INTERNATIONAL

UNIT 1 SECTION 5 HURDLES OF INTERNATIONAL BUSINESS

BUSINESS Unit 1, section 5: Hurdles of international business

Before any business enters into a new market or environment, it is necessary

for management to analyse the said new market or environment. This
implies that management will have to match the actual and potential
strengths of the new market or environment against its weaknesses, while
capitalising on any available opportunities by reducing all actual and
potential threats in sight. This is what is known in management as the
SWOT analysis. In this Section, however, we are only going to look at the
possible variables that serve as threats or hurdles to international business.

By the end of this Section, you should be able to:

 list the threats to international business
 explain the threats listed in item (a)
 examine how the business can take advantage of any available strengths
 identify how actual and potential threats may be overcome

Now read on......

Economic Hurdles
As stated already, before a business will enter into a new environment, a
SWOT analysis needs to be conducted by management. SWOT simply
stands for “strengths, weaknesses, opportunities, and threats”. One possible
threat to international business is the economic situation of the host country
in which the new business seeks to enter. Some of these economic variables
include the real economic growth rate, the gross domestic product, inflation
rate, interest rate, unemployment rate, tax exemptions or reliefs, value of the
country’s currency relative to other currencies, the exchange rate, and many
more.

Besides assessing current economic conditions, actual or potential

international business firms need to forecast future conditions in any
country they operate in, sell to, or purchase from. This is to say that what
will the inflation rate be in five years time; will the rate increase or decrease;
how buoyant is the economy, will there be any government subsidies in the
area you wish to invest; and many more such questions. Multinational
companies must also evaluate a country’s infrastructure or the facilities
needed to support economic activities. These include the financial
institutions, transportation systems, communication systems, the quantity
and quality, and costs of educational institutions, hospitals and many more.

Political / Legal Hurdles

One of the greatest problems in Africa is political instability. Any
international business firm that wants to expand into any African country
must analyse its political stability before any such action is taken. This
involves finding out the business-friendly attitudes of the ruling government
party, the opposition parties, and the effectiveness of government
bureaucracy.

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It is worth noting that both a country’s internal and foreign policies can
seriously cripple or influence the business environment. Firms entering a
foreign market must also adjust to the legal environment which includes
different laws and regulations concerning taxes, tariffs, quotas, copyright
laws and many more.
To overcome these political hurdles which permeate through almost all the
countries around the globe, however, the multinationals have of late started
what may be described as political forecasting to determine the possibility
of any political changes either in the short or long run. Political forecasting
has now become as sophisticated as economic forecasting, if not more.

Technological Hurdles
International businesses need to be sensitive in introducing new technology
to foreign cultures and appreciate the fact that levels of technology vary
among countries. Any technological change is difficult, and the support of
the host government is very essential. Some experts argue that most
multinational businesses have failed to adjust their operations to suit the
varying levels of technological sophistication found throughout the world.

Introducing automated production techniques to a culture whose technology

depends on extensive manual labour may be neither appropriate nor
successful. For example, some less developed countries have such primitive
transportation and storage systems that make international food exchange
ineffective, because the food goes bad before it reaches those who need it
most.

Social Hurdles
This is also a very important hurdle to international business because what
one sees as ethical will be unethical for another society. Sociologist call this
cultural relativism, which means what is right or wrong depends on the
culture of the country or society where the business is taking place.

One has to critically examine the social variables of the country it hopes to
enter in terms of the cultural and demographic differences, lifestyle, buying
and selling habits, garbage and waste disposal, and many more. Some
societies are seen to be dangerously ethnocentric, that is the feeling that
one’s culture is superior to all others. It is necessary to assess these
behavioural traits in the society the firm wishes to enter.

In the Arab world, for instance, trade in alcoholic beverages are seriously
forbidden and is punishable by death. Again is a crime against the Islamic
religion for a woman to expose the body. Therefore, any international
business firm that is in the business of exporting alcoholic beverages or such
clothes will not sell in those countries.

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BUSINESS Unit 1, section 5: Hurdles of international business

Indeed, religion is a very important aspect of any society’s culture and can
have significant impact on business operations. According to Ball and
McCulloch (1999), an American manager in Islamic Pakistan toured a new
plant under his control which was in full operation. He went to his office to
make some preliminary forecast of production. As he was working,
suddenly all the machinery in the plant stopped. He rushed out expecting a
possible power failure, but to his amazement, he found his production team
of workers on their prayer rugs!

Problems with Currency Conversion

There is no one acceptable universal currency. No, not even the almighty
American Dollar or the British Pound Sterling! Thus, people always trade in
different currencies. Ghanaians trade with the cedi, Germans with euro,
South Koreans with won, Japanese yen, Chinese yuan, South Africans the
rand, and Nigerians the naira.

Globally, the U.S. Dollar is considered the world’s most dominant currency.
This does not mean, however, that the dollar always retains its value. For
example, today one dollar may be exchanged for GHC3.50. But by
tomorrow, this value might either increase or decrease. International
businesses need to assess the changes in a host country’s exchange rate
because it has very serious implications on the firm’s international
operations.

Differences in Time and Distance

As was discussed in Section 1 of Unit 1 of this manual, not all countries are
in the same time zones around the globe. There are twelve geographical
time zones between the Greenwich Meridian Time (GMT) which passes
through Tema, and the International Date Line which is located somewhere
in the Pacific Ocean.

Thus, there are huge distances of kilometres the time-lag between the
placing of an order from a supplier by the buyer and the delivery of the
goods. This is referred to as the lead time. The lead time affect international
trade in several ways, such as changes in pricing, changes in taxation,
changes in transport costs, and additional working capital requirements.

Summary
In this Section, we have explained some of the hurdles of international
business. These are the obstacles businesses seeking to enter into the global
market are likely to face. The bureaucratic attitudes (i.e. the application of
explicit rules and regulations to businesses) and cultural control (i.e. the use
of implicit and formal acts in businesses) must all be carefully looked at.
Please, refer to other texts in the references provided for further information
on the meaning and importance of this topic. Put down any important notes

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you come across in the blank sheet provided below for face-to-face
discussions with your course lecturer.

If you are sure you have understood this Section, then you must assess your
understanding by answering the following Self-Assessment Questions
[SAQs]. Good luck!

Activity 1.5
 Before a business enters into a new market or environment, it is deemed
necessary to analyse that environment. (True/False)
 Explain the reason for your answer in (a) above.
 State three hurdles in international business and support with local
examples.

Did you score all? That’s great! Keep it up.

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