3 Biggest Challenges Faced by International Businesses
Expanding your business on an international level is something that every business owner dreams of. And why wouldn’t they? International Businesses offers plenty of opportunities that you can explore and use to increase the value of your business. But these opportunities also bring some challenges with them and if you do not deal with them the right way, your business might go downhill instead of the other way around. Some of the challenges that International Businesses face are;
- Organizational Structure of International Business
When you are operating at an international level, you are also competing on an international level. Your competition is not only the international businesses that offer the same product or service as you but also the domestic organizations that might replace you. So, to compete with all these forces, you need to design the structure of your organization in a way that enables you to maintain your competitive advantage wherever you go.
Are you going to have a centralized structure or a decentralized one? Would you franchise your product/service or license it? How are you going to design the hierarchy? Are the top-level managers going to be from your own country or are you going to hire new ones from the country that you will be operating in? These are all the decisions that a company has to make before launching itself internationally.
One of the best examples of the organizational structure of international business is that of Coca-Cola. The company follows a decentralized structure and every continent has its operating group. Each group is led by a President who also supervises the regional or country-based presidents. This is how Coca-Cola has managed to tackle the diversity of the global environment that it operates in and keeping their products standardized.
One thing to understand here is that there is no ideal or perfect organizational structure no matter what level it is operating in. There will always be some pros and cons to any structure that you will choose. However, the good thing is that you can always choose to change the structure once you realize that it is no longer working for your company.
- The Foreign Legal Systems that International Business Operate In
Now that you have decided about the type of structure that you are going to have; it is time to make yourself aware of all the rules and regulations that you will need to follow. These can be the tax liabilities and the accounting standards followed by the country, all the labor and property laws, etc. All the tax liabilities, accounting standards, labor laws, and property laws, etc. You need to have complete knowledge of all the laws that may affect your business, Of course, some things are considered illegal wherever you go, but the terms and conditions can vary from region to region.
This is a challenge that you have to be extremely careful with because there is no room for mistakes. Once you have broken the law, it can take you years to defend your case or in the worst-case scenario, might even have to leave the country.
When Airbnb made its entry in the Catalan market, they did not know that you can rent flats to tourists without first registering them to the Tourism Registry of Catalonia. The laws there also do not allow renting out of individual rooms in private residences. Because of this lack of knowledge, Airbnb was fined €30,000 by the Catalan government.
- Pricing Strategy Adopted by International Businesses
Another thing that you need to consider is the pricing strategy that you are going to follow. Whether your products and services are standardized or customized, you can not follow a standardized pricing strategy for all of the regions that your business operates in. The inflation rate, currency fluctuation, and the average income of the people are some of the factors that influence your pricing strategy.
Charge a little too high and the people of that region might not be able to afford your product/service. Charge a little low and your business might start going in loss. Of course, you also have to include the different costs that you spend to run the business in a specific region while determining your pricing. These costs can be production costs, shipment costs, labor costs, and marketing expenses.
Language barriers and time differences are also some of the challenges that international businesses face.
