Importance of Strategic Planning when Entering International Markets
When a company decides to take their business international, there are many different factors that they need to take into account. There are differences in management styles, international laws and treaties that regulate international business, trade barriers, tariffs, taxes, exchange rates as well as cultural customs that come into play. Each of these is significant and needs to be taken into account in order to minimize potential problems. It is essential to an expanding company to study these factors and integrate them into taking their business abroad. Many times, lack of knowledge can create serious problems and in some situations stop a business deal from
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This then brings in the basic law of comparative advantage by David Ricardo, “Each country would posses comparative advantage in the production one of the two products and both countries would then benefit by specializing completely in one product and trading for the other.”(3) A country can definitely gain by any means of trade. Countries set up barriers to import and export for several reasons. Duties on importing and exporting can create some government revenue. It is usually a minor source of revenue, however, in smaller less developed countries, it can be a significant source of revenue. A shortage of supply is a reason for a high tariff on exports in a country. If there is a high tariff then there will be less exporting, therefore more of that product in the country, thus making the price of that product in the country lower since there will be a greater supply of it. So trade barriers can be helpful to a country. On the contrary, trade barriers can have a negative effect on a country as well. Consumers will have to pay a higher price on imports, and for similar products produced in the country the price will rise due to consumers buying the imported products. In order to regulate the barriers on international trade, there have been organizations formed. One such organization is GATT, which stands for General Agreement on Tariffs and Trade. Another
According to Colander, "The reason two countries trade is that trade can make both countries better off" (2004, p. 416). In economics, the theory of comparative advantage clarifies why it can be advantageous for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of production, but instead, the ratio between how easily the two countries can produce different kinds of goods. The basic idea of the principle of comparative advantage is that as long as the relative opportunity costs of producing goods differ among countries, then there are potential gains from trade.
If each country specializes in areas where its advantages are greatest or disadvantages are least, the gains from trade will make each country better off than it would be if it remained self-sufficient. [3]
In a time of global commerce, new business ventures can take on many forms. What used to be local or even national companies have become world-wide. International growth of a business can be extremely beneficial but is not without its challenges. Different countries have different peoples and different cultures - different ways of doing business altogether. If a venture is to be successful, these differences must be well understood.
International trade barriers are restrictions put in place by the government to prevent the inflow of international goods and services to the country. These restrictions are placed by the government officials with the intent of protecting their economy from the international competition; they include tariff and nontariff barriers. Some of the argument for trade restrictions includes the following; It serves as a national defense from competitions to foreign companies, it serves as a means to protect infant industry from imports until they have enough capital to invest, it serves as a means to protect domestic jobs from cheap foreign labor, It also serves as a means to permit diversification of the domestic economy and a way to improve balance of trade (Ball, Geringer, Mcnett &Minor, 2012). Barriers to trade exist in developed and underdeveloped countries; some of these countries include China, United States, Japan, Russia, India, Latin America, European and African countries. Upon examining the barriers to trade which exists in different continents of the world, specifically comparing the barriers in developed countries to underdeveloped countries, there tends to be some similarities as well as differences. A closer look at countries such as China and Nigeria denotes a clear picture of what would be considered a developed and underdeveloped country. By reviewing the barriers that exists in both countries, similarities and
Expansion of a company is never easy, especially if the company were to expand overseas to a foreign country. The products or service the company offers or sells must fit into the culture and environment of the country. Ignorance to these factors can lead to a major downfall
Competition from foreign producers affects American consumers in a number of ways. They affect the way we, as Americans, pay taxes, the way we trade with other countries and the limitations of that trade. These trade barriers protect us in order to keep specific industries of the United States safe and to protect parts of our economy. Trade barriers include tariffs, quotas, and subsidies and are a part of our economy because they are necessary for the success of our country.
Many companies today want to expand their business to the international business, which can bring cost down and profits up. Taking a business internationally means knowing the rules and regulations of the countries you are entering. There can be many issues with going global which include cultural barriers, diversity issues, multicultural issues, political issues, and economical issues. It is very important to know how important expansion is to the company and what implications will come from going global.
Trade barriers to trade can be categorized into two different types, tariff and nontariff barriers. Tariff barriers are taxes that are put into place in order to increase the price of imports inside the country that the product is being imported into. This allows for the domestic companies to gain a competitive advantage by ultimately reducing competition from foreign producers. Tariff are not only put on import but exports as well. This will increase revenue and will also keep product/technology within the country in the name of national safety or defense. An example of this can be seen in the United States agriculture. The
“Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods.”
Before a company decides to internationalize, many researches should be done on culture, political situation and so much more. Knowing other countries’ laws and regulations will prevent such lawsuit against your company. Codes of conducts, ethics hotlines should be provided to employees and that has to come from the top management. Companies should look at long-term goals versus short-term goals; companies whose culture is to just make profits at any cost faces these type of situation Chiquita faced often. Even though outsourcing is a great way to cut back on costs, companies should be very careful which countries they select to outsource in to prevent them from having a bad reputation. For example if a company chose to outsource in let’s say Nigeria, things are very corrupt and doing business, outsourcing from there could be very profitable but in a very un ethical way. How you want to represent your firm depends on the character of you as a CEO. Either you make unethical decisions and get profitable very fast and get shares doubled in the wall street at any cost, or you have ethics and you rather do things right and slowly get to profits. Strategic planning is extremely important in doing business abroad, abiding by your core values and helping the community, making sure the public recognizes your firm in a positive always attract customers which generate more revenues.
Companies entering foreign markets may face problems or increased costs because of the business environment and the way in which the companies operate. Marketing services might be expensive and certain payment mechanisms may be unavailable. Some of such difficulties include
In comparison with its home country, operating in foreign country is not an easy task for any company. Due to different factors such as currency different, legal barriers, government regulations and cultural barriers multinational companies need to adjust their policies and marketing strategies according to the country.
The world offers significant business opportunities for every company, however, opportunities are accompanied by significant challenges for managers. Managing global operations across diverse cultures and markets represents a big challenge and opportunity for companies. To compete in the global market and be successful, companies must learn the strategies, policies, norms and technology necessary to conduct international business. The opportunities for global expansion are numerous, and attaining success is a matter of developing the right strategy to win local markets and its consumers.
Whenever any business jump into the international market, first know what is the basic needs of customers as well as our product demand in the market. Also should measure the competition level in the market .
International business is much more complex than operating within the domestic market because countries are extremely different in many ways. The