One effect of the international dimension of business is that the concept of the domestic market becomes less significant. For many companies the world is their marketplace. Such companies have to think globally, even if they have to act locally in their markets for the purpose of delivering their corporate strategy. Another effect lies in the cost differences between producing nations. Most of the countries in the Pacific Basin, for example, can produce highly competitive products for sale in the West, because they currently have the twin advantages of (a) access to new microelectronic-based technology, and (b) far lower labour costs than Western companies. Thus shoes, clothing, ships and motor-cars can be produced at relatively low cost, but at a very acceptable standard for Western markets. If goods can be produced more cost-effectively in Malaysia, for example, why should a large international company need to continue to produce them in high-cost areas, such as Europe? The truth is that whereas in the past century people bought their finished goods from the factories of Europe and the United States, now they are increasingly likely to buy them from factories in the Far East. The developed economies are moving steadily away from manufacturing into services, and into what some have called the ‘information economy.
The resulting competition from both old-established and new rivals in manufacturing affects British companies in several ways:
Firstly, it forces them to compete fiercely at home on differentiation, where a distinct competitive advantage can be gained due to close contact with customers and a better understanding of their specific value requirements.
Secondly, it forces them to compete as closely as possible on price, where the main aim is to minimize the cost disadvantages through increased efficiency.
Thirdly, it forces them to consider how they themselves might find competitive advantage overseas by taking advantage of the lower labour costs in competitor nations.
Thus, opportunities for investment overseas have to be considered, as well as joint ventures or other collaborative efforts with existing indigenous companies. Given that entry barriers to competitor nations are generally very high, such steps are not always available, but there is a growing world movement to facilitate the expansion of world trade by removing trade and other restrictions on international operations, for example by means of GATT – the General Agreement on Trade and Tariffs. UK companies, and their counterparts in the world’s trading nations, have opportunities to lobby diplomats and governments to this end.
International Business and the Impact of Technology
A crucial factor in the development of world trade is ease of communications. In recent years enormous strides have been made in the development of global satellite communications, electronic mail, facsimile transmissions (fax) and other products of microelectronic technology. Today, telephone, fax, computer and video links are possible between large numbers of nations. Markets, and information about them, have never been so accessible in communications terms. Thus, bids can be scrutinised, contracts agreed, orders made, and payments confirmed all at very short notice. Such technological developments have also helped international commodity trading and money markets to improve the speed and efficiency of their services to the international trading community, all of which helps to facilitate the growth of world trade. Companies that wish not only to survive, but also to thrive in world markets ensure that they take every possible advantage of the increasingly sophisticated and ever-cheaper forms of electronic technology that are available to poorer and richer nations alike.
Strategic management on a global basis calls for micro-electronically based communications systems, and the skills to establish and apply them. Companies not only have to invest in the new technology as it becomes available, but also have to search constantly for the most appropriate software systems and organisational forms for their decision- making requirements. As multi-media forms of communication become increasingly possible, it will soon be feasible for individual directors and their lawyers to conduct negotiations across the globe using video links, computerized graphics and excellent sound facilities. The business world at least will indeed become a smaller place!
