Molly Purtle | May 6, 2023 Global Dimensions in Business
Today’s business world is crowded and competitive.
The United States is home to an estimated 33.2 million small businesses, and that number is growing rapidly.1 New competitors are constantly entering the marketplace while others are leaving. Every organization is trying to find their ideal market strategy to stand out from the rest. Business owners always need to be ready to evolve, and sometimes very quickly.
Even if your business is successful in your geographical region right now – economic fluctuations will always be a threat. Therefore, it could be time to look at moving into new markets. In a world that has moved well beyond simple industrial production, globalization is becoming more and more common, and it is here to stay.4 Globalization is the shift toward a more interdependent and integrated global economy.4 A global company will operate in two or more countries. By eliminating barriers to trade and communication and cultural exchanges, globalization promotes wealth of all nations and aims to build strong alliances that will mutually benefit one another through additional resources, ideas, services, information, and jobs across the international market.
How the automotive industry is using globalization to maximize growth.
The COVID-19 pandemic brought on unforeseeable challenges for companies everywhere. The car manufacturing industry is just one example of an industry that’s competition intensified. To succeed in a world of constant change, these companies needed to adapt to their customers’ ever-changing preferences.
The auto manufacturing industry is becoming increasingly global, seeing a 1.3% global per capita income12, an important indicator of its economic strength.
Industry professionals expect to see significant growth as manufacturers focus on new engine technologies to meet consumers’ growing demands for fuel-efficiency and reduced emissions.2 The Asia-Pacific region is expected to dominate this market, followed by Europe and North America.2
“The rapid spread of motorization in China, India and Southeast Asia continue to lead major automakers to foster relationships with local manufacturers in these regions on the basis of capital alliances, supply of products and development of environmentally sustainable and safe technologies.”
Gavin Ross | Industry Report C2531-GL / Global Car & Automobile Manufacturing
Expanding markets mean continued growth for car manufacturers, and the demand from emerging economies will similarly encourage revenue growth.
Types of Business Environments
Where international business involves cross-border transactions of goods and services between two or more nations,4 domestic businesses keep their affairs in their home country. International business differs from domestic business in many ways, including:
- Culture and media
Domestic business is characterized by familiar market conditions, culture and language, while international business is characterized by cultural diversity, language differences, currency differences as well as greater legal and regulatory complexity.8 International businesses also must consider cultural differences when they communicate with customers and partners, how they market and sell products or services, and how they manage employees.
- Governments, economics, and logistics
International business is often exposed to political and economic risks of emerging countries.8 Volatile political systems, breaches of contract, restrictions on the convertibility of profits, civil disturbance, and regulatory restrictions can all affect how companies operate across nations.7 Currency fluctuations, inflation, and trade barriers can also affect how companies set prices and manage their supply chain.8
- Technology
While domestic businesses have long utilized technological advancements, a varying level of technology access and reliance still exists among other nations.
Example Organizations
Domestic firms operate mostly or completely within the United States, whereas international businesses rely heavily on customers, partners, or operations in foreign jurisdictions.
Domestic companies
Olympic Ambulance Service, Inc. meets the criteria for being a domestic organization because it is registered in the United States and does not have any business ties with any other countries. This transportation company is headquartered in Sequim, Washington, and serves Thurston, Clallam, and Kitsap counties in Washington state.11
International companies
Contrarily, McDonalds meets the criteria for being an international organization because it operates worldwide in 119 countries, on six continents.9 Nine major markets account for 80 percent of McDonald’s franchises, as well as 75 percent of overall sales.9 These markets are Australia, Brazil, Canada, China, France, Germany, Japan, the United Kingdom, and the United States.
Benefits of Expansion
Global Talent Acquisition
Thanks to technological advancements, companies can hire employees from all over the world. Not only can this fill critical staffing gaps, but it also costs much less than hiring domestically, since employees are paid in their local currency. It also increases productivity and introduces individuals with a diverse knowledge base to the organization. Booking.com operates in over 220 countries and has over 140 nationalities represented in their workforce.6
Expansion into New Markets
96 percent of the world’s consumers live outside of America.5 International expansion offers companies the opportunity to expand their reach into new territories and ultimately increase revenue. Apple is considered one of the most influential international companies.17 Apple has focused on growing sales from its services segment, equaling 17.8% of its revenue in the most recent fiscal year.10
Lower Production Costs
By moving production to a developing country, also referred to as global sourcing, companies save on labor supply. Globalization also increases industry competition, which drives prices down and creates a better variety of choices for consumers. For instance, Costco does buy some products from China, but they also buy products from other countries as well. For example, Costco is well-known for selling goods in bulk at discounted prices. The company buys their televisions from China, but they get their meat from Australia.16 Apple is another prime example, as the company has supply chains from 43 countries that ship supplies to China for final production and assembly.17
Specialization
Globalization benefits all economies by allowing countries to focus on their economic strengths. An example is Peru, which is among the global leaders in the mining industry. The country capitalizes on its mineral-rich areas within the Andes by exporting large quantities of lead, copper, gold, and zinc. In 2021, Peru exported $17.7 billion to China, 61% of which was Copper Ore.3
In another example, China represents the largest textile exporter in the world. In 2021, China exported $43.4 billion in Textiles to the United States.15 As each nation concentrates on its own specialty industries, there is greater opportunity for higher quality products.
Ethical Considerations
Ethics essentially refers to a set of moral principles.4 However, different cultures approach ethical decisions from different points of view. Those involved in international business relations should have a good understanding of ethical norms commonly recognized in all countries, as these should form a basis for international business and economic transactions.
The Markkula Center for Applied Ethics at Santa Clara University13 offers a pointed summary of ethical frameworks for which businesses should make decisions:
- Identify the Ethical Issues
Ask yourself if the decision could be damaging to someone or unevenly beneficial to specific people.
- Get the Facts
Ask yourself what the relevant facts are included, and which are not known. Basically, do you have enough information to make a decision? Consider the options for acting.
- Evaluate Alternative Actions
Ask yourself which option will respect the rights of all stakeholders and serve the community as a whole. Consider which option takes into account the relationships, concerns, and feelings of all stakeholders.
- Choose an Option for Action and Test It
Ask yourself which option best addresses the situation at hand. Are you comfortable sharing your chosen option with those you most respect, or with a public audience?
- Implement Your Decision and Reflect on the Outcome
Consider how your decision turned out, and what you learned from the specific situation. Are there any necessary follow-up actions?
Concluding Thoughts
Global expansion increases access to talent and allows companies to stay ahead of the competition through advanced skills and techniques. Even if a domestic company performs well, expansion to the international business environment can provide an important competitive advantage.
References
[1] Advocacy, O. O. (2022, August 31). Advocacy Releases 2022 Small Business Profiles for the States and Territories. SBA’s Office of Advocacy. https://advocacy.sba.gov/2022/08/31/advocacy-releases-2022-small-business-profiles-for-the-states-and-territories/
[2] AUTOMOTIVE ENGINE MARKET – GROWTH, TRENDS, COVID-19 IMPACT, AND FORECASTS (2022 – 2027). (2022b). Mordor Intelligence. https://www.mordorintelligence.com/industry-reports/automotive-engine-market
[3] Country Profile: Peru. (n.d.). OEC. https://oec.world/en/profile/country/per
[4] Dunung, S. P. (2019). Global Business Management v1.0. Flat World Knowledge. https://mbsdirect.vitalsource.com/books/978-1-4533-9363-5
[5] Export products. (n.d.). U.S. Small Business Administration. https://www.sba.gov/business-guide/grow-your-business/export-products
[6] Factsheet. (2023, March 2). Booking Holdings. https://www.bookingholdings.com/about/factsheet/
[7] Henisz, W. J. (2015, May 14). The Hidden Risks in Emerging Markets. Harvard Business Review. https://hbr.org/2010/04/the-hidden-risks-in-emerging-markets
[8] Kotha. (2023, March 2). Difference Between Domestic And International Business – Difference Between. DifferenceBetween.io. https://differencebetween.io/domestic-and-international-business/#:~:text=Domestic%20business%20is%20characterized%20by%20familiar%20market%20conditions%2C,fluctuations%2C%20political%20and%20economic%20risks%2C%20and%20greater%20competition.
[9] McDonald’s Corporation – Company Profile, Information, Business Description, History, Background Information on McDonald’s Corporation. (n.d.). https://www.referenceforbusiness.com/history2/56/McDonald-s-Corporation.html
[10] Nellis, S. (2020, April 21). Apple expands services business to markets in Africa and beyond. U.S. https://www.reuters.com/article/us-apple-services-idUSKBN2230R8
[11] Olympic Ambulance Service Inc | Better Business Bureau® Profile. (n.d.). https://www.bbb.org/us/wa/sequim/profile/ambulance-services/olympic-ambulance-service-inc-1296-37000420
[12] Ross, G. (2022). Global Car & Automobile Manufacturing. In IBIS World. https://my-ibisworld-com.ezproxy.snhu.edu/gl/en/industry/c2531-gl/industry-at-a-glance
[13] Santa Clara University. (n.d.). A Framework for Ethical Decision Making. Markkula Center for Applied Ethics. https://www.scu.edu/ethics/ethics-resources/a-framework-for-ethical-decision-making/
[14] Statista. (2023, February 1). Global gross domestic product (GDP) per capita 2021. https://www.statista.com/statistics/268751/global-gross-domestic-product-gdp-per-capita/#:~:text=GDP%20refers%20to%20the%20total%20market%20value%20of,per%20capita%20amounted%20to%20about%2012%2C234.8%20U.S.%20dollars.
[15] Textiles in China. (n.d.). OEC. https://oec.world/en/profile/bilateral-product/textiles/reporter/chn
[16] Vallery. (2022, September 26). Costco’s Supply Chain: Where Do Their Products Come From? China Merchants Holdings International Co. (CMHI). https://www.cmhi.com.hk/costcos-supply-chain-where-do-their-products-come-from/#:~:text=The%20answer%20is%20yes%20and%20no.%20Costco%20does,China%2C%20but%20they%20get%20their%20meat%20from%20Australia.
[17] 5 International Business Examples to Learn From. (2021, June 29). Business Insights Blog. https://online.hbs.edu/blog/post/international-business-examples
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