Four Risks of International Business

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Using the 'Four Risks of International Business,' Fan Milk International assesses the risks of doing business in West Africa.

Fan Milk International has had great success in establishing a company in a new country. Because of the company's existence in West African countries, it has gained more customers, popularized its name, and acquired comparatively inexpensive labor. A risk evaluation of the enterprise, on the other hand, shows the nature of certain major risks. The related risks are classified as country, currency, commercial, and cross-cultural risks.

Assessment based on country danger. Country risks refer to the shortcomings that arise due to the political-related factors that are prominent in a foreign market. In Nigeria, Fan Milk International faces a potential country risk as a result of the law that was introduced by the Nigerian government that requires a major local ownership. Such a command adversely affects the shareholding amount that the foreign investors can put in the business by minimizing the same. Besides, having a particular portion of the equity shares belong to the locals might see a delay in trying to generate the sufficient capital. Notably, the rule saw the foreign ownership drop from 96% down to 40%. The same implies a reduction in the level of influence and decision-making by the foreign investors and the founders who are the reason for the existence of the firm. The country risk facing Fan Milk in Nigeria was also influenced by the ban on imports by the Nigerian government. The government further faced political coup d_x0092_états and often faces a great shortage of fuel. The ban saw the organization struggle to obtain sufficient raw materials and at minimal costs as it would get from the outside markets. The coup d_x0092_états continue to affect the firm whose significant foreign investors withdraw given the potential risks such as the halting of operations. The frequent undersupply of fuel has also seen the organization incur high costs of operation due to the increase in the fuel-depended activities such as transportation.

Assessment using Currency (Financial) Risk. The high currency fluctuation rates in Nigeria are of concern as it contributes to a high financial risk for Fan Milk. The fluctuations have always presented an uncertain business future for the company. Instances of negative variations had negatively affected the valuation of the assets of Fan Milk. Besides, the effects have also been reflected in downward trends in investments as the returns have critically reduced. The fluctuations have also affected investor confidence in the company as the dividends payable to the shareholders, in Nigeria have significantly been affected.

The high levels of inflation that was witnessed in Ghana and Nigeria also influenced the business model of Fan Milk in the two countries. The inflation levels significantly affected the purchasing power of customers as the company realized reduced sales. The risk might even be real in the future of the company bearing the rather uncertain global financial, economic growth, especially in the African countries. Apparently, the West African nations have not demonstrated the high capability of dealing with the inflation, thus, putting the firm at a constant risk of reduction in sales revenue. In Ghana, there is a high potential risk of currency fluctuation. The analysis of the operations of Fan Milk in the country presented harmful business operating conditions such as the variation of the values of the company_x0092_s liabilities and operating income. Furthermore, the commercial banks shy off from financing transactions during such turbulent times.

Assessment using Commercial Risks. Fan Milk is vulnerable to the operational problems due to its large distribution channels. As a result of establishing so many outlets across various countries in West Africa, control mechanisms became hard for the company. The cases of children who were below the constitutional age of adulthood of 18 years who were spotted making sales of the company products in Liberia pointed out to this commercial challenge. The controversies surrounding the illegal sales by underage school going children led to government pressure. The company soon had to close down its Liberian branch since the incident resulting from poor management of distribution channels had affected the company_x0092_s image.

The company also faces poor operational problems, especially in its Liberian market. Fan milk-faced leadership coordination problems. The supply of dairy products to the vendors across the Liberian distribution centers was periodically delayed leading to customer dissatisfaction. Fan milk, at first, did not also put in place initiatives to empower its distribution agents. The company management had failed to provide the necessary facilities to enable the product distributors to readily and conveniently enhance market penetration. Later on, however, the administration improved it by purchasing vending bicycles to the vendors. The company is also currently piloting a test too by issuing out motorcycles to enable quick distribution of the milk company products.

Assessment using Cross-Cultural Risks. Fan Milk faced a difficult time in enhancing market penetration due to the difficulty in accepting of the milk product caused by cultural differences. In the 1950s, just when the company was setting foot in West Africa, the locals did not readily start consuming the product. The culture of the people in West Africa also made them very reluctant in adopting the consumption of frozen food products. It had taken some years before more people started to appreciate and consume the milk products. To date, a significant percentage of the locals do not believe in taking the items, thereby, limiting the number of customers for the firm.

West Africa, despite being relatively hot, still has some areas whose temperature fluctuations affected the consumption of the relatively refrigerated milk products. The culture and practice, coupled with the cold temperatures in some regions under the equatorial rain forest did not allow the people to take up the consumption of the milk products easily. The people_x0092_s culture was also influenced by their religious beliefs. West Africa, being overwhelmingly a Muslim community, consisted of some sects that only embraced the consumption of natural dairy and milk products and not the one that was processed by the company.

Part Two

The factors that can affect the International Pricing of Fan Milk International

The purchasing power of consumers is a significant factor that affects pricing. The customers may have different purchasing power, and this greatly influences their ability to consume the milk products of Fan Milk International. Due to the difference in the economic status of the different countries, the disposable income of the people in the West Africa will greatly vary. The pricing model of Fan Milk International can, therefore, be influenced and easily accommodate the different groups regarding their economic status and ability.

Competition in a big way impacts the product pricing. The price of similar milk products adopted by the competitors of Fan Milk International will significantly affect their pricing model. If for example, a different company provides Fan Extra or Fanice, which are similar products offered by Fan Milk International, at a lower price, then Fan Milk International will also be forced to lower its price to make sales and keep up with the level of competition. The need to acquire and maintain customer loyalty will also play a role in pricing. Fan Milk International might consider lowering its prices in comparison to the competitors to enable it to maintain retain a desirable number of customers.

Government regulations that cap the price levels are also critical in influencing the product pricing strategy of Fan Milk International. The government can choose to fix a certain price above which a company may not charge the customer. Fan Milk International can consider this option is putting into consideration the significant market share that they have in milk product distribution in West Africa. The main aim that a government intends to achieve when implementing this strategy is to reach stability, particularly when one of the manufacturers largely controls the market share.

The cost of raw materials can also influence the way in which Fan Milk International fixes its product prices. Different West African countries have varying prices on the raw materials. In order to realize an almost equal profit margin in all the countries, Fan Milk International might consider charging higher prices in countries where the company acquires the milk raw material at a higher price. The cost of labor may also influence the rate charge on the product. Personnel may greatly vary across the different countries, and this can make Fan Milk International charge higher product services in countries where labor cost per product is also higher

Economic conditions of a country will also have an influence on the International pricing of Fan Milk International. The strong financial status for example in Nigeria may enable Fan Milk International to produce products which will easily be taken up by consumers. If one of the countries is in hard economic times such as a recession, the people will most likely have a reduced purchasing power. Fan Milk International may then choose to significantly reduce its prices in order to attract customers to purchase the company products.

Pricing objectives of Fan Milk International are also significant in influencing the international prices that the company sets for the products. The company may want to make supernormal profits, a case which many prompt the management to set a high price for its items. In case the company needs to make reasonable profits, it may choose to set a standard product price. Lastly, if the company wants just to cover its cost to gain more customer base, the management may decide to set a break-even price point.

The level of market demand between the different countries may also influence the international pricing strategy adopted by the company. When market demand for the product is so high in a country, there will be a natural urge for the company to push up the prices. In countries where market demand for the market is relatively low, Fan Milk International can set lower product price to encourage more of the company customers to purchase the products.

Class of the market of buyers can also be used by Fan Milk International in setting the international product price. The market across different countries in West Africa contains people of various economic classes. The oil producing state of Nigeria, for example, has some wealthy people who would not mind spending much money in purchasing the products of Fan Milk International when priced at a higher rate. Some specific regions, however, contain a class of people who are not so much economically empowered. It is hard for the people to easily purchase the products of Fan Milk International if they are put on the market at a very high price.

Part Three

How Fan Milk International can achieve Sustainability in its Businesses and its Global Supply Chain

Fan Milk International can develop a mutual and close relationship with all the oversea stakeholders such as distributors, transporters, customers, and suppliers so as to fully gain insight into the firm_x0092_s needs so as to enable solution formulation. By having close ties with other partners abroad, the issue of sharing knowledge and experiences across various cultures will easily be enhanced. The problem of technological change and adoption can also be enhanced through closer interactions with all the partners. Market research and analysis enhancement can be promoted by having closer ties with all the international partners.

Fan Milk International can also enhance its capabilities to enable it to contribute to the development of the community and the environment. For instance, it could come up with initiatives to help take part in community projects such as environmental clean-up activities. In effect, the enterprise will gain popularity among the locals and also win most of them as clients. The firm can also create a large pool of talents by having in place a strategy to employ managers and workers from all around the world. There are very many diverse and experienced talents out in the corporate world, but these talents are not concentrated just within a particular country. The company can source for external talents by putting in place a robust human resource department that can have the company exposure to influence oversea talents. The skills that the firm sources for should be diverse and from different cultural and social background. The diversity is remarkable in bringing together experience and professionalism in the workplace. Fan Milk International can also put in place a global corporate social responsibility guidelines and objectives that are uniformly practices, enhanced and implemented across all its global outlets.

Fan Milk International can have in place an environmental protectionist policy in which it aims to have environmental friendly production and distribution process. The company should also enhance the use of green energy in the manufacturing process. Also, the company can have a system of recycling all the wastes that are from the production process instead of letting the scraps to spill into the environment. The firm can also train its staff on the best production processes that can easily enhance an environmentally friendly manufacturing process for the company.

The management of Fan Milk International can also enhance social good and development by having schemes that reward and appreciates all the employees in the workplace. Also, the firm should prevent unethical social business practices such as the use of child labor in the manufacturing and distribution processes. Fan Milk International can enhance economic sustainability by having systems that improve the economic wellbeing of the whole community and the country. The company can do this by dully submitting all their tax obligations, both locally in the country of operation and even in their original homelands.

Fan Milk International can consider engaging their value chain partners, industrial and members of the NGOs. By having an effective engagement, the company is likely to actively get involved in sustainability on a larger scale with other partners. Together the companies can easily improve on their environmental, social and political impacts. Fan Milk International can also use this platform to share best business practices and have solutions to their everyday business problems. The NGOs can also be instrumental partners in creating ethical and sustainable work practices in the industry. The company can also consider practicing sustainability in corporate culture. The leadership of Fan Milk International can be on a rotational basis and a fixed term. That will enable the company to have new ideas and strength in the company constantly. The company needs to have into the system constant sustainability. The sustainability will be critical in enhancing continuity with the new members of the management team.

Lastly, Fan Milk International can enhance managers training to enable them to fully adopt and understand corporate social responsibilities and integrate them into their managerial functions in the firm. The company can improve the social welfare of the people around where it operates. Social good can be enhanced by the company through the creation of job opportunities for the local population. Fan Milk International management may also improve education initiatives by sponsoring school fares and activities for the locals. In achieving lasting sustainability, the company can also consider investing in the improvement of the infrastructural capacity of the region in which it operates.

November 09, 2022
Category:

Business World

Subcategory:

Corporations Experience

Subject area:

Company Success Countries

Number of pages

10

Number of words

2532

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