The Key Considerations When Developing International Business - Literature review Example

To achieve greater things in business, it is important to go beyond borders into the international market rather than focusing on domestic market. While it is evident that the United States is one of the largest economies in the world, the world market is even larger. Economies of scale should be exploited in order to achieve lower costs per unit and without a doubt a larger and wider consumer base implies higher profits to the organization. However, not every company succeeds in the international market. It is therefore important to find out the most important guideposts that a businessman should know prior to expanding its business to the international arena. Hence, this leads us to the topic of “key considerations in developing an international business.” This work attempts to identify the extent in which prior literatures, especially the latest ones, have suggested on the importance or key considerations in putting up an international business. Using the internet and the online library resources, it has been identified that there are at least seven materials which appeared to be most relevant to the subject matter, the materials have also been reviewed and the most salient points have also been identified. This work limited itself to materials written within the last 5 years with the exception of one in which it was written in the year 1999 but appeared to be highly relevant to the subject matter. One important material on the subject matter is written by Beyer and Fening (2012). Beyer and Fening (2012) highlighted the importance of business strategy for success in the global market. However, they actually emphasized on the role that institutions play in shaping global business strategy. The authors pointed out for instance that one important consideration is whether the targeted country for expansion of business implements and imposes restrictions on trade and commerce vis-à-vis foreign nationals. Another important consideration is whether the potential market is saturated with government policies and regulations that restrict the businesses. Governments play an important role in shaping how games or competition would be played or how competition would be regulated or not regulated. Thus, according to Beyer & Fening (2012), business regulations, trade barriers and policies on property rights are important considerations that have to be thoroughly understood before expanding a business internationally. Guang and Trotter (2012) emphasized on the importance of cross-cultural business communication as an important consideration in international business. According to Guang and Trotter (2012), grasping cultural difference is crucial in achieving competitive advantage. In effect, the authors argued that in order to succeed in international business, it is important to understand cultural differences. For instance, the authors pointed out that sometimes statements have multiple meaning across different cultures and the situation can lead to the misinterpretation of the (Guang & Trotter 2012, citing McCracken 1987). Guang and Trotter (2012) suggested five guideposts for minimizing cross-cultural insensitivities in order to achieve business success. First, be keen on identifying taboos and to do’s because there are prescribed norms in every culture. Second, understands and hold in respect the culture in which you operate. Third, be “cultural neutral” in the sense that one ought not to consider one culture as superior over another or that one culture is inferior relative to another. Fourth, never take for granted that a word or a concept has the same meaning across cultures. Finally or fifth, tap as many cultural informants as possible in decision-making processes. Al-Qur’an (2010) studied the case of professional Arabian firms and identified several factors which he believed to be the determinants of success of the most excellent professional service firms. One factor for success involves location selection factors. According to Al-Qur’an (2010, p. 74), the location factors include quantitative and qualitative factors. The quantitative factors concerned with cost factors (Al –Qur’an 2010). In contrast, the qualitative factors can involve institutional and social factors (Al-Qur’an 2010). For Al-Qur’an (2010), competitive advantage pertains to the firm’s resource, skills, and knowledge advantage. Another factor for international business success involves management attitudes. According to Al-Qur’an (2010), management attitudes have played an important role in the success of his case in the international market. On the other hand, Sturgeon and Gereffi (2009) concentrated not on the factors determining business success in international business. However, it follows that how one measures business success implies the factors he or she identifies as the key determining business success. The authors actually emphasized on contribution to value chains as the fundamental measure on which business success can be measured. Thus, it implies that to be successful in international business, firms should be focusing on their contribution to product values in society. In other words, the work Sturgeon and Gereffi (2009) emphasized on a business operation’s contribution to value as the key factor responsible for success in international business. Hopkins (2008) identified the strategic considerations in international acquisition. In other words, Hopkins (2008) focused on the key considerations for business success in international business via the route of international acquisitions. For Hopkins (2008), the most important considerations for success in international business via the route of international acquisition are strategy and post-merger integration. In turn, consideration for strategy implies defining the goals of business acquisition (Hopkins 2008). According to Hopkins (2008), the consideration for strategy can involve an intention to create complementation, exploit a firm’s competencies, increasing market advantage, providing a firm with strength, economy of scale market and resources (Hopkins 2008). Hopkins (2008) hastened to add, however, that synergy must also consider the cost or the price of the synergy because the cost of involved in synergy may have been bought at a price that is so high that it offsets the cost of synergy. On the matter of exploiting core competencies, Hopkins (2008) pointed out that exploiting core competencies must lead to competitive advantage. Increasing market power must mean increasing a firm’s market share (Hopkins 2008). On complementary strengths, Hopkins (2008) pointed out that national differences can be a source of complementary strengths. For example, he pointed out collectivism in Japan may complimentary to American individualism. Hopkins (2008) emphasized that a failure to fully integrate firms that have been merged is an important source of failure among firms. Hopkins (2008) identified several sources of failure. According to Hopkins (2008), one study has found that poor cultural fit has been a cause of failure of firms that had been merged. Another important source of failure among merged firms is a poor strategic fit (Hopkins 2008). In addition, according to Hopkins, the latest research indicate that mergers must have good fit along growth, strategy, R& D, and resources and integration (Hopkins 2008). At the same time, Hopkins (2008) also acknowledged that research on these areas have to be deepened. Investments can target developing economies. Tung & Aycan (2008) identified three key success factors in small and medium industries in emerging economies. According to Tung and Aycan (2008, p. 382), the most important factor for success in international business is trust among market players. Tung and Aycan (2008) pointed out that the second key factor for success, paternalism, applies to select underdeveloped countries. Finally, the third factor for success is cross-convergence or the firm incorporates cultural influences (Tung & Aycan 2008). Years ago, or in 1999, Pita et al. identified the conventional notion of the most important or key consideration for establishing an international business. These are sound strategy, research, excellent products, pricing strategy, promotion, and distribution system (Pita et al. 1999). However, even as Pitta et al. (1999) pointed out that the six considerations are the fundamental considerations in establishing an international business, the authors stressed on the importance of the role of ethical behavior that are valued by all cultures. Yet, at the same time, Pitta et al. (1999) expressed recognition that there are several issues involved in identifying an ethical behavior that is valued by all culture. In summary, it is easy to see that there is no unity in the journal literature on the key factors or considerations for establishing or developing international business. Perhaps, the explanation to the phenomena is that the various authors we have discussed have talked on their subject from a particular vantage point or location when they have been trying to address the topic. This implies that further studies are needed. A possible articulation of the summary to this work is that some of the more important consideration for international business consists of the six fundamental considerations articulated by Pitta et al., a code of ethics that is acceptable to the cultural groups within the company, and understanding the unique culture people have across nations and localities. It seems logical that all the other factors that were identified by this literature review can be subsumed under the fundamental considerations as well as the ethical and cultural factors that were added by Pitta et al. (1999). Legal matters can also be cultural. It helps to have few items in our list of the most important considerations for developing an international business. If our list contains too many, the list may not be very useful as guide. References Al Qur’an, M., 2010. Determinant of successful international expansion of professional service firms: A case study of Arabian firms. World Journal, 2 (1), 65-80. Beyer, H. & Fening, F., 2012. The impact of formal institutions on global strategy in developed vs. emerging economies. International Journal of Business and Social Science, 3 (15), 30-36. Guang, T. & Trotter, D., 2012. Key issues in cross-cultural business communication: Anthropological approaches to international business. African Journal of Business Management, 6 (22), 6456-6464. Hopkins, H., 2008. International acquisitions: Strategic considerations. International Research Journal of Finance and Economics, 15, 261-270. Pitta, D., Fung, H. & Isberg, S., 1999. Ethical issues across cultures: managing the differing perspectives of China and the USA. Journal of Consumer Marketing, 16 (3), 240-256. Sturgeon, T. & Gereffi, G., 2009. Measuring success in the global economy: international trade, industrial grading, and business function outsourcing in global value chain. Transnational Corporation, 18 (2), 1-36. Tung, R. & Aycan, Z., 2008. Key success factors and indigenous management practices in SMEs in emerging economies. Journal of World Business, 43, 381-384. Read More