Doing Business Globally - Term Paper Example

Global Business Department Global Business Cross-border business involves buying and selling of products and services between or among businesses in neighboring nations, with the buyer being in one country and the seller in another country. A good example is a firm in Canada selling its products to another firm in the United States. Cross-border trade is also referred to as the international trade (Peng, 2010). The cross-border marketplace provides a world of business opportunities where firms sell or source goods worldwide. In essence, firms that engage in international business grow faster and fail less compared to those that do not. The international marketplace is very competitive. Companies who ponder on-going global should recognize this fact and devise ways of thriving or gaining a competitive advantage. This discussion critically examines the drivers for firms to explore cross-border business. Drivers for firms to explore cross-border business Market search: Firms may explore cross-border business to search for new buyers for their products and services. The top management of a company may recognize that their goods and services are unique or superior to the foreign market competition and, therefore, seek to take advantage of such opportunity. Firms may also be motivated to seek for new markets when manufacturers have saturated sales in their domestic market or when they believe that overseas investment will increase returns than the extra investments at the home market. This is usually the case of high technology products. Firms would engage in international businesses to supply their new products and acquire a market share of their products while increasing returns (Gaspar, et al., 2013). Government regulation: According to Gasper et al. (2013), government regulations motivate international trade. Some nations impose strict regulations on the manufacture of sale of particular goods or services. Consequently, firms find it easier to import finished products and resell them or access the required services from a foreign nation. When governments incentivize the nation’s firms to export, many of the firms enter new markets that they would otherwise not have entered. Also, due to too much export incentives, companies may create a subsidiary firm in the foreign market of interest and produce and sell such goods in that country (Gasper et al., 2013). The need for skills and technology: Gasper et al., (2013) posits that firms may consider cross-border business to access skills and technology that would otherwise be limited or unavailable. More often, a country may have access to raw materials it needs but lack the capability to convert the unprocessed materials into refined products. Another nation may have the expertise to produce the needed consumer products. This problem is evidenced in developing nations who have abundant raw materials but lack the professionalism and technology to turn the raw materials into consumable products. Companies in Developing and emerging nations do not have proper infrastructure and, therefore, depend on foreign sources for many of their productions (Gaspar, et al., 2013). Cheaper prices of goods and services: Many small firms may engage in cross-border business to increase their savings (Gasper et al., 2013). The fact that a firm can manufacture products does not translate that it can do so at the best price. As noted by Gasper et al. (2013), various factors such as taxes and labor increase the retail and wholesale prices or products and services. Often, firms prefer to access such products elsewhere if it will lower the amount of money required to pay for them. Sourcing for finished goods in a foreign market may be cheaper compared to producing them. Therefore, a firm may consider international business to increase its savings. Comparative advantage: A firm can be driven to explore cross-border business if they can produce products and services at a lower opportunity cost than others (Gasper et al., 2013). Comparative advantage gives a firm the ability to sell products and services at a lower price than its competitors and earn stronger sale margins. Firms, therefore, benefit from selling those products and services that they have a relative advantage. Such firms can, therefore, produce in surplus and supply to the foreign markets. For example, France has the expertise and favorable climate to produce better wine than Brazil. On the contrary, Brazil produces better coffee than France. Each nation benefits by specializing in the product that it is most suited to producing. France, therefore, produces a surplus of wine that it can trade for surplus Brazilian coffee and vice versa (Gaspar, et al., 2013). The benefits of doing business globally New market opportunities: Cross-border business offers firms with new market opportunities. The markets present more opportunities for growth, expansion, and income. A larger market translates to increased revenue, more customers and a larger profit margin that makes firms appreciate economies of scale. This is because firms can introduce their goods and services in such markets and gain a higher market share. For instance, china’s population forms 19percet of the world’s population. India has 18 percent, and Southeast Asia has 25 percent of the global population (Peng, 2010). Expanding businesses to these nations mean gaining more customers since their purchasing power is also advancing. Increase in production: Economies of scale drive large profits. Therefore, a more extensive scale of operations leads to larger profits. Firms can achieve lower costs upon increasing their scales of production through global expansion (Davoren, 2015). This is because dispersing fixed costs across more goods and services lowers per-unit cost. The resulting operational efficiencies lower variable costs. Economies of scale work for any business regardless of size. Technological improvements enable small businesses to be more productive in marketing, purchasing and hiring among other areas. Also, global business can also provide firms with skilled labor from educated professionals in international nations. Likewise, firms can also acquire unskilled labor, essential for their operations. Global business reduces local market dependence: Firms do not need to comply with the restrictions of the local market if their products and services are marketable in a foreign market. If the business is prone to pronounced fluctuations in demand or seasonal changes, it can be protected by expanding into less volatile markets (Peng, 2010, p34). If businesses expand globally, there is a likelihood of finding countercyclical markets. Firms can also extend the life of existing goods and services of they find new markets them. Firms would, therefore, market their products elsewhere and overcome losses experienced in marketing in local and volatile home markets. Business diversification: When firms expand globally, they diversify their markets and gain better margins particularly when exchange rates work in favor. By expanding businesses globally, firms, experience less pressure on pricing, therefore, maintaining their margins (Davoren, 2015, p1). When firms trade with overseas companies, they may receive their payments quicker because such transactions will require efficient and safe ways of conducting business and receiving payments. Also, as companies diversify their markets, they become less vulnerable to changes in local demand, hence, reducing wild fluctuations in the company’s sale and gains. For instance, Banana republic, Gap, and Old Navy are the same company but use distinct brands to diversify market. Challenges faced by businesses in an international environment Language and culture: Business managers from different nations can experience various barriers to effective communication due to differences in language and culture. For example, Asian nations such as China and Hong Kong among others are deep rooted in culture, and everything is done according to their culture. Managers may face difficulties in operating in such nations especially when they have not mastered the nation’s culture or language. Also, the traditional speed of negotiations can be different (Gupta, 2013, p35). Americans hurry negotiations whereas, in other nations, they emphasize on building relationships before a business deal is seriously regarded. Managers should understand the culture of target markets to avoid failures. Time and distance: Even with the availability of video conferences, managers in some countries may prefer to form relationships on a personal level (Ray n.d). For smaller firms, this means a high investment in travel expenses and having top executives out of office for longer periods. Differences in time zones can hinder coordination of projects especially where collaboration is needed. For instance, executives from the west coast of America get to work when their European counterparts are finishing the day’s work. Finding trustworthy and reliable partners: Firms usually establish a relationship with partners in the nations whose markets they are planning to enter (Ray n.d). They employ representatives in those nations. Such representatives engage in public relations and local marketing firms to help them. Since the foreign nation may lack prior experience in the target country, it is a challenge to find people who are competent and trustworthy to execute their operations. In conclusion, cross-border business entails buying and selling of products and services between businesses in neighboring nations. Small and large firms can reap the benefits of choosing to engage in international business. Nations engage in international business for a variety of reasons such as market search, search for raw materials, avoiding government regulations and gaining a comparative advantage among others. The success of the international business depends on the entry strategy that requires careful planning. Global business is beneficial to firms as it offers new market opportunities, increases production, diversifies business and reduces local market dependency. There are various challenges that managers face when operating in an international environment; these are culture and language differences, distance and time, and finding competent and trustworthy partners. Overcoming such challenges enables the business to gain a higher competitive advantage, gain a larger market share and increase its profits. References Davoren, J. (2015) The Advantages of Doing Business Globally. Available at: http://www.ehow.com/about_5375479_advantages-doing-business-globally.html (Accessed: 25 November 2015). Gaspar, J., Arreola-Risa, A., Bierman, L., Hise, R. and Kolari, J. (2013) Introduction to Global Business: Understanding the International Environment & Global Business Functions. London: Cengage Learning Gupta, A. (2013) International Business Environment: Challenges and Changes. Research Journal of Management Sciences. 2(11), pp.34-38. Peng, M. (2010) Global Business. London: Cengage Learning. Ray, Linda (n.d) Challenges of Operating a Business in a Global Economy. Available at: http://smallbusiness.chron.com/challenges-operating-business-global-economy-75865.html (Accessed: 25 November 2015). Read More