How Firms Operating Cross Boarders Affect and Are Affected by Their Home Environments - Essay Example

How Firms Operating Cross Boarders Affect and are Affected by their Home and Host Country Environments Name Institutional Affiliation Executive Summary This report explores the challenges that affect the operations of cross border businesses with respect to their host countries and the domestic countries as well. The introduction sets a base for the whole paper. The next sections looks by use of examples, at the factors that affect international business environment with relevance to multinational corporations. The next section presents the implications the factors have for the companies that want to invest cross borders. The next section then represents the recommendations for the companies that operate across borders as well as the host and domestic countries. The second last part of the report is the conclusion that in a nutshell summarizes the content of this report. Lastly, there is a list of references contacted when compiling this report. Introduction Globalization has opened up the international market for exploit by any company that is tough enough to make risks through internationalization. There has been a considerable growth in the number of companies that operate across borders. There has equally been an increase in the opening up of destinations for investments of such companies (Cole, 2015). Because as the market opens up, competition levels also escalate, the companies have been faced with a few challenges and have an uphill task before them than before. The challenges become real, new and thus unfamiliar as the companies explore various opportunities. Some of these obstacles include economic, environmental, legal, political, and cultural factors among others (Cole, 2015). Each of the stated factors has its own level of impact both in the host destination as well as the domestic countries where the parent company lies. Despite these conglomerate of challenges, most organizations have risked entry into new environments with some being successful while some being impacted heavily. This report explores the challenges that affect the operations of cross border businesses with respect to their host countries and the domestic countries as well. The implications of each of the above factors for the companies that operate across borders is also given in the end together with a few recommendations. Factors affecting Cross Border Business Operations Most organizations that have been associated with cross border operations are referred by a number of literature as multinational corporations. These companies have been faced with challenges during entry into new markets as well expansion within the markets. Some of these challenges have been discussed below. Legal Factors Firms that are operating across borders have a complex task for adhering to both the domestic laws and the different international laws in the host countries (Collins, Sun & Li, 2012). The laws are never similar and might be favourable or unfavourable. The laws also have the ability of affecting the economic operations of the firms and include things such as tax laws among others (Aswathappa, 2009). There are different legal systems due to the historical, religious cultural and political variations across the world (Cole, 2015). The legal procedures and the functions as well as professionals involved differ across countries. For example in the USA, when firms are faced with economic distress workers are laid off with minimal severance pay as well as notice (Aswathappa, 2009). On the contrary, in Belgium, a three months’ notice has to be given to the workers. Some countries follow common law, some civil, some hybrid and some religious laws. This goes on to further dictate the methods used in the solving of disputes (Aswathappa, 2009). The common law countries include the UK and its former colonies such as US, Australia, Canada, India, Hong Kong and Malaysia among others (Aswathappa, 2009). In this states, the cases are the major source of law and thus the judges have to decide based in similar cases. The evolution of common laws makes the practice of law in different countries to vary (Aswathappa, 2009). A good example is where there is a manufacturing default in the US where there is much vulnerability of a lawsuit compared to the UK where there is reluctance for lawsuits in such a case. The other form of legal system is the civil law where the judge has the critical role of determining whether a case proceeds or not (Aswathappa, 2009). Additionally, in civil law the laws are codified. The difference in legal systems affect the decisions of companies. Political Factors The political environment has a very integral to play when determining the location the modes of entry into a country (Cole, 2015). The political regimes of a country that are charged with the overall governance have the capacity to affect the policies and regulations that either create opportunities or barriers at the same time to the companies (Menzies & Orr, 2010). Some governments could be stable while some unstable, static or dynamic, placid, and uncertain. Chinese political arena is for example dynamic and transitional (Aswathappa, 2009). For this reason the government has the upper hand in deciding who invests in China based on the economic goals of the investing company (Liu & Buck, 2009). This means that when there lacks congruence between the economic activities and goals of a transnational organization with the regulations of the host countries, the political environment becomes a barrier, the converse is true. With respect to political environments, a number of laws differ. For example, there are zoning and minimal wages laws that affect how firms use their properties and how they pay for labour respectively (Menzies & Orr, 2010). Additionally, there are also environmental regulations that are always not favourable especially for manufacturing countries. In terms of political risks there are countries that are prone than others and a choice has to be made dependent on the levels of political risks posed in a country. Economic Factors The rate and levels of development has made some countries to be referred to as developed nations while some, developing nations. The demand for goods in the developed nations such as USA and China is high compared to the demand in countries like India that are categorized as developing nations. Some countries are command market economies while some are mixed as well as market economies (Pangarkar & Yuan, 2009). In the market economy the demand and supply defines what should be produced and consumed. On the other hand in command or planned economies such as China, the government has a hand in determining what should be produced and in what amount as well (Pangarkar & Yuan, 2009). The mixed economies combine the two economies where both sides have say in the production and consumption in the market and is the case of most countries (Collins, Sun & Li, 2012). This would mean that as companies expand to enter into new zones they face all these differences in economics, shaping the decisions made by the management of firms (Chaffai, Kinda & Plane, 2012). The other factor of economic consideration is the fluctuation and rise of the exchange rates across countries (Collins, Sun & Li, 2012). When the exchange rates are low, the companies have to inflate their prices due to the rise in the costs of raw materials and operational costs (Cole, 2015). The unemployment levels also have some impacts on the businesses since the lower the rate the little money there is to make purchases (Chaffai, Kinda & Plane, 2012). In China, the high quotas imposed on imported goods benefit the state owned enterprises and discourage off the multinational corporations (Chaffai, Kinda & Plane, 2012). Higher labour costs also lead to high operations and production costs for the companies in their host countries. Cultural Factors Culture refers to people’s way of life that is determined by their beliefs, values, language and religion among others (Cole, 2015). Culture define how a given community negotiate as well as different decisions that are made by consumers (Cole, 2015). Culture also defines how the subjects will behave under a given form of leadership and how the employees therefore will perceive the management (Aswathappa, 2009). There are levels of culture as posited by Hofstede making it implicit for organizations to understand the cultural levels of a country prior to investing therein (Collins, Sun & Li, 2012). Combined with this there are those communities or societies that attach values to some of their historical symbols. Failure of a given good to reflect the cultural symbols automatically means low or no purchase of the goods. Cultural messages, cultural forces and consumer decisions define the cultural stand of a country. Therefore, the relevance of culture in the domestic and the host countries may differ bringing in a barrier to entry into the country (Collins, Sun & Li, 2012). Difference in language is also a tenet of culture of great importance. This could either be totally a barrier or partially if there is a language that provides common ground between the host and domestic country. Ethical Factors Different countries have different ethical requirements as is directed by the laws once again (Lee, 2005). The ethical regulations govern against corruption, pollution and consumer and employee rights (Lee, 2005). There are host countries where the issue of human rights is not accorded much weigh while others where human rights are accorded much weight (Aswathappa, 2009). China’s business environment became reformed after the fight of sweat shops and firms that violated ethical and environmental standards (Cummings, 2007). Implications to firms in Different Industries across Different Countries There are various implications and benefits of the above explored factors in industries that are operating in different countries. First off, the laws in the domestic countries cushion the companies in the country again unfair competition. Good relations with the government also leads to the success of companies. A good example is Foster’s Brewing Company a joint venture that performed well in Tianjin China compared to its success in Shanghai (Aswathappa, 2009). Cultural beliefs of individuals in a foreign country must be understood prior to entry. When Walmart was entering Germany it had a plethora of cultural challenges that ended up affecting the sales (Chuang, Donegan, Ganon & Wei, 2011). The smiling cashiers and the positioning of discount goods at the lower shelves irritated the German consumers. The feedbacks of the employees were also not taken care of. Recommendation There are few recommendations for the governments and companies that want to invest abroad. First off, the governments should themselves strengthen intergovernmental relationships. This creates an enabling environment not only for trade but also for attracting foreign direct investments. There is also need to make policies and regulations after proper scrutiny of the market so as not to restrain companies that are otherwise beneficial to a country from operating. The host and domestic markets each should play her role in ensuring that the multinational companies with parent companies in them are well protected and free to enter into other nations. It is also essential for companies to conduct a country analysis prior to investing therein. A good thing to do is maybe conducting a political, environmental, legal, technological and sociocultural factors that are likely to hinder its operations (Collins, Sun & Li, 2012) In this case the companies are able to leverage on the information to their advantages. When it comes to investing, a proper analysis should be conducted to have a better hold of the new market. The businesses should also develop good relations with the host countries so that the threats posed by the laws are ironed out. The businesses will also be able to gain favours in terms of monetary and cushion against competition (Collins, Sun & Li, 2012). Lastly, good relations also assure the companies of support when entering the new markets as well as when expanding. Conclusion The international business environment is very heterogeneous. This is made so due to the variations in cultural, political, environmental, ethical, economic and technological factors across countries. For new entrants as well as the expanding multinationals, it is essential to understand the above factors. By the mere fact that there is dynamism in the world, host governments should also participate in creating an enabling environment for the foreign businesses through creation of enabling environments for business. There has been cases of the multinational corporations facing issues due to breach of regulations in their host countries leading to discontinuation of their services in the host countries. To avoid such there are recommendations that have been outlined above for the success of other multinationals. References Aswathappa, K. (2009). Essentials of business environment. Mumbai [India]: Himalaya Pub. House. Chaffai, M., Kinda, T., & Plane, P. (2012). Textile Manufacturing in Eight Developing Countries: Does Business Environment Matter for Firm Technical Efficiency? Journal of Development Studies, 48(10), 1470-1488. doi:10.1080/00220388.2012.671471 Chuang, M., Donegan, J., Ganon, M., & Wei, K. (2011). Walmart and Carrefour experiences in China: resolving the structural paradox. Cross Cultural Management, 18(4), 443-463. Doi:10.1108/13527601111179519 Cole, P. (2015). Factors That Affect a Multinational Corporation. Small Business - Chron.com. Retrieved 22 August 2015, from http://smallbusiness.chron.com/factors-affect- multinational-corporation-75252.html Collins, R., Sun, X., & Li, C. (2012). Are supply-chain relationships more influenced by buyer- supplier relationships or the business environment of the country itself? Evidence from the ‘China-Australia’ trading relationship. Asia Pacific Business Review, 18(3), 391-405. doi:10.1080/13602381.2011.624359 Cummings, L. (2007). Managerial attitudes toward environmental management within Australia, the People's Republic of China and Indonesia. Business Strategy and the Environment, 17(1), 16-29. doi:10.1002/bse.515 Lee, T. (2005). Development of management philosophy for Chinese business environment. Management Decision, 43(4), 542-550. Doi:10.1108/00251740510593549 Liu, X., & Buck, T. (2009). The Internationalization strategies of Chinese firms: Lenovo and BOE. Journal Of Chinese Economic And Business Studies, 7(2), 167-181. Doi:10.1080/14765280902847627 Menzies, J., & Orr, S. (2010). The Impact of Political Behaviour on Internationalization. Journal of Chinese Ec and F T Stud, 3(1), 24-42. Doi:10.1108/17544401011016663 Pangarkar, N., & Yuan, L. (2009). Location in Internationalization Strategy: Determinants and Consequences. Multinational Business Review, 17(2), 37-68. Doi:10.1108/1525383x200900009 Read More