Assignment 1 International business Introduction The two businesses which I will be analysing about are Tescos and Coca-cola
Assignment 1 International business
The two businesses which I will be analysing about are Tescos and Coca-cola. The market which Tesco operates in is business to consumer, this means Tesco is in the tertiary. The 3 different sectors the businesses could fall under are primary, secondary and tertiary. However, sometimes businesses can be in more than just the one sector such as Coca-cola as they would be tertiary due to the fact that they also manufacture all their products. Coca-cola also sells their products through vending machines and through restaurants so this is an easier way they can get their product to the consumer.
Coca-cola has its own production centres, for example, the Europe production centres which make more than 40 products which go to 25 different countries such as Hungry. Coca-cola is in Business to Business, this is due to the fact that coca-cola mainly sells to supermarkets and restaurants as the consumer can`t buy directly from Coca-Cola. The main reason for coca cola going international is due to the fact that it helps increase revenue and profits.
Coca-cola import and export as they trade globally and their biggest exporter is China and their biggest importer in Germany. exports its products to every country in the world except North Korea and Cuba. For example, the Hungry distribution centre distributes over 40 products to over 25 countries. Coca-cola also imports a lot of products for example in the USA from December 2010 to 2011 the imported over $1.4 billion dollars worth of coca cola products from Puerto Rico alone as they are the biggest importer for the US.
Coca-cola conducts and trades internationally are due to the fact that they get a bigger target audience as they are trading in every country in the world except from 2. This shows that by being able to reach a greater target audience will enable them to add additional revenue streams due to them a greater opportunity to increase profits. The more ways in which coca cola can ensure they receive additional revenue streams is by making sure they know their target markets and have brand diversification. They do this by offering a whole wide range of products from diet coke to smart water. This shows that they have adapted to their target audience and listened to what the consumer will want. This ensures that all their customer’s requirements are met which will lead to the business’s growth.
Coca-cola trade internationally for many reasons and one of the main reasons is due to growth. This is vital in order for them to be successful internationally, as they need to be able to adapt to the culture and the environment of the country in which they are going into. This is crucial as the growth of the business leads to the business growing and expanding its range of products or services which then will lead to higher sales which means more profit. If the business did not grow then they may not be able to keep running certain products or fund future development plans.
Factors, when coca cola choose which market they will target in the country, depends on which type of products are already available and the prices of the products which are already for sale. This is due to the fact that coca cola is already a worldwide well-established business, therefore, everyone has heard of them already. This can factor how they decide to trade in certain countries due to the size of the market already being huge, however, coca cola already dominates most of the soft beverages market.
Tesco has been a very successful supermarket chain which has allowed them to conduct business internationally and a lot of their success has been down to brand exploration. This ranges from them sponsoring women’s Gaelic football in Ireland to support charities such as cancer research. They also help a lot of the local communities in which they open up their stores by helping the local schools. This has to lead to being very effective in the UK and Ireland and Tesco have many plans in which to get a bigger marketing campaign as they have bid to sponsor the world cup many of times. Which can lead to there brand been more well known and linked to certain products such as there meal deal range which can then lead to them having a bigger market share.
Tesco growth has been down to a lot of there brand diversification such as them offering different types of products such as Halal foods in heavily Islamic populated areas. This leads to potential growth due to the fact they are catering for everyone as they also offering different ranges and different products in every country as they have a research team which looks into what’s popular and what is not when they are expanding abroad. They also have other streams of income such as cafes which they open which targets a different type of customer other than just people who want to go shopping.
Tesco imports a lot of its products from different countries such as different types of fruits as they can be grown in certain countries. By importing and exporting it helps Tesco grow as a brand as they can manage to sell all their products all year round and source them at the cheapest prices due to the fact that they can transport any way they want as they have high distribution.
Tesco is like coca cola and they also import and export this is due to them being in 13 different countries. Tesco Imports a lot of its products due to the fact that a lot of their food is seasonal such as different types of fruit. A lot of there other ready meals and other products are also imported due to the fact that the raw materials are cheaper abroad. Tesco also exports a lot of British products to its other stores globally such as British teas.
The factors which influence Tesco when choosing which market they are going to choose to trade in are different to coca cola due to the fact that there will already be loads of supermarkets already established in these countries. This means They need to decide on whether they can get their products cheaper such as the raw materials which would then mean they can charge lower prices, which leads to a good USP. They will then look at how big the market they choose actually is as this can factor their decision on whether they decide to trade in this country due to the fact that they may not be any more room for another competitor to come in and start trading.
The main reasons why a business will trade internationally are due to the main 4 factors which are Growth, additional revenue streams, Brand exploration and Diversification. Growth is one of the most important factors due to them offering goods and services in other areas outside the UK offers the potential for organisations to grow, and growing sales should lead, in the long term, to growing profits. The main reason why coca-cola will want to grow will be to expand its target audience and reach bigger markets.
The most suitable source of finance for coca- cola will be letters of credit and this is because a letter of credit is one of the safest ways in which coca cola can trade internationally whilst been reassured they will get paid. By coca cola having a letter of credit it reassures that they will receive their money in full and on time, this is a huge benefit for them whilst trying to expand their business internationally due to the fact that if they are paid on time then they can expand at a much quicker rate than if payments are always delayed. Within the letter of credit includes all the terms and conditions in which both parties have to meet and agree on meaning it’s the safest way to trade as it’s a legally binding document so if anything did to go wrong then both parties are covered. The low risk of a non-payment is transferred from the seller to the bank, therefore, coca cola and covered if anything were to go wrong.
However, there are certain options in which coca cola need to be aware of when using a letter of credit. One of the disadvantages coca cola need to be aware of is any additional costs and this is because you have to pay the bank for a letter of credit and you will have to weigh up the costs against the benefits such as extra security when trading internationally. However, they kept that the cost is worth it due to the fact that if anything goes wrong then the bank covers the costs, therefore, coca cola will not be out of profit which will enable them to still expand at a quick rate. Another thing which coca cola need to be aware of is that they will only receive the payment if they are kept to the strict terms of the letter of credit. The will then be ordered to give strict proof that they have supplied exactly what they have been contracted to supply. The only other problem a letter of credit may cause is sometimes using a letter of credit can cause delays and other administrative problems due to the fact payment is only received when all the terms are met. This is a negative to coca cola as they want payment as quickly as possible in order to fund there growth and expansion within other countries.
The most suitable and beneficial source of finance for Tesco to use would be prepayments. A prepayment is where the consumer or buyer pays for goods or a service before they see or receive the items. It helps benefit the business as it brings more money into the business early on and will help fund them on their expansion overseas and will lead to them being able to fund more growth and expansion. This is hugely beneficial to Tesco when they trade internationally as they may not have trusted suppliers or trusty importers therefore if they pay Tesco before they send the product then Tesco has a sense of security knowing that they will get paid as they have been paid before they send the products. This benefits them as they can then use the money to pay for other things or even in the helping of making the products which they have sold to consumers or other businesses. This makes the cash flow much easier for Tesco as they can see and understand and pay for the supplies or raw materials with the money which has been prepaid. This means that they won’t lose out on any money are reassured them that they will get paid when they are importing the British goods.
However, Tesco needs to make sure that the products they are selling are in high demand as consumers or buyers do not like to pay for a product or service before they see it. The hard part is getting them to pay for the products before they have got them and if they are faulty or they do not like them they may return them. This is a negative as you need to make sure you have the funding in order to be able to refund the customer. This also may lead to a bad start with the consumer as they will think that you as a business don’t trust them to be able to make the payments and may put them off from using you as a business. When they use this type of financial service they need to make sure the consumer has paid in full before making or sending the product and this will take a longer time and lead to slower production. This will cause fewer products to be made and may make the customer unhappy due to the long waiting times however it will benefit the business due to a more positive cash flow.
Globalization refers to the changes in the world where we are moving away from self-contained countries and toward a more integrated world. Globalization of business is the change in a business from a company associated with a single country to one that operates in multiple countries. It also allows free trade across some borders.
For coca cola there is many benefits of globalisation and one of these of these is increased trade and this is due to the fact that they already have a huge brand image and everybody recognises there brand already, therefore, people will come to them. This helps them expand quickly and also means that due to having a bigger target market and the audience it will lead to more profits and cash for the business. They will also get a wider choice of suppliers to choose from which means that suppliers will have to compete against each other in order to have the cheapest raw materials in order for coca cola to choose them. This is a huge benefit to coca cola as a brand as it enables them to increase their profit margins on their products or even charge cheaper prices, which will then give them a huge competitive advantage.
Another benefit to them is the international mobility of labour which enables them to employ more people from the local areas. This will benefit the business and the local communities as they are providing jobs for the local area. This is a benefit to the business and the local people as they are willing to work for low wages which means coca cola can make more profits leading to greater expansion.
Globalisation has also allowed a significant rise in the level of technology. This benefits the business massively as it enables them to be able to transport their goods much quicker and more effective around the world. The price of transportation is also going down. The technological advancements enable coca cola to make their products quicker and at a quicker price due to the machines been bigger and better. This is a benefit as it allows them to be able to communicate with other business around the globe much quicker and easier. It also helps with the international payments as the transactions can be done easily and quickly. This leads to the consumer being happy due to them being able to receive the products quicker. Due to the quickness of the service other business buy off coca cola and able to sell their products due to the upgrades and advancements in technology due to the fact that it can get to them quicker which enables them to sell to the consumer in a much quicker and effective way.
The main thing for globalisation which affects Tesco is the increased trade and this is down to a few things. One of them is to do with suppliers and one of the ways this benefits Tesco is the fact that, they can get cheaper raw materials. This is down to labour costs being cheaper and the currency exchange with the pound sterling being strong. This means the can get more for there money whilst abroad. This means they can then get products made cheaper and have cheaper suppliers which Tesco to charge lower prices which they then have a competitive advantage over competitors. Currencies play a huge role with Tesco and their international trade due to the fact that the currency is stronger in the UK, therefore, suppliers are cheaper. This will help increase Tescos trade due to there cheaper and more competitive prices.
Another thing which benefits Tesco is employment opportunities and this does not only benefit Tesco it benefits the local communities as it helps the local employment rates. This helps the business expand whilst boosting the local economy. This benefits Tesco massively as they get to help especially in countries such as Malaysia as it helps boost their unemployment rates and helps underdeveloped communities by giving them jobs. This benefits them as they get cheap labour whilst improving the local area and by this, it makes a good working relationship. By having cheaper labour it allows Tesco to have bigger profit margins or bring the prices down.
The international business communications forever improving due to the latest and upgrades in technology. This allows business to easily contact and conduct business to business trade much easier and more effective. If there are any problems then coca cola can contact their buyers that there has been a problem then it can be sorted out much quicker as the vans and trucks and getting faster and more advanced.
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where barriers to trade (tariffs and others) are reduced or eliminated among the participating states.
The impacts a Trading bloc has to coca cola is both negative and positive due to the fact that they are such a big international business is that they get free trade in every single trading union. This allows them to have Free trade areas such as the EU. Thus meaning that they can trade with countries which are in the EU meaning that they don’t have to pay any sort of tariffs to trade.
With coca cola exporting and importing from the UK which means they don’t have to pay any tariffs and there are no barriers stopping them meaning this Is free trade. They can trade without paying any tariffs as long as the buyers are within the Eu. However, as the UK is leaving the EU this may affect the situation where coca cola gains access to free trade and may have to pay tariffs due to Brexit. This will be a negative to Coca-cola as they may have to increase their prices or lower their profit margins. As coca cola have already gained a lot of good trading relationships due to the trading blocs such as the EU then they may still be carrying on even when the UK leaves the EU to them having good business to business relationships.
Another thing which is a benefit to coca cola is that they get market access and trade creation which means its easier to access other markets. This means that they get to increase there trade due to being able to trade in different markets. Trade creation means that they get to replace high-cost suppliers for a cheaper and more effective alternative. This also brings better and more effective imports low-cost imports to lead to lower priced imports. This will then lead to a much higher demand for your product due to you be able to offer your products at a lower price than all your competitors.
The negatives for Coca-cola is that some trading unions have different policies and not all trading blocs have free trade, therefore, coca-cola may have to pay a tariff when trading in these countries. This has a negative impact on the business due to the tariffs prices being higher in different trading blocs which makes the overall cost of there products more expensive which means they have to sell to the buyer at a higher price as they have t factor the extra tariffs into the overall costs. This means that the buyer will have to pay higher prices for the products of coca cola which will then reflect upon the customer which may have a negative impact as they may not want to pay higher prices for the products.