Business and Marketing (SMUnit VIII-1of 4)

Discuss at least five potential advantages to initiating, continuing, and/or expanding international operations. Your response should be at least 200 words in length. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.

Learning Objectives
Upon completion of this unit, students should be able to:
1. Identify and be able to analyze the implications of the international
environment on the strategy of the firm.
Written Lecture
The Pros and Cons of Going Global
To what extent should international markets be a part of your strategy? Should
you go global, or focus on developing a competitive advantage on the home
front? Going global is often tempting for business strategists. Global operations
allow you to tap into potentially huge markets that can bring advantages of scale
that drive revenues and product cost reductions. Global markets also provide
opportunities to extend product life cycles. Many global companies introduce
products locally first, then take them global in order to lengthen the revenue
cycle. Finally, if you do seek to reach global markets, you may be able to find not
only additional customers, you may be able to find lower cost inputs to
production, such as lower material and labor costs that are found in some lower
cost regional economies. There would seem to be nothing but advantages to
having a global strategy, but there is a flip side of the coin to consider.
Global markets are large markets—but large markets tend to be competition
magnets. If you play in a very large market, you may well find your company on
the wrong side of Porter’s Five Forces, and end up competing away potential
profits. You may end up losing against tough competition as well. Have you ever
heard anyone say, “This is a billion-dollar global market—if we get only 1% of
this market, we will be rich”? Perhaps there is some truth to this comment, but
on the other hand, 0% of a billion-dollar market is not only zero profit—it is less
than zero because of the cost incurred in competing in the global arena. Another
disadvantage of a global strategy is, therefore, the cost of global operations. The
more people that you have in the company located around the globe, the more
complex is the management and control. You will need information technology,
business systems, travel, and local management. You will need to consider what
elements of the business will be kept strictly local, and which could be distributed
throughout the world. The management of the implementation of a global
strategy is therefore extremely difficult and costly, and it keeps management on
its toes.
Cultural Issues
Global strategies incur complexity beyond the raw numbers of the people, the
locations, the costs, and the communications channels. A global strategy will
naturally involve management, as well as customers from different cultural
backgrounds and different native languages. This means that policies, initiatives
and advertising campaigns that seem intuitive in a local setting may make little
sense to someone in a different country. Further, the strategy of the parent
company may make sense to local staff, but not to employees located in
Reading
Assignment
Chapter 11:
Global/International Issues
Key Terms
1. Feng shui
2. Global strategy
3. Globalization
4. Guanxi
5. International firms
6. Multinational
corporations
7. Nemaswashio
8. Protectionism
9. Recession
10. Wa
BBA 4951, Business Policy and Strategy  2
different time zones and geography. Such differences lead to friction and add
costs to the company due to the additional management effort required to keep
everyone on the same page.
Culture runs deep and can impact how employees around the world approach
working together and problem solving. As an example, most Western countries
such as the US, the UK, and Scandinavia tend to have a “low context” approach
to communication. Low context cultures can easily manage by reading emails or
documents and seeing the details spelled out in black in white. High context
cultures, by way of contrast, are present in Asia, most notably Japan, Korea and
China. High context cultures need more face-to-face interaction in order to fully
understand what is being communicated. This means that you can’t simply
attempt to govern a multinational company by use of electronic communications.
You will likely need management to travel extensively in order to communicate
and reinforce basic company directives.
Financial issues
A strategy that crosses borders inevitably encounters differences in costs of
living, inflation rates, and currency fluctuations. Each of these categories trigger
both opportunity as well as risk, but in the end, the added complexity tends
toward adding cost and management difficulty to your strategic implementation.
If for example, the cost of living is very high in a country targeted by your
strategy, the cost of any operations established in this country will be high. As a
result, profits will be impacted, or product prices will be forced to rise. The risk of
higher fixed costs may be offset by the opportunity of placing operations in lower
cost regions. For instance, if your strategy calls for doing business in the
European Union, you may want to establish your most labor intensive operations
in the nearby lower-cost Czech Republic instead of a higher-cost country, such
as Germany.
As your company moves finished goods from one country to another it will likely
face import duties. Some import duties required by importing countries may
result in the effective doubling of the cost of the product. In the absence of a
trade agreement between the two countries, duties may be overcome by
establishing some local manufacturing. Local manufacturing may also take
advantage of tax breaks and low labor costs. On the other hand, local operations
may add cost and management complexity, so it is not necessarily an import
duty panacea.
Currency values change over time and when a company expects to do business
in a country with a fluctuating currency, the business plan must take this into
account. For example, assume that you have agreed on a pricing strategy with
retailers in the country in which you are doing business. If the currency declines
in value by 10% against the currency of the home country you have effectively
lost 10% of the price. You will need to increase prices, or move out of the
market.
The Web and international business
It is always possible to consider a minimalist approach to doing business
globally. For example, if you host a product Website, and you allow international
shipment, then you are in business. This is often done by companies today, but
although this technique can minimize costs, it also limits the degree to which you
can support your target market. This opens the doors to competitors, and limits
the opportunity for follow-up success.
In the international arena, there is no “free lunch.” Opportunities abound, but so
do risk so managers would do well to be cautious when stepping into the global
arena.