Unit 5 International business PDF

Preview

Summary

P1: EXPLAIN WHY TWO CONTRASTING BUSINESSES OPERATE IN CONTRASTING INTERNATIONALMARKETTESCOTesco is a multinational grocery and merchandise retailer, with headquarters in Welwyn Garden City, Hertfordshire, England and United Kingdom. It is the largest retailer in the world measured by profits and nin...

Description

FAUZIYAH AHMED P1: EXPLAIN WHY TWO CONTRASTING BUSINESSES OPERATE IN CONTRASTING INTERNATIONAL MARKET TESCO Tesco is a multinational grocery and merchandise retailer, with headquarters in Welwyn Garden City, Hertfordshire, England and United Kingdom. It is the largest retailer in the world measured by profits and ninth-largest retailer measured by revenues. Tesco operates in 10 countries according to their website. These countries include the United Kingdom, India, Malaysia, Lotus, Czech Republic, Hungary, Poland, Slovakia and China. Tesco is a retail business that has different stores in different countries. They have about 500,000 employees and chose to operate as a multinational business because they produce groceries, clothes, food and banking and by operating in the countries they are improving employment opportunities in those countries, they should be able to sell products at low prices, which increases profits, and at the same time benefits their customers. They could also benefit from a lowered transportation cost as they could set up different stores locally and as they are in a developed country, they have local suppliers. By operating in an international market this would increase their chances to expand their business. To be able to import and export to third countries and the EU Tesco needs appropriate licenses and to make exports declaration to customs through the National Export System (NES). They must use this as exporters to declare their intention to export goods to third countries and they must make sure that VAT, import taxes and duties in the destination countries are paid where necessary this is to ensure that they follow transport procedures. As Tesco is in the multinational market, there are disadvantages to being a multinational company. According to research “Tesco saw sales over the three months to January drop in its largest stores as competition from smaller stores and online shopping include” the reason why Tesco is seeing competition from online store is because a minority of people prefer to go shopping in store rather than shopping online as people are used to it. The reason why they are getting competition from small stores is that some of their products are expensive; however, they have invested in Tesco value product, which are cheaper for consumers to purchase. Tesco deals with Developed countries such as the UK. The advantages of this that there are higher employment rate for people in these countries which means that it improves the economy and there are established trading which means that they know the rules and regulation to follow whilst trading to follow whilst trading to avoid breaking the law and getting fined. The disadvantage is that the market is already competitive so Tesco needs to be on top of its game to have the largest market share which means they need to sell products that are affordable to beat the 6 big stores in the UK which are ASDA, Sainsbury, Morrison’s, Aldi, Lidl and Waitrose.

1

FAUZIYAH AHMED

Tesco also belongs to the advanced emerging countries such as Czech Republic, Hungary, Malaysia and Poland, which means that they will be reduced taxes for them as they are providing jobs for the locals and so they benefit from low tax and high profits and the locals get new job opportunities. They might offer lower wages in those countries, which means that they might get low sales growth as people from other countries would not want to shop with them as they are not treating their employee’s right and their employees will be less motivated to perform their job efficiently and effectively. By operating in secondary emerging / developing economies like China and India or less developed countries like Slovakia and Vietnam, this means that there will be a growth in sales for them as there are billions of people living there which means that they are likely to get a high profit from such countries. However, they need to do their research in those countries to ensure they know their target markets in order to dominate the market in such countries.

BP BP is a worldwide organisation whose activities include refining, marketing, manufacturing, transportation, trading and supply of crude oil, petrochemicals and petroleum products and operates in Europe, North America and Asia. It is UK public limited company as well as Tesco whose shareholders expects dividend which means that are expected to make a huge amount of profit annually. BP is one of the world’s leading international oil and gas companies based in London and they invest in renewable energies. After doing research on BP I found out that BP only sells lubricants such as gear oils, greases and engine oils, solvents such as turpentine, fuels such as Opal, BP ultimate, auto gas and diesel. They make their oil own land and on shore and according to them they “move energy around the globe. We manufacture and market fuels and raw materials used in thousands of everyday products, from mobile phones to food packaging” this means that they make products used occasionally and so it is likely that they will get a high revenue and profit. BP is in 58 countries, 4 continents, which are the Americas, Europe and Eurasia, Africa and Middle and Asia Pacific. 25 operations in Europe and Eurasia such as the UK and Spain, 12 operations in Africa and Middle east such as Angola and South Africa, 5 operations in the Americas such as Trinidad & Tobago and Canada and 12 operations in Asia Pacific such as China and India. From this, I can tell that BP has businesses worldwide and Tesco operates in 9 of the countries that BP operates in excluding Slovakia which is in the Frontier market.

2

FAUZIYAH AHMED There about 1.4 billion people in the world without electricity one of BPs aims is to move energy around the globe, this means that by investing in energy they can help these people and make electricity easily available to them. As they are predicted growth in energy in 2035 and they plan to do so by reducing carbon emission, this means that around that time there is a high possibility that all these energies would reach all parts of the world especially under-developed countries. As well as this Tesco has announced that, it will run 100 percent on renewable electricity in the UK and Ireland and maybe worldwide by 2030 in a move, this is similar to BP’s aims. Their scientists and engineers recognise the urgency of climate challenge and they understand that producing oil efficiently is essential to their success. They have new technologies to help produce more oil more efficiently from existent resources. They also make their operations lower cost and more sustainable to give people different choices of type of energy they want to use. As they deal with countries in different markets such as developed, advanced emerging, secondary emerging and frontier markets it is possible to meet their aims to move energy around the globe and to reduce carbon emission with their new technologies. The advantages of BP being a developed country is that they get hire people with the right skills to work with them, for example hiring experienced scientist with different ideas and they also know the rules and procedures to trading and operating. This however means that they will have competition with other worldwide companies such as ExxonMobil and Chevron.

BP is also a part of the emerging markets and has potential of increased sales due to undergoing fast economic growth; this then means that the government will offer incentives to them as they created new jobs for the local community. However, emerging markets have unstable government and any politics issues can cause problems to BP, the high inflation in these countries can cause problems for BP as they are due to spend more than they are meant to in these countries and any of their investment gains could decrease in value due to inflation. In less developed countries they are likely to have high sales due to the number of people living in these countries, this also means that as the countries are less developed and don’t have advanced technologies like emerging and developed markets, they will not need most of the products produced by BP which will mean that there is a limited amount of profit from these countries. This is why BP needs to invest a lot in these countries to move energy around the P2: FINANCING OF INTERNATIONAL BUSINESS. As BP and Tesco are an international business, they need to think of ways to finance their business in order to fund their organisations. International businesses can go about financing their business in four ways depending on the situation they are in they might decide that one method is better to finance their business than the other based on certain reasons. PREPAYMENT BY THE IMPORTER 3

FAUZIYAH AHMED This type of method expects them to make payment upfront or they might not want to deal with you by supplying you products. The reasons why they require you to pay upfront is that there is little trust between in the importer and their businesses, this is why it is essential to make payment to get the product required by your organisation. This can happen if your business is new, these suppliers are not used to your way of business, and you do not have a stable and reputable organisation. It can also be a high demand for the goods or service you require so by paying in advance the price can be fixed so you know exactly know how much you are required to pay. ADVANTAGE  The exporter can avoid non-payment since part of payment is received during the transfer of the goods  There might be a fixed price if you pre-pay for goods and services, which means that they will be low problems with cash flow forecast problems. DISADVANTAGE  This method can cause cash flow problems for the buyer 

Buyers can also be concerned that their goods might not be sent after payment is made which then makes it possible that sellers who make this method their way of exporting

 Goods may lose out to competitors.

LETTERS OF CREDIT A business needs to have trade agreement with their partner and counter partners. Trust is incredibly important between buyers and sellers as there is a high risk taking advantage of trust, which is why a letter of credit makes this trading process less risky. A letter of credit is necessary where there is an importer and an exporter and there needs to be confirmation in order for this to be shared, it is an instrument from a bank, which guarantees a buyer payment to the supplier cannot pay up due to the agreed contract through letter of credit, the bank will cover the remaining price. This letter of credit are fundamental components of international financing and are covered universally by a set of guidelines called the UCP 600, which are issued by the international chamber of commerce. A letter of credit is usually used when the buyers and sellers do not know each other very well and hence why it is used frequently in international trading to finance goods. The thing about letter of credit is that if there is a misspelling in the contract this can make the contract invalid until the letter of contract is corrected. ADVANTAGE  An advantage of using this method is that buyers are certain to receive the goods they have pay for, as it would be a breach of contract for the seller to not abide by the contract, which can lead to legal process being encountered.  Another advantage is that sellers are protected against non-payment form the buyer because it the buyer does not abide by the contract and the bank does not cover up the payments this can be a breach of contract.

DISADVANTAGE

4

FAUZIYAH AHMED  It is based on documentation and not physical verification of goods for the buyer, which means that the contract explains the goods you are required to receive but you do not see the actual goods in person.  For the exporter there is a high cost for negotiating and other procedures of letter of credit is high. EXPORT CREDIT Export credit involves when an organisation that is selling goods to you asks you to purchase your goods and pay later, after an agreed period. This kind of method allows businesses to save money being moved between both businesses as it gives the buyer a period to pay for the goods purchased. Apart from this Export Credit Agencies, helps a business negotiate with their seller and provide insurance for the product guarantee that the product is received. These agencies are normally used when the country a buyer is trading with is politically unstable and there is a high risk of not receiving their products, they access whether the goods and services are eligible for financing and they have strict rules, which means that they follow specific procedures to ensure that things go smoothly. ADVANTAGE  Allows your business to expand into new markets confidently knowing that you will be compensated should the goods or services you asked for should default  As an exporter, export credit can help reduce your burden when it comes to risk management, it allows you to save time, and focus on what is important. DIADVANTAGE  Insurers might not cover certain types of goods and so the policy will not cover the entire shipment.  They may not offer certain types of good to certain countries that your business imports from

BANK LOANS Bank loans depend on your contract with a bank and the type of loans offered depend son size of the loan required by your organisation, depends on the country with which you are importing from, the banks understanding of the type of market your business is. Not only does it depend on these factors but also on the current/existing relationship with your bank depending on the type of account you have with your bank. Your credit history influences the amount of loan you will get. If you have a bad credit history then you are likely you get low or no loan, this is because the bank sees you as a high risk of not repaying back your borrowing due to your past. However, if you have a high credit history then you will get the right amount of loan you asked for. ADVANTAGE  The business is guaranteed the money for a certain period if they are eligible for it  Interest is paid on the loan so there will be no need to provide the bank with a share from your business  Interest may fixed for the term or the interest would be low depending on how much was borrowed and the term of repayment

5

FAUZIYAH AHMED DISADVANTAGE  The bank has security over your business asset just in case you fail to make the full repayments, which means that they ,may be legal action taken against your business which might lead to bankruptcy

P3: The main features of globalisation that affects two contrasting business The world has become one big market place. It is now much easier to reach customers and trade with businesses in other countries around the world. This now mean that different countries are interlocked with each other so whatever occurs in one country will is likely to occur in the other. In that case traveling is easier between countries as it is both quick and easy to move around the world. Communication is faster than it has ever been due to the invention of mobile phones making easy for people to communicate easily with one another around the world. Globalisation has made it easier for different businesses to trade across borders because of ease at which these goods can be transported around the global market. Different countries export and import goods from each other and different individuals can now shop in different countries using internet shopping. Not only has globalisation made all these things easier but it has also made people migrating from different countries easier, this has now meant that many individual countries like the UK have a much more diverse local culture than they used to, influencing demand on different goods and services. Not only this but different businesses have expanded their accomplishments to different borders which has now meant that businesses conduct their activities in different countries to help them meet the needs and services of different people around the world and to help their business be known by various individual and in the process increase g their profit and revenue. Globalisation has allowed for businesses and communities to work together and it has decreased isolated economies. An example of a global business is Nike, not only have they expanded their business to different continents like Asia and Africa, they have also expanded their brand to different religion, by making a Nike hijab for Muslim women. They have started selling a performance hijab for Muslim athletes to promote equality for women who find it hard to be accepted. For women who want to be swimmers, for women who want to be footballers, for women who want to be boxers, for women who want to be runners, for women to pursue their athletic dreams and do what they love doing best. There has recently been an advert by Nike named “NOTHING BEATS A LONDONER” it shows a diverse community of people from different parts of the world being Londoners. Nike is an example of a business that demonstrates diversity and globalisation. Globalisation has different features such as: Trading blocs: A group of countries working together to move goods and services more easily between themselves by removing any barriers to trade. These countries manage and promote trading activities Examples of trading blocs: 

6

EU: European Union: they allow there to be free trading amongst country in the EU, it has been found that the barriers to trade in the EU have been increasingly invisible. There has been 166 manufacturing industries inn 11 member states over the period 1999 until 2003. There are currently 28 member countries in the EU such as Austria, Belgium, Bulgaria,

FAUZIYAH AHMED Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Ireland, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Spain, Slovakia, Slovenia, Sweden and the United Kingdom. These countries have the right to free trade; this means that governments may not limit quantities of imports/exports nor restrict trade in any other way throughout the territory of the EU. Therefore, if a product enters the EU it can be transported throughout the EU freely.  EFTA: European Free Trade Area: they follow the EU laws and the agreement is to allow EU states and three-member state Iceland, Liechtenstein, Switzerland and Norway to trade freely in the EU states. The four EFTA States are competitive in several sector and are important to the global economy and score among the highest in the world in competitiveness, wealth creation per inhabitant, life expectancy and quality of life. These four member countries are not however part of the EU member countries.  NAFTA: North American Free Trade Agreement: they allow countries like Canada, the United States, and Mexico to trade free, this is because they have a strong economic growth and rising prosperity. This union came in effect in 1994 and it has demonstrated how free trade increases wealth and competitiveness, delivering real benefits to families, farmers, workers, manufacturers, and a number of organization that ensures that there are smooth interpretation and interpretation of the agreement oversees consumers.it. NAFTA brings increased job creation and better prices of selection of goods for consumers; NAFTA has benefited consumers, farmers, consumer, families and businesses. In order to confirm that you are part of the origin the holder must complete a certificate of origin. International mobility of labour and capital: 



 

More people working in different countries around the world for different organisations for example EU citizens can move and work wherever they wish within the EU. It is also easier to move money from one country to another John is a German citizen. He does not need any sorts of document to work order to work in UK this is because Germany is a part of the European Union and so this allows him to freely move and settle down ...