Issues in the International Business Environment Essay

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International Business

Five Questions on International Business

What are the approaches international managers seek to understand when instituting change in the international arena?

Change in the international arena may be more complex than in the home nations due to the wider variety of influences and variables that may be present. When looking at the different approaches that international managers may seek to understand in order to institute change, the managers will benefit from understanding different models or frameworks that provide a way of examining the differences that exist and assessing the way in which they may impact on the way change is determined and implemented at an organizational and local level.

One of the first models that may be useful is Hofstede's Cultural Dimensions. This is a model which provides a framework that facilitates an understanding of the cultural differences that exist between people of different regions and nations (Dellner, 2014). The original model assessed national across four dimensions, with a fifth dimension added at a later date (Dellner, 2014). More recently a sixth dimension has also been incorporated (The Hofstede Centre, 2014). The first dimension is power distance, which indicates the way in which power is distributed across society, either equally or unequally (Dellner, 2014). The second dimension is individualism vs. collectivism, which refers to the way in which individuals within society look after each other, or takes an individualistic approach to looking after themselves (Dellner, 2014). The third dimension is masculinity vs. femininity, which is not a gender measurement, but represents a preference towards either masculine approach which is classified as assertive and competitive, or a more feminine approach incorporating a greater level of cooperation, modesty, and caring (Dellner, 2014). The fourth dimension is uncertainty avoidance, which refers to the degree to which people in a nation are willing, or unwilling to take risks (Dellner, 2014). The fifth dimension is long-term orientation vs. short-term normative orientation, and looks at the way in which plans and time of seen, and whether long-term approaches or short-term approaches are preferred (Dellner, 2014). The last and most recent dimension is indulgence vs. restraint, and indicates the degree to which gratification or restraint is managed by social norms (The Hofstede Centre, 2014). All of these issues will impact on the way in which employment relationships take place, and the way that employees are managed and change may be a permitted.

Additional benefits may also be gained from understanding approaches such as porters for facets or diamond model, to help understand the fact conditions within different nation states may impact on the way change decisions are made in terms of resources that are available.

It may also be argued that other approaches will also need to be considered, including change management models, such as Lewin's three stage model to change, or Kotter's eight stage change model, which provide a framework through which change may be introduced. The stages may then be adapted, and individual strategies introduced allowing for the cultural differences in the international environment.

3. What is the culture shock and how does it affect the international business?

Culture shock refers to a condition where an individual will feel this orientated as a result of being in an unfamiliar culture, where there are significant differences that may cause a feeling of discomfort, confusion, or even fear. Culture shock is often accompanied by anxiety as a result of losing the familiarity of an environment which is known and understood, and is a part of everyday life, where cultural clues are understood often at an instinctual level. A change in a cultural environment can result in a psychological shock, not only in terms of the most visible environment features such as climate, but in the way that culture is practiced with different values and norms. For example, body language may be different, cultural values in terms of what types of behavior are no not acceptable can be confusing, and those suffering from culture shock are likely to have difficulty in processing cultural queues in order to fully understand that environment. Some aspects of the culture have been identified with in hostage cultural dimensions, for example gender differences, or the way in which managers may be revered may be very different, as seen when comparing China to the United States (Selmer, 1999).

For businesses it is important to understand what cultural shock is, and the way it can impact on business. For business to be successful it is essential that there is an understanding between partners to trade, whether these are two individuals negotiating, different departments within an organization working together, or different organizations undertaking international trade.

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Cultural influences will impact on the way communication takes place, and where there is a culture shock there is likely to be a significant barrier to communication and full understanding, which may result in a breakdown of the trading relationship, or even create conflict, including contractual conflicts. It is for this reason that internationalization is seen as an important element for international managers, not only understanding other cultures, but also developing skills needed in order to adapt and learn about new cultures, and accommodate different cultural practices with in an individual's own cognitive processes. This is a necessary approach towards international business if the potential constraint it is presented to business by culture shock is to be overcome, and good business relationships are to be noted and maintain.

6. Many economies are in the process of transition. What are the key means that drive the transition from a command economy to a market economy?

A command economy, which may also be referred to as a planned economy, is seen where the majority of economic aspects, including production, controlled by the government. For an economy to transition from a command economy into a market free economy where the marketplace conditions and individual players, including firms, drive decisions, it is necessary that suitable marketplace structure is established (Howells & Bain, 2007). The key drivers for the transition will include economic liberalization, deregulation, privatization of state-owned enterprises, and the establishment of institutions to support a free market structure, including regulations and oversight (Howells & Bain, 2007).

Economic liberalization will involve allowing the prices and demand for goods to be set by market forces, rather than the government dictating what should be produced, and the prices the should be paid. This will facilitate the development of supply and demand characteristics in the marketplace. To be effective it is necessary that barriers to trade are removed, so that there is no skewing of market forces, this may mean the removal of trade tariffs or subsidies, or favorable treatment to specific businesses (Howells & Bain, 2007). Deregulation of state control prices will be necessary. For the government to remain as a regulator of the economy, but not on economic forces, they should also be pushed water privatization of enterprises and resources which are owned by the state and collectively operated. A market economy will also require the presence of supporting institutions and factors that will encourage and uphold free market forces; this will include a legislative environment supporting property ownership and laws, and the ability to enforce regulations, consumer regulations as well as oversight in terms of ensuring that free competition is maintained (Shinkle & Kriauciunas, 2012).

8. Why do countries with high GNI and GDP are attractive for foreign investment?

It is often assumed that countries with a low GDP of GNI will be more attractive for foreign direct investment compared to countries with a high GDP or GNI; the assumption usually based on the premise that lower economic performance will result in lower prices for the investing firm, this is usually referred to as a comparative advantage. However, there are many reasons why a firm may make FDI decisions which can result in FDI going to high GDP or GNI nations.

A market orientated approach to FDI may see firms decide on their FDI targets where the investment is made with the aim of gaining access to a market (Farkasov, 2002). This approach may often be undertaken where a firm wishes to reduce the transaction costs of doing business with that market, this may include the avoidance of transport costs, trade tariffs and import taxes and even exchange rate uncertainties (Farkasov, 2002). For example, many international firms have established a presence within the EU to avoid trade tariffs for external imports into the area. Goods that are costly to transport or face challenges, such as short life goods, can also benefit from production in or near their destination markets. This may be particularly attractive if the market has premium prices for the goods of the investing firm. Preferential tax treatment and low tax rates may also be a pull factor, as seen with Bermuda.

Access to resources may also motivate FDI, this can include physical resources, but where there is FDI into high performing economies there is also the potential desire to gain the benefits of human resources and knowledge transfer with skills….....

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