Challenges of International Business Management
The business management that exceeds the boundaries and reaches the global/ international marketplace is international business management. There are many challenges international business management may face. The Political, Economic, Social, Technological, Environmental, and Legal systems (PESTEL) differ between countries. Hence, it is necessary to review organizational goals, objectives, and policies before entering a new marketplace globally.
International business management can succeed when the hurdles of PESTEL and other relevant issues are addressed. Other issues can be language barriers, cultural differences, market saturation, payment structure, human resource management. It is important to flourish on the international market. This article is not about the PESTEL framework or tool but conveys information on the overall challenges faced by international business management.
Challenges of Global Business Management
Language is the biggest barrier when considering a move of business internationally. The communication barrier is one of the hurdles when communicating with clients. However, this is not the only problem. It is important to have product/ service names that fit well in a foreign language. For Example, Mercedes Benz used the name Bensi like Benz. But in the local language, it meant “rush to death”. Later the company changed the name to Benchi meaning “run”.
An organization must respect the local cultures which include food, holidays, social values, etc. For Example, McDonald’s in India, does not serve beef or pork products.
Managing Global Teams
A manager requires dealing with global teams who have different backgrounds. Differences in language, time zones make it difficult to communicate within a global team. Frequent communication is a good way to deal with these issues.
Currency Exchange and inflation rate challenge
The final profit of a globally owned business changes according to the changes in exchange rates and inflation. It is important to understand these changes before making financial decisions.
Deciding company structure
It matters when an organization decides about the location of headquarters and branches in a foreign country. Strategically efficient location increases productivity and service of an organization and increases marketplace. Well organized structure facilitates to provide quick decisions. For example, the Coca-Cola brand has continental groups and each continental groups have a president.
Foreign politics and policies
Foreign politics and policies on labor laws, tax systems, use of national products policy have a direct impact on the cost of the company. It is important to have this information even after a startup and not just before extending. For example, there is a huge import tax on vehicles in Nepal. This policy is to discourage importing vehicles from foreign countries. This provides an advantage for national entrepreneurs to succeed with low pricing.
An organization that enters a global market needs to understand and implement international accounting standards. The organization can then get the actual results of operations. It is not an easy task to deal with the accounting and tax systems of different countries. The organization should hire experts to take care of the accounting system.
There is a need to provide safe and secure mechanisms for transactions. These methods should be economical, secure and globally available for organizations. The organization may consult with financial advisors.
Supply chain risk
The supply chain is a greater risk when entering a new market. It affects the reputation of an organization. Therefore, entering a market and being unable to meet the demands is unacceptable. The organization needs to address the possible worst-case scenarios to avoid supply chain risks.
Setting up the right product price is a milestone challenge for any business. It is a huge task for business management to consider logistics, supply, maintenance, support costs to decide a product price. Also, the product price should be good to compete with local competitors. Establishing a product as a low-cost product or luxury brand can be a factor in deciding product price. For example, IKEA was unable to gain market in China initially because of local low-cost markets.
Some countries have strict environmental rules and regulations. An organization needs to have the policy to overcome this challenge. Especially, countries have strict fines when such policies are violated. It is a financial burden for organizations operating globally. Therefore, it is also an important challenge to understand the environmental rules of the destination market.
In the context of Nepal
Nepal is a culturally rich and diverse country. There are many languages and different traditions for many cultural groups. Identifying products or services that are beneficial to all groups is important. Especially, for new products entering the market and Foreign Direct Investment (FDI), the strategy to carry out business management requires research. With a high number of medium-class people, a low pricing strategy can be beneficial. Nepal has large natural resources typically raising environmental concerns.
Furthermore, transportation can be difficult which increases supply chain risk as Nepal is a landlocked country. Moreover, the flood and landslides give bigger problem during rainy seasons. Lastly, the political issues seem to be growing forever. The instability of politics is another bigger challenge for any investment in Nepal. However, the low-cost human resource is a plus point for investment in Nepal. In fact, according to UNCTAD’s 2020 world investment report, investments in Nepal have increased from 67 million USD in 2018 to 185 million USD in 2019. This shows that Nepal is making a progress in attracting investors from around the world in different types of projects.
It is necessary to be aware of the challenges presented in international business management prior to investment from any organization globally. Thus, an appropriate policy to set up a team for international business management is a key for an organization that prefers to enter global markets.