Air Products: International Business Management Process - Case Study Example

Introduction The report provides an in-depth analysis of the Packaged Gases business of the company Air Products. Intensive research on the company was undertaken to understand the current standing of the organisation and the environment within which it is operating, while applying relevant theory to the data collected on the firm. The paper focuses on four key elements, first and foremost, analysis of the significant external and internal drivers for globalisation or localisation for this business is being undertaken. This was followed by analysis of various international strategies that the company may undertake to enter into new regions or expanding its reach in the existing areas. Further, recommendations for the strategies are also developed, while focusing on the major implications for functional strategies of the corporate strategy. In order to maintain its competitive position in the market, an organisation needs to analyse its external and internal business environment on a regular basis. Such an analysis would help in measuring its goals against the current market dynamics and create a differentiator for itself in the marketplace. The external business environment is defined as the factors that are external to an organisation wherein the company needs to compete and survive. The report focused on the concept of international business management and discussed the various aspects of undertaking business venture abroad. It was found that in order to conduct businesses in the international markets, it is essential to formulate a comprehensive strategy management process and consider issues such as dealing with various governments, different currencies, various political and legal systems, diverse cultures, language barriers and difference in accounting systems. The report further discusses the various modes or channels through which Air Products may enter into the international market. Some of these channels include exporting, international licensing, international franchising, specialized modes of entry such as contract manufacturing and turnkey project and foreign direct investment. It was found that every process has its own advantages and disadvantages and the organisation should adopt the mode that is a best fit for its business model. The paper also focused on the concept of strategic alliance and how it helps an organisation in maximising its resources and profits by sharing information, expertise, knowledge and expenses with its alliance partner. It further elucidated on the major factors that firms engaged in international business need to take into consideration in communicating with overseas clients and partners which included understanding the cultural differences. The manager should also be able to addressing the issues of motivating staff and handling workplace diversity. The concept of strategic control is also discussed in the paper and recommendations were provided on how to address the issues arising from international strategic control. The report would discuss the concept of international business management and the various aspects of undertaking business venture abroad. It would deal with the process of creating a comprehensive strategy management process and the components that are essential to be analysed before formulating such a process. Communication with the partners and clients is an important component for the success of an international venture. Therefore, the paper would focus on the various elements of effectively communicating with the partners and clients. The concept of strategic control would also be discussed in the paper and recommendations would be provided to address the issues arising from international strategic control. Significant external and internal drivers for globalisation or localisation In order to create globalisation for the packaged gas business of Air Products, it is important to conduct an external and internal landscape analysis within which the organisation is operating. The external landscape is usually analysed on the basis of political, economic, socio-cultural and technological elements. It has been seen that every member of an organisation, right from the competitors to customers, and executives to employees, are influenced by the organisational landscape and respond accordingly. Therefore, it is necessary to study the organisational landscape carefully so that misleading interpretations are avoided (Ashkanasy et al 2000). Political landscape The company may face issues related to the environmental policies being followed by governments throughout the world. As the company is planning to go global, it needs to tweak its work culture, products and services as per the political requirements of different countries. It has been witnessed that the company has been trying to influence climate policies in the US and may need to follow the same strategy in other countries as well for expanding into international regions. It has been especially suspicious of the climate policy that is opposing emissions-trading plans. The company is of the view that such plans create binding targets to reduce GHG emission and penalise the companies. Further, it is of the view that the company has always been efficient in managing their consumption of energy. It has also been seen that the industrial gas market is being controlled in a stringent manner in many countries. For instance, in the UK, it is essential for companies to have license for supplying industrial gases as per the 1995 Gas Act. Thus, for Air Products to survive such stringent regulations, it is essential to understand the policies being followed in the international market and adopt as per the changed rules. Economic landscape Despite the economic recession two years ago, the company is able to survive due to its ability to be creative, passionate and confident about its business goals and visions. The company also saw significant improvements in its businesses and even announced various new initiatives and investment plans. The company earned US$ 9 billion in sales during the fiscal 2010, which was increase of 9 per cent from the previous years’ US$ 8.3 billion. In order to expand in the international market, Air Products need to adopt the same policy of being creative, passionate and confident towards its business goals and visions. Socio-Cultural landscape Drucker (2007) believes that as a modern business has become a part of the society, any viewpoints or clash of opinions with the society would also impact the industries working within the society in a major manner. Therefore, it can be stated that the campaigns being launched against major industries polluting the environment and resulting into climate change would also impact Air Product’s growth, and therefore, the company would have to invest into public relations to portray itself as an environmental-friendly company throughout the globe. Technological landscape Zajas and Church (1997) believe that technology is an important external factor that influences the modern day businesses. Even when the company does not indulge in technological advancement of its product, it still remains a key element to exert influence over the company. In case of Air Products, it is imperative for the company to invest into technological improvements to help the company grow as the businesses of the company demands Air Products to remain coherent about the latest developments in the field of R&D. Future international strategy and the key elements Air Products is looking at expanding its business in the international market and therefore, would be required to create a future international strategy in order to enter and establish in the global market. The ongoing and comprehensive process of management planning that focuses on implementing and formulating strategies which help organisations to efficiently compete in the international market is known as international strategic management (Fisher, Hughes, Griffin, Pustay 2006). The process involves formulation international strategies in order to achieve a strategic cohesion between the resources and competence of an organisation with the international business environment the company envisions to operate in. Such a process is essential for any organisation to formulate as it helps it to compete effectively with other leading organisations operating in the global market (Hannagan 2002). While formulating international strategies, Air Products needs to consider various parameters which include dealing with various governments, different currencies, various political and legal systems, diverse cultures, language barriers and difference in accounting systems. Therefore, development of an international strategy is much more complex than formulating domestic strategy. Organisations that are planning to enter or expand in the international market are required to develop a strategic management process so that it is able to align its goals and objectives with the complex global business environment. In order to develop a comprehensive strategic management process, Air Products needs to formulate the company’s mission statement, develop strategic objectives, conduct an internal and external analysis, and create a broad implementation strategy. Each step towards developing international strategies is aimed to achieve a singular goal i.e. gaining competitive advantage in the global marketplace (Johnson, Gerry & Scholes, Kevan 2002). Together with considering the external factors, Air Products also needs to conduct a through internal analysis as well. It might have to create customised products and services as per the market requirement. Further, in case the company is intending to manufacture the product in another country, it needs to understand polices and operations of that particular country as well, along with analysing the market requirement for the product, the target audience, identifying the sourcing requirements as well as conducting a comprehensive competitive analysis. Internal analysis would also include identifying the competence of the organization and highlighting them to gain edge over the competitors, understanding the process of deploying and allocating resources in an optimal manner and creating business synergies (Fisher, Hughes, Griffin, Pustay 2006). In order to enter or expand business in an international location, Air Products needs to focus on various issues and components and develop a business strategy process that would help in making the organisation sustainable in the long run. Most companies look at expanding into international locations to increase its revenues and capture the opportunities. Such a process usually involves three major elements of strategic choice, analysis and implementation. Therefore, in order to create a comprehensive strategic management process, an organisation needs to evaluate the strategic choices it has, the position of the company in the market and the how the company is planning to implement the choices. An organisation may enter into the international market through various entry channels. Some of these channels include exporting, international licensing, international franchising, specialised modes of entry such as contract manufacturing and turnkey project and foreign direct investment. Exporting The process of exporting involves directly selling or marketing goods that are produced in the domestic market to another country. This process is a well-established and traditional means to capture the global market. As exporting does not need the organisation to produce the goods at the target nation, Air Products would not be required to invest into creating production facilities abroad. The process usually requires well-coordinated efforts between the importer, exporter, transporters and the government (Lymbersky 2008). International franchising The process of franchising involves Air Products providing the franchisee with expertise and knowledge related to operating the business, branding and operating in an international market (Lymbersky 2008). Licensing Air Products would be required to receive the permit to use the licensor’s property in the process of licensing. The property in this case is the intangible components such as patents, trademarks and techniques to produce goods. The licensee is required to pay a fee for using the property and for any assistance related to technical aspects (Ashkanasy et al. 2000). Specialised modes of entry Air Products may also enter through turnkey contracts and contract manufacturing. Turkey contracts means the organisation would help its partner in the target company to develop its efficiency by providing training to the employees and technology support. However, once the production unit becomes self-sufficient, the organization would hand over the unit to the partner. In case of contract manufacturing, Air Products would need to formulate an agreement with the partner company in the target country. In such a contract, one of the partners would develop customized products as per the other partner’s requirements (Krugman and Obstfeld 2008). Foreign direct investments Foreign direct investment (FDI) involves the process of possessing direct ownership of the production unit or retail outlet in the target nation. Such a process requires transferring of resources like technology, capital as well as key people. Often companies acquire other firms in the target nation to enter into the market (Lymbersky 2008). Recommendation to develop strategies Exporting Most organisations use the method of exporting when the target country does not have a high volume of sales requirement, the company has distribution channels that are located nearby the production units, the production cost in the target country is high, the target country has liberal import policies and in case the target country has high political risks (Onkvisit & Shaw 2004). So, Air Products may consider this channel if it is looking at expanding its distribution channels in far flung areas. Further, exporting helps in minimising the risks associated to investing into a venture. It is one of the fastest methods of entering into an international market. It also helps in enhancing the scale of the business as well as optimally utilising the existing facilities. However, the trade barriers and the extra fees and tariffs associated to exports increases the cost of the product. Further, this cost is augmented through the addition of transportation cost. The organisation also does not possess any local information and often it is viewed as an outside company (Onkvisit & Shaw 2004). International franchising The franchising model is used when the franchisor is able to capture the domestic market in a successful manner by offering unique services and products. Further, Air Products could also implement this model if the domestic business process could be transferred to the international market as well (Gupta and Eleanor 2003). Licensing The process of licensing is implemented if the target nation has the barriers for importing or investing into the company. In such a situation, licensing would provide the company with legal protection. Further, if the sales potential is low in the target nation and it has huge cultural differences, Air Products may opt for licensing process (Onkvisit & Shaw 2004). The process of licensing helps in minimising the risks as well as investments. It is also a faster method of entering into a market. The organisation would be able to circumvent various trade barriers by using such a process. The return on investment (ROI) is also very high in this process. However, the company would not have control over its assets and would always face the threat of the licensee to become its competitor. Further, the period of providing license is very limited (Ghemawat 2001). Specialised modes of entry Air Products may adopt specialised modes of entry such as turnkey projects and contract manufacturing if the target nation has import barriers, diverse culture, potential to gain high sales figures, restrictions by the government on owning units by foreign companies and availability of skilled people and resources to undertake projects (Davis et al. 2000). Such a method helps in dealing with the issues of cultural distance as well as ownership restrictions. The resources of both the companies could be combined in an efficient manner to produce a quality product or service. The technological transfer would help the company to progress. The company would not only have to invest less but would also be viewed as an insider. However, such a process is not easy to manage. There might be issues regarding controlling of the company. It has more risk factors associated with the process and the threat of the partner becoming a competitor (Stalk et al. 1992). Foreign direct investments Most companies select FDI route in case the target country has imposed import barriers, does not have a very diverse culture, potential to achieve high sales figures and low political risks. The organization may gain more knowledge about the local market through the use of this method. Further, it would be able to apply specialized abilities and skills in a better manner and would be viewed as an insider. This method however is a riskier than other modes. It would require high commitment and resources from the organisation. The company may find it tough to manage the local resources (Pan and Tse 2000). Strategic Alliances However, the strategy that the company may adopt to enter into the international market is through the formation of strategic alliances. A company enters into a strategic alliance with one or more organisations for cooperating with each other for the mutual benefit of the companies. These companies usually form such alliances for sharing information, expertise, knowledge and expenses for entering into a new market and gain competitive edge. Also, strategic alliances help in making the potential or actual competitor a partner and therefore, work towards fulfilling a common vision. Such a tool of strategic alliance is being commonly used by companies that are focusing on increasing their operations in the international markets (Fisher, Hughes, Griffin, Pustay 2006). Air Products may look at forming strategic alliances as well. Some of the reasons that Air Products may enter into a strategic alliance include: Entering new markets: With the use of strategic alliance Air Products would be able to enter into a foreign market easily. The local company would already have the market knowledge, customer information and a strong base of suppliers and distributors. Thus, the company would not have to invest into these aspects. Further, many countries does not allow 100 per cent foreign investment in various sectors and therefore, the company would have to enter into strategic alliances with a local company (Fisher, Hughes, Griffin, Pustay 2006). Reducing manufacturing costs: A strategic alliance also helps in reducing the manufacturing cost of the goods as the company does not have to invest into setting up an industrial unit in the target country (Foss 1997). Developing and diffusing new technologies rapidly: Through a strategic alliance, the company would be able to leverage the technologies developed by the local firm as well as its own technologies and infuse them together to maximise the returns (Fisher, Hughes, Griffin, Pustay 2006). Ease of market entry: The organisation would be able to enter into the foreign market in an easier manner (Wild 1995). Sharing risks: One of the major advantages of strategic alliance is that the firm would be able to share the risks with another company. This would also include sharing expenses (Andersen 2004). Sharing expertise and knowledge: Such an alliance would also help Air Products in gaining expertise and knowledge about product and operation efficiency. Further, the organization would be able to learn from its partners through the sharing of skills, market data and assets (Booz Allen Hamilton 2001). Creating synergy: Air Products would be able to gain competitive advantage by leveraging on the brand value of the already established local firm (Booz Allen Hamilton 2001). However, there are certain risks involved in strategic alliances as well. Some of the major risks involved in conducing strategic alliances are incompatibility issues with the partners, lack of information transfer between the partners, conflicts in distributing the profits and earnings, possible loss of autonomy and the impact of the changing business dynamics on the alliance (Hill 2000). It is important to mitigate the risks involved in strategic alliances and partnership for the success of an organisation. Thus, it is important for the organization to focus on developing a systematic and structured alliance process. The process of creating an alliance requires well-developed planning, evaluation and implementation of the alliance (Kuglin & Hook 2002). The organisation should first focus on creating a comprehensive alliance strategy. Thereafter, it needs to select the right alliance partner and formulate the deal clause that is aligned with the culture of both the organisations. It should also be structured properly and must have an exit clause as well. The alliance should be managed properly and a conflict management process should also be initiated. Further, the organisation should evaluate the alliance at regular interval to understand its applicability in the prevailing business environment (Reuer 2004). Major implications for functional strategies In order to implement the strategy of entering into a strategic alliance in an international market, Air Products would also have to understand the various functional strategies for adopting such a corporate strategy. While implementing the corporate strategies to expand business in the international market, it is important to focus on the following areas as well. The main factors that firms engaged in international business need to take into consideration in communicating with overseas clients and partners include the following: The managers should be able to communicate effectively with clients, distributors, suppliers and partners from various cultural diversities. Such a skill is essential as the language used by one culture might be contrived in a negative manner in another culture and might upset the client. Every culture has a different way of interpreting the message and therefore, the manager should have the knowledge and skill sets to address the issue of cultural diversity (Zajas and Church 1997). Therefore, Air Products should focus should also be placed on non-verbal communication. It has been found that the non-verbal communication consist of around 80-90 per cent of the amount of communication being transmitted to the client or partner. Non-verbal communication may include eye contact, body language, facial expression, silence, gestures through hands etc. Again every country has a different manner of interpreting non-verbal communication. For instance, the Australians interpret silence as a symbol of not able to understand the point, while in Japan silence means that the person might be thinking about the point (Roth et al. 1991). There are various factors that international business managers need to take into consideration while motivating staff and handling workplace diversity within a multicultural workplace of an international business. Some of these include the following: Motivation is mostly influenced by the cultural diversity along with the behavior and attitude of the individuals, especially the people in a group and the immediate supervisor. Thus, it is the job of the manager to create such an environment wherein the employees feel motivated to work and feel integrated along with the larger company culture. The manager should also keep in mind the diversity issues and address the employees only after analysing the local culture of the organisation. For instance, the centralised culture of the organisation may indicate motivating the employees by organising a get-together with the employees’ families. However, such a method may not work in a country that has a very traditional approach towards the concept of family and outings (Hartel 2004). Along with motivating the employees, the manager also needs to manage workforce diversity. The manager should be skillful enough to help people realise their maximum potential and perform up to their mark. The manager might also have to look at changing the culture of the organization and aligning it as per the requirements of the local market. In case the manager is able to manage diversity in an effective manner, the organisation would be able to address the issues of employee attitudes and reducing the cost of the organisation to manage workforce and recruit new employees (Hartel 2004). The manager may also adopt the technique of acculturation which means transferring of cultural knowledge between various groups. This process ensures that the groups are able to adapt to the changing environment and a greater coherence is formed between diverse groups. Such a strategy is especially essential to merge a minority group with a majority one, without making the minority group feel being dominated by the majority one. Commonly, there are four ways of adopting acculturation, which include separation, assimilation, pluralism and deculturation. It is therefore important for an international manager to understand the characteristic of every individual employee as well as the culture he or she belongs to and assess the similarities and differences between the cultures to find a plausible solution for such issues (Parkhe 1991). The concept of strategic control means the process through which the managers are able to access that the resources are utilised in an effective and efficient manner to fulfill the organisational goals. This process also helps in understanding and formulating marketing planning. The manager is required to analyse the strategic control process at a regular basis to understand whether the process is in coherence with the changing market scenario and the prevailing economic conditions. Such a process is essentially important to undergo an analysis in the time of turbulent business situations such as recession. Thus, it is essential for companies to implement strategic control methods to ensure that the business is able to conduct in a seamless manner in the international market (Lewis 2003). Strategic control is also initiated to monitor and analyse whether the international business is able to formulate the strategy in a proper manner and to find out how well the business is able to implement the strategy. Along with strategic control, the organisation also needs to control the financial, operational and organisational aspects of the business as well. Operation control would also include controlling the process of the subsidiaries and other business units as well (Lewis 2003). In order to deal with the process of strategic control, it is recommended that the process should be managed effectively and the manager should be skillful enough to handle any situation arising from the strategic control issues. The manager should be able to understand the process of formulating a control system, setting the standards for creating the control system, measuring the performance of the control system, comparing the performance with the set standards and responding effectively to correct any deviations or errors. Some of the essential techniques of control system include the accounting system, procedures and performance rations. The manager should have ample knowledge on how to work on these systems and if required provide suggestions to change the systems accordingly (Sharp and Dawes 2001). Despite the fact that strategic control system helps in streamlining the process in global companies, many people resist the implementation of such a control system. Some employees feel that such a system creates over control, gives more power to the manager, increases accountability and might be misused. In order to overcome these issues, the manager may decide to engage the employees in the process of creating a control process. The manager should also help in developing a focused control system that would help in creating reasonable amount of accountability and does not give maximum power to the supervisor (Fisher, Hughes, Griffin, Pustay 2006). Conclusion In order to succeed in an international business venture an organisation needs to focus on its international business management process. Air Products may formulate such a process after considering issues like dealing with various governments, different currencies, various political and legal systems, diverse cultures, language barriers and difference in accounting systems. Air Products may enter into a foreign company through various modes of entry which include exporting, international licensing, international franchising, specialised modes of entry such as contract manufacturing and turnkey project and foreign direct investment. It was found that every process has its own advantages and disadvantages and the organisation should adopt the mode that is a best fit for its business model. Further, implementation of strategic alliance would also help Air Products to maximise its resources and profits. However, in order to achieve greater success the organisation should focus on engaging international managers who are adapt in communicating with overseas clients and partners by understanding the cultural differences. 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