Expanding a business into intern level is one of the imperative decision of a corporate association as it supports to extend its market presence or operations beyond its domestic markets and into foreign markets. In this modern era, every small and large organisation tend to expand their functions into international markets and for this they acquire effective strategies and policies so as to get succeed in same markets (Bharosa and et. al., 2013). Along with this, COOK is a retailer or manufacturer of frozen ready meals which was founded in 1997. The main objective of the firm is – to cook using the same ingredients and techniques for providing delicious taste to people. On the other hand, the report will be define global environment in which a SME operates and different threats and opportunities are faced by it at there. Readers will also come to know advantages and disadvantages of international trading agreements and barriers which exists at there.
P1 Explain global business environment in which small business operates
The term global business environment is a dimensional concept, such as – process, philosophy and phenomenon. It can be definite as an environment in which diverse sovereign nations having elements exogenous to domestic environment of a business organisation; it hinders decision making process, utilisation of available resources and working capabilities of the company in direct and indirect manner (Cavusgil, Rammal and Freeman, 2011). Apart from this, in UK small and medium sized firms have been accounted since past decades for 93% of sectors and 60 to 70% employment. In context of COOK, the business association is located in United Kingdom, it provides its services so as to give a delicious or unique taste of food to people. Although, the small business have succeed in London and now it wants spread its business area in other countries also, i.e. Asia, United states, Australia etc. For this purpose, management already has started to prepare a marketing plan that is based upon global business environment. Cook is a manufacturer and retailer of frozen ready meals and was established in 1997. They manufacture tasty ranges of frozen meals that are easy to prepare. Company is planning to expand their business in other countries. In order to achieve success in global market, they need to manufacture meals which are used and prepared in a particular country. They might face problems in some countries due to presence of competition of rival teams as frozen foods are common now a days and mostly preferred by customers. This challenges company to manufacture more delicious and quality products in order to attract customers and to establish its business in market.
P2 Threats and opportunities which are faced by SMEs
Small and medium enterprise plays a vital role in nation's economy development and is affected by globalisation and competition by other enterprise. They have created many job opportunities for people of the country. In the era of globalisation, a great number of markets are increasingly competitive and international, even though the situation is more distinct for small and medium sized enterprise than for multinational company (Khakhar and Rammal, 2013). Small and medium enterprise mainly include start ups, sole traders, general store, etc. UK are basically improving and investing in a long lasting platform to provide competitive edge.
Below is defined certain opportunities and threats which are being faced by SMEs: -
Globalisation will provide an opportunity to small business organisations as they can expand their business in foreign markets in low costs.
SMEs access to the emerging markets of environmental goods and services increased.
Innovation of mobile technologies supports small businesses to make better customer services, improve their products as well as arrive large group of customers in a certain time period.
SMEs make diverse contributions to economic and social well-being, which could be further enhanced for local communities in terms of fulfilling corporate social responsibility. SMEs play a key role in national economies around the world, generating employment and value added.
The major threat for small business organisation is economic downturns. Since 2008, world's economy is facing different unfavourable events, i.e. prime credit crunch that leads financial distress in market.
Globalisation and liberalization made business resources more transferable beyond borders. But competition of resources, i.e. capital and material has raised in many developing countries (Piekkari, Welch, and Welch, 2014).
SMEs are not really concerned and exposed to protecting intellectual property in meeting the challenges cause of globalisation. Small business owners focused on informal methods so as to protect intellectual property.
Therefore, it can be said that there are several opportunities of small businesses in global business environment and supports to accomplish business goals and objectives in a certain time period. Even small business organisations also expands their business in global economy but foreign market competition has a great impact on local competitiveness as well as security is one of the biggest challenge for every business owner (Meyer, Mudambi and Narula, 2011). Thus, in order to maintain their viability in global business environment COOK is required to consider all above mentioned opportunities and then address these challenges.
P3 Advantages and disadvantages of international trading blocs and agreements
A trading blocs is a kind of inter-government agreement that is often a part of inter-government agreement in which obstacles of trade, i.e. tariffs or non-tariffs get reduces among engaging states. In other words, it allows others to trade with each others as easy as possible. Along with this, international trade agreements can provide new opportunities to business owners and they also access to import or export competitively from others.
Advantages of international trading blocs and agreements
Increased foreign direct investment - Enhancement of foreign direct investments which results creating trade blocs and agreements. It will contribute in expanding businesses and generating new jobs to countries.
Competition – International trade blocs influence business owners to participate in other countries so as to compete with rivals and get high competitive advantage. Although, increase competition may raise pressure for greater efficiency for firms it results customers' will get products on lower prices. For example- COOK is going to expand its business in foreign market by having greater efficiency which ensure survival of food items with low prices because tariffs are removed.
Economies of scale – International markets create through trade blocs that allows firms to achieve high edge of economics of scale. As average costs of products tends raises in production; it results low rates for customers (Govindan, Sivasubramaniam and Urgaonkar, 2011).
Trade effects – Another advantage of trade blocs is to diminish tariffs that driven up import costs. It results, consumers will save money by purchasing imported goods at lower rates and they can spend their savings on other goods. In addition, reducing import costs also decreases the prices of local products and it is beneficial for SMEs and countries.
Disadvantages of international trading blocs and agreements
- International trading blocs are in favour of participating countries.
- No one nation or its businesses wants to let foreign firms attain high market share due to he expansion of local companies. If a country wants to join trading bloc should be prepared to make conscious (Neelankavil, 2015).
P4 Various tariff and non-tariffs barriers of international trading environment
Tariff are the taxes which are imposed on commodity which is imported into a country or a region. They are the oldest forms of government intervention in economic activity. They are imposed in order to achieve two main purposes. First, they provide revenue to government and second, they improve economic returns to firms and suppliers of resources to domestic industry. Whereas, non tariff barriers is a way to restrict using trade barriers in a form other than a tariff. Following are some tariff and non tariff barriers:
- Export tariff barriers: Taxes are imposed on those goods which leaves the country.
- Import tariff barriers: Taxes are imposed on goods which are imported.
- Transit tariff barriers: Taxes are imposed on those goods which pass through one country boundary for another.
Non Tariff Barriers
- Quotas: There are some limitation on quantity of goods imported to a country. If the importer exceeds the limitation, they have to pay penalty for every exceeded goods. There are some quotas which is used by countries like Voluntary Export Restraints (VER), it is a quota which is imposed by exporting country, typically at the request of the importing country.
- Subsidies: It is basically a subsidy which is paid by government to a domestic producer. For e.g., cash grants, low interest loans, tax breaks etc. They can help domestic producer in two ways and that can be, first, it help them to compete against low cost foreign imports and second is to gain access to export markets.
- Others: It includes embargo, local content requirements, currency controls, administrative delays, etc.
As per the above mentioned report it get analysed that to compete and survival in external environment small businesses are required to expand their operations in international market. The report has stated that before expanding business in global environment, firms are required to analyse all those factors which can affect their business in direct and indirect manner. In addition, there are various methods of Joint venture, partnership agreement, franchising etc.
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