How the Strategy of International Businesses Has Needed to Respond to the Conditions Facing Them - Coursework Example

How the Strategy of International Businesses Has Needed to Respond to the Conditions Facing Them Name Professor Institution Course Date How the Strategy of International Businesses Has Needed to Respond to the Conditions Facing Them Introduction In the last years of the 20th century and early 21st century, numerous barriers in the global trade reduced and several companies started pursuing international strategies in quest of gaining the competitive advantage (Twarowska & Kąkol 2013, p. 1005). International markets enable the firms to increase product or service awareness, enhance customer base, improves its profit and market share. However, international markets are full of challenges emerging from economic, social, political and technological factors (Das 2010, p.47). As a result, some companies do better than others international stage and this down to global strategies. In other words, must have a strategy to respond to the international challenges. Therefore, in this paper, the easy will explain how the strategy of international businesses has needed to respond to the conditions facing them in the later years of the 20th Century and the early part of this century. In its argument, the essay will consider factors affecting firms in production and in their operations and sales as well as economic conditions. Globalization has intensified in the last and current century as companies scramble for international markets (Hamdi 2013, p.142). Research has shown that countries have comparative advantage which makes them better in terms of opportunities. Twarowska and Kąkol (2013, p. 1006) claimed that such opportunities include technological development, large customer base, economic growth, political friendliness, and low cost labour, production, and operations. For instance, it is now easy to recognize globalization due to presence of different brands in the markets. Japanese products like automobiles and electronics can now be seen in Asia, Africa, Americas, Oceania and Europe (Gupta & Gorindarajan 2003, p. 56). Similarly, consumers can commonly find US entertainment products, financial service and automobiles in all continents. A Japanese car making company Honda currently operates the biggest single plant in the US, whilst Coca-Cola also operate in others countries across the globe with its 80 percent profit coming from global sales (Punnett n.d). Some companies had become successful after going global in the late 2oth century and early 21st century. However, despite the success, firms did not escape challenge in the global markets. Some of the factors affected production, operations and sales. The challenges needs global strategy to enable the company has a competitive advantage in the market. Twarowska and Kąkol (2013, p.1005) argued that global strategy enables a company to adapt well within the domestic business environment. A global strategy needs should be carefully be formulated to be used within the whole company networks such as subsidiaries across many countries of the world. One of the factors that affected production is the labour. It is has been found that companies expand to others markets with cheap labour to reduce the cost of production (Hartungi 2006, p.731). The truth is that some countries attain low cost of labour as intended. This is because they invest in countries with high number of jobless people. However, according to Wenjing, et al (2012¸ p.11059) the challenge is that most number of these people may only work at the lower level of the organization because they lack the necessary skills to operate at the middle or top level. The strategy would be to train unskilled people in foreign countries to reduce the skill shortage. In doing so, the company will still get cheap to help manufacture products at lower production cost. Nevertheless, countries’ laws on labour also change overtime with new government and can affect the firm’s quest for cheap labour. Some countries set minimum wage for its employees so as not to be exploited by companies (Hartungi 2006, p.732). In this way, an international firm who had intention of capitalizing on cheap labour for production is forced to go back to the drawing and review their budgets particularly on wages. For instance, over the years, China has been known for cheap labour (Hartungi 2006, p.732). As a result, firms had moved to these countries to capitalize on cheap labour to reduce the production cost. However, Cuyvers, De Lombaerde and Rayp (2011, p. 255) the Chinese government had since put tough labour laws to protect its citizens from lower wages. Such situation can force the company to look for cheap labour elsewhere. This practice is still risk because the government might it as a move to deny its citizen employment opportunity and could put a cap on number of employees needed to be employed by a foreign company. The strategy of international businesses has needed to respond to such conditions facing them in their operations at the global arena. One of the strategies would be to automate most of its operations and have few positions for the locals to avoid conflicts. Das, (2010, p.54) found out that most companies are now changing their economic or labour structure from the labour-intensive to the technology based and knowledge-based products. In some cases where government increase minimum and the labour is no longer cheap, some companies will move to another country. Hartungi (2006, p.731) provided an example of Indonesia where some Korean and Taiwanese investors in country shifted their production base to the neighbouring nation which had less expensive cost of labour. Apart from labour, resources like raw materials and technology are other factors which affect international business and need global strategy to survive the competition. Countries with cheap raw materials have been a target for many companies across the globe because it enables them to continue production and operations (Wenjing et al. 2012, p.11060). It most cases developing or third world countries have been a major target for countries because raw materials are still rich and unexploited. Most of these countries also do not have technical knowhow and technology used to extract these resources. It therefore proper to say that while developed countries depend on raw materials from developing nations, developing counterparts also rely on technology from the developed ones (Hamdi 2013, p. 142). as an global strategy and need for sustainable production, international businesses companies especially those which depend on minerals have moved their production plants to developing countries in Africa or Asia to reduce cost of production. For instance, in 2014, BlueScope Company was compelled to close of its plants within Port Kembla and move to Singapore in quest of getting cheap raw materials and low production cost (BlueScope Company 2016). Another which influences and affects globalization is tax. Companies want to conduct their production in countries with low tax to enable them increase their profits. However, sometimes the company has to deal with high taxes imposed by local and other foreign governments (Wenjing et al. 2012, 11062). They are not high but are also of many types. For instance India has several taxes including income tax, corporate tax, wealth tax, gift tax, service Tax, customs, and central excise. These taxes reduce company’s chances of increasing their revenue. Just like labour in other situations, governments have moved in to introduce several taxes to increase their revenues or to bar several foreign countries from making entry into their market (Hamdi 2013, p.143). This practice has often been done to enable local industries to grow. When companies are taxed highly they may not many profits to enable them play their employees well. The result is that many employees may resign when they are not paid well. High employees’ turnover greatly affects firm’s production and operation. The situation put the company in a position of frequently hiring and training new employees. It also means that there will be no continuity or consistently in term of production because the company operation is always disrupted by employees’ turnover. Contemporary managers need to prepare for such eventually and have a global strategy to counter the conditions. One of the strategy solve the problem is to move to countries with low taxes or tax havens. Research shows that several countries in Asia have low tax as a way to allow international firms to invest there to encourage economic and social development. King (2008, p.7) posited that Singapore has over the years been regarded as tax haven place for some businessmen and women owning to its low rate of tax. For instance, businesses are currently enjoying the tax exemptions on the foreign-based capital gains and income. Jayaraman (2009, p.57) claimed that China has a favourable tax compared to the US and UK hence countries prefers to invest in the East than the West to enjoy tax haven and exemptions. Economic factor also impacts the company’s expansion into the global markets. Akram et al. (2011, p. 293) argued that economic factors like economic growth, high income and low taxes influence the firm’s strategy to target foreign markets. However, change in these factors also affects the firm’s performance abroad. For instance economic downtown reduces the purchasing power of people hence low sales to the company. As a result the firm needs to formulate new strategies to counter such condition. Some management experts advise the companies to develop low cost products or service which can still attract people even in economic crisis (Akram et al. 2011, p. 293). Other strategies have been cost cutting through job cuts and reduction in production hours. For instance, during global economic crisis in 2008, many airlines cut jobs and reduce number of aircrafts which were operation. In conclusion, the essay has revealed that globalization has opened world markets and makes many companies cross borders to seek more profits and opportunities such as cheap raw materials, low taxes, cheap labour and advanced technology. Despite of the opportunities which exist in foreign markets challenge also come in plenty. These opportunities also turn out to be challenges especially when the government increases taxes, impose minimum wage and hikes the prices of raw materials. In such cases, the international businesses will need to have a global strategy respond to the conditions facing. Some of the strategies include implementing technology, move to countries with cheap labour and low taxes, and produce low cost products. References Akram, M, Faheem, A.M, Dost, M.K.B & Abdullah, I 2011, ‘Globalization and its Impacts on the World Economic Development’, International Journal of Business and Social Science, Vol. 2 No. 23, pp. 291-297. BlueScope Company 2016, BlueScope Company Official Website, viewed 24 October 2016 from www.BlueScopeSteel.com. Cuyvers, L, De Lombaerde, P & Rayp, G 2011, The labour market consequences of globalisation and regionalisation’, International Journal of Manpower, vol. 32, no.3 pp. 252 – 256. Das, D.K 2010, ‘Another perspective on globalization’, Journal of International Trade Law and Policy, vol. 9, no.1, pp. 46 – 63. Gupta, A.K & Gorindarajan, V 2003, Global Strategy and the Organization, John Wiley & Sons Publishers. Hamdi, F.M 2013, ‘The Impact of Globalization in the Developing Countries’, Developing Country Studies, vol.3, no.11, pp.142-144. Hartungi, R 2006, ‘Could developing countries take the benefit of globalization?’ International Journal of Social Economics, vol. 33, no. 11, pp. 728 – 743. Jayaraman, K 2009, ‘Doing business in China: A risk analysis’, Journal of Emerging Knowledge on Emerging Markets, vol.1, pp.55-62. King, R 2008, The Singapore Miracle, Myth and Reality, Insight Press. Punnett, B.J n.d, Strategy in The Global Environment, Viewed 24 October 2016 http://www.referenceforbusiness.com/management/Str-Ti/Strategy-in-the-Global-Environment.html Twarowska, K & Kąkol, M 2013, International Business Strategy - Reasons and Forms of Expansion into Foreign Markets, Maria Curie-Skłodowska University, pp. 1005-1011. Wenjing, W, Rongcheng, W, Ayenagbo, K, Nguhi, S, Kimatu, J.N, Patrick, J.M 2012, ‘The impact of globalization on African countries economic development’, African Journal of Business Management, vol.6, no.44, pp. 11057-11076. Read More