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Introduction : Comprehensive Business Plan
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International trade has various benefits for a business it provides a large potential customer base which results in more profits and revenues; it provides the benefit of diversification and various benefits through foreign exchange rates. Firms are usually opting for internationalization because they want to expand their customer base and also the main factor behind internationalization is to earn more profits and revenues, building a good brand image in the global market. there are various benefits of internationalization other than expansion which are discussed in this report. It also develops a deep understanding of various theories of international trade which are classical and contemporary, and how these theories will benefit a new firm in entering the international market. in the international market political environment also plays an important role which is an external factor in an organization’s environment, which includes state government, institutions, and public and private stakeholders who influence the system. Political risk can be instigated by actions of governments like controls on prices, activities, outputs, and remittance restrictions. For understanding more deeply the report has considered Haigh’s chocolate manufacturing company as the case of the company which is established in Australia. International trade is vigorous in Australia's economy as it represents around 44% of the Gross domestic product (GDP). The international market provides access and favorable trading situations for Australia's wealth. The report highlights the internationalization of the case company, by entering the international market provides the company with the benefits of collaborating with other companies local companies can gain technological advancement which is accessible only from other companies for innovative production strategies. For this process, the company uses good policies which help to minimize the associated risk in international trade and sustain competitive advantages.
The company is looking forward to expanding in the UK market. The UK is one of the safest and easiest places to do business in the world. It is also one of the highest-ranking countries among all the countries according to the World Bank's Ease of doing business index. And at last, the report provides suitable recommendations on various entry strategies that case company can prefer for entering in UK market
The Argument For International Expansion
International trade is the buying and selling of commodities and services of companies dealing in the international market with different countries (Goldfarband Trefler, 2018). Companies dealing in goods, food, machinery and raw materials are all purchased and traded in the international marketplace.
Benefits of international/global trade
International trade offers countries to expand their global reach in international markets and access all the goods and services which are not available domestically. As an outcome of international trade, there is very high competition in the market, which finally results in extra competitive pricing and carries a cheaper product to the customer (Feenstra, 2015).
- How will it benefit Haigh's? - Why do Firms Internationalise
Haigh's chocolate an Australian bean-to-bar chocolate manufacturing company in Adelaide, South Australia founded in 1915. The company is serving in Adelaide, Melbourne, Sydney, and Canberra, and also on the online platform (Birrell, 2018).For the expansion of the company in the UK, a company needs to look after all the pros and cons of international trade. The global market will provide the company with the benefits of diversification as it will get to know about the British culture and tastes and preferences of the people of the country. International trade will also provide benefits for the large potential customer base as the UK is a big developed country with a big population. It will give the company to have a huge customer base other than Australia.
- How will it benefit Australia and your chosen country? - Why do Nations Trade?
Australia's domestic market is quite small compared to the chosen country UK. International trade allows Australian goods dealers which are involved in exporting to achieve a more diverse and large consumer base market than the domestic market. This international trade is a very important factor in improving market access for companies like Haigh's chocolate and also other company which is looking forward to expanding in the international market (Stringer, 2015).
Theories of international trade:
- i) Classical /Contemporary theories of international Trade
The international trade’s classical theory comprises four theories which are Mercantilism, Absolute Advantage, Comparative Advantages, and Heckscher-Ohlin (Clark and Neumann, 2016).
Mercantilism was quite famous in back 16th and 18th Centuries, throughout that period the capital of the countrywas only measurable by gold and further precious metals. Because of that, the theorists recommended accumulating gold and metals more (Viner, 2016).
It is one of the earliest efforts for developing a theory of economy. By growing export and trade, all the leaders were able to collect additional gold for their nations. The way by which some of these countries have indorsed exports is by applying limitations on imports of goods, this approach is known as protectionism and is also applied today by the countries to restrict the high level of import.
Absolute Cost Advantage
This theory created by Adam Smith, known as the father of Modern Economics. This theory was a robustresponsecontrary to the mercantilist point of view on international trade. Adam Smith braced the requirement of free trade as the declaration for expansion of trade. It is concluded that a nation need to focus on producingthose products in which there is an absolute advantage (Porter, 2015). By division and specializationof labourcreators with several advantages always helps in gaining throughproducing in inaccessibility. The theoryfocused on manufacturing countries' specialty in, by which it can manufacture extra at a veryless cost than other countries.
- Firm Level Explanations + Nation Level Explanations
The main reason behind interest of different nations in entering in international trade is that no nation has capabilities to produce all required products and services by itself. There is an unequal distribution of productive resources providing by Mother Nature. Countries are different from each other in many ways like climatic conditions, cultivable land, mines, minerals, labour, technological factors, etc. By considering all these factors, no country has the potential to produce all the products and services required in the most efficient manner and at least cost so the international trade in firm or national level has major demirts.
Examples, theory of comparative advantage, international product life cycle theory, ownership specific, location specific advantages
Product Life Cycle Theory
This theory developed by Raymond Vernon in 1960s, a Harvard Business School professor. This theory was created in the field of marketing, it was developed after the disappointment of Hecksher Ohlin's Theory (Gankemaet. al. 2019). In this theory, a product have various stages in the sequence of its growth. These stages are:
- new product level
- maturing product level
- Standardized product level.
Comparative advantage theory
The comparative cost theory was developed by David Ricardo and later published by J. S. Mill, Marshall, Taussig, and others. When a nation is not able to manufacture or produce efficiently in comparison to another countries. The theory focuses on the productivity variances but the absolute advantage considers the absolute productivity (Laursen, 2015). According to this theory, a state would export those supplies only that have the greatest benefits and consider in importing those supplies only which have the least losses.
The political environment includes the stategovernment and public and private stakeholders, and its institution which influence the system. The political environment is an important part of every company's strategy which includes the external environment (Falkner, 2017).
The UK has a strong reputation for rules and laws, it has impartiality and stability in the working of its legal system. This all factors refer to businesses all over the world trusting the UK's legal system for its fair hearing.
- Three Types of Political Systems:
- Totalitarianism – it is a type of government that permits that there is no individual freedom and which further pursues subordinate all the features of individual life to the consultant of the state. In detail, totalitarians are characterized as the strong central rules which attempt to direct and control all aspects of life through repression and coercion (Drucker, 2017). The impact of Totalitarianism on Haigh's business is as follows:
- Totalitarianism Governments Force Change when Necessary –In the totalitarian government system the ruler in charge makes the rules and if the person decides on wanting to change then it will happen without any argument. In the case of Haigh's business, the company needs to follow all the rules and regulations without any argument with the government.
- Ruling under Totalitarianism all or most of all organizations and institutions are discouraged and disrespected. Which affects the image and working of the company.
- Socialism – it is an economic system and political system which includes the means of manufacturing controlled by the state and national government. It depends on the thought of public or common possession of resources and meaning of production whichhas a great impact on the company which is as follows:
- It provides social equality which focuses on reducing wealth disparities, inflation, and unemployment with the help of its price control factors (Hodgson, 2019).
- It helps the company to make good use of land, labor, and resources with the help of economic planning and also helps in avoiding excess production.
- Democracy – A system which the government of the country is elected by the people of that country. Democracy has a great impact on the image of the company, helps in the good economic performance of the company, and also provides long-term political stability and correct mechanism which further helps in forming the foundation for safe investment and steady growth of the business.
- Laws, Regulations, Standards, Consistencies in Policies, Pressure Groups, Trade Unions, etc.
- Laws – international trade law is the technique used by the country's government for pleasing corrective actions in trade. It focuses on highlighting and considering domestic rules into international trade. It is based on the theories of economic liberalism.
- Standards – standards can facilitate trade between countries with the help of reducing transaction costs and also providing common reference points. In the growing international trade appropriate standards and compliance with them become a critical factor for every company.
- Consistencies in policies – trade policy comprises a policy which directly affects the goods and services transferred in-between the countries which includes import tariffs, quotas, , subsidies, export taxesetc.
- Pressure group –is an organization that pursues influence to elected officials to take action and also on making changes regarding a specific issue. These groups often establish a special organization with a motive to promote their fundamental interests.
- Trade union – international trade union confederation (ITUC) works to make sure that the essential worker’s rights are encouraged by ILO. The rights to cooperative bargaining, protection from discrimination.
- Types of Risks Associated with Political Systems (Sanctions, Nationalisation, Boycott Imports, Terrorism, Wars, etc)
Political risks might occur from changes in policy by governments to impose controls on exchange rates and interest rates of the country. It is also an outcome of events and activities which are not in the control of the government such as war, terrorism, labor strikes, revolution, and extortion. The major factor of political risk that has a huge effect on international trade are
- Sanctions: The risk associated with political system with sanctions is the penalties given to the country’s common public for disobeying the law.
- Nationalization: The initial risk in each country due to political system arises with significant economic contracts affecting the assets.
- Wars: This is a geopolitical risk associated with the civil rights of the country.
- Import boycott: Risk associated with the import boycott mainly includes the Supreme Court hearings to avoid the economic damages associated with political actions.
- Terrorism: Terrorism plays a negative role for the country which is Risks Associated with Political Systems making a struggle for the society for the liberation through injustice.
Political risks are out of the hands of the government; factors like wars, terrorism, import boycott, nationalization and sanctions have the power to affect all aspects of international business from import to export.
Non-Fdi Market Entry Strategies
A company like Haigh's which is looking forward to expanding in the UK can gain competitive advantages in the UK market by helping with NON-FDI investments. Haigh can use NEM policy to gain and sustain competitive advantage in the international market, as the policies are contributory if countries are looking to make the most of the development benefits that come from the mixing of domestic firms into NEM networks of international corporations (Wararatchaiet. al. 2021)
- Embedding NEM policies in the overall development strategies of the company, as it makes sure those efforts to attract NEM are directed at the right industries and that the company has competitive advantages like low labour costs (Cahen and Borini, 2020).
- Building domestic productive capacity, with help of proactive entrepreneurship policies strengthens the competitiveness of the company and its target market in the host country.
International trade is not only about the FDI, there are several NON-FDI which include NEMs non-equity modes of international production and development (Cavoli, 2015). NEMs includeservices outsourcing, contract manufacturing, franchising, contract farming, licensing, and management contracts. This further allows transnational corporations to organize activities in their global value chains and also encourages the management of host-country organizations without possessing equity stakes in the organization.
International Collaborative Ventures: Equity-based joint ventures
Collaborative ventures known as international strategic alliances, which is corporations between two or more companies in the international market. These help companies to overcome considerable risks and risk of costs included in attaining projects that may surpassthe abilities one company operating separately. Groups of organization form partnerships to achieve large projects such as completing major undertakings and developing new technologies.
Project-Based Strategic Alliances:
A strategic alliance refers to an agreement between two organizations to commence a jointly valuable project while retaining their individuality. The agreement is very simple and less complex and not as much of binding as a joint venture. A company looking for expanding into the international market usually enters into a strategic alliance, this arrangement allows two businesses to work on the path of achievement of common goals which will give benefit both the company.
Networks and Relational Assets: Existing Networks and Relationships, Linkages with local counterparts provide a good route for Non-FDI based Expansion.
Financial networks with branches based on long-term correlations and linkages defined by assets include three centrality measurements used in the practise (betweenness, eigenvalue centrality, and the expected force). Selection strategies that make use of centralization metrics from financial networks might enhance the risk-return characteristics of well-known benchmark portfolios that aim to maximise returns while minimising risks. Network and relational assets maintain Indexes of the stock market, instruments of the bond and money markets, commodities, and exchange rates for the existing networks and relationships.
R-assets, which relate to an MNE's capacity used to leverage cross-border network resources and gain from the cumulative experience of prior partnerships, are one sort of transaction-based FSA with local counterparts provide a good route for Non-FDI based Expansion. The R-assets are derived from the multinationals of prior international experience, just like the transaction-based non FDI expansions.
Global Integration And Local Responsiveness
The forces that drive MNCs to utilise global resources and integrate their activities on a global level in order to realise economies of scale and reduce costs are pressures for local responsiveness as well as global integration in the context of anticipated expansion (Sparrowet. al. 2016). Advising Haigh on which of the four different strategies (I- R Framework) she should use to compete well in the target global market.
There are four typical methods that companies employ to grow internationally:
(i) International strategy
(ii) Multidomestic strategy
(iii) Global strategy
(iv) Transnational strategy
The first tactic is: international approach
A successful global strategy concentrates on one main objective.
International strategy, Multi domestic strategy, Global Strategy, and Transnational Strategy are some examples of strategies. Think of each of these tactics as falling on a spectrum between two components: global integration and local responsiveness. A successful global export strategy concentrates on a single place of operation while distributing goods and services globally. As a result, it performs poorly in terms of both local and global integration.
Global strategy has the greatest degree of integration
On the other hand, a worldwide strategy is being used via the global integration/local response spectrum. This strategy emphasises standardisation to the greatest extent feasible across all areas—including colours, messaging, goods, and operations—so that they can create repeatable, scalable procedures regardless of the foreign markets they serve (Verbekeand Asmussen, 2016). This entails a single brand, a single line of products, and a single message coming from a single central office.
The multi-domestic method has the greatest local response.
The "local-first" strategy is a multi-domestic strategy because it performs well in terms of local responsiveness but poorly in terms of global integration. The "local-first" option among the four is a multi-domestic approach because it performs well for local response but poorly for global integration. For each new nation they enter, businesses with a multi-domestic strategy modify their products, messages, marketing strategies, and customer service (among other things) (Lasserre, 2017).
The most successful global strategy
While a global strategy may seem to be the ultimate objective, for many brands the best choice is a transnational strategy that strikes a balance between local responsiveness and global integration. In addition to having a central office or head office in a single country, transnational corporations also employ local subsidiaries in global markets. The elements of global integration are the local responsiveness part.
Market entry strategies: show businesses a roadmap to get entry into international markets. There are several methods companies can refer to sell their goods and service in the global market, the companies will prefer to choose the best out of all approaches which are further suitable according to the goals and target market of the company (Kotabe and Helsen, 2022). For the selection of an effective strategy, company’s line up their budgets with their product considerations, this frequently improves their probabilities of increasing profits.
- Low Control Strategies: Exporting
Exporting includes marketing of the product which the company produces in different countries in which the company looks forward to selling its products. Exporting is a traditional method of entering the international market, it also not involves goods to be produced in the country, and no investment is required. Exporting has a relatively very low-risk factor as it entails substantial costs and limited control of other factors (Erikssonet. al. 2015) The case company Haigh's can opt for exporting its chocolates to various countries with the help of exporting as this method of exporting does not involve must cost and the company can deal with various countries by exporting their chocolates.
- Moderate control Strategies: Licensing
Licensing refers to a situation where company handovers the right to practice or sold a goods to other company. A company can opt for this technique if the company’s product is in demand and the company to whom it strategies to license the product operates in a very large market. This method of entry has little investment on part of the licensor as licensing can provide a very large return on that investment. For Haigh's licensing can be a good option but not as good as exporting as it requires a large investment and the company cannot provide its license to any company, the important factors like trust and loyalty are required for this method.
- High control Strategies: Equity Joint Ventures, Wholly Owned Subsidiaries
Companies try to diminish the risk of inward bound an international market by establishing joint ventures further that plans on selling in the global market. JV frequently functions like big independent companies somewhat than a mix of two small companies. These companies can earn high revenue than they are earning individually. Haigh's can also consider a joint venture as both the company can earn high revenue jointly and also helps in building companies image in the international market (Dinu, 2018). But this market entry strategy includes the risk of improperness in company, but this problem can be solved by the involvement of both parties and working together on establishing a fair procedure that helpsin preventing this kind of issue.
The report concludes with a detailed understanding of international trade, which includes the buying and selling of goods and services by companies dealing in the international market with different countries. The report discusses the international expansion and how the case company Haigh's a bean-to-bar chocolate manufacturing company established in Australia can use relevant theories of international trade to enter into the market of the chosen country UK. The report explains briefly the classical theories of international trade and theories that a company can use in launching a product in a new market which are product life cycle theory and comparative advantage theory.
The second part report talks about the political environment and the types of risk which are associated with it which affects the company which is looking forward to entering the international market. The report states the importance of NON-FDI investment and recommendations for the case company on gaining and sustaining competitive advantages in the international market.
In the third section, there is details information regarding global integration and local responsiveness, as the pressure of local responsiveness and global integration in the context of expansion in the international market. it includes key determinants for global integration. At last, in the report, there are recommendations on various strategies which the case company can refer to for entering in international market with suitable requirements.
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