From market expansion and economies of scale, to spreading business risk and cost advantages, there are many reasons why businesses choose to go global.
Chief among them is the sheer size and scope of the market: according to UNCTAD (United Nations Conference on Trade and Development) world trade in goods was valued at US$19 trillion in 2019 and trade in services US$6 trillion. In the midst of a global pandemic, we ask: what are the key challenges for international businesses?
While trade, particularly trade in goods, is expected to bounce back fairly quickly now that COVID-19 vaccines have been developed and are being distributed, the virus is not the only factor that threatens the global economy.
Below, we’ve pulled together some of the most pressing challenges facing cross-border business.
The International Labour Organisation (ILO) projects global unemployment to reach 205 million people in 2022, 10% more than the 2019 level of 187 million, with Latin America, the Caribbean, Europe and Central Asia worst hit.
Compared with 2019, there are now an estimated 108 million more workers extremely or moderately poor, which means they and their family members live on less than US$3.20 (€2.62) per day in purchasing power parity terms.
While economic recovery is beginning, supported by large-scale fiscal spending, it remains uneven geographically and the employment gap – and associated loss of spending – will take longer to bridge.
Despite high levels of unemployment, Deloitte predicts that employers will find it difficult to replenish an experienced, skilled workforce, whose confidence has been severely shaken this past year.
Many people were let go by their employers, others had to leave work to care for children at home or were forced them to isolate from health issues.
Some older workers – over 55 – retired, while many are now more cautious, aware of the increased risks COVID-19 poses to them. All of those who do return to work will expect much greater flexibility and improved safety precautions.
The world remembers only too well the effects of the 2008 global financial crisis (GFC) and, according to Bloomberg, credit risk caused by the global pandemic in 2020 is a concern.
It is likely to remain so while global growth and recovery is slow and governments, companies and supply chains remain under pressure. Central banks provided over US$6 trillion to rate markets in 2020 and low rates have resulted in near-record borrowing and bond issuance.
Both the US Federal Reserve and the European Central Bank (ECB) have recommended that central banks and governments provide additional support to aid economic stability.
Reduced business travel
In 2018, business-travel spending reached US$1.4 trillion, accounting for over 20% of total hospitality and travel sector spending, McKinsey has revealed. But it says business-travel spending is estimated to be half that in 2021, according to a recent survey of business-travel managers.
It took international business travel five years to recover after the GFC, three years more than for leisure travel. While people are desperate to travel for pleasure, border restrictions and concerns about health and safety make them much more cautious when it comes to business.
McKinsey believes that the economic constraints facing businesses – who also saw how technology stepped up to great effect during the pandemic – could result in long-term changes and lower demand for business travel.
The World Financial Review predicts that political instability will continue to increase globally, its impact felt most by emerging markets, including Lebanon and Ethiopia, where conflict and disruptions pose major challenges for movement of goods.
Recent conflict escalation between China and western countries is also causing widespread concern over potential disruption to the global trade and supply chain, should China cut ties. Historically, evidence suggests that good relations lead to larger increases (or smaller decreases) in trade, while worsening relations have a detrimental effect.
Our online MSc in International Business and Management can help you or your employees to better negotiate these and other challenges. Purposefully designed to shed light on the operational and strategic management practices involved with international business, the course has multiple start dates in January, May and September.