Unit 5: Why trade internationally:
Tesco International trading statistic:
Nike international trading statistic:
Puma International trading statistic:
Asda international trading statistic
McDonalds International trading statistic
P1: Explain why two businesses operate in contrasting international markets.
I have chosen Tesco and Nike as my two businesses I want to investigate in why they operate internationally.
Tesco is a multinational retailer where their headquarters is based in Hertfordshire, England, United Kingdom. Tesco as a retail business operate in more than 10 different countries such as Malaysia, India, Hungary, Poland, Slovakia, china, United Kingdom, Czech Republic, France, United states and more. Tesco as a business know by having different stores placed around the world they would need a lot of employees to make this process work. Tesco have about 450,000+ employees working for them around the world and the reason to why Tesco expand internationally is because they sell different products to customers which thus gives customers more choices to choose from when shopping Tesco. These products include; food, clothes, games, phones, laptops and plenty more.
Tesco operates with MEDC countries (More economically Developed country) such as the UK. One advantage to this is that the employment rate in the UK is high because Tesco offer jobs around the UK which in turn gives opportunities for different people to make different contributions to the business and thus in turn helps improve the economy in the UK. One disadvantage to this is that in the UK, there is competition for Tesco that they need to beat as their competition sell similar products to Tesco that are cheap, so they need to come up different solutions in how to withstand their competition and improve their reputation as one of the largest retailers around. Tesco’s competitors are ASDA, Sainsbury, Morrisons, Lidl and Waitrose. Tesco not only operate in MEDCs but also in LEDCs such as India or china. The reason to this is because by having different stores in those countries they can get better recognising and become more familiar to different customers around the world, which thus increase more sales as for example in China more than a Billion are there, so they can easily get one seventh of the world as there are seven billion people currently in the world. Which in turn brings more revenues and profits to Tesco and this can also help Tesco continue to dominate the market and stay well ahead of their competitors.
Nike is a global business where their headquarters is based in United states. Nike is at this moment in time the market leader that their competition is trying to out do in improving. Nike like Tesco is known around the world by customers which meant that Nike also had to expand their business internationally where they operate inn more than 100 countries. The main ones Nike as a business intend to concentrate and sell more products in mostly in Europe, Asia, North America and south America. Nike have about 700 factories across the globe and they have an important role in creating Nike products for their customers.
Nike have realised that by operating in different countries they need to analyse the different needs that might associate with different customers. For example, Nike sell Air Jordan shoes in only America and Europe as they know they would prefer this and in turn make more revenues whereas if Nike sold The Air Jordan’s in south America it won’t sell that much thus losing out in potentially more profits as a business. Nike as a sports retail business face stiff competition around such as Adidas, Puma, Umbro and Reebok. These are Nike’s competitors because they sell similar products to Nike in clothing and footwear. One thing Nike does to stay ahead of their competitors is have athletes in endorsing their products. Nike knows that by doing this that they know that more customers that see the advert would most likely convince customers in buying the products advertised which would help stay ahead of their competitors as a result.
P2: Explain the types of finance available for international business.
As Nike and Tesco are both international businesses, they would need to understand and use different ways to finance their own business in order to continue the work carried out by their respective businesses. There are about four ways depending on what situation they might find themselves in that they might decide that one way might suit best compared to other ways of financing.
Prepayment by the importer:
This is when the buyer sends payment that is made upfront before the product has even began being manufactured. The reasons for this are because there is little or no trust between the importer and their businesses, this is most likely to happen when new business who are starting up need supplies and suppliers are not familiar with them so would not be convinced to sell their supplies as they might feel that the business might not succeed in the near future.
The goods and services paid for in advance is fixed so by having that way they can know how much they pay for in time as well help improve cash flow as a result.
With this particular finance, the exporter can have no risk with any credit risk as payment is received before the ownership of the goods.
Quality issues with the goods as in sometimes suppliers might sell goods that are low quality which might run the risk for the business to sell to customers as they might buy it as a result.
Products can lose out to competitors of the business as they sell similar products thus they can be cheaper which might make for example Tesco lose out on their own customers if one if their competitors like Sainsbury decide to sell cheaper products then customers might decide to go there instead of Tesco.
Letters of credit:
This is where a letter dispensed by a bank is served as a guarantee or more like a contract agreed in advance for payment to a specified person under specific conditions. This is typically used when the buyer and seller don’t know each other enough thus its why its commonly to finance goods internationally.
An advantage to this type of finance is that buyers are very much pretty sure to collect the goods that they paid for, as it would break the contract that the seller agreed to go with in the first place.
Another advantage is that the seller is protected from any non-payment from the buyer as the buyer knows that if he breaches anything from the contract the bank won’t be able to help out as it wouldn’t involver them which could complicate things for the buyer in the process.
The whole contract that the buyer and seller is in documents and not physically proving anything, which means that the contract only details what the buyer gets but the buyer doesn’t actually have a chance to see the goods physically.
Export credit is more like an insurance which enables a foreign buyer to buy goods and defer payment over a set period of time. This method is effective to most businesses as it allows them to save money and know that they know only pay a specific amount in certain periods and then in turn produce more sales.
Allows businesses to enter new markets knowing that goods purchased could be remunerated if the goods are faulty then can be shipped back to the supplier.
Sometimes goods may not be able to be sold in certain countries which might restrict any chances to improve the business further on its reputation.
A bank loan is the most frequently used loan of loan capital for any type of businesses. The bank considers many factors before deciding to loan businesses such as size of the loan desired, which countries it wants to import, what type of market the business is entering and what kind of situation the bank is with the business. The business’s credit history is very important as it impacts how much loan one can have as a result. For example, if a business has a bad credit history then the chances of them getting a loan could be very slim as a result.
Businesses that request loans from banks are guaranteed the money for a set period of time if they have qualified for it.
There could be a good chance that interest rates are going to be high depending on how much was borrowed to begin with.
In most cases, businesses that intend to take out a loan has an unlimited liability which means that if a business fail to pay back in a set period given by the bank they can force the business to close down and become bankrupt as a result.
P3: Explain the main features of globalisation that affect two contrasting businesses:
Globalisation is the progression in which the world is gradually interconnected as a result of the much growth in trade and cultural exchange. In turn Globalisation has augmented the production of goods and services around. Globalisation has enabled businesses and communities to work alongside and as well limit the chances of economies being remote. One example of a global business is Nike. Having not only become known across the global for what brand they are, Nike have shown how important a diverse community is in general. Nike have done some recent adverts to show the public just how important diversity really is. One of the adverts that Nike done was during black history month Nike released an advert which explained that diversity was not just black and white but that equality has or should have no limits whatsoever. Another example of how Nike shows diversity is the fact of how they value religions. Nike has recently released a new product called performance hijabs. This performance hijab offers women athletes who are Muslims the chances to do the sport that they enjoy and thus in turn let them fulfil their dreams.
There are different currencies that are used across the globe. There are exactly about over 100+ currencies. This is very important for businesses like Nike and Tesco because they need to be mindful of the different ways to export internationally but also what currencies the country being traded is using.
This is all about trading across internationally. There are some organisations that actually have more profits that is made through sales than the economy state of certain countries, this is due to the fact that the organisation was able to improve on their reputation. For example, in Tesco, its headquarters is in Hertfordshire and operates internationally in different countries. When the final report of how much revenue is made in recent months is ready, they send that back to the headquarters for them there to analyse what went well and what improve upon further as a business.
International business communications:
Technology has paved the way for communications to be made. There are different ways that businesses like Nike and Tesco can communicate internationally through, Social media, websites and other form of communication. This is important as businesses like Nike and Tesco can establish a quick service online and would not need to depend on any sort of knowledge as it gives people an opportunity to discuss easily with no sort of biased evidence, in turn enables for one-to-one communication to take place.
International payment systems:
Paying for goods and services worldwide was hard in the past but that was due to the fact that many international trading barriers was closed I as a result which made it a lot harder than it was. Now that’s changed due to payment systems that are made currently such as Debit cards, Cash, Credit cards, Direct debits, internet banking, Pay pal, electronic funds and etc. This is a benefit for Tesco as they know that it gives customers more choices in how they pay for the goods they want to purchase.
P4: Explore the role of trading blocs on international trade
Trading blocs is normally when groups of countries in precise regions that handle and endorse trade activities. The role of trading blocs is to deliver free transfer of resources that becomes obtainable, job opportunities to local communities, provide benefits to an extent to customers. Examples of trading blocs are: EU (European union), NAFTA (North American free trade agreement), Mercosur and etc.
World trade organisation (WTO):
The world trade organisation (WTO) is a global international organisation and the one organisation that handles regulations in place regrading trade between nations. WTO has about over 150 countries as its own members which accounts for about 90 percent of the world trading activities that would take place currently. The idea of this is so that WTO are able to solve any rising issues that occur when trading, help contribute in improving different countries economy and also in turn WTO helps countries that are LEDC such China or India take advantage from global trading systems.
NAFTA (North American free trade agreement)
Members: U.S.A, Mexico and Canada
The North American free trade agreement (NAFTA) is a trading contract where it states the regulations of trade between U.S.A, Mexico and Canada. This was first introduced on 1st January 1994. Since this was introduced it’s enabled an increase in trade and investment as it brings a strong economic growth in job opportunities and better prices on products being sold in these countries.
Members: Brazil, Argentina, Uruguay, Paraguay and Venezuela.
Mercosur is a south American trade bloc that was first recognised in 1991. The main idea for Mercosur is to endorse free trade and the transportation of goods, currency the country is using and type of people. Since its south American it’s languages that would typically be used is Spanish and Portuguese. One benefit that is there is that there is free interest rates which means businesses trading internationally wouldn’t need to worry if they need to pay any percentage as they know they only have to pay back the sum that was given in the first place.
EU (European union):
Members: Belgium, Croatia, Denmark, Austria, France, Germany, Italy and etc.
The EU is a European trading bloc that was first brought up in 1993. The purpose for the EU is to give their members the freedom to work, live and retire anywhere across Europe. The EU also offers customer protection over products that has been brought a two-year guarantee where if anything is faulty they can return it and get a new one free of charge. The EU provide competition to businesses which is good as they know what they must do to outshine their competitors.
M1: Analyse the support that is available to contrasting businesses that operate internationally.
In this section, I will analyse how and why the support for my two businesses (Tesco and Nike) that trade internationally.