Complexities of International Business
International business is a multifaceted and complex field that presents many challenges and complexities. Understanding and delving into the complexities of international business provides insight into the challenges faced by companies operating in global markets.
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
- 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 firm 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 cause 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 the nation and the companies should have an international vision. The long-term perspective of companies should be to move wherever market opportunities are good. 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.
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 by way of high customs duties. Indirect barriers will be licensing procedures, quota system, inspection, certification, 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.
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 extent. 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.
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