Complexities of International Business and Challenges

Table of Contents:-

Complexities of International Business
Challenges in International Business

Complexities of International Business

Complexities of international business are explained below:

Complexities of International business are:

Increased Costs
Foreign Regulations and Standards
Delays in Payments
Complex Organisational Structure
Exhaustion of Natural Resources
Cultural Differences
Market Competition in Host Country
National Controls
Lack of Home Country Support
Dependence
Loss to Agricultural Countries

1) Increased Costs

There are increased operating expenses including the establishment of facilities abroad, the hiring of additional staff, travelling of personnel, specialised transport networks, and information and communication technology.

2) Foreign Regulations and Standards

The company may need to conform to new standards. This may require changes such as in the production process, incurring additional costs, inputs and packaging.

3) Delays in Payments

International trade may lead to delays in payments, adversely affecting the firm’s cash flow.

4) Complex Organisational Structure

International business usually requires changes to the firm’s operating structure. Training/re-training of management is necessary to effectively facilitate the process of restructuring. By investing in a well-designed organisational structure, businesses can position themselves for success in the complex and ever-evolving world of International Trading Environment.

5) Exhaustion of Natural Resources

This means exhausting all its natural resources in due course of time. It encourages an under-developed country to export its all raw materials very early.

6) Cultural Differences

The culture of both the nation and companies should have an international vision. Companies should adopt a long-term perspective, being prepared to move wherever market opportunities are favorable. The inward-looking culture makes companies remain local. For example, unlike Korean companies who look for global markets Samsung, LG, and Indian company Hindustan Motor were inward looking.

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7) Market Competition in the Host Country

If the best global companies enter the markets, the competition becomes intense and accordingly inefficient companies have to close their shops. For example, Daewoo cars in India.

8) National Controls

The nations create barriers for outside country manufacturers by increasing trade barriers. Trade barriers will be direct in the form of high customs duties. Indirect barriers will include licensing procedures, quota systems, inspections, certifications, and tedious paperwork. For example, India and former Russia were inward-looking economies for the last five decades with large trade barriers until the 1990s.

9) Lack of Home Country Support

Home country support for export investments & tax matters is essential for the success of international business. If support is insufficient the international business proposal fails. The government or social restrictions imposed on commerce and industry become hurdles for a company going global. For example, Hindustan Aeronautics Limited (HAL) has to serve only the Indian Air Force.

10) Dependence

The import of cheap quality products increases the dependence of foreign countries to the extent that leads that country to no product that is, their production within the country stops altogether.

11) Loss to Agricultural Countries

In international trade, predominantly agricultural countries are losers to the maximum losses. This is because demand for agricultural products is less elastic; there is hardly any increase in their demand despite a fall in the price.

12) Political Instability

Political instability is a major challenge to the smooth functioning of international trade. It refers to uncertain political conditions in some countries which can have far-reaching consequences on international trade. Various external factors such as changes in trade agreements, government policies and political turmoil in the foreign market can disrupt business operations and cause financial losses to industries involved in the process.

Challenges in International Business

Compared to domestic trade, foreign trade encounters specific challenges outlined as follows:

1) Distance and High Cost of Transport

International trade spans long distances between the manufacturing origin and consumption location, incurring substantial transport costs. The significance of distance plays a pivotal role in decision-making.

2) Time Lag

Due to the factor above, executing an international order takes considerably more time. It may take several months to realize payment after receiving an order and dispatching goods. A prolonged time lag increases the risk of cargo damage during transit, especially for perishable items.

3) Language, Customs, and Laws

Different countries have unique social, cultural, and legal practices, creating hindrances in the smooth flow of international trade. Language disparities can also act as a barrier; for example, trading with Arabian countries may benefit from knowledge of Arabic, and differences in language can lead to misunderstandings.

4) Currency and Measurement

Each country has its currency subject to exchange rate fluctuations. Understanding these fluctuations concerning the domestic market currency is crucial. Additionally, foreign markets may use different systems of weights and measurements; understanding how to convert between them is essential.

5) Government Control, Regulation, and Taxes

Governments establish rules and regulations for importing goods and services, varying by commodity and country. Different rules apply depending on the country of origin; for instance, when EU countries trade among themselves, import duties may be minimal or nonexistent, whereas dealing with non-EU countries may incur heavy responsibilities.

6) Risk and Uncertainty

Owing to the mentioned difficulties, export-import trade is fraught with risk and uncertainty, necessitating specialized knowledge.

FAQ

1. What are the various complexities of international business?

The various complexities of international business require a strategic and holistic approach it includes cultural differences, language barriers, legal and regulatory environments, political and economic risks, logistics and supply chain management challenges, international marketing and pricing, market diversity, intellectual property protection and adaptability to diverse market environments.

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