CAUSES & MANAGEMENT OF POLITICAL RISKS

INTERNATIONAL BUSINESS 1
CAUSES & MANAGEMENT OF POLITICAL RISKS
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INTERNATIONAL BUSINESS 2
Introduction
Improved technology specifically in transportation and communications, reduction in trade tariffs, increased local competition and better political relationships between nations have motivated many business enterprises pursue international expansion and to become more globalized in their operations. In an effort to achieve more profit that guarantees business continued sustainability and profitability several companies are currently engaging in cross border commercial transactions. International business entails across the border transactions of goods, services and resources between two or more nations. Multinational companies transact business in more than one nation and their business approach has a global perspective (The Marketing concept). Business units in different regions are guided by the different business systems in the region. Between nations there exist differences in legal systems, economic policies, language, culture, trade tariffs, trade agreements and living standards amongst other cultural and political differences.
International Business
The company objectives and the manner in which they are executed directs how the company conducts its international operations such as expansion of sales, acquisition of resources and minimization of associated risks. Some modes of international business are importing and exporting, tourism, franchising and transportation among others. International business comprises functions such as marketing, global manufacturing and finance and supply chain management.
Other business means include the business functions such as marketing, supply chain management, human resources and global manufacturing. Overlaying alternatives such as choice of countries, organization and control mechanisms is another means of international business.
International business is influenced by certain physical and societal factors such as political policies and legal practices, cultural factors, economic forces and geographical influences within the host country (Verbeke 2009).
Some of the competitive factors associated with international business include advantages in price, marketing and innovation at the global stage, increased comparative capabilities of competitors and competitive differences by country.
INTERNATIONAL BUSINESS 3
International business is an expensive, risky and involving undertaking. Effective strategies should be implemented in order for the business to compete effectively at the global market level. International business opens great opportunities to businesses as well as to some risks. Business enterprises should take advantage of the prevailing political stabilities as well as trade agreements between nations in the world and engage in cross border trade. When some companies become international they tend to forget about their brand issues. Companies should protect and safeguard as well as retain their brand even when they become global entities. The company reputation should be protected both at the local and the international level.
Multinationals should maintain high ethical standards by forging ethical strategic partnerships and developing compliance protocols for both import and export operations amongst other ethical practices. Regardless of the assurances guaranteed, multinational companies should maintain a secure environment within their operations. Security measures should be implemented and upheld. Effective communication and integration should be maintained at all units of the business.
Within the global industry, companies compete in all world markets for their survival and each company’s competitive advantage depends on economies of scale and economies of scope which are gained across the international markets. Some companies pursue a global strategy which involves universal competition, worldwide presence in order to compete successfully, standardization of their products for all markets, exploitation of customer needs across international borders and integration and co-ordination of activities across borders among other strategic approaches (Global business).
The global strategies adopted by different companies are established under the guidance of two pillars which are standardization and adaptation. Standardization of production involves producing similar products for both the local and international markets with only some slight alterations to suit the foreign market. Standardization of the products is justified by the fact that human basic needs are the same all over the world. However, due to the existing differences in cultural practices, environmental factors as well as the living standards, companies are expected to adapt their products in order to meet the needs and preferences of the different markets (Global Business Strategy).
INTERNATIONAL BUSINESS 4
Companies engage in international business for various reasons. Generally companies will go global basically for them to expand as well as to grow since an international strategy helps a company to diversify as well as to expand its business. When companies introduce their products they are able to expand their customer base as well as increase their sales and revenue. Increased sales and revenue comes with increased profits. Availability of alternative source of labor is another reason why companies adopt an international strategy. Cheap and skilled labor available in the host nations may help the company lower its manufacturing costs. Availability of cheap resources and raw materials in the host nation may also drive a business to locate its operations within that nation. Some companies also engage in international business in order to diversify their operations with the aim of reducing the associated business risks within a single nation. Diversification guarantees a company some continuity and survival even when the company sinks in one nation.
The need to broaden the existing skills and ideas also drives firms into international business. Integration of people from different cultural backgrounds can bring fresh and useful ideas and concepts to a company and this may help it grow. In some instances exporting companies are forced by the consumers’ bias on external goods. Consumers may have preference for local goods and thus refuse to purchase foreign goods due to the “buy local” policies. As a result companies may have no choice but to set up manufacturing bases within their target market countries in order to have a home orientation and association. Foreign expansion to a particular country may also be as a result of existing demand with no local or other supply available. Thus an opportunity could have arisen and the company moves in to fill the market gap. The said company will take advantage of the situation and establish itself within the host nation. Introduction of trade barriers and tariffs on exports by some governments may also force a company to manufacture in a foreign country so as to avoid the export tariffs hence increasing its profits. Foreign investors may also be enticed by incentives offered by host governments. Foreign governments may entice multinationals to establish production plants within their countries in order to create employment as well as to boost its tax collections. When a company establishes a subsidiary in a foreign country the locals will get employed and hence better their living standards. Power and influence may also motivate some company executives to expand globally for prestige (Boyce Kim 2006).
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Foreign market entry may take different forms depending on the prevailing conditions and the business objectives. Some companies may decide to adopt the exportation strategy while others may base their production within the host nations. Exportation may be direct or through some identified and trusted trade partners. The export partner will market the products on behalf of the mother company. A company may also buy out a competing company in the host country through acquisition or merger.
Before a company establishes itself in a foreign country thorough market research and analysis should be carried out in order to establish the viability of the move. The company’s strategic leaders should carry out surveys in order to advice the management on the best mode of market entry. Strategic leaders should also evaluate the political and social influences on business within the host nations. Unplanned and haphazard expansions may take long to break even and may as well fail. Effective communication across all levels of the company should be established in order to win the support of all stakeholders. Everybody should be involved in the expansion plan and its implementation. When people are involved they feel honored and recognized as a result they own the process and support it (Bratton 2001).
Although globalization offers several opportunities to companies, it also exposes the companies to some uncertainties and risks. Foreign countries are normally unfamiliar and may also be unfriendly to foreign investors. The uncertainties and risks could be attributed to widespread enterprises associated with independent organizations which have tremendous pressures to grow and act independently, the fast evolving technology coupled with increased connections and information flows as well as problems in managing the extended enterprise. The management normally faces uncertainties in corporate decision making. Stakeholders should be convinced of the expansion benefits and assured of the company’s...