Global telecommunication is the interexchange of information and telecommunication through a global network. This means that information can be conveyed and received anywhere globally. In business, one can receive or sent faxes by email, voicemail by email and can easily get email by phone (Jeffrey and Oded, 2006). Global operations have been boasted by the high speed internet connection available and easily accessible by people globally. Innovation and creativity is a major driving force in the advancement of information technology and global communication.
This has necessitated the expansion of business electronically, for instance e-commerce, e-business, electronic money transfers and mobile banking (McPhail, 1991). Business operations have been made easier due to wide network connection bands and the World Wide Web which have been modernized and developed to enhance and promote companies and organization’s business transactions world wide. Even though there are advantages of advanced information technology and global communication, there are a number of risks which accompany it.
Many companies especially the American multinational companies have been expanding across their border to other countries in the world. In the environment they are operating in, there are some risks which include political risks, environmental risks, social cultural risks, technological risks, economical risks and
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Personal differences between the presidents or leaders of different countries will pose a risk to these companies. Due to wars and conflicts in countries where the American have invested in, it has led to the destruction of some of them. Some countries have converted American companies into state corporations forcefully. All these challenges are cause by political enmity and conflicts between countries (David, 2006). The companies can be ejected out of the country leading to great losses.
American government has a differing political ideology with the Middle East countries and hence transacting business in these countries will not be easy. The technological risks are currently very crucial and costly if the companies are not technologically driven. Due to innovation advancement, multinational companies and organizations from America have faced many challenges in different countries; as a result of rapid change in technology. All countries want to compete favorably in the market so as to gain competitive advantage, technological advancement is necessary.
Failure to adjust to the current technology in the market makes the company to be obsolete and inability to meet the customer’s specifications and requirements. American organizations and companies are at risk of collapsing because other companies in the countries they operate their business adopt the new technology and make it better hence gaining the competitive advantage over these companies and organizations (Arun, 2000). Most American organizations are operational in almost all countries in the world hence can be costly to adapt to the advanced technology to all companies worldwide.
This is a major challenge to American companies since technology is dynamic and keeps on changing hence strategies and major financial decisions have to be reviewed from time to time so as to make them relevant (McPhail, 2010). Training the staff to gain skills and knowledge of the rapidly changing technology is quite expensive and time consuming. The economic factors have in the past been a major risk to American companies in overseas countries. The economic risk is a major challenge facing American companies’ world wide and therefore need to be addressed with much caution.
These economic factors posing risks to these companies include exchange rates, taxes and interest rates. The exchange rates of different countries keep fluctuating especially during the financial crisis or during the times of war and calamities. The exchange rates of many countries are not fixed hence keep on changing from time to time hence companies can make great losses very easily (David, 2006). For instance, if the exchange rate appreciates for example from $78 to $69, then there will be a loss of $9 per unit.
Since most of the American companies produces their goods or products in large quantities, there are high chances that the losses they get can make the company collapse or loose its loyal customers since it cannot meet their demands. The floating rates make it difficult for the companies to predict about the future financial position. Making a decision especially on the expected volume of sales and profit margins is cumbersome and complicated because many factors need to be considered before arriving at an informed decision (Arun, 2000).
The interest rate is a factor which can make a company to collapse or fail to meet its set goals and objectives as stated in the mission and vision statements of the company. Some companies borrow funds in the countries where they are established at the agreed upon rate of interest; but due to economic factors which are not stable in most countries, can lead to a rise in the interest rate (David, 2006). This make the repayment of the debt very costly to the company since it is not as planned. Taxation is a challenge to most American companies in that, most countries tax foreign companies highly making them unprofitable.
Taxes are mandatory even if the company is making losses hence a double tragedy to the American companies in some foreign countries. Terrorism is a factor which poses a threat or a risk to American multinational companies. Terrorists target these companies because of the differences in the ideas and enmity existing between America and Islamic nations. The companies can be bombed any time by the terrorists hence their existence is vulnerable because of security reasons. The legal factor can be a risk to American companies because countries change the laws governing foreign companies most frequently (Newson, 2007).
This will destabilize their business operations in that, the legal requirements to be fulfilled can be costly or make a company close its operations. The political enmity and historical injustices between America and other nations can make them institute laws that deter them from operating in that country. Strategic alliance is a formal relationship between two or more parties, people or countries to pursue and accomplish a set agreed upon goals or objectives or to meet critical business needs (David, 2006). It is a cooperation or collaboration which aims at synergy.
All parties involved must contribute equally or on agreed upon percentage proportions. The parties involved must benefit equally and they must share risks, losses and expenses in the same proportion. It involves technology transfer where knowledge and expertise is accessed and communicated to all parties freely without fear or favor of one party. Alliance formation involves five stages and these are strategy development, partner assessment, contract negotiation, alliance operation and finally alliance termination terms and conditions.
In stage one, strategy development involves studying the alliances feasibility, goals, objectives, issues and challenges (Fredrick and Sandra 2008). This is finding out whether the alliance will achieve what the two parties expect from the alliance. The feasibility study is to find out whether the alliance is viable or not especially economically, legally, technologically and socially. Harmonization of objectives and goals of both parties are discussed and agreed upon. The second stage is partner assessment where analysis of strengths and weakness of the parties is analyzed.
The motives and the driving force of each partner are prioritized and assessed to come up with the best combination to propel the alliance forward towards achieving its goals and objectives. A resource capability gap is addressed so as to allocate the scarce resources equitably. The third stage is contract negotiation to determine whether all parties have realistic objectives (Fredrick and Sandra 2008). There is the formation of high caliber negotiation teams to address termination clause, penalties and arbitration procedures.
The forth stage involves alliance operation which addresses the senior management commitment, linking budgets and resources, measuring and rewarding alliance performance. The last stage is alliance termination where process of winding up is addressed; when and how to wind up after or before the objectives are met or not. There are four main types of alliances and these are joint venture, equity strategic alliance, non equity strategic alliance and global strategic alliances. Joint venture is an alliance where two or more parties are legally operating their businesses jointly.
Equity strategic alliance is an alliance in which two or more firms own different percentage of a company, by combining some of their resources and capabilities (Fredrick and Sandra 2008). Non equity strategic alliance is an alliance where two or more firms develop a contractual relationship to share some of their unique resources and capabilities so as to create a health competition. Global strategic alliance on the other hand is a working partnership between companies across national boundaries and increasingly across industries.
By entering into strategic alliances with competitors, it leads to expansion of the companies to all parts of the world where there is availability of the market. It will be easier to penetrate into new markets because of the combined efforts of the parties hence getting the larger market share than their competitors or rivals. Strategic alliance by two or more parties ensures that knowledge, skills, experiences, technological know how and competences are shared hence improving their performance and productivity.
The scarce resources brought in and invested by both parties can be utilized fully to yield more returns or profit margins than when an individual party does it individually (Jeffrey and Oded, 2006). Quality of the products will be assured because of the combined technological know how. The advanced technology can be adapted easily because financial resources will be pooled together hence can be adequate to install the new equipment. Strategic alliance can lead to monopoly hence can easily dominate the market and gain from the economies of scale.
This makes it easier for the companies to negotiate with the authorities in respect to taxation, laws and interest rates charged by the banks on loans borrowed to expand the business. Mutual relationship between the different countries engaging in business is enhanced hence reducing conflicts and misunderstanding (McPhail, 2010). Different companies have their unique resources and an area of specialization, therefore promoting resource sharing and allocation between the parties of the alliance. Even though there are many advantages of strategic alliance; there are risks which can affect the relationship between the parties to the alliance.
Lack of commitment of one partner can negatively affect the operations of the company. Failure of a partner to meet all the terms and conditions may lead to constant conflicts and pull out of the other partner (Fredrick and Sandra 2008). Customers may be required to pay more because monopoly arising because of the alliance. Products produced can be of poor quality or do not meet the required standards and customers must buy from because of lack of substitutes. Other competitors enter into an alliance only to gain what they lack then quit before the alliance set goals and objectives are met.
For instance a partner may only want know her partners sales and marketing strategies or to gain from the large market of the competitor (David, 2006). This has been a major challenge and a risk which have led to the collapse of some reputable companies. Strategic alliances leads to laying off of some employees since all of them cannot work in the newly formed alliance hence leading to unemployment. The legal and administrative costs of forming an alliance are high hence straining companies’ financial resources which could have been used to expand and to improve the operations of the company (McPhail, 1991).
Incase of a sour relationship between the two countries whose companies had entered a strategic alliance contract; one partner can loose all his portion of the investment. Political differences and suspicion between these countries become a major risk to the operations the alliance. Since sharing of information is common and easily accessible due to information technology and global communication, competitors can get the information and use it to out perform it rivals in the market. References: Arun, B. (2000). Information Technology and Development. Bangalore: Gyan Books. David, G. G. (2006).
Public Information Technology and e-governance: Managing the Virtual State: New York: Jones and Barllett Learning. Fredrick, G. and Sandra, S. (2008). Information Technology Control and Audit: Rocket City: CRC Press. Jeffrey, J. R and Oded, S. (2006). Strategic Management and Business Policy. New York: Sage Publishers. McPhail, L. M. (2010). Global Communication: Theories, Stakeholders, and Trends. New York: Wiley and Sons. McPhail, L. M. (1991). Electronic Colonialism. New York: Wiley and Sons. Newson, D. (2007). Bridging the Gap in Global Communication. Michigan: Michigan Press Publishers.