The Concept of International Business Management - Assignment Example

International Business Management Executive summary The report focused on the concept of international business management and discussed the various aspects of undertaking business venture abroad. It was found that in order to conduct businesses in the international markets, it is essential to formulate a comprehensive strategy management process and consider issues such as dealing with various governments, different currencies, various political and legal systems, diverse cultures, language barriers and difference in accounting systems. The report further discusses the various modes or channels through which an organization may enter into the international market. Some of these channels include exporting, international licensing, international franchising, specialized modes of entry such as contract manufacturing and turnkey project and foreign direct investment. It was found that every process has its own advantages and disadvantages and the organization should adopt the mode that is a best fit for its business model. The paper also focused on the concept of strategic alliance and how it helps an organization in maximizing its resources and profits by sharing information, expertise, knowledge and expenses with its alliance partner. It further elucidated on the major factors that firms engaged in international business need to take into consideration in communicating with overseas clients and partners which included understanding the cultural differences. The manager should also be able to addressing the issues of motivating staff and handling workplace diversity. The concept of strategic control is also discussed in the paper and recommendations were provided on how to address the issues arising from international strategic control. Table of Contents 1 International Business Management 1 Executive summary 2 Table of Contents 3 Introduction 5 1.International business strategies 5 1.1. Define international business strategy 5 1.2. Issues in developing international strategies 6 1.3. Specific examples 7 2.Modes of entry for international businesses 8 2.1. Modes of entry of international businesses 8 2.1.1. Exporting 8 2.1.2. International franchising 9 2.1.3. Licensing 9 2.1.4. Specialized modes of entry 9 2.1.5. Foreign direct investments 10 2.2. Circumstances to use entry modes 10 2.2.1. Exporting 10 2.2.2. International franchising 10 2.2.3. Licensing 10 2.2.4. Specialized modes of entry 11 2.2.5. Foreign direct investments 11 2.3. Advantages and disadvantages 11 2.3.1. Exporting 11 2.3.2. Licensing 11 2.3.3. Specialized modes of entry 12 2.3.4. Foreign direct investments 12 3. Strategic Alliances 13 3.1. Define strategic alliances 13 3.2. Reasons to form strategic alliances 13 3.3. Advantages of strategic alliances 14 3.4. Risks involve in strategic alliances 14 3.5. Minimizing risks in strategic alliances 15 4. International Business Communication 15 4.1. Communicating with overseas clients and partners 15 4.2. Motivating staff and handling workplace diversity 16 5. International Strategic control issues 18 Conclusion 19 References 20 Introduction The report would discuss the concept of international business management and the various aspects of undertaking business venture abroad. It would deal with the process of creating a comprehensive strategy management process and the components that are essential to be analyzed before formulating such a process. The report would further discuss the various modes or channels through which an organization may enter into the international market. It would discuss the advantages and disadvantages of these modes of entry. Further, the paper would elucidate on the concept of strategic alliance and its importance in conducting business in the international markets. Communication with the partners and clients is an important component for the success of an international venture. Therefore, the paper would focus on the various elements of effectively communicating with the partners and clients. The concept of strategic control would also be discussed in the paper and recommendations would be provided to address the issues arising from international strategic control. 1. International business strategies 1.1. Define international business strategy The ongoing and comprehensive process of management planning that focuses on implementing and formulating strategies which help organizations to efficiently compete in the international market is known as international strategic management (Fisher, Hughes, Griffin, Pustay 2006). The process involves formulation international strategies in order to achieve a strategic cohesion between the resources and competence of an organization with the international business environment the company envisions to operate in. Such a process is essential for any organization to formulate as it helps it to compete effectively with other leading organizations operating in the global market (Hannagan 2002). 1.2. Issues in developing international strategies While formulating international strategies, an organization needs to consider various parameters which include dealing with various governments, different currencies, various political and legal systems, diverse cultures, language barriers and difference in accounting systems. Therefore, development of an international strategy is much more complex than formulating domestic strategy. Organizations that are planning to enter or expand in the international market are required to develop a strategic management process so that it is able to align its goals and objectives with the complex global business environment. In order to develop a comprehensive strategic management process, an organization needs to formulate the company’s mission statement, develop strategic objectives, conduct an internal and external analysis, and create a broad implementation strategy. Each step towards developing international strategies is aimed to achieve a singular goal i.e. gaining competitive advantage in the global marketplace (Johnson, Gerry & Scholes, Kevan 2002). Together with considering the external factors, the organization also needs to conduct a through internal analysis as well. It might have to create customized products and services as per the market requirement. Further, in case the company is intending to manufacture the product in another country, it needs to understand polices and operations of that particular country as well, along with analyzing the market requirement for the product, the target audience, identifying the sourcing requirements as well as conducting a comprehensive competitive analysis. Internal analysis would also include identifying the competence of the organization and highlighting them to gain edge over the competitors, understanding the process of deploying and allocating resources in an optimal manner and creating business synergies (Fisher, Hughes, Griffin, Pustay 2006). 1.3. Specific examples In order to enter or expand business in an international location, an organization needs to focus on various issues and components and develop a business strategy process that would help in making the organization sustainable in the long run. Most companies look at expanding into international locations to increase its revenues and capture the opportunities. Such a process usually involves three major elements of strategic choice, analysis and implementation. Therefore, in order to create a comprehensive strategic management process, an organization needs to evaluate the strategic choices it has, the position of the company in the market and the how the company is planning to implement the choices. In order to understand the process, we would focus on the strategic management process implemented by Tata Motors while it entered into the international market. India-based leading automobile company, Tata Motors essentially focused on middle or low income group consumers. However, with the buying of Jaguar Land Rover, the consumer segment for the company changed to premium and higher income group. Further, the company decided to capture the emerging markets in Russia, South Africa and Mexico along with the developed markets in the UK, Spain and Italy. In order to achieve a wider consumer base in these diverse countries, the company leveraged its global efficiencies by optimizing the manufacturing units it had all over the world. The organization especially concentrated on the manufacturing units in the low-cost countries and increased its production in these nations. This helped the company in achieving economies of scale at a lesser amount of time (Bennett 2008). 2. Modes of entry for international businesses An organization may enter into the international market through various entry channels. Some of these channels include exporting, international licensing, international franchising, specialized modes of entry such as contract manufacturing and turnkey project and foreign direct investment. 2.1. Modes of entry of international businesses 2.1.1. Exporting The process of exporting involves directly selling or marketing goods that are produced in the domestic market to another country. This process is a well-established and traditional means to capture the global market. As exporting does not need the organization to produce the goods at the target nation, the company would not be required to invest into creating production facilities abroad. The process usually requires well-coordinated efforts between the importer, exporter, transporters and the government (Lymbersky 2008). 2.1.2. International franchising The process of franchising involves the company providing the franchisee with expertise and knowledge related to operating the business, branding and operating in an international market. Some of the major examples of companies involved in such a business model are McDonald’s and Dominos (Lymbersky 2008). 2.1.3. Licensing The organization receives the permit to use the licensor’s property in the process of licensing. The property in this case is the intangible components such as patents, trademarks and techniques to produce goods. The licensee is required to pay a fee for using the property and for any assistance related to technical aspects (Lymbersky 2008). 2.1.4. Specialized modes of entry The organization may also enter through turnkey contracts and contract manufacturing. Turkey contracts means the organization would help its partner in the target company to develop its efficiency by providing training to the employees and technology support. However, once the production unit becomes self-sufficient, the organization would hand over the unit to the partner (Lymbersky 2008). In case of contract manufacturing, the organization formulates an agreement with the partner company in the target country. In such a contract, one of the partners would develop customized products as per the other partner’s requirements (Lymbersky 2008). 2.1.5. Foreign direct investments Foreign direct investment (FDI) involves the process of possessing direct ownership of the production unit or retail outlet in the target nation. Such a process requires transferring of resources like technology, capital as well as key people. Often companies acquire other firms in the target nation to enter into the market (Lymbersky 2008). 2.2. Circumstances to use entry modes 2.2.1. Exporting Most organizations use the method of exporting when the target country does not have a high volume of sales requirement, the company has distribution channels that are located nearby the production units, the production cost in the target country is high, the target country has liberal import policies and in case the target country has high political risks (Onkvisit & Shaw 2004). 2.2.2. International franchising The franchising model is used when the franchisor is able to capture the domestic market in a successful manner by offering unique services and products. Further, the company would also implement this model if the domestic business process could be transferred to the international market as well (Onkvisit & Shaw 2004). 2.2.3. Licensing The process of licensing is implemented if the target nation has the barriers for importing or investing into the company. In such a situation, licensing would provide the company with legal protection. Further, if the sales potential is low in the target nation and it has huge cultural differences, the organization may opt for licensing process (Onkvisit & Shaw 2004). 2.2.4. Specialized modes of entry The organization may adopt specialized modes of entry such as turnkey projects and contract manufacturing if the target nation has import barriers, diverse culture, potential to gain high sales figures, restrictions by the government on owning units by foreign companies and availability of skilled people and resources to undertake projects (Onkvisit & Shaw 2004). 2.2.5. Foreign direct investments Most companies select FDI route in case the target country has imposed import barriers, does not have a very diverse culture, potential to achieve high sales figures and low political risks (Onkvisit & Shaw 2004). 2.3. Advantages and disadvantages 2.3.1. Exporting Exporting helps in minimizing the risks associated to investing into a venture. Further, it is one of the fastest methods of entering into an international market. It also helps in enhancing the scale of the business as well as optimally utilizing the existing facilities (Onkvisit & Shaw 2004). However, the trade barriers and the extra fees and tariffs associated to exports increases the cost of the product. Further, this cost is augmented through the addition of transportation cost. The organization also does not possess any local information and often it is viewed as an outside company (Onkvisit & Shaw 2004). 2.3.2. Licensing The process of licensing helps in minimizing the risks as well as investments. It is also a faster method of entering into a market. The organization would be able to circumvent various trade barriers by using such a process. The return on investment (ROI) is also very high in this process. However, the company would not have control over its assets and would always face the threat of the licensee to become its competitor. Further, the period of providing license is very limited (Onkvisit & Shaw 2004). 2.3.3. Specialized modes of entry Such a method helps in dealing with the issues of cultural distance as well as ownership restrictions. The resources of both the companies could be combined in an efficient manner to produce a quality product or service. The technological transfer would help the company to progress. The company would not only have to invest less but would also be viewed as an insider. However, such a process is not easy to manage. There might be issues regarding controlling of the company. It has more risk factors associated with the process and the threat of the partner becoming a competitor (Onkvisit & Shaw 2004). 2.3.4. Foreign direct investments The organization may gain more knowledge about the local market through the use of this method. Further, it would be able to apply specialized abilities and skills in a better manner and would be viewed as an insider. This method however is a riskier than other modes. It would require high commitment and resources from the organization. The company may find it tough to manage the local resources (Onkvisit & Shaw 2004). 3. Strategic Alliances 3.1. Define strategic alliances A company enters into a strategic alliance with one or more organizations for cooperating with each other for the mutual benefit of the companies. These companies usually form such alliances for sharing information, expertise, knowledge and expenses for entering into a new market and gain competitive edge. Also, strategic alliances help in making the potential or actual competitor a partner and therefore, work towards fulfilling a common vision. Such a tool of strategic alliance is being commonly used by companies that are focusing on increasing their operations in the international markets (Fisher, Hughes, Griffin, Pustay 2006). 3.2. Reasons to form strategic alliances Entering new markets: With the use of strategic alliance a company would be able to enter into a foreign market easily. The local company would already have the market knowledge, customer information and a strong base of suppliers and distributors. Thus, the company would not have to invest into these aspects. Further, many countries does not allow 100 per cent foreign investment in various sectors and therefore, the company would have to enter into strategic alliances with a local company (Fisher, Hughes, Griffin, Pustay 2006). Reducing manufacturing costs: A strategic alliance also helps in reducing the manufacturing cost of the goods as the company does not have to invest into setting up an industrial unit in the target country (Fisher, Hughes, Griffin, Pustay 2006). Developing and diffusing new technologies rapidly: Through a strategic alliance, the company would be able to leverage the technologies developed by the local firm as well as its own technologies and infuse them together to maximize the returns (Fisher, Hughes, Griffin, Pustay 2006). 3.3. Advantages of strategic alliances Ease of market entry: The organization would be able to enter into the foreign market in an easier manner (Booz Allen Hamilton 2001). Sharing risks: One of the major advantages of strategic alliance is that the firm would be able to share the risks with another company. This would also include sharing expenses (Booz Allen Hamilton 2001). Sharing expertise and knowledge: Such an alliance would also help the organization in gaining expertise and knowledge about product and operation efficiency. Further, the organization would be able to learn from its partners through the sharing of skills, market data and assets (Booz Allen Hamilton 2001). Creating synergy: The organization would be able to gain competitive advantage by leveraging on the brand value of the already established local firm (Booz Allen Hamilton 2001). 3.4. Risks involve in strategic alliances Some of the major risks involved in conducing strategic alliances are incompatibility issues with the partners, lack of information transfer between the partners, conflicts in distributing the profits and earnings, possible loss of autonomy and the impact of the changing business dynamics on the alliance (Booz Allen Hamilton 2001). 3.5. Minimizing risks in strategic alliances It is important to mitigate the risks involved in strategic alliances and partnership for the success of an organization. Thus, it is important for the organization to focus on developing a systematic and structured alliance process. The process of creating an alliance requires well-developed planning, evaluation and implementation of the alliance (Kuglin & Hook 2002). The organization should first focus on creating a comprehensive alliance strategy. Thereafter, it needs to select the right alliance partner and formulate the deal clause that is aligned with the culture of both the organizations. It should also be structured properly and must have an exit clause as well. The alliance should be managed properly and a conflict management process should also be initiated. Further, the organization should evaluate the alliance at regular interval to understand its applicability in the prevailing business environment (Reuer 2004). 4. International Business Communication 4.1. Communicating with overseas clients and partners The main factors that firms engaged in international business need to take into consideration in communicating with overseas clients and partners include the following: The managers should be able to communicate effectively with clients, distributors, suppliers and partners from various cultural diversities. Such a skill is essential as the language used by one culture might be contrived in a negative manner in another culture and might upset the client. Every culture has a different way of interpreting the message and therefore, the manager should have the knowledge and skill sets to address the issue of cultural diversity (Fisher, Hughes, Griffin, Pustay 2006). Focus should also be placed on non-verbal communication. It has been found that the non-verbal communication consist of around 80-90 per cent of the amount of communication being transmitted to the client or partner. Non-verbal communication may include eye contact, body language, facial expression, silence, gestures through hands etc. Again every country has a different manner of interpreting non-verbal communication. For instance, the Australians interpret silence as a symbol of not able to understand the point, while in Japan silence means that the person might be thinking about the point (Fisher, Hughes, Griffin, Pustay 2006). 4.2. Motivating staff and handling workplace diversity There are various factors that international business managers need to take into consideration while motivating staff and handling workplace diversity within a multicultural workplace of an international business. Some of these include the following: Motivation is mostly influenced by the cultural diversity along with the behavior and attitude of the individuals, especially the people in a group and the immediate supervisor. Thus, it is the job of the manager to create such an environment wherein the employees feel motivated to work and feel integrated along with the larger company culture. The manager should also keep in mind the diversity issues and address the employees only after analyzing the local culture of the organization. For instance, the centralized culture of the organization may indicate motivating the employees by organizing a get-together with the employees’ families. However, such a method may not work in a country that has a very traditional approach towards the concept of family and outings (Hartel 2004). Along with motivating the employees, the manager also needs to manage workforce diversity. The manager should be skillful enough to help people realize their maximum potential and perform up to their mark. The manager might also have to look at changing the culture of the organization and aligning it as per the requirements of the local market. In case the manager is able to manage diversity in an effective manner, the organization would be able to address the issues of employee attitudes and reducing the cost of the organization to manage workforce and recruit new employees (Hartel 2004). The manager may also adopt the technique of acculturation which means transferring of cultural knowledge between various groups. This process ensures that the groups are able to adapt to the changing environment and a greater coherence is formed between diverse groups. Such a strategy is especially essential to merge a minority group with a majority one, without making the minority group feel being dominated by the majority one. Commonly, there are four ways of adopting acculturation, which include separation, assimilation, pluralism and deculturation. It is therefore important for an international manager to understand the characteristic of every individual employee as well as the culture he or she belongs to and assess the similarities and differences between the cultures to find a plausible solution for such issues (Fisher, Hughes, Griffin, Pustay 2006). 5. International Strategic control issues The concept of strategic control means the process through which the managers are able to access that the resources are utilized in an effective and efficient manner to fulfill the organizational goals. This process also helps in understanding and formulating marketing planning. The manager is required to analyze the strategic control process at a regular basis to understand whether the process is in coherence with the changing market scenario and the prevailing economic conditions. Such a process is essentially important to undergo an analysis in the time of turbulent business situations such as recession. Thus, it is essential for companies to implement strategic control methods to ensure that the business is able to conduct in a seamless manner in the international market (Lewis 2003). Strategic control is also initiated to monitor and analyze whether the international business is able to formulate the strategy in a proper manner and to find out how well the business is able to implement the strategy. Along with strategic control, the organization also needs to control the financial, operational and organizational aspects of the business as well. Operation control would also include controlling the process of the subsidiaries and other business units as well (Fisher, Hughes, Griffin, Pustay 2006). In order to deal with the process of strategic control, it is recommended that the process should be managed effectively and the manager should be skillful enough to handle any situation arising from the strategic control issues. The manager should be able to understand the process of formulating a control system, setting the standards for creating the control system, measuring the performance of the control system, comparing the performance with the set standards and responding effectively to correct any deviations or errors (Fisher, Hughes, Griffin, Pustay 2006). Some of the essential techniques of control system include the accounting system, procedures and performance rations. The manager should have ample knowledge on how to work on these systems and if required provide suggestions to change the systems accordingly (Fisher, Hughes, Griffin, Pustay 2006). Despite the fact that strategic control system helps in streamlining the process in global companies, many people resist the implementation of such a control system. Some employees feel that such a system creates over control, gives more power to the manager, increases accountability and might be misused. In order to overcome these issues, the manager may decide to engage the employees in the process of creating a control process. The manager should also help in developing a focused control system that would help in creating reasonable amount of accountability and does not give maximum power to the supervisor (Fisher, Hughes, Griffin, Pustay 2006). Conclusion In order to succeed in an international business venture an organization needs to focus on its international business management process. The organization may formulate such a process after considering issues like dealing with various governments, different currencies, various political and legal systems, diverse cultures, language barriers and difference in accounting systems. An organization may enter into a foreign company through various modes of entry which include exporting, international licensing, international franchising, specialized modes of entry such as contract manufacturing and turnkey project and foreign direct investment. It was found that every process has its own advantages and disadvantages and the organization should adopt the mode that is a best fit for its business model. Further, implementation of strategic alliance would also help the organization to maximize its resources and profits. However, in order to achieve greater success the organization should focus on engaging international managers who are adapt in communicating with overseas clients and partners by understanding the cultural differences. The manager should also be able to addressing the issues of motivating staff and handling workplace diversity. Further, the manager should be able to address the issues arising from international strategic control. References Bennett, R. 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