UNIT 43 Tapping in the International Market
Tapping in the international market is not so easy, especially for the small enterprises. The company needs a well-executed and well-prepared plan and a lot of patience. No doubt, international market has plethora of opportunities but it also brings many challenges. This report will talk about the marketing plan and strategies for Derwent& Sons Stationery. It will analyse the company’s internal environment by making use of SWOT analysis. In addition to this, the threats and opportunities will be analysed in the global environment. The report will elaborate and illustrate the advantage and importance of trading blocs in context of international market. Various tariff and non-tariff barriers will be elaborated. A thorough discussion on importing and exporting process and practicalities involved will be elaborated. The last discussion in the report is related to ways of tapping into the international market.
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Brief about Company
Derwent& Sons Stationery is a medium sized organisation established in the UK. It deals in watercolour pencils, artist pencils, and a wide range of stationary items for students, artists, and business professionals.The organisation produces funky and stylish items that separates it from others. Its customer base has increased in the local market due to its ‘left-handed range’ of products. There products become trends and this is the reason for their dominance in the local market. In addition to this, most of its products are eco-friendly. The company is aiming at remaining competitive by changing its market strategy and increase the range of business by tapping in the new international markets.
LO1 Analyse the opportunities and threats for firms exposed to an increasingly globalised environment.
P1 Explain the global business environment in which small and entrepreneurial businesses operate.
Global business environment is full of market risks and factors that can hinder the operations of a business. In order to understand this in context of Derwent& Sons Stationery, PESTLE analysis tool is the best (Kalinicand Forza, 2012).
Political factors: As the company is aiming atentering in the South African and South Asian market, it has to face challenges from the foreign government. Various legislation and code of conduct should be followed by Derwent& Sons Stationer regarding the banned items. The current taxation policy, funding, and initiatives, grants, trade bodies, government stability,etc., are need to be considered.
Economic factors:These factors can impact the outlook of the business along with the competitiveness. These comprise economic situation, consumer spending, government spending, taxation system, loan and subsidy, inflation rate, and interest rates. Stationary items are usually affected by the taxation policy of the country.
Social factors:The social factors include cultural aspects of the region. Social factors comprises lifestyle patterns, demographic, attitude of customers, education level, CSR, etc. ethnic and religious differences and Media views and perceptions also affect the business.
Technological factors:In order to compete the big giants in the international market, company has to employ the latest and differentiated technology. These factors include intellectual property rights, modern machines for pen manufacturing, R&D funds, etc.
Legal factors:International markets will have their own laws, regulations, and standards. These factors comprises of employment laws and health and safety measure. These are necessary as Derwent& Sons Stationer would be considering local labour in their manufacturing process.
Environmental factors:These factors include the environment protection-related aspects. For instance, the material and final products should be either reusable or recyclable. Since, the company deals in environment friendly products. Therefore, it would not have much impact on the organisation.
P2 Analyse the threats and opportunities that face SMEs in an increasingly competitive global environment
As it was already mentioned that tapping into an international market is not a cakewalk. There are innumerable factors that will be considered while carrying out business expansion. A SWOT analysis tool is the best way to determine and analyse the business opportunities and threats. This is useful because company needs to evaluate its strength and weaknesses before entering the international market. A SWOT of Derwent& Sons Stationer has been provided below:-
· Differentiated products
· Environment friendly items
· Produce a wide range of stationary for the left-handed people.
· Good reputation and large customer base
· Large cost in warehouse and inventory controls
· More focused towards differentiation instead of manufacturing
· Poor retention rate
· Great market opportunities in South African and South Asian markets.
· Technology up-gradation as it is necessary for improving the manufacturing process.
· Market saturation can affect the growth.
· Inflation rate, global recession
· Competitors strategy
· Political factors and legal threats.
For the SMEs like Derwent& Sons Stationer, there are many risks associated with the local and global competitors. The competition in the local market is present but it is not affecting the company much due to its product differentiation strategy. However, this strategy may not be useful for the company in global context. The reason is that in the global market, organisations are large and they have different ways to attract and grab customer’s attention (Damijan, et.al, 2014). There might be many organisations who are dealing in eco-friendly and reusable goods. According to the survey conducted by SAP and Oxford economics, 43% of the SMEs around the world have rated global competition as the major factor affecting the business. In addition to this, while operating in the international market, Derwent& Sons Stationer has to consider other market factors, such as economic uncertainty, changing customer expectations, and technological changes. Currently, most of the SMEs around the world are leveragingtechnology in order to increase their manufacturing and boost innovation. In addition to this, strengthening customer relationship and improving agility in order to expand their business.
M1 Provide evidence-based analysis of the global business environment in which small and entrepreneurial businesses operate using specific examples.
In context of global environment, it is important to understand the term ‘born global’. The firm is denoted by this term when it tries to derive some sort of competitive advantage from the use of resources and its sales in the international market. Derwent& Sons Stationery is planning to enter in the international market and in order to gain the competitive market position. The organisation needs to understand that for SMEs the replication of resources should be well executed. Hence, the analysis of market and internal strengths and weaknesses is very much important. As the business is aiming at expanding through profit maximisation and increasing customer base, the company should invest in product development and manufacturing process. This way it would be able focus on economic affairs.
M2 Critically analyse the implications of threats and opportunities that face SMEs in an increasingly competitive global environment.
The business’s profit depends on many factors and the major is the amount of risks and challenges the organisation is facing. With large risk comes the great profit and opportunities. Entering in the international market is very risky for the company but if the company performs well in there, then it will bring a lot of opportunities for them. The opportunities for Derwent& Sons Stationery are that it can increase the customer base of the company. In order to penetrate deep into the market, the organisation has to offer unique and eye-soothing stationery products (Brouthers, et.al, 2015). The company needs to understand the demand of the customer. This way it can increase its customer base. With increase in customer base, the revenue also increases. On the other hand, there are many threats also. This includes increase in financial risks, increase in the expense, environment and legal challenges that can affect the sustainability and organisation’s bottom line.
LO2 Illustrate the advantages of trading blocs for firms
P3 Determine and analyze the advantages of international trading blocs and agreements.
There are many ways by which nations can protects their local businesses from international companies. The major one is trading blocs. The trading bloc is one of the intergovernmental agreements in which the regional trade barriers, such as tariffs and non-tariffs are reduced or eliminated between two or more countries. This is important for both companies and countries as it facilitates a smooth trading between the two. The example of famous trade blocs are NAFTA (North American Free Trade Agreement) and European Union (EU).
There are many benefits of trading blocs (Dür,et.al, 2014):-
- It helps in increasing the FDI in the country. In addition to this, it facilitates in building the large markets for suppliers and buyers that results in reduction of manufacturing cost.
- With reduction in the cost production, the company can increase its production.
- The manufactures would be having ample opportunities from different regions to interact and compete among themselves. This puts the pressure on the company to increase its quality and efficiency(Brouthers, et.al, 2015).
- Trading blocs eliminate all kinds of tariff and non-tariff barriers. In addition to this, it provides them with many opportunities to handle different customers at the same time.
- Market efficiencies increase and uncertainties are eliminated by the trading blocs.
P4 Explain the various tariff and non-tariff barriers that exist in the international trading environment.
Both tariff and non-tariff barriers are some sort of restrictions that are imposed on trading between two countries or organisation. They are imposed for various reasons that include national security, retaliation, job and local economy protection, protecting the customer against unfair trading. These have been elaborated separately below (Gamble, 2016):-
These includes custom duty, fees, taxes imposed on goods moving across the borders. The term tax, duties, charges, etc., are used interchangeably. These can be further classified into import tariff and export tariff. The former is collected by the host country and paid by the organisation as an obligation to trade in that particular country. The export tariff is collected by the native country from the organisation which is aiming at trading in the international market. The point to note here is that tariff barriers can only be collected after both countries have agreed on trading between them. There are some material which are banned in the host nation. Moreover, the standards followed in that country might be different. Therefore, Derwent& Sons Stationery needs to consider them prior to pay the tariff for trading (Gamble, 2016):-.
Talking about the non-tariff barriers, these are characterised as non-tax restrictions, such as government sthese include administrative barriers and state trading. These can be in the form of quotas, subsidies, embargo, etc.
Quotas:These are the limits put to the amount of quantity that is allowed to import and export.The quantity might be mentioned in the license.
VER:It stands for voluntary export restraint. It is some kind of quota that is fixed by the native country on the request of the host country. This can be related to maximum amount of quantity that will be exported.
Subsidies:It is the financial aid provided by the host government to the local company in order to make it compete with the foreign companies. It can be cash grant, tax holiday, subsidised input price, and much more.
These include regulatory controls and rules which can hinder the flow of imports. These comprises safety inspection, custom tax payments, environment regulatory inspection, and much more (Gamble, 2016):-.
Since trading and import-export services are handled by different agencies, the policies formulated by them are quite different. The policies are based on the knowledge and expertise of these agencies that are specialised to handle the cross-border trading. They formulate policies and set out the rules under state trading procedures.
M3 Evaluate the advantages of international trading blocs and agreements and their implications for SMEs.
Trading blocs are suitable for trade liberalisation as they lead to access new opportunities offered new markets. These are also helpful in reducing the trade barriers. However, there are some risks and limitations associated with these blocs. The first one is that they increase the competition in the market as more competitors expand themselves in the market. The domestic producers are at greater risks, especially the SMEs. They usually lack funds and technological support. This make them vulnerable as the external competitors are laden with resources and funds (Gamble, 2016). However, the external competitors like Derwent& Sons Stationery have to pay heavy duties to the government of the host company which makes their products a bit costlier. This can increase risks for it as customers might not purchase its products. All it can do is to compete in terms of innovative styles and environment friendly image. It can also promotes its CSR work to grab the customers’ attention. Trading blocs bring too many new rules for the firm that might not suit their businesses.
D1 Critically evaluates how SMEs are able to take advantage of international opportunities and overcome barriers.
There are plethora of opportunities for the Derwent& Sons Stationery in the international market. If the management sees that the company lacks some sort of resources to compete the global competitors, then they should consider teaming up with some local partners. This can have many benefits, such as cost cutting, established R&D team, and improve productivity, and already explored market. However, power sharing and profit sharing are two major concern for this option. Derwent& Sons Stationery should also consider other factors also like technology. In order to bring uniqueness to its product, technology can be a major breakthrough instrument for the company. Technological innovation can be a role changer for the company in the global scenario. But, this would require large amount of funds for machines and technically sound employees. Since the products of the organisation are environment friendly, there are high chances for it to get subsidy from importing country. This way it can improve its competitive position in the market.
LO3 Determine the importing and exporting process and the practicalities involved
P5: Determine the advantages and disadvantages of importing and exporting and how tosecure a deal for a business such as Derwent&Sons Stationery in their new InternationalMarket.
- Imports can be the goods or services bought by foreign residents of a country. The residents can be the citizens, businesses, and the government of the country. The imports can be shipped, sent by email, or carried personally. The country import raw materials or any commodities that are not available in the domestic market. The large number of imports shows trade deficit as the country need more money to pay for the exceeding imports.
- Exports are the goods or services that are produced in the country and are purchased by another country. The exports can be anything that travels from a domestic place to foreign place. Exports is a component of the international trade. The exports and imports together constitute the country’s trade balance. The large number of the exports shows trade surplus.
- The imports and exports of the stationery products of Derwent& Sons Stationery include the selling of their products into the international market. The Derwent& Sons Stationery want to increase the competency of the company so they decided to export their products.The board of directors decided to change the marketing strategies and re-energies of the company to increase the productivity of the company.
Advantages of importing and exporting for the Derwent& Sons Stationery
- Importing and exporting will increase the market place of the company and will increase their income.
- It will also improve the competency of the company in the market.
- It will allow them to tap the international resources and investments.
Disadvantages of importing and exporting for the Derwent& Sons Stationery
- The importing and exporting will require great investments to establish in the international markets.
- Export and import payments are major issue as it include foreign currencies.
- The import and exports requires to follow long procedures and documents to execute.
The Derwent& Sons Stationery should plan properly about the procedures and the processes involved in the export and import. The documentation and permissions in the import and export are the most important part to be followed by any company. The investment and finance resources should be equivalent to help in smooth operations.
P6: Explain the differences between merchandise and service imports and exports.
Good export and import
Service export and import
· The export and import of the tangible things that can be seen and touched.
· The export and import of the intangible things that can be experienced only.
· Goods export and import have high transactions of less value.
· Service export and import have fewer transactions of high value.
· The number of firms in the goods trade is higher as it is manageable.
· The number of firms in the service export and import is less as it includes high risk and investments.
· The goods can be easily stored and conserved.
· The services trade cannot be stored and is variable.
The merchandise and service imports and exports have following similarities:
- The production of both the merchandise and service imports and exports requires a process to be converted from inputs to outputs.
- They both uses the technology to transform into some utility.
- The customer satisfaction is the main aim of the firms into the export and import of the services or goods.
- The quality of the goods and services should be high to successfully import and export market.
M4: Apply the appropriate import and export process to an organisation such as Derwent& Sons Stationery and make recommendations on how they could be applied in an international context.
- Market research and setting objectives of distribution: It includes setting the target markets, methods of exportation and the channels that can be involved in the process. The objectives for the foreign market’s pricing and terms.
- Trade regulations: The export & import regulations and requirements are processed. It may include the patents, copyrights and trademarks.
- Making contacts: The interested overseas buyer are enquired about. The buyer’s background and goodwill are checked.
- Quotation and terms: The firm makes offers and quotations for the pontential buyers. The firm sets the costs, quotations and terms of sale.
- Sales Contract: The sales contract is confirmed by both the parties and the terms of transaction are agreed upon.
- Contract Execution: The process of producing, packaging and labeling are executed. The shipment of the same is arranged and the documents involved in the export are prepared. The insurance of the goods can be taken.
- Customs Clearance: The export documentation and export licence is arranged.
- Getting Paid: Subject to the payment terms specified in the sales contract, the exporter should present the required documents to the relevant parties for payment.
- Setting Market Objectives: marketing objectives for the pricing and terms are set.
- Sourcing Products: The potential suppliers sources of channel of distribution for the goods or services are identified.
- Trade Regulations: Import regulations and requirements are followed. The trade requires any import licence is checked.
- Making Contacts: Enquiries are sent to the suitable suppliers.
- Settling Quotation and Terms: The supplier’s quotation and offers are analysed. The costs and terms of the sale are examined.
- Financing the Purchase: The working capital is prepared. The types of banking and application such as exporter credit or other bank facilities are searched.
- Sales Contract: Confirming the sales contract and terms of transaction such as payment terms
- Preparing Payment and Insurance: Preparing payments and insurance specified in sales contract (eg: when payment term is D/C, submit D/C application to the issuing bank; when trade term is FOB, arrange cover note with an insurance company)
Preparing insurance, cover note, when necessary
- Acquiring Goods: The shipping advice and arrival notice is received. The goods from the specified shipping company or forwarder is collected.
- Customs Clearance:The customs clearance and import declaration is cleared.
D2: Produce valid and justified recommendations for use of different approaches in an international context.
Some recommendations that should be followed by the Derwent& Sons Stationery are:
- The import- export activity needs good organisation: The imports and exports involves multiple regions, efficient organisation and administration. The company should maintain the invoices over emails.
- Flexibility: The number of clients and suppliers is enormous also involves managing different cultures and preferences for doing the business. The company should be adaptable to the changing market situations and conditions (Lehoux, et.al, 2014).
- Managing credit risk: The management of the credit in the export and import business effectively is really a challenge. The banks and governments involved in the procedure plays an important role in the process.
- Currency risk: The import and export procedure requires to face the exchange currency rates of the countries involved in the trade. The timing of payment and risk involved should be maintained.
LO4Using Derwent& Sons Stationery as an example evaluate ways SME’s can tap into international markets.
P7: Evaluate the various methods by which SMEs can tap into international markets.
The various methods through which the Derwent& Sons Stationery can enter into new markets:
- Exporting: The exporting is the traditional method regarded as the first option to enter into the international market. Exports serves as the main platform for the future international expansions by the Derwent& Sons Stationery due to less requirement of resources and certain degree of market knowledge and experience is sufficient. Exporting will reduce the cost of Derwent& Sons Stationery manufacturing in the host country and on the other hand it can be the disadvantage if the cost of producing the goods is cheaper in the host country. The Derwent& Sons Stationery will gain substantial scale economy from the global sales volume. The Derwent& Sons Stationery will gain experience and knowledge from the host country (Koopman, et.al, 2014). The Derwent& Sons Stationery should follow the rules and regulations of the country.
- Turnkey projects: This type of entry describes that the two firms put up a plant in the country. The two firms can combine their resources like the technological and raw materials and funds to establish a plant. This type of entry is useful when the foreign direct investment is limited by the host country’s government. The turnkey projects can be great use when one have great economic assets (Lodefalk, 2014). This can also improve the competency of the Derwent& Sons Stationery and reduce the burden of investment.
- Licensing: A licensing arrangement is an arrangement where a party grants the right to use their intangible property to other party for a specified period. The Derwent& Sons Stationery use this kind of entry when it don’t want to deal with the cost and risk of entering into the market of the host country. This type of entry will help the company to avoid the capital of production abroad. The government regulations can be avoided in this type of entry.
- Franchising: It involves longer-term commitments to allow the other party to use their products and sell over the host country. It is the right a firm acquires from the other firm to do the business activity over the specific name of the firm. Derwent& Sons Stationery have to follow some strict rules and regulations to use franchising as the entry in the new market. The firm need to maintain the quality and goodwill of the firm to avoid any adverse situations.
- Joint ventures: A joint venture is an entity formed by two or more independent firms working together. In this type of entry, Derwent& Sons Stationery need to agree over sharing the revenues and costs of the firm. The two parties involved in the joint venture share the control over the firm and take mutual decisions for the company. This is beneficial for both the firms as they can get advantages of eachother’s skills and resources. Both the companies will gain presence in the new market. The firms agrees over a contract or agreement to come for the joint venture. The cost and risks are shared by both the firms which helps in loss-sharing (Rodrik, 2015).
P8: Compare and contrast the various ways SMEs can tap into international markets, assessing the pros and cons of each method.
Even if the global strategy can give many opportunities to the business, it has many disadvantages which are discussed below (Baier, et.al 2014):-
- It facilitates access to the shared resources and new technology.
- Instead of long-term commitment, it is characterised as short-period set up
- The risks are shared between the parties involved.
- It is very helpful for network building
- The objectives are very vague and barely cleared to the stakeholders
- It reduces the flexibility of the organisation
- Clashes are very common between the parties involved
- It is crucial method for SMEs as they need not to put their much funds in the deal.
- It has minimal risk and large profits
- The licensee knows better where to invest and how to explore the local market.
- The business strategies may get revealed
- The licensee may sell their product under the brand name.
- Very minimal political risks
- Low promotion cost
- Ease of expansion is high
- Franchises may turn against the contenders
- Company’s brand image may get lost due to bad actions of franchisee.
M5: Evaluate different methods of SMEs can use to tap into various markets with application to a small business or entrepreneurial venture, making valid recommendations.
The digital technology have helped the SMEs to expand their business in the international market. But, these methods alone are not enough. Organisation needs to explore other methods too. Joint ventures can be the most convenient way to expand but for that organisation needs to be financially stable. There is a risk of increasing liability. On the other hand, organisation cannot open the overseas branches as it is resource and time-consuming (Suiand Baum, 2014). However, they can make use of other methods like local leadership and franchising. The main advantages of franchising are that it has minimal political risks, low promotion cost, and high ease of expansion. In addition to this, local leadership can provide a strong distribution network and can bring its existing customer base along with it.
D3: Justify recommendations with supported critical considerations and evaluations of the implementation of different methods.
As in the previous part, it was suggested that Derwent& Sons Stationery should go for the local leadership in order to expand its business in the South African and South Asian market. This is due to financial instabilities that will come along with other methods like Joint Venture. Local leadership is the cost-effective way as the local leader will pour its resources as well. The company will have to handle fewer transactions. The local leader understands the market better than the foreign organisation (Williams, 2013). However, there are some downside of it as well.
This report discussed the expansion strategies of Derwent& Sons Stationery.It analysed the company’s internal environment by making use of SWOT analysis. In addition to this, the threats and opportunities were also determined in the global environment. The report elaborated and illustrated the advantage and importance of trading blocs in context of international market. Various tariff and non-tariff barriers were elaborated. A thorough discussion on importing and exporting process and practicalities involved elaborated. Lastly, the report elaborated ways of tapping into the international market.
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