Taxation, Staffing and Managing Operations and Technology Issues in International Business

There are many types of taxes levied throughout the world.

• Income taxes

This is determined according to a person or firm’s taxable income after adjusting the deductibles according to the law.

• Transaction taxes

Taxes applied to transactions. Such as value-added taxes, excise taxes extraction taxes and tariffs.

What is double taxation?
When it comes to overseas operation the mar problems MNCs have to face are obey the rules of different taxing authorities and double taxation. Double taxation is; the income earned by a MNC may be taxed when it is earned in the foreign county and again it is remitted to and realized by the parent corporation. This is a common situation for the individuals too who earn in abroad.

International Staffing
The most common structures used my MNCs to organize and manage the operations are functional, regional, product line and matrix. International staffing relies on four main stages of recruitment, selection, training and motivation. Labor relations and the role of unions can be differing among nations. International union seeks greater cooperation across national boundaries but nationalistic attitudes, different goals and physical distance may reduce the speed of growth. Condetermination is a recent development attempts to boost worker influence and responsibilities in MNC operations.

In international business arena production and technology is a main key to influence a company to decide where and how it operates. Before making production decisions it’s important to consider the additional factors like wage rates, foreign exchange risks, international tax laws etc. Operation management focuses two categories of activities, those are productive and supportive. Any MNC’s competitive advantage is considerably dependent on technology advantages whether they are a product, management or process technology. MNCs continue to make technology improvements and transferring the latest technology among affiliates and subsidiaries in different nations is a best way of gaining a chance to work with high technology for the countries that are not use developed and latest technology.

The Roles of Marketing and Finance in International Business..

Marketing is one of most important factors of operation for MNC. Marketing process identifies profitable areas in resource should be more focused, increases the sales revenue, generates profits etc.

The basic marketing mix consists of these four interconnected functions which we name as ‘Four Ps’. Those are Product, price, promotion and placement.

When developing a successful international marketing program the firm has to make several key decisions and the first two crucial questions the MNC asks are,

• Whether or not the marketing program can or should be standardized across all markets or adapt individually to each separate market.

• Whether marketing should be centralized or decentralized

Standardization greatly simplifies the complexity of the marketing process and might provide cost benefits to a firm. The major drawbacks would be risk of market loss by not adapting to the consumer taste or local behavior. So, basically standardization decision relies on the nature of product or the service. Typically, organizations decide among three alternatives regarding their marketing plan. Ethnocentric, polycentric and geocentric are the key factors.

While advertising methods are similar throughout the world other promotion tools such as sales promotion and publicity etc need adaptation to the local environment. Pricing methods such as, cost-plus and target-return can be used but have to consider about MNCs long term strategic objectives.
Maintaining an effective amount of working capital is a must for companies of all sizes but it’s more important for small but growing companies participating in international business. The reason is MNCs always have to face exchange risks, unnecessary costs, idle funds and short term borrowings, taxation laws etc

Intracompany pooling
This is a financing technique that seeks to optimize the total availability of resources globally or are-group basis.

Hedging against inflation
Dealing with inflation in different nations calls of active working capital management policies. High inflations erode the value of receivables but lessen the payable burden. So, when inflation expected to be risen the local receivables have to be delivered at the earliest possible date.

Managing blocked funds

Blocked funds are basically the resources of overseas entities that host government do not allow to be repatriated, at least temporarily. There are few main techniques to deal with blocked funds.

• Export orientation for multinationals

• Substitution of fresh investments

• Nonformal techniques

• Financial techniques

Transfer pricing

This refers the pricing arrangements made among different units of a multinational corporation.

Capital budgeting and financial structure of a MNC
The main factors to be considered are;

1. Exchange control restrictions on remittances
2. Political risks
3. Tax considerations
4. Source of funds
5. Currency of borrowing investments
6. Different inflation rates

Letters of credit in international trade

• A draft – It is a demand of payment from the buyer at a specific time. There are two types of drafts, sight drafts and time drafts. The sight draft requires money when the importer receives goods and the time draft extends credit to an importer for a specific period of time.

• Letter of credit – It’s a written commitment by a bank made at a request of a customer to effect payment if the seller complies with certain specific conditions. Clean letters of credit doesn’t require any presentation of documents other than the bill of exchange to obtain the payment. Most letter of credit are documentary letters of credit which needs document such as, the invoice, customer documents, proof of insurance, a packing list, an export license, the certification of product origin, inspection certificates, a bill of landing etc.

There are many kind of letters of credit use in the trade. A revocable letter of credit can be modified or revoked by the issuing bank without notice or consent from the beneficiary while irrevocable letter of credit can be modified or revoked only with the consent of the beneficiary. Stand-by letter of credit is where the bank guarantees the beneficiary can claim the payment if the principal does not fulfill its obligations.

MNCs must constantly maintain foreign exchange and transaction exposure. Parallel loans, timing of fund transfers credit and currency swaps are good techniques for that.

Sociocultural Theories in International Business and Risk Analysis in Foreign Investments

* Cultural cluster approach

This based on where people are located in the world. Such as, Nordic, Germanic, Anglo, Latin American, Far Eastern and Arab countries.

* Edward Hall’s low - context, high – context approach

This categorizes in terms of how the individuals or the societies communicate and what is required in order to successfully communicate. In low-context, the words used by the speaker explicitly convey the speaker’s message to the listener. In high-context, a conversation occurred is just as important as the words that are actually spoken.

* Geet Hofstede’s five dimensions of culture

It has theorized as, social, power, uncertainty, goal and time orientation

Finally, it’s a must that that international organizations must understand the cultural differences when try to initiate change in a foreign location. It should be well planned and MNC must clearly identify the costs and benefits of the change before processing.

Investment in international business requires a cost benefit analysis which means analyze benefits gained versus the risks encountered by investing firm. Basically the benefits would be opportunities to expand business in larger markets, competition, achieve economic scale etc on the other hand must consider about the risk such as; political risks, changing of monetary and fiscal policies etc. Obviously there are ways to manage the risk and basically rejecting investment, long-term agreements and lobbying are the famous options to turn down the risk that could occur due to a foreign investment.

A Crash Course on International Law..

Public law is the situation which nations interact according to a common legal framework where private law applies to the individuals in the nation states. The legal system of a country basically based on one of four foundations. They are civil, common, bureaucratic and religious laws.

Legal concepts relating to international business

• Sovereignty

This expose, the individual nation has absolute power over the governing of their populaces and the activities which can be occurred within their border.

• Sovereign Immunity

Sovereignty implies that a nation can create laws and restrictions. A manifestation of this sovereignty power is what we call sovereign immunity.

• Act of State

This is a legal principle which refers to claim made by foreign parties whose assets have been taken by the state in public sector.

• Extraterritoriality

This refers the application of one country’s law to activities outside its borders.

Intellectual and industrial property rights

A great concern area of multinational companies which involves in R&D and technology is the protection of intangible assets like, processes, trademarks and trade secrets.

• Trademarks and trade names

Trademarks, logos and designs and trade names consider as an integral part of the product. Trademarks and trade names have indefinite life and can be licensed to others.

• Patent laws and accords

The process might differentiate from one county to another according to the country’s requirements to obtain a patent for a product.
Ex- US has first to invent policy while Japan issues patents for even minor modification.

• Copyrights

Copyrights give exclusive rights to author, composers, artists etc to release, modify and dispose their production / work as they see fit.

Resolving business conflicts

Conflicts tend to be happening in international business due to three reasons;

1. The contracting parties are not familiar with each other.
2. International transactions happen in a risky situation with fluctuations etc
3. Business ethics, cultural differences etc

• Contracts

Drafting a contract with clearly mentioned rules and terms is a good way to avoid conflicts.

• Resolving disputes

• Adaptation

• Renegotiation

• Mediation

Local courts

If the above mentioned ways doesn’t appear to help to clear the situation, this is the next step to take.

Litigation

International Arbitration

In arbitration, parties to a dispute agree to take their case to a third party in the form of independent arbitration. This is kind of speedier process than the court procedures.

International Centre for Settlement of Investment Disputes (ICSID)

This is affiliated with the World Bank and when the contract being disputed involves investments in foreign countries.