International Business Environment Analysis - PowerPoint Presentation Example

Unit 39. International business Britvic Soft Drinks P1. Explain the international business environment in which a selected organisation operates. Slide 1: Company Profile Established in 1935, the Britvic soft drink company took quite a while to come around as one of the leading soft drink brands in Great Britain. Originally established to become a reliable source of vitamins in fluids to the public, the brand has grown by leaps and bounds ever since a change in their marketing and expansion strategy was called in. Their growth started with exclusive agreements with Pepsi, which they started manufacturing and bottling in 1987. Today, the brand has global presence and is testing all strategies to hit the right balance between international trade regulations and international marketing. Their growth, challenges, and outcomes are important lessons in internationalization for any brand which is trying to create a presence in the food and beverage industry on a global scale. Slide 2: The Scope of Globalization: With major players like Pepsi and Coca Cola already ruling roost in the global market of soft drinks. Britvic had a good deal to cover in its journey towards becoming a global brand. It started early by joining hands with Pepsi and taking over its operations and distribution in Britain. While this improved revenue, the company soon started on a globalization strategy which coincided in time with the concept of internationalization gaining strong hold in the corporate sector. Today, the company has a global presence across UK, France, Ireland, and other continents like parts of Africa, America and Russia. Therefore, to watch the growth of this company from a business analyst’s point of view would be a great study in international marketing and strategy building. Slide 3: International Trade regulations There are several factors that regulate international trade in countries which have already seen rapid growth in the corporate industry. These include existing trends in new market, the new product that is being launched, the duration of partnership with local companies and more. The strategies which have helped many companies like Britvic break the cold ice in terms of popularity barrier in the new market include localization of services and products, clever partnerships, setting up of profit and non-profit goals in the new market, and extensive industry specific market study and analysis Slide 4: Cultural Challenges in Globalization Business growth and expansion is often plagued by cultural challenges posed by the new markets. Globalization is definitely not easy when the parent company has cultural and social practices which are unlike those in the new country. Empirical laws tend to fall short in defining the standards that can meet cultural challenges and in this regard, each company has its own trading strategies to decide for. Britvic has been uniquely innovating their product line-ups to reduce the cultural divide and make buyers in the new market realize find a commonality in its products. Creating events and services that are truly localized and have an impact on the mind-set of customers, clients, and employees is the other strategy that has allowed Britvic to survive the thorns of offshore distribution and sales. Concentrating on a social goal is important to bringing about better brand awareness. Although challenged by Coca Cola in many markets including Great Britain, Britvic keeps fresh fruit juices on top of its product listings to beat the soft drink mania created by Coca Cola. An universal branding strategy has helped Britvic trade better. P2. Describe the mechanisms that regulate international trade. The study of Britvic’s growth and expansion has easily brought out for us how international trade is governed by different factors and mechanism. A soft drink brand by itself, Britvic had its share of ups and downs in trying to set up bases in France and Ireland. These were the countries into which the brand first ventured to create manufacturing units in these countries. Other than local population conflicts and culture differences, Britvic had to tide over International Trade challenges. It becomes imperative here to visit the basic aspects of international trade and recognize all the factors that affect a company’s growth. Amongst the most important factors that affect international trade are: Import/Export duties: Whether it is a function of the local governments or the international trade laws, how much a company has to invest in growing base depends upon the export and import tax duties that have to be attended to during trading. Exchange trading between countries may often help and going by existing mutually useful governmental policies can help companies make great fortunes when the governments of two countries are in mutual agreement. However, this is not possible in developing economies and under-developed countries wherein the governmental policies are not industrialization specific. However big a brand may be, forcing an economy to cater to its growth needs is not possible in such scenarios. Therefore, it becomes important to internationalize trade in countries whose trading policies are well understood by the expanding company. In case of Britvic, the situation was comparatively easy in France while it was very tough in Ireland, since at the time of expansion, the government imposed heavy duties on finished goods which were originally brought in from London. Local Market Demographics: The extent to which local market is able to grant space to the new company decides the first year returns on investment that it will enjoy. Hence, it decides trading costs and connections. From existing local brands to new foreign brands that give competition to local demographics that decide the cost of manufacture and transport, the recent market demographics is an important factor in determining success of launch and growth of trade. The ideal recipe would be to start slow with a single or two trading relations, whether they are with local companies or across the border in the new country. The ultimate focus is to ensure that the new market economy is able to benefit from the FDI and show this to the government and customers. In India for example, both Coca Cola and Pepsi had a tough race when a sudden rumour of use of toxic ingredients in the manufacturing of one brand catapulted the sales of the other in 2006. While it took some time to get rid of the allegations and prove to the government authorities for the alleged brand, the competition immediately released similar notifications and certificates of quality check in their manufacturing units to prevent skeptic buyers from falling prey to the doubt. This way the second brand did get to keep itself clear of governmental investigations sooner than the alleged brand could. However, this led to a downfall in the market statistics and along with the alleged company, the second brand also had to put on hold some of its new manufacturing unit projects for the next couple of years. In this gap, many local brands covered sales in the market of soft drinks, which changed the demographics for both foreign brands by 2008. When they finally gained control, the brands had to use entirely new branding and advertising to gain back importance and sales. Annual Targets: Whether geared towards internal growth or community development, a company’s annual goals always decide how well the brand will receive recognition from the industry and the market. If a brand has annual targets set towards building more manufacturing units or reaching higher sales and recruitment figures, it may reflect well on its brand equity but may not have a positive market impression. Therefore, in international trade, following regulation that ensures that whether already established or new to an economy, you need to have annual goals that talk of expansion as well as social responsibility. This will place the company in a favourable position both in the view of the market and the regulatory bodies. Clients, sponsors, and partners receive encouragement when they see such balanced annual or five yearly goals. Existing Trade Relations: To boost international trade, it is often important ensure that trade relations that are already in place are in good shape. It is therefore, a very important factor is determining whether a brand is able to establish new trade connections well or not. In the new economy, it is likely to be a tough ride for the foreign company if its past history of trade relations with other companies is rocky. Most importantly, keeping global trade regulations in mind would be the best approach to creating the right environment for growth in the new market. Global Brand Equity: A foreign company wins half of the battle when it is able to show decent global brand equity to investors in the new country. It is often seen that promise of growth and market acceptance is mutually inclusive in cases where the brand already has a sound global presence. M1. Assess the methods to increase trade between countries and the methods to restrict trade between countries. FDI versus GDP: The growth of Britvic as a global brand has been steady and in the market scenario that it has survived, it is indeed commendable that the brand is performing well by keeping itself at number one supplier position in Great Britain beating Coca Cola by a near margin. When such a brand ventures into another country, market analysts calculate the impact of the move on the gross domestic product and calculate it against the foreign direct investment that would be coming in. Needless to say, this is a game of numbers which has always been resorted to predict movement of shares and market acceptability. In the 1970s when the difference between FDI and GDP were more than ten percent, it was hard for new country’s to accept a foreign company in its economy. By the 2000s, this margin came down by millions and this has opened up better markets to companies trying to expand globally. One factor that has led to this opening up is flow of employees from local companies to international companies and cross-border placements. Nevertheless, this mechanism is still a great regulator in international trade initiated by a global brand. Process Standards versus Product standards: In earlier days, analysing product quality was a major thrust in deciding brand reliability. Today, the focus is on process quality much against the dominance of only product quality. As already mentioned in the previous section, questions about processing details have been raised against many brands and these were not restricted to food and beverage industry alone. Therefore, it has become important that companies prove to governing authorities that their process quality is as per expected standards. Not only are the manufacturing units and equipment expected to be in good shape and meeting industry standards, but so is the working condition inside the mills and factories with due provisions for workers to enjoy working in a labour friendly environment. Therefore, process quality and monitoring is one of the most important mechanisms that govern international trade in a new economy. The market will not wish to provide your company with employees from its local population unless it is convinced that you have superior or expected standards of working and compensation. Appropriate Certifications: Whether it is a primary, secondary or tertiary certification, your company will need brand certifications to drive its international trade. Standards change every day and therefore, renewal or acquiring of new certification is important to keep trust in your brand intact. There is no doubt that when you have tertiary certifications you enjoy enhanced confidence of the industry. Updated certifications and latest credentials of performing employees build trust swifter than expensive marketing and advertising campaigns. Effective Co-regulation: Having a board of directors to run your company is a good decision. To have a few directors who are heads of non-profit entities whether in the local markets or from the parent state is a better idea. Governmental bodies recognize the importance of co-regulation wherein company is run basing on the opinions and laws set by such a neutral body of directors in the management. It becomes highly important to showcase that the goals of the company are not entirely focused towards profit and expansion, but rather has an all-round approach to the concept of growth that benefits all strata of society. Regulations laid by discussions in such boards give a better hold on market reputation to the foreign company. This is a great perk in the long run. Effective Policy Shaping: To be able to contribute to the new economy is important in the strategy that a brand uses at the time of extension. Therefore, it is significant that the company ensures that it is able to contribute to policy shaping in the new economy by joining hands towards addressing social causes and bodies that support them. Coca Cola has been active in addressing to schooling needs of children in India and has a consistent presence in bringing about societal transformation in the economy. This is a subtle mechanism that ultimately affects the extent to which international trade is brought in. D1. Evaluate the potential problems faced by businesses that trade internationally when entering new markets. Problems: Demographic statistics that fail to indicate whether the new market will be receptive of existing products or not can be misleading and lead to initial losses for the foreign company. Investment in trading options could turn into huge losses if reliable sources and indicators are not used. Existing market competition both local and global left very little space for the new brand. When launching in the African continent, Britvic experienced immense competition from the local soft drink and hard drink brands. Coca Cola’s presence and Pepsi’s competition was also threatening. Unexplored trading possibilities left to be discovered and used made the shift to any new market difficult for this major player from the UK’s food and beverage industry. While it had grown with a trading agreement with Pepsi in UK, the scenario was different in the other countries, where the trade-off was with local brands. This was a problem that faced all other foreign beverage companies and soft drink suppliers. Challenges: Creating the Right Appeal: To be able to impress the new market, one needs to have a revolutionary product in place for launch. The main challenge was to understand the tastes and likes of the local population, which was mostly to be understood through the popularity of other soft drink flavours selling in top in these markets. Britvic had to rely on its brand appeal and a host of new products to sell itself in new markets. Localisation: When incorporating local elements in the branding and marketing, it often becomes difficult to decide which part of the culture should be targeted to make an instant universal appeal that goes right in the local market as well as the brand’s global recognition. McDonald’s did a clever turn around in its campaigns in the Middle East by introducing McArabia, which were small burgers created on flatbreads. This way they addressed two challenges, that of brand localization and trading with local providers of bread. Local Trade Regulations: Different countries have different local trade regulations which are often a far cry from the global standards of trading regulations. Ultimately, the main challenge is to overcome the differences in international and local trade regulations and conform to both sets with a sustainable strategy. Solutions: Sustainable Growth Strategy: Every brand needs to keep in mind the fact that when it is expanding its base; it needs to hit sustainability like never before both within and around the company. From raw materials required to manufacture to product packaging, every material associated with the brand should be environment friendly. In the case of Britvic, the challenge was to plant as many trees as those whose fruits were being used in the local production units. Using local workers, fresh fruit suppliers, and governmental aid, this was possible as soon as the basic eco-friendly guidelines were adopted in the trading. Department of Environment, Food, and rural Affairs has led down specific guidelines for sustainable ecological practices and Britvic survived through the use of that. Local Employee base: Creating employment for the local populations always has a favourable impact on the market. To hire and pay local talent is also good in recognizing new trends and predicting the market. With better understanding within the company, products and services directed towards attracting more market attention can be designed and launched. Especially tapping into the cultural aspect of the expansion, the timing of events and launches to coincide with popular dates in the local calendar is a clever brand move used by all multi-national corporations. This improves trade relations in a great way too. Local Trading: Developing useful links with local traders and suppliers who provide the raw materials and processing equipment to fuel the new manufacturing units is an important solution in winning local markets. While cultural differences do come up, there are other perks of such deals wherein products and services are given and taken at discounted rates, thereby cutting down costs on overseas merchandise or import. Overall Brand maintenance: Maintaining the global impact of the brand is crucial to giving it chance to make new ventures. The original marketing tag line should be applicable to all the products launched in separate markets. With universal applicability and frequent renewals, a series of sustainable strategies can be developed to redefine and reenergize the global brand impact. P3. Describe how the environment and culture of another country affects a business operating internationally. Ideology, political, economic, technology, social, legal, ethics, and other environmental issues are the aspects which influence the business which operates internationally. Culture aspects like language, religion, values, attitudes, customs, manners, education, material culture, institutions, infrastructure, and work attitudes also affect a business operating internationally. Attitudes, manners, material culture, and customs are also very important, this would affect the business, as they would have to change the way that they operate to comply with the attitudes and customs of a country. Cultural differences and the foreign business environment have a negative impact on the company’s performance in the beginning. For example, state centrality, a trend that often comes in the way of the company performing well in the new environment is another major aspect that needs to be taken care of. In such cases, most of the employees of the company belong to the parent state in which the company originated and the new local employees find the divide in numbers overwhelming enough to impede their interest at work. There is no doubt that there are specific strategies that can help the company realize its goal of performing well in the new environment. These include optimized HR management and trained manager’s deployment that are dynamic enough to handle challenges of multi-cultural workforces. Bringing in diverse culture teams which interact and learn from each other’s working, and highlight on the best local performers are strategies which help the business management tide over such challenges. It is also important to note that every time a great team is built, the market performance betters in no time, owing to the positive reputation that the brand creates. Britvic actively employs local mangers and places them in responsible positions in the payroll, to extract more interest and performance from its local employees. This in turn, helps the brand understand the local preferences and develop products and practices that conform to these demands. The focus on localization in work practices is definitely worth its while since local contributions add to the work culture and bring in refinement and better practices. This reflects in the cultural broadening of the internal working style and thereby, improves the company’s productivity and brand image. Therefore, although in the beginning there is a negative impact on the company’s growth, slow accommodation of new cultural practices has a long term favourable effect on the company’s internal performance. P5 – Identify why businesses operate internationally There are many different reasons that businesses operate internationally. These include growth, diversification, emerging markets, economies of scale, cost reduction, taxation regime, and legal and regulatory regime. The three aspects to growth are value, volume, and market coverage. A business value can increase with international trade. This is because it can become more popular as it becomes better known, thus increasing the profit that the business makes. The volume of a business can also increase with international trade. This is because as the business becomes better known then the business will have to increase in size to accommodate for the demand. The market coverage of a business can increase with international trade. This is because as with the increased popularity then more retail stores or outlets will sell the businesses produce, leading to larger market coverage. Diversification is achieved when a business operates internationally. This is good for a business as this can reduce risks as there is more income coming into the business. Business operate internationally as they can enter into emerging markets, this increases profit for the business. Economies of scale are when the cost of the business increases when it produces and sells more of a product. This is achieved when a business operates internationally as they sell more products. Cost reduction is when a business lowers their costs and increases their profits. When a company operates international their costs go down, as there is less competition so their profits increase. Taxation laws are different in different countries; this may mean that a business has to pay less tax in some countries. This means that the businesses profit increases, as they don’t have to pay as much tax. M2. Compare how cultural differences and foreign business environments affect multi-national corporations. Coca Cola, Britvic and McDonald’s are all bands which have received variable responses in different economies. While Britvic received initial hostility in Ireland owing to strict Irish norms which it failed to achieve, Coca Cola faced zero hostility in Ireland. It however faced poor response from the Middle East in spite of doing well in the Indian subcontinent. McDonald’s received slow growth in India and the Middle East and had to localize its products rapidly to suit the taste needs of local populations. D2. Evaluate the impact of cultural differences on international business performance in the international market. To evaluate the impact of cultural differences we need to understand that there are two main types of differences in the operations of the company. The first cultural difference comes in product launch timings and themes of branding that do not strike the right note with the local market unless they are tailored to meet the cultural and social preferences of the area. Resolving this is easy since all the brand has to do is follow what McDonald’s did in Arabia. In addition to designing products that suit the local market, scheduling holidays and annual and quarterly events around the time when local population celebrate their important festivities builds more faith in the brand, whilst engaging the employee base entirely. While these cultural adaptations ensure that the local market returns are good, international business undergoes a lull time as resources are concentrated on handling issues in the local market. However, once a new product or brand is launched into the global market with local touch of the new culture, the international business performance drastically picks up. In short a brand has to convert itself from its raw state to a more evolved, culturally wholesome state, to be able to make a mark in the international market., using different types of localizations. P4. Describe how the monetary environment affects business that operates internationally. Usually, a company broadening its base into new countries, needs to understand how the monetary environment of the new market is. Currency exchange rates change drastically as the new foreign brand enters the market. This increases financial risk of the company and decreases GDP of the economy. However, that is only a short phase. The situation turns for the bright side once the cultural differences are sorted out within the company. Financial predictions therefore, are at the core of monetary success. Evaluating financial risk is a technical requisite for successful brand building in the new environment is still an important factor that governs international trade both for the company spreading its base and systems in the new country and for the new economy itself. As already mentioned, measuring up FDI and GDP dynamics is equally important in predicting success than just building the right investment structure. However, the monetary environment in the new economy has a deep impact in the financial dynamics of the brand, often leading to new payrolls, compromised or enhanced wages, new kind of deals and investments in contractors who due to local environment are unable to meet up to the standard policies of the foreign brand. Therefore, to adjust to the new monetary environment, employing local financial analysts and referring their conclusions to financial experts of the company who are familiar with international trade options would be the wisest step. Thus, the aspects of the international monetary environment that affects business that operate internationally are; foreign exchange system, the European Monetary System, balance of payments, international money markets, international banking, trade credit, letters of credit, Export Credit Guarantees, forfeiting, factoring, bills of lading, international debt, and methods of protection against exchange rate fluctuations. P5. Identify why businesses operate internationally. There are many different reasons that businesses operate internationally. These are; growth, diversification, emerging markets, economies of scale, cost reduction, taxation regime, and legal and regulatory regime. The three aspects to growth are; value, volume, and market coverage. A business value can increase with international trade. This is because it can become more popular as it becomes better known, thus increasing the profit that the business makes. Taxation laws are different in different countries; this may mean that a business has to pay less tax in some countries. This means that the businesses profit increases, as they do not have to pay as much tax. The main reason why businesses operate internationally is the fact that overall profit margin of the original company goes up by leaps and bounds every time a new market presence is established. Given different currency rates and economy fluctuations, the repercussions felt when there is a downfall in a certain economy is much less in multi-national corporations than in a national corporation. It is therefore, important that the brand recognizes possible markets and extends itself whenever there is a chance. Driving resources and developing a production and supply initiatives from different countries is best achieve when a company is a multi-national. Improved brand recognition, enhanced GDP contributions, and a global presence are the other perks that lure companies to venture internationally. Britvic realised it needed to develop global brand equity and therefore, ventured into other countries. As of today, it is one of the leading fresh fruit juice suppliers in the European continent. When a company operates international their costs go down, as there is less competition so their profits increase. P6. Explain the business strategies used by a business operating internationally. Businesses operating internationally often use business strategies these may be: marketing; identifying markets, data analysis, marketing information systems, promotion, advertising, adaptation or standardisation of product and promotion, licensing, co-production, and joint ventures. Business that is operating internationally use localization of products, services and holidays, increased raw material procurement from local vendors and raw material providers, hiring of local employees, creation of multi-cultural teams at work, employment of dynamic and adaptive set of HR and business managers and launch of unique brands that carry the local market’s unique taste or flavour and promotes the local culture globally. Promotion and advertisements can be done with new poster, television advertisement and other print media sources. Standardisation of products, product differentiation, product pricing, distribution, channels, transportation, supply chain, and logistics are some of the production and distribution strategies. Pricing of a product should consider the competition in a certain market, product quality and the market where the product is sold. The technology should be adapted to the prevailing conditions. Britvic has used all of the above to keep its brand alive in different countries. In its shares all over the world, Britvic has seen four percent increase in overall shares and two to seven percent increase in market shares for each of its product lines. In Great Britain they continue to be the top most suppliers of soft drinks in spite of close competition from Cocoa Cola. Therefore, multi-cultural backgrounds can have a positive influence if the right strategy is used to develop the branding in the target country. Read More