The Evolution of Global Business - Essay Example

• The evolution of Global Business
• Introduction

With the advent of globalisation which is close integration of different countries and its people across the world has resulted in the development of international businesses. International business is the process of commercial transactions and corporate mix between the private or public organisations (Cavusgil et al, 2014). It has become an important concern for all types of businesses; large or small. Operating in the international or global environment is a complex process and involves management of diverse cultures in the organizations’ environment (Czinkota et al, 2009). Thus, globalization is a major factor that favour organisations and helped them to expand their scope in the international market, by providing them with tools and mechanisms through which they can integrate their operations across a number of countries at a time. This paper studies using a number of examples, the factors that had eventually drove and shaped the international businesses across the world in the past and how they have helped in understanding the challenges and issues of globalization in 21st century.

• Meaning and concept of international business

In simple words, international business implies the companies that involve in cross-border transaction of goods and services or resources between two or more nations. According to Rugman and Collinson (2009), the transaction of resources across countries include major economic resources such as capital, labour, raw materials and intermediaries and technology which is used for production of all types of physical goods and services, including banking, construction, telecommunication, finance etc.

International businesses has been promoted much after globalization as the organizations were seeking to explore economies of scale in their operations, cheaper sources of resources and were trying to expand their market reach globally (Czinkota et al, 2009). International businesses can emerge in numerous forms such as the imports and exports of goods and services, provision of license to a foreign company to produce commodities in the host country, entering into a joint venture with a company etc. J. Wild, K. Wild and Han (2014) stated that multinational enterprises (MNEs) are called the players of international businesses and have worldwide markets operating in more than one country at a time. Some of the well known MNEs largely involved in the international business are Ford Motor Company, Samsung, Toyota, Coca-Cola, McDonald, Microsoft, Apple Inc. etc. MNEs can make business in any types of markets as such in developed economies or in emerging economies as they possess effective strategies of the integrating with the cultures of the other countries and incorporating their market trends in their operations (Buckley, 2009). Moreover, globalisation has resulted in the rapid spread of international trade which has drawn the attention of the corporate and business executives across the world. There exists a huge difference between the international business and domestic business. In the international platform, globalisation across the world and socio-economic and cultural differences between various countries acts as a challenge as well as opportunity for the international companies (Cavusgil, Rammal and Freeman, 2011).

• Factors shaping International Business in the past

There are numerous factors that has been shaping international companies since decades after the dawn of globalisation. The factors can be classified as economic, socio-cultural, political, technological or environmental. Another factor is the competitive environment in the world market. According to Cavusgil, Rammal and Freeman (2011), there are multiple environmental factors that affect the entry of international business and operations. They even change their strategies of doing business at every moment of their operations to integrate better in the international markeys. Thus, there are numbers of factors that a MNE evaluate and work out before they venture into any country.

There are many economic factors that have promoted international businesses in the past which includes market features, GDP growth, pace of industrialisation, favourable financial conditions and the availability of valuable economic resources in the different countries (Buckley, 2009). Many big firms and corporations entered the market of emerging economies like China, India, Indonesia, Brazil etc as they have high potential markets. Hewlett Packard, Coca-cola and Pepsi entered into India long time back mainly because of its attractive market with a large target population (Ramamurti and Singh, 2009). On the other hand, high rate of GDP growth attracts many large companies as the consistence growth rate acts as a magnet for the investors. The spurge of investments in Malaysia, Indonesia, Thailand etc during 1990s was due to their high growth. Industrialization was another factor that drew many companies from USA to China during mid 1990s such as Procter & Gamble as it brought huge prospect of prosperity and affluence. Banking acts as the channels through which financial remittances of organisations takes place. Hence, it is a major infrastructure supporting the international businesses since past. countries of America and Europe have effective financial and banking service since 1980 which instigated many companies with moderate banking services to settle their operations in these countries. The presence of valuable economic resources in any country also acted as a major factor attracting companies to settle abroad. For instance, the discovery of oil wells in Malaysia and Asia Pacific region like Singapore had attracted the giant oil company of Royal Dutch Petroleum of the UK in these regions in early 1990s.

Taste and preference of consumers, demography, high female workforce and households’ income are the social factors that shaped some of the large international businesses in the past. Taste and preference is one social cause that led many international businesses in the world such as Nestle brews different types of instant coffee in other countries according to the tastes of their consumers. There are some demographic factors such as age, sex ratio, occupation etc that shaped international businesses as different companies’ to target different segments. Barbie has been successful in early 1990s to generate huge revenues from affluent markets like China, India because of their high children population. In the opinion of Yeung and Olds (2016), women empowerment since the past era resulted in high proportion of women in the work force of the economy. Chinese women possessing handcraft skills brought many successful companies in the country in the past and educated women contributed a lot in the IT enabled services in India (Yeung and Olds, 2016). Lastly, augment in the households income in some countries resulted in rise in demand for products in the past mainly for food products, household items, electronics etc. For example, Japanese electronics companies like Sony dominated the countries of North America and Europe; KFC and McDonalds ruled the emerging economies like China, India etc (Giroud and Scott-Kennel, 2009).

Apart from social and economic factors, there are some cultural factors that shaped the international businesses in the past. One crucial task of any international business is recognizing the important differences and similarities among various nations and find out ways to match with the organizational culture with the country in which they would start their operations. For instance, Toshiba earned 100 % percent ownership of their former 70-30 partnership joint venture called Rank-Toshiba in the Plymouth in 1981, the company had to learn to incorporate the deeply rooted British culture in their working style (Michie, 2011). Also, culture has the most important influence on the determination of the acceptability of promotional and advertisement methods practiced by different companies in different countries. Any advertisement by a company in France may not be acceptable somewhere else. For example, any advertisement of liquor is strictly prohibited in Saudi Arabia, as their culture does not support consumption of alcohol.

Among the factors that shaped international business in the past, technology and its applications is also a factor that determined the competitiveness of the companies in the international market (Michie, 2011). Firms that invested millions of capital in R&D generated more revenue in the long run. Pfizer, Hoffkins, Genen Technology are some of the examples of companies that emphasized on technology and invested huge amount R&D for innovations and earned huge substantial returns later on (Ramamurti and Singh, 2009). The Asian tigers like South Korea, Japan, Singapore, Hong Kong, Taiwan are the nations that achieved success when they invested in technology policies in most of their sectors. While business opportunities existed in all countries and technology innovations were adaptable to most, it was up to the business to engage in such type of business prosper. HP (Hewlett Packard, Lenovo, Samsung, Apple are some of the MNCs that are providing technical education to the workers, so that they can successfully develop high technology oriented products such as laptops, PCs, cell phones, etc (Michie, 2011).

The legal environment of the countries have facilitated the international business which includes of conventions, corporate agreements and treaties between the countries. These were especially in the areas of trademark protection, patents, privacy laws etc (Baylis, Smith and Owens, 2013). The provisions of UN resolutions, multilateral trade agreements of WTO etc are the ones that influence the trade and business relation among the member countries (Chaney and Martin, 2013). For instance, there was nationalization of the assets of British Petroleum after it was found selling off its crude oil to South Africa (Ramamurti and Singh, 2009). Finally, competition is another major factor that shaped the strategies and operations of international business firms. As for example, project related competition results in low-cost production process or development of a substitute or in low pricing of products by the companies (Hitt, Ireland and Hoskisson, 2012). Nokia encountered competition from Motorola by concentrating its products in the emerging economies like India, China and soon became leader in the cell phone market (Yeung and Olds, 2016).

• Major Issues and challenges of globalization in the 21st century

Now-a-days, organizations or business enterprises from any country competes with other businesses both in the home country as well in the international market. Organisations are increasingly expanding their operations outside their domestic territory and integrate with other culture. Comprehensive economic, social and political changes around the globe bring today new challenges to the business organisations (Johnson and Turner, 2010). On one hand, democratic forms of government are increasing and simultaneously, communism is losing its ground. Economic liberty is the most crucial factor facilitating the relative wealth of countries. Liberalisation and privatisation have been influencing the global economy and one of the most significant changes in today’s world is that most countries have started decentralising (Hill, Cronk and Wickramasekera, 2013). They adopted free market system in order to manage the various areas of global economy like intense competition, communication and technological integration, high-tech industrialisation etc.

Business enterprises in the early stages of their international operations engage with local partners as they require local assistance for utilizing the local resources. Due to the lack of adequate information about international markets and trade policies, it is highly difficult for the organizations or MNCs to set up their business network and have a widespread global coverage (Johnson and Turner, 2010). On the other hand, the competitiveness in the global sphere has grown steadily in recent times. Many new products were introduced and new companies emerged. When a firm started in one country and introduces some new products, or improves it existing products or starts low cost production technology, there is a creation of competition for all those business that produces similar products (Dunning, 2014). In 1992, Disneyland Paris was opened, which became the first trans-European theme park and depended mainly on the Europe population for its revenue. Gradually, many other companies followed the same strategy and opened their own theme parks such as the Warner Brothers (in Germany), Universal Studios (in Spain), LEGO (in UK, Germany, US, Denmark). Hence, the leading position of Disney slowly started to erupt due to rise in the competitors (Casson, 2013).

Apart from these, cultural barrier is also a challenge to globalisation in the recent era and the modern culture which is characterised by individual orientations, purchasing capabilities, materialistic time, utilitarianism etc influences the cultural integration of comapnies in a different countries. In globalisation, culture has become one of the risk factors in the international business. The global business spread depends on the kind of response of the culture of the receiving countries which can be participative, passive or conflictive (Mitchell, 2009).

• Addressing the challenges of Globalisation in international business

Stability in the business environment helps in building confidence in the organisations and promoting businesses. Thus, organisations are needed to understand well the risks and issues associated with the countries in which they plan to expand and the implications of those risks in their business operations. According to Johnson and Turner (2010), globalisation has been an influential topic that resulted in growing interdependence between different countries necessitating the companies to include the trend within their business strategies. The pace of modern globalisation results in the development of technological advancements in communication and transportation. Furthermore, multinational companies now-a-days absorbs nearly half of world’s labor force and thus creating a need for organisations with a strong global awareness. Organisations are also needed to understand well the processes used for operating internationally and recognize the tastes and customs of the specific regions in which their products and services will be targeted.

Kolk and Van Tulder (2010) opined that international business takes place in adverse external environment with unpredictable conditions. Thus, the organisations are required to accept the constructive or positive opportunities and avoid the unfavorable conditions in order to reduce the chances of occurrence of any potential loss. For instance, the financial crisis of 2008, provided a terrifying example of what can probably go wrong in businesses due to global crisis, and why ethics and corporate governance are important for the organizations and the regions in which they operate. The banks and investment companies started moving down the path of profitability of ethical issues after the fall-out of mortgage backed securities in 2008. They eliminated various rules and regulations which allowed the employees to sell off the mortgages that were not likely to be paid. Due to such instance, the management found it essential to pack the risky securities together and sell them off as safe investments, so as to earn maximum value. Thus, operating in a global environment has its fair share of challenges and therefore it is the responsibility of the organisational managers to face the challenges and make best use of available opportunities to overcome them.

The factors that have shaped the global businesses during the past can help in understanding the issues and challenges of globalisation. The organisations and its management should be well aware of the market trends and economic conditions of the country in which they plan to expand their operations. Companies like Pepsi-Co and Coca-Cola have adopted fairly uniform strategies around the world, as the demand for soft drinks are same across the world. Similarly, in the air-frame manufacturing business which is dominated by Airbus and Boeing, companies also have uniform marketing strategies due to nature of the services provided by them (Joshi, 2009). However, the operations and international business of these companies depends on the demands, economic conditions, demographic, social and technological conditions of the countries, which can influence the demands or taste preferences of the consumers in different countries and consequently affects the revenue and profitability of the companies. In the international market, the ease of globalisation resulted in rapid advancements in communication technology. These not only facilitated international exchange but also helped in greater integration of the businesses in the culture of different countries.

Also, Baylis, Smith and Owens (2013) stated that the industrialised nations pose risks of economic instability and hence, the MNCs are exposed to the economic vulnerabilities and risks which may affect their operational profitability. Hence, the organisations are assessing the degree of risks that they face in an economy before establishing their operations. Some of the most popular methods of assessing the risks are economic risk of country i.e. measuring the debt obligations; inflation rate, interest rate fluctuations, tax systems, etc. The differences in the regulations and legislation across the countries are still posing a challenge to the international businesses as they are complex and hence difficult for the MNCs and small business enterprises to incorporate in their businesses. Furthermore, the level of governmental intervention in the form of regulations and policies such as wage policies, tariffs on trade etc has significant impact on the management practices of the organizations.

Apart from these, there are issues of social responsibility, lack of equal distribution of income, consumer concerns, environment, safety and welfare of the employees etc. MNCs operating in a global environment hence should possess capital, power as well as skills to play a positive role in handling the social and economic problems faced while operating in different regions across the world.

• Conclusion

The responsibility of international businesses across the world is to make profit in the global market along with confinement of the laws and regulations of foreign countries and produce goods and services that would cater to the demands of stakeholders. In simple terms, international transaction of resources across countries includes major economic resources such as capital, labor, raw materials and intermediaries, technology used for production of material goods and services internationally. There are several factors that shaped international businesses in the past and can be classified as economic, socio-cultural, political, technological, environmental and competitive. Liberalisation of businesses and increased integration has resulted in the appearance of a global business sphere. However, in the global environment there are numerous issues and problems that created complexities, uncertainties and risks which the organisations have to deal with in order to strengthen their presence in the international market.

MNCs have also played a greater role in contributing to new technology, creation of jobs, bringing investment capital, managerial skills, etc. The international business demands that firms should manage their global operations effectively and efficiently, by managing the issues and challenges of globalization efficiently.

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