Benefits_and_Challenges_of_International_Business

Jomo Kenyatta University College of Agriculture and Technology Faculty of Business Studies and Management 2nd Trimester 2010 Masters in Business Administration INTERNATIONAL BUSINESS TOPIC: BENEFITS AND CHALLENGES OF INTERNATIONAL BUSINESS NAME: Mwaluda Danson Mwambela - CBDM-HD333-1479/2010 THE ASSIGNMENT IS PREPARED AND SUBMITTED TO JKUAT IN PARTIAL FULFILLMENT FOR THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION (MBA) BENEFITS OF INTERNATIONAL BUSINESS 1. Increased Market Opportunities An international business is a business headquartered in one country bus has operations in one or more other countries. The fact that the business has ventured in other countries increases the market opportunities for the organization. The organization has access to many more customers. Increased markets in turn lead to increased sales and hence profits. In addition the increased market gives an opportunity to the organization to extend the potential of its existing products. The organization cuts a niche for itself in the international arena and gains a global market share. 2. Diversify the Risk and Uncertainty of the Domestic Market When a business ventures into another country it shares its risk of operation between its domestic and foreign markets. If the domestic market does not do well or declines for any reason, the organization still has its foreign market to count on. This is important especially when the markets are seasonal e.g. tourism. In summary, international businesses reduce the dependency on the existing markets, and stabilizes seasonal market fluctuations. 3. Response to Foreign Competition International businesses respond to foreign competition by opening multinational enterprises (MNEs) in the home country of their competitors. In the process of doing this, the organization in turn protects its domestic market and enhances its domestic competitiveness. 4. Cost Reduction/Competitiveness International businesses reduce the cost to customers as the business can set up other branches closer to the market. This is especially beneficial to manufacturing companies since the cost of transportation and distribution is reduced thus making the product cheaper. This allows the business to compete effectively both locally and internationally. 5. Overcoming International Trade Barriers International business helps in overcoming protective devices such tariffs and non tariff barriers by servicing a foreign market from its home country. This is made possible through exports. A business operating in a country where the cost of production is low can take advantage of this export provision. 6. Exploitation of Technology Advancement International businesses take advantage of technological expertise by manufacturing goods directly rather than allowing others to do it under a licence. Technology is especially important for business processes such as advertising, selling, recruitment etc that can be done through the internet. CHALLENGES OF INTERNATIONAL BUSINESS 1. Formulating an International Approach The very first challenge for a global enterprise is to formulate an international approach and then execute it. The administrators and those at decision-making positions often find it hard to alter their thought pattern, which is not good to work in international paradigm. There are numerous worldwide businesses but only a few of them have really accepted a good international approach. Business issues such as product characteristics and marketing mix have to be differentiated to take care of the diverse cultures, beliefs and preferences in the international markets. In summary global business management needs additional ordinary management, foreseeing and control talents. This is a great challenge to most international businesses. 2. Foreign Politics Political expertise is a must for everyone but it becomes all so vital when working at global stage. If some plans were appropriate for your trade, a change in ruling government can bring strong changes in those plans. Political disarray will bring down the financial system and that can affect your business. In addition political change can introduce legal requirements and regulations that can adversely affect the operation of the business. These changes are rarely predictable. To safeguard the business from such unhelpful political bangs, an organization needs to make sound political decisions. This is a great challenge. 3. Economic and Financial Challenges Economic and financial challenges consist of everything including variation in exchange rate, international financial crisis (or some financial crises in the host nation), change in oil rates, international price rises or tariff barriers imposed by the host country, and also the export related rules of the home country. Some of these economic crises are not predictable in totality. 4. Natural Catastrophe, Environment and War or Terrorism Various multinational businesses have to countenance severe opposition by some environment friendly organizations. Citizens are more worried about water and air pollution these days as it is becoming a severe danger to their health. Some natural calamity such as earthquake and floods or some kind of civil war breaking out in the host nation is also in the catalog of potential challenges. A fresh challenge that a global trade business has to bear these days in some specific nation is the danger of bombing, violence or terror campaigns.