International Business Environment - Assignment Example

Research Paper Outline Insert Name Institution Instructor Date * Discuss key drivers associated with globalization in the context of growing economic interdependence. Globalization is a process of achieving international integration through cultural exchange, and exchange of products, ideas and views from all over the world. It is assumed that it is mostly multinational companies and governments who are responsible for globalization but in the real sense, it is actually the consumers who are the masters of globalization (J. Wild. & K. Wild, 2012). Below we look at some of the causes and drivers of globalization in an expanding interdependent economy. One major driver of globalization is the desire for global companies to grow. These companies desire to increase their sales and profits as a result in order to ensure that they safeguard their short and long-term futures. Opportunities for growth within their countries of origin are however limited and characterized with stagnant economies and aging populations hence they are forced to venture beyond their national borders into foreign markets which are the only holders of the promise of additional growth. This way, they become global companies and as a result foster globalization. Some companies however miserably fail in such quests. The objective to be the world market leader is another factor that motivates companies to go global. The desire to be the strongest among competitors in terms of value of sales pushes companies to venture into foreign markets in order to boost their sales and establish themselves as dominant in the global scene. Once a company or brand becomes a global leader, this position becomes self-reinforcing because consumers get the message that this must be the best product since all consumers in the world can’t possibly go wrong and everybody loves the winner. The first entrant into a market also calls all the shots therefore acting as a catalyst of globalization for companies now scramble for the global market. Multiplication of superior services, products and services such as Coca-Cola and McDonalds make the local consumers prefer these products to the local ones since they are superior and cheaper hence promoting global product and services exchange and as a result globalization. Synergies also come into play in this context as companies are able to improve efficiency and reducing costs by centralizing their production hence taking advantage of economies of scale, integrating separate organizational units and appeal of such companies to global managers. Other company drivers of globalization include a desire to increase shareholder value to be able to raise more funds for expansion into foreign markets. This can only be achieved through increasing revenue through sales by expanding their markets. Another driver is using international media to reach a global audience for their products and services. The media being used includes the Cable News Network, BBC, and Aljazeera among others which are watched world over. Other drivers are to increase salaries due to expansion, the desire to take advantage of tax benefits, following customers and controlling raw materials (Castello, Vivarelli & Voigt, 2011). In conclusion, governments and international organizations such as the World Trade Organization also promote globalization by promoting peace, upholding human rights, democracy and peace. Governments promote foreign trade with the main aim of driving up tax revenue, reducing unemployment, and stimulating economic growth. The global consumer on the other hand promotes globalization by preferring global brands and the market leaders, leading to branding and international communication among other roles. References: Moncada-Paternò-Castello, P., Vivarelli, M., & Voigt, P. (2011). Drivers and impacts in the globalization of corporate R&D: an introduction based on the European experience. Industrial & Corporate Change, 20(2), 585-603. Wild, J. J., & Wild, K. L. (2012). International business: The challenges of globalization. Upper Saddle River, N.J: Pearson Prentice Hall. * What do you understand by the term “culture shock”? In an international business environment, how can culture shock be reduced? Culture shock is the physical and emotional disorientation or loss of emotional equilibrium that people experience when they move to a completely new environment. It is characterized by the lack of a sense of direction, uncertainty in role expectations, fear of non-acceptance by the people of the new culture and not knowing what to do. Culture on the other hand is a way of life among a group of people. It is inclusive of the way their attitudes, values, beliefs and norms affect or shape their behaviour. Experts have argued that the basic and most common cause of culture shock is the loss of the familiar abruptly, therefore leading to a sense of diminished importance and isolation (J. Wild. & K. Wild, 2012). The loss of social intercourse symbols and social signs therefore results in anxiety which precipitates culture shock. Individuals then react in more or less the same way such as by rejecting the new environment and glorifying everything about their home countries, forgetting the problems and difficulties at home and only remembering the good times. International migration for business purposes has become very popular because of globalization and therefore the culture shock has become a major concern in the international business community. The culture shock cycle has three phases; incubation/initial enthusiasm, crisis/a period of disenchantments characterized by hostility/genuine difficulty of the new culture and finally a recovery period characterized by increased adjustment to the new culture. The incubation phase also contains the honeymoon stage where individuals seem to be excited about the new culture making them feel active, enthusiastic and curious about the new place. The second phase is when disturbance, anxiety and frustration start setting in and therefore potentially leading to depression. The first stage of the recovery phase is the humour stage where an individual starts relaxing and laughing at the previous tensions and depression because he/she has figured out ways of dealing with the new environment. In the final stage of the recovery phase, an individual gets completely mixed up with the new culture and develops a loyalty such as that for a home country. Tools adopted by the international business community to reduce culture shock in its environment include; training people to enable them work in a multicultural business environment. This cross-cultural step by step training enables individuals to withstand the culture shock phase. This training may be in the form of cultural diversity training, cross-cultural negotiating training, management training which is cross-cultural, and cross-cultural team building to help employees adapt. This training can be culture specific or country specific depending on what suits a business best. This training equips individuals to think globally rather than just locally hence developing a cultural management mindset which is diverse and also equipping individuals with management skills which are multi-cultural. This therefore increases the productivity and competitiveness of the trained expatriates compared to those who have not been trained (FARH, BARTOL, SHAPIRO & SHIN, 2010). In conclusion, culture shock can therefore be viewed as dynamic and a temporary phase in an individual’s life. Coping with culture shock however varies from one individual to another depending on their level of preparedness and tolerance due to prior cross-cultural training or previous experience of different cultures. The benefits of cultural adaptation; such as flexibility, increased knowledge and competence enhances the contribution of the personnel therefore amplifying the performance of the business as a result. References: Wild, J. J., & Wild, K. L. (2012). International business: The challenges of globalization. Upper Saddle River, N.J: Pearson Prentice Hall. Farh, C. C., Bartol, K. M., Shapiro, D. L., & Shin, J. (2010). Networking Abroad: A Process Model Of How Expatriates Form Support Ties To Facilitate Adjustment. Academy Of Management Review, 35(3), 434-454. doi:10.5465/AMR.2010.51142246          * What are the main types of political risk in international business? As a business person, how could each of these risks affect international business activity? Political risk is the likelihood of business people or investors losing money or making less money than they anticipated, due to the events and conditions arising from political decisions in a particular market or country in which they have invested. Apart from monetary loss, these investors can also incur other losses such as personnel and strategic loss (J. Wild. & K. Wild, 2012). The problems that may arise due to these political decisions are; nationalization, expropriation, currency inconvertibility and government instability. Examples of political risks include; confiscation of the assets of a private entity by a government, imposition of new controls (such as monetary controls, exchange limitations and trade restrictions), revolution, insurrection and war. Political risks may be classified based on their characteristics and these are; transfer risks, ownership risks and operating risks. In ownership political risks, assets of a firm are threatened by possible confiscation, domestication and expropriation. In operating political risks, a government interferes with a foreign firm’s operation through changes which cast heavy burdens on these businesses. These changes include wars, terrorism, tax codes, and environmental laws. The resultant burdens from these changes may include; shrinking the local customer base, negatively affecting employee attitudes of the foreign businesses and negatively impacting the credit risk. Transfer political risk arises when a local government interferes with a foreign business’s ability to move funds in and out of the country. Political risks can also be classified as being within government control or out of government control. Those out of government control include extortion, strikes, coups, terrorism, revolutions and wars. These arise from unstable social institutions and an intolerant and frustrated population. Political risks within government control or induced by the government include; expropriation, confiscation and domestication of assets of foreign investors, sabotage and boycotts, selective or biased exchange controls, import restrictions and a biased price control system. In a nutshell, these political risks have the following impacts on international business activity; loss of profits, sales and assets, inhibition of free transfer of funds, disruption of production hence decreased productivity and high operating costs, and increased costs of security and public relations (Anshuman, Martin & Titman, 2011). In conclusion, whenever a business suffers a loss due to a political risk, it can receive compensation from the foreign nation, although this has been changing fast due to sovereign immunity. Sovereign immunity exempts a government from liability due to its actions in court unless it voluntarily submits to such a lawsuit. Businesses can however minimize their exposure to political risks by getting insured against such, by spreading their political risks in various countries through the weighted average cost of capital and portfolio diversification. References: Wild, J. J., & Wild, K. L. (2012). International business: The challenges of globalization. Upper Saddle River, N.J: Pearson Prentice Hall. Anshuman, V., Martin, J., & Titman, S. (2011). Accounting for Sovereign Risk When Investing in Emerging Markets. Journal Of Applied Corporate Finance, 23(2), 41-49. doi:10.1111/j.1745-6622.2011.00325.x Read More