The Global Business Handbook

The Eight Dimensions of International Management

Mark J. Hooper, David Newlands

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781317030300
• Topic: Business
• Subtopic: Business General
• Index: Business

A nation's economic success depends on the capacity of its companies and trading organizations to develop business relationships, trade and do business in the international arena. Doing business across borders subtly changes the processes and skills the successful manager needs. Cultural, social, geographic and legal factors serve to complicate the picture. The mantra for managers today is think global, act local. In this handbook the authors concentrate on the big developments that currently are happening at an international level. They consider how managers operating in the global business landscape must change what they do to create advantages and remain competitive. The Global Business Handbook is based on the structure of the very successful IÉSEG International School of Management's programme on international management. It includes a global focus, backed by the latest research on different aspects of international business carried out in different parts of the world.

DIMENSION 1
International Perspectives

Chapter 1
International Business – Operating Abroad

David Trigg and Marie C. Trigg

A nation’s economic success depends on the capacity for its companies and trading organizations to develop business relationships, trade and do business in the international arena. We introduce conceptual and practical material necessary to consider the issues and techniques associated with doing business internationally. Components of the topic embrace:

• why countries and companies need to trade internationally;

• comparative frameworks for international environmental assessment, especially country risk assessment; and

• international operations, including market entry strategies for multinational corporations (MNCs).

In an era of growing globalization, understanding contemporary international trade theory and how it applies to the development of MNCs are essential tools.

Application of business analysis to foreign market entry, the potential international mix of company operations and longer-term investment decisions by companies in a global context are also fundamental, as is an understanding of the volatility of exchange rate risk.

Managers and specialists increasingly require a need to:

• formulate scenarios to analyse risky situations in times of rapid, often discontinuous technological, political and social change in both the domestic and international environments;

• plan for the future in a systematic way; and

• retain flexibility and responsiveness where risks and change are unprecedented and unexpected.

These represent major challenges for managers and specialists at all levels of an organization. Their main focus in such a context should be on the development of international business and the successful conduct of that business.

The aim of this chapter is twofold: to develop an understanding of the international business environment and to develop and refine knowledge of business in an international setting. This chapter builds basic knowledge with a particular emphasis on the skills or competencies needed to ensure the successful development and implementation of operational processes applicable to the international environment.

Introduction

International business is commerce or trade that is carried on by a company beyond its domestic borders (Mahoney et al. 2001). It is often called cross-border trade. In most cases it is business conducted between different companies in different countries. However, as will be seen later, it may involve business conducted between different elements of the same company in different countries.

When people contemplate international business it is most common to think in terms of bulk carriers with oil or minerals or manufactured goods in a container on a cargo ship. However, items traded in routine and spot purchase international transactions are many and varied.

Perhaps the most common internationally traded item is information. Information ranges from everyday events in the nightly TV news service to confidential trading reports on market conditions in foreign countries. Other objects of international business include services such as consulting on foreign aid projects and capital for foreign investment projects. The employment of personnel from foreign sources is an increasingly important object of international business as companies seek skilled and professional managers and specialists to perform in the international arena. The ownership rights to goods, land, resources, information and businesses may be traded without transporting goods on container ships or trains, etc. For instance, Sony bought a movie studio in California; banks sell insurance policies on guarantees they made that underwrite loans they made to clients. Technology also is a much traded object of international business as companies all over the world strive to compete with each other on the basis of quality or low cost. Finally, we must not forget manufactured goods, because although their relative importance as a percentage of international business may be decreasing, they still are a vital element of business and will continue to be so into the future.

Companies involved in international business range from small enterprises making goods for export through to very large MNCs that are household names. To put the scale of international business into context, the combined revenues of the top 200 corporations constitute one quarter of the world’s GDP. Their total revenues approach US$ 10 trillion.1 This can be compared to the combined revenues of the poorest 80 per cent of countries, which are around US$ 4 trillion. Whilst the total global workforce is over two and a half billion people, the combined employment of the top 200 corporations is fewer than 20 million employees.2 These figures have to be seen in the light of the fact that one of the largest employers in any country which has high social security contributions is the nation’s health service provider. This sector alone accounts for around 17 per cent of the economy and increasingly, international ‘health tourism’, where individuals travel to other countries to undergo operations more quickly than they can be undertaken, or where they are unavailable, in their home country, have dental treatment and buy prescription glasses at much lower prices than are available at home.

One of the least visible international trades is known as the ‘brain drain’. Qualified individuals who have the competence to move internationally can obtain jobs in other countries. They may have studied in one or more countries and now provide value-added services to their clients in other countries. These flows of employees are examined by Prof. Malloch in ‘International Human Resource Management’, Chapter 12 in this volume.

Terminology

There are many terms used in international business. The most common term is ‘globalization’. There are many definitions of globalization and these are covered in a subsequent section. In its broadest sense, globalization is the worldwide trend of economies of the world becoming borderless and interlinked (Hill 2005). The extensions to the European Union typify this trend. The globalization process allows businesses to expand beyond their domestic (national) borders. At a different level, globalization is the creation of standardized management practices and products that companies apply on a worldwide basis.

The important process covered in this chapter is that of internationalization (Welch and Luostarinin 1988). Such progressions occur when a company extends its operations beyond its domestic borders. In effect it is developing into an MNC. An MNC is a company that engages in foreign direct investment (FDI). In essence, it owns and controls value-adding processes in more than one country.

Another term that may be used to describe MNCs is a global corporation Mahoney et al. 2001, p. 869). These are companies that view the world as a single marketplace and strive to create standardized goods and services to meet customers’ needs worldwide. A transnational corporation (TNC) is a company that seeks to combine global scale efficiencies with local responsiveness. One last expression to note at this stage is a wholly owned foreign subsidiary. This is an enterprise that is subordinate to a parent company in another country. Assembly and manufacturing facilities owned by the parent corporation that build identical or similar products closer to the market are known as transplants.

When referring to different countries, there are specific terms to denote what we are talking about. The country in which an MNC is based and has its head office is referred to as the parent or home country (ibid., p. 878). The country in which subsidiary operations are conducted is referred to as the host country.

In this chapter, we limit our argument to the nature of international business under four different headings (Hill 2005):

1. cultural differences;

2. politico-legal environment;

3. commercial environments;

4. financial issues.

Each of these areas of business is significant and raises issues that international managers must get right in order for their businesses to be successful.

The first of these is that when dealing between different countries there are cultural differences to be considered (Shenkar and Luo 2004, p. 149). The most obvious cultural difference is that of language. Management must consider things like people’s social customs. For example, the way people greet each other, their concepts of hierarchy, personal space, work ethic, customer service, face, being an insider, cooperation and individual versus collectivism. Some social cultural aspects would never be accepted in private, yet are the accepted way for business and management practices.

The second aspect of international business that must be covered is the politico-legal environment in which business must be conducted. Each country has its own political system and its own legal system (ibid., p. 175). Whilst these may be classified under major categories, they are nevertheless quite different. Other aspects that need to be considered are issues such as employment regulations, contracts and dispute resolution.

The commercial environments of each country are also different from each other. Firstly, there are different levels of development, ranging from highly industrialized countries through to emerging economies (ibid., p. 119). Economies may be at different levels in cycles. Some countries are growing rapidly whilst others are in decline. Resource availability differs from country to country, as does the infrastructure and support necessary for the conduct of business. Emerging economies may be able to jump ahead because they adopt modern solutions without scrolling through obsolete phases. They can do this at lower cost because they have not invested in, and do not need to get rid of, historic legacy infrastructure, conditions and inefficient practices.

The last aspect that must be considered is that of financial issues (ibid., p. 226). Countries have to trade with each other and most countries have unique currencies at variable exchange rates that need to be taken into account. In essence, parties to transactions must use different currencies. Many currencies are quite volatile and as they fluctuate, business decisions to invest in a specific location can be the difference between success and failure. Ford Motor Company’s sales of Aston Martin, Volvo and Land Rover are the result of the devaluation of the US dollar and tye comparative strength of sterling. Emerging economies, by contrast, may not have access to tradable currencies.

Classic Concepts

There are many differences between domestic and international business. It may seem trite to say that the major difference is clearly the range of activities that need to be performed. However, this is indeed true. A domestic business need concern itself with operating only in its home market where the managers are very conversant with local business practices. Management must try to ward off the inbound competition from transplants and cheap imports of substitute brands that may or may not be inferior. International business, on the other hand, involves operating in host countries where conditions, laws and business practices may be significantly different. Some of the major differences are now outlined.

Cultural Factors

One of the very first differences to note when conducting business internationally is whether to just export or operate a wholly owned foreign subsidiary, is that employees will be dealing with people who have different attitudes and perceptions about doing business (Mahoney et al. 2001). From the very outset people talk different languages. Whilst English may be the lingua franca of international business, there are many thousands of different languages around the world. Because people need to communicate, this means that one of the two parties involved in business is going to have to use a different language or else both parties will need to find a common language, such as English. The common axiom is that ‘the British and the United States are two countries separated by the same language!’ The rate of change in both spoken and written forms of language has significantly increased since the widespread take-up of the internet. Text message codes are the most significant example of this phenomenon.

We need to be very careful when it comes to speaking different languages. Just because another person speaks English as a native tongue is not a reason to think there will be no confusion. English is spoken very differently in different parts of the world and not all English words are in universal usage. Take for example the word ‘fortnight’. In the United Kingdom and other countries of the British Commonwealth the word ‘fortnight’ is used to denote a period of two weeks. However, in the United States the word ‘fortnight’ is virtually unknown. So if an English person is dealing with the American and says that the details of a project will be available in a fortnight’s time, the American may not understand and the result will lead to uncertainty. A black coffee in the UK means coffee without milk. In Israel, it means filter coffee put in a cup, to which hot water is added to make a mixture that settles at the bottom of the cup as a sludge. Israelis use the term ‘Nes’’ to indicate a coffee drink made with instant powder. ‘Arctic’ to the British means the North Pole region and implies polar bears. Israelis use it to mean an ice cream. The word ‘lolly’...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Contributors
• Acknowledgements
• The Eight Dimensions of International Business
• DIMENSION 1: INTERNATIONAL PERSPECTIVES
• DIMENSION 2: RELATIONSHIP MANAGEMENT
• DIMENSION 3: SUPPLY CHAIN MANAGEMENT
• DIMENSION 4: REGIONAL AND COUNTRY SPECIFIC DIFFERENCES
• DIMENSION 5: MARKETING AND SALES
• DIMENSION 6: COST MANAGEMENT
• DIMENSION 7: INNOVATION AND QUALITY
• DIMENSION 8: BUSINESS TRANSFORMATION
• Index