Introduction
Globalization has allowed different countries and regions to operate in an integrated manner through the formation of communication and trade networks across different parts of the world making it easy for people to conduct business across cultural, economic, political, and trade boundaries. Most countries are now able to trade and invest across countries through foreign direct investment and indirect investment practices. The capital inflows and outflows related to this process have led to the economic growth of different countries and provided a wider market for individuals, firms, and government-produced commodities. It has paved the way for the transfer of technology, expertise, skills, and knowledge between countries, and as such different commodities are availed at competitive prices.
Globalization has been a major enabler of international business, which is the carrying on of business activities by people from different countries or continents. Foreign trade and investment have provided opportunities for businesses in terms of new marketing opportunities, new technologies, and opportunities for geographical expansion. For an organization or a company to engage in international business, it should consider a host of factors such as international monetary systems, environmental and legal constraints, foreign exchange markets operations, intellectual property Laws, socio-cultural issues, international law as well as risks associated with foreign investment (Ajami, Cool & Goddard, 2006, pp. xxvii).
Different companies have overcome hurdles brought about by the factors mentioned above and gone ahead to be successful in their operations while to others, these factors have proven detrimental and have even led to the failure of the parent companies in their countries of origin. In this paper, I intend to take a look at the “One Executive Story” and determine the mistakes Tony, who is the executive, in this case, made in going about the international business operations and give recommendations to present and future executives on how to go about the handling of international business processes and opportunities to avoid making the same mistakes Tony did and to ensure they initiate successful businesses in and with foreign countries.
The Company
The company in which Tony was an executive dealt in the manufacture and distribution of computer monitors to the British market. It was a local company and before accepting an order with a hospital located in a foreign country in Latin America was new since it had never dealt with international companies before or exported its products elsewhere.
Even though the company executives knew this fact and the fact that the company was not equipped to handle an order of such magnitude, it went ahead to accept the order based on the projected returns of the project as well as the idea that this would expose the company to international markets allowing them to expand in future from the business venture at hand to other foreign markets. The venture also had good profitability prospects which would mean better overall company performance. Despite the seemingly successful business plans in the paper, the actual business operations failed to achieve their intended objectives owing to the following reasons:
Foreign Exchange Markets and Pricing: The contract between the United Kingdom Company and the Latin American Hospital stipulated that the UK Company would be paid in local currency. This meant that the value of the local currency would determine the payments the company would be receiving. The fact that the Latin American country’s economy was experiencing high levels of inflation proved detrimental to the UK Company in that the currency value of the Latin American country depreciated meaning that it exchanged for far fewer pounds (Hoag & Hoag, 2006, pp. 128). According to Madura (2009, 217), inflation leads to the depreciation of a country’s currency such that it loses value compared to other currencies.
Thus the payments received from the hospital were far less than had been expected. This coupled with the fact that the hospital was already holding back on some of its payments meant the UK Company was not benefiting from the business deal. The mistake here is that Tony did not consider the volatility of the foreign exchange market and its susceptibility to varying economic conditions in this case inflation in the Latin American country.
Dumping and Pricing Policy: Dumping refers to a situation where a manufacturer in one country manufactures products for export and sells them in a different country for a lower price, normally one that is lower than the price it charges for the same product in the home country (Yager, 2005, pp. 67). As much as dumping is seen as being beneficial to the consumers, other stakeholders such as industry competitors and employees in the competitor companies bear the majority of the burden. To curb the negative consequences associated with dumping, many countries have come up with protection Laws to safeguard the interests of local companies from dumping activities.
The monitors manufactured by the company Tony worked for were manufactured cheaply meaning the company could manage to sell them at a cheaper price to the hospital in Latin America. This amounted to dumping. The mistake here was that Tony ignored the rules against dumping which led to an anti-dumping suit being leveled against the company by a Latin American company that dealt in the manufacture and sale of similar products.
Contract Agreements: When negotiating the terms and conditions of a contract, it is important that all parties to the contract note down their expectations and what they hope to achieve from the contract as well as the consequences of not fulfilling the requirements of the contract. By doing so issues such as nonpayment will not arise as the party responsible will be aware of the legal consequences that await him should he fail to honor his end of the deal. After Tony and the team of experts had discovered that the monitors were not faulty as the Hospital Management suggested, they would have taken immediate action and seen this through.
Intellectual Property Laws: Intellectual property Laws grant owners of certain technologies, whether of a commercial nature or artistic nature, exclusive ownership rights meaning that no other individual, firm, or government can claim ownership of such intellectual property or duplicate it for their benefit (Middletton, 1999, pp. 5). The Asian Company from which Tony’s Company had imported necessary computer monitor components was being suspected of having violated intellectual property Law by duplicating the British company’s technology and it, therefore, directed its government to deal with the imported products of the Asian Company.
In as much as Tony would not have known whether the Asian Company had duplicated the British Company’s technology, he should have taken precautionary measures by asking the Asian Company to furnish him with evidence showing that they held patent rights over the said technology.
Company Image: A company’s image goes a long way in determining the perception of the public towards it. Once this perception is distorted by a series of negative publicity, then the performance of the company is also affected in that people may change their mind about consuming the company’s products among other things. The accusations leveled against Tony’s company such as the exploitation of cheap labor caused a lot of negative publicity to the company thereby denting its image.
The fact that Tony was not even able to defend his company when interviewed by the media yet he was the head of the division facing the accusations did not help matters. In such a situation especially where an international company was involved, it was necessary that he clarified matters and give the correct direction and failure to do this only generated more controversy for the company. In as much as there are no specific laws in place regarding International Labour, companies, especially from developed countries, should not seek to exploit cheap labor from developing countries as found in Asia (Horn, 2010, pp. 56).
A company engaging in international business should also take into account the fact that the business remains vulnerable to the activities of different economies and should take all necessary measures to ensure that it is protected against such issues as currency exchange rate fluctuations and pricing issues. Such issues should be acknowledged and included in the contract so that when they occur, the impact and consequences they come with can be dealt with accordingly (Moens, 2003, pp. 108).
Recommendations
Product Pricing and Foreign Exchange Markets: It is common for the currency market to experience fluctuation from time to time due to uncontrollable influences in the economy or money markets (Coyle, 2000, pp. 59).
Companies engaging in international business/trade should ensure that the contract stipulates the exchange rate they expect to prevail over the life of the contract such that in cases of fluctuations in foreign exchange markets, no one party to the contract can be left to benefit over the other or suffer as was the case in the company Tony was working for. Such provisions allow for adjustments in prices so that they are aligned to those of the currency market in cases where major fluctuations occur in currency markets. If during the contract negotiations Tony had negotiated for such a clause, his company would not have suffered money losses during the period characterized by inflation.
International Trade Laws: The observation of international Laws when carrying on trade across borders is very important and companies, as well as the people charged with the duty of ensuring that all Laws are adhered to during the business operations, should ensure that this is done to avoid any legal issues from coming into the picture in the future. The company Tony worked for lost a lot of money in form of legal fees just because Tony who was given the responsibility of overseeing the business operations ignored or handled some legal issues lightly.
The company was wrong in cutting its losses and deciding to throw out the contract agreement with the Latin American Hospital because in the process it lost a lot of money and did not recover its payments from the hospital. Those in charge should have sought legal redress in terms of appealing the Latin Court decision since it was made by a judge who had family relations with the head doctor of the hospital that was being sued for nonpayment.
The company would also have used other means such as arbitration which is less expensive compared to court cases. There are international organizations that are equipped to handle such disputes such as World Trade Organisation Dispute Settlement Understanding (Kerr & Gaisford, 2007, pp. 497). By failing to pursue the matter legally or by arbitration and also firing Tony, the company did not achieve much in terms of saving its image as the damage had already been done.
Conclusion
Trading across borders is a very complex issue and therefore should not be taken lightly on any account. This is because the legal, financial, and other implications can weigh down completely on a company’s operations, its executives, and the organization at large. Conforming to all the rules and regulations of international business is the only option if a company expects to succeed in the international business environment.
Consultations with organizations that deal with international trade matters are necessary for any country wishing to venture into this field as such institutions normally have information on all aspects of the business including foreign currency markets and international monetary systems, labor rules, patent and intellectual property laws, foreign investment and the risks associated with conducting cross border business operations among other relevant issues. Tony overlooked some of these things and ignored the complex nature of this kind of trade and it proved costly to the company both financially and on the company’s image but redeeming itself from this situation will prove to be even more costly.
Reference List
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Coyle, B. 2000. Foreign Exchange Markets. Chicago: Chattered Institute of Bankers.
Hoag, J. A. & Hoag, J. H. Introductory Economics, 4th Edition, New Jersey, World Scientific Publishing Company Limited, 2006.
Horn, S. S. 2010. International Strategy: The Dynamics of Global Management. Hampshire: South Western Cengage Learning.
Kerr, W. A. & Gaisford, D. J. 2007. Handbook on International Trade Policy. Massachusetts: Edward Elgar Publishing.
Madura, J. 2009. International Financial Management. Ohio: South Western Cengage Learning.
Middletton, N. 1999. Intellectual Property Rights: A Battleground for Trade and Biodiversity? Switzerland: IUCN The World Conservation Union.
Moens, G. 2003. International Trade & Business Law Annual. Volume 8. Australia: Routledge Cavendish.
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Yager, L. 2005. International Trade: Issues and Effects of Implementing the Continued Dumping and Subsidy Offset Act. London: DIANE Publishing.