Problems of International Business - Essay Example

Name of school: Subject code: International Business Student’s Names Student IDs Lecturer Date Executive Summary International business is various business activities that takes place a cross different countries. The fact that there is an immense increase in globalization, international business has become a common topic under study to investigate the main issues affecting it. This business is different from domestic business which takes place in the domestic market. In the international business different countries are allowed to avail their opportunities and threats which they face in the global market (Cullen & Parboteeah, 2010). However, managers have the obligation to consider globalized business environment when making international business strategies and running global businesses. In this report, there are only three themes considered effective and they include international business environment, global business strategy and operational management of international business operations (Johnson & Turner, 2010). The purpose of this report is to help learners to obtain an understanding in international business and form critical thinking skills in examining realistic issues based on international business. The report is also aimed at presenting features of international business, its definition, and aspect of globalization, its stages, benefits and trading environment of international trade. Table of Contents Introduction............................................................................................................................4 1.1 International Business......................................................................................................5 1.2 Problems of international business...................................................................................6 2.0 Instability.........................................................................................................................6 2.1 Legal instability................................................................................................................7 2.2 Political instability............................................................................................................7 2.3 Economical factors...........................................................................................................7 2.4 Cultural instability............................................................................................................7 2.5 Financial instability..........................................................................................................8 2.6 Location and neighbourhood.............................................................................................9 Conclusion and recommendation............................................................................................9 Bibliography...........................................................................................................................10 Introduction International business is various business activities that takes place across different countries. The fact that there is an immense increase in globalization, international business has become a common topic under study to investigate the main issues affecting it. This business is different from domestic business which takes place in the domestic market. In the international business different countries are allowed to avail their opportunities and threats which they face in the global market (Cullen & Parboteeah, 2010). However, managers have the obligation to consider globalized business environment when making international business strategies and running global businesses. In this report, there are only three themes considered effective and they include international business environment, global business strategy and operational management of international business operations (Johnson & Turner, 2010). The purpose of this report is to help learners to obtain an understanding in international business and form critical thinking skills in examining realistic issues based on international business. The report is also aimed at presenting features of international business, its definition, and aspect of globalization, its stages, benefits and trading environment of international trade. 1.1 International Business This is a field which is associated with companies and Government agencies that do business across different countries (Cullen & Parboteeah, 2010). It entails business activities that bring two or more countries to have a common market for their goods and services across borders. Its also ensure that the transactions that are available in international business is able to satisfy the needs of all individuals involves in such transactions that are undertaken across borders. The importance of international business is that it has the potential to unite different countries and also ensure that the World become a small global village that can easily be reached (Daniels & Sullivan, 2009). International business also makes easy exchange of ideas, information and services across countries and as a result increases human capital opportunities. It also creates an opportunities for all the countries to have equal growth of wealth, wealth, stability and availability of economic goods to every individual or organization (Dowling & Hill, 2009). Finally it is evident that international business is also able to for new environment relationships, create innovation and technology which is used by different countries across the World. International business includes multinational enterprises that operate across different countries to market and produce different products. Companies of such a nature include McDonald's and other electronic companies such as Samsung. These companies are affected by several factors such as political, economical, legal technological and financial factors which are the basis of our discussion. 1.2 Problems of international business International business has some of the problems experienced by different countries across the World. These problems are as follows. The companies or individuals that do international business have the obligation to operate under rules and regulations of different countries (Daniels & Sullivan, 2009). They also have to comply with business policies which are strict and restrictive. It is also very hard for individuals or organizations that operate international business to get information about foreign countries. They also have to use foreign currencies which has varying exchange rate. There is also cultural differences and also variation in social values which must be considered when operating in international environment. It is also very hard to control international business It is quite difficult to absorb the international market demand. 2.0 Instability International business is affected by stability of different countries. The stability of a country is measured by the following factors Political instability Economical instability Cultural instability Legal instability Financial instability 2.1 Legal instability Every country has its law that governs its international trade (Johnson & Turner, 2010). These laws include contract, tax regulations, property rights, company law and product liability law. Judicial system of different countries is weak and they usually fluctuate with changes in Government. These kinds of instability affect operation of international business operating in some parts of the World. This legal instability has the potential to create unsuitable condition for foreign investors (Dowling & Hill, 2009). There are some instances where the law of a given country create barriers to foreign investors as some times able to put restrictions on fund transfer. This situation is able to develop a transfer risk for global businesses. 2.2 Political instability The country can be stable or instable when it is politically stable. Political stability is very important in attracting different foreign investors which strengthen international business in a country (Daniels & Sullivan, 2009). The presence of political instability is a great threat to international business as it exposes the international business to ownership risk, operational risk and transfer risk. This instability increases due to changes in Government, laws, nationalism and corruption. It therefore has negative impacts on international business such as destruction of foreign investor’s properties and also poor infrastructure which supports international business. 2.3 Economical factors Stable countries have high national income, stable prices, high production capacity and high employment rate. GDP is an indicator of high economic growth and it positively affects living standards of a given country. Astable country is able to attract foreign investors as it is able to support different business activities (Dowling & Hill, 2009). It is also able to offer good human resource and customers to foreign investments. Economic instability is created when there is fluctuating exchange rates in international market and also there is imposition of high tax rate and low Government spending (Luthans & Doh, 2015). For the investor to invest in a given country, it must analyse the economic situation so that it ensure that the economy of that nation can support its business activities. 2.4 Cultural instability Different countries have different culture which results from differences in language, religion, ethics and conducts (Johnson & Turner, 2010). Culture therefore affects living styles of the people directly, their education and political structure. Culture create borders of different nations and conflicts which usually arise are always as a result of cultural differences. This is able to divide the country into two like that took place in Pakistan. The country which has high cultural extremists is unstable and therefore not able to support international business (Daniels & Sullivan, 2009). The investor confidence reduces in such economies since they are likely not to gain high investment returns. To effectively invest in international business analysis is required to assess the cultural effect on such kind of business. The strengths of culture, cultural conflicts and the effect of culture on the international business Religious extremism information that the business has in a country and frequency of strikes that results from cultural differences The local and the market culture Different languages that the country has and subsequent racism 2.5 Financial instability The country which is financially instable experience a slow economic development and it results into a slow growth of stock market and the level of international trade decreases due to high prices of commodities (Cavusgil & Freeman, 2012). In this kind of economy, there are high taxes and interest rates. It also reduces the strengths of fiscal situation and the social security is eliminated. It also influence slow cash movement and high unemployment level (Johnson & Turner, 2010). These factors negatively affect international businesses since foreign investors will lose morale of having foreign investments in such countries. This kind of instability result as a result of the following. Ineffective economic policies, monetary, fiscal and exchange rate Lack of proper risk management of financial institutions Loss of strengths on Government institutions Financial instability creates many risks that affect international business where the investors are likely to face when investing in financially unstable country (Hill & Wickramasekera, 2011). The investors face a strong risk in an economy where there is a fix exchange rates and abnormal valuation of money also influence loss of investor’s interest. Another risk which affects global business is sovereign as it makes the host nation to lose the potential of meeting the financial obligation of loans. As a result, the country can lose foreign exchange. 2.6 Location and neighbourhood The stability of a given country depends on its location and neighbourhood (Daniels & Sullivan, 2009). Countries that have good neighbourhood and strong relationship have a favourable environment that supports international business. It enables countries of such a nature to share free trade and to have no restriction that discourage international trade between them. This gives them an opportunity to remove all the trade barriers that prevent each of them from enjoying smooth business operations (Cavusgil & Freeman, 2012). Countries with poor relationship with each other become unstable which result from political instability of their neighbour. Poor relationship and long neighbourhood, there is loss of control and communication problems which causes slow running of international operations. It can also cause slow response to economic and political changes that takes place in distant countries. Conclusion and recommendation For a business to locate its investment project in a country require analysis of political condition, economical situation cultural and legal factors that are able to affect international business operations. The analysis of these helps in determining a good international environment that foreign investors business can thrive. It is therefore recommended for international firm to invest in a country that is economically, legally, politically and culturally stable so that there is low risk of investing in international market. A stable country is able to provide high employment opportunities which are able to increase consumption level of people since they have more income to buy goods from international market. This will enable international business to obtain high profit margin which is the main goal of any business in the World. Since international business makes a significant contribution towards economic growth, the government of every country has a sole responsibility to develop flexible laws and also to provide appropriate security to protect businesses. Bibliography Cavusgil & Freeman, S 2012, International business: the new reality, 2nd edn, Pearson, Australia. Cullen, JB & Parboteeah, KP 2010, International business: strategy and the multinational company, Routlege, New York. Daniels, JD & Sullivan, D P 2009, International business: environments and operations, 12th edn, Person Education International, New Jersey. Dowling, P, & Hill, CWL 2009, International business, 1st edn, McGraw- Hill, Sydney. Hill, C & Wickramasekera, R 2011, Global business today: Asia-Pacific edition, 2nd edn,McGraw-Hill Australia, Australia. Johnson, D & Turner, C 2010, International business: themes and issues in the modern global economy, 2nd edn, Routledge, London & New York. Luthans, F & Doh, J. 2015. International Management: Culture, Strategy and Behavior, 9th edition. McGraw Hill. Peng, MW 2011, Global business, 2nd edn, South-Western Cengage Learning, Mason, USA. Wild, JJ, Wild, KL & Han, JCY 2010, International business: the challenges of globalisation, 5th edn, Pearson, Boston. Read More