International Business Report

Executive summary

In a global competitive environment, the knack to develop an organization that is transitional in nature is the major factor that can assist a business organization to adapt to dynamic environmental changes. While the fast rate of internationalism renders the traditional ways of operating business irrelevant, it is important for the company's managers to have an international mindset in order to be effective. Globalization in businesses has resulted in the emergence of international strategic management. Combination of international business and strategic management has also resulted in strategies for international cooperation. However, some obstacles to progress along are inevitable. The challenges caused by these obstacles can be resolved through cooperative venture based on the benefits of the parties involved.

Introduction

Globalization process for SMEs UK based can be realized through cross border range activities including international investment, involvement in strategic alliances and arrangement of networks affecting different business functions that range from distribution to product development and research (Johanson & Vahlne, 2009). The internationalization of business companies including the current global wave industrial restructuring has significantly drawn SME, particularly those in areas subject to globalization forces, into chains of global value through a variety of cross-border activities. There is evidence that SME, which has highly grown needs early access to the global market in order to facilitate growth and development (Plutaolearnik, 2011). Generally, SME report has increased global business contact in the recent years but evidence has it that relative to the contribution made to national and local economies, SME remains represented in the Global economy and changes are slow to happen. For instance, SME generally contributes about fifty per cent of the GDP and sixty percent of employment in local or national economy.

Internationalization of the economy has consistently encouraged the globalization of SME since 1980. There exists a growing body of research on international entrepreneurship that delves in various phenomenon dimensions. For instance, identification of motivations and characteristics of entrepreneurs, new venture characteristics, the globalization process and the entry modes applied by SME (Chena & Cheung, 2011). Strategic alliances are majorly among the modes of entry commonly studied. Alliances are the dominant strategy of new high-tech global ventures due to the involvement of these firms in the industry that distributes knowledge.

Top drivers for international expansion

International companies are comparatively viable and effective. Nevertheless, there are conditions in this regard: free cash flow, stability in cash flow, know-how, and experience, and what's more a demand that is in existence (Madsea, 2009). Here are the key drivers for internationalism.

Increase in revenue

The most common reason why organizations expand into an international organization is to pursue new revenues and customers extremes. Exposure of services and products to a wider audience across nations can significantly accelerate an organization to a top line (Simon et al., 2014). However, expanding into other further market new states can prove difficult due to some major setbacks to considered, and these include:

International structure of the company: Expansion requires an organization to formally set up an entity in that country where it can operate a business. The type of business a company is planning to operate in a new country influence the entity type the company is planning to establish and report of the revenue taken back to the parent country (Johanson & Vahlne, 2009).

The global pricing scheme: During the foray into a new nation, it is essential to ensure that price is competitive as compared to the local market and all the cost accounted for (Plutaolearnik, 2011).

Acquisitions, mergers, and divestitures

When acquisitions, mergers, and divestitures are executed properly, it can provide an excellent way to expand into countries. Shrouding of deals into complexity can result in an organization deserting the deal altogether (Bhardwal et al., 2011). An improper entity of a corporate structure can equally jeopardize the transaction as well. In exploring acquisitions and mergers, it can be discovered that the transfer of entities that allow for compliant payment of employees is not included in the transaction.

Recruiting new talent

When an organization starts to flourish, demand will also develop. Additionally, as an organization resolve to venture into a more specialized project, a niche number of employees' increases significantly as a search for support commences around the world (Yang, 2012). The importance of reserving talent should not be overlooked. It is advised that, instead of bidding goodbye to the executive while moving to China, an organization should find ways to explore other options that will allow hiring and paying employees without any legal entity and registration around the world (Kim, 2009).

Relevant factors of the market

To brace an organization for a new market, customer’s analysis and competition are vital. An outline of the sensitivity and competition to define the strategy of the market entrance and marketing structure are equally imperative to be considered. A broad partner network is a major factor in becoming remarkable in the target market (Jonsson & Foss, 2011).

Financial resources

According to a study conducted by IKB Deutsche, organizations with high equity capital continuously prove to be more successful abroad. In addition, access to reliable and long-term financial sources should be safe as it is essential for competitiveness, investments and the support of initial abstraction.

Trade barriers

Trade barriers are restrictions induced by the government on international trade, which results in reduced economic efficiency. Many of the trade barriers operate under the same principle that was once used in a trade agreement. Major trade barriers that increase the cost of goods traded are highlighted below:

Tariff Barriers

Tariffs are taxes that have been imposed on products entering a country from another state. It is recommend that tariffs revenue are paid to the country that allows products to stream in and the revenue is then used to facilitate government services. Tariffs stand to be among the oldest form of a government initiative that is enforced for the purpose of enhancing government revenue. They also provide returns to suppliers and firms of domestic industrial resources that face stiff competition from products that have been imported. Tariffs have the capacity to hinder country-country trade (Lu & Heng, 2009).

Quota system

There is a lot of bureaucracy involved in the quota system and for this case; the government does not play a role in revenue origins. Under the quota system, prices in the home market increases and thus provide room for the domestic producers to increase consumers and production to cut down on consumption. Quota system only provides revenue gain to import license owner (Calvopardo et al., 2009).

Non-Tariff Barriers

Non-Tariffs can be further classified as the exchange controls, regulatory barriers and subsidies. One way of restricting terms of foreign competition in the home market is through subsidization of domestic products. The main type of non-tariff barrier in internationalization is administrative procedures and customs documentation, immigration and transiting procedures, which are all cumbersome and expensive. These barriers reduce the chances of possible advantages of trade preferences, resulting in major welfare loss (Jaske & Axtell, 2016).

Tariff-Rate Quota

OrgaTariff-rate quota is the combination of the ideas of quota and tariff. TRQ implementation is a superb idea for both the importing and exporting country and the involved governments. Tariff quota policies assist in the implementation of good trading practices between countries in a healthy manner. A low tariff is usually set against fixed imports quantities and there is an increase in the quantity of the imports, then higher tariffs are placed against the goods (Chen & cheung, 2011).

Corporate and social issues to be considered by the business

The benefits that come with CSR speak volume on its importance and why a global business should adopt it. Some of the benefits of corporate social responsibility are discussed below.

Employees’ engagement

Corporal social responsibility gives an opportunity to employees of an organization to contribute to the giving back to the country or environment (Bellina, 20114). Giving back for a good reason allows employees to be content and feel proud at work. It makes employees to feel great when associating with their brand for the struggle put in educating children that comes from poor villages. The fact that an organization is involved in the struggles and benefit of a society for a good reason, assist in building an employer brand (Erez et al., 2013).

Development of society

Corporate social responsibility assists in developing society by giving out scholarships, building schools, drilling boreholes and providing sustainable food production in dry areas thus making the country to achieve its sustainable development objectives (Hudzik, 2011). Current organizations are money driven and focus mainly on market share and increased revenue. The interest of the majority of the global organization lies in doing better than its competitor without considering the world around.

Improved public image

This is important, as consumers evaluate the public image of the organization when deciding to buy products. A case in point, staff members volunteering for a few hours a month, reflects the commitment of the organization towards helping others. As a result, the organization appears to be favourable to consumers.

Organization loyalty

StrThere is nothing so important as having loyal employees and customers. The board of management will do whatever it takes to see the organization shinning. Corporate social responsibility is one of the major ways that aid the organization in the establishment of loyal employees and customers. By giving back to the community whether donating sanitary pads or electrifying the whole village, portrays how the organization has the interest of the community at heart and this is bound to make customers pleased with the organizations effort while employees become more fulfilled (Shenka & Chi, 2014). Majority of people want to be linked with brands that take time to do something for the nation, environment or community. This help in building a positive image for the brand. On the other hand, clients will be pleased thereby resulting to increase in revenue generation (Rexhepi et al., 2013).

Brand building

Giving back to stakeholders, clients, society or partners assist making a brand of the corporation popular. Positive word of mouth from the beneficiaries of the organizations CSR can be helpful in making and growing the brand of the organization successfully. Despite the publicity, CSR should not be embraced for the interest of gaining publicity but rather to emphasize the cause of the organization undertaken. Employing positive change in society will help in attracting media thereby providing a cutting edge over competitors (Gerscheswki et al., 2015). There is benefits range for the employees in an international organization that embraces CSR. The workplace of the organization becomes more productive and positive to work and this results in promoting benefits such as volunteering to work. In return, personal and professional growth is prompted along.

Cultural preferences to be considered by the business

Internationalism has completely transformed the nature in which the world does its business particularly now that people from various professional cultures regularly meet each other. Here are some of the ways UK SME would be significantly affected by cultural activities when it commences operation in China.

Guanxi

China is a society that has oriented relationship. Guanxi or the interaction and network are essential for business. By establishing Guanxi, the business organization reduces the failures, setbacks and risk. the Chinese people prefer to deal with people they trust and are well known to them. First, the interpersonal relationship should be built among the partners before they can begin to freely work together. This is because the relationship is not just between the companies but also include members of these companies. The more UK SME will have intersection areas with the Chinese people the easier it becomes to address business issues.

Confucianism

Confucianism significantly affects business practices a lot. All the relationship is regarded to be unequal. It is therefore important to show respect to age, education background or seniority. Style of management tends to be directive and reflects fundamental confusion concept of the hierarchical way of the society. It is not put into practice that the disrespectful decision of the superior will be executed by the subordinate. The manager should be however seen as the father figure who receives obedience and loyalty from colleagues. In return, the manager should take an interest in a colleague's aspect of life (Jaske & Axtell, 2016).

Collectivism

Chinese has a collectivist oriented cultural activity that will significantly affect UK SME business operation. The group is given honour as compared to an individual. This results in firm teamwork, more obedience, more consensual in decision making, and more information sharing. Majority of people feel tasked to get others participating in an important decision making even if the outcome is certain. Blames and reward are shared equally among the members of the team. However while Chinese people tend to be very cooperative within their group, companies normally display a very competitive orientation in their dealings with other companies (Simon et al., 2014).

Giving gifts

Chinese people are very good at gift giving. Free Gift express friendship and this reflects hopes for future business. It is however very imperative not to give gifts in the absence of a witness or a good reason. This can be differently construed.

Greetings and meetings

When meeting business people in China, foreigners should portray respect and sincerity. Handshaking should be made light and immediately followed by business cards with Chinese text on one side and English on the other side.it is very essential to receive cards using both hands and study. Chinese greet people by lowering their eye slightly. This is a sign of respect and differences. Meetings are normally made long without any clear objective. Many times they are executed in relationship building and the agenda of the meeting is to build on relationship rather than a specific business mandate. Chinese people don't like to be pushed. It can actually take very long meetings before making any progress (Chena & Cheung, 2011).

Expansion methods to be chosen by the company

An organization can have different reasons for moving global, which will have an impact on the type of entry mode to be considered. An organization needs to determine its flexibility, desired level of commitment, risk, control and prescience before going global. This section analyses entry mode suitable for UK SME that can be considered when moving to the Chinese market (Calvopardo et al., 2009).

Franchising

Franchising is a type of license where a business organization is given the full right to use products, name and business model of a successful and already established business organization. A franchisor is a company that offers the franchise license to another business organization known as the franchise. Franchising popularly used and majorly a successful method of international market entry, however, companies pursuing this mode of entry should consider both negative and positive aspects of franchising. The most common advantage of franchising is that it will always capitalize on strategies that are already successful, the franchise has local knowledge and it is less risky as compared to equity-based mode of entry (Jaske & Axtell, 2016).

Joint ventures

An organization may decide to choose a joint venture as there mode of foreign entry for a number of reasons, For instance, to leverage the strength of each other and to dive the risk to other parties. However, for a joint venture to be successful the two or more companies that form the joint venture must have a common aim in regards to the market entry, the acceptable risk level of the market entered and the technology sharing (Gerscheswki et al., 2015). Joint ventures usually thrive in an event where the following conditions are present between partners: sharing of the small market as compared to the market ladder, converging goals and in a position of learning from one another without giving in their intellectual property or competitive advantage. A joint venture can grant a company access to a new market which it wouldn't be in a position to undertake previously (Chena & Cheung, 2011).

Licensing

International licensing is an agreement across broader that allows an organization in the country targeted the rights to use the properties of the licensor. These properties are intangible and include production techniques, trademarks and patents. The licensee should pay a fee in exchange for the rights as stipulated in the contract between the parties. Licensing is widely chosen because it has low exposure to the political and economic condition. It is preferred by the local government because of high return on investment. Licensing can, however, cut down the potential profit of outright ownership, nurture potential competitor of the future and significantly affect the image of the product due to lack of proper control over licensing (Jaske & Axtell, 2016).

Wholly owned subsidiary

This is a process whereby a company gets in a foreign market with hundred per cent ownership of the foreign entity. Wholly owned subsidiary come about in two ways either Greenfield operation or acquisition. A Greenfield operation is the set-up of a formal entity and a new organization into the foreign market (Gerscheswki et al., 2015).The acquisition is the buying of foreign companies as a mode to enter a foreign market. A number of companies that would like to reduce their risk while maximizing the company's exposure to foreign market will opt for acquisition as an entry mode. The reason being acquisition uses a brand that has already established a customer base and name. Wholly owned subsidiaries is not a good option for UK SME since it incurs more risk than all other entry mode, however, if proper implementation put in place then it can result in good profits. (Jaske & Axtell, 2016).

Conclusion

Gaining access to the global market and internationalization is an instrument of strategy for many enterprises to counter competition and further their development. Internationalization has assisted in realizing the potential for prospective firms. It has also proven to be an important strategic move for SME that command large investments in intellectual properties. Firms of such kind possess high sunk and fixed costs which should be recouped from a large market as quickly as possible (Chena & Cheung, 2011). Access to international market offers a host of opportunities such as new market niche, technological and volume advantages and opportunist to utilize economies of scale. The recent research links high growth exports and firms, and find that exportation is not the end of a powerful growth process but instead a starting point and should accompany the growth process. Globalization has also posed challenges and threats for the SME by pushing them to international competition from potential foreign firms and the associated exit and adjustment costs incurred. SME from a point of view is less equipped as compared to larger companies to face these international challenges (Simon et al., 2014).

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