Establishing a New Business Venture in a Foreign Country - Essay Example

? Establishing a new business venture in a foreign country is not an easy task since there are several challenges that are likely to be encountered. For instance, companies from emerging markets can face various challenges in their bid to establish operations in developed countries. Social, economic as well as legal forces obtaining in developed countries often impact on foreign companies especially from emerging markets that need to establish their businesses in developed countries. As such, this paper seeks to critically analyse the factors that may affect companies from emerging markets in their quest to establish business in developed countries. The paper will also outline some of the measures that can be implemented by the managers in order to overcome these challenges. The main challenge that is likely to be faced by a company from an emerging market when it seeks to establish business in a developed country is related to cultural differences that may affect its ability to effectively manage the people in the host country. According to Ivancervich, Konopaske & Matteson (2011), society is composed of people with their own culture and these people share the same beliefs, norms, values, religion, language education as well as legal systems. Culture is a learned dispensation since it does not simply appear from nowhere. A nation’s culture affects how organizational transactions are conducted such as hiring practices, marketing, reward programs as well as supervisor-employee interaction (Ivancervich, Konopaske & Matteson, 2011). From this assertion, it can be seen that flexibility, knowledge and respect for national culture differences has become a very important aspect for managers to consider in their plans when they migrate to other countries. The aspect of culture difference can pose great challenges to a company from an emerging market as it seeks to establish business especially in developed countries. It is widely believed that organizations can operate effectively if they have a shared value system in place which is observed by everyone. The notion of cultural differences was popularised by Gert Hofsted who carried a research on 116 000 people from 50 different countries and he came up with four value dimensions by which culture differs and these include the following: power distance, uncertainty avoidance, individualism and masculinity (Ivancervich, Konopaske & Matteson, 2011). Power distance relates to the level of acceptance by society of unequal power distribution in an organization. For instance, emerging countries like Malaysia have high power distance where authority is centralised (Ivancervich, Konopaske & Matteson, 2011). On the other hand, the concept of uncertainty avoidance relates to the situation where people feel threatened by unambiguous situations. For instance, emerging countries have high uncertainty avoidance and they follow a specific set of rules while countries like Britain have lower levels of uncertainty avoidance where risk taking is common (Ivancervich, Konopaske & Matteson, 2011). On the other hand, it can be seen that countries like the US have high individualism where people believe in hard work and individual prosperity while emerging countries believe in socialist ideologies which state that they must share what they have. Masculinity is another cultural dimension that is practised in other countries like Austria. As illustrated above, it can be seen that a new company from an emerging market can find it difficult to establish business in a developed country by virtue of culture differences. If a new company has its own cultural values that are not compatible with the host nation, then it can face an uphill task in as far as its quest to operate effectively in the host country is concerned. It is important for a foreign company penetrating a developed market to make sure that they understand the culture of the people in the host country. Failure to do so may negatively impact on its operations since it may be difficult for the managers to manage people in the company, the majority of whom belong to the host country. If there is misunderstanding between the management and the employees, the effectiveness of the organization is likely to suffer a great deal since it may be difficult to direct their efforts towards the same direction. It can also be seen that communication in the organization is greatly impacted by the differences in culture among people from different countries. This is aptly illustrated by Korac-Kakabadse et al (2001, p.3) who states that “the major reasons for difficulties encountered in cross-cultural communication stem from the fact that actors from different cultures have different understandings regarding the interaction process and different styles of dialogue.” Besides language barriers, it can be seen that there are certain aspects such as non verbal communication that may impact on the way people from different cultures communicate. Such barriers can lead to failure to understand each other which can make it difficult for the people within the organization to coordinate their efforts towards the same direction. As is the general trend, companies from developed countries often move their manufacturing to emerging markets as a result of the fact that the cost of labour is cheap in these countries. However, this paper presents a reverse scenario where a company from an emerging market seeks to establish its business in a developed country. Such a company is likely to face numerous problems in its attempt to establish business in a developed country. Labour costs in developed countries are relatively high and this is the reason why multinational companies from developed countries out shore their manufacturing to emerging markets that are characterised by low costs of labour. The other general trend in developed countries is that people shun labour intensive jobs and this may affect a company from an emerging market if its method of production is labour intensive. It may take a long time for the company to attract the right people to join its workforce. As such, an emerging company that is used to low labour costs can find it a bit challenging to establish business in a country where the cost of labour is high. It may be challenging for the company to be in a position to attract the right type of workers to join its workforce given that people in developed countries often demand high pay for a similar job that can be performed for lower pay in emerging markets. This entails that the company would need to fork out more money than it is used to do in its original country. This can negatively impact on the company that is just beginning to establish business in a new country. More money would be required to pay the skilled workers as well as other general workers going to be hired by the company to perform different tasks. The company would also need more money in order to carry out programs that are meant to motivate the employees so that they can continue working for it if it is fortunate enough to attract people willing to join it. There are various legal regulations that may also pose challenges to companies from emerging markets seeking to establish their businesses in developed countries. For instance, consumer law in the European Union (EU) countries posits to the effect that any company which operates within its jurisdiction should prioritise the needs and interests of the customers (Datamonitor, 2004). This entails that quality concerns are given prominence by any company that is producing consumer goods in this particular market. Failure to adhere to this legal requirement can lead to termination of the company’s operating licence. However, some less developed countries are not particularly concerned about quality since they are used to a scenario where goods are mass produced for public consumption at relatively low cost. When goods are mass produced, the aspect of quality is often overlooked but this may not be the case in developed countries where quality is treated as very important. The other legal aspect that can affect a new company in its endeavour to establish business in developed countries is related to laws of ownership of the companies. Each country has its laws that govern the operations of all foreign companies. These laws are designed in such a way that monopolies are prevented since they kill the spirit of competition in free market systems. For instance, the Competition Commission in the UK stipulates that large retail supermarkets should not account for more than 25% of the national market (Datamonitor, 2004). This legal requirement may impact on the new company from the emerging markets since it will be bound to operate within a specific framework. In the US as well, it can be seen that there are also laws that guide the operations of all companies in this country. A good example in this case is the North American Free Trade Agreement (NAFTA) which compels all companies to abide by its regulations. This regulation is specifically concerned with protecting the interests of the customers as well as the companies operating under its jurisdiction. It seeks to create a fine balance between the needs and interests of businesses and the targeted customers. As aptly stated by Porter (1985) in his five forces, a market environment that is characterised by rivalry among the competitors is often difficult to easily penetrate especially by new companies. It is widely believed that developed countries are more industrialised than developing countries. This entails that industries in developed countries used sophisticated equipment as well as technologically advanced machinery to carry out different tasks. Emerging companies may find it challenging to match the competition that exists in developing countries. The other factor is that companies in developed countries are already established and they have loyal customers compared to new companies that are penetrating a new market. In marketing terms, it can be observed that it is quite easy for a company to retain the customers that already exist than to find new customers (Kotler & Armstrong, 2004). It is not very easy for a new company in a certain market to attract a lot of customers during its early stages. In order to address the challenges for a company from an emerging market to penetrate developed countries discussed above, there are various measures that can be implemented by the managers. In as far as communication barriers as a result of cultural differences are concerned, it can be seen that there is need for the management to align their communication strategies with those of the host country. According to Korac-Kakabadse et al (2001), “difficulties that arise in cross-cultural face-to-face encounters may be addressed with a better understanding of communication styles utilised by different cultures.” The managers must take their time to learn the communication styles that are used by the people in the host country so that they can be in a position to create mutual understanding with the people originating from the host country. The managers of such companies ought to learn different aspects of communication styles used in the host country such as non verbal communication. It is also important for the managers to communicate effectively so as to be in a position to be effective in their leadership roles. The other strategy that can be implemented by the managers is that they should standardise the organizational culture so that it reflects the values of the majority of the people working for the company. As noted already, values that are not compatible with the culture of the people from the host country is likely to cause disharmony in the company. If the people do not share the same values, it can be difficult for them to coordinate their efforts towards the same direction. In order to achieve this feat, it may be necessary to appoint other local people to influential positions such as management so that they can positively influence their colleagues to work towards the attainment of the desired goals in the organization. It is easier for people to understand what is being said by another person similar to them. Therefore, clever managers should strive to put influential people from the host country at the forefront so that they can positively influence other members of the organization. It would also be important for the management to standardise the working conditions so that they can be in line with the labour laws of the host country. This can help the company to attract skilled employees as well as more customers since it will be operating within the expected standards. It would also be important for the managers to standardise the pay given to different employees who belong to the same grade. Salary scales should not be based on race or creed as this is likely to cause unnecessary conflicts in the organization. In most cases, conflicts in an organization arise if there are salary discrepancies that are too big especially among people who are performing the same task in the organization. The company should try to obtain real market scales for salaries for different people so that it can be in a position to compete with other local companies in terms of attracting talented and skilled employees. The other viable strategy for such a company is to differentiate its products and services in order to attract more customers. According to Porter (1985), the differentiation strategy is meant to distinguish a company from other actors in the same industry. By virtue of offering unique products and services, the company stands better chances of appealing to the interests of the majority of customers since it will be offering unmatched services. A company that offers unique products and services is quickly recognised in the market if it is still new in a particular place. The differentiation strategy will also help the company to gain a large market share since it will be able to attract a lot of customers from different locations in the newly found market. Over and above, it can be observed that establishing a new business entity in a foreign country, particularly developed nation is not easy feat since there are several challenges that are likely to be encountered by the company. As discussed above, companies from emerging markets can face various challenges which include the following: social, economic as well as legal forces obtaining in developed countries. From the discussion above, it can be noted that cultural factors have a significant impact on the operations of an emerging company especially in developed world since these two worlds are completely different. In order to address these challenges, it is imperative for managers of the emerging companies to understand the national culture in the host country. The differentiation strategy is another effective measure that can be implemented by emerging companies if they want to operate effectively in a foreign country that is characterised by various market forces that may not be controlled by an individual company. References Carrell, R. et al (1995), Human Resources Management: Global Strategies for managing a diverse workforce, 5th Edition, Prentice Hall, NY. 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