ASAP International Business Project; part 1

What does "Doing Business" internationally really mean?

Perhaps you have always assumed that businesses that expand internationally would naturally face some differences http://www.worldbank.org/, http://www.state.gov/e/eb/cba/, but the extent to which the global business environment has evolved has created numerous complexities that senior management must continually address. Corporations that look to expand their profits are keen to leverage the multitude of opportunities that international expansion can provide. Inherent in the reward of increased profits though, lurks increased risks; risks that are specifically due to the influences and impacts of conducting business outside of home country laws and in the presence of very different cultural and societal norms.

How and Why Do Corporations Conduct Business in the International Marketplace?

The primary objective of every single business is to create shareholder wealth. Ultimately, increasing revenue and decreasing expenses, maintaining or increasing market share, achieving a market leadership position, becoming a first mover, all serve the single overall purpose of a business: that is to create wealth for the owners of the business - be they stockholders, proprietors, or investors.

In order to meet growth strategies, businesses look for opportunities in all markets, including international markets that can be leveraged to meet their goals. For example, if a domestic manufacturing firm can no longer remain competitive from a pricing standpoint, they may determine that outsourcing some or all of their manufacturing to lower-priced labor nations will allow them to lower their price point and maintain both their market share and their profit margins. Other businesses may find that market share in their home nation has hit a saturation point, market research has indicated that there is an increased demand for them to have a local presence in a foreign nation, and they may open operations there to take advantage of continued growth.

There are multiple ways for a business to produce its goods using an international strategy, but there are risks in doing so that may not be successfully managed.

Cultural Considerations

It is easy to spot the cultural differences of language, but each nation has multiple layers of cultural concerns that businesses must take into consideration as they move outside of their home borders. These differences include not only language, but deeply engrained business practices and traditions, societal influences, and customs such as time and distance, gender issues, use of child labor, political influence, rule of law, and geographic and topographic hurdles.

Businesses have to conduct substantial research and analysis and determine if they have the ability to manage the cultural differences in the nations in which they are attempting to expand.

Operational and Technological Considerations

In their home country, routine human resource operations and technology considerations become even more challenging in the international environment. Everything from the cost of ex-pat (someone living abroad) employees (home country employees and their families who are living and working long-term in a foreign nation), to differences in holidays, lack of skilled labor forces, differences in quality of output, work schedules and customs, family care, child labor, pay scale differences to lack of fiber-optic or satellite communications that can hamper communications and technology security, can all impact the ability of a business to successfully meet its production or profit objectives.

Financial Differences

Although finance falls under general business operations, firms that operate globally face numerous differences in their management of the finance functions when dealing with foreign currencies. For example, McDonald’s operates stores all over the world. It tightly controls its costs for its products in order to maintain a specific profit margin. But, fluctuations in currency exchange rates may adversely impact profits by decreasing the amount of money originally earned. This is called foreign exchange exposure - or the risk associated with activities that involve a global firm in currencies other than its home currency. The risk is that a foreign currency may move in a direction that is financially detrimental to the global firm.

Economics, Political, and Geographic Considerations

Global economics, such as the recent economic meltdown which began in the U.S. but spread throughout closely interwoven global markets including Europe and Asia, all have great impact on the multinational companies who conduct business in those areas.

In addition to economic risks and impacts, political unrest, such as that recently witnessed in Libya, Syria, and other Middle Eastern nations, and wars such as those in Afghanistan and Iraq, all create substantial risk by threatening to shut down operations, risks to the safety and security of workforces, stoppages in production, slowdown of transportation (including piracy of vessels off of northeast Africa), increases in expenses to offset risk, and other risks.

Geography plays its own part in the risk profile of an international business. From lack of overland roads, airports, waterways and train systems, to monsoons, earthquakes, tsunamis and other natural phenomenon unique to certain geographic areas, businesses are constantly assessing and attempting to mitigate risk.