International business means producing and selling goods and services between/amongst various countries. A business is said to be international if it produces in its home country and sells in another country. Or, it manufactures products in a foreign country but sells only in the home country. Or, it is manufacturers in another country but sells in home and foreign countries. Doing international business is appealing. However, doing international business has its own set of issues and challenges.
International Business Issues and Challenges
Every country has its own policies, laws, culture, and regulations. Along with these, the differences in time zone, currency, languages, and more also present issues and challenges in international business. Following are the issues and challenges in doing international business:
It is the most significant thing to take into account when thinking of taking business internationally. The language barrier doesn’t just mean a problem in communication. But, one must also consider if the name of the product fits well in the foreign language or not. For example, Mercedes-Benz, when entering China, chose a local name, which was similar to “Benz”: Bēnsǐ. However, in the local language, it meant “rush to death.” The automaker then has to change its name to Bēnchí, meaning ‘run.’
Every country has its own traditions and cultures. And, to achieve success, it is important for a foreign company to respect those cultures. Culture includes holidays, food, festivals, social values, and more. For example, McDonald’s’ doesn’t serve beef or pork in India for religious reasons. Moreover, the fast-food chain offers a variety of vegetarian options in India than in any other country.
Managing Global Teams
When you are doing an international business and have operations in many countries, you will have to deal with employees of different backgrounds. Managing those employees is definitely a challenge due to the differences in language, culture, and time zones. One can, however, overcome this barrier by frequently communicating with the global teams. It will help to slowly melt down the differences.
Currency Exchange and Inflation Rate
The exchange rate is the worth of one nation’s currency in relation to the other. The currency rate between the two countries doesn’t remain constant or is always changing. You must consider the exchange rates when making any financial decision as it may increase or decrease the final payout, which may affect the business profits.
Along with the exchange rate, one also needs to consider the inflation rate as well. The inflation rate can vary across countries and can affect the pricing of the product.
Deciding Company Structure
One requisite of making big at the international stage is to decide on a company structure that is efficient. Having an efficient structure allows a company to make a quick and better decisions. When deciding on the structure, one important thing to consider is the location of the headquarters and the number of offices a company would have.
For example, Coca-Cola has one of the most efficient company structures worldwide. Coca-Cola is divided into continental groups, and each group is headed by a President.
Foreign Politics and Policies
The politics and policies of a country play a crucial part in the performance of a company. Any new political policy concerning taxes, labor laws, and more can have a direct impact on the cost of the company. Thus, it is important for a company to closely follow the politics and policies of the country it is operating.
For example, suppose the Chinese government starts giving subsidies to the local automakers. This would allow local companies to adopt aggressive pricing. Such policies would be unfair to foreign automakers operating in China.
It gets very difficult for a company to operate if it lacks proper accounting. And, in the case of international business, accounting gains even more relevance. Adhering to international accounting standards is not an easy job as it requires a lot of effort to conform to different tax systems. A company, however, can overcome this challenge by hiring the right experts to take care of the accounting.
Setting the product price in the overseas market is a big challenge. To set the right price, a company must consider its costs, logistics cost, as well as the price of the same products from local competitors. Moreover, when pricing your product, you also need to consider how you plan to position your product – as a low-cost product or a luxury brand.
For example, Ikea, which is a low-cost European furniture dealer, was unable to gain market in China initially. This is because of the low-cost products from the local dealers. Ikea then relocated production to China and was able to reduce the prices of its products.
When operating internationally, a company must select the payment methods that are convenient for the local customers. Not only the convenience, but the entity needs to understand and appreciate the cost of the various payment methods before making the final selection. Also, the company must ensure that the payment method it selects is credible, safe, and secure. It is better if a company offers global payment methods, such as PayPal, as well as local ones, such as Yandex Money in Russia.
Supply Chain Risks
Having a short and efficient supply chain is a crucial requirement for a company’s success in a foreign market. However, managing those supply chains is not an easy task because of differences in regions and regulations.
When a company starts operating in a foreign country, it is very important that it follows the environmental norms. Moreover, it should take extra efforts to reduce environmental concerns in the regions it operates. Any ignorance or avoidance on the part of the company to take care of such issues could seriously damage its brand image and will hurt its business. Also, the local social groups would make it difficult for the company to operate smoothly.
Though international business presents several challenges, a company can overcome them easily with focus and determination. A simple way to overcome these challenges is to respect the culture and tradition of the countries they are operating in. And once a company overcomes those challenges, it gives it unlimited opportunity on various business fronts – volume, revenues, profits, goodwill, brand image, stability, and so on.
Quiz on International Business
This quiz will help you to take a quick test of what you have read here.
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- International Market – Lucrative But Challenging As Well
- Types of International Business – Advantages and Disadvantages
- Differences Between International Business and International Trade
- International vs. Domestic Finance