Niki Geiersbach
Abstract
With
the dawn of globalization, international business is becoming increasingly
popular. Multinational organizations
are among the most profitable in the world. A company needs to be aware of the
language and
culture of the country where it plans to embark with its investment. Politics
and laws of the nation can
either make international business easy or hard. With the success of
international business, its future is
gleaming, on a global scale.
The
International Business Imperative
Revolutionary
changes in technologies have provided the mechanisms that propel the growth
of international business.
The intensification of competition at both domestic and international
levels has driven firms to look beyond their domestic markets for new opportunities. The
progressive removal of barriers to
trade and capital movements has stimulated greater
flows of exports, imports and foreign direct
investment (FDI). Multinational enterprises have emerged as the key agents of
international economic coordination. They provide the capability to generate
innovations and deliver new goods and services to the market; they also provide
the capability to exploit these technological advances at a global level; and
they are a depiction of the capacity of international managerial co-ordination
to operate efficiently across international
boundaries. Furthermore, the growing economic strength of the
newly-industrializing
countries (e.g. Taiwan, Hong
Kong, Singapore, Korea) and the opening up of China and Eastern Europe have
provided an additional stimulus to international business activities (Wei).
Culture and
International Business
Chevrolet
was unsuccessful at marketing the Chevy Nova in Mexico, and the result was lost
revenue because inn Spanish, “Nova” means “it doesn’t go.” The American Motor
Corporation named one of its products the “Matador,” to create images of
strength and virility. But “Matador” means “killer” in Puerto
Rico, where the
traffic fatality rate is exceedingly
high. It is therefore imperative to conduct an evaluation of names prior to
introducing a product on the market (“International Business Customs”).
A
30-second advertising spot proved to be
a costly mistake
for Doubletree Hotels Corporation. The
advertisement was the announcement of
a $31 million
marketing campaign to illustrate the warm, friendly atmosphere of the
hotels. Deemed offensive to the Muslim community, the spot portrayed employees
of the hotel dressed in Arab-style clothing and bowing to the guests. This was interpreted
as the employees worshipping or “praying” to hotel visitors. As the Muslims worship
the one true God, this advertisement was seen as ridicule of reality.Moreover,
translation errors are the cause of the majority of blunders in global trade. The
Coors slogan “Turn it Loose,” turned into “Drink Coors and Get Diarrhea.” Even
the largely popular “Got Milk?” campaign lost its edge when it was introduced
in Mexico as “Are you Lactating?” As is obvious, these mistakes and others like
them can result in a devastating loss of revenue for companies in today’s global
marketplace. Hence, it is very
important to know
its culture before conducting international business with
a country (“International Business Customs”).
National Trade
and Investment Policies
The 1996 National
Trade Estimate of the European Union explains the notions of
national trade and investment policies. The European Union and the United
States share the largest two-way trade and investment relationship in the
world. In 1995, the US had a trade deficit with the EU of $8.3 billion, $3.4 billion
less than that recorded in 1994. In 1995, US merchandise exports to the EU were
$123.6 billion, an increase of $15.9 billion from those in 1994. US imports
from the EU totaled $131.9 billion in 1995, or 10.4 percent greater than those in 1994.
The stock of US foreign
direct investment in the EU was $256.1 billion in 1994, an increase of
6.9 percent over that in 1993 (“1996 National Trade”).
As
an example of import policies, when Austria, Finland, and Sweden joined the EU on
January 1, 1995, these countries adjusted their tariffs to the EU’s common
external tariff, resulting in increased tariffs on $3 billion of US industrial
and agricultural exports. The European
Commission was required to
negotiate with the US and other affected
trading
partners a package of
compensating tariff cuts.
During 1995, the EU adopted
interim compensation for the US under which the EU continued to apply pre-accession
tariff levels on imports into the three countries on most of the affected industrial
products, but provided no compensation in agriculture. In December 1995, the EU
and US concluded negotiations on the permanent compensation owed to the US. Some
of the concessions were in the form of acceleration of tariff reductions agreed
in the Uruguay Round, while others involved reductions of tariffs beyond levels
agreed in the Round or the establishment of tariff-rate quotas.
EU
member states had widely differing standards,
testing and certification procedures in place for some
products. These differences served
as barriers to the
free movement of these products within the EU and could cause lengthy delays in
sales due to the need to have products tested and certified to account for
differing national requirements.
Nonetheless, the political will and the advent of the “New approach,” which
streamlined technical harmonization and the development of standards for certain
product groups, based on minimum health and safety requirements, generally pointed
toward the harmonization of laws, regulations, standards, testing, quality and certification procedures
in the EU.
The European standardization process had been closed to US firms’ direct
participation.
Italy’s
highly fragmented and sometimes non-transparent government procurement practices created
obstacles to US
firms’ participation in Italian government contracts. Procurement in
certain areas was
heavily directed toward Italian suppliers. In 1994, the Italian
parliament enacted legislation aimed at providing more transparent procurement procedures,
including establishment of a central body to monitor implementation. Due to its
complexity, the bill was not fully implemented. The US cling peach industry
complained in 1994 that the EU had failed to observe and enforce a commitment
made in the 1985 US-EU Canned Fruit Agreement (CFA)
to not subsidize EU processing operations for peaches in syrup. The US
industry claimed implementation of the EU’s minimum grower price and fruit
withdrawal programs was undermining the no-processing subsidies commitment made
by the EU in the CFA, and that the sale of subsidized Greek canned peaches in
the US and a number of foreign
markets, including Japan,
Mexico, and Canada, was harming the US industry.
The level
of software piracy
continued to be a source of concern in Germany, as in other
large developed markets.
The effects of Germany’s 1993 implementation of the EU’s software
directive, as well as an educational campaign by the software industry, might
have helped reduce piracy from previous levels.US express package services like
UPS and Federal Express remained concerned that the prevalence of postal
monopolies in many EU countries restricted their market access and subjects
them to unequal competitive conditions.
Proposals to liberalize
many postal services and to otherwise constrain the advantages enjoyed
by the monopolies might not be sufficient to fully redress these problems.
In 1992, the EU established a calendar for liberalizing the
cabotage practice. While cabotage within
peninsular Spain had been liberalized, the EU had allowed Spain to restrict
merchant navigation to and within the Balearic
Islands, the Canary Islands and
Ceuta and Mililla
to Spanish fag merchant vessels until 1999. The benefts of EU law in
the aviation and
maritime areas were reserved
to frms majority- owned and controlled by EU nationals. In addition,
the EU Commission had proposed that companies wishing to beneft
from the
mutual recognition of licenses for the
provision of satellite
network or communications services be 75 percent owned, and effectively
controlled by, EU nationals.
French regulations prohibited the import of poultry products,
except offal, from the US. A French
decree of 1962 banned imports of poultry products from countries using
arsenicals in poultry feed, as is the case with American poultry. The US had renewed its objection to this
barrier, which was imposed only by France.
While harmonization of policies within the EU may end this ban, the US
may continue to monitor this issue closely (“1996 National Trade”).
Politics and Laws
Political risk
in international business entails discontinuities occurring in the business environment that
are: diffcult to anticipate; and
that result from
political action(s) or changes(s)
that possess the potential
to signifcantly affect
proft or business goals. Political risk may be related to political
instability but it need not be (Kluyver).
Cox’s account of
business confict over US policy toward Central America progressed through
three stages. During the 1950s and 60s, the principal
cleavage divided nationalist from
internationalist business groupings.
Following World War II,
internationalist frms were
attracted to Central America as a potential site for low-wage manufacturing and these
interests sought three
policy changes to aid the movement of foreign investment to
the region: (1) expanded aid programs to improve Central America’s poor
economic infrastructure, (2) changes in US tax law to encourage American direct foreign investment abroad,
and (3) reductions
in US tariff rates so that goods produced by US frms in Central America
and elsewhere could be proftably exported back to the US. Nationalist frms, fearing increased import
competition, opposed all three
initiatives. But they
succeeded in blocking
only the latter. US tariff levels remained high until
implementation of the Kennedy Round of tariff cuts in the Sixties. Discouraged from using Central America as an
export platform by US tariff barriers, internationalist frms began to
advocate Import Substitution
Industrialization in Central America
and other Third World countries (Cox).
World business has consistently recommended to governments that they could best support further growth of
electronic commerce by focusing their energies on providing a
basic legal and institutional framework
that ensures effective competition
as well as
general trust through more predictable and media- neutral rules. The European Commission has stated that its
primary aim in issuing the draft --
Directive on Certain
Legal Aspects of Electronic Commerce -- is to respond to this call from
the private sector and to eliminate certain legal obstacles that remain to the
online provision of services, particularly
for small and medium sized enterprises (“Policy Statement”). Politics and laws are therefore, very
important in international business.
They determine how and where
international business may be conducted by an organization or
country. In terms of international
business, brotherhood, friendship and universality of laws are the best ideas.
The Theory of International Trade and Investment
International trade is not limited to commodities that some countries produce
and others do not. Countries sometimes import goods that they themselves
could produce more cheaply than the
countries from which they get them. It
has been claimed, for example, that Britain could raise dairy produce more
cheaply than Denmark. But Britain nevertheless
imports part of its supplies from that country and devotes its main
energies to producing machinery, electrical
equipment, motor vehicles and other manufactures, because its
advantages over Denmark in
producing these things are greater than its advantages in
producing dairy produce. This
concentration on
manufacturers involves what
is known as the principle or the
law of comparative costs, or simply comparative advantages in this
theory of international trade.
As applied to international trade this means that a country tends to
concentrate on producing those things that will give it the best return for any
given investment of its productive resources.
The law of comparative costs is an extension of the principle of
division of labor to the international feld (Gartside, 195). The theory of international investment
explains international capital
movements in the context of international production and trade. International investment creates
international production and is integrated via international trade. Knowledge, know-how and technology are
generally transferred between countries
along with fnancial capital (Wei).
The
International Economic Activity of the Nation: The Balance of Payments
Economists keep
score by looking
at income statements and balance sheets and in the area of international
economics, the key accounts are a nation’s balance of payments. A
country’s balance of
international payments is a systematic statement of all economic
transactions between that country and the rest of the world, the statement of
international economic activity of a nation.
The major components of the balance of payments account are the current
account and the capital
account (Samuelson and Nordhaus, 682).
International Financial Markets
Today’s fnancial
market is truly international in scope but the
international legal system continues to be based on the principle of national
sovereignty. The result is an absence of
international institutions capable of regulating this global fnancial
market and criminal
organizations taking advantage of
this situation in pursuit of their interests.
The activities of criminal organizations on the global fnancial market
should be of great
concern because they constitute formidable
obstacles to law enforcement and
represent a risk
to the stability of these markets
that are especially sensitive to exchange rates and taxes. The international fnancial market is an
extremely important mechanism in the global economy, as it enables the
international allocation of capital, and as such should be protected by
appropriate institutions.
Criminal
organizations are capable
of using the international
fnancial market to take advantage
of the limitations of an international
legal system based on the
sovereignty of states; and a wide variety of economic crimes can be facilitated
by using the international fnancial market to move capital throughout
the globe quickly
and often anonymously. The
primary motive of criminal participants in the international fnancial market,
to avoid law enforcement efforts, can lead to rapid shifts of capital that have
the potential of disrupting the stability of
this market. Institutions designed
to regulate the international fnancial market must be based on
voluntary cooperation, and the
international community should recognize
its collective interest in regulating the
global fnancial market
and establish institutions for
that purpose (Sussman).
Economic Integration
International
economic integration is not a new phenomenon.
Some communication and trade took
place between distant civilizations even in ancient times
and since the travels of Marco Polo seven centuries ago, global economic integration— through trade, factor movements,
and communication of
economically useful knowledge and technology—has been
on a generally rising trend. This
process of globalization in the economic domain has not always proceeded
smoothly; nor has it always benefted all whom it has affected. However, despite occasional interruptions,
such as following the collapse of the Roman Empire or during the interwar
period in this century, the degree of economic integration among different
societies around the world has generally been rising. Indeed, during the past half century, the
pace of economic globalization has been
particularly rapid. With the exception of human migration, global
economic integration today is greater than it ever has been (Crafts).
Three fundamental factors have affected the process of economic globalization. Firstly, improvements in the technology of
transportation and communication have reduced the costs of transporting goods,
services, and factors of production and of communicating economically useful
knowledge and technology. Secondly, the tastes
of individuals and societies have generally, but not universally, favored
taking advantage of
the opportunities provided by
declining costs of transportation and
communication through increasing economic integration. And thirdly, public policies have
signifcantly infuenced the character and pace of economic
integration, although not always in
the direction of increasing economic integration (Mussa).
Market Transitions and Development
In Seattle, there
was a manifestation of popular opposition to globalization under the
rules of free trade. What
has been happening in Puerto Rico is a result of that same process in a
specifc national context. This is the
country where the free trade model of development was implemented decades
before it became
the dominant global paradigm. For over 100 years, the history of the Puerto
Rican people has been dominated by the economic
imperatives of the US, living under an evolving colonialism that has
always manifested itself in signifcant socio- political movements against
it. The general strike in 1998 was a
representative of such movements. This
strike made transitions in relation to international market integration
diffcult. Thus, new international
businesses were not allowed to integrate in the market healthily (Diaz).
The Brattle Group’s extensive experience with all sectors of the
natural gas industry, from wellhead to burner-tip, allowed them to offer a wide
array of services to frms looking to thrive in this complex environment. In addition to their North American practice,
The Brattle Group
as their way
into international market development,
began assisting clients in
the United Kingdom,
Europe, Australia, and other countries in policy
debates over privatization
and restructuring of their natural gas industries. They
also provided testimony
in their regulatory and legal
proceedings regarding such matters as pricing and terms of access, and conficts
over contract performance (“The Brattle Group”).
International Business Research
International business
research is about enterprise development in another country. Enterprise
development, especially as it relates to micro, small and medium
enterprise development is a complex
endeavor with many facets such as looking into the policy environment, entrepreneurship,
innovation, competitiveness,
subcontracting, etc. These facets
of international enterprise development require investigation and research (“Enterweb”).
International Business Entry
Many countries make
it attractive to incorporate in their area, even when
activities are to be conducted elsewhere.
In fact, there are so many tax effcient jurisdictions that an
initial problem for most organizations wanting to form an
international business company, is how to select from the available
options. Belize is such a
country that entered the offshore
industry after carefully analyzing and adopting the best features of some of
the best offshore jurisdictions in existence.
Its long history of democracy and stability, enhanced by its legal
system which is based on English common law, have made it the premier source
for easy market transition (“Belize Offshore Consultants”). Multinational Corporations
A multinational
corporation is a company or enterprise operating in several countries,
usually defned as
one that has
25% or more of its output
capacity located outside its country of
origin. The world’s
four largest multinationals in 1994 were General Motors, Ford,
Exxon, and Shell.
Their total sales exceeded
the gross national product of all of Africa, and the top 100 multinational corporations controlled $3.4 trillion in
fnancial assets. In 1993,
multinational corporations accounted for one-third of the world’s industrial
output, with sales of
$4,800 billion. They
are seen in some quarters as posing a threat to individual national
sovereignty and as exerting undue infuence to secure favorable operating
conditions. Unsuccessful efforts were
made 1992, under UN auspices, to
negotiate a voluntary code of conduct
for multinationals, but governments and corporations alike were hostile to this
idea. In 1993, 11 of the 100 largest
multinational corporations were British
(“Hutchinson Family Encyclopedia”).
Strategic Planning in International Business
The strategic plan must be developed and owned by the management
team that has the job of implementing it.
Strategic planning in international business must be objective. After international business research, the international business must defne a frst
year operating budget, build an
infrastructure fexible enough to meet expansion needs, and prepare the company
for expansion. It must understand
different growth options available
for developing transatlantic operations, and know the risks
and rewards of each. The international
business must also build a long-range plan, and then adhere to that plan. It must fnd the right mix of direct and
indirect operations, and the right rollout sequence to keep risk low while
maximizing longer-term market share
and revenue potential. To craft a good business strategy for
international success, the company must have broadened awareness,
coupled with business experience. Specialized organizations such as Atlas
Venture help international businesses formulate the strategic plan (“Atlas Venture”).
International Marketing
International
Marketing Services, Inc, (IMS) is a uniquely positioned
international marketing frm. Since 1986, it has assisted over fve hundred
US, European and Russian companies
export products, develop joint ventures, locate foreign investment, and form strategic relationships. Its extensive experience with business practices and culture
in North America, East-Central
Europe and the C.I.S. is the foundation of its success. IMS’ cross-cultural perspective allows it
to rapidly overcome
signifcant obstacles to export sales and joint ventures that most frms
are unequipped to deal with alone. The company
also brings broad analytical skills to bear on its global
projects. This includes substantial
international trade and joint
venture negotiations expertise, market and
competitive assessments,
macroeconomic, fnancial and
statistical analyses, and political risk evaluations. In addition to broad skills, IMS’ employees
hail from diverse backgrounds
and industries. The
company offers a
full spectrum of services ranging from one-time primary market research assignments to
marketing and strategy consultation
where it walks its
clients through each
diffcult stage of expanding their business presence abroad
(“International Marketing Services”). The
successful operation of IMS indicates the factors needed for lucrative
international marketing. These factors
include knowledge of culture, political risk evaluation, etc.
International Services
International
businesses like Shell provide international
services. Shell Services International provides, among many
other specialized services, electricity in the US. Shell Energy was formed in 1997 to pursue new
growth opportunities in the retail electricity and gas markets that have
recently been opening to competition.
Today, Shell Energy serves more than 300,000 gas and electricity
customers in Ohio and Georgia (“Shell Services International”).
International Logistics and Supply-Chain Management
International
logistics are about international freight forwarding, moving and storage,
warehousing and storage, project shipping, offce building and letters of
credit. Currently, there are
organizations that specialize in
making the task
of international logistics easier for international business (“International Logistics Management”). A supply chain is a network of
facilities and distribution
options that performs the
functions of procurement of materials, transformation of these materials into
intermediate and fnished products, and the distribution of these fnished
products to consumers. The geographic
placement of production facilities, stocking
points, and sourcing points is
the frst step in creating a supply chain.
The strategic decisions include what products to produce,
and which plants to produce them in, allocation
of suppliers to plants, etc.
Inventory decisions refer to means by which inventories are managed. And the mode choice aspect of transportation
decisions is the more strategic ones (Ganeshan and Harrison).
Multinational Financial Management
International trade,
fnancing and investments have grown at an extremely rapid pace in
recent years, and the operations of corporations are increasingly becoming
multinationalized. Corporate executives buying and selling goods and
services, and making fnancing and investment decisions across national
boundaries, have formulated policies and procedures for managing cash fows denominated in
foreign currencies. These
policies and procedures,
and the related managerial
actions of executives, change as
new relevant information becomes
available and this feld is that of multinational fnancial management (Reid).
Countertrade
Countertrade simply
refers to listening to the company’s international customers and
meeting their needs.
This could be in the areas of hard currency generation,
technology transfer, or marketing assistance (“The American Countertrade”).
International Accounting and Taxation
In Malta, taxation of an
international trading company (ITC)
is based on the
Tax Refund Mechanism. An ITC is taxed at
the normal company rate of tax, which is currently about 35%. Non-resident shareholders of an ITC are taxed
at a fat rate of 27.5% on all distributions received from the frm. Non resident shareholders of an international
holding company which has a participating holding in a non-resident company
qualify for a full refund of the Malta tax paid by the Maltese company on
income arising from these foreign holdings.
Such refund is triggered upon a distribution of this income to the
non-resident shareholders of the Maltese
frm (“Accounting and Taxation”).
International Human Resource Management
Effective management
of expatriate managers is one of
the most important areas in human resource management, and there is abundant
research on expatriates of American,
European, and Japanese multinationals
with large expatriate populations.
In the age of globalization, strategic management of human resources is
becoming critical for organizational
survival. Global business environments
demand fexibility and rapid response and there is a growing realization that
the human dimension provides the key to fexibility and adaptability in
organizations. Multinational and
transnational corporations have been increasingly aware of the growing
necessity to have not only international
business strategies, but also
international human resource strategies.
Just as international business
strategy is likely to have unique features and needs to be understood well,
international management of human resources has its own peculiarities
that have to be managed well to be able to fourish in overseas operations (Naresh).
Organization, Implementation, and Control of International
Operations, and their Future
Effective management of international business operations
includes effcient management of
fnance, personnel, product development,
marketing, and communication. This
is so that
the organization, implementation
and control of the operations
go well. The
future of international business
is bright as globalization and the need
for universality continue.
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