Issues host countries face from PPQ Parts’ expansion
Before a company expands into another country or market, it usually conducts market research to determine if the venture will be viable. During market research, the company will analyze the social, economic, and political environment of the host country (Kotler, & Keller, 2009). A viable market will be the one which has proper infrastructure, adequate natural resources, proper government regulation and the good will of the people. The government of the host country has the responsibility of creating a favorable business environment for both local and foreign investors.
Government usually develops policies to attract and retain investors. One of them is to create a tax regime that gives investors tax waivers during the period in which they will be establishing their business. This usually presents a challenge in that it denies the host government much needed revenue. The government often has to undertake massive infrastructural upgrading which usually requires huge capital investment. To find a balance between government investment and the actual profit from the investors is a major issue.
The host country could face labor issues. This is a situation where the country cannot provide the technical expertise required by the new company. This is usually as a result of a new foreign technology or poor educational systems. Another issue is the protection of the environment from degradation by the investors’ industries. The host country also has to contend with the culture of the expanding company. Large multinational companies often ignore the cultures and traditions of the host countries. This often results in conflict and bad blood between the locals and the companies.
Cultural and Diversity Issues face by Multinational Companies
Globalization is a phenomenon that has opened up the world allowing interactions across the globe. Companies from any part of the world have a chance to meet clients and conduct business in any international market. This has allowed businesses to grow and expand away from their home countries into foreign countries in search of new markets and more profits.
International and multinational companies have had to learn and incorporate the cultures of their host countries in order to succeed (Kotler, Gary, & Saunders, 2008). Ignoring the culture and diversity of the host people can lead to disaster and poor business performance including business failure. Diversity can be described as different viewpoints held by individuals within a setting such as an organization. Diversity comes from different cultures, beliefs and attitudes (Kurtz, MacKenzie, and Snow, 2009). To succeed, a company must consider the diversity within its own organization during decision making. The organization must find a way balance all interest without creating conflict or confusion.
Culture is a complex product of customs, traditions, language, and the way of life of a people. A foreign company in a new country must learn and understand the cultures of the host country before it can operate successfully (Kurtz, MacKenzie, and Snow, 2009). Different cultures conduct different differently. Methods of negotiation, the dressing code, food, body language and the people at the negotiating table could make or break a business deal. Some cultures prefer bowing down to shaking hands. Others expect gifts after negotiations. In the Middle East, inviting women to a social function may be offensive. Language is a key aspect of culture. A proper understanding of the local business language is critical to the company’s ability to communicate properly with its associates, suppliers and clients. The business will be able to avoid embarrassing situations such a product advertisement, which offends the hosts (Kotler, & Keller, 2009).
Importance of diversity in International Business
Companies operating in an international environment at often composed of different individuals with different cultural backgrounds. This presents a major problem for organizational management which has to create a healthy working environment for the employees. Creating a health organizational culture is the main goal of understanding diversity. Balancing the divergent beliefs and cultural influences of all employees is not easy because conflicting beliefs bring conflict and chaos (Kotler, Gary, & Saunders, 2008). To avoid this, the management of the company has to acknowledge the diversity within its structure and develop policies that will accommodate all. Accepting diversity will also help the company to develop proper conflict resolution mechanisms to deal with any issues that may arise among the employees.
Problems cause by ignoring Culture and Diversity
A company that ignores the importance of culture and diversity in the host country could suffer business failure. The company will not be able to meet the needs and expectations of its both its employees and customers. The company will have a poor organizational culture will not be able to create a friendly working environment for the culturally diverse workforce (Kotler, & Keller, 2009). This will result into a high employee turnover which will affect company productivity negatively leading to losses.
When a company fails to take the culture of the host country seriously, the result is often disastrous. The product of the company could fail to penetrate the market as expected because of the content, packaging, or promotion (Hill, and Gareth, 2007). The image of the company could easily suffer from poor advertising strategies such as mistakes in translation of inadvertent offensive messages. All these could destroy the goodwill established leading to poor sales and eventual business collapse.
Political and Economic Issues and Possible solutions
Political issues, which affect multinationals are those issues related with the leadership of the host country, which affect the business environment. One issue that a company could face during expansion is political interference. This could occur in the form of unnecessary control by the government through tough policies and regulation. The best way to avoid political interference is to involve a competent legal team during the negotiation and contracting process. Another political issue is internal security and political stability. The government in power should be strong and capable of averting civil strife, terrorism or war. The international company should study the political history of each country before choosing the most politically stable (Hill, and Gareth, 2007).
The main concern for many multinationals is the profitability of the new venture. These companies have to examine economic issues such as the volatility of the local currency and the overall performance of the economy. A possible solution to a volatile currency would be to conduct business in US Dollars which is a stable international currency of trade. This will cushion the company from loses during exchange of currencies.
PPQ Parts will require different approaches to its expansion plans in Germany and Japan. Both countries suffered great devastation during the world war but remain economically and culturally different (Doeringer, Lorenz, and Terkla, 2003). Germany is one of the major economies of the world. The country is technologically advanced and politically stable. The people of Germany embrace individualism and independence. Japan on the other hand is the second largest economy in the world (Doeringer, Lorenz, and Terkla, 2003). The people of Japan are hardworking and loyal to their employees. The Japanese value family honor and respect for the elderly. They shoe respect by bowing their heads as opposed to shaking hands. PPQ Parts will have to develop its entry strategies around the political, economic and social environment of these two different countries.
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