How International Companies Practice International Management Functions

How International Companies Practice International Management Functions
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Introduction
Managing international business involves the complex task of navigating political risk, ethical considerations, and staffing decisions (Lu et al., 2022). This essay aims to explore effective strategies for managing international political risk, the significance of ethical theories in international business ethics, and the importance of various staffing approaches, including the inclusion of women managers.
One key aspect of managing international political risk is implementing appropriate strategies. These include risk avoidance, hedging, insurance, negotiation, joint ventures, and risk assessment. By adopting these strategies, organizations can better anticipate disruptions caused by political instability and regulatory changes.
Additionally, these strategies serve to mitigate the impacts of such disruptions. Ethical theories play a fundamental role in guiding decision-making in international business ethics. Some notable theories are utilitarianism and deontology. By integrating these ethical frameworks into their practices, organizations can promote responsible behavior that aligns with societal values—employing models such as ethnocentric hiring (favoring individuals from the home country). Polycentric hiring (preferring individuals from host countries) or geocentric hiring (seeking individuals based on merits regardless of nationality) has wide-ranging implications for organizational success. Furthermore, it is imperative to include women managers as they bring unique perspectives while promoting gender diversity and equal opportunities.
Part A: Managing International Political Risk
Businesses face numerous challenges when venturing into international markets in our interconnected world. Among these challenges managing political risk stands out as one of the most critical. Political risk refers to the potential impact of political factors on a company's operations, investments, and profitability in foreign countries (Lu et al., 2022). The stability of the political climate is crucial for smooth business operations. Therefore, businesses must employ various strategies to effectively navigate political risk. It is widely believed that a plan can only fail if the strategy behind it is flawed. Hence with the right strategy, businesses can mitigate potential political risks. This section will explore some strategies employed to manage international political risk.
The first and foremost step in devising effective mitigation strategies is comprehending the nature and types of political risk. Political risk encompasses a wide range of factors, including government instability, policy changes, regulatory hurdles, political violence, and corruption. These risks can manifest in different ways, such as expropriation, contract repudiation, currency restrictions, or changes in laws and regulations.
One highly effective strategy for managing political risk is the avoidance strategy. This approach involves minimizing exposure to political risk by refraining from entering high-risk markets or sectors (Lu et al., 2022). Organizations that prioritize stability and have alternative opportunities available find this strategy particularly beneficial. By choosing not to invest in politically volatile regions, businesses can mitigate the potential negative impact on their operations and investments. However, this strategy may limit growth opportunities and market diversification. It goes without saying that avoidance is better than suffering the consequences of entering a high politically charge market. For example, several multinational companies decided to either reduce or stop their operations in China due to the charged political climate.
Another great strategy is the hedging strategy. This strategy focuses on reducing political risk through diversification. By operating in multiple countries, organizations can spread their risk (Lu et al., 2022). The hedging strategy involves avoiding overreliance on a single market. This approach allows companies to balance potential losses in politically unstable regions with gains from more stable markets. Hedging can involve geographical diversification.
Product diversification is another aspect involved in managing political risk, which can sometimes be combined with other factors. However, successfully implementing this strategy requires substantial resources, and there is no guarantee that it will completely eliminate political risk. When evaluating a strategy's effectiveness, companies must take into consideration their available resources. A notable example of this strategy implementation is in Venezuela, where Company X utilized the hedging strategy to safeguard itself against fluctuations in the highly volatile Venezuelan currency. To execute this plan effectively, Company X made the strategic choice of outsourcing most of its services from sources located outside of Venezuela. Political
Risk Insurance is another effective approach for managing political risk. By purchasing insurance policies that protect against potential losses arising from political events, companies can transfer the risk to insurance providers and operate with a greater sense of security in politically uncertain environments. It is important to note, however, that insurers often impose limitations, exclusions, and high premiums on such policies. Therefore, careful evaluation of options is necessary as not all types of political risks may be insurable. Negotiation and lobbying represent proactive strategies for tackling political risk.
Engaging in these activities while building relationships with key stakeholders such as government officials, policymakers, and local communities allows businesses to exert influence over decision-making processes and shape policies and regulations that align with their interests (Lu et al., 2022). Moreover, these strategies aim at reducing the potential impact of adverse political actions. It is important to recognize that the success of negotiation and lobbying efforts may depend on various factors, including cultural understanding and the reputation of the company.
When foreign companies collaborate with established domestic entities through joint ventures or partnerships, they are able to leverage local knowledge, networks, and influence (Lu et al., 2022). This approach enhances their understanding of the local political landscape while reducing political friction. However, it should be noted that selecting partners carefully becomes crucial under this strategy as it often involves sharing control over operations as well as profits.
It is also helps to carry out political risk assessment and monitoring: Conducting comprehensive political risk assessments and ongoing monitoring is a vital strategy for managing political risk. This strategy involves analyzing the political environment. Some of the factors to analyze include government stability, regulatory frameworks, corruption levels, and social dynamics. By staying informed and updated on political developments, businesses can anticipate and react to potential risks in a timely manner. Specialized consultancies and research firms can provide valuable insights to support this strategy.
To contrast these strategies mentioned above, it is essential to consider their advantages, disadvantages, and applicability in different contexts. The avoidance strategy offers the advantage of minimizing direct exposure to political risk but may limit growth potential. The hedging strategy provides diversification benefits but requires significant resources and may not eliminate risk entirely. Political risk insurance transfers risk but comes with limitations and high costs. Negotiation and lobbying enable proactive risk management but depend on diverse factors (Lu et al., 2022). Joint ventures and partnerships leverage local expertise but involve sharing control. Political risk assessment and monitoring allow for informed decision-making but require continuous effort.
In light of these observations, effectively managing international political risk is crucial for businesses operating in global markets. By understanding the nature of political risk and employing suitable strategies, organizations can mitigate potential threats and capitalize on opportunities. The choice of strategy depends on various factors as identified above. The factors include the company's risk appetite, available resources, market characteristics, and the political landscape of the target country. It is vital for businesses to conduct a thorough analysis and tailor their approach to ensure a balanced and proactive response to international political risk
Part B: Ethical Theories
Managing ethics within international business is a complex task that requires organizations to navigate diverse cultural, legal, and social contexts. Ethical theories provide frameworks for understanding and addressing ethical issues that may arise in international business operations. The ethical behavior of a company is vital especially for survival in the international environment. The definition of ethical practice may greatly vary depending on geographical region under consideration. This portion of the paper shall explore and contrast the purpose and implications of two ethical theories. The two ethical theories to be explored are utilitarianism and deontology. The theories will be explored in the context of managing ethics within international business.
Utilitarianism is an ethical theory that prioritizes the pursuit of overall utility or happiness as a guiding principle for decision-making. In the context of managing ethics within international business, utilitarianism aims to achieve the greatest good for the largest number of individuals (Anshari et al., 2021). Let us delve into a detailed examination of how this theory serves its purpose in international business management. Utilitarianism places emphasizes the promotion of overall positive outcomes. It does so while minimizing harm. The underlying objective behind utilitarianism is to guarantee that business decisions and practices produce the utmost overall advantage for all stakeholders involved. These stakeholders may consist of employees, customers, communities, and shareholders – acknowledging their collective importance is vital.
Moreover, utilitarianism emphasizes the necessity for organizations to carefully deliberate on the long-term repercussions of their actions and select options that maximize general well-being in a broader sense. When utilized in the context of international business, this theory unfolds several noteworthy implications. Utilitarianism suggests that the ethical evaluation of business actions should be based on weighing the net balance between benefits and harms generated.
In the international business context, this theory suggests that organizations should strive to create value and promote socio-economic development in the countries where they operate. It encourages businesses to engage in activities that contribute to local communities, protect the environment, and respect human rights. However, utilitarianism also raises concerns about potential trade-offs between short-term gains and long-term sustainable development.
A perfect example of where utilitarianism may come to play is how Johnson and Johnson used cells from an aborted fetus to derive the genetic component of the covid-19 vaccine. In 2021, there was great outcry from various countries about the use of aborted fetal cells. There were people who felt that using the cells was unethical. Others felt that the use of the cells was for the better of humanity. Therefore, the company has to do a great decision concerning which decision benefits most people. Borrowing from utilitarianism approach, the best decision was to use the cells and develop cells to help vaccinate many people around the world with covid 19 vaccine. The company is used for this example since it has operations in different nations. Further, its products are also distributed in various countries across the world.
The second ethical theory for consideration is deontology. Deontology is an ethical theory that emphasizes the adherence to moral duties and principles as t...