International business development
Introduction
International
business development entails the evolution of the normal process that underlay
trade, the flow of capital, foreign direct investment, the advancement of technology
and the subsequent migration towards the nation that were traditionally
underdeveloped or undeveloped. The most
important consideration in the international business development lies on the
ways in which the businesses will become accustomed to the societies and
cultures of the countries in which they operate in (Batra and Dangwal, 1999).
There are a number of ways in which the firms are able to provide services and
goods to the consumers and businesses in the countries which the hope to enter
into. There are a number of considerations that must be looked into when
posting professionals who will serve in the foreign countries where their firms
have moved into. The issues include the economic considerations, the cultures
and the laws that govern the country, trade patterns that govern the country
and the business practices that are found in the country where the firm seeks
to start its operations. Consideration must be done in regards to the formation
of the strategic partnerships, intellectual property issues, advertising and
financing, international marketing, fair trade practices, the management of
knowledge and information management. The section will explore the trends,
barriers and problems of international business development.
Trends
in international business development
The
first trend that affects international business development is the growth in
the use of the internet. The internet
has brought with it a variety of capabilities for instance world wide network
and easy access. The internet has improved the concept of internalisation of
the operations of many firms in two main fronts. There is the ease of communication
allows for an improvement in inter and intra firm communication thus offering
an impetus for the firm to be able to internationalise more easily (Batra and Dangwal,
1999). The communication between firms and within firms can help to explain the
high incidence of mergers and acquisitions, joint ventures and many other forms
of business cooperation in the industry. The firms will thus carter for many
customers who are outside their geographical locations and thus leading to an
increase in the international competition between firms (Dlabay and Scott, 2011).
The internet has also contributed to the internationalisation of the business
development through the consideration of the opportunities for business that
can be accessed from the internet. Investment opportunities can increasingly be
known from the various locations thus firms from diverse nationalities can be
able to seize those opportunities.
Technological
advancements have led to the firms being able to achieve production economies
for instance majority of the digital information goods are characterized by
high fixed rates and very negligible marginal costs. The firms that are
involved will thus focus on the ways in which they are able to offer the
products to as many customers as they possibly can (Czinkota and Kotabe, 1998).
This is because no more costs will be incurred following the initial investment
costs (Dlabay and Scott, 2011). The cost structure of the technology goods,
associated with firms, acts as a factor that encourages the firms to focus more
on providing their products on a global scale, thus greatly promoting
international business development.
The
other trend that affects the international business development is the openness
of the economies of many countries in the world. The adoption of the WTO
resolutions has made even the previously inaccessible countries to be open for
investment. There has been a noted influx in the number of firms that are
investing in China especially following their ratification of the charter (Dlabay
and Scott, 2011). The economies such as those of the CEE have increasingly
become more open to international business and they are able to become leaders
in both import and export operations. Poland is an example of a country where
the imports and the exports almost grow at the same rate. The table below shows
the figure for Czech Republic and Poland (Lorange and Contractor, 2002). The
international growth trends can be seen to be very real in the globe following
the WTO agreements and the opening up of competition between countries
Balance
of Payment Overview (Million US $ at current exchange Rates), by country,
transaction and year
|
|
2006
|
2007
|
2008
|
2009
|
|
Exports FOB:
Czech
Republic
Poland
|
85515
117250
|
106344
145113
|
124790
177898
|
99007
141872
|
|
Imports FOB:
Czech
Republic
Poland
|
-82896
-124566
|
-104051
-164058
|
-123269
-208701
|
-94406
-149439
|
Source:
United Nations Economic Commission for Europe (UNECE) Retrieved on 3 May 2012
from http://w3.unece.org/pxweb/dialog/Saveshow.asp?lang=1
The other trend that affects the
international business development is the rise in middle class nations for
instance the BRIC countries of Brazil, Russia, India and China. There is a high
movement of the companies form the developed world to these countries so that
they can be able to provide the services and goods that are needed in these
countries (Ajami and Goddard, 2006). The movement of the firms will continue to
lead to an increase in the development of international business.
Barriers
and problems to international business development
There are a number of barriers and
problems that can face international business development. The first will be the
instability in the relationship between the firms. This is because of the
changes in the interest of the management, the ever changing business
environments. This can result from the misunderstandings that might have risen
up from the international business agreements between the countries. This is a
major problem with the many joint venture enterprises that dotted the industry
thus leading to their failure. The other barrier that can be faced is the
interference by the government for instance the veto powers that are retained
by the governments may greatly affects the development of international
business (Madura, 2007). The problems are made worse when government changes
and so does the people who have a say in the given investment. There are also
issues with the currencies that are used by the countries especially the
currency risks that are associated with international transactions.
The foreign bureaucracies are also a
barrier to the various operations of the firm for instance the commission, the
gratuities and the other arrangement may in the end be considered illegal. All
this affect whether firms would increasingly want to engage in the operations
with the given country. Also, there can be ideological differences which
greatly affect how the negotiations are carried out in the industry. This
complicates the communication between the partners or the firm that wants to
enter into an international market and the authorities. There may be positions
which may not be negotiable even in the communication as they may be considered
very central to the partners. Thus greatly affects the outcomes of the
operations of the businesses that operate in the industry. The ideological
considerations have been noted to be great between Germany and US for instance
in terms of the labour usage and how the firm is supposed to deal with the
excess labour. In the US, the answer usually lies in the laying off the
workers. This is very unacceptable in Germany (Hill, 2005). The ideological
differences can also be explained from the point of view of nationalisation
where countries do not trade with those that they dislike.
There are also cultural issues that
affect the international business development for instance a firm that is
originally based in UK will find it very difficult to operate in the communist
countries such as China. This can be explained from the point of view of the
cultural dimensions of Hofstede (1980) as cited in Forsgren and Johanson (1992). The emotions in the negotiations will likely
to be shown by the UK negotiators while the Chinese negotiators will always
keep their cool. There is also a high power distance in the Chinese firms for
instance the decisions can only be made by the executives i.e. the CEO and not
the negotiators. In most instances, the UK exhibited individualisms while the
Chinese on the other hand worked more as collectivists. The time orientations
of the two countries are also different as the Chinese have long term
orientation while the Britons have a short term orientation.
The other problem that international
business development faces is the increase in costs due to the fact that the
firms must be able to provide products of high quality at prices that are
competitive if they are to penetrate the international markets (Ball, 2006). There
are also national controls for instance in the form of trade barriers for the
firms that manufacture outside the country in terms of tariffs and duties.
Strategies
and plans for international business development: Coca Cola Company
Cola Company was started in 1886 by
Pemberton John in Atlanta. The firm hit sales levels of 1.5 billion bottles per
day in 2010. The firm has a very high return on capital employed as compared to
other competitors. Appendix 1 shows the ROCE by the firm as compared to other
firms. The firm has over 6000 brand in the global market. The firm uses a
number of strategies in the international market development. The strategy that
is mostly used by the firm is the international market entry. The entry is done
in a number of ways.
First,
the firm uses licensing as a method through which it can be able to engage in
international business. Coke enters into agreement s with bottling firms
throughout the world, providing them with syrup which is used in the
manufacture of the soft drinks. The firm gives its rights to use the logos and the
patents but enjoys benefits in terms of the fees and royalties that are paid to
the firm. Tielmann (2010) noted that the firm can be able to reap high revenues
from the arrangement. Examples of the areas where the firm has been able to use
this include the entry into Zimbabwe where it licensed to United Bottlers; Coke
gave the syrup and technical expertise in exchange for royalties and fees.
The
firm has also engaged in foreign direct investment (FDI). Mok, Dai and Yeung
(2002) noted that Coca cola has been able to use equity investment in the
various Chinese firms. This strategy was used by the firm in response to the
unsuccessful franchises that the firm had operated in China. There were
problems in the franchises that the firm rate as they were more focused on
running their bottom lines without considering the various operations of the
firm. The FDI of the firm also included a number of Joint Venture that Coca
Cola entered into with other firms in China. The first Joint venture took place
between Swire Group, Coke and Kerry Group where Coke was able to localise the
upstream suppliers and also the localisation of the team that was in charge of
the management of the operations. The benefits that the firm was able to get
form the varied joint ventures that it engaged in included the costs reduction
as most of the costs of engaging in the operations were shared between the
partners in the joint venture. There was an improvement in the sharing of the
revenues between the firms for instance the as opposed to the problems that
faced in the franchises.
The
other plans that the firm explores is on the improvement of the quality of the
various products so that they can be increasingly accepted in the various markets
where the firm operates in. There were issues where compounds were found in the
various products of the firm for instance in India. This led to the suspension
of Coca cola from the Indian market. However, the firm has focused on ways
through which it can make the quality of its products to be beyond reproach and
engage in the satisfaction of its customers in terms of the fun and taste that
is associated with the consumption of the products (Tielmann, 2010).
Key
factors impacting on the prospects of Coca Cola strategies
There are a number of factors that
will affect the strategies and plans that are currently being explored by Coca
Cola. The first is the ever changing preferences of the consumers thus eh firm
will find it very hard to maintain the quality levels that are demanded by the
various consumers. The consumers want a variety and high quality which may not
be met by the firm at all the times when the quality is needed by the
customers. Secondly, there are the issues of government control that affects
the operations of the firm thus in many instance the government affects the
ownership of the firms though the increasingly rising concept of state
capitalism. This also connects with the issue of sovereignty in countries such
as China and Nigeria (Polk, 2009).
The
other issue that arises is the wage differentials that exist especially between
the North American operations of Coca Cola and the Chinese operations (Regassa and
Corradino, 2011). The people have had an ideological issue with the firm as they
increasingly view it as promoting discrimination of the people. This has the
potential of making the firm to be unacceptable to the Chinese nationals due to
the nationalist values that have been told to them; that the western companies
are always out to exploit them in terms of the labour conditions and the
payments (remuneration) that the people receive.
Although
the world population is increasing particularly in the BRIC nations, there has
been an increase in the levels of competition that is faced by the firm even in
these areas. There are a number of firms that operate in the industry and thus
if the customers feel that the prices of the products are not competitive, they
will be more inclined to switch to the
competitors of the firm for instance the case of Pepsi and Coca Cola in India (Regassa
and Corradino, 2011). The customers look for both quality and fair pricing and
thus will buy from the firm that can provide both. At coca cola the high
quality provision is likely to lead to an increase in the prices and this has
the potential to affect the sales volumes in the market. The cultural
degradation of the countries where the firms operate will lead to the firm
being opposed in the various spheres of its operations.
The
differences in the cultures between the different countries may lead to a
variety of barriers to the success of the ventures. The first problem will be
faced in the negotiations for the various agreements for instance the join
ventures and the licensing agreements between the firms. The Chinese for
instance have a high collectivism and long term orientation thus would review
the agreements much longer thus the firm may miss out on the opportunity to be
able to penetrate the market (Wilken and Sinclair, 2011). The high power
distance in China will also cause problems to the firm as the decisions cannot
be made by the negotiators; China is characterised by very high rates of
centralised decision making.
Overcoming
the barriers to progression
There are a number of ways through
which the barriers can be overcome in the industry. The first consideration
will be for the firm to be able to offer equal pay for the equal jobs thus the
nationalist views that form the ideology that Coca cola is engaged in the
exploitation of the employees will be done away with. The low pay for the
Chinese workers was the major cause of the above problem. Therefore, when the
varied considerations are changed, the firms will be able to work in a climate
where the ideologies are similar (Wilken and Sinclair, 2011). Secondly, the
management of Coca Cola must work on ways through which the firm can be able to
improve its cross cultural management practices and thus leading to better
relationship between the different firms. The cross cultural management will
inform how the various operations of the firm are carried out. The cross
cultural management could involve the use of teaching the cultures of the
Chinese to the Britons and vice versa. The acculturation would help in
standardising the cultures so that there can be no more problems for instance
in the relationships for instance the decision making and working together.
The
consideration of the culture will also lead to higher rates of success of the
negotiation between the firm and the foreign partners for instance those that
the firm enters into joint venture and franchising agreements with. In many
instances, the problems such as lack of vision for the venture will be greatly
dealt with. Finally, the changing preferences of the consumers can be dealt
with through the use of the technology that is available to the firm (Dlabay
and Scott, 2011). Most of the international market entry strategies of the firm
involve some level of transfer of technical knowhow and thus Coca Cola will be
able to offer high quality products that are in line with the tastes of the
customers.
Conclusion
The
major trends that are being noted in the industry include the increased growth
in information communication technology for instance the internet, hardware and
software and the many other components. These have greatly impacted the
technology and thus a growth in international business. Also, there has been a
rapid growth in the emerging BRIC markets. This can help explain the massive movement
of capital towards these countries. Finally, there has been a great influence
of states on the international business. This has led to the creation of an
economic model referred to as state capitalism. The possible future development
will include the ascension of the developing countries to the middle class
level thus creating further market. The final future development that can be
experienced is the reduction of state capitalism due to the free trade
agreements that is increasingly being entered in by economic blocs.
Bibliography
Ajami, R, and Goddard, J. G. 2006, International Business: Theory and Practice,
Armonk, N.Y: M.E. Sharpe
Ball, D. A. 2006, International business: the challenge of global competition,
Boston: McGraw-Hill/Irwin
Batra, G. and Dangwal, R. 1999, International business: new trends, New Delhi: Deep & Deep
Publications
Czinkota, M and Kotabe, M 1998, Readings in international business, Malden, MA: Blackwell
Publishers
de Kuijper, M. 2010 "Powering Strategies:
Profit Power in a Transparent and Interdependent World", Vikalpa: The Journal for Decision Makers,
35(4), 1-12
Dlabay, L. and Scott, J. 2011, International business, Mason, OH: South-Western Cengage Learning
Forsgren, M and Johanson, J 1992, Managing Networks in International Business,
New York, NY: Routledge
Hill, C. 2005, International
business: competing in the global marketplace, Boston: McGraw-Hill/Irwin
Lorange, P. and Contractor, F. 2002, Cooperative strategies in international
business: joint ventures and technology partnerships between firms,
Amsterdam: Pergamon
Madura, J. 2007, Introduction
to business, Mason, OH: Thompson/South-Western
Mok, V, Dai, X and Yeung, G. 2002, "An
Internalization Approach to Joint Ventures: The Case of Coca-Cola in
China", Asia Pacific Business Review,
9(1): 39-58
Polk, X. L. 2009, "Coca-Cola: Long Term
Innovation (A Case Study)" Consortium
Journal of Hospitality & Tourism, 13(2), 61-78
Regassa, H., and Corradino, L. 2011 "Determining
the Value of the Coca Cola Company - A Case Analysis" Journal Of The International Academy For Case Studies, 17(7),
105-110
Tielmann, V. 2010, Market Entry Strategies International Marketing Management, Munchen
GRIN Verlag GmbH
United Nations Economic Commission for Europe
(UNECE) Retrieved on 3 May 2012 from http://w3.unece.org/pxweb/dialog/Saveshow.asp?lang=1
Wilken, R., and Sinclair, J. 2011 "Global
Marketing Communications and Strategic Regionalism" Globalizations, 8(1), 1-15
Appendix
Appendix
1: Returns on Capital Employed (ROCE)
Source:
Adopted from de Kuijper (2010, p. 3).
No comments:
Post a Comment