What defines local or regional businesses? Take a walk around your town or city, and you’ll see a variety of local and regional businesses. Used bookstores, bakeries, shoe repair shops, boutiques, restaurants, and specialty shops are often local businesses. A local business is usually one of a kind, and it relies on local consumers to generate business. A company is local if it serves a limited surrounding area. A local catering company in Baltimore, for example, might have one kitchen and cater events in Baltimore and its surrounding suburbs. Local companies generally have small numbers of employees and are associated with the towns or cities in which they are located. Regional businesses serve a wider area although, like local companies, they do not serve a national or international market. Wawa convenience store chain is an example of a regional business.

What special challenges do local and regional businesses face? The most common challenge for local and regional businesses is managing their money. Poor financial planning, as well as unfavorable economic conditions, can lead to bankruptcy. Undercapitalization occurs when a business owner cannot gain access to adequate funding. When a business can no longer afford to produce goods or provide services, it goes out of business. The owner must anticipate the cost of doing business and estimate the revenue that the business will generate. To avoid going into debt, the owner should have enough projected revenue to cover expenses for at least the first year. So if the owner of a local catering company has $100,000 in expenses and expects to generate $75,000 in the first year of business, then the owner should have at least $25,000 to fund the company. Even with adequate funding, there is always a chance that the economy will not support the business. Many small businesses fail when the economy slows down because consumers are less likely to spend extra money.

Business owners also have to take taxes and insurance costs into consideration, such as health insurance plans to cover their employees. They also need liability insurance to protect their companies if property is stolen or damaged or if employees are injured on the job. If a local jewelry store is broken into and jewelry is stolen, liability insurance will cover the cost of the broken window and the stolen property. If the jewelry store is not insured, the business could go bankrupt if the owner can’t afford to cover the loss and damages.

What defines national businesses in the United States? If you drive from New York to Los Angeles, you’ll encounter many CVS/pharmacies along the way. CVS/pharmacy has more than 7,000 locations and can be found in every part of the United States.13 All CVS/pharmacy locations essentially look alike and carry similar merchandise—all within a similar price range. With companies such as this, the customer knows what to expect. A national business serves the country, but it does not serve an international market. It provides goods or services to virtually all U.S. residents, no matter where in the country they live. A car insurance company, such as Allstate, is another example of a national business. It has offices in 49 states and serves the entire country. National companies have become standard symbols of U.S. business.

What special challenges do national companies face? Like local and regional companies, national companies also have to worry about their budgets and managing their finances. But they have other concerns that local businesses don’t have. Because laws vary from state to state, national companies must be aware of state laws in every state in which they do business. For example, each state has its own tax laws. In most states, retail businesses are required to apply for a state sales tax permit to be able to collect sales tax from their customers. Every state imposes a corporate income tax, but the rate varies across states. And some states, such as New Jersey and Rhode Island, require businesses to pay for temporary disability insurance for their employees.14 These laws can be difficult to keep up with and prevent companies from having standardized operating policies.

Another challenge that national companies face is longer, more complex supply chains. A supply chain refers to the flow by which a product, information, and money move between a supplier and a consumer (see Figure 1.4). In the case of a manufactured good, raw materials flow from their suppliers to a manufacturer, which makes them into a product, which then flows to wholesalers, to retailers, and finally to the consumer. If the product is returned, it flows from the consumer back to the retailer and then potentially further back through the supply chain. Information flow includes the status of orders and their delivery. Financial flow includes manufacturing costs, payments, credit terms, and profits.

Figure 1.4

The Supply Chain

Let’s look at an example of a supply chain. When you go to Target to buy a bottle of Tide detergent, you are a part of the supply chain, as is the Target store itself. Target’s stock of Tide was supplied by a distributor, whose supply of detergent came from its supplier, P&G. P&G has its own set of suppliers that provide the chemicals and packaging materials required to manufacture the detergent.

The bigger a business is, the longer and more complicated its supply chain becomes. If not managed properly, long supply chains can be inefficient because products and materials have to pass through more warehouses and sustain more shipments. Products may get backed up in long supply chains, which can result in delayed shipments and late payments. A lack of communication among companies in the chain can cause mix-ups and delays, especially if there is a sudden change in the process. A national company must therefore rely on the cooperation of all members of the supply chain to keep the business running smoothly.

What categorizes a company as multinational (or international)? As we discussed previously, multinational businesses make and/or sell products in several countries. They are businesses that have expanded to provide goods or services to international consumers or serve only one country but have suppliers or production facilities in other countries. For example, you can now find a McDonald’s restaurant in more than 119 countries, all serving distinctly U.S. food.15 However, not every McDonald’s restaurant is exactly the same. They have all been adapted to fit the cultures of the countries in which they are located. For example, if you enter a McDonald’s restaurant in some parts of Canada, you’ll see a McLobster on the menu. The McAloo Tikki Burger is a vegetarian sandwich made with potatoes, peas, and spices served in McDonald’s restaurants in India. Because of the large Hindu population in India, beef is not used in any of their menu items.16 This is the nature of multinational businesses.

What special challenges do multinational corporations face? Multinational corporations must be familiar and comply with the laws of the countries in which they operate. Laws concerning the import and export of goods vary greatly from one country to another. Things can get particularly complicated if a product is shipped to one country for assembly, another for packaging, and then yet another country for distribution. Often, several countries are involved in the manufacturing of one product, in which case the laws and regulations of all those countries must be adhered to. It might be necessary for a U.S. company to work with the governments of foreign countries if there are strict importing restrictions or a multitude of taxes. Safety regulations and quality control, copyright, and patent laws are some of the other laws multinational corporations must comply with when doing business in foreign countries.

Cultural differences related to business practices have as much impact as legal differences on international business. Some of these issues, which we’ll discuss further in Chapter 4, include the following:

• Language barriers present challenges to businesses trying to establish themselves in foreign countries.

• Countries may have different business hours or workweek schedules. For example, in Spain, workers tend to take lunch from 1:30 to 3:30 p.m.

• Values and customs relating to business etiquette may vary. For example, timeliness is highly valued in Germany, but it is less important in Italy.

• Violating local taboos can be a concern, such as the preference for group harmony in many Asian countries.

• Multinational companies may have difficulty determining wages for foreign workers and pricing for international markets.

Multinational companies also must contend with many important economic differences among countries, such as the different levels of economic development, interest rates, and inflation rates that make international business more complicated than purely domestic business.