Due to liberalization of trading and signing of international trade agreements between countries, among other factors, businesses that were started in one country can operate outside those countries. The state in which the companies or corporations were incorporated or are headquartered is known as the home country, and the foreign countries where they operate are known as the host countries.
However, businesses are exposed to many risks, and multinational companies face even more troubles, including getting into legal cases arising from various accusations. For example, the Lundin Energy company, an oil mining company, was operating in Sudan block 5A when it was accused of complicity in the violation of international humanitarian law.
Below are some of the challenges that multinational companies face:
International companies operating in foreign countries face some challenges that stem for economic conditions in the host county. As it is, economic conditions keep changing from time to time due to various factors but are chiefly influenced by macroeconomics and microeconomics aspects including inflation, exchange rates, fiscal policies and so on. Since economic conditions keep changing from one season to another according to the business cycles, the companies could try to cushion itself by having some reserves and operating on lean budgets.
Cultural Differences and Communication Issues
Because global businesses have their origins in other countries, most of the time, the top management will face cultural differences and communication barriers when dealing with locals. These affect the smooth running of the company . However, the companies can hire some locals and put efforts to understand local cultures to overcome these problems.
These businesses face competition from other multinationals and even local companies. Unfortunately, the local companies have the upper hand in understanding the target market and enjoy the home advantage. The intense competition could see the international companies make some losses due to low sales, high costs and so on. However, global companies can manage to withstand the competition by understanding all the local markets they operate in and tailoring their products and service to suit the demands.
Global businesses find themselves always facing changes in regulations and even a growing number of regulatory inspections. The pressure that comes from the regulators significantly affects the multinationals in their operations and even lead to an increase in costs of doing business. Luckily, the companies can work around these challenges by anticipating the various changes, and evaluating changes in the business surroundings. The businesses can then list the different emerging risks, and try to sort them based on importance and urgency.