Archives for posts with tag: International Business

by Merlin Hernandez

 

Emerging business practices among global partners often attempt to superimpose alien cultural values and practices on local standards and traditions. There is often the assumption by western societies that pathways to development in less-developed economies involve the adoption of western models, policies, and similar projects. It is an ethnocentric view that applies western-biased value judgments to foreign cultural traditions and indigenous growth models.

This presents ethical dilemmas that arise in the tradeoff between economic growth and political self-determination. Large multinationals have long taken advantage of the growth potential of so-called emerging markets through cheap labor for manufacturing and/or indigenous micro distribution networks that have intimate knowledge of localized channels. But little consideration is given to the value of these communities to the corporations’ cost efficiencies and distribution networks i.e. host economies are vital components to increased profits but not sufficiently valued to warrant investment in their socio-economic condition.

Traditional economic measures of societal development (GNP, GDP) have come under criticism for their failure to fully accommodate quality of life (QOL) factors to real development. This has resulted in the development of social indicators which are slowly infusing measurements for ethical business practices into the mix, particularly in a cross-cultural context. Multinational corporations may be ethically bound to participate more directly in the development of host economies by seeking to engage governments in a dialogue on how they might improve the lives of those who will comprise the labor force or provide ancillary services.

Current globalization practices are not geared towards the macroeconomic changes that empower the world’s poorer people. These relationships do not support better working conditions, improved wage structures, easier access to education, nutrition or health care. It is a business model that remains essentially one-sided with profits funneled back to the parent company. So while growth is generated in the poorer economy, ownership still rests with the developed world and the populations of host nations do not benefit from the long term advantages of their productivity.

Economic colonialism results from the wanton imposition of business models and policies with a profound profit motive that serves to enrich only the major corporations operating in these less-developed economies.  Global businesses have used these localized systems with little regard for the QOL considerations of their micro partners. It gives an appreciation of the Chinese model for global integration which has a clear focus on China’s needs in the equation with a web of regulations and allowable practices designed to support the growth of indigenous Chinese businesses.

A more ethical approach on the part of multinationals would involve the building of meaningful partnerships through the recognition of the developmental needs of the local economy. Corporate proactivity may take the form of micro entrepreneurship schemes through facilitating uncollaterized micro credit for small factories and micro distributors as well as businesses like bakeries, laundermats, groceries, drug stores, feed stores, agribusiness – ventures that will grow with the new job opportunities and higher standard of living of small towns and villages.

Responsible and ethical marketing practices would then view host economies not merely as emerging markets – a passive construct – but as emerging participants in the global business environment with the capacity to be producers as well as consumers. Partnership with government agencies can see new schools and health centers to more efficiently serve the needs of the community.  Community micro distribution channels that benefit the market penetration objectives of the multinational partner will see higher living standards translate into higher sales volumes. It would indeed be a win-win all around – for producer, intermediary, and consumer.

Global expansion will then be governed by the need for large western corporations to be instrumental in improving living standards, and initiating social enterprise as well as inclusive capitalism projects. This would help to develop local expertise and small businesses, and facilitate business training and access to micro credit that will support economic growth and social empowerment, the building blocks of self-determination.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. For more information on this and other topics, please send enquiries to businesssolutions1168@gmail.com

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by Merlin Hernandez

There are several trends which are certainly slowing down, if not reversing, the rapid pace of globalization. There is evidence of protectionism, nationalist sentiments and renewed economic regulations as a response to the recent economic crisis as well as other risks involved in operating in a globalised world. Acting globally has become the norm for most companies and there are benefits to be derived from a global reach. When faced with some of the risks associated with a globalised economy, however, government and companies are increasingly reverting to a more nationalistic and protectionist stance.

The recent economic crisis has certainly heightened the strength of some of anti-globalization trends as we see moves toward insourcing, more vigilant tax regimes, and tighter immigration oversight. While these types of reactions are unlikely to reverse globalization, they may well slow its development and can lead to more uneven development for the smaller, more vulnerable economies. Globalization has built deeply integrated connections between societies and economies that will not be broken easily and in many ways has become a defining and permanent feature of world economic relationships.

Attempts to temper economic and political fallout from global integration can roll back the gains of developing economies through job losses, reduced disposable incomes and spending power, lower GDP and economic stature – all of which will negatively impact the more vulnerable economic partners. As less developed economies shrink and people seek jobs and opportunities beyond their home ground, issues of immigration, national security, and strained social infrastructure become concerns of larger metropolitan economies.

Resurgence of Nationalism

As the global economy shrinks, economic nationalism is emerging as attractive to US and EU governments and business. But a globalized economy does not have to mean total integration with the world economy. The key will be strategic integration with the international economy as a factor of national planning in ways that seek to balance two critical factors – immigration and capital flows.

Recent nationalist policies have affected migration flows which can place additional strain on developing countries in the fight against unemployment. On the one hand there is the risk of a significant shift of much needed expertise away from developing countries to more established economies. Increasing unemployment, reduced entrepreneurship and expertise as well as lower spending power as a result of the new wave of protectionism by larger economies will exacerbate economic constriction in the developing world. Further unbalance in the world economy can have a negative effect on political stability and security interests. An increased demand for aid and crisis intervention can be expected.

Many developed countries are already restricting the supply of visas, except for the highest skills, and reducing immigration as a whole, which is a critical aspect of globalization. There is also the possibility that an overreaction in restricting migration (technical experts, migrant workers) may in fact lead to a further slowing of domestic growth in countries like the US, as well as a reversal of this element of the globalization process.

Monetary Rationalization

Following 9/11, nationalism also became the driver that threatened the flow of global capital. It is not new for global economic contraction to restrict capital mobility. But the historical effects of such policy on global savings and investment balances in the world economy would indicate a serious look at alternative strategies. The single currency idea which has been forwarded at different points in the debate might be revisited. Even with the dialing back of the globalization thrust, national currencies and global markets do make strange bedfellows. A multinational currency is worth consideration.

The US dollar is not only a national currency, it has become the primary international reserve and vehicle currency. With rising economic nationalism, capital management within the national interests of each economy would tend to lean toward more short term capital movements during periods of economic instability. But that does not factor depreciation that could drive capital out of individual currencies. Of course an appreciation of a particular currency will conversely attract capital into those assets. It is a scenario that may be characterized by wide swings in exchange rates which can only compound transnational financial instability. It does make the case for the need to operate under the umbrella of an internationally agreed financial framework to mitigate further global financial fallout.

Faced with these barriers and growing resistance to globalization trends at home, some multinational corporations are rethinking their outsourcing and offshoring strategies, giving more weight to nationalist reputation along with political and transport risks associated with widely dispersed supply chains. Furthermore, the current period of crisis and indebtedness in rich countries, along with rising reserves and assets in sovereign reserve funds from both developed and emerging economies have changed the nature of global investment supply and demand. Emerging financial players, such as China, now have the opportunity to buy global assets, more specifically assets in developed countries. These relationships will not be easily reversed. It all translates into globalization being here to stay but requires a strategy for global economic and monetary rationalization.

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by Merlin Hernandez

Small businesses typically develop their risk profiles from past experience and management judgment. But current economic challenges would indicate the need to look beyond what is known for their long term survival. Smaller enterprises are increasingly finding lucrative opportunities overseas. Size and capitalization are no longer impediments to operating globally as information technologies have so reduced time-cost considerations as to afford small and medium enterprises (SMEs) entry to doing business internationally.

The globalized environment and its increased interdependence, however, has funneled a rise in the sources and speed of risk transmission in vital areas such as financial markets, energy, internet, and logistics to require an altered mind set in assessing risk. For example a distant earthquake or typhoon that causes internet disruption or extensive damage to port facilities can cause significant rupture to the supply chain or short term market potential. Additionally, the effect of the global financial crisis on capital markets, and the new global politics of debt and its impact on economic growth, taxation, credit markets, regulatory changes, and political stability bring greater uncertainty into the global business and investment climate.

In spite of what has been described as anti-globalization sentiments, SMEs are still finding that globalizing operations is worth the risks to reduce costs, improve efficiencies, and increase profits. Even for SMEs that choose not to ‘go global’ these risks may still affect their operational efficiencies. A well-structured global strategy can offer better supply chain management, opportunities to exploit overseas market niches, or centroid manufacturing advantages in order to compete more effectively. But in the dynamic world of contemporary business, new types of risks are always immanent, and firms need a risk management protocol that constantly scans the environment for new threats. This makes risk identification as a feature of historical data analysis limited in its ability to mitigate challenges in an ever-changing landscape.

Risk management plans also fall short when they are siloed within the business life cycle, phase, project, or unit in an approach that strategizes for causes and their direct effects. Failure derives from attempts to minimize the effects of those causes without accommodating the full long term strategic perspective, changes in the operating environment or new opportunities for competitive advantage that might arise out of those risks.

Since business activities remain organic and interrelated for long term efficiencies, risk management should take an aggregated approach with management action focused more on root causes rather than immediate causes, using integrated mitigation strategies for wider organizational benefit in the longer term. Contingency planning, disaster management, and a change management orientation would additionally provide an agile response matrix for greater risk tolerance and mitigation in a contemporary risk management approach.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. She has extensive experience in International Trade. For more information on this topic, please send enquiries to businesssolutions1168@gmail.com

by Merlin Hernandez

Intellectual Asset Management is a key driver to adding economic value to a business – managing patents, trademarks, invention disclosures, licensing agreements, and conflicts can achieve unmatched efficiency with patent annuity and trademark renewal payments. IP Risk Management has become central to strategic decision-making as business environments have become more global with increased competition, and the uncertainty of doing business in unfamiliar territory. In today’s age of rapid information transfer, any industry would find that protecting its tangible and intellectual property rights for designs, processes, and products is a challenge that requires a specific risk management protocol.

In the automotive industry, global expansion has meant cheap labor, a less-regulated environment for manufacturing, and new markets. But with globalization has come the culture of Intellectual Property (IP) theft, referred to by the FBI as the crime of the 21st century. Illegitimate goods (knock-offs), where designs are stolen, copied, and sold as cheaper abound. Sub-standard products compete successfully with original manufacturers. Original Equipment Manufacturers (OEM’s) in the Automotive industry spend millions in Research and Development for new products and components only to discover a competitor’s cheap knock-off under a competing brand name, with the original product barely dispersed in the marketplace.

China, as an emerging economy has been seen as a major culprit. It is the fastest growing automotive market and one that US auto manufacturers cannot ignore for the manufacture and marketing of vehicles and replacement parts. In 2004 GM filed suit against China’s Chery Automobile Co. for alleged piracy. The less expensive Chery QQ was almost identical to the GM/Daewoo Spark which was behind in sales because of a later launch – GM believed that Chery acquired its research by nefarious means and did not have to make the large R&D investment.

For the automakers and other businesses pursuing globalization initiatives, IP infringements and threats to profit margins revolve around piracy of designs and plans, counterfeiting of newly developed products, and the stealing of finished goods. A baseline strategy for businesses seeking global expansion is to conduct international business only with countries that are signatories to the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). This is administered by the World Trade Organization (WTO), and part of the General Agreement on Tariffs and Trade (GATT). The courts in these countries have an obligation to protect treaty provisions.

But this is a bare bones strategy and the loss of market advantage as a result of IP theft as well as the financial loss in terms of R&D investment and projected revenues indicates the need for a comprehensive approach to the risks arising from IP violations. These risks can extend to brand damage when inferior products are confused original manufacturer brands and issues of perceived liability that can hurt the corporate image. All of these can threaten expansion and developmental initiatives which could result in lost opportunities.

IP protection has to be given strategic priority with loss prevention measures, heightened security and non-compete agreements, and close market vigilance for infringements, among a host of risk management measures necessary to protect the business from inevitable exposure in many overseas environments.

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