How Contemporary International Firms Practice International Management Functions

Managing International Business
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Managing International Business
Increased and accelerated global business activities have necessitated managerial expertise in managing multinational companies. This knowledge is needed due to the emerging problems and risks in the global market. Political risks are the major threats to companies worldwide and a significant hindrance to firms that wish to enter the international space. Other challenges include cultural barriers, foreign laws, global company structure, currency rates, and supply chain complexity. These challenges affect many companies from expanding their operation overseas to boost profits. Despite these problems, global business is dynamic. It rapidly changes and adapts in response to these problematic events. Multinational companies with effective management strategies have gained a competitive advantage and continue to thrive in global business. Managing an international business is essential for the growth and profitability of the company. It involves decision-making and strategic planning. This essay analyzes how contemporary international firms practice political risk management, ethical behavior, and human resource management. It also outlines relationships between the three functions and identifies changes or new corporate behavior patterns that have emerged in these areas.
Strategies to Manage International Political Risk
Global firms are significant drivers of a country's economic growth and development due to their role in creating employment in various sectors and investing in underdeveloped aspects. Despite the success and benefits of these firms to a community, political risks threaten their existence in a host country. Political risks are uncertainties associated with political decisions. They adversely affect corporate profits and goals. They range from policy changes to political protests, terrorism, government interference and expropriation, and transfer and currency conversion (Ali et al., 2021). Since these actions harm international business, global firms must implement strategies to mitigate or prevent them.
The first strategy to manage global political risk is to evaluate the political climate of a given country before investing. Global firms and investors must ensure that they conduct extensive research about a host country to determine the existence or likelihood of political risks that would affect them negatively (John & Lawton, 2018). Doing so will help them decide to refrain from setting up operations in political risk hot spot countries. While some firms may find this measure effective, others may want to take calculated risks if riskier countries are lucrative. In such cases, companies can consider negotiating compensation terms with the host nation to obtain a legal basis if a political factor disrupts the country's operations (John & Lawton, 2018). However, the problem with this solution is that the host country’s legal system may be significantly different from the investor’s country. In some regions, non-nationals hardly win cases against a host nation. In worse scenarios, a revolution could instill a new administration that does not honor the previous government’s actions.
Another essential strategy is purchasing political risk insurance. Investors involved in global business should ensure they take insurance in politically hostile countries. Multinational firms could seek help from organizations specialized in selling political risk insurance and buying a policy. Most developed nations have easily accessible political risk insurance. Developing countries also have foreign business risk insurance. If political violence leads to business destruction, the host country can compensate the investors, helping them recover their lost assets (Ali et al., 2021). However, purchasing political risk insurance does not guarantee that the firm will receive the recompense immediately after the hostile event. The insurance comes with certain conditions. For instance, the company must prove that it has vainly tried other channels for recourse and that the damage fell within the terms of the cover. The process also takes time, and shortlisted firms may have to wait longer before getting any compensation.
Another strategy is portfolio diversification. Diversification is a technique investors use to manage risk by spreading investments across various industries, financial instruments, and other categories to limit exposure to any asset (Christy, 2021). By allocating investments across different assets, the firm is less likely to lose its portfolio due to a political risk impacting that single holding (John & Lawton, 2018). It aims to increase risk-adjusted returns and preserve the investor's capital through different instruments that react separately to political risk. Investors can maintain a diversified portfolio to avoid any political risk with a significant impact on their portfolio. Diversification should entail hedging the risk inherent to global investment.
Multinational firms can manage political risk by hedging their portfolio against future hazards. For example, an investor that foresees political tensions in Brazil may decide to purchase put options on the iShares MSCI Brazil Index ETF (Christy, 2021). With the correct value of the put value, the firm can substantially minimize the losses if the index fall or create gains elsewhere in its portfolio. Despite the benefit of this strategy in reducing the chances of experiencing losses, it does not offer guaranteed returns. It only aims to attain financial objectives while mitigating political risk.
Out of the three strategies: investors focus on evaluating the political climate due to the rising political tensions in various countries where they invest. Investors are always looking for places that guarantee financial safety. Regions that experience political violence and tensions do not seem to be the best place to invest, even if the business in those regions is lucrative. Some investors may see the need to take calculated risks. However, for some, the possibility of the loss may be huge. During the Russia-Ukraine war, for instance, several multinational companies pulled back from Russia. Automobile companies like General Motors, Toyota, Volkswagen, and Nissan suspended their operations in Russia due to disruption in the supply chain. Big tech companies like Amazon, Apple, and Netflix followed suit. This was due to massive losses caused by the war. Such events make investors rethink their investments in the affected countries. They may only hesitate to establish the business in hostile regions once normalcy is restored. Therefore, to be safe, investors should regularly assess their targeted countries to make informed decisions.
Managing global political risk has a strong connection with ethical behavior. Ethics guide professionals and multinational organizations in making moral decisions regarding political risk. It impacts political risks positively. According to Darwish & Abdeldayem (2019), a moral compass guides decisions and conduct. In risk management, ethics impact everyone associated with the firm. Risk managers assess and attempt to quantify the losses. They then take action based on the analysis. Thus, ethical behavior from risk management personnel is a crucial component of an international business. It is necessary to consider the common ground they share to see why ethics and political risk management are connected. As noted, ethics guide appropriate actions taken in given situations. It enables companies to take appropriate actions that protect others from harm or empower others.
For a company to manage its political risks well, all its people must behave ethically. For instance, when evaluating the political climate before investing in managing political risk, honesty is required to establish facts about the region. Misrepresenting facts can create a negative picture of the target country, forcing the company to make decisions that harm many people. Employees must maintain a high level of ethics to respond appropriately to political risks. Policy changes also need ethical behaviors. Multinational companies often use lobbyists to influence regulations. However, some lobbyists engage and bribe lawmakers in return for favors. Such actions are unethical and can lead to irrational decisions. In a different scenario, if one employee discovers their colleague is embezzling from the company. This dishonesty may cause financial loss to the organization and its shareholders if not reported. In the long run, the problem may extend to those who depend on the company for their livelihoods. These examples show how a strong correlation between ethical conduct and risk management.
Ethical Theories for Managing Ethics within International Business
Ethics establish trust between business parties. Companies earn this trust by demonstrating ethical behaviors regularly, gaining a reputation for social responsibility and respect for human rights. Business ethics theories form the framework for acceptable conduct and company decisions. Most professional ethics follow the idea of doing what is best for the group and the action’s moral aptitude instead of the result. The primary business ethics theories for managing ethics within the global business include deontological theory and utilitarianism.
Immanuel Kant’s deontological theory states that an action’s morality is defined by the rules or principles that govern it, not the consequences (Singh & Mishra, 2018). For instance, according to this theory, lying would always be unethical, even if it would prevent negative consequences like death. A real-world example where the Kantian approach has been applied is Samsung. In 2016, Samsung Electronics encountered a massive public relations challenge when its Galaxy Note 7 smartphones began to explode due to faulty batteries and casings (Stanberry & Byars, 2018). At first, Samsung denied the claims of technical problems. Later, when it became clear that exploding phones threatened health and safety, the company directed the blame to its suppliers. In reality, the probable reason for the problem was the haste to beat the release date of Apple’s iPhone 7 (Stanberry & Byars, 2018). Eventually, Samsung admitted the problem, recollected more than two million phones globally, and substituted them with upgraded Galaxy Note 7s (Stanberry & Byars, 2018). The organization’s response to the problem was Kantian, as it focused on the end with the motive of doing the ethically responsible thing.
For Kant, the central issue is identifying a convincing basis for one’s sense of duty to develop a principle for distinguishing right from wrong. This theory judges a business by its motive of doing good. The outcome may be desirable or undesirable, but good motives justify the action. In business, the deontological approach offers an unprecedented opportunity to develop morality through the categorical imperative to behave ethically (Stanberry & Byars, 2018). This imperative address the personal side of business ethics. Character and moral formation are critical in establishing a moral culture. Many companies have suffered damaging crises owing to management’s lack of commitment to goodwill. Recent examples include Uber, where a toxic work environment prevailed, and Volkswagen, which deliberately misrepresented its cars’ emission levels. Such examples also exist in governments, as confirmed by the ‘‘Fat Leonard’’ Scandals (Stanberry & Byars, 2018).
Utilitarianism is based on the idea that firms should consider the consequence that would benefit the most people (Singh & Mishra, 2018). Evidence of this theory in business is found in Roche Holding AG, a pharmaceutical company that released Accutane: - a drug for treating severe acne in young males. Despite the drug's effectivene...