The reasons for intensified competition in international markets are not far fetched. This is as a result of emergence of new competitors in the market and growth rate of the market than anticipated.
The appearance of Less Developed countries (LDCs) based firms in the markets of other developing nations and the heightening of competition from foreign companies that have moved into the Japanese and American markets has caused recent development in international competition.
The national competitiveness in the United States, Europe and as the Yen appreciated;to a new height in Japan is a great concern in international markets.
Management will be able to understand, the competitive forces by using data concerning the marketing Organisation and the competitors’ strengths and weaknesses which is a requisite for making sound investment decisions and formulating marketing strategies.
The channels of distribution are both a controllable and uncontrollable variable. Managements are free to choose channels (controllable), but generally they must select channels from those that are available (uncontrollable). It is when the established channels or agencies do not fulfill the firm’s requirements that new ones will be created.
The stage of economic determines the wholesaling and retaining structures, for example, if a country is less developed the more numerous, the more specialized and the smaller are the middlemen. But among the developed countries and the more advanced LDCs there is a worldwide trend toward a concentration of wholesalers and retailers. In going up the scale from LDCs to the industrialized nations, one encounters more mass merchandising, more self service, and larger retail units.
It is important for the management, when selecting channels of distribution, to consider the characteristics of the market, the product, the company, and the middlemen.
Economic Forces
The economic analysis increases in complexity as the firms enter international operations. The reason for this is not far fetched, because managers are operating in two environments, foreign and international, and these economics are frequently highly divergent.
Data concerning the size and rates of change of a number of economic and socio-economic factors are required, by various functions of the firm, The economic factors consisted of GNP, GNP/Capital, distribution of income, personal consumption, expenditures, private investment, and unit labour costs. While the principal, socio-economic dimensions are total population, age distribution, population density and population distribution.
Some of these information are available from the publications put out by supernational agencies, governments, banks and business publications. National economic plans, for which American counterpart exists, provide an insight as to government expectations. In the communist countries, national plans are often the equivalent of market studies. There is a tendency on the part of some communist governments to take a more flexible approach in their planning.
Foreign Investment Decisions
The question that should readily come to our minds is “What motivated the American firms to move their operations overseas? Several explanations are offered for the movement. First, with the emergence of trading blocs like the common market in Europe, American firms feared, that their goods might face import tarrifs in these countries. To avoid such trade barrier, US firms started manufacturing in foreign countries. The second factor was the lower production costs overseas. Firms were motivated by the significantly lower wage costs prevailing in foreign countries.
Thirdly, superior American technology gave US firms an easy access to oil exploration, mining and manufacturing in many developing nations. The fourth advantage relates to taxes. The US based Multinational firms are able to postpone payment of US taxes on income earned abroad until such income is actually repatriated to the parent company. This tax deferral provision can be used by a MNC to minimize its tax liability. Also, the corporate income tax rates elsewhere are often lower than in the US. Some countries like Israel, Ireland and South Africa offer special tax incentives for foreign firms that establish operations there
The decision to invest in a foreign investment, other companies quickly follow with defensive investments in the same foreign country, foreign investments undertaken US, Ur and rubber companies are classic examples of this competitive reaction. Whenever you find a Fire Stone subsidiary in a foreign country, you are likely to see a Good year affiliate also operating in that country.
Many academics believe that international diversification of risks is also an important motivation for direct foreign investment. The basic premise of portfolio theory in finance is that an investor can reduce the risk level of a portfolio by combining those investment whose returns are less than perfectly positively correlated. It is argued, however, that institutional and political constraints, language barriers and lack of adequate information on foreign investments prevent investors from diversifying across nations.
Multinational firms, on the other hand, through their unique position around the world, derive the benefits of international diversification. In the early 80s, West Germany, the OK, Japan and Canada were the major investors in the US. In addition to the international diversification and strategic considerations, many other factors are responsible forth is rapid inflow of foreign capital into the US. increased foreign labour costs in some countries and saturated overseas markets in others are party responsible.
Common Interest and Conflict Areas
Common interest and potential-areas of conflict do normally arise between the enterprise and the government. All business organisations must recognise governmental policies and actions as constraints in business decision making. The nation as a sovereign power sets the rules for governing business transactions within and across its national boundaries. Such controls may lead to increase national benefits, protect the public interest and resolve conflicts between business and government. Nation states felt reasonably competent to protect their national interest and were sensitive to few conflicts of interest with international business.
The rapid growth of the international enterprise has tremendously sensitized and dramatically changed business government relations in international business. Inevitably, therefore, an inherent conflict potential exists between the multinational enterprise and the nation state, whether it be the home country of the parent or the host countries within which affiliates are located.
Any member of the multinational family is subject to the commands of the sovereign state within which it operates. Unlike purely domestic firms, it also responds to outside commands emanating from the parent, other family members or even indirectly from other sovereign states. In addition to the conflict issues, the presence within a nation of an appendage of a powerful multinational system may also generate local tensions and appear to be a throat to national sovereignty.
Thus each of the nation states has begun to exercise its sovereign power to influence the behaviour of the multinational enterprise as the inherent differences in goals have become apparent. One level of national response has been protective or harmonising as a way to reduce or reshape perceived threats to national economic, political and cultural goals. Another level of national response is to capture for a specific nation as large a share as possible of the total global benefits generated by the multinational enterprise.
The phenomenal recent expansion of international business is impressive evidence that the mutuality of interests between the nation state and the multinational enterprise heavily outweighs the divergent interests.
Not surprisingly, international business arms are keenly aware of and emphasize the benefits nations derive from their operations. Yet, international managers must be equally familiar with the conflict potentials either perceived or present in their operations so as to anticipate and deal with the complex government environment of many sovereign nation states.
Contributions of Business to the Most Country
The positive contributions to a host country of international business operations can be extensive and these are enumerated below. Mobilization of external capital, management skills and technological know-how through the operations of multinational enterprise.
It can supply one or more missing factors that can be combined with locally available human and physical resources.
It can accelerate economic growth both by a transfer of resources and by the multiplier effect of providing an opportunity for locally available resources to become more fully utilized.
Multinational firm can provide business experience for national that enlarge the entrepreneurial capacity of a country, and can supply training for local management, technical, supervisory and operating personnel.
It may open up access to new foreign markets and train nationals in marketing management.
International business may stimulate competition in domestic markets, and competition can be a mighty force for change and development Linkage effects – the opening up of new opportunities for firms to become suppliers, further manufacturers and sellers of the product of the foreign finance venture can be another type of contribution to economic growth.
In sum, economic contributions can be transfers of resources and technology, more rapid national growth, increased employment, new sources of foreign exchange earnings and a stimulating effect on other types of business activity.
It can contribute to the nationalistic goals of a country. It can help to satisfy the national desire to have a modem business and industrial sector and to have high technology prestige products produced within the country.
It can help to meet national security goals by making certain technology available or by creating domestic production facilities for high priority defence needs.
The influence of international business on social development goals may be intangible and dispersed, yet real.
In a broad sense, the multinational enterprise can be a strong force for “modernization” within a country.
It can contribute directly to better education, improved health conditions and housing.
Benefits of Multinational Enterprise to Home Country of The Enterprise
Foreign investment can develop source of natural resources or products which are available, or not available in sufficient quantity in the home country or which are cheaper sources of supply.
The establishment of foreign producing facilities may stimulate demand for home country exports of components or raw materials and, in turn, increase home country exports employment.
Multinational enterprises can generate return flows of income on foreign investment and contribute to the home country’s balance of payments.
The greater total profits likely to accrue to the multinational enterprise through exploiting the potential efficiencies of global operations can mean greater home country tax revenues on increased profits.
The sale of technology and of technical and management services to foreign licenses can also generate income, foreign exchange and tax revenues for the home country.
Areas of common interest between the political goals of the home country and the activities of the international business firm can also be significant. Trade expansion is generally regarded as a contribution, toward better understanding and peace among nations.
International business can satisfy home country nationalistic goals of prestige and, national security.
International business can support foreign policies of the home country aimed at stimulating the economic growth of less developed countries or assisting the reconstruction efforts of war devastated areas.
Going through these benefits, the potential contributions of international business operations to the goals of specific nation is impressive. But the relationship between international business and national interests of the nation states also has a negative or conflicts side which exists at two levels.
At the more general level, nations often perceive the total multinational business phenomenon as a source of national tensions and as a threat to both economic and political sovereignty. While at the specific level, individual projects involve costs as well as benefits both of which must be evaluated in determining whether the net result of such activities is-positive or negative,
Nation’s general attitudes towards international business are built from their evaluation of individual business activities. Yet, the threats to sovereignty reflect considerations over and above the sum of the net benefits or costs of individual international business activities.
Factors Affecting Growth of International Business in Nigeria
In the Nigerian scenario, mention must be made of such factors as inadequate social infrastructures, such as electricity supply, water supply, telecommunication and the entire transportation system. Under a condition where companies have to invest so much in back-up power systems, thus increasing capital outlay, investors may be discouraged. Water supply in the country cannot cope with surging demand domestic and industrial uses. Efficiency is a good-bye phrase at NITEL as services stay below international standards.
Road and rail modes of transportation continue to suffer neglect, creating negative implications on communications, movement of raw materials, finished goods and operating costs generally.
What actually compounded the problem was long period of military regime which caused hostility between Nigeria and many developed nations. The frequent changes of governments in Nigeria worsen the situation. The government changing hands several times during the firm’s tenure in country may not be in the good interest of the firm because new government may not be as friendly or as cooperative as the previous administration,
As Nigeria is under new administration, that is a democratic settings, I have the believe that the economic environment will be so conducive to attract foreign investments.
In summary, the last 30 years have witnessed the rapid growth of international business and the proliferation of multinational firms as the most significant business development. Nearly a century many companies of these natures emerged by the explosive growth in the size and number of international firms is a recent phenomenon. This growth has brought about a need for more managers who can function effectively in the international business environment.
International business differs from its domestic counterparts in that it involves three environments rather than one. An environment model was introduced to help explain the differences in these environment.