What Are the Obstacles for International Businesses?

Debra Johnson and Colin Turner explain in their book “International Business” that the trend of globalization compels businesses to devise strategies to take their operations overseas. Johnson and Turner cite factors for this trend including marketing globalization, rising above the limitations of the domestic market and exploiting differences in the foreign market. However, venturing overseas does not guarantee higher returns. Many firms face several common obstacles when they choose to expand operations abroad.

Marketing

Conveying the message, purpose and function of a product must be done in accordance with local traditions and customs. Hurdles of marketing overseas include tackling language barriers, understanding the regional cuisine and employing appropriate sales tactics.

In some cases, even the best marketing plans can go awry. Michael White provides an example in his book, “A Short Course in International Marketing Blunders,” of a Swiss government PR campaign that didn’t turn out as planned: When the Swiss government shipped 50 fiberglass cows to place around the city of New York to conjure images of Switzerland’s bucolic countryside, the population discovered these cows were highly flammable. Instead of decorating them as intended, many citizens enjoyed lighting them on fire.

Economics

The economy of the targeted foreign country mandates consideration. Factors include level of political corruption and instability, type of government and the quality of the labor force. Developed countries with an educated workforce are typically more expensive choices than nations with political instability and a corrupt government. Thus, businesses usually analyze the trade-off between cost and stability when outsourcing certain business operations.

Financial

Multinational corporations overcome obstacles including the risk of foreign currency exchange and corporate taxes. Michael Connolly, author of “International Business Finance,” states businesses manage risk by establishing a forward or future contract with foreign parties. Connolly explains that a forward contract is a customized agreement whereas a future contract is a standard agreement. Both contracts prevent a business from losing significant funds by exchanging currency at the spot rate. Furthermore, the business knows in advance how much money a negotiation will cost. Additional financial hurdles include paying the nation’s corporate tax and determining which country or foreign vendor offers the best deals.

Logistics

Transporting a product into the foreign country or back into the host country is a common business hurdle. In most cases, companies find a local contractor familiar with the local roads and the general area. Local contractors also usually know the country’s least expensive and most reliable shipment methods. Nonetheless, shopping for a reliable vendor is a significant undertaking. Many multinational corporations expect the contractor to provide reliable tracking methods to ensure the inventory arrives in a timely manner. Quality control is another logistical hurdle -- certain factory standards might be lower in a foreign country than in the United States. Mattel learned this lesson the hard way when the company had to recall several toys -- all decorated with potentially harmful lead-based paint -- that were produced in its factories in China.

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About the Author

Since 2008 Catherine Capozzi has been writing business, finance and economics-related articles from her home in the sunny state of Arizona. She is pursuing a Bachelor of Science in economics from the W.P. Carey School of Business at Arizona State University, which has given her a love of spreadsheets and corporate life.