Global Business: Risks and Strategies for International Operations

This document discusses the concept of global business and its associated risks. It explores the external and internal business environment, entry strategies, and implementation. The case study focuses on COSTCO wholesale and its operations in the retail industry.

Running head: GLOBAL BUSINESS
GLOBAL BUSINESS
Name of Student
Name of the University
Author Note

1GLOBAL BUSINESS
Executive Summary
Global business refers to the trade of the goods or services of the company internationally at a
global level and carrying out its operations across the borders. It is also known as globalization
because it involves carrying out international transactions of goods and services. International
transactions will include: people, resources and other physical resources and services such as
financial services and others. There are various risks associated with the same such as
operational risks, environmental risks, technological and various other risks. The Company
chosen for the purpose of this study is COSTCO wholesale which is engaged in providing
warehouse clubs. The company belongs to the retail industry and carries out the services
provided by the company includes merchandising activities, warehouse club and carry options.
The main aim of the paper is to help the business carry out its operations across the country at
global levels and the risks associated with the same. The paper has discussed about External
business environment, internal business environment, the strategy used by the company for
entering new countries for expanding its operations, implementation of the strategy for entering
new business markets and finally the paper has discussed about the conclusion. There are
numerous advantages and risks associated with the decision of global business. The paper has
discussed about the same.

2GLOBAL BUSINESS
Table of Contents
1. Introduction and Company background...................................................................................3
2. External business environment....................................................................................................3
3. Internal business environment.....................................................................................................8
3.1 Competence: Research and development..............................................................................8
3.2 Competence 2: Brand management.....................................................................................10
3.3 Competence 3: business model of COSTCO.......................................................................11
3.4 Competence 4: low price strategy and treasure hunt strategy of Costco Company............12
4. Entry Strategy............................................................................................................................12
5. Implementation..........................................................................................................................15
6. Conclusion.................................................................................................................................16
References......................................................................................................................................18

3GLOBAL BUSINESS
1. Introduction and Company background
Global business or international business refers to carrying out operations of a company
beyond the national boundaries and includes carrying out operations in many other countries
((Watson et al. 2018). It includes all the international transactions of goods and services such as
transfer of people, physical resources and many others and international services include
financial services and others. There are however many risks associated with the global business
such as the operational risks, financial risks and other risks. There are various modes of entering
in case of international business such as joint venture, acquisition, licensing and various others.
The company chosen for the purpose of this study is the COSTCO Company that is a
multinational Company of US and is engaged in providing services of warehouse clubbing,
merchandising and cash and carry services as well (citeseerx.ist.psu.edu 2019). The company is
ranked as second after Walmart in providing retail services. It belongs to threw retail industry.
The main aim of the paper is to discuss about the internal business environment, external
business environment, the entry strategy of the company and the implementation of the same
strategy (pure.au.dk 2019).
2. External business environment
Political factors
of the country
Laws operating
in the country
Economic
conditions of the
country
Social factors
existing in the
country
Ethical factors
or the existing
norms of the
country
The political Legal factors of a The economic Social factors Ethical factors

4GLOBAL BUSINESS
factors in any
country refer to
support of
government that
is available in the
company and the
political stability
and environment
in the country. it
directly affects
the operations of
the companies in
the country.
Political factors
may affect the
business
positively or
negatively. The
political factors
are providing
good
opportunities for
the company
country
determine the
operations of a
company and
may affect it
negatively or
positively. These
include the
regulatory
frameworks and
other laws for the
same purpose.
The Malaysian
trade and
enterprise a
government
agency of new
Zealand provides
information
about the
opportunities to
companies for
operations in
conditions in a
country refer to
the factors that
affect the
competitiveness
of the country’s
environment and
include factors
such as the
inflation rate, the
employment, the
wage rate and
others. The
economic
conditions of the
country are such
that it supports
the entry of
COSTCO
company into the
Country because
of the high cost
of living of
refer to all those
factors that affect
the personality,
lifestyle and
attitude of the
people of the
country. The
company will
have a difficulty
in operating its
store in Malaysia
due to
subscription
members shop
only model
because people
may not be
willing to pay
such a higher
amount as their
cost of living is
already high in
Malaysia. The
refers to the
beliefs of the
people of the
country
regarding ethics.
Some of the
common ethics
are integrity,
honesty and
others. The same
is to be
maintained by
the company
carrying out the
same. Malaysian
has ethics
committee in
order to look
after the ethical
issues of
corporations,
community and
other fields. The

5GLOBAL BUSINESS
because it will
help the existing
local brands of
the country to get
a platform for
sale and enhance
their sales
through this store
in U.S. The
company usually
occupies 60% of
the supplier
market such that
they can have
regular supply of
their products
from them and
therefore these
activities of the
company will
help in
improving the
conditions of the
Malaysia. The
government
looks after issues
related to human
rights,
intellectual
property rights
and other issues
for the
organizations
carrying out its
operations in the
country.
people. The
people of
Malaysia need
stores that will
meet their
requirements at
lower costs and
the company is a
bulk discounter
company through
its wholesale
activities.
Moreover, the
COSTCO
company will
help in
improving the
economic
conditions of the
people because
the company
aims at providing
employment
company is
however aiming
at improving the
customers
experience by
bringing a totally
new way of
shopping and this
will be achieved
through its
warehousing
strategy that will
help in providing
best quality
goods to the
customers
through a frill
free warehousing
option. The
company is also
aiming at
improving the
customers
company may
have to face
some problems
while operating
in the country
Malaysia because
there the people
are not
accustomed to
creating
membership
cards for
shopping and
their culture is to
simply go to the
shop and do their
work without the
need for any
membership
cards. However
this new model
of the company
that will be

6GLOBAL BUSINESS
existing suppliers
and local brands
financially and
therefore the
entry of the
COSTCO in
Malaysia is
favored by the
government of
the country.
COSTCO
company is
provided with
opportunities in
the country due
to these reasons.
opportunities to
about 350 propel
approximately.
The company is
known for
providing goods
at 20-35% lower
cost than the
market prices
through its
wholesaling
activities. The
company is
aiming at
improving the
living conditions
for the people by
providing them
opportunities of
buying high
quality goods at
low prices
through its
experience by
providing them
with a range of
products.
However the
only risk that the
company is
facing presently
is the way the
people will react
to its
membership
subscription only
model because it
many members
do not subscribe
they may go into
losses.
adopted by the
company for
carrying out its
operations in the
new store in
Malaysia
requires people
to carry out the
shopping
activities after
the subscription
membership has
been obtained by
them. The people
in Malaysia
believe in
barging and the
company
provides the
same to its
customers
through its
wholesaling

7GLOBAL BUSINESS
warehousing
strategy.
activities. The
Malaysians travel
a lot and
therefore have
good experience
about overseas
market and
therefore the
company needs
to ensure that it
is providing all
the offers that is
provided in other
countries
otherwise they
will face
problems.
Country has
various policies
and regulations
to ensure that
enterprises
carrying out

8GLOBAL BUSINESS
activities in
Malaysia carry
out the same in
an ethical way
and takes strict
actions any
issues related to
human rights,
illegal use of the
intellectual
property rights
and others.
Figure 1: Table of external business environment
Source: (created by author)
3. Internal business environment
3.1 Competence: Research and development
Research and development refers to the activities undertaken by the company in order to
develop new products and services. Research and development activities provide competitive
advantage to the company. The innovation may be related to products and services or it may
even be related to the processes. COSTCO Company spends huge amounts of money on
research and development. The company is engaged in providing goods and services at lower
prices due to its innovative processes and business model (Azuayi, 2016). The company uses a

9GLOBAL BUSINESS
business model of membership subscription and through its wholesaling activities it is able to
provide high quality goods to its members at lower prices.
Figure 2: VRIO framework
Source: (www.tandfonline.com 2019)
Valuable resources Rare resources Inimitable resources Organized resources
Yes the company has
valuable resources
Company innovates
and produces high
quality goods at low
price and earns
customers loyalty
Yes Yes Yes
The sustained
competitive advantage
of the company is
customer’s loyalty
arising out of product
that is produced at

10GLOBAL BUSINESS
lower costs.
Figure 3: Table of VRIO resources and framework
Source: (Created by author)
VRIO Framework discuses about the organizational capabilities, resources and
competitive advantages that can help the organization in the long term and can differentiate the
company from its competitors (Chung and Enderwick 2001). The company has been capable of
earning the customer’s loyalty due to its high quality goods and services at lower prices.
3.2 Competence 2: Brand management
Brand management refers to the way a particular brand is perceived by the customers.
Brand management helps in value creation. In order to carry out brand management it is
important for the company to enter into good relationship with the customers and to provide
value to the customers. Costco value chain aims at analyzing the activities of the company from
the stage of its introduction to the stage of completion (Morschett, Schramm-Klein and Swoboda
2010). This method helps in providing value to the total cost. The main aim is to provide best
quality goods at minimum cost. The company aims at providing value to its customers through
its information engineering techniques and other technological advancements due to which they
are able to provide high quality goods at lower prices (Emeraldinsight.com. 2019).

11GLOBAL BUSINESS
Figure 4: table showing competency
Source: (created by author)
3.3 Competence 3: business model of COSTCO
The company uses the model of subscription membership sales model under which the
company provides high quality goods to its members at prices lower than the market price on
selected range of products by producing high volume of sales and turnover of inventory
(www.inderscience.com 2019). This technique allows the company to sell its products to the
customers at low prices and the company earns profit by getting subscription of the members and
this allows a competitive advantage to the company. This model is dependent upon the
customer’s membership and renewal of the same. This model therefore shows the customers
loyalty because the satisfied customers will renew their membership through subscription and
therefore it acts as a core competency of the company (Articles 2019). Customers whose cost of
living is high want to buy products and services after bargaining such that they can get those
goods and services at lower prices, the company believes in providing goods and services at 25-
35% lesser than the supermarket price and through this business model of the company can get
their customers coming back to them (Baena and Cerviño 2015).
Primary activities Secondary activities
Information engineering and other
technological capabilities still determine and
prolife the competitive to the company through
information engineering.
Information systems, R&A and others are the
major secondary activities of the company.

12GLOBAL BUSINESS
Subjective criteria Total number Internal External
Profitability 46 21 25
Sales 55 20 35
Market share 54 24 30
Figure 5: Table for Subjective criteria
Source: (Created by author)
3.4 Competence 4: low price strategy and treasure hunt strategy of Costco Company
The Costco Company aims at gaining the customers loyalty and attracting the same
through its low price strategy. The company’s strategy is based on shopping through treasure
hunt environment, lower prices as co pared to the competitors and limited selection. The
Kirkland brand of the company is used by the company such that it can be better or equal to the
existing brands in the country. The treasure hunt strategy is used by the company such that the
selection of luxury goods can be continuously changed by attracting the customers through
irresistible deals which makes them buy more as compared to in other situations. The company
buys these goods from the wholesalers such that they can sell the same to the members at
discounted prices (Kaplan 2017). The pricing strategy used by the company can also be called as
the generic strategy and through this the company believes in maintaining the lowest price and it
uses the same to gain a competitive advantage over competitors. The strategy used by the
company to gain a competitive advantage is that of the membership warehousing that also helps
in differentiating the company from the competitors in front of the customers (Matarazzo and
Resciniti 2014).

13GLOBAL BUSINESS
4. Entry Strategy
A company can enter into different countries through various entry modes- export,
licensing, alliances, joint-venture and foreign direct investment. Export means that goods
produced in one country is sold internationally to meet the demands of consumers in different
countries. The country which sells the goods to other country is called the exporter and the
country that takes the goods from the other countries is called the importer. In case of direct
exporting the exporter can directly go to the customers and it is a face to face sales strategy and
the main advantage of the same is that the exporting company can test the products in a smaller
market before launching the same in a wider area. Licensing refers to an agreement between two
parties to get the right to use the brand name or product of another company (Laufs 2015). By
giving a license one company gives the right to use and produce the goods under the brand name
of another company. The main advantage of licensing is that the cost of entry into the new
markets is low and moreover the licensees have better local knowledge and therefore they can
help in meeting the needs of the customers in a better way. Alliances refers to an agreement
between the two business parties for the purpose of providing better services to the customers
and for reducing the costs of the products. The members are called the allies. There can be
different types of alliances- equity alliances, non-equity alliances, and joint ventures. Joint-
venture refers to an entity created by two or more parties for the purpose of sharing profits,
carrying on business together, sharing of risks and other activities (Hutzschenreuter, Kleindienst
and Lange 2016). The main advantage in a joint venture business is that both the parties can take
advantage of each other’s resources and competencies, capabilities and others and it can also
help in the transfer of various technologies. Foreign direct investment refers to controlling
business by a company in another country and is a form of investment. There are different

14GLOBAL BUSINESS
advantages and disadvantages of entering the international business through different modes.
The main advantage in case of foreign direct investment is that the company can have the control
over the operations in the other countries also (Holmes et al. 2018). The company can rake
benefits of various tax concessions and others by entering different countries in form of an
investment.
Figure 6: Entry mode decision factors
Source: (Hutzschenreuter, Kleindienst and Lange 2016)
From the above diagram it can be understood that there are different factors that affect
the decisions of modes of entry. A company needs to decide the entry mode dependent upon the
market factors of the target country, environmental factors, production factors, home country
factors, product factors and the company resources factors and various other factors. Out of all
these modes of entry the three most common modes of entry for any international business is that

15GLOBAL BUSINESS
of Alliances through equity and non-equity, foreign direct investment and licensing. Businesses
decide to enter into strategic alliances for the mutual benefit of the parties such as through joint
venture, or outsourcing and various other forms. By undertaking non-equity alliances the
businesses desire to pool their resources, skills, capabilities and others (Raghunath and Rose
2016). However, the major disadvantage of alliances is that there is an agreement which both the
parties need to adhere to and follow so either of the parties may fail to do the same and there can
be differences in management styles and others. Foreign direct investment is used by businesses
to enter the market when they wish to maintain the control and ownership of the business even in
other countries and they can take advantage of government subsidies, tax concessions and others.
However, the main disadvantage of FDI is that the businesses are exposed to political risks.
Businesses go for licensing when they wish to produce their goods or services under a brand
name or desire to use a brand name for some time. There are numerous benefits for the same
especially goodwill, technical know-how and others (Harzing.com 2019). The strategy that will
be chosen for the COSTCO Company in entering Malaysia is foreign direct investment due to
the numerous benefits offered by it (Rugman and Verbeke 2017).
5. Implementation
The company can carry out its foreign direct investment in Malaysia through various
methods such as by establishing a wholly owned subsidiary in that country, by acquisition of
shares of another company, through mergers and acquisition or through joint venture also (Wu et
al. 2018). The company will enter into joint venture with other local supermarket stores in order
to provide better services to the customers and offering a wide range of products for the same
purpose (Twarowska and Kąkol 2013). By entering into joint venture with the local supermarket

16GLOBAL BUSINESS
the company can help in selling the local brands product under its brand name, help the local
suppliers by creating tie-ups with them, and this would create many new job opportunities for the
location. The local supermarkets have better idea about the customers need and can therefore
help the company in producing those goods that meets the needs of the local customers by
informing the company about the same. An implementation timeline is a table that shows the
expected time limits within which the company is expected to implement the same and shows a
year wise detailed analysis of the activities that are required to be carried out by the company for
the purpose of implementation of the same. The following implementation timeline shows the
time needed by the company to carry out its activities for the purpose of implementing the joint
venture strategy of Foreign direct investment in Malaysia.
Activities 1st year (January- June) 2nd year (july-December)
Staffing activities
Workshop development
Develop printed materials
Evaluation
Figure 7: Table for Timeline implementation
Source: (Created by author)
6. Conclusion
From the above discussion, it can be concluded that international business means
carrying out transactions related to the goods and the services outside the boundaries of the
country and is related to expanding the operations of the company in many countries.
International business can be carried out in different countries through various modes- foreign

17GLOBAL BUSINESS
direct investment, export, licensing, alliances, and other modes. All these modes have some
advantages and disadvantages. The company selected for the purpose of this study is COSTCO
Company which carries out various retailing activities across different countries. The paper
discusses about the company, its internal business environment such as the core competencies of
the company- business models, strategy and various others. The paper discusses about the
external business environmental factors affecting the operations of the company such as the
political factors, social factors, economic factors and others. The different entry strategies, the
strategy selected by the company for the purpose of entering Malaysia have been discussed.
Implementation of the strategy selected by the company for the purpose of entering international
business has been discussed in the paper. An implementation timeline has been discussed for the
same purpose to show the time taken to implement the strategies of joint venture. There are
numerous risks associated with entering the international business such as operational risks,
financial risks, political risks and various others.

18GLOBAL BUSINESS
References
Articles, M. (2019). International Business Review. [online] Journals.elsevier.com. Available at:
https://www.journals.elsevier.com/international-business-review/most-downloaded-articles
[Accessed 21 Jun. 2019].
Azuayi, R. (2016). Internationalization Strategies for Global Companies: A Case Study of Arla
Foods, Denmark. Journal of Accounting & Marketing, 05(04).
Baena, V. and Cerviño, J., 2015. New criteria to select foreign entry mode choice of global
franchise chains into emerging markets. Procedia-Social and Behavioral Sciences, 175, pp.260-
267.
Chung, H.F. and Enderwick, P., 2001. An investigation of market entry strategy selection:
Exporting vs foreign direct investment modes—a home-host country scenario. Asia Pacific
Journal of Management, 18(4), pp.443-460.
citeseerx.ist.psu.edu 2019. [online] Citeseerx.ist.psu.edu. Available at:
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.201.1858&rep=rep1&type=pdf
[Accessed 21 Jun. 2019].
Emeraldinsight.com. (2019). International business relationship and entry modes | A case of
Swedish automotive industry Scania and Volvo in Mexico | Cross Cultural Management: An
International Journal | Vol 14, No 4. [online] Available at:
https://www.emeraldinsight.com/doi/abs/10.1108/13527600710830377?
mobileUi=0&journalCode=ccm [Accessed 21 Jun. 2019].

19GLOBAL BUSINESS
Harzing.com (2019). The importance of context in International Business. [online] Harzing.com.
Available at: https://harzing.com/blog/2019/01/the-importance-of-context-in-international-
business [Accessed 21 Jun. 2019].
Holmes Jr, R.M., Hoskisson, R.E., Kim, H., Wan, W.P. and Holcomb, T.R., 2018. International
strategy and business groups: A review and future research agenda. Journal of World
Business, 53(2), pp.134-150.
Hutzschenreuter, T., Kleindienst, I. and Lange, S., 2016. The concept of distance in international
business research: A review and research agenda. International Journal of Management
Reviews, 18(2), pp.160-179.
Impact of International Business (2019). Impact of International Business. [online] Google
Books. Available at: https://books.google.co.in/books?
id=oDuVDAAAQBAJ&pg=PR19&lpg=PR19&dq=peer+reviewed+journal+articles+on+internat
ional+business+modes+of+entry&source=bl&ots=8K6mbhLcCv&sig=ACfU3U1fkrKrh5EO2o
wQ_s528BFZQKR3sg&hl=en&sa=X&ved=2ahUKEwjak87C-
PniAhUVQd4KHZmDD3M4FBDoATAGegQICRAB#v=onepage&q=peer%20reviewed
%20journal%20articles%20on%20internation [Accessed 21 Jun. 2019].
Kaplan, T., 2017. THE BANDWAGON EFFECT OF LEADERS'ENTRY STRATEGIES ON
FOLLOWERS'ENTRY STRATEGIES. The Eurasia Proceedings of Educational & Social
Sciences, 8, pp.64-72.
Laufs, K., 2015. Foreign Market Entry Mode Choice of Small and Medium-Sized
Enterprises (Doctoral dissertation, Universität Düsseldorf).

20GLOBAL BUSINESS
Matarazzo, M. and Resciniti, R., 2014. New trends in foreign market entry mode choices: the
case of Italian midsized companies. Journal of International Business and Economics, 2(4),
pp.57-70.
Morschett, D., Schramm-Klein, H. and Swoboda, B. (2010). Decades of research on market
entry modes: What do we really know about external antecedents of entry mode choice?. Journal
of International Management, 16(1), pp.60-77.
Pdfs.semanticscholar.org. (2019). [online] Available at:
https://pdfs.semanticscholar.org/ce81/dcc2cc1ed15a218287fa855eec342c78f2ee.pdf [Accessed
21 Jun. 2019].
pure.au.dk 2019. [online] Pure.au.dk. Available at:
http://pure.au.dk/portal/files/85180694/PhD_thesis_Jesper_Nydam_Wulff.pdf [Accessed 21 Jun.
2019].
Raghunath, S. and Rose, E.L. eds., 2016. International Business Strategy: Perspectives on
Implementation in Emerging Markets. Springer.
Rugman, A. and Verbeke, A., 2017. Global corporate strategy and trade policy. Routledge.
Twarowska, K. and Kąkol, M., 2013. International Business Strategy-reasons and forms of
expansion into foreign markets. Poland: Maria Curie-Skłodowska University, 55.
Watson, G., Weaven, S., Perkins, H., Sardana, D. and Palmatier, R. 2018. International Market
Entry Strategies: Relational, Digital, and Hybrid Approaches. Journal of International
Marketing, 26(1), pp.30-60.

21GLOBAL BUSINESS
Wu, C., Huang, F., Huang, C. and Zhang, H., 2018. Entry Mode, Market Selection, and
Innovation Performance. Sustainability, 10(11), p.4222.
www.inderscience.com (2019). International Journal of Export Marketing (IJExportM)
Inderscience Publishers - linking academia, business and industry through research. [online]
Inderscience.com. Available at: https://www.inderscience.com/jhome.php?jcode=ijexportm
[Accessed 21 Jun. 2019].
www.tandfonline.com (2019). International market entry mode – a systematic literature review.
[online] Taylor & Francis. Available at:
https://www.tandfonline.com/doi/abs/10.1080/0965254X.2017.1339114?
scroll=top&needAccess=true&journalCode=rjsm20 [Accessed 21 Jun. 2019].