A small UK manufacturing company is considering expanding into mainland Europe (one EU country) in June 2022.
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In the recent decade, globalisation had increased to a greater extent and businesses are focusing on expanding their business. Globalisation is being referred to as the process of expansion of international cultural, economic, and political activities (Burlacu et. al. 2018). With the increasing globalisation the internationalisation had also increased to a greater extent. When the organisation is looking forward to expanding their business for globalising themselves and increasing their customer base for enhancing their profit. The firm needs to focus on different factors which are having an influence on their organisational processes. Operating in an international environment is not an easy task as one needs to have enough information before entering into any of the countries for doing business (Szymczyk, 2020).
In this report, the researcher would focus on explaining different concepts related to business expansion. For this report, the researcher would focus on considering DSA Manufacturing as the case organisation for explaining the research topic in detail. The report will explain that DSA Manufacturing is looking to expand into Italy. Also, this report will critically evaluate different aspects of the business environment which are required to taken into account by the case company while making decisions to internationalisation.
DSA Manufacturing is an apparel manufacturing company that focuses on producing high-quality clothes for its customers. The company is offering high-quality clothing to its customers. The firm is having a better market position in the UK and is having a better customer base also but the company is now focusing on expanding themselves for generating higher profits and increasing the customer case as well. The firm is focusing on globalising itself and is planning to enter into new business markets (Every Brand needs a high quality clothing manufacturer, 2021). The company is operating effectively in the UK and is having better growth as well and due to this reason the company is having a better opportunity to grow if they focus on internalising themselves and entering into new markets for doing business.
Figure 1: LOGO of DSA Manufacturing
Source: (Every Brand needs a high-quality clothing manufacturer, 2021)
The company is looking forward to entering Italy for expanding its business. The major reason behind selecting for the market expansion is that Italy is the most famous clothing centre in the entire world. Italy is having a strong clothing market due to which attracts a majority of the apparel producers because the manufacturers are having a better opportunity to grow in this clothing industry of Italy (Grose, 2021). If the case company enters into the fashion industry of Italy then there are chances that they can develop a better customer base and can increase their sales and lead the organisation towards growth and success.
COMPARISON OF COUNTRIES BASED ON THE GLOBAL BUSINESS ENVIRONMENT
When an organisation focuses on expanding their organisational practices or entering into a new country then it is important to focus on analysing different factors of the global business environment. The company is already operating in the UK in an effective manner and it is focusing on expanding the business by entering into Italy. For the firm,it is important that the business environment of Italy should support the case company. The organisation needs to analyse that how different social, political, economic, technological, legal and environment factors of business environment of Italy will affect the firm.
PESTLE analysis is one of the effective tools which are being used by businesses for analysing the business environment of a particular nation. In this report, the researcher would analyse different factors of the business environment of Italy and will compare each factor with that of the UK. This would help the company in making better decisions while internationalising themselves and entering Italy. PESTLE analysis of apparel manufacturing industry is mentioned below such as:
The different political factors of the country are having a higher impact on the businesses operating in the nation. Italy is having a parliamentary republic with a multi-party system. The country is not politically stable and the tension between the governing parties and their disagreements over different policies are having a significant impact on the businesses operating (Pedersini, 2019). The fashion industry needs to follow different rules made by the government for clothing manufacturers. Although the government supports the fashion industry and clothing manufacturers and also welcomes the companies to enter into the Italian fashion industry and sell their products.
The company is also facing the negative impact of Brexit which includes restrictions in trading with other EU nations and this is having an adverse effect on their business practices as this event had affected all the businesses operating in the UK. If the company expands their business to Italy then they can receive better support from the Italian government and in contrast to this can get affected by the political instability negative. Although the support from the government and different government policies will support them in operating in an effective manner. Also, the country is also having better foreign relations which is also a favourable factor for the case company to expand their business in Italy.
The economic environment of the country is having a significant impact on the businesses operating. Italy is havingbettereconomic conditions and ranks among the top economies of the world. Italy is one of the largest export economies and this attracts FDI to a greater extent and makes Italy an attractive place for market expansion. Along with this Italy is also considered as the top manufacturers in Europe (Lavanga, 2018). It can be said that these factors of the economic business environment will help the case company in doing business effectively in Italy and generating higher profits as well. The apparel industry of Italy is having higher turnover and the population invests a lot in apparel and in following the latest trends so this will help the chosen firm is operating effectively in this country. The employment rate in Italy is also high which would help the case company in getting employees in low wages and this will provide them an economic benefit (Ghisellini and Ulgiati, 2020).
The economic stability of the UK is affecting due to the Brexit and also the trade relations of the UK with other EU nations had affected the fashion industry by creating obstacles in the sales and production in the EU nations (Bloom et. al. 2019). But Italy is having better trade relations with several nations as they are among the top exports so this will help the case company in expanding their business further in the future. Thus, it can be said that the economic factors of Italy will support the case company and will allow them to do business effectively and leading the firm towards development.
Social factors of the nations are having higher influence on the sales of the different products and services in any country. Italy is having an old age population and due to better economic condition of the society expands more on their clothing and this is a positive factor for the case company. The customers of the apparel industry of Italy focus on the quality of the products and focuses on buying fashionable clothes (d’Ovidio and Pacetti, 2019). The customers spend more on clothing so the company is having better opportunity to attract more customers.
The Italian customers are not worried much about the cost of the product and instead of it, they focus on buying high-quality and fashionable clothes. If the case of the fashion industry of the UK is considered then the customers are highly influenced by the musician and the influencer (Esteban-Santos et. al. 2018). This same is taking place in Italy as well so the case company needs to focus on following the social trends while offering the products to their customers.
In the present business world,the technological factor had become important as it is having a significant role in the growth and competitiveness of the company.Italy is a technologically advanced country and due to this reason, it will help the case company in using the latest technologies related to the production of fabrics and cloths. In the fashion industry, the customers prefer to buy the products through online platforms so the firms operating in the fashion industry(Bertola and Teunissen, 2018). It can be said that if the case company will focus on bringing innovation in their business practices then they will receive better technological support in Italy. Similarly, UK is also a technologically advanced nation that is supporting the fashion industry of the UK and is helping the firms to use the latest technologies.
While operating in any of the countries the legal factors of the country are having a major impact on thebusiness's operations. The government had developed several rules and regulations specific to the industries which arerequired to be followed by the firms operating in the industry(D'Alisa et. al. 2017). According to the Italian law, the products which are being totally made in their country can be allowed to use the tag or the label of made in Italy. This rule is required to be followed by all the textile-clothing sector manufacturers. The Italian government had also developed the rules related to the taxes, tax credits, inflation costs, and tax restrictions would affect the company.Also, the rules made for the foreign companies and different legal rules, regulations, and policies related to international trade are also required to be followed by the case company. Along with this, the case company would have to follow the different rules related to the workers and employability made by the Italian government (Koszewska, 2018). Similarly the company is also following the rules made by the UK government related to employability and employee rights. Also the UK government supports the local firms by imposing lesser taxes as compared to the non-UK firms which is an advantage for the company.
The concern for the protection of the environment and natural resources had increased to a greater extent in the recent decades and due to this, environmental factors had become important for the firms. Similar to other industries the fashion and textile industry is also affecting the environment and the firms operating in this industry need to focus on reducing their negative impact on the environment (Niinimäki et. al. 2020). The Italian government is having a set of rules related to the safety of the environment mentioned in the environmental policies of Italy. The case company would have to follow all these rules. In the UK also, the company is also operating in an environmental friendly manner by following all the rules and regulations made by the government. The case company needs to focus on managing their waste by developing proper waste management system. They have to invest in the protection of the environment which would help them in operating in an effective manner in Italy (Pero et. al. 2017).
On the basis of the comparison of the external business environment of Italy and the UK, it can be said that both the countries are offering a better opportunity for the case company to do the business. Before Brexit it is easier for UK-based firms to enter into any of the EU nations for doing business in an effective manner. After Brexit, the businesses need to follow different rules made by the EU government for the UK-based firms while operating in any of the EU nations. The case company is having a better opportunity to enter into the fashion industry of Italy and they can attract more customers as well (Ceccagno, 2017).
ENTRY MODE ANALYSIS- MODE OF EXPANSION AND WHY
When the organisation is looking forward to expanding their businesses and enters intoa new market or a new country then it is important for them to plan all the things in advance. For internationalising themselves the case company had to focus on selecting an appropriate mode of entry or the mode of expansion (Verbeke et. al. 2019). There are different modes of international market entry that can be used by the company. For entering into the international market it is important for the firm to use the best one on the basis of their industry.The choice of the entry mode depends on the firm’s size, economy, and the regulatory condition of the target country in which the organisation is looking forward to operatingand the availability of financial resources as well. The different modes of entry that are used by the businesses are mentioned below:
- Exporting is one of the simplest modes of entry which is used by the majority of the firms for entering in an international market. In this entry mode, the company sets its production unit in one nation and then export their products in different nations.
- Licensing and franchising is also an effective mode of entry in which the parent company tie-up with another company operating in the target nation for entering into the new market for doing business (Oliveira, et. al. 2018).
- Partnering and strategic alliance is also an easy mode of entry in which the two companies pair up and share the risks and benefits while doing business at the international level (Li and Reuer, 2021).
- The acquisition is an entry mode in which one of the firms gains control over another firm for doing business in a new market.
For this case, company partnering and the strategic alliance would be an effective mode of entry as the company. If the company would form a partnership with any of the clothing manufacturing firm of Italy then it would help them in expanding their business in an effective manner. This method is selecting for the company because partnering with the local cloths manufacturing firm of Italy will help the case company in understanding the local market, customer trends, and local culture in an effective manner (Bhattacharyya, 2019). Along with this partnership will also help the case company in developing business relations easily by being transparent, legal and by clear information sharing. Also, the case company would not face many issues related to the legal rules and regulations because the partnered company is already operating in Italy.
Entering into the new market and attracting new customers is not an easy task as the firm needs to focus on different factors in an effective manner. For the case company, it can be recommended that the firm should focus on researching all the things in detail related to the fashion industry of Italy (Zahoor et. al. 2020). DSA Manufacturing should focus on investing better time in collecting all the information related to different types of firms operating in the fashion industry of Italy. The case company should focus on getting better information related to the different clothing manufacturing firms operating in the Italian fashion industry. As the fashion industry is having a large number of clothing firm would face a high level of competition. For managing the competition it can be recommended that the case company should focus on partnering with a large firm or a medium-sized firm which is having a better market position and a larger number of customers (Luo and Zheng, 2018). The company should file a legal contract with another firm as this will help them in sharing losses and profit properly.
For gaining a competitive advantage over the other manufacturers it is recommended that DSA manufacturing firm should emphasize producing high-quality products specific to the needs of the customers. While entering into the new market the company needs to focus on having an effective marketing strategy as it would help them reach potential customers (Stoian et. al. 2018). It can be recommended that the case company should focus on using both online and offline marketing strategies for attracting customers. Along with this, the case company can also provide different discounts to their customers for developing better relations with them. The company should collaborate with the local social media influencers for advertisements as this will be effective. Along with this the company should also use the digital marketing tools such as social media management tools, email marketing and SEO tools.
For reducing the impact on the external business environment of the case company is recommended to follow all the rules and regulations made by the Italian government properly. If the company will follow all the legal rules and regulations then it will help the firm in operating in an effective manner. For attaining sustainability in the future and creating a positive brand image DSA manufacturing should also focus on forming tie-ups with NGOs and other non-profit organisation for working on social issues (Stoši?-Mihajlovi?and Trajkovi?, 2020). This would help the company in creating a positive brand image in the fashion industry of Italy. Along with this, the firm should also focus on participating in fashion events as this will also help them in attracting more customers and establishing themselves properly.
The above-mentioned report had mentioned the concept of globalisation and business expansion. In this report the researcher had discussed that DSA manufacturing is looking to expand their business operations in Italy. Analysing the business environment is very important before entering any of the countries. The report had compared the PESTLE analysis of Italy and the UK. This comparative analysis of the external business environment of UK and Italy had helped in explaining how different factors of external business environment of the fashion and textile manufacturing industry will affect the case company. Along with this, the report had also highlighted the opportunity for the case company to enter into the clothing industry of Italy.
It is necessary for the firm to use an effective mode of entry while planning to enter into the new country. On the basis of different external factors and company overview the report had highlighted that forming partnership or strategic alliance would be an effective entry mode for the company. It can be concluded that it is important for the firm to focus on using effective strategies and doing detailed market research while entering into any of the new market.
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