. As a result of that the company witnessed reduced output and productivity and that indirectly hampered the overall revenue of the company. Another major threat to the company is the existence of intense competition within the global marketplace. In the global context, Samsung has to deal with almost all the established mobile companies of the world. Companies such as Apple, Nokia, Motorola and LG are considered to be major threats. Several studies have also shown that the local players are also becoming the cause of concern for the company. For example, in India companies such as Micromax and low end Android phones manufactured China are posing serious threats to the company. In addition to mobile segment, established players from other industries in which Samsung competes also gives stiff competition to the company. As a result of this high intensity of competition, the company is constantly losing its overall global market share. Although the company still holds the elite position in terms of global market share, but as per the trends the scenario might shift radically. Currently, the company holds a market share of 33%, while other companies such as Apple, LG, and Nokia are way behind Samsung (Oremus, 2013). Figure 1 – Smartphone Global Market Share (Source: Oremus, 2013) From the above discussion, it can be analyzed that the company has dealt with several challenges in the international business environment. Among the identified market challenges, the company has either dealt with it or has been dealing efficiently. However, the biggest cause of concern for them is coping up with the global competition. Hence, from the above discussion it is evident that the major issue faced by the company while operating in the overseas locations is high intensity of competition. Due to enormous competition, the company has to make several changes in their business strategies and moreover for every market the products need to be tailored before actually launching it (Kulkarni, 2013; Linder, 2006). This not only increases the cost of the company but at times the company needs to compromise the quality of the products in order to match with the prices of competitors (Binder and Witt, 2011; Holmquist, 2012). Samsung’s Approach to Cope up with Competitors Competition has always remained a cause of concern for every business houses across the world (Treloar, 1999). Increasing competition is not just the worry for a particular company or business house, but is being faced by every company around the world. Several eminent scholars suggest that the intensity of competition within an industry plays a crucial role in shaping the business operation as well as strategy formulation for a company (Sherr and Ramstad, 2013). There are instances which showcase small or new companies have dissolved or have stopped their operation due to the inability to compete in the market. However, it is also a fact that increasing level of competition alone cannot dissolve a company and its operation of the market because companies always look for new ways to embrace development and sustain their presence in the market over a long period of time. In the context of Samsung, competition has been the biggest cause of concern when operating in the international arena. The intensity of competition has not only affected the revenue of the company but at times compelled the company to undertake activities that have led them to loss of market reputation. However, since its international operation the company from an overall viewpoint has managed to effectively deal with the existing competition (Tapscape, 2013). The company adopts various strategies in order to face the challenge prevailing in international market competition. One of the most obvious strategies pursued by the company is “scattershot product strategy” (Bonnington, 2013). In this context, Samsung manufactures and markets a number of tablets and smart phones and tries to offer a wide range of options to the customers. Moreover, Samsung offer products at every price level. As a result of this strategy, the company gets the opportunity to target customers from every segment of the society. According to reports, the company currently offers more than 30 variants of tablets and smart phones and screen sizes ranging from 3 inches to 10 inches. In addition, the various are also offered in the form of operating system i.e. the company have a phone that comes with the Android operating system and there are phones that come with Windows operating system. Along with that there are several other variants of the operating system is offered by the company. Hence, the above discussion makes it evident that the company pursues product differentiation strategy of the porter’s generic strategies. With a range of products flooding into the market, there are no signs of Samsung is slowing down in the market (Grazella, 2013). Moreover, it seems that the company is undertaking a “spray and pray” approach for its product strategy in the form of software variants, different sizes, different design etc. According to the media release statement by Samsung, it has been uttered that the company “believes in providing choices for customers and their different lifestyles” (Dailymail, 2013). In order to deal and triumph over the competitors, Samsung also undertakes strategies pertaining to its marketing campaign. For example, in the overseas market, the company does not have any dedicated retail outlets (although started working on it), but the company offers various SKUs according to the requirement of the outlet. The company puts in strong efforts in enhancing the visibility of their products. Apart from using digital advertisements, the company also takes the assistance of traditional techniques. For instance, in China Samsung is placed in the 20th position in terms of brand value. It has been also found that the brand value of the company rose at a robust rate over the last 5 years. The company also succeeded to become one of the most 100 valuable consumer brands of China and in this regards the marketing campaigns adopted by the company played crucial roles (Lin, 2007). With strong financial situation, control over the manufacturing process (own components such as semiconductors, image sensor and memory) and integration of the supply chain has allowed the company to come up with a bunch of products. This approach of the company has also succeeded to a great extent and the same is reflected in the company’s market share data (Bonnington, 2013). Figure 2 –Performance of Samsung and its Market Share (Source: Woollaston, 2003) The above figure clearly demonstrates how the strategies of the company to deal with competition have paid off and how well the company is functioning despite intense competition. In the meantime, it has been also observed that the global supply chain management of the company also acts as a key competitive advantage for the firm. This approach also helped the company in dealing competently with the competition. The cost of production is comparatively less for Samsung as most of the raw materials required for production come from their own plants. This means that half of the cost incurred in manufacturing the product comes back to the company itself. The vertical integration strategy of Samsung also allows them to remain cost effective and that in turn allows them to offer low ranged products to the customers. If a price comparison between Samsung and its major competitor such as Apple is carried out, it will be observed that the price ranges greatly differs. Implication of these Differences As mentioned above, about the differences in international and domestic business environment, it results in or lead to different types of implications. In general, there are several implications of a company because of the differences in domestic and international business environment. One of the biggest implications emerges in the form of business management. It becomes extremely difficult for a company to manage its international business operation. This is because controlling the workforce of another country sometimes goes beyond the control. However in places where companies have directly invested or operated through wholly owned subsidiary achieves significant control, but other modes of entry restrain a company from gaining the required level of control. One of the negative implications for this is the licensed vendors or partners in the host country may damage the reputation of the company if not operated ethically or not complied with the ethical guidelines. Apart from that due to differences in the consumer preferences, taste and culture of the host nation, a company is forced to tailor its offerings to better suit the customer needs. This increases the manufacturing cost of the company. Another major implication on the company due to these differences is the development of new strategies. A strategy that brings success for a company in a particular country will not necessarily bring success for the company in other countries. For example, a company involved in the restaurant business and offers beef as a menu in UAE will surely get success, but on the contrary if the same menu is being offered in a Hindu or Buddhist country the strategy will fail. In the similar ways, strategies pertaining to marketing, operations, pricing, distribution all needs to be modified so as to comply with the requirements of the host country. This strategic change is one of the major implications for international business houses. In the context of Samsung, the company has also tailored its offerings for the other countries. For instance, the company offer various low ranged phones and high ranged phones so as to meet and satisfy the diverse requirement of the customers. In addition, the mobile phones of the company come with local language and local music in order to get associated with the culture of the whole country. The marketing campaigns of Samsung also differ to a certain extent. In addition, based on the potential of the market the company decides on its investment in philanthropic activities. Thus, it is evident that the CSR policies of the company are also modified depending on the country of operation. Major differences in the operation also become evident. Samsung has to change its operation style on the basis of the location. As a result of that the company has to implement new systems and train employees accordingly. Hence, from this discussion one thing becomes evident that operating in an overseas location requires an enormous amount of market research and the company has to change itself accordingly to the culture, taste and preferences of the host country. In order to get rid of the issues that companies generally experiences while operating in the global marketplace can be surmounted by implementing methods and techniques pertaining to better organizational management and effective communication system. Optimum Methods of Organization Management and Effective Communication System It is important for the companies implement methods that foster effective management of the organization. For a company with overseas operation it is imperative that they manage their operations effectively in order to ensure the company has control over the operation of the host country. Alongside management of the organization, a company should also look after the establishment of effective communication system. Effective communication is imperative for the managers as well as other employees of the organization so as to carry out the basic tasks of management (organizing, controlling, planning and leading). Moreover, better communication helps managers to carry out their jobs effectively and along with that it also helps a company to gain better control over the project. According to eminent scholars, controlling is impossible without better communication. Hence, the same thing applies for Samsung as well. Some of the techniques recommended to the company for the improving the organization management and effective communication system are presented below: - Employment of Multiple Channels for Organizational Communication: - One of the most efficient and effective way of improving the organizational communication, Samsung is recommended to use multiple channels for conveying the messages to the subordinates. Some of the most common channels that can be used are telephone, video conferencing, same time chatting platform, e-mail and fax among others. Apart from using multiple channels the company is also recommended to implement a technology or system that keeps on repeating the important messages. This will help in grabbing the attention of the target audiences and can be useful for improving the communication infrastructure. Increasing the Hierarchy Levels: - The Company is strongly recommended to increase the hierarchy levels. This is because increasing the level of hierarchies will help in streamlining the communication process. The flow of information across the company will improve. Implementation of Specialized tools and technology for better management: - The Company is strongly recommended to implement specialized tools and technology to manage the people as well as process. For example, implementation of tools such as balanced scorecard will help the company to manage its people as well as the process. This will help the company to gain better control over the operation. Centralized Management: - It has been observed that a number of companies operating in different parts of the world have been able to perform better and gain better control over the operation if considered centralized management. Hence, the company is also recommended to consider centralized management of its operation. Although, the operation system will differ from one part to the other, but still it is expected that centralized control will provide better control to the company and can even improve the productivity of the company. Conclusion International business is a phenomenon that has become more necessary than fascination. Despite, several challenges of the global marketplace, companies around the world are attempting to make their presence in the international arena. This has offered them with a number of opportunities to embrace development as well as make their presence in the market place for a long period of time. This study tried to investigate about the features of international business environment and the way it differs from the domestic business environment. After underpinning the differences, the study analyzed the impact of the differences on a firm. As mentioned earlier, the company selected for identifying that implication is Samsung. Lastly, after the major issues are identified; the study will recommend certain optimum methods for organized management and effective communication system that will be effective for international business for the chosen organization. The study revealed that there are several differences and the most obvious one is the difference in external business environments. In addition to the differences in business environment, a company also has to deal with cultural differences. In addition, the differences also become apparent in the operational context as well. There are differences in currency, taxation and legal factors. In the context of Samsung, the company is witnessing major challenges in the global marketplace. Moreover, the challenges are not limited to one single domain, but the company has to deal with issues from different business domains. The challenges range from the management of the global workforce, public relations issues, political issues and other environmental issues among others. However, the company has successfully dealt with these issues or have been managing it efficiently. The major one of them all is obviously the prevailing competition in the global marketplace. In order to deal with Samsung had undertaken several strategies such as product diversification, competitive pricing and end to end marketing to minimize the intensity of competition. These strategies of the company to deal with the existing competition have paid off to a large extent for Samsung as reports suggest that the company is currently experiencing a steady growth. Hence, it can be concluded that the approach of Samsung to diversify its product range, carry out intensive marketing, competitive pricing and targeting mass customers segment is justified and is the most appropriate option to deal with the current scenario. 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