Advances in technology have created a continuous stream of information across borders. The free flow of communication enables businesses to understand and capitalize on foreign goods and services.
“Global business has been growing rapidly in recent decades because of technological expansion, liberalization of governmental policies on trade and increased global competition,” says Pamela K. Shay, D.B.A., chair of the Vantage MBA at Franklin University. “Because of these factors, foreign countries increasingly are a source of both production and sales for domestic companies.”
Smart Business learned from Shay about the significance of understanding global business.
Why must local business executives know about global business issues?
With the world becoming smaller and more interrelated, all business activities have the propensity to be affected by the dynamic global marketplace. Companies engage in global business to expand sales, acquire resources, diversify their sources of sales and supplies and minimize competitive risk. In order to remain competitive in this marketplace, all company leaders need to be aware of what is going on globally. It’s not a choice, but a necessity of succeeding in business.
What are some of the main ways international business differs from domestic business?
The concept behind the sale of goods and services is similar in most of the world. Consumers want to satisfy their wants and needs, and businesses desire to make a profit.
However, several factors differ between the global and domestic environment:
- Economic environment such as the types of industries, technology level, education level, and type of economic system.
- Cultural and social includes the accepted customs, behaviors, and values of a society, as well as social relationships, education, language, and religion.
- Geography such as the natural resources of a country, the climate, the terrain, and the available infrastructures (transportation, utilities, communications).
- Political and legal includes the type of governments, political stability, and government policies toward businesses.
How do global businesses affect local businesses’ operations?
Typical consumers can make online purchases from global business giants just as easily as they can buy from local businesses. Many U.S.-based businesses invest in global markets and businesses. For example, common products such as Coca-Cola, McDonald’s, the Gap, or Levi’s are found in many countries (Japan, India, Brazil and most European nations). American companies have also purchased foreign companies. (Ford owns Jaguar, Land Rover and Volvo.) Because of this direct connection, the existence of local businesses may depend on international trade and investment.
Quality, price and availability can impact local business if global businesses can provide higher quality products at a lower price. Since many companies depend on raw materials, component parts and general operating supplies from international companies, factors that influence the global market can have a direct impact on local business. We have recently experienced the global influence on the price of fuel. Events in the foreign oil fields (war, political conflict, fire, etc.) impact the many local businesses that depend on fuel.
What challenges and opportunities do local businesses face with global businesses?
Conducting business on a global scale can provide opportunities such as increased sales, outsourcing possibilities, operational efficiencies and technology improvements. However, the challenges encountered can expose the business to political and economic risk; volatile currency changes; unfamiliar customs, laws and ethical standards; and global terrorism.
Another challenge is communication. Because of the multicultural differences between locations, there can be many terms that have different meanings. This can create a great deal of confusion and uncertainty for all involved.
Additionally, business executives should be aware of the socio-cultural forces that exist in global business. In order to be successful internationally, businesses executives must be students of culture. Business education programs should integrate global and cultural awareness that expand student’s understanding and application of socio-cultural elements.
PAMELA K. SHAY, D.B.A., is the chair of the Vantage MBA at Franklin University. Reach her at firstname.lastname@example.org.