International Business Environment

Globalization and Competition

Globalization is a function of the amalgamation of markets across nations and technologies that enable individuals and business organizations to traverse national boundaries governed by different policies with different cultural settings and behavior to reach target markets in a much faster and more cost effective way. It has been argued that globalization comes with new opportunities such as the alleviation of poverty and improvement of the standards of living of the target market particularly when greater economies invest in smaller one. Kotler and Keller (2008) argue that other benefits include regional, cultural, and biological integration. These are achieved through foreign direct investment, movement of interstate capital, and human resource migrations.

Globalization has compelled political and business organizations to explore competing issues for evaluation and reconciliation. Exchange rates, imposition of trade sanctions, enforcement of trade tariffs, environmental issues, labor rights and laws, and cultural issues are among the emerging trends in a competitive global environment that call upon business executives and political leaders to tailor and enforce policies and laws that protect the consumer and hold nations and business organizations to be responsible for their actions.

Globalization has given birth to dominant institutions that include the World Bank (WB), the International Monetary Fund (IMF), and the World Trade Organization (WTO). These institutions have evidently been undemocratic overly protecting their rich and powerful monetary contributors over the poor and weak nations in a competitive global business environment. Thus the imbalance of trade, abridgement of the rights of smaller nations, violations of labor laws by bigger nations as they move their manufacturing concerns to less developed countries, and the movement of environmental pollutants to less developed nation leads to disquiet. Despite the downside of international business transactions, emerging trends are being experienced ranging from increased rate of economic growth and drastic changes both in international politics and the economic environment. Technology has been an accelerating factor in the conduct of business and changes in social economic factors. According to Ross and Jordan (2010), the competing ground is starkly uneven.

Competition has also come with strategic imperatives that have influenced international trade including a leverage of core competencies with greater innovations in product quality and cooperation in seeking bigger markets on the global market. In addition to that, trade wars have over time intensified as more and more business organizations become more and more interdependent with mergers and sub-mergers dominating the scene to absorb the effects of competition and global economic effects. These interdependencies have affected international policies leading to changes in the global political and economic environment. These have been driven by technological innovations such as M-commerce, E-commerce, and the internet among other technologies.

Emerging trends indicate globalization to be an essential engine in the economic growth of various countries and has made more and more nations to corporate and collaborate at different levels including joint research efforts, policy formulations, collaboration in the manufacturing industries, and creation of regional trade agreements. Evidence of seeking more markets is rife with rising membership as more and more countries register with the World Trade Organization (WTO) and others showing similar intentions and notifications as competition increases. The global manufacturing network has experienced drastic growth over the years and competion among manufactures and other business concerns has increased. Further trends indicate an increase in countries harmonizing intellectual property laws, recognition of patents from different countries by other countries for example china and the US, phased or reduced controls on capital, harmonization or elimination of trade tariffs or their controlled use, containerization of sea faring trade, and the reduced cost of conducting business such as reduced transportation costs in addition to the integration of facilitating components such as communication technologies.

Reduced trade barriers and restrictions, a new look at international policies and laws, new and cleaner technologies, innovations, better transportation facilities, and higher speeds and more reliable information processing systems such as standardized e-commerce tools include some of the environmental factors that affect business operations in the international scene

World Economic Factors

According to Focacci (2006), Griffin and Pustay (2009), and Grant (2010), these factors include:

  • Economic stability of target markets. Unstable and economically risky nations are less likely to be reliable trading partners than economically stable countries. A case in point was the recent instability that rocked Greece. It was through the intervention of the European Union that Greece’s economy was saved from collapsing. A nation’s GDP is a strong indicator of the strength of its economy.
  • Size of the market. The market is a determining factor for the profitability of any business organization. A small market implies a small market share translating to minimal profits.
  • Infrastructure of the target market economy. This is evident particularly on the income levels of the target market. Different markets have different characteristics. Examples include the link between the Australian and British economies.
  • Cost and availability of labor, land for establishing businesses and industries, and accessibility to capital for investment purposes.
  • Foreign policies by target governments. World trade has over time been influenced by the imposition of trade barriers. Though the trend has in the recent past abated, different nations come with different reasons for imposing these barriers. Some industries are at their infancy and require a certain amount of protection from their seasoned competitors for the protection of existing job opportunities.
  • National trade and investment policies. It has been argued that certain countries exploit low labor costs in their mother countries for their firms to compete internationally.
  • Commodity prices. The price of commodities such as oil in the international market is unstable. Sometimes steep rises in commodity prices correspondingly cause the cost of business to appreciate drastically causing a significant drop in revenue and profits.
  • Income per capita. Higher income per capita is an indicator of a strong economy and inspires investor confidence.
  • Environmental issues. Environmental degradation and business practices have influenced nations to address issues of global warming and climate change. Increased production has increased environmentally degrading activities such as disposal of wastes and other by-products.
  • Human rights. Fundamental human rights are violated in certain countries where workers sometimes operate under inhumane conditions against international laws that recognize the basic rights of employees.
  • Economic laws and relations to international laws.
  • The nature of economic systems which can either be mixed or market economy. Different policies and economic functions and indicators are associated with different market environments.
  • Labor and capital movement. New work opportunities have attracted more workers thus a migratory trend has been established. This has caused brain drain by the movement of human resources from less developed nations to developed nations.
  • Tax systems of different countries place different constraints and costs on business transactions. This may have an overall effect of increasing the cost of doing business.
  • Monetary and fiscal policies which have a direct effect on interest rates, the support a business organization receives from the host government, and internal regulations at times thrive on bureaucracy.
  • Financial markets. The influence of financial markets on business operations stems from the ease of raising capital and its movement.
  • Trade laws. Trade laws are argued by one section to be a fair practice while others argue that it’s an unfair practice. Pro trade laws argue that these protects domestic industries and the opportunities that come with them which can be classified under countervailing duties while contenders argue that these laws do not promote global efficiencies in product quality based on comparative advantage and protection of the consumer from unfair business practices.
  • Other economic factors are the imposition of NTBs. These regulations are enforced to ensure products meet specific standards to protect the consumer and avoid unhealthy dumping.

International trade organizations

The need to create and integrate international trade organizations in the conduct of global business comes with key roles. These roles, according to Griffin and Pustay (2009) include:

  • Policy formulation and harmonization between different trading partners. These policies include those that are tailored to ensure stability of the trading currencies. These may span capital controls in the movement or flow of cash in the international currency exchange scene by the European Economic and Monetary Union (EMU).
  • Harmonization of trade tariffs. Tariffs can bar trading partners from engaging in business transactions with one another. Tariffs can either be imposed on imports and export or levied on goods in transit at different points in time. On the other hand non-trade tariffs can be imposed by a nation that may be a beneficiary or non-beneficiary to the imposing country.
  • Settlement of disputes. Bodies like the world trade organization have outlined dispute resolution mechanisms and procedures between nations and trading partners commonly identified to be the main pillar in multilateral trade as options for unilateral actions. Different legal systems for different nations in terms of their common, civil, religious, and bureaucratic laws legislated by different bodies are sources of international business laws and practices. Resolutions of international disputes between individuals and states that fall within an existing legal framework or outside are pursued with different approaches. Such approaches include mediations where conflicting parties agree through discussions on a resolution with other parties playing the mediation roles, arbitration where parties have a choice of the laws and procedure to use in resolving their conflicts with the arbiter’s decision binding on conflicting parties.
  • Global Administrative Law. This is an administrative framework for normative standards that govern decision making approaches. This standards are applicable both in the formal and informal framework and determines standards for enforcing existing laws. These regulations span the preservation and protection of the environment, the consumer on issues of food safety, intellectual property rights, and interstate regulatory space. Various collaborating institutions include the Bremen Institute, The Center for International Governance Innovation among others.
  • Monitoring of growth and productivity of different nations. National economic indicators on by their production functions and the relationship between the stock of physical capital index and labor determines the technological progress of a country that is related directly to its productivity which is a source of growth for any nation. In addition to that, word trade organizations monitor the macroeconomic performance of a country that provides information on the attractiveness of a particular economy for foreign investment. This indicator can be calculated on a country’s income per capita.
  • The World Bank. This international institution has developed an economic scheme based on income levels ranging from low, middle, to high income levels. Attractiveness of International investment as argued above relies on the income levels of a nation’s citizens. An example is the United States with the highest income per capita compared to other nations of the world and North America. On the other hand, central American countries are persistently in turmoil and have very weak middle class with very low income per capita that significantly demerits investment in such unstable economies.
  • Currency regulations. Different nations operate with different currencies. In order to regulate and correct imbalances between nations and provide a framework in which countries value their currencies and reduce the cost of currency exchanges, international monetary system provides regulations and accounting systems commonly referred to as balance of payments (BOP). Changes in a nation’s fiscal and monetary policies, trends in a county’s inflation, the cost of operating business in any nation, inflated interest rates, restrictions imposed by governments fall under the jurisdiction of international monetary systems. It is worthy mentioning that the World Bank incorporates institutions like the International Development Association, International Finance Corporation, and the Multilateral Investment Guarantee Agency.

Political risk

When the value of a business’s activities face the potential risk of being adversely affected by changes in the political landscape, the environment is best defined as political risk. Porterfield (2006) asserts that political decisions by a government or happening are likely to impede the functionality of a business’s undertaking from achieving its strategic objectives specified in its vision statement. These risks can broadly be classified into three categories. These classifications may fall into business ownership, operating, and business transfer risks.

Macro-level political risks adversely affect firms and stakeholders in the whole of a country. Political risks can be in the form of adverse government decisions, currency decisions, high level corruptions, a change in government administration and structure due to factors such as war or disintegration of a government, credit defaults by a country, and changes in business regulations. These changes can span cultural issues, religious issues, taxation policies, investment policies, and a country’s labor laws (Griffin &Pustay, 2009).

On the other hand, micro-level political risks incorporate risks and uncertainties on the operations of a firm that are specific to its operations and firms operating in the same industry. These risks have a bearing on government decisions spanning the relationships between transacting parties. An example is when the Iranians may want to purchase a certain weapon from the Americans. Such a business decision has serious implications on decisions by the American government. This kind of risk calls upon a thorough comprehension of the political landscape of both countries and risks associated with the decisions made.

Other political risks may span support for political parties, extortion of money, terrorism activities, politically motivated civil strife, political revolutions, inconvertible currencies, failure to honor and enforce contracts, and confiscation or theft of operating equipments. In addition to that, centrally run governments lead to price controls that affect the stability of their political landscape, and imposing unnecessary tax in the taxation systems.

Despite these political risks and their adverse effects, intelligent business executives know that there are no business undertakings that do not come with their own risks. To that end, contingency plans are always designed beforehand to mitigate such anticipated and unanticipated risks. One of the strategies of overcoming macro level risks is to thoroughly plan beforehand by evaluating political uncertainties of the hosting countries. Such an analysis comes with decisions to either avoid investing in a given political environment, strategic approaches to protect intellectual property rights, strategies to avert risks, and a planned exit strategy in the face of intense political uncertainties overwhelming the operating environment.

On the other hand, micro-level political risks can be mitigated against by incorporating political insurance and portfolio investments. A bridge of contract or expropriations which sometimes are pretty expensive and require some unilateral agreements before being enforced are tools for mitigations. In addition to that, hedges can act as sources of risk aversion if purchased by a business organization in addition to the evaluation and assessment of political risks before, during, and after business investments occur.

Culture and customs awareness

The International business environment traverses geographic boundaries that span various customs and cultures. Griffin and Pustay (2009) argue that their awareness determines staffing policies for human resource persons by recruiting the right people into the right environment to reach the operational objectives and strategic interests of a business organization. Culturally aware employees provide effective cross-cultural leadership, since the business environment varies widely. In addition to that, different people have different values and norms and customs vary from one culture to another. Some cultures are low content cultures while others are high content cultures and employees need to distinguish between them. Different cultures have different attitudes towards work and change, value relationships differently, value time differently, and their cultures have varied impacts on groups and individuals (Pomfret, 2008).

The need to be aware of the culture and customs of foreign countries is that culture is not innate but is learnt, and is definitive of different groups of people. A culturally aware employee is unlikely to fall into misunderstandings in one’s new destination of work particularly at the level of visible culture and is able to avert negative feelings in the working environment. Negative feelings can lead to a negative attitude about an employee and an organization one is working for. A culturally aware employee is likely to establish trust within the working environment and may be able to lead one to better judgment and understandings.

A culturally aware employee understands the importance of language in a foreign country. Different words convey different meanings. These words can be conveyed through voice and tone or in body language. In addition to that, communicating can be non-verbal, whose importance should also be understood by the foreign employee. For example a gesture, by folding the index finger and the thumb may convey different meanings to a Japanese, an America, a Russian, and so on. Culturally aware foreigners are able to distinguish the customs of the host people and design strategies for respecting the hosting country or people.

Some of the ethical issues affecting internationally operating companies include, honoring customers and treating them fairly with issues such as warranties and after sales services. In addition to that, the loyalty of employees under prevailing economic conditions even if they bad or good, and the use of bribes to be awarded contacts. Other ethical issues span the marketing environment. Such business organizations are challenged by the need to show clarity in product pricing, avoid unfair competition practices, collusions with cartels to fix commodity prices, sale of counterfeit products, and deception in product descriptions and market research practices that are unethical. Ethical issues related to products include, he sale of products to other countries that are banned locally, failure to provide consumers with information about the side effects that come with the usage of their product that are being advertised and in the market, deceptive use of unjust weights, and using animals to test products before they enter the market. In addition to that, the use of child labor that is universally banned and violations of other fundamental human rights in the supply chain and poorly managed employee health and working environment constitutes some of the ethical issues confronting international business organizations.

It is worthy noting that different ethical theories have been formulated to address ethical dilemmas that arise in the conduct of business. According to the utilitarian theory, the choice of an act should be influenced by the outcome of the most desirable consequences. Other ethical theories such as the deontological theory were formulated on the binding obligations to duty, the rights theory that is binding on one’s obligations to a contract between parties, and the virtue based theory that had a bearing on an individual’s character. These theories are important and should thoroughly be incorporated in an individual going to work in a foreign country.

References

Focacci, A. (2006). An empirical analysis of enterprises’ behaviours within the Italian car market using technical features and prices. International Journal of Business Environment, 1 (3). 382 – 411.

Grant, R.M. (2010). Contemporary Strategy Analysis. 7 th ed. John Wiley & Sons. West Sussex PO198SQ, UK.

Griffin, R.W., & Pustay, M. (2009). International Business. 6 th ed. Jersey, Prentice Hall.

Kotler, P & Keller, K. (2008). Framework for marketing management. 4 th ed. New Jersey, Prentice Hall.

Porterfield, M, C. (2006). An International common Law for Investor Rights? The Harrisson Institute for Public Law, 27(1).

Pomfret, R. (2008). The Theory of Trade Policy. Lecture Notes on International Trade Theory And Policy. University of Adelaide, Australia. World Scientific Publishing Company, Pte. Ltd. Web.

Ross, S., Westerfield, R., & Jordan B. (2010). Essentials of Corporate Finance (The Mcgraw-Hill/Irwin Series in Finance, Insurance, and Real Estate). 7 th ed. McGraw-Hill/Irwin.