9.3 - Assessing internationalisation

• Internationalisation


  Moving into international markets
• International Markets


  • Offer businesses growth opportunities
• Market development strategy


  1. Selling existing products in new countries

  2. Increases market size

  3. Increases revenue
• TESCO


  • Have nearly saturated the UK market, but can increase market size by targeting other countries
• Extending product life cycle


  1. Launching products in new countries as they enter maturity in home market

  2. Common with cars - selling old-fashioned models in developing countries
• Global sourcing


  1. Buying components from overseas at cheap prices

  2. Putting final product together in the UK
• Reducing costs


  1. Getting raw materials from countries with cheapest prices

  2. Relocating factories to developing countries with low wage rates
• UK economy in recession


  Businesses can secure revenue by trading in international markets, e.g. exporting to growing economies
• Factors affecting the Attractiveness of International Markets


  • Size of the Market
  • Political and Economic Factors
  • Cultural, Ethical and Environmental Factors
• Size of the Market


  • Countries with large populations and developing markets can be attractive prospects for businesses as markets will be bigger there
  • The wealth of the population will also affect the size of a business's potential market
  • The availability of technology can also affect the size of the market
• Countries with large populations and developing markets


  • China
  • Brazil
• A pharmaceutical company might specifically target countries with ageing populations
• A designer clothing company is more likely to open outlets in Switzerland where wages are generally high than in Bangladesh where wages are generally low
• Internet streaming services such as NETFLIX won't enter countries where the internet isn't readily available or connection speeds are low
• Political and Economic Factors


  • Laws in the country they are entering (employment, environmental and tax laws)
  • Political controls on trade through tariffs and quotas
  • Stable political environment
  • Fluctuations in exchange rates
• Businesses entering international markets need to take into account the laws in the country they are entering as they can affect the profitability of a business
• Businesses need to consider political controls on trade through tariffs and quotas
• Businesses would prefer to enter a country with a stable political environment - if there is political unrest in a country, a business might wait until the problem is resolved before entering the country
• Fluctuations in exchange rates make the cost of international trade unpredictable, so it's difficult for businesses to accurately forecast revenue and profits
• Cultural, Ethical and Environmental Factors

  • Similar cultures and languages to the one that they already operate in
  • Cheap labour
  • Damage to the environment
  • Fewer restrictions on the buying and selling of certain products
• Businesses will find it easier to trade with countries with similar cultures and languages to the one that they already operate in
• Cheap labour can make certain countries attractive for businesses, however businesses need to be careful that they are not exploiting workers
• Methods of Entering International Markets

  Have different amounts of Risk
• Importing and Exporting


  • Businesses can easily enter international markets
  • Businesses importing benefit from greater variety and cheaper prices
  • Businesses exporting benefit from an increased market size
  • Putting the infrastructure in place can be expensive
• Licensing


  Businesses get foreign firms to produce their products under licence
• Licensing


  • Businesses benefit from the infrastructure foreign firms already have in place
  • Businesses can make money without having to do very much work
  • Very low amount of risk
• Alliances


  Businesses join forces with similar companies abroad, combining local knowledge with a product that has already proved successful in their own country
• Alliances


  • Can spread out the costs and risks
  • Help businesses overcome trade barriers
  • Business loses some control over their venture into that country
• Direct Investment


  Business takes over or merges with a business in a different country
• Direct Investment


  • Allows the business to enter markets quickly and already have an instant share of the market
  • Business doesn't need to invest in establishing its name and reputation in the new country
  • Can reduce the risk of failure by benefiting from the knowledge and experience of the local market and culture
• Entering International Markets


  • Can impact all areas of the business
• Internationalisation can affect the decisions and activities of different departments within the business
• HR department


  1. Recruit people who can speak multiple languages

  2. Help current employees relocate abroad
• Finance department


  Put methods in place for dealing with fluctuating exchange rates as goods are bought and sold in different currencies
• Marketing department


  1. Split into separate international and national departments

  2. Products will be priced and promoted differently depending on the country they are being marketed in
• Producing Abroad


  A way of Cutting Costs or Increasing Revenue
• Locating abroad to reduce costs


  • Pay foreign workers much lower wages than UK employees
  • Cost of land and office space tends to be cheaper overseas, especially in emerging markets
  • Utilities like water and electricity might also be cheaper abroad
• Some companies have been accused of not paying foreign workers enough to live on this is unethical
• Locating abroad to target new international markets


  • Easier to spot local market trends
  • Absorb more local knowledge, less likely to make expensive marketing errors and might spot new market niches
  • Easier distribution of products to the market and decreased distribution costs
• Locating abroad to avoid trade barriers


  • Some countries create trade barriers to protect domestic companies from foreign competition
  • Locating part of a business within a country with trade barriers helps companies get round these penalties
  • Trade barriers can protect domestic industries from international competition, causing them to become inefficient, so a foreign company that locates in a country with trade barriers will have a competitive advantage