International Business Management
Advances in transportation and telecommunications infrastructure, including the rise of the Internet, are major factors in globalization, generating further interdependence of economic and cultural activities. Though several scholars place the origins of globalization in modern times, others trace its history long before the European age of discovery and voyages to the New World. Some even trace the origins to the third millennium BCC. Since the beginning of the 20th century, the pace of globalization has intensified at a rapid rate, especially during the Post-Cold War era.
The term globalization has been in increasing use nice the mid-sass and especially since the mid-sass. In 2000, the International Monetary Fund (MIFF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge. Further, environmental challenges such as climate change, cross-boundary water and alarm pollution, and over-fishing of the ocean are linked with globalization. Globalization processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment.
The Benefits of Globalization Globalization has been under a heated debate concerning third world, poorer, less developed countries. Some argue that with globalization comes exploitation where richer countries take advantage of
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Globalization can benefit all countries, rich or poor, if that country is ailing to be open to international trade. Not only do they have to be open to the world market, but they would have to do it in such a strategic way based on how their country is run in order to gain from trade. Practicing globalization the exact same way, by a set of regulations may lead to a country economic downfall. By choosing the best way to engage in international trade, a country can successfully grow economically as well as socially.
By using a country comparative advantage, or what they can produce at a lower opportunity cost than other countries, they can get all the benefits of trade. If every country has a comparative advantage that means that everyone can gain from trade. There is remarkable evidence that globalization is helping countries expand and achieve higher incomes or a higher GAP. Research was conducted on national incomes around the world during the sass and results showed that the income of rich globalizes countries increased by 2% each year.
The results also show that poor, more globalizes countries have a higher increase in income per year than poor, less globalizes countries. Actually according to this research the poor, more globalizes countries have had an increase in income of 5% ACH year while the poor, less globalizes countries had a decrease of 1% per year. On the other hand it is suggested that there is a big gap between the rich and the poor. In 1960 the average income of the richest 20 countries was 15 times higher than the poorest 20 countries. Today the income of the richest 20 countries is 30 times higher.
Globalization significantly led to higher incomes is in China over the past several decades. They have mastered the concept of globalization in their own way far from the Western norms. In an article by Danni Radio China has averaged almost 8% per annum per capita by opening up to the world economy. By taking part in globalization China has been able to fund modernization by selling its products on the world market. Another remarkable fact as a result of opening up to free trade is that in 1960 China’s life expectancy was only 36 years of age and by 1999 reached 70 years.
These statistics prove that with a strategy most fit to a country, globalization can be achieved successfully. Many people are anti-globalization for several reasons. They say it is wrong to pay workers overseas a very small fraction of what an item sells for in wealthier countries. According to an example in an article by Aguish Buckwheat, a designer Jacket may sell for $190 in New York while the worker overseas gets paid 60 cents an hour. This amount is considered to be cheap labor according to those against globalization. Of course 60 cents an hour would seem like an unfair wage too wealthier country.
Also this price of $190 is only for one Jacket; not all jackets sell and the cost to get these products to their destination have to be covered as well. The fact is these “IoW’ wages are about the same as what the average worker makes in these poor countries. In fact according to the same article by Buckwheat, workers that work for foreign-owned enterprises in Vietnam are making more than workers not employed by these international enterprises. A study was companies were making twice the salary as the average worker at a Vietnamese company.
It is impossible to compare wages of wealthier countries to poorer countries much less compare the way a poorer country runs their nation to a richer one. Another issue concerning globalization is child labor and workers that work long strenuous hours in so called “sweatshops”. In these developing countries, sending their children to work is the only way a family can survive. Usually there is not an abundance of schools and medical care like in the wealthier countries, and even if education and proper health care is available it is only available to the wealthier families who can afford it.
Through globalization, households will make higher incomes which may eventually enable a family to send their children to school and provide some type of health care. In another article by Aggie Baggage’ he states, “child labor will certainly diminish over time as growth occurs, partly due to globalization. ” A proposed bill called the Harkin Child Deterrence Bill that was trying o eliminate child labor only led to child workers getting laid off and trying to find jobs elsewhere. Much worse some of the female children were forced into prostitution.
These workers, adults and children, in poor countries are not being forced into hard labor, but it is more like it is a necessity in order to survive. Nicholas Kristin and Sherry Wooden, writers for New York Times Magazine say that these workers volunteer to work longer hours in order to earn more money. These workers are willing to work as much as possible in order to stay alive. People who are anti-globalization are merely blind to the actual facts. Poorer countries do what they can to survive, and globalization helps them obtain higher incomes and improve living conditions.
Just because wages are significantly smaller in poorer countries does not mean exploitation is present. Countries with lower incomes, poor literacy rates, and poor health care cannot become wealthy and efficient overnight. Globalization is a slow process, but it is working. It is allowing for more techniques and methods to be shared around the world. A country closed to the rest of the world will not learn to be better that before, and continue to do things the way they eve been doing. As a result there will not be as much room for improvements and new opportunities to countries that do participate in globalization.
Globalization help in international business * Technology is expanding, especially in transportation and communications. * Governments are removing international business restrictions. * Institutions provide services to ease the conduct of international business. * Consumers know about and want foreign goods and services. * Competition has become more global. * Political relationships have improved among some major economic powers. * Countries cooperate more on transnational issues. * Cross-national cooperation and agreements.
Global business organization With improvements in transportation and communication, international business grew rapidly after the beginning of the 20th century. International business includes that take place between two or more regions, countries and nations beyond their political boundary. Such international diversification is tied with firm performance and innovation, positively in the case of the former and often negatively in the case of the latter. Usually, private companies undertake such transactions for profit.
Such equines transactions involve economic resources such as capital, natural and human resources used for international production of physical goods and services such as finance, banking, insurance, construction and other productive activities. International business arrangements have led to the formation of multinational enterprises (MEN), companies that have a worldwide approach to markets and production or one with operations in more than one country. An MEN is often called multinational corporation (NC) or transnational company (TNT).
Well known Macs include fast food companies such as McDonald’s and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LEG and Sony, and energy companies such as Complexion, Shell and BP. Most of the largest corporations operate in multiple national markets. Businesses generally argue that survival in the new global marketplace requires companies to source goods, services, labor and materials overseas to continuously upgrade their products and technology in order to survive increased competition.
Multinational strategy Companies adopt this strategy when each country market needs to be treated as self-contained. It can be for the following reasons: * Customers from different countries have different preferences and expectations about a product or a service. * Competition in each national market is essentially independent of competition in other national markets, and the set of competitors also differ from country to country. * A company’s reputation, customer base, and competitive position in one nation have little or no bearing on its ability to successfully compete in another nation.
Some of the industry examples for multinational competition include beer, life insurance, and food products. Global competitive strategy Companies adopt this strategy when prices and competitive conditions across the different country markets are strongly linked together and have common synergies. In a globally competitive industry, a company’s business gets affected by the changing environments in different countries. The same set of competitors may compete against each other in several countries.
In a global scenario, a company’s overall competitive advantage is gauged by the cumulative efforts of its domestic operations and the international operations worldwide. A good example to illustrate is Sony Ericson, which has its headquarters in Sweden, Research and Development taupe in USA and India, manufacturing and assembly plants in low wage countries like China, and sales and marketing worldwide. This is made possible because of the ease in transferring technology and expertise from country to country.
Industries that have a global competition are automobiles, consumer electronics (like televisions, Task 2-a Kosher Limited wants to enter international market. Will country risk analysis help Kosher Limited to take correct decisions? Substantiate your answer. Country Risk Analysis (CRA) identifies imbalances that increase the risks in a cross- border investment. CRA represents the potentially adverse impact of a country environment on the multinational corporation’s cash flows and is the probability of loss due to exposure to the political, economic, and social upheavals in a foreign country.
All business dealings involve risks. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets. When business transactions occur across international borders, they bring additional risks compared to those in domestic transactions. These additional risks are called country risks which include risks arising from national differences in socio- lattice institutions, economic structures, policies, currencies, and geography. The CRA monitors the potential for these risks to decrease the expected return of a cross- border investment.
Analysts have categorized country risk into following groups: Economic risk This type of risk is the important change in the economic structure that produces a change in the expected return of an investment. Risk arises from the negative changes in fundamental economic policy goals (fiscal, monetary, international, or wealth distribution or creation Transfer risk This type of risk arises from a decision by a foreign government to restrict capital events. It is analyses as a function of a country ability to earn foreign currency.
Therefore, it implies that effort in earning foreign currency increases the possibility of capital controls. Exchange risk This risk occurs due to an unfavorable movement in the exchange rate. Exchange risk can be defined as a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Location risk This type of risk is also referred to as neighborhood risk.
It includes effects caused by problems in a region or in countries with similar characteristics. Location risk includes effects caused by troubles in a region, in trading partner of a country, or in countries with similar perceived characteristics. Sovereign risk This risk is based on a government’s inability to meet its loan obligations. Sovereign risk is closely linked to transfer risk in which a government may run out of foreign exchange due to adverse developments in its balance of payments. It also relates to political risk in which a government may decide not to honor its commitments for lattice reasons.
Political risk This is the risk of loss that is caused due to change in the political structure or in the politics of country where the investment is made. For example, tax laws, and bureaucracy also contribute to the element of political risk. Country Risk Risk assessment requires analysis of many factors, including the decision-making process in the government, relationships of various groups in a country and the history of the country. Country risk is due to unpredicted events in a foreign country affecting the value of international assets, investment projects and their cash flows.
The analysis of country risks distinguishes between the ability to pay and the willingness to pay. It is essential to analyses the sustainable amount of funds a country can borrow. Country risk is determined by the costs and benefits of a country repayment and default strategies. The ways of evaluating country risks by different firms and financial institutions differ from each other. The international trade growth and the financial programs development demand periodical improvement of risk methodology and analysis of country risks.
The historical brief helps to identify aspects that interfere in the future behavior of the country, educing the ability to payback any external commitment. The main historical data provides a good understanding of the key factors which draw the behavior of the society, the government, the private sector, the legal environment, the economic, political, and the relationships to neighbor nations and the world as a whole. The organization of the government and its features like political and administrative organization are also relevant aspects to be approached.
The political forces which act in the country, their representatives and the main national issues must be focused. The other considerations include social aspects and their key-indicators like population growth rate, unemployment ratio, infant mortality rate, composition of the population and life expectancy. The geographic positioning and its related strengths and weaknesses are also critical aspects. Task 3-a How can managers in international companies adjust to the ethical factors influencing countries?
Is it possible to establish international ethical codes? Briefly explain. Ethics can be defined as the evaluation of moral values, principles, and standards of human conduct and its application in daily life to determine acceptable human behavior. Business ethics pertains to the application of ethics to business, and is a matter of concern in the corporate world. Business ethics is almost similar to the generally accepted norms and principles. Behavior that is considered unethical and immoral in society, for example dishonesty, applies to business as well.
Most countries have similar ethical values, but are practiced differently. This section deals with the way individuals in different countries approach ethical issues, and their ethically acceptable behavior. With the rise in global firms, issues related to ethical values and traditions become more common. These ethical issues create complications to Multi-National Companies (Macs) while dealing with other countries for business. Hence, many companies have formulated well-designed codes of conduct to help their employees.
Two of the most prominent issues that managers in Macs operating in foreign countries face are bribery and corruption and worker Bribery and corruption Bribery can be defined as the act of offering, accepting, or soliciting something of value for the purpose of influencing the action of officials in the discharge of their duties. Corruption is the abuse of public office for personal gain. The issue arises when there are differences in perception in different countries. For example, in the Middle East, it is perfectly acceptable to offer an official a gift.
In Britain it is considered as an attempt to bribe the official, and hence, considered unlawful. Worker compensation Businesses invest in production facilities abroad because of the availability of low- cost labor, which enables them to offer goods and services at a lower price than their competitors. The issue arises when workers are exploited and are underpaid compared to the workers in the parent country who are paid more for the same Job. The disparity arises due to the differences in the regulatory standards in the two countries.
Companies use management techniques to encourage ethical behavior at an organizational level. Various techniques of managing ethics like practicing ethics at the top level management, special training on ethics, forming committees to oversee ethical issues, and defining and implementing code of ethics are: 1 . Top management The senior management of a company must be committed to ensure that ethical standards are met. The chief executive of the company must not engage in business raciest harmful to employees, or the society. The top management must focus on ethical practices while informing employees of their intention. 2.
Code of ethics One of the best practices for ethics is creating a ‘corporate ethical statement’ and communicating it within the company. Such practices enhance the company’s public image. Almost all Fortune 500 companies have such codes. 3. Ethics committee There are ethics committees in many firms to help them deal with and advice on work related ethical issues. The Chief Executive Officer can head the committee that includes the Board of Directors. Such a committee answers employee queries, helps the company to establish policies in uncertain areas, advises the Board on ethical issues, and oversees the enforcement of the code of ethics. . Ethics hotlist A company’s ethical hotlist helps its employees report any ethical issues they face at work. The ethics committee then investigates these issues. Such hotlist calls are treated confidential, where the caller’s identity is protected to encourage employees to report on ethical issues. 5. Ethics training programs Most firms take ethics seriously and provide training for its managers and employees. Such training programs help the employees become familiar with the official policy on ethical issues. These programs demonstrate the use of these ethic policies in everyday decision-making.
Ethics training is most effective when conducted by managers and when focused on work environment. 6. Ethics and Both law and ethics focus on defining the perfect human behavior, but they are not the same. Law is the government’s attempt to formalism rightful behavior, but it is rarely possible to enforce written laws. It depends on individual or business ethics to reduce unlawful incidents. Ethical concepts are more complex than written rules nice it deals with human dilemmas that go beyond the formal language of law.
Code of conduct for Macs The code of conduct for Macs refers to a set of rules that guides corporate behavior. These rules prescribe the duties and limitations of a manager. The top management must communicate the code of conduct to all members of the organization along with their commitment in enforcing the code. Some of the ethical requirements for international companies are as follows: * Respect basic human rights. * Minimize any negative impact on local economic policies. * Maintain high standards of local political involvement. Transfer technology. * Protect the environment. Protect the consumer. * Employ labor practices that are not exploitative. When a manager of an international firm faces an ethical problem, certain models help in solving these ethical issues. The first task is to consider the ethical and legal consequences of the issue and whether the action or its consequences are in accordance with the law, both in the home and host country. Task 4-a Discuss the international marketing strategies. How is it different from domestic marketing strategies? International marketing involves the firm in making one or more marketing mix sections across national boundaries.
At its most complexes, it involves the firm in establishing manufacturing/processing facilities around the world and coordinating marketing strategies across the globe. At one extreme there are firms that opt for ‘international marketing simply by signing a distribution agreement with a foreign agent who then takes on the responsibility for pricing, promotion, distribution and market development. At the other extreme, there are huge global companies such as Ford with an integrated network of manufacturing plants worldwide and who operate in some 150 country markets.
Thus, at its most complexes, international marketing becomes a process of managing on a global scale. These different levels of marketing can be expressed in the following terms: * Domestic marketing, which involves the company manipulating a series of controllable variables such as price, advertising, distribution and the product/service attributes in a largely uncontrollable external environment that is made up of different economic structures, competitors, cultural values and legal infrastructure within specific political or geographic country boundaries. International marketing, which involves operating across a number of reign country markets in which not only do the uncontrollable variables differ form of cost and price structures, opportunities for advertising and distributive infrastructure are also likely to differ significantly. It is these sorts of differences that lead to the complexities of international marketing. * Global marketing management, which is a larger and more complex international operation. Here a company coordinates, integrates and controls a whole series of marketing programmers into a substantial global effort.
Here the primary objective of the company is to achieve a degree of synergy in the overall operation so that by taking advantage of different exchange rates, tax rates, labor rates, skill levels and market opportunities, the organization as a whole will be greater than the sum of its parts. This type of strategy calls for managers who are capable of operating as international marketing managers in the truest sense, a task which is far broader and more complex than that of operating either in a specific foreign country or in the domestic market.
Thus, how international marketing is defined and interpreted depends on the level of involvement of the company in the international marketplace. International marketing could therefore be: * Export marketing, in which case the firm markets its goods and/or services across national/political boundaries. * International marketing, where the marketing activities of an organization include activities, interests or operations in more than one country and where there is some kind of influence or control of marketing activities from outside the country in which the goods or services will actually be sold.
Sometimes markets are typically perceived to be independent and a profit centre in their own right, in which case the term litigation or multi-domestic marketing is often used. * Global marketing, in which the whole organization focuses on the selection and exploitation of global marketing opportunities and marshals resources around the globe with the objective of achieving a global competitive advantage. The first of these definitions describes relatively straightforward exporting activities, numerous examples of which exist.
However, the subsequent definitions are more complex and more formal and indicate not only a revised attitude to marketing but also a very different underlying philosophy. Here the world is seen as a market segmented by social, legal, economic, political and technological (SLEPT) groupings. For all these levels the key to successful international marketing is being able to identify and understand the complexities of each of these SLEPT dimensions of the international environment and how they impact on a firm’s marketing strategies across their international markets.
As in domestic marketing, the successful marketing company will be the one that is best able to manipulate the controllable tools of the marketing mix within the uncontrollable environment. It follows that the key problem faced by the international marketing manager is that of coming to terms with the details and complexities of the international environment. Difference between domestic marketing and international marketing Scope The scope of domestic marketing is limited and will eventually dry up. On the other end, international marketing has endless opportunities and scope.
Benefits As is obvious, the benefits in domestic marketing are less than in international marketing. Furthermore, there is an added incentive of foreign currency that is Domestic marketing is limited in the use of technology whereas international racketing allows use and sharing of latest technologies. Political relations Domestic marketing has nothing to do with political relations whereas international marketing leads to improvement in political relations between countries and also increased level of cooperation as a result.
Barriers In domestic marketing there are no barriers but in international marketing there are many barriers such as cross cultural differences, language, currency, traditions and customs. Task 5-a Discuss the various International product and pricing decisions. International Production Decisions In decisions on producing or providing products and services in the international market it is essential that the production of the product or service is well planned and coordinated, both within and with other functional area of the firm, particularly marketing.
For example, in horticulture, it is essential that any supplier or any of his “out grower” (sub-contractor) can supply what he says he can. This is especially vital when contracts for supply are finalized, as failure to supply could incur large penalties. The main elements to consider are the production process itself, pacifications, culture, the physical product, packaging, labeling, branding, warranty and service. Production process In manufactured products this may include decisions on the type of manufacturing process – artisan, Job, batch, and flow line or group technology.
However in many agricultural commodities factors like seasonality, permissibility and supply and demand have to be taken into consideration. Quantity and quality of horticultural crops are affected by a number of things. These include input supplies (or lack of them), finance and credit availability, variety (choice), sowing dates, product range ND investment advice. Many of these items will be catered for in the contract of supply. Specification Specification is very important in agricultural products.
Some markets will not take produce unless it is within their specification. Specifications are often set by the customer, but agents, standard authorities (like the EX. or TIC Geneva) and trade associations can be useful sources. Quality requirements often vary considerably. In the Middle East, red apples are preferred over green apples. In one example French red apples, well boxed, are sold at 55 diners per box, whereas not so attractive Iranian greens are sold for 28 diners per box. In export the quality standards are set by the importer.