University of Cambridge

Hey Human Resource Issues In International Business

Introduction

The essay looks at key human resource issues likely to be faced by Macro X company upon expanding into the international market. Owing to the fact that the company already markets its products in the European market, then chances of succeeding in the international market are high. Besides this, the company has a solid human resource background characterised by performance management systems, strong commitment to learning and development, mechanisms for employee involvement and sophisticated selection and recruitment methods. (Wilkins, 2004)

Numerous companies have considered international expansion as an option both within the European Union and without. This is because international expansion provides millions of consumers at a business’s disposal. However, these benefits do no come easily. The essay shall examine the challenges, methods of tackling these challenges and organisational changes that can enhance internationalisation.

Key HR issues likely to be faced by Macro X

Twenty years ago, international business had been a reserve for large multinational corporations alone. However, globalisation has changed this attitude, these days even small companies consider international expansion as a viable option. Going global presents numerous advantages but there are still so many other human resource issues that the company has to deal with.

Companies that choose to go global have the opportunity of harnessing opportunities that they would not have access to in their own markets. If Macro X chooses to go global, then they will have heightened their performance over and above their competitors. Besides that, the company will get an opportunity to access suppliers who may be more cost effective than their local counterparts. As if the latter are not enough, going global will allow the latter company to mitigate its risks. This is because by marketing one’s products across a wide range of companies, then one reduces their level of dependence on a particular supply chain, production method and or sourcing method. Going global makes it possible for companies to access fresh talent pools; For Macro X, they stand to gain access to some of the creative minds in the computer games industry especially from the United States and the Asian market. By doing this, the company will be increasing their growth rates.

Initial project plan for organisation’s internal strategy

Given the above advantages, the latter company must make several decisions regarding their expansion strategy. First, the company could analyse which countries are the most profitable or the most promising. The company also has to consider the most appropriate time to make this move. Besides, that, it is also necessary to look at some of the macro economic factors that are likely to affect the company’s expansion process. This means that an in depth look at how global trade is currently being run needs to be taken into account. In line with these considerations, Macro X also has to take into account the political issues within target markets. It is most appropriate for the company to consider countries that have earned a reputation for being economist/ investment hot spots. Besides that, the company needs to look at issues such as climate or health threats. (Brewer, 2003)

Given the current economic conditions, it would most favourable for Macro X to consider the Asian countries. Examples here include Thailand, India and China. These latter mentioned countries have attracted numerous foreign investments owing to their incentives. Besides that, the latter countries’ economies have been performing very well in the past years. This means that Macro X will have a cushion for their operations  there and will not have to worry about regulatory concerns. The latter countries are also quite viable owing to the availability of computer related items i.e. it is dependable there. The quality of labour within these countries is also quite high and is very affordable in comparison to workers in the European market. Foreign exchange risks in these countries are also relatively low compared to what other companies offer. These facts indicate that Macro X stands to minimise problems in the supply chain by using such an approach. . (Wallerstein, 2000)

Macro X should also look at the most applicable business model to use in the international market. The company needs to be ready for handling numerous markets at the same time. The company should also focus on creating a substantial market base within the respective market countries. This is because one must look at these three options

  • Taking a brand as it is to the international market
  • Creating a new brand to suit specific markets
  • Purchasing a brand from the respective country

In the case of Macro X, it would be more appropriate to create new brands for the local market. This is because if the company adopt purely international tactics in the target markets, then it will lack a local touch and may never be fully accepted.

The company should also change its business processes in such a manner that it incorporates the respective locals. This is because doing so will encourage diversity. Successful multinationals are those ones that have a diverse workforce. This goes a long way in ensuring that problems are solved using a  conceptual framework. Macro X should realise that the use of a formulaic approach to problem solving will not work in the international arena.

It is necessary for the company to incorporate local business cultures within its own operations. If the company carries its business practices from the European continent into other international markets without changing them, then it is likely to face numerous hurdles while implementing them. Consequently, it would be more favourable to change business culture to suit respective environments. In line with the latter strategy, the company should also incorporate the rule of law within those respective countries. Some countries have very high standards for the rule of law while others do not. Besides that, the company should be more ready for different financial systems. Some countries highly regulate their money market and accessibility to financial markets in such countries may be difficult. It would therefore be necessary for the company to look for alternative methods of financing itself if the laws within the target countries happen to be less stringent. (Dunning, 2001)

Another crucial aspect that will form part of the global strategy of the Macro X company is the issue of governance structures. Once the company goes global, it will be catering to a wider range of stakeholders. Consequently, there will be need to integrate them in the governance structures. In line with this thought, the company should take corporate social responsibility very seriously. This means that the company should apply ethical standards and procedures when doing business with local contractors and suppliers too. On top of that, the company needs to ensure that they exceed local standards of production because they need to have an edge over their competitors.

Macro X should also be aware about the reporting duties to the mother company in the UK. This will be largely governed by the stakeholders involved and the nature of the regulatory laws within the respective countries.

Horizontal integration

The company should consider horizontal integration as a viable option where horizontal integration in this case refers to the process of acquiring businesses that operate within the same level or category of the value chain. The company should examine all the products and services that relate to it and see which ones are most viable. Taking the example of a company such as Standard Oil Company of the US; the company horizontally integrated its production process by acquiring forty refineries. The company chose the most directly related service i.e. companies that deal with oil purification. Another example of a company that horizontally integrated was the Harley Davidson Company. This company was a motorcycle manufacturer but decided to venture into motorcycle utilities by acquiring companies that specialised in those products. (Buckley and Casson, 2006)

Macro X should consider horizontal integration as an option because they stand to benefit tremendously from such an approach. If the company chooses to horizontally integrate, then they can benefit from economies of scale. The company will increase its production capacities thus bringing about greater savings from these larger numbers. The second advantage of horizontally integrating is that the company will tap the economies of scope. This refers to the use of similar resources for the same product. The company will have the benefit of synergising the common resources with companies they plan to horizontally integrate with. The other major advantage of such an approach is the fact that the company can gain greater access to supplier chains and other members of the value chain. The latter would have been exceptionally difficult if the company tried to access the market on their own, as they would have minimal influence within those foreign markets. Besides that, the company will also go a long way in ensuring that they have reduced the cost of doing international trade. This will be possible if the company opts to transfer some of its production services to countries that charge lower costs. Since the company specialises in the production of personal computers, then it would be favourable to take the technical aspects to Asian countries and direct its other types of services to the western world which speaks the same language as their mother company.

It is possible for the company to take advantage of some of the perceptions that consumers have about their products. For instance, the company would still offer a wide range of products under a similar name after establishing themselves within the respective market. This means that synergy need not apply to only one particular product alone. (Wallerstein, 2000)

It should be noted that the pursuance of horizontal strategies cannot be considered a bed of roses for Macro X. the company is likely to encounter some problems along the way. Therefore, it is necessary for the company to study respective countries and then decide whether to horizontally integrate its products there. For instance, the company is likely to have problems if it chooses to horizontally integrate in a country that is saturated with the commodity. In this case, the company may face anti-trust issues where it may loose millions in court battles with companies who feel threatened by their integration. Therefore, horizontal integration will not wok in all the foreign countries chosen for investment.

It should be noted that some products seem connected but they may not be in actual sense. Taking the example of computer software and hardware, one might imagine that horizontally integrating companies that deal with computer hardware and software may bring about economies of scale. However, this perception is quite misleading. As a matter of fact, numerous companies have wasted their resources doing this yet they got no substantial economic benefits. The company could integrate seemingly related commodities only after doing a thorough research in that particular country to ensure that they will receive tangible benefits by doing this.

It is essential for the company to remember that the benefits of horizontal integration do not come easily. It will take a while before the company begins realising cost savings. Consequently, the company should stick to its company strategy as it expands the business because this will be the guideline for implementing horizontal strategies. Jumping from one approach to another could only bring about problems for the respective company.    (Alfaro, 2003)

Vertical integration

Vertical integration is another option that the company should consider while entering the international market. This may be described as the process by which firms acquire companies that operate in different levels of the value chain. It should be noted that integration can occur either forward or backward. There are a variety of reasons why Macro X should consider this method as a viable option. First of all, the company will reduce the level of uncertainties in certain parts of the value chain. Additionally, the company will reduce costs of conducting transactions between these levels of the value chain.

The issue of vertical integration has brought about great benefits. Taking the example of the United States; this country created a amass market during the nineteen sixties only through the process of vertically integrated corporations The corporations had the following elements:

  • Well coordinated
  • Vertically integrated
  • Hierarchical
  • Large

At that time, the latter qualities necessitated the use of various divisions within single enterprises thus bringing about the notion of vertical integration. (Williamson, 2001)

When Macro X chooses to vertically integrate their commodities and services, then they will be making an otherwise external process to become an internal one. This means that the company will have acquired an advantage that their competitors can only imagine. This is possible owing to the fact that vertical integration will be a way of allowing the respective company to respond to the technical aspects of their operations. However, it should be noted that other industries necessitate greater levels of coordination than others, consequently, if vertical integration occurs across borders, then it would be difficult to coordinate them. In this case, the computer games industry is one such industry. The company would be faced with major difficulties trying to deal with different aspects of production from different countries. This means that the company will only reap the benefits of vertical integration if it restricted these to value chain levels within the same country.

Despite these anomalies in the process, the firm will be able to enhance their revenue through the approach. Additionally, the company will also avoid the issue of perfect competition. Perfect competition makes Macro X particularly susceptible to normal levels of economic returns. The returns will be greatly increased if the company chooses to vertically integrate their products or services.

The following aspects are key to the success of the company is it considers to vertically integrate

  • Organisation
  • Rarity
  • Costliness in imitation
  • Valuable

The company ought to ensure that their vertical integration strategies are unique. This means that the company ought to look for new ways of transacting using this approach. By so doing, the company will have made their benefits above average. However, the definition of rarity largely depends on the value created by the integration and not on how common this kind of strategy is in the industry. (Wells and Fagre, 2002)

In the event that the vertical integration strategies are not that rare, then the company should ascertain that they are at least costly to imitate. By doing this, the company will have substantially improved their competitive levels.  It should be noted that the definition of rarity does not just depend on the nature of the vertical integration; instead, it depends on the sort of value created by the commodity if a competitor chooses to imitate it. Rarity comes about as result of historical uniqueness that is only synonymous to a certain company. It also comes about as a result of the social complexity that is unique to the commodity. A service or product maybe socially complex when small numbers of marketers exist. Besides that, if the capital requirement required for the service are prohibitive. Besides that, it is also possible to create rarity by causal ambiguity.

Vertical integration may be done either through internal development or through acquisition. In internal development, the company chooses to change the way they go about their production process. However, in acquisition, the firm owns a supplier. But in either case, the company will expand its boundaries so as to accommodate the new team player. (Alfaro, 2003)

The company should be very careful about organising their functions. This means that the level of competition and cooperation between these separate entities needs to be kept in check. The time horizon is another thing that should be organised so as to make vertical integration effective. Lastly, the company should ensure that the desired value of the chain will be achieved and that there will be effective cooperation between the two functions.

Conclusion

Profits may only be realised after considering the various obstacles and challenges. These include language barriers, cultural differences, currency differences, availability of skills, disparities in management structures between the investing country and the target country, legal obstacles in the target country, administrative differences and many other issues. The essay has examined the possible options that Macro X company can choose to counter these challenges and human resource issues that the company is likely to encounter when going global.(Dunning, 2001)

Reference:

Alfaro, L. (2003): Foreign Direct Investment and Growth: Harvard Business School

Brewer, T. (2003): Market Imperfection, Government policies and FDI; International Business Studies Journal, 24, (1), 101-120

Buckley P. and Casson, M. (2006): The Future of Multinational Corporations; Holmes and Meyer

Dunning, J. (2001): The Multinational Enterprise; Allen and Unwin

Wells L. and Fagre N.  (2002): Bargaining power of multinationals and host governments; International Business Studies Journal, 13, (2), 9-23

Williamson, O. (2001): The Vertical Integration of Production; American Economic Review, No. 71, 112-123

Wilkins, M. (2004): The Maturing of Multinational Enterprise; Cambridge: Harvard University Press

Wallerstein, M. (2000): The Capitalist World Economy; Cambridge University Press

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