Motive And Advantage The Global Business â€Myassignmenthelp.Com

Question: Discuss About The Motive And Advantage The Global Business? Answer: Introducation The trends in business have completely changed post globalization. The companies have got more opportunities to expand their business as the whole world has become a market place. Although the free trade concept has melted down the borders between the countries, still there are certain rules and regulations companies have to follow while doing global business. The process of making an effort to have a global presence or to increase the international operations is known as the internationalization of the business. The global business is thus defined as the presence ofoperationof the company in various countries across the world, rather than just in the home country (Hill, Cronk and Wickramasekera, 2013). It is important to consider the broader concept of the global business as it involves the dynamics of international trade. Now, the question is why companies prefer to go global? As per Hollensen (2007), there are proactive and reactive reasons behind the global business. The proactive reasons involve the need to increase the profit and due to growth goal (Hill, Cronk and Wickramasekera, 2013). Various companies choose to go global to exploit the unique competencies or market possibilities (Surez-Ortega and Alamo-Vera, 2005). The motivation for growth, entrepreneurial desire for market expansion, to get a sustainable competitive edge,forming economies of scale and to get tax benefits are the common proactive reasons behind global expansion of the business (Hollensen, 2007). However, some companies prefer to jump in the international market due to threats present in a home market, which are termed as reactive reasons of global business. When the competitors have major market share in the home market, companies want to expand their business innewmarket,herethe competitive pressure act as a reason behind a global business. The saturation of the domestic market can also be the reason for international business. When the product reaches the end of life cycle in the domestic market, the companies start looking for a new market to sell the product (Kose, Otrok and Prasad, 2012). Some of the companies are observed to move in the international market due to overproduction and capacity. When the firm has capabilities to manufacture products on the huge scale but the demand in the domestic market is low, the companies start selling the product in other countries (Hollensen, 2007). The world trade organization is continuously predicting the increase in global business, the recent forecast claim 2.4% expansion of global trade in 2017 (WTO, 2017). The present essay provides insight on global business, mode of entry and different aspects related to international business through export, joint venture, and franchise mode. Once the firm decides to explore the international market, the company has to take a decision about mode of entry. There are different ways to make a presence in the international market and companies decide about the mode of entry based on the internal and external factors (Hill, Cronk and Wickramasekera, 2013). The external factors which influence the mode of entry are political risk, cultural distance from the foreign country (Okoro, 2012) and language diversity (Duarte and Suarez, 2010). According to Kankaanranta and Louhiala-Salminen (2013), English is the common communication language used in the international business. The study was done by Kankaanranta and Louhiala-Salminen (2013) on Finnish and Swedish employees provides that English is the language in which all the business people communicate with each other hassle free. Thus, most of the companies now can more in the international market due to the absence of language barrier. The companies often go for an internal analysi s of the present condition of the business and decide the mode of entry based on capabilities and strategic characteristics of the company. One of the common modes of entry in the international market is through export. Here, the companies manufacture their product in the domestic branch of the company and then transfer it to the host country for trade. The export is considered as a low-risk mode of entry as it needs lower cost of investment as compared to the other mode of entry in the international market. Many times companies choose to export as a way of doing business in the international market due to lack of perspective about how to work in a foreign land or unfavorable investment climate in the targeted host country (Sidoryuk, 2006). The study of Patel,Pieperand Hair (2012) has shown that there are different drivers which push the business go find an international way of expansion. The authors claimed that desirable location of the business, networks and alliances and preemptive positions are the pull factors of the global expansion of small business. However, the companies are not might in the position to make th e huge international investment to expand their business. Thus, in the case of small family business or small-and medium-sized companies (SMEs), export is the most preferred mode to enter in the international market (Zellweger, Bird and Weber, 2015). Companies get an advantage of export in terms of quick expansion of business, no risk of huge investment and no burden of labor cost or financial commitment in the international market. However, the export mode of international business comes with some disadvantage as well. The companies who do export are not able to keep control over the foreign operations and unable to make a proper company image in the international market. The companies which are quite stable in the domestic market and big in size often choice Joint Venture (JVs) or Strategic partnerships as a way to do international business. In the joint venture the companies which come together share the risk, ownership, rewards, and management of the newly formed company. Osland,Taylorand Zou (2001), stated that in the joint venture, each company involved making a contribution in terms of finance, technology or equipment. The companies select the joint venture mode of entry in order to share the risk with their business partners. Also, when a company makes a joint venture with the other partner who is active in the international land, they can use the existing distribution channels to penetrate into the host market. The study by Gereffi and Lee (2012) has highlighted that why it is important to consider the supply chain management while doing international business. The authors conducted literature survey which provides that in order to process a s uccessful global business; supply chain system has to be effective. The paper provides that companies should do global value chain analysis through which the profit and risk distribution can be carried out according to the capability of a nation that is associated with global business. The benefits of forming a joint venture are that both the companies can grow and gain profit by contributing their best assets, also the risk distribution boosts the confidence of both the party to explore the unknown business territory. However, the conflicts of interests, the absence of compromise and strategic differences in the business partners can make the joint venture effort a failure. China has established the nation as a destination for global business with 2ndhighest FDI in the country and attracting many companies for joint ventures in the country (Aronczyk, 2013). One of the most popular and successful joint ventures is between Sony and Ericsson. The Sony Company which is considered as a electronics giant in Japan made a joint venture with Ericsson which is a technological expert in the Swedish market. These two companies came together with a joint venture of Sony Ericsson and manufactured the technological advance and best-handled phone present in the market (Christian, 2009). The licensingmodeof international business is no pick in the present world. Franchising has become very popular among the food chain and retail companies. It is entry mode in which the franchisor provides the trademark or format of businesses or the product to thefranchiseewhich do business in the host country. The franchisor in this mode of entry in the international business helps the franchisee to keep up the production schedules, maintain the image of the company in the market and receive the fees along with the royalty fromfranchisee(Johansson, 2006). The franchising is beneficial as the companies just have to hand over the business to another company without doing the ground work. However, the risk of damaging the brand name of the company due to wrong work by the franchisee does exist in this mode of entry. The best example of successful franchising is a global expansion of KFC and McDonald in past 3-4 years. Finally, the global business can be summarized using few points. The global expansion is a need of an hour. The companies should look forward to international expansion to get recognition for their work, explore new opportunities and gain growth. The saturated domestic market also pushes the companies to go global. The mode of entry in the international market should be a very conscious decision as it is one of the factors which determine the success of companies in the international market. Companies should consider the benefits and risk associated with each mode of entries in the international business. Export, joint ventures, and franchising are the popular ways in which companies prefer to entry in new countries for business. Based on the internal and external factors the companies should carefully select one of these ways of doing international business to ensure the long term success. References Aronczyk, M., 2013.Branding the nation: The global business of national identity. Oxford University Press. Christian, 2009. Popular Joint Ventures That Work. Retrieved from https://www.christianfea.com/popular-joint-ventures-that-work.html Gereffi, G. and Lee, J., 2012. Why the world suddenly cares about global supply chains. Journal of supply chain management, 48(3), pp.24-32. Hill, C.W., Cronk, T. and Wickramasekera, R., 2013.Global business today. McGraw-Hill Education (Australia). Hollensen, S., 2007.Global marketing: A decision-oriented approach. Pearson education. Johansson, J.K., 2006. 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