Foreign Direct Investment and Business Performance

The assignment provides a detailed analysis of foreign direct investment in Austria, including the country's net flow and GDP. It also examines the business performance of B&Q, a home improvement chain, and explores its potential for growth despite uncertainty in the UK market.

B&Q expansion in Austria

Table of Contents
1. Introduction..................................................................................................................................1
2. Background of the company .......................................................................................................1
3. Background of the business environment....................................................................................3
3.1 PESTLE Analysis of Austria's external environment......................................................4
3.1.1 Political Factors: ...........................................................................................................4
3.1.2 Economic Factors..........................................................................................................4
3.1.3 Social Factors................................................................................................................6
3.1.4 Technological Factors...................................................................................................7
3.1.5 Environmental Factors...................................................................................................7
3.1.6 Legal Factors.................................................................................................................8
3.2 Porter's Five Force Analysis of Austria ...........................................................................8
3.2.1 Industry rivalry..............................................................................................................8
3.2.2 Power of buyers.............................................................................................................9
3.2.3 New entrants: ................................................................................................................9
3.2.4 Power of substitute........................................................................................................9
3.2.5 Power of suppliers: .....................................................................................................10
4. Conclusions................................................................................................................................10
5. References .................................................................................................................................11

1. INTRODUCTION
Business expansion is strategy where focus of firm is on grabbing opportunities for
growth and development. It is done by exploding number of stores to increase brand visibility
and to promote easy buying experience to consumers. With the help of offering goods and
services, firm is planning expansion of its business (Piekkari, Welch and Welch, 2014).
Present assignment is based on B&Q. It is a multinational retail organization,
headquartered in England, UK. Now they are expanding their business in Austria. It is owned
subsidiary of Kingfisher plc. Retail chain offers over 40,000 products across 300 physical and
online shops.
In this context, study will evaluate background of company and business environment
with the help of PESTLE analysis. It will also discuss Porter's Five force model of enterprise.
2. BACKGROUND OF THE COMPANY
B&Q was founded in 1969 by Richard Block and David Quayle. This company operates
in retail market and owns subsidiary of Kingfisher plc. They are providing DIY (Do it yourself)
home improvement tools, gardening supplies and plants. DIY is method of altering or repairing
things without professionals. Since 2015, B&Q has been closing number of shops, in favour of
changing some to outlets of Screwfix. It is the largest multinational retailer of trade tools and
hardware goods in UK.
It owns 359 shops and approximately 20,887 employees are working in the company. It
has eight shops in Ireland by May 2014. Kingfisher said it would close sixty B&Q shops in UK
and now their planning for expansion in Austria. They were reported to have 7 million customers
base till July 2016. It was approximately 75% use of retailer's website to know about prices of
products. Company have customer’s trueness strategy. 5.6% of total sales of B&Q in 2016
Sales of company is increasing 5.6% in 2016. In March 2013, retail chain's Ireland operations
was making losses with their nine shops which makes total of 7m throughout 2012, up to now its
operations within UK has turned profits despite whole drop-off sales by 5.6%.
In January 2016, total stores is 296 in overall UK and Ireland. In 2016, total revenue of
company was 3.8 billion and net income was 220 million. There are 320 shops at different
locations. Due to some reasons, B&Q shops were unsuccessful and close down in Taiwan and
China in 2007 and 2015 respectively (B&Q Stores., 2018).
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International Operations by B&Q:
 B&Q is doing international operations are in Ireland.
 On 31 January 2013, they have filed for examiner-ship in Irish courts and PWC (Price
water house Coopers).
 They are expanding their business in Austria for making more profits.
 In May 2013, pursuing High Court support for investment totalling 2.4 million to allow 8
of their nine shops to continue operating.
 In 2015, they opted to sell 70% controlling stake of operations in China.
 In 2007, B&Q's parent company has sold its 50% stake in Taiwan in 2007 and they were
focused on rapid growth of business in China.
Present challenges:
 Organization is exploding investment of 50m to 100m in this year in stores.
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Illustration 1: B&Q Stores
Sources: (Number of B&Q stores in the United Kingdom (UK) and Ireland from
financial year, 2018)

 As Kingfisher declared B&Q's sales in UK and Ireland rose 1.9% to 3.87bn while
Screwfix chain.
 B&Q can enter into new market where they can offer original and advanced goods which
help younger people for improving instruments which using by household.
 They can change suppliers because, China is supplying goods effectively to customers.
 Economic uncertainty weighed on sales effects on dropped sales of B&Q owner
Kingfisher's in last year.
 Now they are expanding them in Austria for making more profits and generating
revenues in economy.
Future opportunities:
 In the new areas, they could open large out-of-town ware house to focus on smaller
suitable store.
 At national level, Kingfisher could develop programmes for its B&Q's business for rapid
expansion of Screwfix stores.
 In global context, company will grab opportunity for expansion of their business in
Austria.
 At international level, firm reduce area by leasing out parts of large stores to competitor
retailers such as Asda fizzled out after closures of B&Q's.
 The B&Q's sales drop 2.8pc while trade focused Screwfix and Kingfisher's polish
division roared (Torrance, 2018.).
3. Background of the business environment
B&Q is expanding their business in Austria. Therefore, it is important to know about
customer’s awareness, economic conditions, governmental rules and regulations, environment
and other legal aspects. These informations are very important for expansion of business in the
allocated country.
Austria is one of the richest country in world as per its GDP per capita. It has well
developed social market economy. Allocated country will aim to unify digital taxation in EU
member states with current proposal reportedly establishing temporary 3% tax for companies.
Forecasts GDP will grow 2.8% in 2018. Therefore, B&Q is expanding their business in the
Austria. The average tariff rate is 1.6%. Composed value of import and export is equal 101% of
GDP. Government regulations do not interfere with foreign investment.
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Income rate is 50% and corporate tax rate is 25% in Austria. Employers and workers are
sharing high social security contributions. Political stability and powerful law have increased
investment environment of selected nations. It has achieved continuous economic growth. It
enjoys well developed finance, transportation services and commercial facilities. Allocated
nation has powerful labour movement. Major economic act of Austrian eastern Europe is
growing trade in future marketplace.
The regulatory system of allocated country is transparent and consistent with
international standards.
3.1 PESTLE Analysis of Austria's external environment
Austria is landlocked nation in Central Europe border line European countries such as
Hungry, Slovakia, Germany and other nations. The economy of nation was greatly affected by
global financial crisis that began in 2008- 2009. In 2011, within reasons economy was grown and
nation achieved growth, due to its economic reforms, currency appreciation and large inflow of
foreign direct investment (Akrofi, 2017).
3.1.1 Political Factors:
There are many reasons such as political stability, government policies and laws, etc.
Changes in these elements affects economy of country. The government rules and laws are
strong transparent and consistent with international laws. These components have increased
investment climate of selected country. This indicates positive impacts on expansion of B&Q.
Major impact of political factor on foreign direct investment. FDI is a component of risk. There
are many governmental situations within countries. These situations facing industries with in
nations. Europe is seen that government orders which promote foreign investment. Political
stability includes level of corruption and reliance in organizations (Pinto and Zhu, 2016).
In terms of market size, wages and governmental stableness to affects location decision
of FDIs. Low incentives of investors for foreign investment because of uncertainty of opinion of
government in economic environment. Impact of corruption which effect foreign direct
investment. This indicates negative impacts on expansion by B&Q. In the first quarter of 2018,
FDI is increased by 4293 EUR Million. From 1995 until 2018, FDI in Austria is averaged by
1740. 72 EURO Million (Austria Foreign Direct Investment- Net Flow, 2018).
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3.1.2 Economic Factors
Due to global economic crisis, low growth of Austria economy. Therefore, it has recently
experienced robust progress in 2017 when growth reached to 2.3%. Economy of country
includes GDP. GDP of Austria grew 3% in 2017 as compared to last year. GDP in figures worth
358.27 Euros in 2017.
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Illustration 2: Austria Foreign Direct Investment- Net Flow
Sources: (Austria Foreign Direct Investment- Net Flow, 2018)

In terms of GDP, Austria is the richest countries in world. Government and its state
owned industries combined played very important role in economy of nation. The system of
economy of nation includes social focus. It also faced a proved and tested scheme of economical
and societal relationship. Government has spent 51.8% total GDP in past three years. These
factors will affect expansion of B&Q business.
3.1.3 Social Factors
Austria has well developed societal market economy. It is also known as social
partnership. Country follow encompassing cultural policy which is based on broad ranging and
binding meshed schemes of societal welfare. The goal of Austrians towards cultural policy is to
control risks such as poorness, aggression or social insurance (Nwaogu and Ryan, 2015). There
are many other primary issues which consider progressive senior citizen's policy, measures for
prevention of aggression, help for intentional activity, publicity of corporate socio-culture
responsibility and activities to cut down societal equivalence such as family welfare, cultural
compensation and ethical bond. Therefore, company will expand in Austria and by involving
socio-cultural activities.
Social partnership has especially powerful impact on societal and economic policy. It is
based on finding out involvement of workers through relevant bodies. The main feature of
Illustration 3: Austria GDP
Sources: (Austria GDP, 1960-2018)

societal partnership is based on wages formation system. Institutions of European Union gives
important impulses for future growth of scheme of social safety (Bhattacharya and et.al., 2016).
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3.1.4 Technological Factors
Austrian Institutions of Technology was developed and assessed intervention and new
technologies of mobility system. With the help of this system, it has improved decision making
in terms of future planning, gaining knowledge regarding cost benefits ratios and explosion
effects. This kind of analysis is doing by specific group from surveys. (Akrofi, 2017). Through
this system, analysis of behavioural and procedures of social environment. This system is helpful
for analysis element which lead to changes in transport system.
Therefore, B&Q will be affected by technological factors when expanding their business
in Austria. Mobility system is helpful for expansion of their business. This system will be
effective for company as it helps in improving decision making in terms of cost benefits ratio and
explosion effects (Nwaogu and Ryan, 2015).
3.1.5 Environmental Factors
The Ministry of Environmental Protection of Austria is responsible for all environmental
protection efforts which includes water disposal, pollution, noise as well as emissions by iron,
steel and ceramics. Moreover, Austrian continue to fight with difficulties of acid rain which has
broken-down 25% of nation's forests. Another issue which includes endangered species.
Industrial pollution and Radioactivity rays are another big problem in country. Global warming
and climate changes are also impacting living condition in Austrian. These environmental issues
are negative impact on business expansion of B&Q (Nwaogu and Ryan, 2015.).
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3.1.6 Legal Factors
There are some legal forms provides limitations of liability. They are exposed to personal
liability. Legal rights are includes liability, innovations and obligations of the company. Many of
legal persons and rights can affect expansion plan of business. Therefore, company will affect all
legal factors when they are planning for expansion in Austria. (Dobbs, 2014).
3.2 Porter's Five Force Analysis of Austria
Porter's five force analysis is useful for determining external environment of country for
expansion of business. It is also useful to find competition in industry and level of profitability
with the help of five force analysis which is as follows:
3.2.1 Industry rivalry
There are many rivals of industry in marketplace which affects plans for expansion by
B&Q. There is slow and negative growth of industry which will also affect business. Customer
loyalty is low in market which will issue expansion plan of company in new market against
competitors. Therefore, B&Q will face huge competition during expansion of their business in
Austria. These conditions are also affecting on level of profitability of organization. Firm is
taking risks for price and quantity level. This is difficult for company to realise and adjust of
competitor’s attentions. Therefore, B&Q facing these condition in Austria for expansion (Takata,
2016).
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Illustration 4: Home improvement chain with B&Q
Source: (Charity Begins at Home base for Wesfarmers, 2018)

3.2.2 Power of buyers
There are many buyers who has demand of lower price and higher quality products. They
have also strong power of bargaining. They are price sensitive. Therefore, B&Q will face diverse
conditions in terms of buyer's demand over price and quality of products. There are many
substitutes in market, so that it is difficult for planning of expansion. (Dobbs, 2014). The
Switching costs of suppliers is very low. Therefore, company determines price and quality of
products which help to meet customers demand. Purchasing power of buyers is profit of
organization.
Undeveloped incorporated is threat of company. There are only few buyers are existed
from the market. These issues will be faced by B&Q during expansion of their business in
Austria. Customers are demanding lower prices and high quality products which effect profits of
organization.
3.2.3 New entrants:
New entrants effects on profitability, capital requirement, economies scales and
government policies. Profitability is increasing the rate of competitive. It is important for
existing companies to increase profitability and productivity of their business. Level of new
entrant is high when low capital is required to enter `in market. Customers loyalty is very low
and no interferences of government regulations. Switching costs is low of customers (Takata,
2016). These situations are faced by B&Q for planning of expansion their business in Austria.
The scale of economies can be easily achieved. Some companies are established their brand
reputation which affects on new entry in market.
By these situations, company will not plan for expansion their business in new area.
Customers loyalty is also affecting selling of products in the market. (Nwaogu and Ryan, 2015).
3.2.4 Power of substitute
Company is affected by power of substitute in the market. This is a biggest threat of
business when buyers can easily find substitute products with attractive prices and better quality
of products. Customers are switching from one to another products. Therefore, company are
affects prices of substitute products. This kind of condition will affect expansion of B&Q in
Austria. Power of suppliers is decreasing by their substitutes products. Demand of products is
influenced by cost and quality of substitute goods. Costs of substitute product is decreasing,
which are increasing of satisfaction level of customers. This indicates negatively influence on
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growth of business. Low customers' loyalty to certain brands is a threats to B & Q (Bhattacharya
and et.al., 2016).
3.2.5 Power of suppliers:
Bargaining power of suppliers is strong which allows selling higher prices and low
quality materials to buyers. This directly affects profits of company. Bargaining power of
suppliers is strong when there numerous buyers but limited suppliers (Dobbs, 2014). Further,
incorporated is threat of suppliers. The power of suppliers is strong when they are holding
resources and switching costs of raw material is high.
These types of issues will affect B&Q expansion in Austria. They will face numerous
issues such as, switching costs, limited suppliers of raw material in the market. Suppliers are
dependent on customers demand. (Takata, 2016).
4. Conclusions
From this report, it can be concluded that business expansion is plan of action in which
development is obtained by increasing number of shops. In order to that B&Q is expanding their
business in the Austria. It can be discussed that background of company and analysis of business
environment with the help of PESTLE and Porter's five force analysis. Through PESTLE
analysis, positive and negative impacts on Foreign direct investment, GDP, inflation rate and
economic growth of country are determined which will helps in deriving risk during expansion.
Through Porter's five force analysis it has been evaluated that, company will be effect new
entrants, power of suppliers and buyers, price of substitute products, competitive rivalry.
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5. REFERENCES
Books and Journals
Akrofi, A. E., 2017. The impact of external business environment factors on performance of
small & medium sized enterprises in the pharmaceutical industry in Kumasi
Metropolis (Doctoral dissertation).
Bhattacharya, M. and et.al., 2016. The effect of renewable energy consumption on economic
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E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review. 24(1). pp.32-45.
Indiatsy, C. M. and et.al., 2014. The application of Porter’s five forces model on organization
performance: A case of cooperative bank of Kenya Ltd. European Journal of Business
and Management. 6(16). pp.75-85.
Nwaogu, U. G. and Ryan, M. J., 2015. FDI, foreign aid, remittance and economic growth in
developing countries. Review of Development Economic. 19(1). pp.100-115.
Otoo, M. and Drechsel, P., 2018. Resource Recovery from Waste: Business Models for Energy,
Nutrient and Water Reuse in Low-and Middle-income Countries. Routledge.
Piekkari, R., Welch, D. and Welch, L. S., 2014. Language in international business: The
multilingual reality of global business expansion. Edward Elgar Publishing.
Pinto, P. M. and Zhu, B., 2016. Fortune or Evil? The Effect of Inward Foreign Direct Investment
on Corruption. International Studies Quarterly. 60(4). pp.693-705.
Salacuse, J. W., 2017. BIT by BIT: The growth of bilateral investment treaties and their impact
on foreign investment in developing countries. In Globalization and International
Investment (pp. 25-45). Routledge.
Takata, H., 2016. Effects of industry forces, market orientation, and marketing capabilities on
business performance: An empirical analysis of Japanese manufacturers from 2009 to
2011. Journal of Business Research. 69(12). pp.5611-5619.
Tuuva, T., 2016. Finnish companies entering French business culture and environement.
Yan, S. and Mingfa, L., 2016. On Reform Direction of Company's Capital System with the
Background of Company Law Revision.
Zhao, C. and Liao, M., 2015. Study on Relationship between Officers’ Education Background
and Performance of Listed Companies on Growth Enterprise Board. Open Journal of
Social Sciences. 3(10). p.95.
Online
Austria Foreign Direct Investment- Net Flow. 2018. [Online]. Available through:
<https://tradingeconomics.com/austria/foreign-direct-investment>.
Austria GDP., 2017. [Online]. Available through: <https://tradingeconomics.com/austria/gdp>.
B&Q Stores. 2017. [Online]. Available through. :
<https://www.statista.com/statistics/428119/bandq-number-of-stores-united-kingdom-uk-
ireland/>.
Charity Begins at Home base for Wesfarmers. 2018. [Online]. Available through:
<https://www.bloombergquint.com/opinion/2018/02/05/charity-begins-at-homebase-for-
wesfarmers#gs.7ia4Es8>.
Torrance. J., 2018. B&Q owner Kingfisher warns of UK uncertainty as profits drop. [Online].
Available through: <https://www.telegraph.co.uk/business/2018/03/21/bq-owner-
kingfisher-warns-uk-uncertainty-profits-drop/>.
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