Unit 5 International business
International Business Management (University of Greenwich )
P1: EXPLAIN WHY TWO CONTRASTING BUSINESSES OPERATE IN CONTRASTING INTERNATIONAL MARKET
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.
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 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.
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.
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 theBP 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.
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
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.