By Dr B K Mukhopadhyay
Maging an intertiol business is more complex than maging a domestic business. Let us go deeper into the various aspects of intertiol business today.
Clearly, intertiol business includes all business transactions involving two or more countries, where these business relationships may be between private individuals, companies, groups of companies, non-profit organizations or government agencies. Though in some ways, intertiol business is an extension of domestic business, but it is different mainly for two reasons (i) intertiol business objectives are likely to be different from domestic business objectives; (ii) the environmental conditions in which intertiol business is conducted are usually of greater complexity than is the case with domestic business. These complexities arise from differences in culture, currencies, legal systems and the endowment of tiol resources, among others. Today's developments in communication and transportation technology have been facilitating trade worldwide, leading to the cliché that 'all business is now intertiol business' - people working in maritime industries are inevitably involved in intertiol business
Especially, in these days of globalization, autarky is out of date. Every country has to enter into this process of integration and interdependence. Globalization of markets implies that the world is one large marketplace and globalization of production implies that firms locate their production facilities for maximum efficiency and lowest cost, so that products are no longer seen as Indian, Australian products or Japanese or German products, but 'global' products in ture. On this score even the staunch critics have to remember that things are changing at jet speed where one technology is fast replacing the earlier one.
The forces that promote globalization are not to lose sight of: (a) the lowering of tariff and non-tariff barriers (free trade); (b) developments in technology [viz. jet aircraft, containerization, the microprocessor, the Internet and robotics. Who thought that in economies like India, the airlines will be competing with the railways? It is appropriate strategy and the implementation back up that lead the way. Who could question today that developments in communication and travel has not made it possible for intertiol business to coordite its activities and to view the world as a single marketplace? Changes in the economic and political domains are conducive to the rise and fall of tion-states. Though the US is the world's domint economy, yet it is likely to be challenged more and more by fast emerging economies like BRICS, and among other economies inclusive of Bangladesh, Vietm, which are coming up steadily. So one has to impartially look into the costs and benefits of globalization.
Things are changing but more attention is called for if the developing economies target to have more say in the intertiol affairs.
Specifically, the three major elements in a political economy [the political system, the economic system and the legal system] call for in-depth look. While political systems are based on either collectivism or individualism [may be democratic or totalitarian], the economic systems may be of the free market type or a command economy [can there be 'pure' economies when most of the 193 countries are either mixed economies or state-directed?]. turally, for every such economy, a lot depends on: country's ability to grow economically via tural resources (including human resources, which happen to be the most neglected are), its geography and history, whether its political system is democratic and it possesses a market economy; and duly assigning weightage to the legal systems that of course vary widely.
It is clear in this age of intense competition backed by technological revolution, that businesses have to expand from their domestic base to go intertiol [reasons relate to size: the intertiol are has more customers, more opportunities and more resources for exploitation than the domestic are, plus a range of difficulties not encountered domestically].
On this score the core competencies, the desire for location economies, the experience curve, and local responsiveness form the basis. As the world is fast becoming one marketplace of inter-dependent people, any firm / economy which concentrates solely on a single domestic / overseas market / product is bound to witness doomsday today or tomorrow or at best have a stunted growth pattern.
Businesses have to expand their operations intertiolly and 'going intertiol' especially by the minnows [having a small range of exports baskets] have to seriously think so far as the benefits accruing are concerned: increasing sales and profits; expanding market outlets and exploiting growth opportunities in as much as overseas sales can absorb extra capacity and reduce unit costs.
What is more: they can also spread economic risk over a wide range of markets. In order to gain competitive advantages, even the multitiols from the emerging economies can find low-cost production facilities close to raw materials and/or cheap labour. They can widen their channels of distribution and access new technology through joint ventures and in such a process in order to secure raw material resources, multitiol enterprises can further engage in worldwide exploration for, and the processing, transportation and marketing of raw materials.
The flip side, of course, requires proper attention: the obvious obstacle - facing a multiplicity of political, economic, legal, social and cultural environments. It also remains a fact that there are complex interactions between these and its host countries because of tiol sovereignties, widely disparate economic and social conditions, among others. What is more: (i) geographical locations, cultural and tiol differences, variations in business practices, and other differences make communication difficult between the multitiol enterprises and its subsidiaries; (ii) economic, marketing and other information required for strategic planning vary to a great extent as well as depth and reliability between countries; (iii) differences in industrial structure and business practices make alysis of future competition difficult to undertake; and then the domint factor - regiol economic integration and the activities of global institutions [such as World Bank] may have to be confronted.
It is, thus, crystal clear that in intertiol business, as in domestic business, the appropriate strategy for a firm is largely determined by the environment in which the firm must compete. This environment is not static and, indeed, one of the factors causing change in the operating environment is the strategies pursued by intertiol firms. The very strategy is tied to the purpose of the firm - value creation through a series of activities known as the value chain. One has to look at the taxonomy of strategy in as much as there are more than a dozen 'strategies' and an almost infinite range of combitions of those strategies [vide Bartlett's and Ghoshal's taxonomy - the three 'traditiol' strategies (global, intertiol and multi-domestic) and transtiol]. The choice of strategy, in turn, depends on the relative importance of cost pressures and pressures for local responsiveness. The strategy ultimately chosen will be a compromise forced upon the firm by such pressures. Side by side: there is an urgent need to address non-tariff measures [NTMs]. While it is obvious that there exists the need for NTMs [viz. the protection of health, safety and the environment], but is it not a fact that they have also been abused as a pretext for protectionism! NTMs thus also pose a major trade policy challenge. It remains a fact that since 2008, the leaders of G20 countries have repeatedly discussed to refrain from NTM use because of their potential for slowing down the positive outcomes of trade expansion and integration, but the stern reality is there that green protectionism through NTMs has gone up.
Hence, multilateral trade rules need further revision to ensure that the necessary Government support to promote environmental protection and sustaible production and consumption is provided without undermining the principles of a fair trading system.
That is why intertiol strategy formulation requires the firms to deal not only with the 'normal' strategic considerations of markets, technology and competition, but also with tiol sovereignty and intertiol political relationships. There is considerable potential for conflict between the firm and the tion because firms want to develop strategies and allocate resources ratiolly to maximize profits while tions want maximum contributions to their development and future prosperity. The result can be mutual advantage through cooperation, or intense conflict. To minimize conflict, strategies must be flexible enough to adapt to environments of countries that are diverse.
Filly, the macro view: though the WTO economists forecast that growth in global trade volume would recover, the warning is there that "severe downside risks for growth that could have even greater negative consequences for trade if they came to pass," and cited the European debt crisis, rising oil prices and geopolitical risks as being of particular concern!
Needless to say, that in the absence of global cooperation it is very difficult to say good bye to protectionism.
The Writer, a noted Magement Economist and an Intertiol Commentator on contemporary business and economic affairs, attached to The West Bengal State University, can be reached at firstname.lastname@example.org