A McDonald's hamburger in the United States and in the United Kingdom for example is to be sold within the same price range when the exchange rate is calculated. McDonald's has had a large amount of success in its global expansion. The reasons for this comprise a number of factors, one of which is the perceived value to the purchaser. In all countries where McDonald's is sold, the customer perceives the value of food purchased for a certain price as economically viable. The food is of the same quality and portion size globally. This kind of stability is valued by the customer.
Possible short-term problems for McDonald's relate to the daily changes in foreign exchange rates. It is hardly practicable to change prices on a daily basis. Customers have come to expect stability from the company, especially in terms of price, which makes maintaining PPP a challenge. This problem is overcome by relying on customer perception of value rather than only exact PPP values. For continued success, it is important that customers continue to perceive the commodity as valuable in terms of both low and stable pricing.
9. Common currencies such as the Euro and pegged currencies such as Chile's considerably simplify foreign trading practices. A common currency eliminates the problem of PPP, while a pegged one simplifies it. Globalization, as mentioned above, is rapidly rising, without showing any trends to the contrary. The world is becoming increasingly cooperative in terms of cultural practices and trade restrictions. The globe no longer operates as a number of separate nations, each functioning in its own autonomous way.
In the spirit of this collaboration and increasing tolerance, I believe there certainly is much potential for more collective regional currencies. This is however as controversial a topic as globalization itself. Certainly some would point out the evils of such a practice. It is however also possible to apply the principles of change management here. Communication is essential, and people should be given the opportunity of choice whether to use the regional or the local currency. Some for example feel that a unique local currency is highly integrated with culture, and that a common currency would detract from the very uniqueness that makes each particular nation what it is. Perceptions like these will need to be assessed before making the decision to integrate regional currencies. The element of choice could relate to specific trade events, such as imports and exports, during which the regional rather than the local currency would be used. This will provide some sense of stability and consistency not only for traders themselves, but also for consumers in terms of PPP.
10. The greatest challenge in collaborating with a foreign company is culture. Culture is a multi-faceted concept. The most important in terms of international business collaboration is corporate culture. A company's mission statement, vision and goals directly affect the corporate culture within that company. Some companies are less formal in their culture, while others can highly prize formality in their business dealings. When entering into a collaboration, thorough research is needed in terms of corporate culture compatibility.
Further complicating the issue is the social culture within which the collaborating companies operate. One might be operating in a highly free-thinking, democratic environment, while the other may be more restrictive in its practices. Social values, such as family and spouse roles, also need to be taken into account.
Misunderstandings can easily occur to the detriment of proposed collaborations. As in change management, communication and an open mind are essential to successfully navigate these challenges. Each employee from the different companies for example need to be willing to learn about and from employees in other companies. It should also be kept in mind that no particular culture is better than another, but that there are indeed practices by which collaborations will be simplified and others by which they will be complicated. With proper communication, collaboration can be highly profitable.
Antweiler, Werner (2006). Purchasing Power Parity. University of British Columbia. http://fx.sauder.ubc.ca/PPP.html
Chapman, Alan (2005-2006). Change management. http://www.businessballs.com/changemanagement.htm
Mrak, Mojimir. (2000). Globalization: Trends, Challenges and Opportunities for Countries in Transition. Vienna: United Nations Industrial Development Organization. http://www.unido.org/userfiles/PuffK/mrak.pdf
Nishimura, Yoshiaki. (2001, March) Economic Policy for Transition to Market Economy - Overview. Economic and Social Research Institute. http://www.esri.go.jp/en/tie/russia/russia1-e.pdf