We are interested to expand our bicycle business through international investment modes to get more profit, potential markets with large target customer base and achieve first mover advantages such as high profit , high sale thus low average cost. But we should not yet chose the best suitable mode for international trade. So our objective is to identify analyze the best potential market outside the border as well as the best appropriate medium of international trade based on the interested foreign market’s prevailing cultural factors, economic health measurement factors , political factors and other factors that seriously influence the decision of international trade.
We are the leading bicycle producer in Bangladesh, want to choose the best international business mode for trading bicycle with UK.
We are interested in international trade because our domestic customer base is limited and we are almost cover the domestic market; thus it is prominent for us to trade surplus production with foreign countries to reduce production cost (average cost) and maximize sale with additional outside consumers. Second reason is to get ownership advantage through exploiting experience curve, economy of scale and other asset with high competitive advantage. The third reason is to get location advantage such as high customer access, low cost labor, abundant of recourses and low transportation and negotiation cost etc. the final reason to do international trade is nothing but control the foreign market as a leading firm.
Cultural analysis
Preference: Citizens of this country are preferred to go for a long drive with bicycle in a group. They also prefer bicycle with colorful design with simple body, auto gear and other innovative functioning that will make their bicycle drive comfortable. Some prefer bicycle as a sign of fashion and medium of usual ride with low operating cost. The environment conscious people also prefer it because it is nature friendly.
Demographic: The number of youngster is high in the UK and most of them are school going and completing graduation. Some youngsters do part-time jobs to meet their tuition fees; in such situation they had to choose bicycle rather than motor cycle. Some youngster’s hobby is to ride bicycle. Now a day young girls are also interested in riding bicycle.
Value and attitude: Some people belief that bicycle ride is the best for cardio exercise and good physique thus interest to buy and ride bicycle. UK people don’t do any physical work which result in high rise in body weight. So some people chose bicycle to reduce the excess weight.
Other factors analysis
Primary motives: Profitability is of crucial importance. Expansion in the home market is difficult because of slow market growth, market saturation, or regulatory obstacles. International expansion may be a way of reducing costs in a competitive international market. Since the selected countries are categories as either developed or developing countries and have huge level of target customer, we think it is better to participate in international trade for generating more and more profit. Other primary motives are achieving “Economies of scale”, procurement of components and supplies, and international relocation of production operations or outsourcing of business functions.
The Changing International Environment: The enhancement in international business activity has contributed to significant growth in the world economy over the post-war period. This growth has been sustained by a general reduction in trade barriers between countries, thanks goes to GATT and the WTO. Our selected countries are also enlisted under GATT and WTO agreement and belief in free trade thus charge less tariff and import duty.
Country-specific factors: The primary reasons to prefer UK is the political and economic stability, supportive government policies, absence of ‘nuisance costs’(such as bureaucratic obstacles, corruption, and mafia-style activities), creation of assets called ‘advanced factors’ ( including tangible assets such as the transport or communication infrastructure and intangible assets such as education and skills, technology and the capacity for innovation, intellectual property, and business networks).
Firm-Specific Factors: The new markets either in large developed economies or in emerging economies with growth potential is our target market because early entry into an emerging economy brings first-mover advantages and the possibility of market dominance before rivals have the chance to establish themselves. These country’s deposits of coal, iron ore, copper, precious metals, or other natural resources are the main attraction for us.
Cost Reduction factors: We can offshore some of our business operations, obtain components and other supplies, or relocate a production facility to another country in order to reduce costs. Since our business is capital-intensive; where relatively small amounts of highly specialized labor are needed – unless, of course, highly skilled labor is available at low wage.
Besides considering UK, prevailing decision making factors we should concentrate in assessing the International Environment includes some sorts of analysis named country analysis and international entry, background information, the general political and economic situation, cultural Assessment, general product data and other development indicators and risk factors
Country analysis and international entry: We will consult UN, OECD, and World Economic Forum, banks and leading newspapers which produce country profiles and surveys, and a variety of consultants and online services which offer analysis of what is often termed ‘country risk’. Detail information about interested countries must require understanding UK political, economic, and cultural environment, the greater the probability of the product succeeding and the less risk to a company’s profitability and reputation.
Background Information: We will study background information about UK such as information about UK political, economic, social institutions, history, geography, culture, and demography.
The General Political and Economic Situation: To understand the business environment in UK without studying the current political system and institutions, major government economic policies, and a variety of data and other information on the country’s economy. Here we analyze the statistics of UK, gross domestic product (GDP), the GDP annual growth rate, GDP per capita, inflation, unemployment, consumer expenditure, and the volume of external trade, the competitive environment, and the financial system.
General Product Data and Other Development Indicators: Variety of data can be used to give an indication of the standard of living in a country. These data may include product data such as the number of passenger vehicles or human development indicators such as life expectancy, the prevalence of particular diseases, or the literacy rate of the population. These indicators provide a picture of the level of economic and social development in UK.
Risk Factors: Our preferred countries have less political risks (such as-wars, civil unrest, terrorism, and changes in government policy or the law) and economic risks (such as- exchange rate exposure, risk of non-payment or financial instability).
Countries(chosen)
|
2009 (base)
|
2010
|
2011
|
2012
|
UK
|
35,200
|
36,020
|
36,560
|
37,340
|
Note: GDP after using Filter in dollar form; World Bank; international comparison program database
Since there are high growth rate in GNI (filtered with per capital conversion, Purchasing power parity, HDI, Inflation, unemployment rate, BOP balance, poverty rate etc) in successive years ; we can pretty sure that we will be beneficial from international trading with this country
Available international entry modes and our decision to chose the best
There are many mode for international trade entry such as -Direct and Indirect Exporting and Importing, Foreign Direct Investment, Licensing and Franchising and Joint-ventures, Strategic Alliances, and Other Collaborative Strategies
Direct and Indirect Exporting and Importing: For many businesses, it represents the most straightforward way to benefit from international markets and resources. It carries significant risks, especially if a firm is dependent on a small number of international customers or suppliers or on markets or supplies in high-risk countries. Large established MNEs often trade through direct exporting and importing. Smaller or less experienced businesses accustomed to use indirect exporting and importing.
Foreign Direct Investment: The IMF Balance of Payments Manual defines foreign direct investment (FDI) as ‘the objective of a resident entity in one economy obtaining a lasting interest in an enterprise resident in another economy’. FDI normally involves some degree of equity ownership on the part of the foreign investor. FDI may include the establishment of a wholly owned subsidiary, a joint venture with a foreign partner, and a foreign acquisition or takeover.
Licensing and Franchising: According to book definition “Licensing and franchising are contractual arrangements whereby a franchiser allows a licensee or franchisee to use its intellectual property in return for a fee or royalty and, in some cases, an initial payment”. In international business, the licenser or franchiser is using this type of arrangement as a quick and relatively low-risk international extension strategy. Franchising is more common in service industries such as retailing, tourism, catering, and hospitality. The main risk is possibility of degrading reputation of the licenser or franchiser.
Joint-ventures, Strategic Alliances, and Other Collaborative Strategies: Joint-venture is an agreement between two or more companies involving joint equity ownership and control is described as a joint-venture or joint-venture agreement. Because a degree of control is involved, it may also be classed as a form of FDI. Strategic Alliance is the non-equity cooperation agreement between two or more independent firms is generally known as a strategic alliance. The purpose of such an alliance is to gain a mutual competitive advantage through cooperation in production, research and development, marketing, or purchasing. Strategic alliances are often found in the motor industry, involving joint development of new models and common production platforms, and among commercial airlines, where code sharing agreements, shared facilities at airports, and joint purchasing arrangements provide marketing benefits and cost savings.
Decision about choosing appropriate international entry mode as a beginner
We think it is the best for us to choose direct and indirect
export and import mode because it represent the most straightforward way to
benefit from international markets and resources. Direct exporting and
importing involve direct contact between the exporter or importer and the
foreign customer or supplier. Large
established MNEs often trade in this way. As a smaller or
less experienced businesses, we can use indirect exporting
and importing ; this
involves the services
of an agent
or other intermediary, providing specialist knowledge
and a safer and more convenient way for a business to engage in international
trade.
Since exporting and importing are often combined with other modes of international entry for getting best result, so we may engage in foreign direct investment or a foreign joint venture/ strategic alliance with the country local cycle producer or dealers to provide an export base for trade with preferred country.
There are some other reason for which we prefer export and import mode are- low transportation cost and time due to extensive technological advancement; less business risk due to risk offsetting facilities such as agreements for better credit services, currency conversion, and insurance against damages and nonpayment provided by insurance and banks ; freer border in globalization era; development of communication technologies enabling direct contract with customer via email, conference calls and video conferencing
The all things describes above is to judge our decision about choosing export and import mode by applying internationalization theory. According to internationalization theory a company should conduct FDI if cost of controlling, monitoring, and negotiating trisection is high otherwise it should choose the export- import or other form of international entry modes such as franchising, licensing agreement modes
So we can finalize our decision about to export and import bicycle to the selected country with strategic alliance with the country local firms or dealers.
Since exporting and importing are often combined with other modes of international entry for getting best result, so we may engage in foreign direct investment or a foreign joint venture/ strategic alliance with the country local cycle producer or dealers to provide an export base for trade with preferred country.
There are some other reason for which we prefer export and import mode are- low transportation cost and time due to extensive technological advancement; less business risk due to risk offsetting facilities such as agreements for better credit services, currency conversion, and insurance against damages and nonpayment provided by insurance and banks ; freer border in globalization era; development of communication technologies enabling direct contract with customer via email, conference calls and video conferencing
The all things describes above is to judge our decision about choosing export and import mode by applying internationalization theory. According to internationalization theory a company should conduct FDI if cost of controlling, monitoring, and negotiating trisection is high otherwise it should choose the export- import or other form of international entry modes such as franchising, licensing agreement modes
So we can finalize our decision about to export and import bicycle to the selected country with strategic alliance with the country local firms or dealers.
For Comprehensive analyses of international business operations, international entry modes, and the international business environment:
1. Daniels, J., Radebaugh, L. and Sullivan, D. (2008), International Business: Environments and Operations, Pearson Education
1. Harrison, A. L., Dalkiran, E., and Elsey, E. (2000), International Business, Oxford University Press
1. Laudicina, P. A. (2005), World Out of Balance: Navigating Global Risks to Seize
1) Caves, R. E. (2007), Multinational Enterprise and Economic Analysis, New York: Cambridge University Press
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