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An international business is "any firm that engages in international trade or investment" (Hill, 2000, p25) and the firm may be a private or a government one operating for profit or non-profit. Firms go for foreign expansion to mitigate risk, increase business scale, diversify product line and lower the costs and to cope with domestic competition. International business has to deal with much more external environmental factors than any domestic business and the complexity of international business also depends on the country it is operating. (Chen and Martin, 2001). This essay discusses the country differences in terms of political, cultural, legal, economical that makes the international business much more complicated than the domestic business and suffices the argument with an organizational case study of General Electric in Hungary.
Country differences and International business:
Nowadays, it is visible that international business is just not manufacturing products and selling them and making profits but it also involves considering many determining factors. Countries differ considerably through out the world in terms of politics, culture, social, legal and economics factors that are not totally independent of each other. These differences may show major implications on the profits, risks, costs and operations of doing business in a different environment (Dowling et.al, 2009). The firm should also consider these factors before constructing its business strategy. This essay now discusses each of the above-described factors that influence international business.
A country's political system is the center in designing its legal and economic systems. A country can be a democratic or a totalitarian based on its governing system or may be an individualistic society or a collective society. Normally, democratic societies are mostly individualistic where the government encourages personal profits and most totalitarian states encourages collectivism where government works for fulfilling the societal needs or in certain cases, it may be a different mix (Dowling et.al, 2009). The form of government in a country decides the way to do business. Liberalized countries are easy to do business and totalitarian societies are more restricted and should bound to the rules of the government. International business involves interventions from the native country and the host country in the cross border activities and that makes international business complicated than the domestic business. The reasons for import and export trade, the profits from the trade, the flow of foreign investment, power of bureaucracy and influence of domestic corporations are defined by the political system of the host country. (Grosse and Behrman, 1992). In this time of Globalization, many countries followed liberalization measures and eased their business regulations though some countries still exist in totalitarian like China. The political influence on a multinational company is evident from the example of disconnection of Google in China where it encountered a major intervention from the Chinese government that restricted Google on some online searches like searching Taiwan (Deresky, 2008).
Culture has become a focal point in doing International business in the recent years. According to Hofstede, Culture can be defined in terms of national, corporate and occupational, which are independent to each other. National culture is the common values and beliefs inculcated into the people of a nation experiencing from generations and shared by most of a Nation's people and are the one that makes lots of difference between nations (Heuttinger, 2008). Language plays another important role in making decisions for international business. Though English became an international language, still many countries have their pre-dominant native language like Mandarin in China. Religion is another culture factor that determines doing business in a host country and it is a sensitive issue that should be taken care of by the business developing agencies. Normally, Friday is observed public holiday in many Arab countries and companies investing there should consider this religious factor. Even better example is McDonalds in India, which faced religious conflict because of its beef included menu and it needs to change much of its menu for India (Daniel, 2004). The international organizations should learn about the culture of the host country and knowledge of the culture makes its business easy. Domestic businesses are established having the knowledge of the culture as the business is developed with in the culture but it takes some time for the international businesses to learn the culture of a country.
A country's legal system is the obligation defined by rules and laws that regulate the business in a country and it also defines the manner in which the business transactions should proceed. The main problem with international business is goods and services flow across the borders of different nations but do not the erase the borders they cross (Jean, 2002). Different countries have different legal systems like common law, civil law and theocratic law but the most important thing for a international business is enforcement of contract law. Contract laws in common law jurisdiction are more flexible and expensive than the contract laws in civil jurisdiction. International businesses should have knowledge of the law system they are dealing with and should approach accordingly otherwise it may backfires them. United Nation convention on Contracts for the International sale of Goods (CIGS) has been established to resolve contract disputes in the international business (Dowling et.al, 2009).
Next important thing to deal with is protection for Intellectual property rights in a country. Intellectual property is the outcome of a individual or a group's intellectual activity. Different countries have different protection laws but very few countries follow them in real. Even the member countries of World Intellectual Property Organization or any other concerned treaty lack in implementing the intellectuality protection laws. In dealing with such a situation, the international business firms may lobby the governments to enforce strict protection laws or can file their own lawsuits or stay away from the countries lacking strong intellectuality protection laws (Dowling et.al, 2009).
Knowing the economic system of a country is important before launching business in that country. Managers should have an idea on how the changes and trends in the economic environment may affect their company. A country's economy may be a Market economy where all economic activity is privately done or a Command economy where the economic transactions are planned by the government or can be a mixed economy where both private and public firms operate in tandem. The view of the local government about the foreign investments as competitors or complementary to the domestic business decides how the government frames the regulatory laws and trade barriers (Daniel, 2004).
The miscellaneous factors include terrorism and country's international relations. Recently, Terrorist activities became profound in many places of the world. Some countries support these terrorist units to prove their presence in the world. Therefore, Sanctions on such countries from International bodies for disturbing the world stability may affect the companies doing business in such countries. The liberty in trade agreements of a country varies from country to country and its relation with the other country. These trading agreements affect international business in many ways especially in its operations and transportation.
Considerations and decisions before foreign expansion:
The organization should decide on how much it is going to invest in expanding to foreign soil and how it can accumulate financial resources so that the investment goes without any financial hurdles. The foreign expansion becomes a disaster if the organization lands in the foreign country without sufficient finance. (Luo, 1999)
Organizations should consider bargaining with the government of the investing country to fulfill its foreign expansion objectives. The governments control markets and bargaining with the governments gives the organization a better accessibility and freedom to operate independently. The organizations can also get some investment incentives by bargaining with the government and proving them that the organization is worth considering (Luo, 1999).
The companies should consider and determine all its essential resources like human resources, physical resources, Knowledge resources, capital resources and infrastructure. The companies going global should effectively manage its resources and all the resource activities should be integrated to achieve a competitive edge in the global environment and it is a challenge to the managers of the company to achieve the organization mission and vision using these resources. Advocate resources should be allocated in order to compensate foreign expansion risks. (Daniel, 2004).
While expanding in to the foreign markets, it is imperative to go well in all the departments the organization deals with. The organization should consider investing in accounting, banking, legal and transport experts who can lay a clear and perfect foundation for the international business so that it does not encounter any hurdles in the process of its operations (Delaney, 2004).
Every employee who has been assigned on the foreign expansion project should be satisfactory and should show over all commitment in going abroad. As going global is a long-term idea, it can only accomplish by proper managing team which can mold themselves into the foreign culture and attitudes(Delaney,2004).
General Electric experience in Hungary defines a perfect organizational example that exemplifies the affect of political, economic and cultural systems on international business. General Electric is one of the world largest infrastructure, finance, service and media conglomerates. (General electric company, 2009)
When Hungary is getting released from the shackles of communist regime, General Electric went for a major foreign expansion by acquiring fifty-one percent of stake in "Tungsram", a large industrial giant of Hungary that manufactures lightening products General electric's planned to capitalize on the low wage rates in Hungary. General Electric also thought that Hungary's shift from totalitarian to democratic government and opening of its economic system may offer future opportunities for better business. General Electric deployed high skilled managers to deal in Hungary but it all turned down and GE witnessed losses. GE realized the ground realities of what exactly went wrong in Hungary and came to know that the work culture of Hungarians, the centrally planned economy that inculcated from the past political system. The previous totalitarian system practiced the command economy system where workers are not forced to produce more and there exists no communication between the workers and the managers. This command economy system developed the work culture of laziness, negligence and mildness. The aggressive management stance by American managers hurt the Hungarian workers attitude and the workers also demanded the same wages GE pay in America, which nullifying its mission of coming to Hungary. Later GE lay off many workers and invested in training the remained bunch and tried to diffuse American work culture (Hill, 2000, p72).
The above essay discussed the country differences that make the international business more complicated than the domestic business. The differences are discussed taking political, cultural, legal and economic aspects into consideration supporting the arguments with relevant examples. Later, this essay discussed some of factors that should be considered and decisions to be taken by any organization in making foreign expansion. Finally, this essay looked upon General Electric in Hungary case study that clearly exemplified the affect of political, cultural and economic systems on international business.