Assignments

Mukesh Bhatia
Roll 23A , EPGDIB2014~`16

Challenges faced by emerging economies going International

Introduction International trade deals with good, service and payment flows among
countries and the policies that regulate these flows and their national
wealth effects. In short, international trade deals with physical good
exchange among countries and the problems arisen from these
transactions; international finance deals with the policies that regulate
foreign trade markets, balance of payments and imbalances in the
payments.

Why companies think about Globalization

Diversifying revenue sources
Small-business owners understand the importance of diversifying revenue
sources; having that one major client can seem like the answer to your
business success -- until you lose it. Marketing your business
internationally expands and diversifies your revenue sources by
introducing your goods and services to customers in other countries. Thus,
if the domestic economy gets sluggish, you can temper the effect through
revenue from countries with healthier economies. A global sales base can
help cushion the pain of losing customers via economic hardship.
Technology Reaches Customers in More Places
Before the Internet became easier , small-business were limited to
geographically. You and like-minded small-business owners had to allocate
marketing dollars where it made the most sense, and typically that meant
physical proximity to business headquarters -- you know its prudent to set
up shop where most of your customers are. However, the online buying
population has changed all of that. Weigh the costs of adapting your
website for online shopping or using existing portals such as eBay to make
it easier for customers to buy your goods or services -- whether theyre in
your neighborhood or other country.
Adapting to Demand Fluctuations
Your customers might be demanding for one of your hot products for six
months -- then suddenly the inquiries stop. Perhaps a competitor opens up
shop in the same neighborhood. Its one thing if you anticipate and are
prepared for demand fluctuations -- such as if your product is seasonal -but another if you have a years worth of inventory sitting there. While
youre working on your next product or product enhancements to appeal

to domestic customers, marketing your product overseas can be just the

ticket to clear out your warehouse and stabilize your revenue stream.

Challenges faced by Industries in emerging economies going International

1. Integrity.
Business has never faced the type of moral challenges that it faces
in todays global economy. Everyone is struggling to be more
successful, to make the next quarterly earnings estimate, to keep
their job, to earn a big bonus, or to compete effectively. The
temptation to cut corners, omit information, and do whatever it
takes to get ahead occurs every day. Many business employees and
executives succumb. Sadly, the theme becomes highly infectious
and soon people actually start to feel like lying a little, or stealing a
little, or deceiving others, is just a part of business. These
practices erode the trust that needs to exist between employers and
employees, between business partners, between executives and
shareholders.
Without trust, the business will not be able to
compete effectively and it will eventually fail.
2. Cash, Borrowing, and Resource Management.
A healthy profit may look nice on your financial statements, but if
capital expenditures or receivable collections are draining your cash,
you wont be able to stay in business for long. Too often executives
and small business owners fail to focus enough on cash flow
generation. In order to head off this problem, businesses must
either be adequately capitalized and must shore up cash reserves to
meet all obligations as they are needed and to handle downturns
and emergencies that may arise. Cash management becomes even
more important during recessionary times when cash is flowing
more slowly into the business and creditors are less lenient in
extending time to pay. For small businesses, handling business
accounting and taxes may be within the capabilities of the business
owners, but professional help is usually a good idea. The complexity
of a business books go up with each client and employee, so
getting assistance with managing cash and the bookkeeping can
allow you to excel when others are calling it quits. Cash flow
challenges are exacerbated by the lending climate, particularly for
small businesses. Bankers are unlikely to be more liberal in their
lending policies any time soon.
3. Increased selection and competition.

Its never been easier to start a business. Gone are the days when it
took weeks, months, and a myriad of forms to get your business
started. Now if you can buy a domain name and register your
business online, youre in business. However, staying in business is
a much more complicated matter. While business expertise was
once an expensive and time consuming endeavor, you can now find
experts online for many questions that you might encounter. There
is help to starting an online store, for example, for getting business
cards and marketing materials all at a very reasonable cost. The
ease of starting a business creates a much broader level of
competition. You might find different business competing for each
product you sell and new business that focus on a single item and
spend all their time and focus on being the very best at just one
thing.
This increase in overall selection and more focused
completion will make it more difficult for businesses of all sizes to
retain customers who can change their suppliers with the click of a
mouse. Its a battle of perception, focus, and marketing. Business
owners who master these elements and provide a great customer
experience will win the sale.
4. Marketing and Customer Loyalty.
Along the same lines as increased selection and competition is the
challenge to market to potential customers effectively and retain
your existing customers. Smartphones, social media, texting, email,
twitter and other communication channels are making it easy for
businesses and individuals to get their messages out. Figuring out
the right marketing channels is key for businesses to be successful
in the future. Where are your customers and how do you best reach
them and what is the right messaging? Once you get a new
customer, how do you keep these customers when they are
constantly barraged by competitors of all types, sizes, and locations,
trying to convince them that they can do it better or provide it
cheaper? Identifying what your customers want and doing a better
job of giving it to them will make all the difference in your
companys future.
The conservative spending climate is also
causing a shrinking customer base. Consumers are still quite
conservative with their pocketbooks, and as a result, organic growth
from current and new customers is not growing as quickly as
businesses would like. Business owners and executives are spending
more time figuring out how to go above and beyond to keep existing
customers, while at the same time figuring out how to costeffectively reach new customers without competing solely on
price, which always ends up to be a race to the bottom.

5. Uncertainty.
Business leaders find great discomfort in uncertainty. Because of
global debt and economic struggles, uncertainty is more
pronounced today than in the past. The sad news is that uncertainty
leads to a short-term focus. Due to uncertainty, companies tend to
shy away from long-term planning in favor of shorter-term goals.
While this might feel right, a failure to strategically plan five to ten
years into the future can end up destroying value. Businesses must
learn to balance the need for a more reactive, short-term focus with
the need for informed, long-term strategies. Uncertainty tends to
put many into a general malaise unable to get anything done. The
ever-running news cycle leaves everyone feeling a bit on edge. This
causes business owners and executives to hunker down and
customers to stop spending. You need to shut out the world ending
news and get back to work.

6. Regulation.
A changing regulatory environment is always of concern in certain
industries, but uncertain energy, environmental and financial policy
is wreaking havoc for nearly all companies today. Whether a
demand from customers or shareholders to become more green,
or the threat of increased costs due to new carbon taxes,
environmental considerations are among the biggest challenges
businesses face today. And we dont need to give too much press to
the current issue of financial reform and regulation. The problems to
be solved are to understand the meaning of regulation in your
industry, its implications for your business, and to develop the skills
necessary to deal with it. Two key areas of regulatory challenges
are taxes and health care. Health care has been another challenge
for businesses. The new Affordable Health Care Act (Obamacare) is
so complex that state and local governments wont know what to do
and businesses will have to devote significant time and resources to
understanding the law or for a small business, hiring some
professional to help them do it. Theyll have to get their arms
around the law, look at their options, learn more about the
exchanges and determine how to make it all work.

7. Problem Solving and Risk Management.

A major challenge for all companies is identifying, assessing, and
mitigating risks, including human and financial capital, in addition to
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the macro economy. The lack of a sophisticated problem-solving

competency among todays business leaders is limiting their ability
to adequately deal with risks facing their businesses. This is why
corporate managers tend to jump from one fire to another,
depending on which one their executives are trying to put out, and
in many cases the fast-changing business environment is what
ignites these fires. So what is the problem to be solved? We believe,
to do well into the future, companies must resolve that problem
solving is the key to business, then develop a robust problemsolving capability at all levels. As companies proceed to identify
risks, they will then have the problem solving skills to know how to
best mitigate them.

8. Finding the right staff.

Without exception, every business executive I speak to says that
one of their biggest challenges is staff finding the right staff,
retaining them, and ensuring they buy into the vision of the
business. Ill freely admit that I have no magic answers here. In fact,
if someone could develop a formula for recruiting and engaging the
right team members, they would make millions. A small business is
almost like a family, and, like many families, they can work well, or
they can be dysfunctional. In big companies, the human resource
challenge is politics and fit in the workplace, but when it comes to
small business, its personalities and skill. When you work in a small
environment, each team members personality can have a huge
impact on the harmony and productivity of the business. The key is
to learn how to deal with different personalities, figure out what
drives each individual team member and tailor your management
accordingly. Despite high unemployment, many companies struggle
to find the right talent with the right skills for their business. Many
new manufacturing jobs require high-tech skills. They include
positions at factories where computers are used to create products
like airplane parts and machinery. And some require several years of
training. Because of changing technology, businesses are struggling
to find qualified workers with IT skills, problem solving abilities, and
deductive reasoning skills.

9. Strategic confidence and stretch

Being global brings clear strategic benefits: the ability to access new
customer markets, new suppliers, and new partners. These
immediate benefits can also create secondary ones. Building a
customer base in a new market, for example, provides familiarity
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and relationships that may enable additional investmentssay, in a

research center. But being global also brings strategic challenges.
Many companies find it increasingly difficult to be locally flexible and
adaptable as they broaden their global footprint. In particular,
processes for developing strategy and allocating resources can
struggle to cope with the increasing diversity of markets, customers,
and channels

10.

Globalization of Knowledge

As the openness of economies increases, more people and firms

take part in the process of un-marketed connection intensification
that includes knowledge and integration of knowledge, culture,
ideology and technology flows. The globalization of knowledge may
differ according to economy and sectors. There are four layers in the
globalization of knowledge. These are:
1. Local industrial specializations serving the world and specific-skill based
activities: This title includes the most developed and location-specific
activities of developed economies.
2. Globalization through displacement (Global product chains): It is the shift of nonlocation-dependent production to the low-labor-cost regions through FDI or
licensing. In this case knowledge flow occurs from home country to host country.
3. Non-tradables serving locally: Some products cant be traded as they are specific
to regions. Therefore production is run where the consumption will take place. In
other words production depends on location. In such conditions production is
done in the market under globally-known brands. That is to say the mixture of
global and local (Glocalization) prevails. As MNCs standardized all the production
processes flows of knowledge, particularly globalization of knowledge and ideas,
appear in intangible assets.
4. Debatable markets in manufacturing and service sectors: It is the production of
standardized product such as durables, capital goods and other intermediate
goods. As standardized products are produced with codified knowledge in
general, the globalization of knowledge is pretty high. In such conditions
economies of scale and vertical integrations may occur.

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Environmental Issues

Global environmental concerns have arisen with the recognition of the

facts that ecologic processes are not restricted to national boundaries,
environmental problems have cross-border effects .
While the importance of the relationship between globalization and
environment is explicit, the level of knowledge on how these two dynamics
interact with each other is low. However, the relationship between
environment and globalization is bidirectional. Like globalization has
effects on environment, environment also has effects on globalization. In
this framework five striking interactions of the environment-globalization
relationship are as follows:

1. Rapid increase in global economic activities and the increase in demand for
crucial and limited
natural resources may affect the process of continuous
increase of economic wealth negatively. Some studies revealing that the
productive capacity of nature is exceeded by 25-30% .
2. Interrelated processes of globalization and environmental deterioration form new
threats for already insecure world. They affect the fragility of eco-systems and
societies, at least the most fragile ones. The poorest societies face the highest
risk. For example, even the adverse effect of climate changes excluded, the
number of people that will be adversely affected from water shortage is
expected to reach 5 billion in 2025 from its current level of 1.7 billion.
3. Concerns on global markets and global environment will mix each other and
become more interdependent.

12.

Decision for choosing right Entry Mode Strategies

Choosing right type of strategy is one of the big challenges for the
companies. Entry mode often depends on a number of factors, including
industry landscape, the geographical size and scope of the market, whether
the company plans to manufacture locally or import its products, and the
level of on-the-ground sales and technical support required by customers.
Ultimately, when choosing which form is most appropriate, a company should
consider each of these factors, along with the overall costs of setting up a
local entity and hiring local employees.
Advantages
High level of managerial
control
Can employ own people
without restrictions
Greater flexibility
Can convert RMB profits into
US dollars
Greater
level
of
IPR
protection

WFOE

Wholly Foreign
Owned Enterprise

Disadvantages

Initial set-up costs high

Long incubation period

No access to JV partner resources

Higher start-up and operating costs

(registered capital)

Some industry limitations

Minimum number of staff requirement

Tax and repatriation of profits

challenging

Joint Venture
(JV)

Mandatory for some

Less managerial control

Finding a trustworthy partner is critical

Challenging to agree terms of the

industries

Opportunity to utilise
existing sales networks and
customer base

Access to partner's

partnership

May be a long negotiation period

existing resources

Production facility

Potential risk to IPR

Success may depend on having staff

on-the-ground to oversee operations

Lower cost base (local

management)

Partner likely to negotiate terms in

their favour

Rep. Office

Quick to set up

Unable to trade

Low cost (low overheads)

Staff employed via third party

No registered capital

Limits on number of staff

requirement

Good for marketing,

partner auditing and admin

13. Developing An International Property Rights (IPR) Strategy

IPR infringement is commonplace and any company entering the
market for the first time should work under the assumption that its
technology will be compromised at some point. With this in mind, it is
generally recommended that foreign companies, and particularly those
with large IP inventories, consult with lawyers and IPR specialists to
formulate an IPR strategy for the new market. There is no one-size-fitsall IP protection strategy, and typically an effective IPR strategy mix will
employ a number of different tools. One might include a mixture of
various legal, practical and technical measures designed to prevent
infringement and ensure legal rights are enforced in the event of an
infringement.
14.

Language and Culture

Understanding of Language & culture is a big challenge for companies

going global. In one culture might be good , bad in other country. One
of the most famous examples of language and cultural gaffes by wellintentioned companies was Chevrolet's introduction of its Nova model
in Mexico, where "no va" means "it doesn't go" -- clearly a bad name
for a car. Language is not the only challenge. In Japan, discount pricing
is considered a sign of inferior products, and white is a funeral color.
These linguistic and cultural misfires can be avoided if you've
established reliable partner companies and reliable advisers or
investors in your target countries. Working according to local customs
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can allow you to access lucrative overseas markets -- but you must
develop cultural savvy prior to entering the marketplace.
15.

Cross-Time Zone Business

Managed well, your market can be as large as 40 percent of the world

population in the BRIC countries alone -- Brazil, Russia, India and China
-- but cultural differences aren't your only problem. Doing business in
different time zones can also be difficult. Be prepared to have 24-hour
management capabilities and customer care. When a significant
problem arises, such as a snafu at the port of entry, natural disaster or
trouble with local government authorities, it must be handled
immediately by an authorized manager. Even daily business decisions
involve senior management. The best solution is to have senior
management on location in your key global regions. If you run your U.S.
facilities round-the-clock with personnel work shifts to cover every
appropriate time zone, be aware that some problems require face-toface intercession by a senior corporate officer and, as rapid as air
travel may be, it's not always rapid enough.
16.

Currency

Unexpected currency fluctuation can destroy your profits, but can also
produce a windfall. The relative strength of the U.S. dollar against the
currencies in the countries you supply can make your products and
services expensive or inexpensive. This can be controlled through
currency hedging, but unless you know a great deal about this, seek
the services of a professional currency trading firm. Credit card
currency translations can also be problematic, so look for a merchant
account provider that provides the best currency conversions.
17.

Legalities

It may come as no surprise that different countries have different laws,

but you may be surprised at the problems they can pose. European
countries have strict regulations about what you can do with customer
information. Besides privacy, you will also encounter laws about selling
over the Internet, by telephone, or by fax." Varying views regarding the
protection of your intellectual property are also in play. It helps to
license your IP to a trusted overseas partner with the understanding
that the partner must responsibly protect your company interests, but
knock-off products, pirated software and proprietary products are
costly problems. Before making expensive legal mistakes, hire an
attorney experienced in international trade and protection of
intellectual property. You'll be playing in a local company's backyard,
and your company is vulnerable to any complaints they may file
against you.
18.

Delivery & Payment terms

If you've had products manufactured overseas, you're aware it can take

two months or longer to ship them to the other countries. International
trade also requires payment guarantees for orders, accomplished
through the use of bank letters-of-credit. You may also have faced the
disappointment of receiving shipping containers that have been
damaged, looted or that contain merchandise not meeting your
expectations. Delivery of ordered goods to offshore buyers can suffer
similar problems. Reliable delivery services, such as international
overnight package companies, can solve such problems and open your
customer market considerably. Again, local company managers and a
strong business relationship with an international bank, with branches
in your target markets, provide vital on-the-scene problem-solving
capability.

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Step-by-step process for international development

(1) The Initial Assessment & Analysis
Assess the international potential of your business in many countries
using EGS GlobalTeam
Assess your US and international competition to determine your
differentiation
Assess the international readiness of your systems, staff, training,
support and marketing programs
(2) The Pro-active Going International Plan
Define the best international markets that will produce the highest
Return On Investment (ROI) .
Develop a 5 year Going Global budget with training, support and
marketing program requirements
Create
international
marketing
documents
that
define
your
differentiation
Create international agreements and make trademark applications
Develop a proforma country financial/development licensee model.
(3) Implement The Going Global Business Plan
Market your concept in carefully selected priority countries using market
research and strategic advertising programs
Find and evaluate licensee, joint venture, partner or distributor
candidates using our GlobalTeam Associates around the world
Negotiate & sign international agreements.
(4) Start-up Initial Operations
The initial USA and in-country training of staff and build out of the initial
units or channels in other countries
Refine the international plan and model based on early experience
(5) Grow International Operations
Add more units in the country
Add more countries
Monitor on-going global operations and development to produce longterm revenues streams.

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