International Business Environment - Coursework Example

INTERNATIONAL BUSINESS ENVIRONMENT Introduction International business (IB) refers to any form of commercial exchange of materials, goods, services or any other resources that involves transfer across national boundaries. Also known as Internationalization, it refers to expansion of business beyond home country to operations in other countries. These firms are commonly called “Trans-national organisations” or “Multi-national companies”. Examples might include Nike, Body Shop, Unilever, etc. A business may be one of many types which might include Sole proprietorship, Partnership, Private limited company, Public limited company or State-owned enterprise (SOE). Costs and Benefits Various benefits as well as costs accrue to international businesses. For instance, personnel to launch international trading would have to be hired, product or packaging would need to be modified, develop new promotional material, incur additional administrative costs, hire sales personnel, review methods for payments, obtain additional financing and deal with special licenses and regulations. One of the factors which works against international trade is protectionism. Methods of protectionism include Tariff barriers, quotas, “Voluntary” export restraints, Subsidies to domestic products and some non-tariff barriers. These and others ultimately make trade more expensive and unattractive for the foreign exporter. Methods of Entry In addition, different countries have different legal systems rules of which have to be followed however unfavorable they seem, thus making trade more cumbersome for the foreign entrant. A firm can enter a foreign market through one of many ways. Firstly, Exporting can be considered a relatively low risk strategy with nominal investments but at the same time, market share may be below potential. Further, the marketing campaigns should be in line with local regulations. Effective methods of distribution are equally important to be identified.  Licensing and franchising are other methods of entry whereby a company allows someone else to use its trademarks or brands along with expertise to operate in a foreign nation. The disadvantage here is that the firm has little control over how the business is operated.  For instance, American fast food restaurants such as KFC and Burger King are not satisfied with their foreign franchisers who fail to maintain American standards of cleanliness.  Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country. The third method of entry into the foreign market is contract manufacturing. This involves having someone else manufacture products while the company take on some of the marketing efforts on itself.  Although this saves investment but increases chances of competition from the same company. Direct entry strategies are also followed by some entrants when venturing into the foreign land. Wal-Mart Stores Inc. is one such example which is planning a possible expansion into Russia with the appointment of an experienced European executive to scope out possibilities in a vast retail market worth more than $140 billion a year in food sales alone. Therefore, it is crucial for any firm to weigh its pros and cons before making such a decision and apply the appropriate entry strategy. Stakeholders A number of stakeholders are attached with the organisation whether local or foreign. Their decisions, in some way or the other, have an impact on the firm’s decisions. Employees, consumers, competitors, government agencies, tax authorities and the society are all stakjeholders of any organisation. Culture and Attitudes Culture significantly affects people’s work expectations and behavior.  In the U.S., for example, individual recognition and responsibility is the norm. In more collectivistic cultures such as Japan, responsibility and reward usually goes to teams, which internally exert peer pressure to get members to contribute.  Responses to treatments may also vary. For example, where a loss of face is a serious concern, managers must be careful to criticize indirectly and privately rather than publicly. In terms of attitudes, U.S. workers are frequently happy to take overtime at 150% of their normal pay, while this would be less acceptable in countries where people “work to live” rather than “live to work” (Lars Perner). Furthermore, International Product Life Cycle (PLC) needs to be identified which shows that consumers in different countries differ in the speed with which they adopt new products (Lars Perner). Economic systems It has to be seen if the foreign country is a market economy, planned economy or a mixed one. It will itself determine different degrees of consumer and government control in the organization. Taxations systems also need to reviewed and worked upon before entering the foreign land for business. Hong Kong, for instance, has quite an attractive tax system for foreign investors and businessmen. Firstly, there is a low rate of tax on profits (17.5% for corporations and 16% for non-corporate taxpayers). Further, only income and profits derived from Hong Kong are subject to tax - a company pays no tax in the territory on income derived from outside Hong Kong. Salaries tax is also only charged on Hong Kong sourced salaries. Thirdly, capital gain, dividends or interest are not taxable incomes. No estate duty is charged on estates or persons dying on or after 15 July 2005 and lastly, a generous capital allowance is given to capital expenditure. Also, personal tax is also among the lowest in the world at 16% maximum while there is no sales tax. Hong Kong is considered to be an international business and financial centre where there is a dire need to have legal service offered by foreign law firms to be available to local and foreign clients on international legal matters. Hong Kong also provides a more open market for legal services on a non-discriminatory basis which makes trade attractive (Socio-economic Systems). Possible Effects When China opened its boundaries for trade it faced a lot of problems. For instance, its handicraft industries, especially cotton textiles was severely affected which led to impoverishment of peasantry. It also prevented emergence of modern industry unfair competition came into play. In the textile industries cotton spinners were amongst the major losers as their products were replaced by factory yarn. Weavers, on the contrary, benefited from international trade so part of loss of employment in hand spinning was made up by hand weaving. Consumers were others who enjoyed cheaper and (probably) better quality textiles (Tim Wright). Expansion into developing countries presents multinational corporations with a whole range of problems and dilemmas such as extreme poverty and human suffering, inequality in the distribution of resources and power, inadequate or dysfunctional institutions, and undemocratic political systems, which brings questions of corporate social responsibility to the fore. The companies should, therefore, be ready to accept the challenges. Edgar Snow on Japanese Goods “Many Chinese necessary purchase entirely on a price basis, and here few native products can compete with the foreign article – usually better in quality, also. The price margin is decisive for the average impoverished Chinese and the ingredient of patriotism cannot enter into it at all. It is generally a question of buying Japanese—or not buying!” (Edgar Snow). Mc Donald’s McDonald’s currently operates in the global quick service restaurant industry business and was the pioneer in the industry. McDonald’s was the one which made the quick service restaurant business a global industry by creating a huge global commercial empire. In its early stages of operations in foreign countries like UK, Germany and Japan it had to conform to the local environment. It did this by not only improving and changing its strict product line but also changed its promotion strategies. For instance, in Japan McDonald is known as Makudonaldo and in one promotional campaign in Ireland McDonald’s proclaimed, ‘Our name may be American, but we're all Irish’. (Greatest Business Stories of All Times) McDonald’s global strategy can be termed as strict quality and consistency standards, innovation and continuous development, central promotional campaign and adaptability to local environments. The company has not only had a significant impact on the American culture but has also created an American symbol all over the world. It faces tough competition from other global operators of fast food chains such as Burger King, KFC, Subway, Wendy’s and YUM! It has recently aligned itself with The Hamburger University for product research so that McDonald’s standardized food assembly procedures are up to industry standards. In 2003 McDonald’s won the award from the NSRS (National Skill Recognition System award for French fries cooking). Conclusion All the countries in the world are in a constant rush to attract more and more international capital towards themselves. This relates to hi-tech industries, employment, institutions, events (conventions and spectacles) and tourism etc. These are now considered to be a standard international set of 'successful' urban development tools which combine marketing along with provision of economic incentives, and locally-specific attributes such as a low cost base. Large scale urban restructuring has taken place with the dominance of the international service industry. Thus, it is imperative for any organization to thoroughly analyze the costs and benefits of operating in a new system under a different set of rules and regulations catering to an entirely new culture and civilization. Method of entry would, therefore, play a vital role in determining the future success of the company’s move into the international arena. Companies like Unilever, Pepsi co, Proctor & Gamble, Toshiba, Gillette and Pizza Hut etc have been able to reap the benefits of international trade to its fullest by expanding int both developing as well as developed countries whereas there have been others which have terribly failed at the same time. Bibliography Lars Perner. National Trade Policy Socio-economic Systems - Part 4. Judicial System. Retrieved from http://www.hketo.ca Tim Wright. University of Sheffield. China in the World Economy. Wal-Mart considers move into Russia. Retail giant hires executive to scope out possibilities CMI - SIP: Business ethics for multinational corporations in developing countries, SIP Beaverstock, J. et al. 1999: A roster of world cities, Cities, 16(6) 445-458. Mollenkopf, J. and Castells, M. 1992: Dual City: Restructuring New York. New York: Sage. Short, J.R. & Kim, Y. 1999: Globalization and the city. Harlow: Longman Short, J.R. 2001: Global dimensions: space, place and the contemporary world. London: Reaktion Smith, D. & Timberlake, M. 1995: Conceptualizing and mapping the structure of the world’s city system, Urban Studies, 32(2), 287-302. Taylor, P. 2003: European Cities in the World City Network, GaWC Research Bulletin 105, Loughborough: Globalisation and World Cities Research Centre. Read More