International business as defined by Business Dictionary is the exchange of goods and services between groups or individuals operating in two or more countries (n.d.). Quite often the term international business is used in lieu of international trade and hence import and export activities automatically become part of international businesses. As part of their strategy businesses go international in order to increase their sales through market expansion or to reduce their costs and other risks involved (UPEI n.d.).
International businesses need to take account of a number of factors such as the costs involved to do business, the risks that are posed when doing business with other countries, the many problems associated with dealing with other governments, and detailed cost benefit analyses and trade-off that are involved when doing business on an international level. All these factors are on a micro level which any business faces. However there are some issues on a macro level that businesses come across such as dealing with different cultures, understanding consumer needs and wants, tariff barriers, economic costs, environmental changes and other global events that shape international businesses. International business strategies involve two main activities; import and export. These international trade activities involve a number of issues. Some of these issues which are on a macro level are discussed in this paper.
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Culture has stemmed up as an essential feature in the growth of any company. The failure of recognition of cultural aspects may lead to serious problems when businesses operate internationally. It is extremely crucial for businesses to understand the behavior and expectations of their business partners specially if cross border exchanges are being made. Cultural differences play a major role in how people operate and see things. Thus if successful business partnerships are sought for, businesses should first find out about the business culture of that particular country and even what their verbal and non verbal mannerisms actually mean.
Courses of management and organizational behavior help us to learn and apply theories related to culture. One such theory is represented by Geert Hofstede. He has identified 4 major dimensions in his study which demonstrates the national and regional cultural groupings. The four dimensions namely are: Individualism versus Collectivism, Large versus Small Power Distance, Strong versus Weak Uncertainty Avoidance and Masculinity versus Femininity. These factors should be looked into when conducting businesses internationally.
Intellectual Proper Rights:
Another issue related to international businesses is that of trade related intellectual property rights and patents. Countries want to do businesses on an international level with the surety that their product or service will be protected and not exploited. For this they require either the product to be patented or copyrighted or registered so that it can not be reproduced in any way. WTO has formed a subsidiary by the name of Trade Related Intellectual Property Rights (TRIPS) which is responsible for ensuring that products are patented and if exploited they take the necessary actions (WTO). However an issue that comes out of it is firstly not many countries can afford to get their products patented. Secondly many patented products that are exploited like pharmaceutical drugs, me-too products come out in the market soon, especially of developing countries and not much can happen there as their judicial systems are too corrupted and it would take as long as ten years for the case to get solved.
Lastly imposing the patent requirement on all countries may not be feasible for some, especially developing countries, as that would hamper their export level and eventually the state of their economy as that would mean decreased foreign direct investment. According to Noam Chomsky the WTO policies on IPR impedes the development and growth of economies as it reduces the chance of innovation and focuses only on high profits (Shah 2007).
Global Economic Situation:
Global economic conditions greatly impact international trade and international businesses. The global economic and financial conditions are positively correlated with global trade. If the global financial and economic conditions are not favorable and going through a crisis, it can very easily impact international trade and disrupt the imports and exports situation. Recently the world has experienced a global financial crunch and this recessionary phase is impacting international businesses to a great extent. We've seen countries facing huge balance of payment deficits, companies have filed for bankruptcy, bailouts are taking place, huge layoffs and other such activities are occurring that are all impacting imports and exports negatively. Trade prospects do not seem too well and after decades the world will face huge declines in trade (Lehmann, 2008). Some of the countries that have been badly affected by the current financial crisis include Argentina, Thailand, Brazil, Russia, Malaysia, and Korea (TWN, n.d.). A recent report released by WTO quoted a figure of over 10% which represented the decrease in volume of traded goods in the demand in Europe and North America in 2009. Hence one of the major issues that international businesses face is the changes that take place in the financial and economic environment of the world.
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Tariffs and Non Tariff Barriers:
Another issue that stems out of the financial and economic environment, as well as otherwise, are the trade related tariff and non tariff barriers. These maybe either due to a country's trade policy or due to policies set by organizations such as the World Trade Organization (WTO) and European Union (EU). These barriers are usually imposed to protect the trade of home countries or in order to protect the trade and labor of particular countries or regions by their respective organizations. We have seen the EU to be most open to trade and very often is it seen to reduce tariff and relax other barriers related to particular goods and commodities especially for industrial goods which are the lowest worldwide (EEPC n.d.). International businesses therefore are greatly impacted by these tariff and non tariff barriers as those commodities will be traded more that have relaxed barriers and low tariffs while other products that face high tariffs such as luxury items will be traded less. Consequently the revenues generated from trade related activities will be more countries that produce goods facing low tariffs and less for countries that produce goods facing high tariffs.
Terrorism and other similar activities taking place in the world pose a huge threat to international business. Terrorist activities such as the September 11 attacks on the World Trade Center in 2001 and July 7 bombing in UK are taking place on a global level. Terrorist networks have spread across the world and with the use of technology these attacks are very easily possible. This poses huge issues to international business and the import and export situation of the world. Countries find it difficult to do business to and from particular countries due to closed trade, sanctions, or trade embargoes and boycotts. After the US embassies were bombed and more so after the 9/11 attacks, sanctions were put on many Islamic states. International business was not possible from these countries which included many developing countries. This caused a lot of problems as countries that used to import cheaper goods due to the cheap labor in those countries were not possible. This also affected the businesses of these developing nations as they could not export their goods which greatly impacted the foreign direct investment that was coming in from the countries that traded with them.
Such terrorist activities hamper international businesses as due to such events trade related sanctions start getting imposed on countries. At times countries even get blacklisted and their economy is totally closed form the rest of the world. Hence a major issue that international businesses face is due to terrorist activities. The dilemma is that even though a country may not be supporting such activities however because they take place from the land of that particular country, it has to face trade barriers and other import export restrictions. Afghanistan, Pakistan, Iran, Iraq, and other countries that were involved in such terrorist activities all faced import export restrictions whether it was in the aviation industry or the consumer goods industry.
One major issue that international businesses face is in the area of human rights. Child labor and other human rights issues greatly affect international businesses. These issues have been highlighted so much that at times countries boycott importing from those particular countries or stop exporting to them. It has been estimated by the U.S. Department of Labor that approximately 15 million children (5% of the world's child laborers) help in producing goods that are exported to the U.S. whereas 80% of all the child laborers are involved in agricultural activities (Child Labor Public Education Project). These goods include seafood from Thailand, nuts from India, coffee from Kenya etc. (Child Labor Public Education Project). Around the same amount of women are also involved in such activities especially in the developing countries for which they're not even paid. Even the children involved in labor are not given the deserved amount of salary and are kept in very poor conditions.
Organizations such as WTO are responsible for formulating policies that protect the rights of labor however as of now there are no such formalized policies by the WTO. To a certain extent U.S. Trade Legislation has taken into account the issue of labor and labor rights however that may negate the concept of international free trade as laid out by the WTO (WTO, 2000). Countries that practice child labor can always take the support of WTO under the provision of international free trade and fight for their justice as WTO states that free trade helps reduce poverty (WTO, 2000). Hence the issue of human rights remains controversial in the export and import scenario.
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A major challenge international businesses face is that of corruption, of which bribery plays a major role. Bribery deforms economic developments of global markets as it distorts the performance and quality of businesses that are being operated (PIIE, n.d.). Moreover it poses as a non-tarrif barrier to companies that want to do business with other international companies (PIIE, n.d.).
The Power of the Consumer:
Countries do businesses internationally and indulge in other trade related activities in trying to increase their country's GDP and GNP and improving their economic condition. However what must not be forgotten is that all trade is taking place for the consumer and because of the consumer. The ultimate power lies in the hands of the consumer (EEPC n.d.). Therefore it is better if trade and international business activities take place with both the public and private sector partnership.
Moreover it is all about the needs and wants of the end consumer who needs to be satisfied. Quality issues, product specifications, and all other considerations stem from the consumer. Hence a major issue that links international businesses is the consumer and what the consumer requirements are. The issue however is that many countries do not have the sophistication or the expertise to find out what exactly the customer wants whether it is local or international. Today trade has become very sophisticated. The consumer too has unlimited choices to choose from. Therefore it is important for international businesses be aware of customer requirements and deliver based on those defined specifications if they want constant revenues to flow in. Another related issue is that of competition. If international businesses fail to deliver what the customer requires then competition from other businesses is likely to come whether it is on a domestic level or an international one.
International businesses face a lot of issues when they enter into international trade and import and export related activities. However certain strategic solutions if implemented can prove to be highly beneficial for international businesses. Firstly is the expansion of free trade. This will not only improve the economic situation of countries but also promote social standards and take them higher such as an improvement in working conditions due to improved revenues will bring down child labor (CATO Institute, n.d.).
Another solution is to develop infrastructure for better communication or else international businesses and global trade will not provide any sorts of benefit. Although international businesses have to face a number of issues and problems, one area however they can take advantage is in playing a role in areas such as education. This is especially beneficial for developing countries where education and literacy levels are quite low. By investing in such areas these businesses can better capitalize on available opportunities. Furthermore they can indulge in public private partnerships and work towards being in a better position to capitalize on international business opportunities.
International business issues are quite complex primarily because businesses are operating is on a global level. There are no defined solutions to solve these issues, however international businesses should work towards strengthening their own capabilities and hence use them in capitalizing on business opportunities.
This paper took a broader perspective of international businesses and some of the many issues that are faced by international businesses and other issues related to international trade. It can be concluded that international business is not just mere transfer or exchange of goods and services between parties belonging to different countries or for that matter between two or more different countries, however it is much more complex than that. The issues that exist are on a global level hence they will only be solved if global forums are made and these issues are addressed over there with proper representation from all international business communities and countries. Only then will comprehensive and meaningful policies will be developed and implemented.