INTERNATIONAL BUSINESS ENVIRONMENTIntroductionInternational business (IB) refers to any form of commercial exchange of materials, goods, services or any other resources that involves transfer across national boundaries. Also known as Internationalization, it refers to expansion of business beyond home country to operations in other countries. These firms are commonly called “Trans-national organisations” or “Multi-national companies”. Examples might include Nike, Body Shop, Unilever, etc. A business may be one of many types which might include Sole proprietorship, Partnership, Private limited company, Public limited company or State-owned enterprise (SOE). Costs and BenefitsVarious benefits as well as costs accrue to international businesses.
For instance, personnel to launch international trading would have to be hired, product or packaging would need to be modified, develop new promotional material, incur additional administrative costs, hire sales personnel, review methods for payments, obtain additional financing and deal with special licenses and regulations. One of the factors which works against international trade is protectionism. Methods of protectionism include Tariff barriers, quotas, “Voluntary” export restraints, Subsidies to domestic products and some non-tariff barriers. These and others ultimately make trade more expensive and unattractive for the foreign exporter. Methods of EntryIn addition, different countries have different legal systems rules of which have to be followed however unfavorable they seem, thus making trade more cumbersome for the foreign entrant.
A firm can enter a foreign market through one of many ways. Firstly, Exporting can be considered a relatively low risk strategy with nominal investments but at the same time, market share may be below potential. Further, the marketing campaigns should be in line with local regulations. Effective methods of distribution are equally important to be identified. Licensing and franchising are other methods of entry whereby a company allows someone else to use its trademarks or brands along with expertise to operate in a foreign nation.
The disadvantage here is that the firm has little control over how the business is operated. For instance, American fast food restaurants such as KFC and Burger King are not satisfied with their foreign franchisers who fail to maintain American standards of cleanliness. Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country.
The third method of entry into the foreign market is contract manufacturing. This involves having someone else manufacture products while the company take on some of the marketing efforts on itself. Although this saves investment but increases chances of competition from the same company. Direct entry strategies are also followed by some entrants when venturing into the foreign land. Wal-Mart Stores Inc. is one such example which is planning a possible expansion into Russia with the appointment of an experienced European executive to scope out possibilities in a vast retail market worth more than $140 billion a year in food sales alone.
Therefore, it is crucial for any firm to weigh its pros and cons before making such a decision and apply the appropriate entry strategy. StakeholdersA number of stakeholders are attached with the organisation whether local or foreign. Their decisions, in some way or the other, have an impact on the firm’s decisions. Employees, consumers, competitors, government agencies, tax authorities and the society are all stakjeholders of any organisation.