International Business: Political, Economic, and Logistical Challenges

Political and Legal Forces in International Business

Representative democracies vs. totalitarian regimes. Why must managers be concerned about the political makeup of a foreign country in which they are doing business? First, stable democratic countries with a high degree of political freedom tend to be characterized by economic freedom and a well-defined legal system. For example, compare doing business in Venezuela, North Korea, or Canada.

Economic Forces

Managers must understand how different economic systems work in order to understand the opportunities and threats associated with them.

• Free Market Economy
• Command Economy
• Mixed Economy

The manager of a global organization generally prefers a free-market system for two reasons:

1. Economy in private hands: less restrictions to invest.
2. Free-market economies tend to be more economically developed, so citizens tend to have higher per capita incomes and more spending power.

Sociocultural Forces

Because of cultural differences, management practices that are effective in one country might be troublesome in another. Is it better to hire local employees or expatriate managers? It can be cheaper and workers can be very knowledgeable; however, they might have different ways/procedures of working. For example, Spanish tech companies in India.

Logistical Implications of Internationalization

Internationalizing logistics networks holds consequences for inventory, handling, and transport policies.

Time to Market

Product Obsolescence: The extended lead time inherent in international logistics pipelines means that products run the risk of becoming obsolete during their time in transit. For example, it is hard to export yogurts.

Global Consolidation

Global consolidation occurs as managers seek to make best use of their assets and to secure lowest-cost resources. Familiar features of global consolidation include:

• Sourcing commodity items from low-wage economies.
• Concentration at specific sites. For example, India (Tech), Saudi Arabia (Oil), Silicon Valley (IT).
• Bulk Transportation: When a company starts exporting, for example, it is cheaper to sell one pallet instead of one single product. The opportunity for cost saving by coordinating these movements and maximizing utilization is significant.

The Challenges of International Logistics

Key Issues: What are the risks in international logistics in terms of time and inventories, and how can they be addressed?

• Extended Lead Time of Supply: It is not only about how fast we manufacture; are our suppliers reliable? What if one of our suppliers doesn't provide us with raw materials?
• Extended and unreliable transit times.
• Multiple freight modes and cost options.
• Price and currency fluctuations.
• Location Analysis: Deciding where operations are going to be performed.

CSR in the Supply Chain

Key Issue: Companies operating international or global supply chains need to incorporate social responsibility into their supply chain design.

• Efficiency: Actual output / Effective capacity
• Utilization: Actual output / Design capacity