Challenges of Globalism for Business
Along with arguments supporting the benefits of a more globally connected economy, critics question the ethics and long-term feasibility of profits captured through global expansion. Some argue that the expansion of global trade creates unfair exchanges between larger and smaller economies. They argue that MNCs and industrialized economies capture significantly more value because they have more financial leverage and can dictate advantageous terms of exchange, which end up victimizing developing nations. Critics also raise concerns about damage to the environment, decreased food safety, unethical labor practices in sweatshops, increased consumerism, and the weakening of traditional cultural values.
As MNCs do business in new global markets, they may encounter several significant challenges:
- Ethical Business Practices: Arguably the most substantial of the challenges faced by MNCs, ethical business practices in areas such as labor, product safety, environmental stewardship, corruption, and regulatory compliance have historically played a dramatic role in the success or failure of global players. For example, Nike’s brand image was hugely damaged by reports that it utilized sweatshops and low-wage workers in developing countries. In some nations, particularly those without a strong rule of law, bribing public officials (e.g., paying them off with gifts or money) is relatively common by those seeking favorable business terms. Although national and international laws exist to crack down on bribery and corruption, some businesspeople and organizations are pressured to go along with locally accepted practices. Maintaining the highest ethical standards while operating in any nation is an important consideration for all MNCs.
- Organizational Structure: Another significant hurdle is the ability to efficiently and effectively incorporate new regions within the value chain and corporate structure. International expansion requires enormous capital investments in many cases, along with the development of a specific strategic business unit (SBU) in order to manage these accounts and operations. Finding a way to capture value despite this fixed organizational investment is an important initiative for global corporations.
- Public Relations: Public image and branding are critical components of most businesses. Building this public relations potential in a new geographic region is an enormous challenge, both in effectively localizing the message and in the capital expenditures necessary to create momentum.
- Leadership: It can be difficult for businesses to find effective organizational leadership with the appropriate knowledge and skills to approach a given geographic market successfully. For every geography worldwide, unique sets of strategies and approaches apply to language, culture, business networks, management style, and so forth. Attracting talented managers with high intercultural competence is a critical step in developing an effective global strategy.
- Legal and Regulatory Structure: Every nation has unique laws and regulations governing business. MNCs need access to legal expertise to help them understand in-country laws and comply with applicable regulations. It is important for businesses to understand the legal and regulatory climate for their industry and type of organization before entering a new market, so that this information can be factored into the business case and strategic decisions about where and how to expand globally, as well as strategic and operational planning to ensure profitability.