International business development
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
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.
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.
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United Nations Economic Commission for Europe (UNECE) Retrieved on 3 May 2012 from http://w3.unece.org/pxweb/dialog/Saveshow.asp?lang=1
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Appendix 1: Returns on Capital Employed (ROCE)
Source: Adopted from de Kuijper (2010, p. 3).