International Business

Challenges in a Changing World

by Janet Morrison

Synthesis and reflection questions

This section is designed to help you pull together the different strands covered in each part of the book. For each part of the book, you will find a summary, followed by a series of reflection questions designed to help you draw out different themes running through the discussion.  Lecturers, please note that the lecturer manual includes notes on the synthesis and reflection questions.

Part 1 - The international dimension and the organization

The two chapters in this part have highlighted internal aspects of the business organization in the context of interactions with the international business environment. A theme is that businesses interact with numerous players, including other businesses, governments and groups in the societies where they operate. We might suppose that when they become more active in cross-border activities, businesses become more focused on international than national factors, but these chapters have shown that national factors continue to shape the international firm, and, indeed, success internationally depends in large part on the skills and knowledge of managers in interactions at national level. 

Businesses everywhere are drawn to the corporate form of organization, forming companies which go on to create subsidiaries and acquire other companies. The structures and roles within the company are therefore at the heart of the business. As Chapter 1 emphasizes, however, these organizational legalities take place within national legal and cultural frameworks: when the company expands internationally, it moves into further national frameworks. Although we speak of ‘born-global’ companies, this relates to the entrepreneur’s vision; legally, it is a misnomer – all companies must start from national legal and regulatory frameworks and acquire further national involvement as they expand. Ownership and corporate governance differ from country to country, and the role of owners – be they ordinary shareholders, founder families or the state – shapes the culture and strategy of the firm. We have seen in this part that there is now unprecedented variety in the types of organization active on the international stage. Moreover, they are springing from a widening range of countries. The expansion of companies from emerging economies adds to the diversity of international organizations, creating challenges both for the newcomers and the established MNEs, which are finding dramatic changes in the competitive landscape globally. 

The rise of new players and new locations is indicative of globalization. Through FDI and outsourcing, MNEs have been the drivers, and have reaped handsome rewards for their owners. Host countries have seen benefits in terms of capital investment and jobs. In some, domestic companies are now becoming more confident as international players. However, globalization has a negative side, evidenced by the ravages of rapid industrialization and urbanization, with little heed of environmental and social impacts. Businesspeople once asserted that theirs was a mission solely focused on economic goals, but we now appreciate that business activities in communities have other dimensions, including social, ethical and political. Companies are increasingly drawn into interactions with stakeholders, including governments, NGOs and community groups. Managing these interactions has, perhaps paradoxically, become important in achieving success in the firm’s economic goals. 

Reflection and discussion

  1. Which company examples in the two chapters illustrate links between corporate ownership structures (including governance) and corporate strategy?
  2. Cite some MNEs from emerging economies mentioned in these chapters. In what ways are they challenging established MNEs?
  3. Which companies mentioned in these chapters have focused on stakeholder, ethical and/or environmental considerations in their international strategies?

Part 2 - The environment of international business

A theme of Part 1 was interactions by businesses with numerous players within national environments, in a context of growing international interactions. The chapters of Part 2 have examined key aspects of the business environment (economic, cultural, political and legal), building on the themes of national distinctiveness and increasing interactions – among businesses, with governments and within societies. The economic environment is central to business activity. The international economic environment comprises a variety of national economic systems which shape the ways in which businesses organize themselves, raise capital, carry out their activities and provide goods and services to customers. It has been assumed that capitalist enterprises and markets are the best models for national economies to adopt, but in today’s world, we see differing models of capitalism, as well as systems which question the ability of capitalism to achieve social goals. A post-war trend of market liberalization among many of the world’s countries is perhaps giving way to a trend which takes a more critical view of markets and sees a more positive role for governments to play. This trend is evident in the emerging economies, where, as we have seen, governments are not content to sit on the sidelines, but see themselves as economic players – increasingly on the world stage. 

The emergence of new international players, such as China, India and Brazil, present MNEs with opportunities for growth on a scale unattainable in the mature markets of the US and Europe. However, these emerging markets present challenges for Western MNEs steeped in their home cultures. As Chapter 4 highlighted, an understanding of the cultural environment is critical to business success anywhere, but understanding and assessing cultural phenomena (such as values, beliefs and social relations) can be challenging as they do not lend themselves readily to measurement in the same way that economies do. MNEs might assume that middle-class consumers in all markets are becoming more like their home consumers in their tastes, but they soon find that local culture continues to influence lifestyles and purchasing behaviour, even in new urban, industrialized environments. Many MNEs venturing into new markets opt for a joint venture or acquisition of existing businesses as their entry mode. The participation of the local partner is valuable in a foreign environment, but bridging the cultural divide still poses challenges. 

Culture impacts on the economic life of a country, and also on its political and legal environment. National political systems have evolved in the historical context of peoples and societies. Although there has been a trend towards introducing democratic institutions in countries around the world, there are also many examples of authoritarian governments cloaking themselves in the outward forms of democracy. It is sometimes said that, for international business, a stable authoritarian government is preferable to an unstable democracy. Chapter 5 has highlighted that stability may be transitory, as power struggles behind the scenes can erupt at any time. Moreover, authoritarian regimes lack sound independent legal systems, adversely affecting foreign organizations when they make legal claims or defend themselves against local organizations in the courts. Management of political and legal risks, therefore, is crucial for today’s international manager. Emerging markets, which present some of the most inviting opportunities, also pose some of the greatest political and legal risks. As these chapters have shown, an understanding of the environmental dimensions will aid managers in their interactions with key players, including governments. Also helping to mitigate the risks is the growth in governmental co-operation at international level. The tension between national and international perspectives at governmental level can create uncertainty for businesses, but by appreciating their differing perspectives, companies are better equipped to formulate strategy. 

Reflection and discussion

  1. Give examples from the chapters to show the role of government in the national economy. Comparing these examples, which do you feel is the best ‘model’?
  2. Cite examples of MNEs encountering cultural hurdles in foreign environments. Which do you feel have been the most successful, and which the least successful?
  3. Cite examples of companies which have encountered legal and political obstacles in either home or foreign environments, and state how they dealt with them.

Part 3 - Competing in the global marketplace

The essence of international business is competing in global markets. Competitors are becoming highly diverse: individuals, companies of all sizes, governments and hybrid organizations consisting of both private and government owners. Trade, the oldest type of international business, was the starting point of this part. Trade has long been dominated by companies from the economies of the developed world, but they are now being joined – and even overshadowed – by newer competitors from emerging and developing economies. The theme of expanding global markets has recurred in all these chapters, but also in evidence, notably in Chapter 6, has been the continuing influence of national interests in trade between countries. Despite the public support for liberalized trade, the failure of the multilateral negotiations in the Doha round has been a reminder that trade and investment opportunities (and constraints) remain heavily influenced by governments. 

MNEs have risen to competitive challenges through a variety of strategies and organizational arrangements, which form the subject of Chapter 7. FDI has taken centre stage in processes of globalization, highlighting the differences in country environments which confront international managers. Organizationally, MNEs have strived to devise structures which both recognize the role of subsidiaries in different countries and retain co-ordination from the centre, with a focus on global operations. For the polycentric organization, this dual focus is perhaps more natural, but many ethnocentric organizations have evolved successful strategies for global-local balance. Theories of the firm, such as resource-based theories and theories of core competencies, have contributed conceptual frameworks for the new global-local outlook and strategies. But how achievable are their aims in practice? 

Chapter 8, on marketing, focused on the essential task of all international businesses, which is to win over consumers in differing markets. Again, we have seen that organization and strategy are intertwined. A focus on global strategy, centralized organizational structure and global products are attractive in their simplicity, but MNEs have found that local considerations remain crucial, causing them to rethink global, regional and national markets. In today’s world, the growth in emerging markets, such as China, India and Brazil, is a major trend which presents MNEs with both opportunities and challenges. Marketing strategies for these markets must take into consideration local tastes and local competitors, many of whom are themselves now expanding internationally. The competitive landscape is thus becoming more diverse, compelling MNEs, whatever their origin, to sharpen their competitive edge. 

Reflection and discussion

  1. Give examples from these chapters where governments have intervened in business activities to promote national interests.
  2. Cite examples of the tension between global and local considerations in corporate strategy and structures.
  3. In what ways is corporate strategy changing to reflect the rise of emerging economies? Give examples from the chapters.

Part 4 - Managing in the global environment

The ultimate test of international strategy is whether it can be effectively implemented to deliver successful products and services in all the firm’s targeted markets. This is the challenge faced by international managers, and is the focus of Part 4. Each of the four chapters takes up a vital area of management, highlighted for particular relevance in the changing international environment. A theme running through all these chapters is that managers must develop both an inward and outward focus, engaging with people and ideas both internally and through network and stakeholder ties. Chapter 9 concerned managing people, presenting a variety of differing organizational and cultural contexts in which the modern MNE operates. While HRM was once dominated by Western theoretical and cultural perspectives, international HRM (IHRM) now recognizes the need to adapt HR policies and practices in differing national environments. 

More than ever, MNE global strategies seek to realize the advantages of differing locations for all stages of production, from sourcing raw materials through to the final stage when the product reaches the end consumer. Globalized production has transformed supply chains, as we found in Chapter 10. Firms now visualize the entire supply chain in network terms, involving co-ordination and interaction among numerous organizations in different countries. Consumers worldwide have benefited from unprecedented choice and quality of products and services, but international managers remain keenly aware of the continuing challenges posed by changing circumstances in extended supply chains, where a failure in one link can disrupt global production. Flexibility and efficiency are now central challenges for supply-chain management. 

Globalization has also transformed finance and accounting, the subject of Chapter 11. Here we found that the rise of global markets, combined with more open national economies, have presented both opportunities and risks for organizations and individual investors. MNEs can draw on a variety of equity and debt financing arrangements, benefiting from global financial markets and national location advantages. But, as we have seen, market volatility poses risks, which can rapidly develop into financial crises. Market turbulence can quickly envelop organizations and governments in the increasingly integrated global economy. Sound and transparent financial management have become crucial for MNEs, which face ever greater scrutiny from national regulators, shareholders and other stakeholders. 

A rapidly changing environment presents MNEs with opportunities for products and new ways of organizing production, which are the focus of Chapter 12, on innovation. In a world of fast-changing technology, MNEs are constantly challenged to match and outshine competitors. Even star products will soon be superseded by new technology and designs, compelling firms to sustain innovative capacity over the long term. Entrepreneurial firms, both SMEs and large companies, now drive innovation, much of which involves co-operative endeavours. A trend is the focus on new products and adaptations for emerging and developing economies. Managing innovation has moved beyond R&D departments, to embrace the entire organization and supply-chain partners in diverse locations. 

Reflection and discussion

  1. In what ways do these chapters show the need for MNEs to draw on external links as well as internal resources?
  2. Give examples of successful adaptation of products and operations in differing national environments.
  3. In what ways do these chapters show the risks associated with globalization? Cite examples which you feel show successful management of these risks.

Part 5 - Global issues and international business

Globalization has seen international businesses operating in a variety of different locations, serving many differing markets. As previous chapters have shown, managing in different national environments and adapting to their cultures and ways of doing things are hallmarks of the successful international manager. However, globalization has also given rise to global issues and phenomena, which are now rising up the agenda. This part looked at the range of global challenges and the implications for MNEs’ strategies and operations. Chapter 13 focused on ecological challenges. We found that, although industrialization had brought huge benefits in both economic prosperity and human well-being, environmental degradation and pollution continue to take their toll, threatening future prosperity and health. Governments and businesses can act to address the problems, especially in reducing the greenhouse gas emissions which cause climate change. Although most pay lip-service to goals of sustainable development, many organizations have been reluctant to embrace them in practice, fearing that economic costs will reduce competitiveness. This thinking is now shifting towards a view that short-term costs can lead to long-term benefits, for both businesses and societies. 

This theme of the business in society was the subject of the next chapter, Chapter 14, on CSR, where we uncovered a variety of approaches to business-society relations. The view that the company’s role is exclusively economic is giving way to a broader view of the firm in society, although we found that among companies which now recognize social and stakeholder interactions, approaches are highly varied. Some see CSR as an added-on activity, involving charitable giving and activities, while others take a more fundamental view of CSR, involving a company’s whole culture and strategy. As global issues such as climate change impact on business activity everywhere, the likelihood is that companies will increasingly address global issues, whether out of ethical motives or business considerations (or both). 

Rising to the challenges of global issues was the subject of Chapter 15, on global governance. The challenges highlighted included peace and security, human well-being and climate change. The challenges both envelop and transcend individual countries: single governments and single firms can have little impact on their own, but co-operation leading to the setting or rules and norms is taking place is a wide variety of settings. National governments are working with UN agencies, bringing in NGOs and corporate players. Numerous dimensions of the international business environment are affected, from accounting to telecommunications. This collaborative approach is also being directed towards finding solutions to the wider societal issues, including poverty and climate change. Evolving regulatory frameworks are now resonating with CSR in individual companies. 

Reflection and discussion

  1. What types of measures to improve environmental protection and respond to the threat of climate change are highlighted in these chapters?
  2. Give examples of companies’ CSR strategies resting on the ‘business case’ for CSR. How successful would consider their approaches?
  3. In what ways are global governance mechanisms impacting on international business? Give examples from the chapters. Looking at the list, which are beneficial, in your view, and which are detrimental to international business?