Essay Sample on Globalization of Business: Intensifying Competition for Enterprises

Introduction

In the world today, most companies are findings means within which they can internationalize. According to Azuayi (2016), the internationalization of a business venture refers to a process where a firm becomes intensely involved in foreign and international markets. In today's world, enterprises begin their operations locally but draw a plan that would enable them to expand into overseas markets. The phenomenon of internationalization has yielded intensive competition for corporations. Most firms opt to open foreign markets since the local market can no longer support their economies of scale. In addition to that, Azuayi (2016) argued that other firms internationalize due to the immense opportunities present in foreign markets. Asides from that, it is worth noting that some firms expand to reduce the operation costs. According to Nummela, Saarenketo, and Loane (2014), businesses could cut down costs in countries with deflated currencies and a relatively low cost of living. Cost reduction is imminent through the reduced costs of labor. However, despite all these reasons for internationalization, most companies launch their products successfully, but the businesses fail eventually. As Azuayi (2016) stipulated, when expanding to foreign markets, a firm must align its strategy to the interests of the foreign markets. Businesses fail in international markets for a variety of reasons, as shall be discussed in this paper.

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Theories of Business Failure

Liability of Newness

One of the theories of business failure, as proposed by Shepherd and Wiklund (2006), is that of liability of newness. The obligation emanates from internal and external factors. Some of the internal factors include the costs incurred to learn new tasks, conflict strengths regarding new roles within an organization, the need to identify and discover unique and cost-effective means of operating, and organizational structures (Zahra, 2011). The external factors include entrant barriers such as already established brand recognition by firms in the regions, market acceptance, and environmental stability, to mention a few. Such liabilities hinder the success and survival of an international venture hence yielding company failure. The responsibility of newness relates to actions that a management team and staff could undergo to overcome significant challenges associated with the adaptation of the internal and external environment in a newly internationalized venture. Regardless of the attempts to maneuver the obstacles, Shepherd and Wiklund (2006) argued that the liabilities could be so extensive.

Similarly, Zahra (2011) stipulated that the lack of planning is imminent in most internationalized ventures. The main motive for companies to expand is for them to access new customers and capital. In a bid to try to maintain a steady competition with other firms, corporations opt for internationalization without planning and understanding the suitable region to expand their venture. Nummela et al. (2014) indicated that most firms do not research the target markets in the local area versus in the global regions. The lack of a plan increases the liability of the newness of an international venture significantly. The market strategies used by firms, for instance, may not be compatible with the interests of the global markets. As such, market acceptance could be daunting. More so, such companies do not analyze the new competitors they would find in the foreign markets, particularly the firms that have strong brand recognition and awareness. With these factors in mind, one can see that global business failure is unavoidable.

Cognitive Biases

The second theory that could help explain international company failure is a cognitive bias. According to Shepherd and Wiklund (2006), cognitive bias could have a positive and negative effect on business failure. Overconfidence is the dominant cognitive bias among entrepreneurs, particularly when making decisions on internationalization. Zahra (2011) argued that entrepreneurs tend to be more overconfident that people in various professions. In this case, the term overconfidence refers to a situation where entrepreneurs, when expanding their businesses, overestimate the profits that they will generate. It also results from a situation where an entrepreneur conducts prior research and finds that a similar company, within the selected region of internationalization, is witnessing exemplary financial returns and proceeds. Thus, they assume that the conditions for doing business in the area are favorable. More so, they want to surpass the achievements and success of the already established corporations in the region.

From Zahra's (2011) perspective, overconfidence is exacerbated during resource allocation. Such entrepreneurs fail to consider other critical factors that could yield international business success. Thus, such actions increase the chances of failure for foreign investments. One of the examples of overconfidence is a situation where firms expect that customers are prone to new businesses that offer unique experiences and are likely to support and become loyal to the new venture. As such, the management invests a lot of money and finances in trying to find new means of conducting business, and they fail to integrate them with the culture of the local people. According to Nummela et al. (2014), global business failure emanates from a situation where corporations fail to use local talents, business partners, and suppliers. In the sequel, companies become outcasts in the local community hence yielding business failure. Nummela et al. (2014) also asserted that culture influences businesses substantially. Most people view products, and business models differ in the world. Therefore, companies are likely to fail for not knowing and understanding the markets they venture into.

Human Capital

The theory posits that companies with higher human quality are likely to achieve performance in the execution of tasks. Shepherd and Wiklund (2006) defined human capital as the knowledge and skills that aid in the engagement of new entrants. Such experience allows businesses to efficiently and effectively identify opportunities and ways of attaining success in international settings. In addition to that, Shepherd and Wiklund (2006) asserted that human capital was an asset since it facilitated the integration and accumulation of new knowledge hence assisting firms in adapting to new situations. With the right human capital, an organization would know that the business model of a firm in the local market may not work well in the foreign venture. Nummela et al. (2014) indicated that new segments of the consumers signify what product offering works well for them and what value the customers see in the offerings. Primarily, most corporations fail to understand the importance of customers' perceptions and offer the same product offering and the same business model in a foreign venture.

Consequently, the lack of human capital contributes to ineffective execution. According to Nummela et al. (2014), companies fail in the internationalization techniques since they do not focus on the details during the implementation of plans. As such, they are unable to understand the exact situation in a foreign land. It is worth noting that the ambition of global expansion within a firm should be aligned with the understanding that the international business is not an expansion of domestic operations. Instead, it will be a new company with a variety of requirements and considerations. The strategies of development should be unique in the new markets. An international venture has a lot of uncertainties. Most times, companies place a trusted person to head operations in the global market. The person selected is likely to have yielded success for the business previously. The expectation is that a person who has delivered in the domestic market can get over the uncertainties in the foreign markets. However, this is not usually the case and could lead to disastrous results. When selecting a manager to head an overseas venture, a person with experience in international business management could be suitable. Such people are aware of the uncertainties and challenges they are likely to face and could be well-equipped to handle them.

Examples of International Business Failure

Starbucks

Starbucks, Wal-Mart, and McDonalds are examples of firms that have failed in global markets. By analyzing these examples, one would have a clear view of the situations that yield global business failure after product launching. Starbucks has internationalized to over 70 countries in the world today (Brooks, 2016). Thus, the company is not a stranger to international business. However, regardless of the firm's global presence and experience, the corporation's attempt to expand to Israel was not successful. The company has planned to open 20 stores in the Israeli region (Brooks, 2016). However, the plan did not come to fruition since. By the year 2003, the company was planning to abandon the plans entirely (Brooks, 2016).

The company expected that the consumers in Israel would give them preferential treatment. However, they did not bother to research the prevailing coffee culture within the country. Strong brands have already established themselves in the region. As Brooks (2016) indicated, Israelis enjoy product offerings such as espresso and macchiato that coexist with flavorful Turkish coffee. The CEO of Starbucks visited a cafe that offered flavorless coffee. The CEO of the firm assumed that the people would appreciate the coffee brands at Starbucks through royal and preferential treatment. However, the company faced the threat of liability of newness, as explained in the theory section. In Israel, there was an influential and existing coffee culture. The firm did not consider how it would fit in the culture but instead had unrealistic expectations.

McDonald Company

Just like Starbucks, McDonald's is not new to international business. Most of the corporation's revenue stems from multinational regions. However, the firm was not successful in its internationalization plan to Bolivia. Bolivians have no issue with consuming fast foods. However, they prefer to purchase them from indigenous people selling the menus on the streets. McDonald's was not comfortable about localizing its products. As such, it did not attract consumers, as initially expected (Brooks, 2016). Mainly, the failure of this international venture aligns with the theory of human capital. The company did not have the human capital that would help in determining the preferences of the Bolivians. More so, the firm expected that the same model that the firm applies in the local and other international markets would work well in Bolivia. However, this was not the case hence showing the need for firms to study the region intensive and identify whether the culture of suitable with the company's model. In the event when culture and model are incompatible, a firm should further analyze what aspects of its mode could be changed to match the preferences of the consumers in the target country.

Wal-Mart

Further, Wal-Mart, the largest retailer shop in the world today, has stores in close to 30 countries (Brooks, 2016). However, in the year 2006, the company shut down its operations in Germany. The market in Germany was characterized by intensive competition among firms that used the same strategy of low pricing as Wal-Mart (Brooks, 2016). Thus, Wal-Mart's policy was not highly competitive and did not favor the corporation in any way. In addition to that, the corporate culture of the company may have scared away the target co...