The main aim of the management report provided below is to identify and analyse the opportunities that are available for SMEs in the global environment. The report will effectively help the reader to analyse the implications that might be faced by the business in doing the same. In order to construct the report, the example that has been taken by the researcher is of Derwent & Sons Stationery. The company is a UK based SME which is planning to penetrate into international business industry of South Africa and South Asia. The company works on the base of innovation and trendy products which has helped the company to achieve its saturation point in its home market i.e. UK. In order to increase the profits, it has been suggested that the company should globalise their operations for which the management report will provide a brief industry analysis of South African and South Asian Nations.
Globalisation is the phenomenon of integrating the market at the global stage, leading to grow the interdependency and interconnectedness of national economies. Markets can take different forms, such as financial market, credit market, commodity market, etc. The process of globalisation is influenced by many factors, namely political influence, technological advancements, rising economy, and social factors.
In order to analyse the global business environment, the PESTLE analysis of South African and South Asian Markets have been provided below as follows:
It has been found that in terms of political factors, there is a high level of corruption in South Africa. This can be a negative factor for the company and cause inconveniencies.
The South Asian democracy is counted as one of the largest democracies in the world with countries like China and India. The political stability is quite enhanced which can help the business to expand and flourish.
In the terms of Economic Factor, it has been found that the value of Rand is quite low in the global market which is another negative factor of Derwent & Sons Stationery.
The domestic laws consist of insufficient provisions on taxation of some business models.
It should be noted that the South Asian economy is not on significantly stable but also holds an important place in the global exchange market. This would make it easy for Derwent & Sons Stationery to facilitate trade.
The tax treaties have no straightforward provisions on online trading or e-commerce.
Socially it has been analysed that the population has a high spirit of entrepreneurship which also increases the purchasing power of consumers. This a positive factor for the company to look forward to.
In the terms of Social factors, the nations follow the western trend which will help the business to be at ease while operating in the economy (Kalinic and Forza, 2012).
In the terms of technology, the development in South Africa has taken place at moderate levels. The manufacturing activities are thin and the economy is reliant upon imports from other nations.
In the terms of technology, the Asian Nations surpass the African nations which would be an added advantage for the company.
The labour laws in the country are majorly similar to the laws in UK. This would make it easy for the company to expand in this region (Rodrik, 2015).
In the recent past there isa number of legal changes which have been witnessed by South Asian nations. This factor has further helped in enhancing the appeal of country towards globalisation.
In terms of environmental factors, it has been found that the country is open to outside business developments. The location provided is good but weak economy is a major drawback here.
IN the case of environmental stability, it has been found that the quality of air has been adversely affected by urbanisation and industrialisation. This also gives rise to various health problems as well. This might be a negative factor to the company as environmental laws are strict.
In order to analyse the opportunities and threats that are being presented by the global industry for Derwent and Sons, the tool of SWOT analysis has been used which has been presented below as follows:
The major strength that the business will achieve from globalisation is the free flow of information. This connectivity can help Derwent and Sons to increase their productivity.
The globalisation will also help the company in trading both tangible and virtual goods.
It has been analysed that the innovative platform of the company is not found in the target markets. This can be utilised by the company to increase their consumer base easily.
The products of the company are unique and cannot be find elsewhere.
The product design team consists of employees with heaps of knowledge in this field.
The major weakness of the company is its capital structure which is small. This prohibits the company to start its operations from big levels.
Another weakness of the company is weak structure of economy as compared to that of its home market.
The major opportunity that has been presented by the global markets is of business expansion and increment of the revenue streams of the company.
The globalisation will also help the company to expand its reach towards the more potential markets.
It will allow the business to harness new technology and increase its productivity.
The major threat that has been posed by globalisation is the threat of increased competition which might affect the sustainability of the business.
Another threat that might pose issues to the company is the taxes and duties which might be implied by the native government of targeted countries. This increases the price of goods for the consumers.
It should be noted that in the current scenario around each and every business is trying to penetrate the global industry and in such a case many SMEs are presenting a great example. This can also be referred to as the born global firms and companies which are the business organisation that has been developed themselves in such a manner that they are effectively and efficiently able to derive significant competitive advantages from the resources and sales made in other countries (Koopman, et.al, 2014). One such example of Born Global firm is Logitech which started as a domestic company but now is one of the renowned hardware manufacturers in the computing world.
It should be noted that in the global environment, one of the largest threats that are currently being faced by the small companies in the global environment is the threat from high levels of competition that are posed by the local and big MNCs. It should be noted that the major impact of this high level of competition is seen in the sustainability of the business that opts to operate in the global industry. In the case of Derwent & Sons, this competition can have a major impact on the functioning of the company in the new target market and might disrupt the revenue streams of the organisation as well.
A trading bloc can be defined as an intergovernmental agreement in which the governments of two or more countries join hands in order to remove trading barriers such as taxes, duties, etc. for selected states and countries in order to facilitate effective and smooth trade. The types of trading bloc and regional agreement are discussed below:
The trade blocs and trade barriers can help small companies like Derwent & Sons to facilitate smooth trade. With the implementation of trade agreement, the globalisation is made easy and the cost of goods via import is also reduced upto significant levels. This not only poses a lucrative opportunity but can also help the companies to increase their profit margins even in the international markets (Baier, et.al, 2014). In case of Derwent & Sons, it should be noted that the economy of UK is being governed by the European Union and trade barriers are applied accordingly. These trade barriers are also applied in the case of South Africa and South Asian nations.
P4: Explain the various tariff and non- tariff barrier that exists in the international trading environment for Derwent & Sons Stationery as they go into South Africa and South Asia.
The tariff and the non-tariff barriers can also be stated as the trade barriers which are used by the government in order to encourage and protect the domestic industry of the country from the international competition. A comparison between the two barriers is given below:-
Import duties, valorem duties, specific duties, etc.
Licencing, import quota, formalities, etc.
Not very effective as it doesn’t affect the demand too much but increase the price.
Quite effective as they regulate the quantity of import.
More flexible and can be imposed or removed easily.
Effects on Imports
Indirectly restrict the import process.
Directly regulate the import.
Revenue Earning Capacity
It gives high revenue
It does not contribute much in the revenue.
Nature of Protection
No direct protection to local businesses
Offer direct protection to local industries.
Effect on Price
It increases the price of the imported goods.
It does not lead to increase in the price of the commodity.
These trade barriers can have a positive as well as a negative impact on the trade that occurs in the country. It should be noted that there are various kinds of tariff and non-tariff barriers which are implied by the countries in order to regulate the trading practices. These barriers can hamper the motive of small companies that tend to globalise their operations into the new market (Sui and Baum, 2014). The tariff and non-tariff barriers which are implied by South African and Asian nations have been explained below as follows:
Import Licensing: This is one of the most important non-tariff barriers which implies restrictions or prohibitions on trade. In order to facilitate trade, this barrier can be crossed by the means of obtaining an import license.
Standard, testing, labelling and certification: This is a rule applied by the government of countries in which there are certain products which can only be sold if they have authorised standards, are tested, have certified labels and are certified by the government of the country.
Export Subsidies: Export subsidies are the tariff barriers which are applied on the exporting of goods such that domestic support can be provided to the companies internally so that they might be able to compete on international levels.
These types of barriers in the trade between two nations can regulate the bilateral relationship and trade between them. Since Derwent and Sons Stationery is seeking to expand its business in the international market, it has to understand each of the aforementioned barriers. Generally, these barriers have a positive impact over the organisation, but in some cases they restrict the smooth functioning of the business. For that purpose, trading blocs can really help businesses in lowering down the tariff and non-tariff barriers among the members.
Usually at regional level, sovereign countries club together in order to make free trade agreements. Free trade agreements lower down the barriers in bilateral trade and trigger the trade between the two member nations. For Derwent and Sons Stationery, it is a golden opportunity to expand its business. Generally, trade agreements overcast positive effects on the business, but many a times it gives birth to competition from the other country. Trading blocs are groups of nations that agree to lower down the trade barriers among the members. The benefits include tariff reduction, tax reduction, trading privileges, etc.
1. Importing and exporting helps the companies to significantly improve their profit margins.
1. One of the major disadvantages of importing and exporting is that this activity is costly and might not be bearable by smaller firms.
2. Exporting helps the company to expand into the global market as well.
2. Another disadvantage is that it exposes the business to risks and competition in global market which might affect its sustainability as well.
3. Exporting and importing also helps SMEs like Derwent and Sons to increase their core competencies into the foreign market without obtaining any license.
3. At times the foreign market might be working on an advanced technology of product development which makes it cumbersome for the companies to operate in such markets.
For Derwent & Sons Stationary, there are a wide range of opportunities available in the international market. To secure the business, the organisation has to extend the quality and life of the products and to find the new market to trade them in. Learning to compete against the overseas organisation can also serve the purpose. Conducting foreign market research can be an effective instrument in this case that would help in understanding whether the target market is familiar with the products or not. Starting the campaign to grow internationally and developing the international business plan as per the goals. Evaluating and choosing the methods of distributing the goods abroad. Learning to negotiate deals and setting up the price can help in tapping the international market.
In the international market, service trade can be characterised by the sale and purchase (or exchanged) of services between non-residents and residents of a country. These types of trading is done in accordance with the laws and legal requirements as defined in the trading agreement between the countries. On the other hand, merchandise trade deals in exchange of only goods, not services or capital exchange and foreign investments. In context of international trade, merchandise trade is often considered as an indicator of stability of nation’s economy. In normal scenario, merchandise trade deficit is misinterpreted as trade deficits, but they are two different terms. In this section, the key differences and similarities between the two are compared.
Base of difference
One of the major bases of difference between these two types of trade is the base. Merchandise trade is tangible in nature and deals in products such as TV appliances, goods, consumer goods etc.
On the other hand service trade is intangible in nature. Service trade can be identified as sales of services such as accounting, investment options, medical services etc.
Merchandise or good trade transaction are also inclusive of the transfer of ownership of the product that is being sold.
In case of services, the consumer gets benefits from the actions that are taken by the service providers.
The measurement of the merchandise can be identified in the Balance of Payments of the country.
The contribution made by service imports and exports can be analysed and identified in the GDP of the country (Damijan, et.al, 2015).
In the case of merchandise for exports, the consumer is effectively able to analyse the quality of goods that are being consumed by them.
On the other hand in the case of service trade, the consumer is unable to identify and analyse the quality of service that is being provided to them.
Similarities between the two:-
Before starting an import or an export business, it is important for Derwent and Sons to keep some basic things in mind which can help them to overcome the high levels of competition which are imposed by the global industry (Beghin and Bureau, 2017). It is required that the company should follow a basic process before indulging into such activity. This process has been stated below as follows:
Based on this analysis, there are few recommendations for Derwent & Sons:
In order to tap into the international market, it is important that the company must analyse and research the business environment of the targeted market in an appropriate manner. Based on the business structure of Derwent and Sons, the company can effectively use market entry strategies stated below:
No doubt that a global strategy can give wings to the business, but there it has some repercussions and drawbacks of choosing any international strategy (Baier, et.al, 2014).
Developing Local Leadership
Distribution and Transportation Channel:
The digitalisation and technological advancements have made it possible for small business to expand the reach across the international borders. Now they can serve the global customers with their products and services. For that purpose, the small businesses need an effective international strategy. Methods like joint ventures can be the easiest way to expand the business, but only large enterprises can do that because of their financial stability. Joint venture increases the liability over the organisation. When an organisation tap into a global market, international strategy assist in offsetting any loss that a company might face. On the other hand, diversification is an expensive investment. Setting up an overseas business is time consuming and require a lot of resources. It brings financial risk as well. Local leadership development can help in attending the target country’s consumer. Culture and demographic play an important role in customer decision-making process (Baier, et.al, 2014). Local leadership can help in handling such issues. The downside of this method is that it reduces the profit margin and may leads to poor service delivery to the customers.
It is concluded from the above report that the international marketing plays an key role in the business scenario and its applications. The effective analysis helps in the effective completion of all the activities as per the market factors assessed. It is assessed that the effective challenges made helps in providing the company an effective way to develop the strategies and the tactics accordingly in order to attain the results. The implications of the threats and the various opportunities help in the assessment of the competitive business environment and the efficiency in the economy.
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