Global Challenges Faced by Skyrock Enterprises - Case Study Example

Global Challenges Faced by Skyrock Enterprises

As the business grows and expands into foreign countries, the firm (Skyrock enterprises) will encounter various challenges. These challenges have a direct impact on the success and profitability of the firm. Some of the challenges faced by the firm as it ventures into foreign markets include political risks, cultural barriers, difficulty entering a foreign market, and logistics challenges.

Skyrock enterprises in its venture into the international and emerging markets is faced with the challenges of political risk. Thus, the firm encounters political challenges such as civil disturbance, changes in the foreign country’s regulations or laws, and import/export restrictions. These restrictions have a negative impact on the profitability, sustainability and success of Skyrock enterprises. Civil disturbances in foreign markets will be detrimental to the firm since it might lose its investments via looting. Additionally, the firm’s stock prices will drop as a result of political unrest in foreign markets. Further, foreign governments especially those in developing nations are fond of breaching contracts. This is highlighted in a 2013 study that analyzed 450 multinationals conducting businesses in emerging markets (Carter n.p). The study found out that political risks had a significant impact on the company’s’ bottom lines since 1 in 5 firms had experienced a loss due to civil unrest while 1 in 3 had suffered losses as a result of breach of contract by the foreign government. To address this challenge, the firm will follow a four step process. The process will entail the identification of political risks in the foreign country, measurement, mitigation of the risks, and monitoring. Skyrock enterprises will hire a risk manager who will be in charge of identifying the various political risks the firm faces in different foreign markets. His primary role will be to find out how the political environment might affect Skyrock’s business objectives in the local market. Next, the risk manager will analyze the level of exposure of the firm to the political risks. By doing so, the firm will be aware of the political risks that have the potential to affect the company’s finances or sustainability. Additionally, measurement of risk will help the firm to know whether the foreign market is worth entering or it should exit. To mitigate some of the political risks, the firm will liaise with local business partners who have the relevant knowledge about the markets. Lastly, the firm will purchase an insurance cover that would protect it against political risks in the local markets.

Skyrock enterprises is an electronics firm that specializes in the distribution of computers, phones and other electronic equipment to suppliers and consumers. The electronics industry is saturated since a lot of firms are offering similar services to the consumers. As such, it is a very competitive industry. However, the industry continues to experience a positive growth trajectory. The phone market grew from 1.96 billion unit shipments in 2014 to 2 billion units of shipment in 2015. This is a 2.6% growth. The increase in shipment units or volumes is as a result of the introduction of low cost smartphones that are destined for the emerging markets. According to the international data corporation (IDC), the compound annual growth rate (CAGR) of phones between 2014-2019 will be 2.8%. By 2019, phone shipment units would have hit the 2.2 billion mark (Llamas, Scarsella and Stofega n.p). Emerging markets such as Africa, India, and Brazil has overtaken the markets of developed nations. For instance, there were 30 million phone users in India in 2003. The number of phone users has grown to about 652 million users in 2010 exceeding subscribers in America (Veliyath and Brouthers 3). However, unlike in developed nations, the rate of phone penetration in emerging markets is still low. As such, the demand of phones is expected to grow in future.

The table below shows the top phone markets globally in 2014 and 2015.

Source: (Davidson n.p)

Davidson (n.p) argues that demand of phones from the emerging markets is on the rise due to the availability of lowly priced phones. Some phones are priced at between 30 and 50 dollars. These low prices attract the low earning consumers. Skyrock enterprises will thus venture into the emerging markets in order to take advantage of the increasing demand of phones and electronics in these markets. In light of this, the firm is faced with the challenge of venturing into the emerging markets.

The firm will focus on the sale of affordable phones to emerging markets. Emerging markets unlike the developed markets have potential and a higher demand for phones and electronics. The growth of emerging markets has been a defining feature of the world economy. Although the developed markets are recovering from effects of the financial crisis, while emerging markets have experienced slow growth rates, they (emerging markets) will still continue to define the global economy. By 2020, the emerging markets would grow three times faster than developed nations hence adding nearly 3.3 trillion dollars to their spending (ICEF n.p). Thus, to gain a competitive advantage, the firm will venture into the emerging markets. To overcome the challenge of venturing into the emerging markets, the firm will undertake a joint venture with local businesses. Joint ventures are vital primarily because governments in emerging markets require foreign businesses to have some level of local ownership. Additionally, the local business partner has more knowledge about the local market.

The need to expand into foreign markets exposes the firm to different cultures and languages. This gives rise to cross cultural communication barriers. Culture influences the employees’ and consumers’ thinking, understanding and communication (He and Liu 32). The diversity in culture and communication has a significant impact on the development and management of the firm. To overcome this barrier, managers have to comprehend the concept of cross cultural communication. Also, different cultures have different traditions and taboos. For instance, whereas gift giving is viewed as a form of bribery in the United States of America, the act is expected in some cultures. To address this challenge, the firm will employ managers conversant with cross cultural communication and knowledge. Additionally, the firm will source employees from the local population instead of using foreign employees at the point of employee customer interaction.

The firm faces logistical challenges in its venture into the global market. Skyrock enterprises utilizes several transportation methods while moving goods to foreign markets. Unlike in the local market where the firm uses ground transportation, geographical barriers force it to use a combination of methods. The use of different means of transport also increases the cost of getting the goods to consumers or to the company’s warehouses. Furthermore, the great distance involved in foreign markets makes increases the time taken to deliver or dispatch goods. In other cases, the transportation of goods is hampered during times of natural disasters or civil unrest in the foreign nations. Also, the marine risks are an ever present challenge to firms transporting goods throught the sea. Nevertheless, the risks associated with goods in transit will be covered by marine insurance. Various strategies will be implemented to address the logistical challenge faced by Skyrock enterprises. First, the firm will start sending shipping documents to clearing agents based in the foreign nations before the goods are dispatched. This is vital since it will give the agents time to validate the documents and make sure they are in line with the country’s custom requirements. Any changes recommended by the agents will be made before the goods are shipped thereby saving time in addition to avoiding costly delays. Moreover, Skyrock enterprises will hire a logistics manager who will be in charge of overseeing the movement and delivery of goods to buyers or to warehouses.

Conclusion

Skyrock enterprises faces global challenges such as logistical challenges, political risk, entering into the emerging markets challenges, and cross cultural communication barriers. The large geographical distance involved in global trade exposes the firm to logistical challenges. Skyrock enterprises will have to ship goods over long distances to its buyers and warehouses in foreign nations. This will become a challenge to the firm since unlike in the local market where one transportation method is used, various methods of transportation such as road and sea will be used to deliver goods leading to an increase in transportation costs. Also, transit risk increases. The firm will safeguard and minimize the logistical risks through the use of marine insurance. The firm will employ a logistical manager who will be in charge of the firm’s logistics.

Skyrock enterprises will face challenges emanating from political risk. Political unrest will negatively impact the business of operations since the firm’s property might be destroyed, or its stock prices might fall. To address this challenge, the firm will first use the services of a risk manager who will inform the firm if the risks in a foreign market are worth taking. Moreover, an insurance cover against political risks will help to mitigate these challenges. On the other hand, the firm will address the challenge of venturing into the foreign markets by entering into a joint venture with a local firm or business. Lastly, the use of local employees at the point of customer interaction, and managers with cross cultural knowledge will address the challenge of cultural barrier.