The Facts of Global Business
In order to understand how to manage a global business, one must first properly understand the definition of a global business. Global business takes place when goods and services are bought and sold by people from different nations (Williams, 2010). Since global business takes place across different nations, all nations have trade barriers and abide by trade agreements. Governments use trade barriers to encourage consumers to buy from domestic companies by raising the prices and restricting the numbers of imported goods. The government uses two types of trade barriers to regulate the sale of imported goods; tariffs are taxes placed upon imported goods, while nontariff barriers are used to control sales without the use of taxation. While trade barriers vary from country to country, every country that wishes to trade with others must abide by the same trade agreements. As of 1995, there are 124 countries in the World Trade Organization, an international system that controls global trade (Williams, 2010). Regional trading zones, which are used throughout the world, are groups of countries that have banded together for the shared benefit of reduced trade barriers. While trade barriers encourage domestic companies, trade agreements have greatly stimulated the growth of global businesses in recent years. Consequently, international trade is becoming an important part of the business world, and because of that it is important for every large business owner to understand exactly what it takes to manage a global business.
The Particulars of Going Global
When the manager of a business first becomes interested in the idea of taking their company to an international level, he or she must first learn about the two ways of going global and try to find a balance between the two. The first way of going global is through global consistency, in which a company uses the same rules and policies in every plant and office that it owns, no matter which country the facility is located in. Managers must take care when implementing this strategy, as studies have shown that global, over-generalized businesses often do more poorly than their local competitors (Birkinshaw, 1995). The second strategy is local adaptation, in which the company adapts each facility’s policies individually, based upon the country where the facility is located. Some companies thrive by focusing more upon global consistency than local adaptation, while other businesses do well by leaning in the opposite direction. Often, businesses do best when their managers adapt some aspects of the company to foreign ways and keeping other aspects consistent at every facility in every country (Kim, 2003).
Just as business managers must choose their organizational strategy, they also must decide how their company is going to go global. One form of going global is the phase model, which involves several different steps. The first step is exporting, in which a company produces products in their own nation and then sells those products to customers in other countries. The next phase is accomplished through cooperative contracts. There are two types of cooperative contracts; in licensing, a foreign business pays a domestic business for the right to produce and sell their products or services, as well as use their brand name. In franchising, a domestic company’s entire business is licensed to a foreign company. In the next stage, businesses form strategic alliances, in which two more companies agree to share resources and other assets. Joint ventures also lessen the risks and costs of going global, as well as help the companies avoid trade barriers. However, aspiring global managers must also remember that strategic alliances require collaborating businesses to split their profits. The last form in the phase model is building or buying wholly owned affiliates. An affiliate is completely owned by the business that formed it; therefore, the business controls the affiliate and receives all of its profits. Because the company wholly owns the affiliate, however, it also runs the risk of losing money and their reputation if the affiliate does poorly. Although most companies who go global choose to follow the phase model, some companies become global new ventures instead. Global new ventures are companies that are global from their inception. A global new venture is set up in several different countries at the same time, using quick and easy ways of travel, communication technology, and employees who are experienced in working at a global business. Both types of globalization, phase models and global new ventures, require business managers to think seriously about how they will market their products or services. Marketing, a mix of pricing, distribution, and other factors, can be standardized or can be adapted to particular cultures (Acito, 2006). Marketing heavily influences sales, so the manager’s choice of marketing strategy will greatly affect the business’ profits.
While it is important for business managers to decide how they will take their business to a global level, it is equally vital for them to know what sort of climate is best for their international facilities. Global businesses do best in countries with high purchasing power, which is measured by comparing the costs of products and services in different countries (Williams, 2010). Global businesses also do better in countries where there is little foreign competition. Global business managers must also choose where they want the facility to be located; this decision depends upon factors such as the quality of the available work force, whether the company is focusing more on low costs or on differentiation, and how much it will cost to build the facility in different places. Managers should consider the political risks of different countries, as well. Some countries have high political uncertainty, the risk of fluctuating politics as the result of significant events, or policy uncertainty, the possibility that new laws and policies will change the way that foreign businesses can be run. The last component of business climate is culture. Different countries can have cultures that are drastically dissimilar, and this variation affects all global businesses in enormous and challenging ways. After deciding what type of climate is best for their company, managers must become familiar with a variety of countries in order to determine which one will suit their company best. Blake Ives suggests that global business managers should use global information technology in order to acquire information, share data with others, and acquire information about various nations, as well as the potential problems and benefits of working in such places (1991).
Differences in Culture
Although some people have the tendency to unconsciously assume that everyone thinks the same way that they do, people from different cultures often think in very diverse ways. Managers of global businesses must pay attention to this fact when they are setting up foreign facilities in order that they and their cross-culture employees can work to better understand each other. When creating a global business, it is important for managers to pay attention to how trusting they are and estimate how trusting their foreign employees will be. Someone’s culture often has a large part to play in how trusting they are; for example, studies in trust differences have shown that the average Japanese person trusts strangers less than the average American (Zaheer, 2006). Therefore, any American manager who is planning on establishing a facility in Japan must carefully build relationships with his or her Japanese employees in order to create trust. If a deep level of trust cannot be founded in a global business, teams of employees from different nations will likely not work as efficiently and as smoothly as teams with employees who are all from the same nation. Therefore, managers should invest in trust-building exercises that, if done properly, will save time and money for the business in the long run.
One reason why people from different countries often have difficulties trusting each other is because they are motivated and are expected to behave in different ways. These variations can lead to a lack of understanding between the employees of different countries. While studies have shown that foreign facilities and domestic facilities react in the same way to identical goals, this is an exception to the rule; in most cases, people from different nations vary widely in the ways that they think (Ricks, 1994). Therefore, it is important for managers of global businesses to gain cross-cultural competence, the capability to function in and understand a foreign culture (Apud, 2006). A manager who wishes to become competent must, first of all, learn as much as he or she can about the culture of the country in which the company plans on selling their product or service or establishing a facility. He or she should accept the people who live in that country as his or her equals, and make every effort to learn about their values and beliefs. Managers of global businesses should also study how companies in foreign countries are run so that facilities based in those countries can be organized in a way that will be familiar to the employees. Of course, every manager must be motivated to gain cross-cultural competence; if the manager is not willing to learn, he or she will likely not do well as a global business manager.
A manager who becomes cross-culturally competent will be better equipped to work through differences that arise as a result of cultural differences. One type of difference that arises in many situations is conflict management. While the people of some countries, such as the Chinese, have been taught to avoid conflicts at all costs, the people of other nations, such as Americans, like to discuss conflicts openly (Chi, 2006). While many cultures believe that direct conflict damages relationships, others believe that direct conflict strengthens relationships. Differences such as these can lead to tensions between employees, as neither nationality of employee knows quite how to interact with the other.
Because people of different cultures do many things in a large variety of ways, it is often difficult for members of a global team to work together and trust and understand each other. The fact that global teams rarely meet in person, communicating mostly through technological means, often makes it even more difficult for team members to form a strong bond. Many team members also have low levels of commitment towards their team and have difficulties motivating themselves to do their part of the work. In order to achieve good dynamics and a high level of effectiveness, virtual global teams must schedule regular times to communicate with each other, specifically using face-to-face communication. Studies have shown that global teams achieve high efficiency through the use of regular face-to-face communication and the assignment of complex tasks that require interdependence (Chudoba, 2000). However, while these things can make a team more efficient, high levels of success can only come about as a result of trust. In order to achieve a high level of trust and complete the project successfully, members of a team must be able to take initiative, stay in a relaxed state of mind, and communicate well (Jarvenpaa, 1999). A global team can become a tight-knit, highly efficient group with effort, and with the group’s acceptance that it will take effort.
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