Login
Password

Forgot your password?

Problems in International Business

By Edited Dec 14, 2013 1 1

Cultural Differences

A company that decides to venture into the foreign market would often select a country that would enable the company to have higher revenues and profits. The managers would make competitive moves without considering other issues that would occur when entering into other countries. One of the main issues a company may miss out is that of cultural differences. The culture and lifestyle are different across nations; managers should not expect that other people will easily welcome the new entrant in their countries. Wal-Mart is an example for cultural failure when they expand their business to South Korea.

In 2006, Wal-Mart as the world's largest retailer decided to withdraw from South Korea because of ineffective people management whereby they failed to adapt to the Asian market. For instance, Wal-Mart's grocery served frozen fish rather than fresh fish that were the preferred Asian diet. Furthermore, the location and design of the store failed to provide a convenient and comfortable place to their customer. As a result, the perception formed by its consumers was that a low price product equals to low quality. Hence, the company's annual total sales were only $312.4 million after serving more than millions of customers.

This case study offered a key point that localization strategic moves should be adopted by retailers in overseas markets. Hence, in order to prevent this same situation from happening, managers of the company need to make action more simple and efficient. In other words, when managers know what to prioritize and how to interact with their customer, business and social interactions take place quickly and easily. In addition, managers must provide an important source of social identity for its customer. Therefore, Wal-Mart should have provided products and services that are in accordance with the norms and values.

Legal Issues

In an international business environment, a company needs to recognize the rules set by the national governments that include labor policies, technical standard, and marketing regulations when venturing overseas. Sometimes, host government policies can make it difficult to expand new businesses. An example is the child labor crisis faced by Nike in Pakistan. Nike has been accused of using child labor in the production of its soccer ball.

Nike, the world's largest designer, marketer and distributor of athletic equipment, apparel and footwear was against using child labor. However, although Pakistan has laws against child labor, the government has taken very little action in it. Hence, Nike as an U.S based company boycotted the idea of using child labor. This was not the case for their local supplier. Their local supplier, Saga, was in violation of numerous standards on worker's rights set by Nike. As a result, Nike has terminated the contract and suffered major losses- approximately 3,000 of its worker lost their jobs.

Based on this review, a company should operate and make profits in a legal and ethical manner. These should include the responsibility to produce goods and services that society wants and observe the laws that govern society and business. Therefore, Nike should observe the right of employees to join unions and respect local host country job standards as well as to provide favorable work conditions.

Environmental Issues

The business environment is a delicate matter that must always be handled with care, but what happens when you have two of the world's largest car manufacturers merge into one now known as DaimlerChrysler. We have two large companies that both have an international reach that extends beyond many companies but both are run differently. Daimler was seen as the bureaucratic of the two, the company that has a straight up and down structure, and is very formal in all aspects of business and interaction between employees. Chrysler on the other hand was very casual in interaction, had an internal structure that was very much open and based on an open communication line.

Just three years after the merger, we watched the DaimlerChrysler market share evaporated by almost 3%, its stock price had fallen by $82 per share, the CEO and two-thirds of Chrysler's top management had been fired and an increased overall drop in profits had been seen. What is the issue here? Two completely different corporate environments butting heads and failing to do what it had set to achieve when the merger began.

The business strategy was flawed from the beginning and as time went on, the two sides kept to themselves and withheld ideas, parts, and management from each other. The two needed to actually merge individually instead of just on paper. As with many mergers, most do not work out, and that seemed as almost the case with DaimlerChrysler. Through the use of cultural alignments a proper business structure should have been set up from the beginning. The lack of cultural foresight caused an impossible corporate environment for the two sides to combine into one giant force.

Political Issues

As with any country you extend an arm out to conduct business, you may run into political problems that you couldn't imagine finding in your home country. Although many countries may run along the same course, you will always find some that don't whether you are large or small. Raytheon, a major U.S. defense contractor that specializes in defense, security in many government markets around, found itself in precisely this position just only a few years back in Europe.

While attempting to put together a large NATO defense contract across numerous European nations, Raytheon began entering into negotiations with companies within these countries, well at least that was up until the governments of a few of these countries ended the negotiations immediately. Not only did they do that, but they also made it abundantly clear to Raytheon that they do not get to choose who they can contact, let alone contract with. The governments would let them know who they could and couldn't begin negotiations with.

The end result was that Raytheon realizing that nothing could be done without the preapproval of the nations NATO members. If Raytheon had completed its proper assessment of the companies and countries, much less problems would have arisen from the start. These tasks have different characteristics requiring different skills which mean employing people with different educational backgrounds, knowledge bases, and skills. If Raytheon had found and integrated the appropriate task force, liaison or team members from the proper backgrounds, issues such as a contract for a worldwide defense system would not be brought to an abrupt end without incurring more cost to deliver its contract.

Advertisement
Advertisement

Comments

Sep 29, 2010 5:40pm
LoveSpaces
I like it! Nice to know as a lot of business expand internationally nowadays.
Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Business & Money