The Barriers to Entry into Global Business - Coursework Example

Name: Tutor: Course: Date: Global Strategy & Competitiveness 2 Problem Statement Business organizations have inadvertently engaged in internal commercial ventures as a result of the advent of globalization and development of technological infrastructure. However, the benefits associated with expansion of business firms into the global markets are also counter weighed by costs. For instance, benefits such as tapping of cheap labor, new technology and foreign product markets among others are benevolent facets of diversifying business organizations into global markets (Barkema 153). However, the adjustments related to corporate culture and prevention of the cultural barriers to entry into a firm are some of the costs that have to be met before an organization can succeed in its multinational commercial activities. This paper will analyze of the barriers to entry into global business, how these cultural barriers can be dealt with and sources of information needed for successful conduct of business activities and thus promote longevity of foreign expansions of businesses (Vernon 198). Introduction Entry into the global market is one of the major objectives of business organizations; aimed at attaining competitive and comparative advantage. This is to ensure that a wider market region is covered and that business has a capability of maximizing sales and increasing its profitability. However, the attainment of these objectives is not a walk over task as it involves appropriate planning and analysis of the available resources, cultural and social issues, political and economic conditions of a nation before making investments. This is a form of foreign direct investment that ought to be assessed with regards to a wide spectrum of issues so as to meet the goals or objectives of the business unit intending to expand into the foreign market. Aspects pertaining to the product life cycle, locational patterns and the behavioral dimensions of the organization and the environment in which the firm operates. Business organizations established to operate in international economies are faced with many complications and uncertainties related to local habits, preferences and market structure and mechanisms of communicating and meeting the needs of the clients. In fact, it can be affirmed that the increasing foreign growth and comprehension about country-specific markets is a contributory factor to the enhancement of global conduct of commercial activities (Liebscher 99). Acquisition of knowledge concerning cultural aspects of an organization is imperative as it enables managers of business organizations to be cognizant of the cultural dimensions and fit in so as to attract many customers and thus increase organizational performance and productivity. It is also through the understanding of the various international prospects of operation that better communication media can be adopted and thus forms a springboard or a guide during the conduct of business activities. It is worth noting that this will encompass acquisition of information on the political, linguistic, institutional and cultural factors. Aspects such as cultural distance ought to be considered in planning for entry into global markets by business organizations. This will pave way for learning some of the multi-faceted cultural aspects of a nation and thus promote adjustments to both the alien and corporate culture. The cultural aspects have diverse impacts on the longevity of a business organization and operating on an international or global front (Liebscher 101). Institutionalized practices such as decision-making and corporate policies also play an imperative role in ensuring that cultural aspects are understood. This is because they are performed in well organized institutions and thus, managers and other business people can easily be acquainted with information required to facilitate formation of strategic alliances. These associations will ensure that knowledge on cultural aspects is noted, appropriate stratagems to reduce cultural barriers in foreign direct investments and eventually promote expansion in productivity. Review of Literature The success of business organizations is usually attained by having access to adequate funds, having a conducive economic environment (cultural, social, political and technological), coupled with sound management policies. Globalization and foreign direct investment are pivotal aspects in ensuring that organizational goals of firms intending to venture into the international market sphere (Wattanawisitporn 78). This is attributed to the fact that they ensure that a stable business operations environment is developed and that there are effective interactions between business owners and the consumers. Of key specificity in this paper is the aspect of corporate national cultural aspects in relation to the facilitation of foreign direct investment and effective global business processes. Learning cultural aspects of the target nation and gauging the linkage in terms of the cultural backgrounds of the nation in relation to the firm intending to venture into the global market are vital. This ensures that they attain a competitive advantage and thus, maximize sales (Luostarinen 112). These issues are attributed to the fact that knowledge of these cultural issues will enhance continued and increased production of the multinational enterprises. Organizations are increasingly venturing in the global market so as to reduce their costs of production, have access to a wider market share and thus increase their sales and profit margins. The increased demand for commodities around the globe is also among some of the issues that have prompted the expansion of multinational enterprises around the globe (Barkema 156). Cultural adjustment costs associated with acquisition of the target market, labor are the aspects that could diminish the profits or the productivity of the firms if they are not well analyzed and appropriate solutions implemented. It is imperative to note that despite the cultural aspects of a nation, foreign direct investment (FDI) by multinational enterprises (MNE) is enhanced by the prevailing economic conditions of the region or the nations with which investments are to be done. Issues like economic recession reduce the inflows of foreign direct investment and have to be assessed alongside cultural issues in order to adopt appropriate policies in enhancing international trade. Foreign direct investments and multinational enterprises are some of the areas that have attracted a lot of research with case studies on information relating to their expansion, effects on the contemporary aspects of the nations in which they are established (Luostarinen 117). As a result of the immense studies conducted on the determinants of the growth of international trade, FDI and creation of more MNE, corporate culture has emerged as a key factor in determining the economic viability of nations and the business firms that can be established so as to utilize the resources. It is only through the understanding of the corporate culture of countries in which a firm intends to venture into that productivity can be increased and thus avoid cultural conflicts and losses. Hofstede (1980) suggests that there are some cultures that are more distant than others and this means that globalizing firms enables them to adjust to the cultural and moral dimensions of the given nation. FDI is somewhat complex as it entails adjustment to the national, alien and corporate culture. This aids in reducing the difficulties in adhering to the social and moral norms of a nation. The eventual effects are projected to be increased production and longevity of the operations of the organization within the nation that it was started. Irrespective of these assertions, it is worthwhile noting that cultural norms are not similar. Firms are thus, required to assess the cultural needs of the nations prior to their venture so as to enhance effectiveness in their operations. Cultural issues are more likely to be solved well in joint ventures and acquisitions than in single layered organizations (Vernon 204). Methodology In order to ascertain the validity of the assertions presented in the literature review, an evidence-based research methodology (using a case study) is applied. Different Dutch firms were chosen; irrespective of their international experience, scope of operations and size. Longevity was one of the variables that were used in ascertaining the success of business ventures in international markets (Wattanawisitporn 81). However, this variable is highly subjective and can only be used in cases where firms do not have well documented statistical and economic data of their operations. Levels of foreign experience and cultural distance are also used and point to the validation of the fact that corporate culture plays an imperative role in enhancing the establishment and operation of MNE through their FDI stratagems. This will increase their longevity and profits due to increased market coverage. Analysis The rationale behind the application of an empirical model in assessing the FDI activities within organizations is an indication that cultural aspects ought to be keenly assessed by business organizations before venturing into a specific nation to conduct commercial activities. Management decision-making plays a significant role in influencing company actions. This means that the external environment; specifically the corporate culture of the nation may lead to different decisions. Cultural influence in management decisions is acknowledged and the parameters are examined by economic concepts and organizational behaviors. This is also coupled with cultural differences and distances between the home country and the host countries. This are also assessed and evaluated so as to ensure that difficulties and differences in ways of conducting businesses are ironed out. This acts as an incentive for the host country to aid the firm venturing into it to align to the cultural and social underpinnings of the nation. Conclusion The studies from the evidence-based model on the effects of corporate culture on the entry of firms into other countries through FDI indicate a close linkage on business longevity and cultural aspects. The firms that adapt to the culture and social aspects of the nations in which they venture attain more returns from their FDI. Firms that engage in FDI in form of joint ventures, mergers or acquisitions have a higher probability of quickly suiting in the corporate cultural predispositions of the host country. This is in contradiction with the single firms that have no prior interactions with host firms in the country that it intends to venture into. Irrespective of these, FDI and entry into global business operations is an imperative aspect. This can be attributed to the economic benefits that are generated to both the host and venturing countries. Expansion of technology and increased mutual coexistence are also some of the ethical concerns of FDI, foreign entry and the cultural issues in global business strategies and competitiveness (Barkema 163). Works Cited Barkema, Harry, et al. Foreign Entry, Cultural Barriers, and Learning. Strategic Management Journal, Vol 17, 151-166. 1996. Vernon, R. ‘International investment and international trade in the product cycle’, Quanerly Journal of Economics, 80, pp. 190-207, 1966. Liebscher, K. Knowledge Press, Foreign direct investment in Europe. Publisher Edward Elgar Publishing, USA, 2007. Luostarinen, R. Internationalization of the Firm. Helsinki School of Economics, Helsinki, Finland, 1980. Wattanawisitporn, R. Foreign direct investment in Thailand: with special reference on European foreign direct investment in the Thai manufacturing sector, Publisher Cuvillier Verlag, Romania, 2005. Read More