Strategy for International Business
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There are several challenges that face business entrepreneurs and team managers in the business sector today. These challenges are not only faced in the local markets, but they stretch to the international markets. This paper identifies the challenges encountered by managers in their endeavor to have successful businesses in the international market.
The opening of the discussion briefs on the key challenges that are likely to face managers running international businesses. This introduction gives readers a preface of the international business setup. The discussion will proceed with two international business case studies. The business profile of these companies is discussed from the time the business started to the present. The discussion includes highlights on the strengths, weaknesses, and opportunity which the business entrepreneurs use to establish the business. Further explanation will be on the challenges which they encountered while they were expanding the business to the international market. This chapter concludes by strategies that were used, and the future strategies they intend to use for further expansion of the business in the future.
Recommendation and conclusion will enable readers to understand their business environment, and strategies that will enable his or her company to grow in the world market.
As the world economy takes a different turn, many people have plans of venturing into international business. On the other hand, globalization has contributed to enhancing international trade today. Many challenges have come up due to the expansion of business and stiff competition in the market. A company has to consider several factors when entering the international market such as economical, political, and social factors Most companies are today failing due to poor strategic management of the international businesses. This has led to losses of many business opportunities. Business leader and international entrepreneurs should understand the international diversity in the markets they operate.
Different business persons have tried to define the challenges met by business people in international markets. These challenges are economic, social or administrative. As globalization increases, it continually affects the business world. This in turn, has led to growth of business worldwide. As business entrepreneurs ventures in to new boundaries to expand their business, they are most likely to face these challenges. In this paper, these challenges will be discussed in depth. There are several challenges that international business persons are likely to encounter while establishing businesses in the world market. These challenges include:
- Human resource management: this aspect mainly involves the management of staff that employed in an international organization. Often the combining of staff from different nationalities becomes a challenge. This is because some of the workers may not comply with the new management.
- The entry modes to international markets can also be a challenge. Most business misses out on the proper entry method to the market they intend to venture. This means that the management has to analyze the market before settling on the strategies that they will apply on the new market.
There are several factors that must be considered when choosing the entry mode for a business or company to an international market. These factors are situational influences and moderating variables.
- Cultural differences and the preference of the customer in the new market may pose a serious challenge in a new market. The difference in language and cultural habits can cause misunderstandings in the business aspects. In this clause are also included the dressing types preferred by different organizations.
- The economic status of the place may be a challenge to business investors. This is because the economy may not be the same level as the local market from which the company may be originating.
Case study 1: Starbucks Corporation
Starbucks Corporation started in the 1971 as a small coffee shop. The coffee shop continuously grew and by 1980, there were four Starbucks store operating in Seattle. The business continually grew in the area. The coffee store was well known in the neighborhood because of the excellent service that the business entrepreneurs offered to their clients. They not only sold coffee to their clients, but they also took time to teach the clients on how to make fantastic coffee. As a result, they made an influential customer service relationship that enhanced the growth of the business in the area.
As the business continued to grow, the manager of the coffee store had an idea of expanding their business. Therefore, they opted to blend different culture in order to produce a high-quality coffee for sale. With a collection of ideas, they were able to make out a product that was credible to the market. At a given time, the three entrepreneurs disagreed on an idea, to start selling brewed coffee to their clients. This was followed by another idea of having another shop in San Francisco. By 1994, Starbucks had identified four executives they led the business. They defined the business strategies, principles, and culture which they followed to meet the target.
The entrepreneurs encountered challenges while they endeavored to expand their businesses beyond their borders. They noted that they had to know market trends in the new area. The customer habits and preferences were also different from those in Seattle. Auch-Roy notes that selling coffee in Chicago was not easy. In this area, people did not appreciate the coffee, as it was in Seattle, while starting in Los-Angeles was not difficult. They strategized to use advertisement to inform people on the new product. This was through the newspaper, Los-Angeles Times. San Francisco was also challenging because they was a culture that store cannot be turned into a restaurant. However, they slowly managed to overcome, and this later gave way to the expansion of the business in San Francisco.
In 1994, Starbucks joined the business with PepsiCo. Through this joint venture, Starbucks managed to get its products into supermarkets for sale with their brand name rated to be of high quality. Another partnership was with Grand Ice Cream in which they made coffee based ice cream products. They later became partners with Seattle’s Redhook Ale Brewery and produced Stout beer. As the company grew they required more skilled personnel. They needed employees who were enthusiastic about making coffee. In addition, they needed to maintain the reputable-brand name by enhancing effective customer relations. Hence they enrolled young people to work and trained them on how to make quality coffee based drinks. In 1993, Starbucks endeavored to expand further to other regions. In its plan to grow, Starbucks put into consideration the areas they were targeting. The management considered demographic profile of these places and the infrastructure they needed in order to support the business. There were areas where they did not get licenses to do business. They had to join efforts with other companies to get access to these places. In 1995, Starbucks became international with branches in Asia, Korea, Singapore, Philippines, Taiwan, and Japan.
The expansion of Starbucks depended on the strategies that placed while the company was still in its low level. The entrepreneurs were careful to maintain the high standard of operation. Through this, they conquered their competitors. Their strategic location of the coffee shops made it easy for the customer to come for the refreshment. The training which they gave, to their staff also went a long way in improving their coffee making. They also integrated different cultural aspects in their coffee making. In addition, they used modern technology in the making of coffee. With new technology, they are able to give the best product to their client and supply at the right time.
Case study 2: IKEA
IKEA is one of the oldest furniture producing company in the world. The company began in the 1940s in Sweden. The company has grown steadily and is today ranked among the top 100 furniture producing companies in the world. Their main criteria is to make furniture that is well designed and at an affordable price for their entire consumers.
In 1960, IKEA expanded to other markets countrywide. By 1963, IKEA opened another store in Norway, then later another store in Denmark. This was followed by expansion in the Scandinavian countries, and Switzerland. IKEA has many suppliers distributed all over the world. There are 2500 suppliers in all the 60 markets worldwide. The company strategized to remain with the low prices so that they could reach out to their clients. Hence they could not accommodate the preference of their clients in different areas. Instead, they stuck to the old Swedish theme. For instance, they did not change the size of their furniture to suite the taste of clients in North America. The people in North America preferred furniture that was much bigger in size than the Swedish style. The ignorance which IKEA had, on the interest of their clients in America led to poor business performance. In America, the sale of furniture was considerably low. Later in 1990s, IKEA realized the losses that they were encountering and re-strategized their marketing plan to suite their international market. The management team sought the interest of their clients worldwide in order to make products that are applicable to all their clients in the international markets. Once they had this strategy in place, the sales in the American market rose considerably.
According to Dowling, Festing, & Engle most international managers underestimate international business management. They often compare the international management with local operations within their borders. They fail to understand the logistics that involve international relations. If the manager, on duty does not have any knowledge of international operation he, or she is likely to encounter difficulties in operating resources in the company. Most of the international operation will revolve around human resource management. Dowling, Festing, & Engle further discuss that the management teams of international organizations use the domestic policies to manage international businesses. The strategies and plans that are successful in managing the workers within their borders may not apply in the international setting. As a result, most international business fails to thrive and later fall down. Hence business managers dealing with international affairs have to consider different strategies for different locations.
Human resource management according to Stahl & Björkman may not have the same perspective. In the management of workers, the human resource manager has to follow a certain guideline defined by the values of the company. These values may not have the same weight in the context of another country. That is the workers in a different setup may not appreciate the core values and responsibility given to them by the management. For instance, there are companies that do not consider promotions. They employ workers that will work at the same level for a long time. This may not be appreciated by other candidates interested in joining the institution. Performance appraisals have been known to boost workers enthusiasm and performance. Not all companies will consider applauding their staff of any achievement. Other factors include giving of incentives, and training that will enhance improvement. Such difference has ended up affecting recruitment of workers when a company is entering a new market. This has resulted to the involvement of trade unions that integrate the different aspects of human resources and come up with a uniform approach to recruitment of workers in different setups.
Gooderham & Nordhaug explains the perception of local managers and staff in foreign companies as a challenge to international business management. They explain that people that come from different back grounds have different perceptions of work. Couple with the varied personalities and interpretation of messages, there’s a likelihood of missing on the proper management of workers in a foreign company or country. The same applies with team managers. The personalities a team manager will express may not be in line with what is expected of him or her in a working environment. In , Gooderham & Nordhaug give a sample of a company that defines the situation of a foreign company in a local setting.
A Danish company that has branches worldwide that leads in its area of business. In each of the branches, a different culture is exhibited depending on the culture of the people. Hence the business differs in administration from one branch to another. The company has branches in Russian cities. It has over 20,000 employees that are both Danish and Russians. In research on the management of the company, a selection of 20 employees is done. Ten of the employees chosen are managers both Russian and Danes. Among these were workers that had worked for many years and those that had worked shortly. The study of this company reveals the challenges faced by such companies that are in foreign countries.
According to the analysis in this study, there are two distinct groups. Amongst the workers, there are those that feel a part of the company, while others feel like outsiders. The insiders do not feel different about being in a foreign setup. They mingle easily with the local people who are Russian. The outsiders separate from the rest of the workers. They do not mingle with the local people in the company. These differentiate themselves from the others despite the fact that they have a common goal in working for the company. The outsiders in the company cannot stay in social events where can socialize with the other employees. This category is not self motivated. They only focus on their job and are strict to the working schedule. They do not work longer than the official hours. They are motivated by the money they will earn at the end. It is difficult to manage the worker in such an environment. The team managers have to find a way of integrating the two cultures or making the working environment neutral for both groups.
There are other challenges that team managers are likely to face in the case of managing international businesses. International businesses can also be affected by language differences. In cases where the local people talk their native language, business communication can be extremely difficult. They further explain that in such cases, a foreign worker is forced to find other means of communication within the business premises. The authors of the book claim that such a scenario happens in areas that consider democracy. For instance in America, people believe in democracy. Hence it becomes a challenge to impose a certain style preferred by the management. They further include the fact that democracy in a foreign country may affect that decision that pertain the business.
According to Dopson, Hayes, & Miller it is difficult for a business owner to get new employees in a foreign country. In this book, the authors explain that different people have different perspectives when it comes to employment. Each individual has a different perspective in terms of gender equality, working ethics, dressing mode, and religious preferences. Team mangers hence may find challenges in having team members from varying backgrounds. Having a plan that can tolerate the preferences of every employee can be a challenge too. A company or business that manages its human resources well is often likely to succeed. This is because the employees receive constant motivation from their bosses.
According to Lynn, team mangers should not view challenges as problems. The cultural differences that exist are not hindrance to success in business ventures. Lynn urges business entrepreneurs to remain positive about these challenges. As per Lynn’s opinion, business owners should take the cultural differences as an opportunity to increase their products. They should anticipate learning from other cultures. This way they will be able to reach out to the global market. In reference to Starbucks case study, the founders began with a small store that sold coffee and tea to the residents within. However, with time the store grew to an international business that has a large range of products for all its consumers worldwide. This was achieved by integrating different culture and customer preferences.
It is also recommendable for the business investors and mangers to study the economic trends of the suggested area for new market. They should also capitalize on their competitive advantage and strengths.
There are many managerial challenges that the international team managers face in their endeavors to build a stable international business. These challenges can be grouped into categories. They include industrial differences, cultural differences, the different attitudes towards diversity, dependence on the domestic market strategy. However, they should not be put down by these challenges. Instead, they need to re-strategize their plan in order to reestablish the business in other paces so as to expand the business. In this line of thought, they should consider the challenges that they encounter in the new markets as stepping stones to increase their business.
Team managers need to find a way to integrate different people to work together as a team.
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