International Business Management - Problems, Corporate Social Responsibility, Export Development - Assignment Example

International Business Management: Assessment Report for Topics 7-12 Name Course/Unit Tutor 06 September 2012 Abstract Globalisation is responsible to numerous changes that continue to be witnessed in the business world. Internationalisation has become inevitable due to globalisation. Firms today have discovered competitive advantages in different foreign, a situation that has motivated them to exploit such markets. While this becomes possible, it has been established that international business environment differs a lot from the local business environment. This makes it necessary for firms to conduct thorough international business environmental scanning, so as to develop strategies that resonate with prevailing international business environment. The report contains discussion of various concepts and accepts in international business. The understanding is that in order to conceptualise and understand international market well, there is need to have knowledge of the basic concepts and aspects to the international market. Keywords: Globalisation, international business, international business strategy Table of Contents Table of Contents 2 Introduction 3 Question One 3 Part 1: International strategic management 3 Part 2: Problems faced by firms in undertaking this process 4 Part 3: Concept of corporate social responsibility 5 Question Two 6 Part 1: Approaches that explain stages of export development 6 Part 2: Ways firms can overcome mistakes often made by exporters 7 Question 3 9 Part 1: Modes of internationalisation process 9 Part 2: Risks involved in the above modes and ways to minimise them 9 Part 3: Why firms prefer strategic alliances 10 Question Four 11 Part 1: Types of international business organisational design 11 Question Five 13 Part 1: Control process in international business 13 Part 2: Range of control problems in international business 15 Conclusion 16 References 16 Introduction Today, business activities have not only become complex, but are at same time experiencing management challenges as competition increase and internationalisation becomes inevitable (Tabian, 2010). Therefore, what follow in subsequent sections are detailed assessments and analysis of different concepts in international business management. Question One Part 1: International strategic management International strategic management process, resembles, although with minor changes, the general strategic management process that requires business entities to follow four main steps: conduct thorough business environment search (scanning), developing appropriate strategy, implement the strategy and evaluate the strategy (Clarke & Chen, 2012). The first step in international strategy management involves carrying out business environmental scan. This enables an organisation to identify its internal and external capabilities, as well as, the opportunities and resources available to play effectively in the competitive world (Clarke & Chen, 2012). After business environmental scan, business entities have an opportunity to develop an effective strategy that is informed by results of environmental scan. The strategy should define and outline the course of actions the organisation has to take in order to achieve its objectives. Third step requires business entities in international environment to implement the strategy that has been developed. This may require undertaking numerous changes and initiatives in key areas of resource allocation, human resource, decision-making and organisation culture, in order to make the strategy functional (Clarke & Chen, 2012). The last step involves evaluation of the strategy. Evaluation is necessary especially in international perspective, where the business has to measure performance, undertake corrective measures and ensure objectives have been achieved (Clarke & Chen, 2012). Part 2: Problems faced by firms in undertaking this process The international strategic management process is not always successful or smooth to all firms. Different firms experience it differently, where a number of challenges and problems have been identified that firms face in undertaking the process. One primary problem organisations face in international strategic management has to do with poor or inadequate management planning (Hill & Jones, 2012). Management planning requires effective and holistic corporate leadership, effective communication and decision-making channels and strategies and effective management of people and other resources. Some firms that aim to internationalise demonstrate lack of these paramount management planning initiatives, which later affect their strategic management process (Hill & Jones, 2012). At the same time, strategic management is a process that is considered to be pivotal management artery in modern competitive world (Stonehouse, Campbell, Hamill & Purdie, 2004). As a result, organisations should demonstrate ‘superiority’ in key areas of technology, financial resources, human resources, and other capacities (Stonehouse, Campbell, Hamill & Purdie, 2004). These constitute array of core superior competencies that organisation can use to derive competitive edge at internal level as compared to other competitors. Therefore, many organisations that embrace internationalisation process fail to initiate and implement effective international strategic management processes due to lack of ability to demonstrate superiority of core competencies. Part 3: Concept of corporate social responsibility The definition of corporate social responsibility (CSR) lacks consensus or uniformity, with evidence indicating variability in definition across societies, companies, people and industries (Kornfeldova, 2011). Despite the existence of various forms of definitions of CSR, different literatures indicate that corporate social responsibility involves among other things corporate citizenship, sustainable development and corporate responsiveness (Ruschak, 2012). As a result, Coors and Winegarden (2005) define corporate social responsibility as, “the alignment of business operations with social values, and it consists integrating the interest of all stakeholders affected by the company’s business policies and actions” (cited in Ruschak, 2012, p.9). In order to develop and implement CSR strategies, organisations have to consider certain and specific issues. Kornfeldova (2011) observes that firms need to pay attention to issues of social, environmental and relationships with stakeholders, as paramount in developing appropriate CSR strategies. The issues at same time should be complemented by other aspects such as legislative and legal regulations, economic regulations and transparency and good governance issues (Kornfeldova, 2011). On the other part, Sabir, Masood, Ahmed & Zaidi (2012) ascertain that dynamics in business environment makes it possible for corporate failures and scandals, and this call for development of a CSR strategy that among other things incorporate stakeholders needs for accountability, trust and ethical economic conduct. As a result, an effective CSR strategy is the one that address the needs of diverse stakeholders in key areas of economic, legal, ethical, environmental, social and discretionary responsibilities (Sabir, Masood, Ahmed & Zaidi, 2012). Question Two Part 1: Approaches that explain stages of export development One approach to stages of export development is the Johansson and Wiedersheim-Paul (1975) model (Paliwoda, 1991). The authors ascertain that export development takes place in four stages. The first stage involves no export activities on regular basis, stage two includes exporting using foreign agents, stage three has to do with establishing a foreign sales subsidiary, and stage four involves establishing production and manufacturing units in foreign markets (Paliwoda, 1991). Therefore, export development process graduates gradually from infancy stage in stage one to maturity stage in stage four, where learning, resources, commitment and growth remains important. The second approach is the Bilkey & Tesar (1977) model (Paliwoda, 1991). According to this approach, export development process is characterised by six critical stages. Stage one is where management has no interests in export strategy, stage two involves management having pressure to fulfill the unsolicited orders, but the idea of exporting remains unexplored, stage three is where management becomes interested in exporting and initiates activities to explore feasibility of exporting. Stage four involves a firm undertaking small export activities on experimental grounds to few selected and psychologically-close markets, stage five sees the firm develops critical skills in exporting and becomes an experienced player, and sixth stage is where the firm actively explores the feasibility of expanding exports to other more psychologically-close markets (Paliwoda, 1991). Again, this model shows how incremental development is a characteristic of export management process, where learning is vital. Cavusgil (1980) model regards export management to be a five-stage process (Paliwoda, 1991). The first stage is characterised by domestic marketing, concentration in home markets only. Second stage (pre-export stage) is where firms conduct internal environmental scanning to ascertain viability of export market. The third stage is where the firm undertakes experimental activities of export to limited and psychologically-close markets. The fourth stage is where the firm becomes actively involved in export activities, identifying new markets and increasing volumes of export. Stage five is where the firm commits itself to export and it divides its limited resources between domestic and foreign markets (Paliwoda, 1991). Lastly, Czinkota (1982) develops a six-stage export development process (Paliwoda, 1991). The first stage is characterised by the firm lacking interest in export activities, second stage sees the firm develops limited interests in export, and third stage sees the firm increase its exploration activities in export activities. The fourth stage is where the firm after exploration undertakes export activities on experimental basis, remaining cautious and only exporting to psychologically-close markets. The fifth stage is where the firm becomes an experienced small exporter, where it actively plays role in export. Last stage is where the firm graduates into an experienced large exporter (Paliwoda, 1991). Part 2: Ways firms can overcome mistakes often made by exporters Firms need to appreciate the small steps in regard to export development process. What is always clear with majority of the firms is that little effort is undertaken to study and understand the process of export clearly. Therefore, many firms end up missing on the need to understand how well to navigate the international markets through export. As a result, many firms are required to identify and capitalize on the small steps that facilitate future success in export management. This should constitute and include learning process, where firms take active role in the learning of effective processes of export management (Paliwoda, 1991). Learning process should not be limited, in fact, it should be a long-term learning sequence, where firms study and understand foreign markets and operations effectively. Apart from learning, firms need to deal with psychic distance in an appropriate manner. Psychic distance can be viewed as all those factors that act as obstacles to the flow of information from and to the market (Paliwoda, 1991). These factors may include language barrier, education differences, diverse and unrelated business practices, different cultures and industrial development. Understanding psychic distance gives firms opportunities to identify psychologically-close markets that initial steps of export development can start from, before exploring diverse markets in later growth stages. Appropriate understanding of psychological-related marketing aspects enables firms to be motivated and encouraged to remain actively in export development, especially in initial infancy stages of growth. Understanding psychic distance can at same time be enhanced by the need for firms to continually exhibit resource commitment behaviours to the export development process, increase and continue the motivational factors for export and continuously remain committed to elimination of obstacles to the export development process (Paliwoda, 1991). Question 3 Part 1: Modes of internationalisation process Apart from exporting, there are a number of modes internationalisation process can facilitate internationalisation process of a firm. These modes include; Foreign direct investments, this method involves firms identifying opportunities in foreign markets are undertaking initiatives to wholly establish their activities in the foreign markets (Ding, Akoorie & Pavlovich, 2009). Acquisitions and mergers involve firms taking total or partial control of foreign firms in the specific markets it aims to operate (Ding, Akoorie & Pavlovich, 2009). Strategic alliances have become popular as modes of internationalisation. Strategic alliances involve cooperation between foreign and home firms in undertaking business activities (Ding, Akoorie & Pavlovich, 2009). Greenfield investments involves buying foreign assets of firms in targeted markets, establishing presence in the markets and establishing subsidiaries within targeted markets (Ding, Akoorie & Pavlovich, 2009). Part 2: Risks involved in the above modes and ways to minimise them One risk associated with foreign direct investment is the lack to conceptualise foreign markets. Therefore, firms that embrace FDI strategy have to conduct thorough environmental scanning of the domestic business environment of foreign country, have enough resources at disposal and have other core competencies to set a unique and successful presence in foreign market (Hill, 2007). Risks associated with acquisition and mergers have to do with ‘hubris hypothesis’ and lack of proper synergic integration (Hill, 2007). Hubris hypothesis postulate the overconfidence management teams have when making acquisitions that later disappoints (Hill, 2007). Also, some acquisitions lack proper synergic integration due to clash of cultures, objectives and management strategies (Hill, 2007). As a result, firms that are keen on acquisitions and mergers need to develop effective pre-acquisition synergic integration policy that address issues of different cultures, employees, management, conflict resolution and communication (Hill, 2007). Most strategic alliances derive their risks from conflicts among the partners, suspicion, inequality and lack of genuine trust (Hill, 2007). To avoid such risks, it is necessary for firms to ensure functional and effective partner selection, establishing strong, inclusive and genuine alliance structures at all levels and managing the alliances in ways that satisfy and give confidence to both partners (Hill, 2007). The primary risks associated with Greenfield include slow in establishing, uncertainty lack of flexibility (Hill, 2007). The process of establishing Greenfield is slow and sometimes cumbersome, giving the firm greater disadvantages in the competition environment. As a result, in order to succeed with this mode of entry in the foreign markets, firms require detailed environmental scanning, enough resources and execution of strategies that surpasses competitors (Hill, 2007). Part 3: Why firms prefer strategic alliances Strategic alliances are seen to be the appropriate forms of cooperative relationships between firms and also between competitors. Strategic alliances are associated with sharing that gives both partners chances to benefit equally and also reduce their collective threats of failure (Ajami & Goddard, 2006). At the same time, strategic alliances involve partners sharing costs, an aspect that does not burden partners, which eventually ensures loss are shared, as well as, both partners remaining active to the course of their activities. More so, strategic alliances lead to complement of skills and assets that neither the partners in their separate ways can have or develop individually (Hill & Jones, 2007). Therefore, it becomes possible for the firms to acquire technological and resource competencies that would be difficulty on individual basis. At same time, strategic alliances have been preferred due to their abilities to give partners opportunities to low-cost routes to new technology and markets, especially when the alliances have elaborative and articulated structures in place (Ajami & Goddard, 2006). Moreover, firms in strategic alliance cooperation tend to develop mutual trust, responsibility and determination that see each partner succeeds from the input of the other. Therefore, given that partners in strategic alliances collective responsibility, these alliances in most cases exhibit minimal chances of failure (Ajami & Goddard, 2006). Question Four Part 1: Types of international business organisational design Six major organisational structures have been proposed, which organisations can adopt and implement. The six organisational structures that international firms can use include international divisional structures, product structures, geographical structures, functional structures, matrix structures and hybrid structures (Neelankavil & Rai, 2009). International division structure is where the subsidiaries in foreign markets are attached to the parent company. The parent company remains actively involved in all matters of international activities that may be organised by function, product or geographic area (Neelankavil & Rai, 2009). All subsidiaries in the foreign markets are organised and coordinated centrally. This situation makes decision-making and communication easier. Coco-Cola for many years has implemented this form of organisational structure. Effectiveness of the structure can be noted in the flexibility of the structure to dynamic international business environment (Neelankavil & Rai, 2009). The product structure is another type of organisational structure MNCs may pursue (Neelankavil & Rai, 2009). Separate divisions across the world are assigned responsibilities for specific products or product groups, which ensures separation of operations within a firm. Managers in each product division exercise authority for their product lines. Motorola is one company that has favoured product structure (Aswathappa, 2010). Effectiveness of this structure is reflected in its ability to address specific needs in diverse markets across societies. The third structure is the geographical structure. Geographical structure is where the globe is divided into regions, where regional managers become pivotal in these structures. Decision-making takes place largely at regional offices and the parent company only gets involved indirectly in matters such as resource allocation. Nestle Company and Kraft Foods Inc. are two companies that have effectively implemented this strategy. As a result, effectiveness of this strategy is for the companies with diverse products that need to address specific needs of each market in unique manner. Functional structure appear to be different from other structures in that the company sub-divides functions such as finance, marketing, production, research and development, and human resources that are functionally managed by one manager both at international and country level (Aswathappa, 2010). This kind of design is largely used by companies with narrow product lines. The effectiveness of this organisational design structure is reflected in the way it is easy to control diverse aspects like planning, decisions and functions. It reduces conflicts and enhances decisions. British Airways has become a vivid example of this structure (Aswathappa, 2010). Matrix structure is regarded to be the most flexible form of structure that operates successful in international business (Aswathappa, 2010). No particular structure is preferred in this scenario; instead a number of matrix structures are combined to give the best results that enable adoption of a unique for of structure in the firm. This dual structure exhibits fluidity thus easy to develop and change. Technology firms such as Siemens have favoured this structure (Aswathappa, 2010). Hybrid structure is another form of organisational design for international business. Dynamic international business environment makes it impossible for some firms to develop one form of organisational structure. As a result, managers are likely to sieve through different structures, adopt the relevant ones, eliminate cumbersome ones, and spice them with new elements, thereby creating a unique structure that responds well to strategies and competitive environment (Aswathappa, 2010). Unilever Company is one of the companies that have adopted hybrid structure in different markets. Effectiveness of the strategy is that it has ability to respond to dynamic business environment and market needs more appropriately. Question Five Part 1: Control process in international business Observation that can be made is that as international businesses expand in size, there is tendency for increase in complexity and differentiation of structures. All these give portent to likelihood of risks of conflicts, opportunistic behaviours and competing goals between partners or units in international business (Geringer & Hebert, 1988). As a result, international management involves critical need to monitor, coordinate and integrate different activities of international businesses. Three major forms of controls take place in international business (Luo, 1999). These major forms are further characterised in terms of levels at which they are likely to function or operate. The first one is the output control that involves measurement and monitoring of outcomes (Luo, 1999). Output controls shows how the firm is successful in the foreign market. In most cases, it involves parent firm setting targets for the subsidiaries or joint units that have to be achieved. As a result, output controls takes place at all levels that parent firm establish targets. From this, key areas such as production, marketing and sales, growth, and so on, are likely to reflect output control in great measures. Bureaucratic control is where MNCs set rules and regulations that govern subsidiaries and require such subsidiaries to demonstrate specified output or behaviour (Luo, 1999). Subsidiaries derive legitimacy from parent firms when they accept legitimacy, rules and regulations of parent firms. In most cases, power and authority in this type of control is through control over resources. It takes place at all levels: selection and hiring, training, deployment monitoring, production, sales and marketing, and management (Luo, 1999). International business is also characterised by cultural control. Parent firms have patterns of beliefs and expectations that members of the firm share. As a result, it generates a system of symbols, language ideology, images and myths that define and characterise behaviours of members in the organisation (Luo, 1999). This type of control takes place at all levels to do with decision-making, communication, conflict resolution and human resource management (Luo, 1999). Part 2: Range of control problems in international business Control in international business faces problems such as management conflicts, resistance to controls by domestic partners and workers, clash and distinctness of cultures and lack of resources (Luo, 1999). International firms, especially those in strategic alliances and joint ventures, face numerous challenges of management conflict, especially when developing and implementing control measures (Neelankavil, 2007). The problem becomes severe when diverse management teams exist for both parent firm and subsidiary. Management conflict may later lead to high management turnover, thereby, affecting implementation of control measures (Neelankavil, 2007). Therefore, effective management integration techniques are required, as well as, training of management on key aspects that results into minimisation of conflict (Neelankavil, 2007). Another control problem involves resistance that is evidenced in many subsidiaries when control measures are introduced or developed. In most cases, employees and other stakeholders in subsidiaries may resist attempts by parent firms to introduce control measures. In such cases, parent firms find it hard to implement these controls, a situation that may later impact on activities. Therefore, it is necessary for parent and subsidiaries to be develop and implement effective communication channels and opportunities, establish conflict management mechanisms and encourage participative decision-making to minimise chances of resistance (Neelankavil, 2007). Culture is another source for problems control measures experience. Cultural clash and distinctiveness in cultures between parent and subsidiaries explains why control measures fail. Culture has to do with how people view, feel and conduct themselves and activities (Rugman, 2009). As a result, when subsidiaries feel that parent firm is involved in introducing practices that contradict prevalent culture aspects in the organisation, members in such subsidiaries are likely to revolt, become suspicious, mistrust develops, resistance increase and chances of control measures succeeding decline (Rugman, 2009). As a result, there is need for cross-cultural training at all levels before introducing control measures (Rugman, 2009). Conclusion The new developments in world today such as globalisation are responsible for the changing business environment in the world today. As a result, the field of international business management remains critical to diverse issues of international business, a situation that requires the field to continuously remain updated and repackaged in order to address various issues associated with increasing globalisation and internationalisation. References Ajami, R. A., & Goddard, G. J. (2006). International Business: Theory and Practice. New York: M.E. Sharpe. Aswathappa, K. (2010). International Business. New Delhi: Tata McGraw-Hill Education. Clarke, A., & Chen, W. (2012). International Hospitality Management. Oxford: Routledge. Ding, Q., Akoorie, M. E., & Pavlovich, K. (2009). Going International: The Experience of Chinese Companies. 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