In in the UK for example, where workers

In this report, I will be writing about the factors which
businesses should be aware of when planning to become international, whether
this be through offshoring, outsourcing, merges and acquisitions, or setting up
a franchise abroad. There are political, environmental, technological, social,
economic, ethical and legal factors which should be considered by a business
when making a strategic decision such as becoming international. These factors
are also used to analyse the outcome of the strategy once it has been carried
out (often referred to as PESTLE).

 

When a business operates on an international scale this is a
form of globalisation, which “refers to the shift toward a more integrated and
inter-dependent world economy” (Hill and Hult, 2017) something which is increasingly
occurring in today’s world economy.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

The first factor a company must consider before deciding to
do business abroad is the attractiveness of the host country’s economy. This
will help them choose the optimal location to set up at the lowest cost and
with the most ease. China has ongoing success in attracting FDI. One of the
reasons being the devaluation of the Yuan which has reduced the cost of factors
of production such as labour and land significantly, making it more cost
effective for investments from MNEs, (XING, 2016) especially when compared to
the costs of labour in the UK for example, where workers are entitled to a
minimum wage. However, for a business which prefers to consider the ethics of
its practices, a country where the workforce is overworked and under paid may
actually be a factor which deters them from investment. Although most
businesses are profit maximisers, thus cheap labour is a cost saving strategy
often not overlooked.

A business planning to set up abroad should also consider
the cultural differences and how to appropriate to them. He and Wang claim that
a consumer’s attachment to their culture will directly impact their preference
for domestic over import brands, thus cultural identity associates negatively
with preference for an import brand (2015). For this reason, international
brands should be aware of the social norms and customs of a country, which are
often linked to things such as religion but also dietary preferences, in order
to be more like the domestic brands which people are already accustomed to. For
example, in countries where the population is predominantly Muslim, it would
make no sense for a business who mainly sells foods containing pork to set up. Localisation
can be defined as “the process of adapting a product or content to a specific
locale or market” (GALA Global, 2018). This is crucial in the fast food market
and most international fast food chains have different menus for different countries,
an example being Subway which, for religious reasons, does not include the beef
option in their Indian menu (Edition.cnn.com, 2018). Leading on to the question
business should ask themselves before becoming international ‘will there be
sufficient demand for the good or service they provide in the country they set
up in, or is their good or service unadaptable?’

 

A country’s political system is also an essential factor which
companies should be aware of when doing business abroad as it determines the
economic and legal systems. There are two dimensions of political systems. Firstly,
totalitarianism, which tends to be associated with collectivism, in which the
society’s welfare as a whole is generally considered more important than individual
freedoms. Secondly, democracy, which goes hand in hand with individualism, reffering
to the interests and success of the individual being of greater importance than
that of the state (Hill and Hult, 2017). These are important for international businesses
to be aware of because in the former, companies tend to be state-owned and in
order to be protected from foreign competition, governments tend to set up high
barriers to entry, i.e. by providing financial support to domestic firms and
having excessive red tape for foreign companies. Contrastingly, in the latter, individual
goals are stressed so the country is likely to have a more market based economy
and also strong legal systems which result in less corruption and protects property
rights. Thus, it can be said that, ceteris paribus, a country with a democratic,
market based economy is more attractive for companies to invest and do business
in. However, it is important to mention the role of regulatory bodies such as
the World Trade Organisation which reduces entry barriers through the reduction
of import tariffs for example, also facilitating a free market economy.

 

Technological innovation plays a crucial role in
international business. It impacts the fundamentals of a successful business such
as communication and transportation of goods, therefore the quality of
telecommunications and other technologies in the host country should definitely
be considered before a business decides to become international. The importance
of communication through technology is heightened in cross-border businesses,
in comparison to local or national businesses, as face-to-face communication
becomes costly and time consuming. Telecommunications can be defined as “the
production and distribution of information and entertainment via electronic
communications media” (Gershon,2013). As the use of technologies
such as skype, email and telephony communications replace traditional
face-to-face in office meetings between globally spread companies, the quality
of signals and other such technologies is important in order to facilitate fast
and effective communication, about changing quantities in demand of a product
for example, which must be communicated quickly in order to inform on new
production quantities in a situation where production is globally dispersed. Moreover,
a country’s infrastructure is vital as it will affect not only the
transportation of goods and how fast they can get from a factory to a retailer
or from one country to another but also how fast and cost effective the
transportation of raw materials is. It also effects labour mobility which is
beneficial for international companies who may wish to send employees to
monitor offshored branches more closely. For these reasons, many MNEs tend to
invest in the host country’s rail, roads, ports or airports, while this
facilitates the company’s growth, it also has spill-over effects, such as job
creation, benefitting the country as it increases long-run economic growth and
contributing to the company’s CSR.

 

A company, whether international or local, should
always try to minimise their carbon footprint. However, a company which is planning
to become international, through offshoring, for example, should especially
consider this as it impacts a broader group of stakeholders; organizations such
as Greenpeace tend to place companies under public scrutiny for the level of
emissions they produce abroad. It is seen as careless and irresponsible to build
huge, unsightly factories which produce great emissions, usually in LEDCs which
already have harmful amounts of pollution. Not only does it affect the wellbeing
of the workers and population putting a strain on their health services, but it
can also make the country less attractive to tourism, and thus possibly less independent.  Furthermore, if an international company does
not place great importance on an issue such as environmental degradation, it
can seriously harm their brand image as it shows that they do not have responsibilities
to society that go beyond their legal obligations and their duties to shareholders
(Law, n.d., 2016). In other words, it suggests they solely focus on profit
maximisation. An example of a company which has outstanding CSR is TOMS. They
manufacture shoes in Ethiopia, Kenya and India yet admiringly through each purchase,
“TOMS helps provide shoes, sight, water, safe birth and bullying prevention
services to people in need” (Toms.com, 2018) in
these same countries and more. Showing how offshored manufacturing isn’t always
careless as many critics perceive it to be, but also how business should
consider what they can give back to the local societies they are planning to
operate in. In contrast Primark’s sweatshop scandal was a prime example of a company
treating its manufacturing workforce as simply costs rather than assets to the
business or even like real people “paying children just 60p a day” (Evening
Standard, 2018) for which they faced a lot of public scrutiny and lost many
customers especially after the high media coverage.

 

In conclusion, throughout this essay I have
stated, explained and given examples of factors which a company must consider
before deciding to become international. Although there are many risks and
costs involved in such a decision, it is fair to say that with the correct
planning and resources, a company can really reap the benefits of
internationalising, especially in terms of cost saving and increasing demand.

Even more so nowadays with the incremented use of global media, companies can
make potential foreign customers aware of their goods and services before the
massive investment of setting up abroad, reducing the risk aspect of it as they
can obtain general qualitative data from potential customers at very little or
no cost through social media.