Global Presence, Becoming A

views updated

GLOBAL PRESENCE, BECOMING A

With the world's disparate economies increasingly integrating into one global economy, and with the Internet affording more companies the ability to extend their reach overseas, the competitive pressures to establish a global presence—and the opportunities that abound therein—have taken on great importance. While a truly integrated and seamless economy was still a long way off in the early 2000s, the Internet was propelling the business climate in that direction, and companies were eager to stake a claim to this new economic environment. The boom in e-commerce coincided with the dissolving of international borders in the business world, thereby heating competition both domestically and internationally. Companies operating in markets with global reach have the option of trying to build a global presence, being acquired by a company doing the same, finding a localized niche, or being driven out of business.

While the United States was by far the largest e-commerce market in the late 1990s and early 2000s, analysts estimated that the proportion of online shoppers based in countries other than the United States would expand dramatically through the 2000s. For example, according to International Data Corporation, approximately two-thirds of the world's 31 million online shoppers would be based outside the United States by 2003. This attractive market potential, combined with the dramatically enhanced reach of individual companies with the aid of the Internet, sent companies on a course to extend their reach across the globe seeking to take advantage of the lowered costs and barriers to entry of foreign markets via e-commerce.

The proliferation of trade agreements and cross-border corporate cooperation and interaction are at the heart of the drive to become a global presence. The economy of the 21st century, according to nearly all economists, will be characterized by a continued blurring of national boundaries and the advancement of business models that are distributed electronically, thus offering vastly expanded flexibility and far greater reach than traditional business models of the past.

This development, however, is far from a panacea for corporations. With consumers able to purchase goods and services from companies situated anywhere in the world, the competitive pressures on individual businesses mount considerably. In addition, as products and services circulate in global markets, there is a tendency for them to become commoditized—that is, the sheer proliferation of such items forces prices downward and blurs qualitative distinctions between them, forcing customers to make their purchasing decisions based almost solely on price. As a result of the process of commoditization, companies are compelled to innovate not only their products but also their business practices and strategies to take advantage of the opportunities afforded by information technology and the global economy. In so doing, firms need to reconsider several of their traditional business practices in light of the new economic environment. Companies establishing a global presence devise strategies related to

language
cultural awareness and sensitivity
global distribution schemes
foreign and international legal, political, and economic environments
local technical considerations
and their own information-technology infrastructure

COOPERATIVE EFFORTS

To facilitate global e-commerce and to ease the trepidation many companies may have toward negotiating the various obstacles to establishing a global e-commerce presence, several standards organizations from around the world, including the American National Standards Institute (ANSI) and the International Standard Organization's Committee on Consumer Policy (COPOLCO), are working toward the creation and implementation of international e-commerce standards. The main thrust of these standardization efforts is the goal to protect consumers, whose fears over the compromise of financial data and invasion of their privacy, many analysts conclude, have hampered the growth of e-commerce, and could limit its future potential if not remedied.

Such proposed standards measures include the implementation of various certification schemes, including trust marks and logos, for those firms that meet various international securities benchmarks. COPOLCO and others proposed the implementation of consensus-based codes of conduct, appropriate to the particular markets in which firms operate, detailing the kinds of behavior and commitments to consumers that certified companies would be obligated to maintain. COPOLCO also proposed the establishment of an e-commerce solutions forum at which concerns over e-commerce standards could be debated and enhanced in accordance with consumers' concerns. Such measures would give businesses clear goals and guidelines in the development of their global e-commerce strategies.

LANGUAGE AND CULTURE

While English has indeed been the dominant language on the Web, that lopsided balance is not expected to continue as countries upgrade their online access and telecommunications infrastructure. As a result of this trend, and to take advantage of key foreign markets, globalizing companies increasingly design their Web sites to facilitate all the major languages for those countries in which they do business. The easiest way to establish a multilingual Web site is to outsource translation work to a third party, although machine-based translation services continue to emerge.

Perhaps the most crucial element of utilizing local languages for a successful international business strategy was the mastering of contextual issues. The subtleties of linguistic variations that are so easily overlooked can offend cultural sensibilities and potentially reap tremendous damage to a company's international efforts. Therefore, simple understanding of the grammar and vocabulary isn't enough—firms need to maintain staff or partner with specialists who boast an intimate understanding of the cultural nuances of the client countries.

Thus, for companies trying to succeed in a global marketplace, diplomacy is key on a variety of fronts. First, diplomacy builds contacts, trust, and opportunities between the company and the foreign business it seeks to engage. Firms increasingly hire cultural representatives specializing in the languages and cultures of particular countries to act as liaisons between themselves and those countries. This type of firsthand knowledge, where affordable, can be significantly more valuable than indirect studies, since it actively builds new and potentially valuable relationships. Secondly, diplomacy allows companies to learn and manage the subtle-and not-so-subtle-cultural and linguistic variations that are so crucial—and potentially devastating—to an international business operation. By building bridges with local players, companies acquire on-the-ground details about what sorts of practices are likely to succeed or fail, to ingratiate or offend.

ECONOMIC AND LEGAL ENVIRONMENTS

While the information revolution has produced software and systems for managing and moving goods on a global scale, the headaches of adjusting local practices to respective national laws, taxes, and tariffs remain—although moves toward regional common markets were alleviating such difficulties somewhat. Firms in the early 2000s operated in the context of national political jurisdictions, each with their own tax and legal structures. A challenge for companies establishing a global presence was to negotiate these jurisdictions across their operations. More than simply coming to terms with these various legal environments, there were clear-cut strategies for optimizing a firm's interaction with them. For instance, while the propensity to conduct business in one country or another is subject to traditional cost-benefit analysis that includes the legal and tax codes of those countries, there were methods for transforming those red-tape headaches into added value, most particularly in trying to limit overall tax liability based on where certain business operations are based. Clearly, companies will, within the context of their overall business strategies, attempt to locate particular operations where they are least costly in overall terms, including where taxes on those operations will be most limited. Finessing the banking systems and acting diplomatically to create influential contacts and networks in foreign countries was often an expensive and daunting undertaking, but could pay off substantially in the long run.

The nuances of global e-commerce opportunities from region to region are staggering. For instance, some regions, particularly Africa, were beset by a relative dearth of Internet access; others, like Western Europe, boasted widespread access but still struggled with a clear and coherent e-commerce tax structure; China, meanwhile, remained committed to centralized economic planning but was aggressively pursuing e-commerce.

Technical considerations are another factor in global business decision-making. Different countries and regions have vastly different information-technology and telecommunications infrastructures, and this consideration factors greatly into how, when,—and even if—particular companies decide to enter certain markets. For instance, in countries with a higher relative rate of mobile Internet connectivity, companies need to adjust their e-commerce strategies to those technological factors. Elsewhere, regions with relatively low Internet access or with little tradition of credit-card use could be prohibitive, or alternatively could provide opportunities for novel approaches that rival firms may be reluctant to employ. In addition to localized Web content, Web pages geared toward specific countries and cultures also need to account for local telecommunication capacities. For instance, in areas where capacity is limited or expensive, Web sites with sophisticated graphics or otherwise intensive downloads may serve to alienate rather than attract customers.

Along the same lines, consumers in different countries have different propensities to, and reservations about, making purchases online. While in the United States both consumers and companies have relatively clear guidelines about the responsibilities of all parties in a transaction, such codes are far from universal. For instance, consumers in Latin America tend to be reluctant to use a credit card with a business with whom a relationship of trust has not been established. In Germany, moreover, the most common form of e-commerce payment is not via credit card but via electronic debit. Other countries prefer traditional cash-on-delivery payment schemes. Companies need to be aware of often-intangible characteristics such as these if they are to embark on successful marketing strategies.

The currency in which companies opt to bill their customers is another major consideration. With rapid and often dramatic currency fluctuations marking the global economy, companies need to carefully consider the comparative advantages and disadvantages of billing customers in their local currencies versus billing in U.S. dollars. By billing in U.S. dollars, companies may be shifting the risks of currency fluctuations to their customers; alternatively, firms that bill in local currencies assume the currency risks themselves. Understanding the international banking and financial environment in light of currency fluctuations thus becomes an added pressure for globalizing businesses.

TECHNOLOGY AND BUSINESS ARCHITECTURE

In order to truly harness the potential of information technology and the Internet for a global business strategy, companies need to find a way to implement decentralized flexibility into their centralized corporate structures. The Internet itself was pushing things in this direction already, with greater emphasis on distributed networks, but when such networks include cross-border enterprises, each with their own particular considerations, such an architecture was ever more important. Thus, becoming a global presence involved something of a balancing act—affording the flexibility to local outlets and networks to adapt to the local culture and logistical situations on the one hand, while on the other hand leveraging brand loyalty and technological investments to take advantage of economies of scale and prevent the separate local chapters from diverging into different directions of development, thereby hampering the overall vision of the firm.

As a result, a company's Web architecture, for instance, needs to remain—to the extent possible—culturally neutral, capable of seamlessly adapting user and employee interfaces to different languages, cultures, laws, business customs, and so on. Thus, companies require systems for updating several layers of content simultaneously. It is not enough to maintain a central Web site serving a firm's entire global operations; they must be able to support localized content that reflects cultural flavors and characteristics indigenous to the region.

Supply chain management applications and methods provide companies with the tools to monitor and optimize their global supply chains for optimal efficiency, saving costs at several turns: by cutting down inventory, by speeding deliveries to customers, and by coordinating all supply movements in line with overall business expectations, for instance. With the complications of global logistics and delivery, efficient supply chain management—in which demand, rather than supply, drives production and distribution—becomes a paramount concern.

LOGISTICS

After taking advantage of the Web's global reach, companies face the challenge of getting their products to their destinations. International logistics operations can be extraordinarily tricky to implement, particularly at the level of speed and efficiency that the Internet promises. Companies must weigh the cost of maintaining inventory against the cost of shipping for their various markets. A number of information-technology vendors created software and other products to aid companies in cross-country logistics, including applications designed to tie together various business processes into a simple, integrated enterprise system. Other applications merge operations with databases designed to help firms navigate various tax laws and shipping concerns.

Perhaps the greatest obstacle to establishing efficient logistics operations was the red tape involved in getting goods into different countries. According to analysis firm Benchmarking Partners, the average company maintains about 25 percent of its internationally sourced inventory at distribution warehouses, which adds significant costs. In addition, according to InformationWeek, the duties and other costs levied on companies that don't efficiently negotiate a country's trading environments can make or break a company trying to achieve a global presence.