The Internationalization of Businesses - Essay Example

?Macro-environmental Factors Affecting International Business Environment Introduction Morrison (2009, p.16) argues that the business environment hasbecome more competitive than ever before. The high competition is attributed to the fact that quite a number of companies operate in the same industry forcing them to compete for the few customers available in order to make profits. At the same time, Morrison (2009, p.16) notes that high competition in the home country has made it necessary for many companies to expand their operations to the international markets in order to be able to have many customers. In fact, today, quite a number of big companies in the world have international presence with a view of increasing their customer base. The internationalization of businesses is normally shaped by macro-environmental factors which impacts hugely on their operations. Therefore, it is advisable for managers to ensure that a thorough analysis is conducted on the macro-environmental factors before making a move to go global. The macro-environmental factors that shape the international business environment include political, economical, social, legal, and technological factors (Blythe 2006, p.21). These factors must be considered because failure to do so might lead to sub-optimization of the strategies and resources invested by the company. This paper will examine how the political, economical, socio-cultural, and technological factors shape up the international business environment. Political/legal factors Political factors that shape a company’s internalization strategy include laws, groups and agencies that impact and limit individuals and organizations in society (Viswanathan and Dickson 2006, p.26). The areas that must be evaluated by managers include the attitude of the government toward foreign businesses, political stability, government bureaucracy as well as the financial policies of the country in which the company wants to establish its operations. The legal and political forces are very crucial and need to be considered by any manager because they cover several aspects of policies adopted by a company. For instance, the policies adopted by the government affects the entire industry through its regulatory bodies such as Trade and Industry Departments and Environmental Departments (Morrison 2009, p.16). These bodies affect the industry in which the company operates through their policies on trade and standards and restriction within their areas of controls. Policies developed by these bodies can affect businesses in a number of ways including the products produced, sold, or promoted by a company. It is very important for multinational companies to acknowledge the fact that political backgrounds differs from one country to another. For instance, the political environment of the U.K. may be quite different from that of China. This implies that a multinational company in the U.K. wishing to set businesses in China must first be conversant with the political and legal issues in China before making any move set business in the new environment. Morrison (2009) notes that a majority of economies that were formerly centrally planned still receive protection from their governments. This implies that a move to have a joint venture can easily be accepted in such economies. At the same time, it is reported that legal implications pertaining to the marketing of a product globally is very complex (Daniels and Radebaugh 1998, p.51). This is because every country has its legal system which implies that global companies must adhere to such legal systems in order not to find themselves on the wrong side of the law. McDonald’s is one of the most famous Americas fast food restaurants with an international presence in several countries such as the U.K., Japan and Russia, just to name but a few. However, reports indicate that McDonald’s was hugely affected by a legal challenges in Russia in 1993 when a law was passed in Russia compelling all stores (both local and international) to have Russian names. The same law, however, required international companies such as McDonald’s to have their names translated in the Cyrillic Alphabet. As a result, McDonald’s was compelled to do so which saw it translate its brand name to the Cyrillic Alphabets. A similar legal issue took place in Japan in which the company was forced to change the pronunciation of its name to MaKudonaldo according to Daniels and Radebaugh (1998, p.51). In addition, Daniels and Radebaugh (1998, p.51) reveals that the Russian law states that to approve any important decision in a company there must be at least three-quarter majority votes. This implied that McDonald’s representatives had to agree with the City Council on all major decisions, which could impede opportunities that the company wanted to pursue. Marketing mix is another important element that companies must develop in order to be able to succeed in a given environment (Porter 1980, p.77). In most cases, companies have the tendencies of adopting their own marketing mix elements in international markets. However, it is always very crucial for multinational companies to assess the legal environment of the country in which they seek to operate with the aim of determining whether it can affect the product launch into the new nation. This is because the government and regulatory bodies in many countries influence product design directly. In this regard, there are usually laws that in most cases determine the minimum or product standard, which may determine the type, shape, brand name or component of a product manufactured. Promotion is also another common marketing strategy adopted by companies in the international markets. However, in many countries, content promotion is regulated by the government which sometimes imposes restrictions. The law may restrict the freedom of advertisers by determining the content of the message and visual presentation. This implies that a multinational company must be conversant with the government policies as regards promotion. For instance, Vrontis and Vronti (2004, p.78) notes that door-to-door selling is prohibited in China and France. This implies that a U.K. company that intends to venture into China and France must understand these restrictions in order to avoid finding itself on the wrong side of the law, which may affect the operation of the business these countries. Muhlbacher, Dahringer, and Leihs (1999, p.18) also note that the use of comparative and superlative claims are prohibited under the German laws. As such, multinational companies wishing to set businesses in Germany must avoid the use of words such as “best and better” (Daniels and Radebaugh 1998, p.53). This is because the use of such words may result in litigation being filed against the company by the manufacture whose products are being compared. Finally, a multinational company must always take into consideration the price regulations when launching into a foreign market. This is because most countries tend to control prices set for services or products. A case in point has been witnessed in Ghana where the government controls the profit margins of manufacturers, thereby controlling prices paid by consumers indirectly (Daniels and Radebaugh 1998, p.59). All these legal and political environments affect the way an international company operates in a foreign country, therefore, should be assessed in advance by the managers. Economic Factors Economic factors entail factors that impact on the purchasing power and patterns of spending of consumers (Day 1986, p13). Therefore, it is very crucial for international businesses to assess the economic situation of a country before making a move to establish business in a given country. As earlier stated, the economic situation of a country determines the purchasing power of consumers in the country and the way they spend their income. In this regard, the stronger the economy, the higher likelihood that consumers will have stronger purchasing power thereby making the business to thrive as it points at opportunity. On the other hand, a weak economy is a threat to business and no multinational company will be willing to invest in a country where the economy is weak since they lack customers with strong purchasing power (Markides 1999, p.72). This implies that a company may produce goods and services but end up lacking a market where to sell the products because only a few people may be in a position to afford the products and services. This explains why many companies prefer expanding their businesses to countries experiencing economic growth like India. Ford Motors, for instance, has shown strong interest in launching its automobile products in India, due to the high economic growth being experienced in India. The company is said to have arrived on such a decision after a thorough assessment of the economic growth being experienced in India, which pointed at an opportunity in the future. This is because with high economic growth many jobs will be created for the Indian population, which stands at over a billion people. The creation of jobs will make a large part of the Indian population richer making able to buy cars from Ford Motors (McDonald and Leppard 1993, p.36). Technological Factors Technological developments are one of the most notable changes of the 21st century. This is because this is the century where almost everything is done using technology. Technology has made the way people do things easier be it communication, travelling, or manufacturing (Porter 1985, p.6). Technology has also created a faster change in fashions and social values. The changes in the social habits also cause a change in the demand for products, as well as how the products are sold to customers. Technological factors in this case include forces creating new technologies, products, and market opportunities. When considering technological development, managers of multinational businesses need to consider the extent to which the local market has adequately developed technologies to be able to take advantage of the product in the market (Mintzberg 1994, p.9). Therefore, before internationalizing operations to a foreign country, managers of multinational corporations much analyze the level of technology achieved in a given country and ways of overcoming problems associated with technology. In this regard, the successful internationalization of McDonald’s must have been attributed to the fact that the company has been able to overcome technological challenges. This is because it is evident that the company’s move to substitute equipment systematically for people as well as its careful planning and positioning of technology, which did helped in standardizing every franchise as noted by Vrontis and Vronti (2004, p.15). For instance, Vrontis and Vronti (2004, p.15) note that, by the time McDonald’s was entering the Russian market, the managers of the company were aware that technology transfer could be of great benefit to Russia and the Soviet Union at large. Moreover, because the machinery of the Soviet was way behind the Western Technology, the company had to obtain machinery from Holland, which it used to harvest potatoes used for preparing French Fries (Vignali 2001, p.97). This shows how technology is an important aspect that multinational companies need to consider before venturing into a foreign market. Socio-cultural factors Socio-cultural factors also influencing the internationalization strategies of multinational companies. Socio-cultural factors in this case include aspects such as society beliefs, values, family structures, tastes, and preferences (Vignali, Vrontis, and Vranecevic 2003, p.33). All this elements determine the kind of reception that a company in likely to receive when it enters a foreign market. For instance, there are certain cultures that prohibit the consumption of certain products and services. This means that a manager must look at such socio-cultural factors so as to avoid receiving a rude shock once a company has entered the market. For instance, it is not viable for a multinational company to establish a meat processing plant in India, where the culture prohibits the consumption of beef (Rumelt 1980, p.101). At the same time, it is widely reported that the Muslim culture prohibits the consumption of pig meat. This implies that setting a business dealing with the production or processing meat in a Muslim dominated country is not viable. With regards to McDonald’s, Whalen (1995) notes that when the company entered the Indian market, the company avoided launching its Big Mac burger because Hindu culture prohibits the consumption of beef. As a result, McDonald’s instead resorted to chicken, vegetable burgers and fish, which are some of the Indians favorites. It is worth noting that this was the first time that McDonald’s, operated in a country without beef. In addition to McDonald’s, famous menus, it also introduced ‘Maharaja Mac,’ a delicacy for the Indian people (Muhlbacher, Dahringer and Leihs 1999, p.48). Further, McDonald’s has also been changing its food preparation methods in certain countries to match with the culture of the people in these countries as has been witnessed in Malaysia and Singapore where beef used for preparing burger is slaughtered in accordance with the Muslim law. In conclusion, internationalization is a common practice for many businesses today. However, it is very important for multinational companies to assess the macro-economic factors for the countries where the business is to be established because these factors determine how the company would be operated in a foreign country. 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