Businesses have had to face a lot of change and uncertainty over the last few years. From the UK’s decision to leave the EU to the coronavirus pandemic and the historic divisive presidential election, a lot has happened.
However, nowhere has been hit harder than the realm of international business. International business is the sale and production of goods and services between countries. There are numerous ways a business can be global:
- It produces goods domestically and sells them internationally (and domestically) – this can allow them to reach a larger audience and it can increase their revenue
- It produces goods abroad but sells them domestically – businesses typically choose to do this because of the cost of labour or taxes in their own country
- It produces goods abroad, but sells them internationally and domestically
While expanding a business overseas means reaching new clients, and potentially earning more money, the dangers involved in doing business in a foreign country are not to be forgotten. Every country has its own policies, government, laws, language, culture, currency, time zones and inflation rate. Thanks to this, navigating the global landscape can be difficult. Here are some of the common challenges faced by global businesses:
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Managing Global Teams
One of the biggest challenges faced by global businesses is the challenge of managing employees who live in different countries around the world. When trying to function as a team, it can be hard to account for cultural differences, language barriers, time zones and differing levels of technology access. However, there are lots of things you can do to overcome this issue. For example, you could complete a master’s in business management online. This course will help you to build some essential managerial and problem-solving abilities that enable you to run a business on a global scale.
It’s also a good idea to have regular check-ins with employees abroad. Research has shown that employees who are contacted regularly are three times more likely to be engaged at work than those who aren’t.
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Communication Difficulties
At the heart of any effective business strategy is good communication. However, many businesses find it extremely difficult to communicate across cultures. Business leaders will need to make sure they have competent and effective communication skills if they want to run a successful global business.
Effective communication with customers and colleagues abroad is important for success in international business. And it’s not just language barriers that you need to consider; nonverbal communication is also an important factor.
Before expanding abroad, businesses need to do some research into the cultural values and norms which might influence how you communicate with others. Understanding acceptable business etiquette abroad, and how things like cultural traditions and religious beliefs can influence this will help you to navigate any potential communication issues.
Cultural differences can also have an impact on the market demand for your product or service. The demand you have at home may not be as strong overseas. Understanding the local market is key.
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International Accounting
Tax compliance is one of the most important legal areas businesses need to consider when doing business abroad. Different tax systems, compliance regulations and rates can make the accounting task of a global business extremely challenging.
However, if you want to increase your revenue, your accounting strategy is important. Businesses need to bear in mind that the place where their business is registered can impact the amount of tax they have to pay. Therefore, it makes good business sense to mitigate the risk of multiple layers of taxation.
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Currency Rates
The global economy can be extremely volatile. Currency rate fluctuation is one of the most challenging problems international businesses have to face. Fluctuations in currency rates can have a huge impact on the balance of business expenses and profit. However, businesses can protect themselves against large fluctuations by paying suppliers in the same currency as the one they are selling in. Businesses will have to switch to more local production where possible if they want to balance their sales revenue and outgoings.
Another way businesses can protect themselves against large fluctuations is by setting up a forward contract and agreeing to a price in advance for any future sales. While this can lead to you missing out on larger profits if currency rates shift in your favour, it also protects you from losing large sums of money.
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Global Pricing Strategy
Another challenge that global businesses face is setting the value for their products and services. Businesses not only need to consider how much money they have spent making a product, but they also need to make sure they price their product competitively.
To do this, businesses will need to do some research into the local market and their competitors. This will give them an idea of how much their products or services are worth in a different country. However, it is important to make sure that you’re still making a profit. You will need to consider things like:
- Labour costs
- Shipping costs
- Marketing
- Distribution
- Profit margin
You should also consider how you want to position your products in the market. For example, will the price of your product suggest luxury status, or will low prices help you to infiltrate a new market?
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The Legal Landscape
Another challenge all global businesses face is understanding the different laws, tax rules, and regulations surrounding trade in different countries. No matter whether you’re running a multinational corporation or a small online store, understanding the legal landscape can be challenging. You will need to keep up with the different jurisdictions to make sure your business continues to operate within the law.
Running a global organisation is difficult. The increased complexity creates significant operational challenges for global companies. Some of these challenges include things like different legal landscapes, language, communication and cultural differences, access to technology and different environmental concerns. Over the next few years, we expect to see the business landscape becoming even more complex. Global companies will need to address any challenges they face if they want to remain successful.
