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Chapter: Business Science - International Business Management - International Trade and Investment

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Challenges for Global Business

Entering new country markets unprepared can often lead to disappointing results as well as detract from efforts in your domestic marketplace.

CHALLENGES FOR GLOBAL BUSINESS:

 

Entering new country markets unprepared can often lead to disappointing results as well as detract from efforts in your domestic marketplace. One of the first challenges is how to appraise the success of any global business activity. We have all too often found that a global business quite literally “takes on a life of its own” and grows with specific strategy, management, and no specific performance metrics. Measuring the ROI is a complex activity that involves analyzing the many variables particular to global expansion.

 

There are additional costs in developing products to be used in global markets, and there are additional administrative costs in creating marketing and sales materials, or obtaining special export licenses. There are also longer sales cycles, longer cash conversion cycles, and the difficulty of trying to determine return on investments when there are multiple currencies involved.

 

All in all, it is far all too easy to fall into the trap of defining what constitutes a “success” too narrowly because each product/market situation requires that you set different objectives and establish a different performance metrics process.

 

For example, the complexities of shipping and logistics are overwhelming. In fact, the hardest aspects of circumnavigating the business world fall into two broad categories: how to get an order from one place on the globe to another, and how to negotiate the Byzantine bylaws of trade and customs regulations.

 

Other challenges include having to learn new business practices, as well as dealing with insufficient technology, local employee hiring, regulatory hurdles, international transaction costs, currency differences, and establishing local partnerships.

 

Monitoring “country risk” is most challenging for small ventures. Large corporations like IBM, General Motors, and Coca-Cola have huge departments for monitoring this specific challenge. Country risk is composed of a handful of challenges. For examples, there is the challenge of dealing with “political risk” which is dealing with the overall attitude of host governments, attitudes of consumers, expropriation, racial strife, religious freedoms, civil strife, corruption, nepotism, nationalism, war, and bureaucracy.

 

There is also the challenge of following and monitoring governmental controls, trade barriers, exchange rate policy tools, and foreign exchange systems, such as currency inconvertibility and the intervention of buying and selling of currencies in foreign markets. Finally, there is the challenge of monitoring the international flow of funds, each country’s “capital account,” or each country’s trade balances with the rest of the world.

 

Perhaps the greatest challenge is refreshing the global mindset.

 

It is only through a fundamental shift in mindset that new opportunities are discovered. In fact, some suggest it should be a formal corporate process that consists of “global learning.” We stress that this formal process should be an ongoing commitment of time and energy and, perhaps more important, the ability to admit that you never know everything and to be always open to learning something new.

 

Compliance and Regulations

 

Whether you are a small business shipping homemade handbags through a website or a consulting firm offering your services to multinational corporations, you must understand and follow various rules and regulations that govern your goods and services. You must comply with the tax laws of different countries as well as statutory export regulations. Some countries have strict policies about the types of business practices allowed in their countries that often include human resource and pension restrictions and rules if you hire a foreign workforce.

 

Culture and Language

 

One of the advantages of a global economy is that more small businesses can compete competitively. However, few small businesses are prepared to handle the customer service calls from China, Vietnam and other emerging markets key to the success of a global competitor. If your sales are increasingly going overseas, you have to find ways to navigate the language barriers that may crop up in emails and phone calls. At the same time, cultural differences can play a big role in your success in the global market. For example, in China, the color red is a symbol of luck, while in other countries, it represents a warning sign. Religious and cultural boundaries must be understood to run effective marketing campaigns abroad.

 

Environmental Impact

 

Recycling is rapidly becoming a common practice in most U.S. companies as business leaders realize the impact their behavior has on global environmental issues. You may be challenged to incorporate successful recycling programs because they may be cost-prohibitive or just inconvenient. Energy-saving devices such as compact fluorescent light bulbs make a dent in world energy consumption, but they may not be viable for your office. Challenges abound for developers looking to build new factories or office space. Food, energy and transportation companies all face environmental pressures to use fewer natural resources and offer products made with recyclable materials.

 

Technology and Communication

 

One of the biggest challenges facing globally competitive marketplaces is the communication issues that crop up when technology doesn’t keep up in every sector. When your company relies on disparate systems that can’t communicate with each other, your bookkeeping gets bogged down, and orders slow or cease. Access to vital information may be compromised when technological systems are not standardized. You’ve got to rely on translations and reports from foreign staff members instead of using a centralized system when the technology you rely on to run your business isn’t compatible with the technology used by your buyers, foreign offices and global sales force.

 

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