International partnerships - working relationships with global stakeholders, suppliers and customers
Although many organisations are happy to remain as domestic entities, others have ambitions to move onto the international stage. Whether this is due to ambition or business pressures, there are some common aspects.
Not every one of the following steps are required, but for a goods-based organisation, the evolution to full internationalisation may be:
- passive exporting
- direct exporting
- agencies/distributors
- sales subsidiaries
- manufacturing subsidiaries
Passive exporting
Where goods are exported without direct involvement. For example, a domestic wholesaler buys the product and finds an international customer. As this is outside the control of the manufacturer it could act either for or against its interests.
Direct exporting
Where the organisation actively ships overseas, perhaps to customers met at international trade fairs. This is more within the organisation's control as shipping dates, quantities, pricing and warranty periods can be dictated. For many organisations this level is satisfactory, however continual remote communication can place a high resource demand internally.
Agencies/distributors
When the volume of shipped goods becomes too great to manage, or local relationships are desirable, due to language difficulties for example, it may be advantageous to have a representative in a region or country.
Sales subsidiaries
Agencies and distributors may have their own interests at heart, and not fully serve the needs of the supplying organisation. For example, they may even stock alternative (competing) goods.
Manufacturing subsidiaries
In some cases, such as where labour rates form a significant percentage of the unit costs or there are government incentives (or high import/tariff duties), it may be feasible to manufacture overseas. But despite the possible savings, the significant management and other internal resources required, plus a possible lack of management expertise makes moving to this stage a high risk proposition.
Forces that may act against an organisation progressing through these steps include:
- internal systems not up to challenge - particularly funding, human resource and management experience
- protectionism - moving into other markets may be hampered at government or competitor levels where barriers are raised to hinder such moves. These can range from tender requirements requiring that only the local language be used, to a requirement of a certain local partner equity percentage
- variations in salary and logistics costs – detailed cost-benefit studies need to be made, comparing for example where to make products, shipping/storage costs or currency fluctuations
Porters' competition of nations
Impact of different cultures
Organisations that deal internationally will invariably have personnel traveling to other countries for meetings, secondments or even expatriate postings for extended periods. A critical issue here is cultural etiquette.
Etiquette dictates the way we are supposed to act in the public or business world. The way we act in our private lives may be different to our public (or business) lives. For example, putting your feet up on the coffee table at home is acceptable. Doing this during a meeting in someone else's office would obviously be considered extremely rude. The same can be said of dress code. When representing their organisation, whether a person dresses formally or not conveys a certain impression.
People from different cultures can be highly offended by inappropriate actions or behaviour. A gesture in one country may be quite inconsequential, but extremely insulting in another. This is often a worry for those new to international business trips.
Here are some examples of common cultural variations:
- Handshakes are common and expected in most western countries as a sign of greeting - to refuse a handshake can indicate a sign of aggression or disdain. However, in some Middle Easten counties, the shaking of hands is not the normal method of greeting and would be refused if offered.
- Emphasis on punctuality sometimes varies between cultures. For example, if a meeting was due to start at 10am in the UK, the attendees will arrive at the meeting room at that time, whereas in Japan this would already be considered late - the attendees would usually be in their seats at 9:50 ready to start.
- Different cultures place varying emphasis on the presentation and handling of business cards. For example, in Asia it is often done with the name on the card facing the recipient and both hands used to present the card - indicating the card is a representation of the person. Thus it is expected that the recipient would take it with both hands, read it carefully and place it neatly on the meeting desk or safely away. In western countries the card has less meaning and is often just regarded as a reminder of contact details.
- If being entertained at a meal in some countries such as China, to finish all the food can be taken as a mild insult to the host, as it implies insufficient quantity was provided. In others, to not finish all the food implies it was somehow substandard.
- In cultures where religion has a significant impact on life and business, religious festivals are dominant in dictating the sequence and pace of life. For example, in Muslim countries during the ninth month (Ramadan) of the Islamic year devotees fast between the hours of sunrise and sunset. Thus out of respect, it may be inappropriate to eat or drink in front of them. Further, small religious ceremonies may take place; for example meetings may usually open with a prayer.
It is not necessary that the international business traveller becomes an expert in diplomatic relations. All that is necessary is to be alert, sensitive to your surroundings and, if in doubt, follow the lead of the host.
International standards
When trading internationally, there are many government-sponsored activities such as the availability of information on various countries, specialist import/export agencies, trade missions and departments based in embassies and consulates to assist both buyers and sellers operating in foreign countries.
From a quality-perspective, the International Organisation for Standardization (ISO) exists to coordinate and reach agreement on standards that are acceptable across all the member nations, currently standing at 155 countries. When such consensus is reached by interested parties; agreement has been made on definitions, specifications, acceptance criteria and testing methodology, etc.
With this common reference point, international trade is facilitated, as all parties, irrespective of their domicile, are speaking the same language. The most well-known international standard is probably ISO 9001:2000, which defines requirements for a quality management standard, but it is in fact only one of nearly 17,000 international standards.
Once a standard such as ISO 9001:2000 is in the public domain, certification bodies offer independent verification that the organisation conforms to the relevant requirements. Within individual countries, respective governments set up accreditation bodies to oversee the organisations that offer certification, testing, inspection and calibration services. Accreditation is not mandatory in most countries, but the certifying body applies to be accredited.
To ensure consistent interpretation globally, the various national accreditation bodies have joined together to form the International Acreditation Forum (IAF) which then acts as an umbrella organisation. It then ensures that its accreditation body members only accredit bodies that are competent to do the work they undertake and to establish mutual recognition between its accreditation body members. This is intended to reduce the risk to customers by ensuring that an accredited certificate may be relied upon anywhere in the world.
Thus it is important for a buyer to understand therefore, that just because a potential overseas supplier can produce a certificate claiming their management system conforms to ISO9001:2000; unless it can be demonstrated that the certificate has been issued by a bona-fide certification body, extra care must be taken.
Global communication
Time-zone issues
As international trade becomes easier, the issue of time zones and working hours becomes an issue. In practice, this means an office based in the UK dealing with both American east coast customers and Japanese customers would need 24 hour telephone manning if they wished to maintain real-time communication. This simple matter alone can be a great burden for a small company.
Language issues
The issue of language is an obvious one and does not need to be explained in detail. Errors in communication and understanding are obvious when holidaying abroad, but business risk is significant if there are contractual misunderstandings due to this. Accordingly, the prudent business may engage either lawyers in the overseas country or take other similar action to clearly understand the legal, business, political and language issues involved in the business negotiations.
Technology
The ability to deal effectively in real-time has of course being facilitated by improvements in communication technology. As facsimile machines overtook the telex network in the 1990s, so has email rapidly developed as increased bandwidth allows the attachment of ever-increasing file sizes. Coupled with the advantage of a record of the communication being produced, and even the development of translation software, email has now become the communication medium of choice for many organisations.
However, there are occasions where face-to-face communication simply cannot be replaced. Until recently, aside from physically travelling to the meeting venue; the only way of satisfactory conducting remote meeting was via the purchase or leasing of tele-conferencing equipment. Although quite expensive, it was invariably cheaper than the cost (and lost-time) of employees travelling overseas for meetings.
In recent years however, the development of voice-over internet protocol (VoIP) technology has enabled real-time streaming of video data over the internet to such an extent that the quality that can be produced on a desk-top computer rivals that of professional tele-conferencing equipment. With the growth in providers of such services, it is now possible to conduct teleconferences via office computers with no extra investment apart from a headset completely free-of-charge. Such a breakthrough has resulted in many organisations using this to hold daily meetings with their overseas operations, customers or suppliers – radically speeding up international communication.