International management is the administration or management of a company that operates businesses in more than one country. The administration of businesses that have branches within the same country requires basic administration skills; however, international management requires intensive knowledge and skills. International management requires the managers to master the business regulations of the countries in which their companies operate. The general managers should understand the different cultures, customs and laws of the nations in which their businesses operate.
It is noteworthy that different nations have different business ethics, different employment laws, and they talk in different languages. It is upon the manager to know how to control all the business branches in accordance to the respective country’s regulations. Failure to comply with the country’s rules and regulations would mean that the business stands at the risk of losing its license, which would be an immense disappointment. One of the most significant aspects that the international managers have to consider is the unanticipated foreign exchange market rates. Since the international company operates businesses in many countries, it obviously deals with different currencies. The managers ought to be alert of the foreign exchange market because it profoundly affects international businesses. If a currency happens to depreciate and the company has reserved most of their monies in the form of that currency, it means that the company would suffer significant losses.
Another extremely crucial factor that the general managers ought to be keen about is technology and globalization. The world is becoming a global village, and the technological firms are working tirelessly to make things as simple as possible. The international managers ought to be among the first people to know about the newest technology that would facilitate their operations. Generally, international management is one of the most challenging tasks on earth; apart from the regular operations of the business, the managers ought to be alert, informed, and witty in their decision making process. This paper will base its discussion on international management as influenced by globalization, foreign exchange markets, regional integration, and the different cultures across nations.
Globalization and international management
Globalization is one of the core factors that have facilitated the growth of international businesses. The term globalization refers to the shift from independent nations to interdependent nations. Globalization enhances integration of the global economy in terms of the production process, and the marketing of products. The production aspect of globalization affects international management in one way or another. Unlike the earlier days when the free flow of goods and services was prohibited, globalization has facilitated free trade by eradicating the trade barriers. Currently, companies are able to outsource raw materials of production as well as skilled labor to enhance their production process.
While outsourcing the materials, the companies consider the cost and quality factors, and they are able to obtain high quality raw materials at a considerably cheap price. With the integration of raw materials from different nations, companies are able to produce high quality products, which are sold both in local and international markets. Globalization has enhanced the emergence of global institutions and increased business activities across borders. The international managers’ role of controlling their businesses across nations is simplified, and the producers across the globe are able to get a ready market for their products. Consumers are also able to obtain the products of their desire from anywhere across the globe.
Global institutions such as the World Trade Organization (WHO) and GATT, General Agreement on Tariffs and Trade, play a significant role in driving globalization. They encourage investment in foreign countries to help in upgrading the sluggish economy of the nations. This factor helps the international managers who will not have to plead for licenses to operate their business. In fact, the government of such nations would plead with the foreign companies to expand their businesses into other parts of the country to improve the general economy. Globalization and international businesses have enabled undeveloped countries, mainly in Africa, to have the privilege of receiving products and services from esteemed organization. Globalization has enabled companies to have Foreign Direct Investments (FDI) across nations.
According to the records of the United Nations, the US holds the world’s economy. US have the largest number of FDI’s across the world, where, the United States biggest companies have multinational firms across the world. According to research, globalization and the enhanced technology have played a prominent role in aiding the international management of the multinational firms across the globe. The internet and the World Wide Web enable the international managers to monitor the progress of all the activities of all the company’s FDIs. They can be able to sell as well as purchase any product or service over the internet. Generally, technology has made the world a global village, and international managers can maneuver across all their businesses globally at the click of the mouse.
While globalization has played a leading role in international management, there are those individuals who have suffered considerably due to the removal of trade barriers. Esteemed companies have found it worthwhile to invest in countries with no strict regulations of the wage bill of the pricing of products. The international companies reap massive profits from running businesses in most developing nations because of the reduced production costs.
A critical analysis of such situations shows that the businesses oppress the producers of raw materials by paying them lowly for their raw materials. In many cases, such producers lack the market for their products, and thus accept the low payments because they have no other choice. Unemployment is a significant issue in the developing nations, and thus the supply of labor is extremely high. Laborers are willing to offer their services at reduced wages because of the limited choices. Raw materials and the cost of labor are two core factors of production, and the foreign companies’ cut their production costs drastically by oppressing the local dwellers.
Since the company operates internationally, it identifies a marketplace where it can sell its products at high prices and earn massive profits. From this descriptions, it is noteworthy that globalization has caused the international managers to play a game of wits. They ensure they invest in countries that can render them a low production cost, and they sell their products in esteemed markets to earn massive profits. From this point of view, globalization has done no good in the developing nations. If the process of oppressing individuals from the developing nations continues, the gap between the rich and the poor nations will continue to widen.
International management and the difference in cultures
Whenever managers decide to expand their companies internationally, they always have it in mind that they will meet new characters with different believes and cultures. International manager ought to be psychologically prepared that they ought to learn and understand the different cultures across the nations in which their businesses operate. It often happens that when individuals from the first world nations meet with individuals in the third world nations, they find some cultures that appear old-fashioned and disgusting. However, it is essential to understand and respect the people’s culture.
International companies pursuing to invest in a foreign land will face communication barriers, culture conflicts as well as pricing difficulties. The international management team should have a friendly way to address the problems instead of going ahead and disrespecting the foreign culture. Some individuals from the third world nation’s belief that a woman cannot make to become a manager of an enterprise. If the international manager disregards that culture and appoints a woman for the position of a manager, the woman may face difficulties trying to control the employees.
It is ethical to value and respect the beliefs of the individuals, and with time, they two groups may cooperate, come to understand each other, and correct the mistaken cultures. To understand and embrace the culture of a new place, it is necessary to carry out a research that gives an analysis of the cultural believes of the individuals at the identified locality of the business. Next, it is essential to inform the company stakeholders about the foreign cultures and customs, and the right manner to face and respond to each of the customs in order to portray a positive impression.
It is noteworthy that culture plays a pivotal role in the management of businesses across the world. International management must involve a lot of discipline, where, business managers have to foresee the business outcomes and plan ahead to avoid inconveniences. However, foreign cultures may not adhere to the culture of planning. If a manager informs people that there is a possibility of a negative outcome of some action, the manager is said to be a prophet of doom in the developing nations. The Romania has always perceived the Netherlands’ management skills as weak, whereas, the people in the Netherlands are okay with it.
In France and Germany, it is impolite, and unofficial to call the staff by their first names, and employers have adopted the culture of calling staff by their surnames. However, calling a person by the first name in the United States is a sign of friendliness. While punctuality is compulsory and a normal incidence in the United States, some Latin Americans would find it awkward if one pushes them to be timely. A person may regard a Latin American as lazy, irresponsible and difficult to deal with, which may not be true to some extent.
The above named cultures are particularly crucial for international managers to consider while thinking of expanding their businesses internationally. A thorough research that brings out the exact interpretation of the individuals in the foreign land is essential. The detailed research will help the international management team to prepare effusively to meet people in the foreign land. Some management behaviors are difficult to understand, yet the management team ought to embrace them. In Britain, when the decision making process for plans becomes difficult, the management teams opts to reduce the number of decision makers. The reduced number of decision makes results into a narrowed number of choices that simplifies the decision making process. However, the Germans opt to increase the number of decision makers, increase the choices and cast votes to choose the winning decision.
The management styles across many countries differ because of the corporate cultures and education levels. In some countries, respect and hierarchy in the management of companies is given depending on the educational level, while some other countries would value experience more than education. Nevertheless, as globalization and technology invades in most of the countries, most of the stereotypical management styles and cultures will fade away. Economic transitions will change business cultures, and all nations will adopt the generally accepted business cultures. However, before that time comes when all nations will have one general culture, the international management team has to adopt the cultures of various nations in which they intend to carry out their businesses.
International management and Regional economic integration
Regional economic integration is the creation of trade agreements between nations. Countries within a given geographical region would come into an agreement to remove trade barriers between them, and allow free trade of products and services. Regional trade agreements have played a prominent role in many countries. The trade agreements provide a platform of building partnerships that enhance coordination of the governments. The regional economic integrations have played a significant role in enhancing international management because of the improved communication platform. International managers are able to coordinate their Foreign Direct Investments (FDI) within the same geographical region.
If for example, a company in the US has FDIs in Kenya and Uganda; the international managers will have the privilege of sharing ideas, experiences, products and services across the two nations without any difficulty. Kenya and Uganda are both in East Africa, and trade agreement between the East African countries will benefit the local dwellers as well as the international investors. The regional economic integrations enhance international management by constructing broadened governance profiles and agendas that enhance economic growth.
Regional trade agreements have offered a platform that enhances political stability, harmonization, and security among member countries. Countries that had grudges with their neighboring countries are free to integrate, learn business ideas and compete for the common advantage of both countries. The regional economic integrations create a healthy competition across international businesses, and thus keep international managers on toes. In other words, regional economic integrations enable macroeconomic cooperation between rival international companies. This enables the international companies to prevent future financial crises in the countries they have invested, and thus shape the future of the countries.
Despite the various advantages of the regional trade agreements described, there are barriers that are associated with the trade agreement. A situation may arise where regional trade blocks compete against one another. Moreover, the regional economic agreements would only benefit the elites while the local community experiences the negative impacts of the regional trade agreements. A case may arise where farmers experience increased input costs to produce their products. Therefore, they desire to sell their products at a relatively high price to recover their production costs and make a profit as well. However, since there are no trade blocks between their country and the neighboring countries, the community elites may decide to import similar products at a lower price.
The imported products are likely to be sold at a lower price as compared to the prices of the local farmers. This scenario mostly happens in the developing nations where the farmers have no one to protect them. The oppressed farmers lack market for their products, and they end up selling their products at a loss. The international development partners and the African elites are the people who struggle to ensure the existence of regional integrations. However, the integrations only benefit a few, while it oppresses majority of the people, leaving them poor, hopeless, and helpless.
International management and Foreign exchange market
Foreign exchange markets are Over-The-Counter (OTC) markets that do not involve any form of central exchange. The foreign exchange markets reduce transaction costs by eliminating the exchange and clearing fee, however, there is a high risk of unanticipated changes in the currency exchange rates. International businesses are highly exposed to the risks associated with the unexpected exchange rates of the currencies. If, for example, a US company owns a Foreign Direct Investment (FDI) in Japan, the US Company experiences massive losses whenever there is a drop in the value of the yen. For this reason, international managers must be alert. They must have a detailed plan of their predicted costs and revenue flow.
It is upon the international managers to evaluate the impact of a change of the prevailing exchange rates, and thus, plan for the predicted costs and revenue. International managers will have to net their cash flows depending on the product lines and the associated market, and this will help in diversifying the possible gains or losses. Consequently, the gains and losses would cancel out in case of a change in the exchange rates. International management would be highly advantaged if it focuses on Multiunit, Multiproduct, and Multinational Corporations to reduce the net exposure to the risks of the unanticipated exchange rates.
International companies are at a high risk of the devaluation or inflation of the company assets. As some point, the international firms would gain if the value of the currency in the country they have invested appreciates. This means that the company assets as well as the profits will be highly valued at that particular period. The reverse would occur if the value of the currency falls, and the company assets would deflate drastically. If an international company desires to sell of one of its branches in the foreign countries, the international managers will have to be keen on the value of the currency. The company should sell of its assets when they are highly valued to generate massive income, which would help in opening another branch elsewhere.
To reduce the risks associated with foreign exchange market rates, international managers have to advise the company to invest in diversified portfolios in the foreign markets. A company may have the privilege of obtaining 100% profit from a Foreign Direct Investment (FDI) in a foreign company; however, the risks associated are extremely high. It would be worthwhile if the investor company subdivided its investments and owned several subsidiaries or portfolio investments instead of an FDI. The subsidiaries and portfolio investments will enable international investors to have diversified investments that would consequently reduce their risks of unanticipated foreign exchange market rates. The principal advantage of having diversified investment portfolios is that the losses obtained in one of the investments due to change in exchange rates are offset by the gains from another investment.
Another approach that plays a significant role in reducing the risks associated with unexpected exchange rates of currencies is the signing of futures, options, and forward agreements. These are risk management tools that play a significant role in gambling with the unanticipated exchange rates. The futures and forwards are price contracts that predict and indicate the pathway of the currency value. The international company will benefit substantially and reduce the cost of unanticipated exchange rates if the managers use the risk management tools wisely. If, for example, an international company signs a future contract with a local supplier of materials, regardless of the change in exchange rates, the suppliers will have to supply the materials for the entire period. The risk of the change in currency exchange rates drips down to the supplier. The supplier may suffer from high losses, or obtain massive profits depending on the unanticipated currency exchange rates.
Generally, foreign exchange markets are particularly tricky, and they need witty and conversant international managers to make valuable decisions. Some international businesses collapse because of considering the foreign exchange markets and the risk management tools as speculative. Regardless of the type of international business, the international managers should consider employing the risk management tools. Currency exposure and the unanticipated foreign exchange rate are extremely complex phenomenon, whose prediction is never precise. Business managers ought to be on the look while invoicing their customers and suppliers because invoices and cheques have a valuation period, during which currencies may change. All the mentioned unanticipated risks are realities that local and international businesses have to deal with. International management should ensure there is an active management of the foreign exchange risks to avoid adverse consequences that many result to bankruptcy and closure of businesses.
From the discussions, it is evident that international business management is a very challenging task. International managers should be alert to know everything that happens in the countries they have invested. International management molds managers and all stakeholders of a company to fit in all the regions across the world. The cross-cultural differences are embraced and employees freely interact with the foreigners. The success of the international business depends on the first impression to the local population. If the local population finds it weird to interact with the foreign investors, the business may have difficulties to establish. The international business managers should ensure that their business operates in the same manner as the local businesses. As discussed, globalization, cultural differences, regional economic integration, and foreign exchange markets are all factors that influence international management.
However, it is noteworthy all factors, other than cultural differences, are at managerial level. Culture differences are the factors that are observed with the people on the ground. The company stakeholders should be keen in the way they express opinions, and the way they physically present themselves to the foreigners. The stakeholders should strive to execute exceptionally high standards and employ best industry practices that accommodate the local dwellers. International management should insist on avoiding any practice that would portray a clash between the cultures of the people in the foreign and the investors. For a successful business, the international managers should work towards making foreigners to find all the reasons to integrate freely with the stakeholders of the foreign company.