Describe the nature of the global environment and the risks businesses encounter in the global environment. Careful consideration should be given to this concept of globalism and its impact on international business.
Much has changed for the United States since the wonderful industrial economic boom after World War II. Our successful reestablishment of international economies in the years following the WWII was ideologically correct, but we failed to retrain our own businesses and prepare them to compete internationally. Many American businesses were resting on the laurels of massive production without competition and seemed to give little thought for the future. When Dr. William Edwards Deming took his statistical expertise to Japan, the goal was to build the reputation that Japan was producing innovative quality products. (www.lii.net/deming.html) What happened in Japan and many other countries for the decades that followed forever changed world markets, and consumer consumption.
The final straw that broke the camel’s economic back, as it were, was the implementation and availability of the Internet to the common household. Retail competition is no longer just the store across the street – it is the .com Internet site who can sell the same item for less, from anywhere in the world. Consumers continue to demand more quality and quantity for less. While some markets went by the wayside, or nearly so, much of the market shifted to other places and other ideas with unique approaches and abilities to compete. American’s growing wage base found itself in competition with lower wages in foreign lands.
Enter the global economy. International buying and selling no longer requires a passport and years of business savvy. Just “surf” your way to www.amazon.com or www.ebay.com and find just the item you desire. When you no longer need or want it, sell it to someone else on the same web site. And delivery, even international delivery, is not a problem. United Parcel Service (UPS) and Federal Express (FedEx) can deliver anytime, anywhere. Not only have the markets gone international, finances are now globally impacted by world events. Wow. All this has happened within my lifetime. From pre-conception of the basic ideas to everyday life as we know it, it all happened basically within a generation.
Clearly businesses, especially American companies, can no longer ignore foreign competition. They must embrace the realities of a global marketplace and learn to live and operate within it. There are risks to competing globally, especially for those who are truly organized or operating as international businesses. In our text, the authors describe many examples of the types of risk a business could potentially encounter, including payment & delivery risks, concerns over currency and exchange rates, distance & communications, and political risks.
Payment risks are the real potential for a buyer to default, or fail to pay, on a contract, while delivery risks relate to the buyer not receiving (or claiming they did not receive) the shipment. Since businesses have capital tied up in their product inventories, both of these impact an already lean profit margin. When a buyer does make payment, foreign currency exchange rates can impact the real value of the payment positively or negatively. The value of the U.S. dollar is adjusted every business day against foreign currencies.
When there are problems or concerns to be resolved, distance and communication can be significant obstacles. With today’s communication technologies, these can be easily overcome, provided both parties are working towards a solution. Either way, there are costs involved in the forms of time and expense. Political risks can be the most troubling because the business owner can often do little to nothing about it. Months of negotiations and building a working relationship with a customer...