At some point, businesses eye the increased consumption in budding markets like India and China and contemplate the best way to capture that market share. However, before shipping millions’ worth of inventory overseas, companies should recognize and preempt the many challenges of operating a global business. Though organizations can save money by outsourcing its labor to Sri Lanka or raise profits by purveying soda to Dubai, such ventures are not without risk.
Citizens of other countries have different tastes and preferences. For instance, an audience in Great Britain might have an affinity for slapstick humor in movies more than a Lebanese audience. These differences in taste transfer to other areas of consumer goods, including fashion, food, beverages, electronic products and art. Thus, any business pitching new products to citizens of a foreign country will face challenges adapting the product to fit their taste. Failure to conduct extensive market research could result in catastrophe: Michael White, author of “International Business Blunders” explains how General Mills’ creation of a cake mix that could be used in a rice cooker for Japanese housewives was a resounding failure. The organization failed to preempt how the Japanese were concerned over the cake mix tainting the rest of the day’s rice production
Companies have significantly more challenges in the area of finance when they conduct business on a global level. Challenges include safeguarding transactions in foreign currency, learning the country’s financial regulations and tax laws and allocating enough capital to expand to a new market. In most cases, businesses reduce the risk of currency exchange by drafting forward contracts which hedge investments.
Because many countries are outsourcing labor, production and manufacturing as well as customer service, managing the supply chain can pose significant problems for businesses. Though third-world countries might look like an appealing choice to set up manufacturing operations due to low costs, businesses should consider other factors that often negate low prices. Edith Simchi-Levi, David Simchi-Levi and Philip Kaminsky, authors of “Managing the Supply Chain,” state that third-world countries typically have poor roads, nonexistent warehouse facilities and a few distribution systems in place. Thus, while engaging in supply chain operations in developed countries might be more expensive, Simchi-Levi and Kaminsky state contract enforcement is reliable and production standards are much higher.
Economic conditions overseas can challenge businesses. For example, China’s weak currency, the yuan, compelled U.S. businesses to purchase more goods from the country because of the low cost of their imports. When American leadership implored China to appreciate its currency, the cost of imports became more expensive and subsequently, the cost of production for many U.S. corporations relying on Chinese imports grew more expensive as well. However, a 2011 “Wall Street Journal” article by Ian Talley explains China’s economic conditions and protectionist policies hurt the ability of U.S. corporations to tap into the Chinese market. Companies that conduct business overseas must also ensure their operations are not jeopardized by additional economic factors including terrorism, military insurgents, pirates and an unstable currency.