Domestic companies can greatly increase production and profits by expanding into global markets. International firms have access to a larger workforce and a bigger customer base. Nevertheless, the global business scene can expose companies to a wide variety of issues and complications. Matters related to the workforce, energy, currency and sociopolitical issues can make or break a firm.
You can't expand overseas unless you have access to a suitably skilled workforce. This presents problems for firms dealing with advanced technologies or specialized fields. In the absence of an adequate local workforce, you may have to spend a lot of money to recruit workers from other countries. On the other end of the spectrum, many global firms locate production facilities in less-developed nations because labor costs are low. However, some nations lack laws protecting workers' rights and preventing child exploitation. Low labor costs are offset by the reputational damage done to a firm that knowingly or unwittingly relies on child labor.
Currency values fluctuate over time, and this can cause major problems for global firms. When the dollar rises in value, a firm's overseas labor and production costs decrease. The opposite happens when the dollar drops in value. If the dollar dropped dramatically against Asian or African currencies, the cost of producing goods overseas may exceed the cost of producing goods in the U.S. Currencies in developing nations are particularly prone to major fluctuations. This makes long-term planning and budgeting particularly challenging.
As with currencies, energy prices are prone to volatility. Energy costs directly impact firms involved in imports and exports. A slight hike in the cost of gas has minimal impact on a firm based solely in one town. The same hike could have a drastic impact on a global firm that ships goods around the world. Rising energy costs could cause a firm to look for different ways to ship goods. For example, it may cost less to ship by sea rather than by air. However, such a change also affects the amount of time it takes to move goods around the globe. This could also negatively impact the company's bottom line.
Arguably, the least controllable aspect of global business involves sociopolitical risk. This encompasses a wide variety of legal and cultural issues that could change at any time. A revolution in one nation could see an entire set of laws replaced by new regulations. This could impact everything from ownership rights to tariffs on exports. During the 20th century, countries such as Iran and Afghanistan moved from societies based around western-style democracies to religious theocracies. This impacted not just the business environment but also cultural and social matters such as women's rights and freedom of speech. Global firms in such environments have to adapt very quickly or withdraw and find new markets.
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