Managing International Business

Managing International Business
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Managing International Business
The management of international companies has become more intricate in the present era of globalized business surroundings, with markets and nations becoming more interconnected. Businesses face challenges navigating different countries' social, political, and cultural landscapes. Key areas of concern for international firms include political risk, ethical behaviour, and human resource management. This essay explores and analyses the diverse strategies employed to mitigate political risk in the international domain, drawing comparisons and distinctions between them. Moreover, this paper will scrutinize the purpose and implications of two ethical theories for managing ethics in international business. Additionally, the essay aims to evaluate and differentiate several staffing models, including the ethnocentric, polycentric, and geocentric approaches, and the recruitment of women managers, identifying their strengths and weaknesses. The essay comprehensively explains the intricacies of conducting global business operations by delving into these issues.
Managing political risk
Based on the findings of Buckley and colleagues (2018), political risk is defined as the potential hazards and uncertainties stemming from political elements within a specific country or region. Managing political risk is a vital function that modern international companies must undertake to protect their investments and interests. These risks arise due to events or policy changes in political regimes that may negatively impact a company's profitability or investment management. Implementing political risk management tactics is essential for corporations that operate in foreign nations. These strategies may vary depending on the nature of the political risk and the organization's business model. This essay will discuss and compare the strategies employed by international firms to manage political risks and provide examples for each strategy.
One strategy for managing political risk is to establish a contingency plan. A contingency plan is a set of procedures and policies that firms develop to respond to unexpected events or changes in the political environment. The plan should include a crisis management team, an emergency response plan, and communication protocols. The crisis management team is responsible for assessing the situation, determining the appropriate response, and implementing the plan. The emergency response plan outlines the actions that the firm will take to ensure the safety of its employees and assets. Communication protocols define how the firm will communicate with its employees, stakeholders, and the media during a crisis.
For example, (Connick et al., 2007) studied how several multinational corporations managed political risk in emerging markets. They found that many firms developed contingency plans to deal with the risks associated with terrorism, civil unrest, and government instability. For instance, some firms established secure communication channels to contact employees during a crisis. Others set up evacuation plans and safe houses for their employees. By having a well-defined contingency plan, firms could minimize the negative impact of unexpected events and protect their employees and assets.
Another way to manage political risk is by implementing legal protections to safeguard the firm's investments in foreign markets. This approach involves utilizing legal agreements, such as investment treaties, insurance policies, and arbitration clauses, to mitigate potential losses due to political risks. Investment treaties offer foreign investors certain protections, such as fair and equitable treatment, compensation for expropriation, and the ability to repatriate profits. Insurance coverage can also protect against losses resulting from political risks, such as confiscation or nationalization. In addition, arbitration clauses can provide a neutral platform for dispute resolution between firms and the host government, avoiding the local legal system.
Connick, Ihenacha, Mbaluto, and Campbell (2007) provide examples of how companies such as ExxonMobil and B.P. utilized legal means to manage political risk in emerging markets such as Nigeria and Russia. These companies implemented various legal agreements and arbitration clauses to safeguard their investments from political risks such as expropriation, corruption, and legal disputes.
Adaptation strategy is a business approach that involves adjusting to a foreign country's political situation to continue operations successfully (Asmussen, 2018). This involves changing the business model, production process, or product design to meet the country's regulatory requirements. For instance, Google had to censor search results in China to comply with the country's strict regulations on information (BBC News, 2010). Facebook also had to collaborate with the Chinese government to launch a state-approved version of the social network WeChat (TechCrunch, 2016). These adaptation strategies helped both companies gain entry into the Chinese market, which was only possible if they complied with government regulations.
Avoidance strategy is a business approach that involves refraining from entering a foreign market or divesting from an existing investment due to political risk (Brouthers et al., 2016). While this strategy may involve forgoing potential opportunities and revenue, it also minimizes the risks associated with political instability. For example, when the political situation in Venezuela deteriorated, Coca-Cola closed its operations in the country and divested its investment (BBC News, 2017). Similarly, General Motors suspended its operations and withdrew from the country due to political unrest (Reuters, 2017). By employing an avoidance strategy, these companies mitigated the risks of political instability in Venezuela.
A control strategy is a business approach that involves engaging in political activities to influence the outcome of political events in a foreign country (Doh & Quigley, 2014). This approach requires building relationships with key stakeholders, such as government officials and politicians and protecting the business interests. For instance, Walmart spent millions of dollars on lobbying efforts to persuade the Indian government to relax the regulations on foreign retailers (The Economic Times, 2018). The company also invested heavily in building relationships with local suppliers and manufacturers to support its operations in the country (The Hindu Business Line, 2019). By employing a control strategy, Walmart was able to influence the political climate in India to support its business interests.
A hedging strategy is a business approach that involves mitigating the impact of political risk through financial instruments, such as insurance, futures, and options (Brouthers et al., 2016). This strategy involves transferring the risk to another party, such as an insurance company or a financial institution. For instance, when the Brexit referendum was announced in 2016, many companies hedged their exposure to the pound by buying options to sell the currency at a fixed price (Reuters, 2016). This strategy helped them to protect their profits and minimize the impact of currency fluctuations.
Furthermore, diversifying their operations is another effective approach adopted by multinational corporations to mitigate political risk. By expanding their activities across various countries, these firms can reduce their vulnerability to political factors in any country. Diversification allows multinational corporations to distribute risks, thereby minimizing the impact of any negative political events. For instance, a multinational corporation with operations in several countries can offset losses in one country with profits from other countries (Hitt et al., 2020)
International firms can mitigate political risk by utilizing joint ventures and strategic alliances. Collaborations and strategic alliances entail collaborating with domestic firms or other international enterprises to distribute the hazards and gains of conducting business in a foreign state (Grosse, 2002). This approach allows international firms to leverage the knowledge and expertise of their local partners while also reducing their exposure to political risk by sharing the financial and operational risks associated with the venture.
In addition to that, another effective approach to managing political risk is by utilizing insurance, which can provide financial support for companies that may face political risks (Connick et al., 2007). Political risk insurance covers losses caused by expropriation, currency inconvertibility, and political violence. Companies operating in high-risk regions such as conflict zones can minimize their risk of losing their investments by utilizing political risk insurance. For example, after the Iraq War in 2003, the U.S. government offered political risk insurance to American firms interested in investing in Iraq to mitigate the risks associated with the country's political instability (John & Lawton, 2017).
Finally, another strategy for managing political risk is diversification. Companies can minimize the impact of political risks by diversifying their operations across several countries, reducing their exposure to risks in any single country (Luthans & Doh, 2012). Diversification enables companies to distribute risk across various regions, thus minimizing the likelihood of a complete loss. For instance, in 2014, Russian aggression towards Ukraine resulted in Western sanctions on Russia. Numerous multinational firms that solely operated in Russia experienced significant financial losses, while those with diversified operations across several regions managed to reduce their losses (Buckley et al., 2018).
Managing Ethics within International Business.
When it comes to businesses operating globally, ethics is an essential issue that needs to be considered. Ethical theories provide a structure for decision-making that considers the moral effects of a company's actions. Deontological and consequentialist ethics are two ethical theories that present different ways of managing ethics in international business.
Deontological ethics, also called duty ethics, prioritize adherence to moral principles regardless of the outcome. As explained by Sweeney and McFarlin (2015), deontological ethics require individuals to show respect for the rights of others, act with integrity, and fulfil their obligations. For instance, a company operating in a developing country should adhere to the local labour laws, provide safe working conditions, and pay fair wages, even if it is costly. The deontological ethical approach prioritizes the inherent moral value of actions, making it relevant across different cultures and contexts.
Consequentialist ethics prioritize the outcome of actions over the actions themselves, unlike other ethical theories. The moral worth of an action is based on its results, and the end justifies the means. According to Sweeney and McFarlin (2015), consequentialist ethics require people to optimize utility, minimize harm, and promote the greatest good for the greatest number. For example, an organization that lowers its carbon emissions to mitigate climate change can be seen as behaving ethically because it leads to a positive outcome, even if the action has a high cost. Consequentialist ethics consider the outcome of an action to be more important, making them more reliant on cultural values and norms.
Both deontological and consequentialist ethical frameworks have implications for ethical management in the context of international business. Deontological ethics can assist companies in establishing unambiguous ethical principles and practices that conform to universally accepted moral standards. This approach can engender stakeholder confidence, encourage ethical conduct, and discourage unethical activities such as bribery or exploitation. However, it can also be rigid and unyielding, posing difficulties in adjusting to cultural disparities or evolving circumstances.
In contrast to deontological ethics, consequentialist ethics offer a more versatile and adaptable means of ethical management. This method enables companies to consider the particular situation and outcomes of their actions, facilitating adjustments to cultural disparities and shifting conditions. Nevertheless, consequentialist ethics may give rise to ethical relativism, whereby moral norms differ between cultures and are open to interpretation. Consequently, it can be challenging to establish ethical standards that are universally applicable or to avoid unethical behaviours that prioritize immediate benefits over long-term effects.
Cuervo-Cazurra (2016) highlights the relevance of deontological and consequentialist ethics in addressing corruption within international business. From a deontological perspective, companies must observe legal and moral standards prohibiting bribery. On the other hand, consequentialist ethics entail an evaluation of the pros and cons of participating in corrupt activities. While firms prioritizing deontological ethics may forego opportunities or face a competitive disadvantage, they avoid engaging in unethical practices. Conversely, businesses prioritizing consequentialist ethics may engage in corruption if it leads to greater profits or market share.
One instance where this issue arises is when a company must manage ethical scandals. For example, when allegations of sexual harassment and misconduct were made against Dov Charney, the founder of American Apparel, the company's board of directors had to decide between prioritizing deontological or consequentialist ethics (Gumbel, 2006; Millman et al., 2012; LI et al., 2014). A deontological approach would require the company to prioritize respect for the rights of employees and avoid condoning unethical behaviour. Conversely, a consequentialist approach would require the company to consider the impact of Charney's actions on the company's financial performance and reputation.
Ethical concerns may arise in any organization, regardless of its magnitude or business sector. Thus, it is essential to establish a strong ethical culture that prioritizes ethical conduct at every level of the organization. This can be accomplished through various approaches such as training programs, codes of ethics, and policies on reporting wrongdoing.
In order to manage ethics within the context of international business, it is imperative to comprehend diverse ethical theories, such as deontological and consequentialist ethics. Despite their respective advantages and disadvantages, both these theories can be advantageous in guiding decision-making during complex ethical scenarios. Furthermore, it is critical to consider cultural disparities and foster a robust ethical culture within the organization to guarantee ethical behaviour throughout all levels.
An example of a deontological approach is when an employee of a pharmaceutical company uncovers that a new drug under development possesses significant potential side effects that may endanger patients. Following the deontological approach, the employee has an ethical obligation to prioritize the welfare and safety of the patients. Despite the potential negative financial implications for the company or the delay in the drug's launch, the employee is required to disclose the potential side effects and guarantee that appropriate measures are implemented to safeguard patients.
Approaches to staffing
Staffing is a critical component for Multinational Enterprises (MNEs) to ensure the success of their global operations. MNEs have adopted various staffing models, such as ethnocentric, polycentric, and geocentric, to select the best personnel to work in different world regions. Perlmutter (1...