Principles of International Business: Analysis of Tesco's Macro Environment and Strategies for Global Expansion

This report analyzes the macro environment of Tesco using PESTLE analysis, appropriate techniques for international strategy, and benefits and risks of international trade operations. It recommends franchising as the best strategy for Tesco's global expansion. The report also discusses the principles of international business and the advantages and risks of international trade operations.

Principles of
international business

Table of Contents
INTRODUCTION...........................................................................................................................3
Macro Environmental Analysis.......................................................................................................3
Pestle analysis.........................................................................................................................3
Appropriate techniques used in corporate strategy and management in an international
context....................................................................................................................................5
Various advantages and risks arising from operations of international trade.....................10
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
International business refers to trade of products and services, investment,technology
and knowledge across the international borders and at global level. It consists cross borders
transactions of products and services among 2 or more nations. Economic transactions consists
capital,skills and individuals for the aim of international manufacturing of products and services
like finance,insurance and banking. The principles of international business are production of
quality goods,knowing competitors and industry,marketing goods and services in global markets
and many more. The company chosen for this report is TESCO which is a British Mnc dealing
in groceries and general merchandises. It is headquartered at Welwyn Garden City ,England. It
was established in the year 1919 by Jack Cohen. This report mentions the various types of
international environment and examination of value and limitations in the context of business. It
also states the techniques which a business may incorporate in its internationals strategic
management. The report discusses the benefits and pitfalls associated with business.
Macro Environmental Analysis
The international business and its environment have wide scope due to the focus on the
issues and opportunities as company operates its business at international level which emerges in
the business environment. It is also known as the generalized field of business which is modified
for quite exceptional appearance in the international environment.
Pestle analysis
It is a concept of marketing principles used by marketers for tracking the environment in
which the business is operating. It is used in a range of various scenarios and guide professionals
in strategic decision making(Ermakova, Frolova and Sitkareva, 2019).
 Political factors- Tesco operates in the almost world so the political factors influences
the company's performance. The tax rates ,legislations and stability of the nation it has
business operations impacts the company at a great extent. As the world is facing
financial instability governments of many countries are forcing company to create jobs
for domestic population. It also affects the Tescos smooth functioning. All these factors
affect the Tesco plan for expansion into international markets.

 Economic factors- Tesco operates in the retail sector and leverage the
costs,demands,profits and prices. Company get affected due to any changes in policies,
taxes and access of finance. Company wants to expand globally and all these factors
affect the business operations. Low income levels of the households is also impacting the
company's performance. Company has to shift its focus from luxurious items to
marketing of its value brands for more profits(Fitzpatrick, 2019).
 Social factors- Due to different social changes and trends which indicate that consumers
in United Kingdom which have shifted towards the bulk shopping and one stop
purchasing. Tesco has to increased the no. of non food products in sale. The type of
products and services demanded by customers as they are mostly influenced by the
beliefs and attitudes which are also influenced by social conditioning. As customers are
more aware of the issues of health so their approach towards food is changing regularly.
Tesco is also adapting to the changes by opting the demand for organic goods.
 Technological Factors: These are the aspects which includes the innovation and the
advancement takes place within the organisation and when the Tesco is planning to
internalise its business, they focus on complying the entire working and the fluctuations
in the international market. There are countries such as UK, China who are using various
innovative techniques and advancement. Thus, this become tough for the Tesco to
compete with the technology and meet the needs of the international market.
 Legal factors: These are the factors which includes the export and import laws,
legislation related to the employment, fair compensation and incentives. In consideration
to international market, the Food Retailing Commission has made certain rules and
regulations which need to follow by the employees who are working within the
enterprises in the retail segment. There are certain allegations which are imposed on
Tesco related to the age and gender discrimination that has been prevailed in the work
culture. This put the negative impact in the international market and lower down the
overall working of the company.
 Environmental factors: These are the factors which are concerned with the ecological
balance within the company as they are focuses on having the better working within the
organisation. Tesco has undertaken the certain initiatives by which they can improve the
environment and ensure sustainable society. They are using remove, reduce, recycle plan

in which they are removing the non-recyclable plastic to minimal level and analyse the
new opportunities to use that plastic. In international market, this become tough for them
to cope with the overall environment and ensure the sustainable business(Gbadamosi,
2019)(Jain,2020).
` Tesco is one of the oldest retail chain operating in United Kingdom. It is a well known
brand among the different consumers groups as it is more than 100 years old. For expanding in
international market it will not face much issues as the company has a positive brand image in
the retail sector. It has enough cash and resources , so the company can easily enter in global
market. It may face some difficulties and challenges but it will over come all the troubles with
ease as it has skilled staff and resources.
Appropriate techniques used in corporate strategy and management in an international
context
Corporate strategy is defined as a multi-level strategy which are employed by the
company in order to define the structure and the goals of the company in order to attain them.
This is stated that, there are certain corporate strategy which are being used by the Tesco by
which they can internalise its business in an appropriate manner. There are 3 main strategies
involved in international trade. Each of the strategy involves the different approach for building
efficiency across countries whiles responding to variations in preferences of consumers and
conditions of the market place.
 Multi domestic strategy- Tesco can use the multi domestic strategy for sacrificing
efficiency in favour of increasing response to the requirements of local area within the
each of its market place. Company rather than trying to focusing on diversification in
local markets should aim for diversifying in international markets. They must adapt is
products range for matching the local preferences as in many nations some goods cannot
survive(Kane, 2018).
 Global strategy- Tesco can uses global strategy for sacrificing response to local
requirements in each of the markets in which it operates by favouring emphasis on
efficiency. It is the strategy which is complete opposite to the multi domestic strategy.
Minor alterations in goods and services can be made in different markets but in a global

context it stresses for need to gain economies of scale by providing the same goods in
every markets. Tesco can provide the same goods in all the international markets but
can adjust the goods for matching the local preferences. They can gain efficiency by
creating global brands.
 Transactional strategy- Tesco may use transactional strategy if it is seeking middle
ground among the multi domestic and global strategy. The company can try to balance
the desire for efficiency by adjusting local preferences within the different nations. Tesco
can choose same brand names and products portfolio in all the markets in which it wants
to operate globally for using the brand image in its favour.
Here are some more techniques which Tesco can choose to go global.
Licensing: It is these corporate strategy which can be used by the business to internationally
expand its business. In this, firm transfer their rights to another firms to make that operate in the
another area is known as licensing. In context to Tesco, they can use this strategy in order to
expand its business in the international market.
Pros
 Income without overheads- Licensing will allow for generating income without the
taking of manufacturing and heavy overhead costs. Allowing some one else for using the
brand name will pass the burden on them and help companies in collection of royalties.
 Better marketing- Licensing will help in improving the way of marketing. By licensing
company can benefit from target marketing without the need of doing individual market
research(Krebs, 2020).

Cons-
 No guaranteed revenue- There is no guarantee of revenue from the agreement as
royalties are on the basis of profits percentage. If the licensing fails for generating profits
then company will not get any benefit.
 IP theft risk- It is another drawback of licensing as by licensing the stems company
will have little control on the operations and may get exposed to theft.
Franchising: this strategy is being used by the business who have the repeatable business
model. In this, firm give the appropriate structure which is leading to have the effective working
by which they can ensure the higher profitability and expansion of the business in the
international market. Tesco can use this strategy in order to internalise its business in the market
and they can further have the better approach to operate their business in the other nations as
well.
Pros
 Brand recognition- This is the main benefit of the franchising as the other individual
get the benefit of well established business and consumers base as people already
know the brand.
 Low rate of failure- Franchisees have very low rate of failure as the brand is already
famous and has network which offers the support and advice which aids in growing
the business.
Exporting- It is the most common and the easiest way for entering in the global market. Many
organizations select this mode for international expansion. It is referred as the trading of products
and services in foreign nation which are sourced from home nation. It avoids the expense of
establishment of business operations in new country. Organization have to distribute and
promote the goods in the news nation which is done by contract agreement with the local
company or distributor. For exporting goods the company must pay attention to
labelling,packaging and pricing for offering to the consumers. Company can market the goods by
advertisements and trade shows.

Pros
 Compliance and documentation- Many countries are offering the business organization
with minimal paper work for exporting goods in the nation. Nations offer guidance to the
company's for doing business in the company.
 Limitless market- By selling locally company cannot grow much nut in international
trades the company can grow and develop very fast as the market place is unlimited.
Cons
 Finding of potential buyers- Company have to do deep planning and research before
exporting goods to the international markets. Finding the international buyer for the
goods is the main problem as the product cannot be in demand in particular nation .
 Duties and tariffs- Governments of other nations put heavy duties and taxes on the
export and import business. It adversely affects the operations of the business as molre
tax means less profits(Rhee, 2018).
Recommendations
The strategy recommend for the expansion of Tesco business is franchising as the
company already has many stores in United Kingdom so it is not possible for them to pay
attention in all the international stores,so franchising will be the best option for the company as
they will only have to give the brand name and back end support to the franchisee owner and in
return they will get the royalties in profits and more brand recognition while putting less
investment in the operations of the business.

Various advantages and risks arising from operations of international trade
Tesco which wants to operate the business internationally does not have to deal with
only risks locally but face various other business development risks like
ethics,transportation,credit,intellectual risks,currency and many others. All these risks can
obstruct the smooth functioning of Tescos business so proper measures must be taken
care(Moyal, 2019). All these risks are divided in many categories such as-
Commercial risks- These risks are caused because of many factors like ,the lack of
knowledges about the international markets as for Tesco it will be a new environment. The in-
adaptability of exporting products for changing to the conditions of global market requirements
may impact the business of the company. The transit time will be longer as compare to local
transportation. During the export Tesco may face many varying situations which they may find
hard for handling. The cost of goods in export is impacted by-
 Changes in import duties- The changes in import duties and creation of tariffs barriers
can disturb the established market. By the impact of GATT,the import duties have been
fairly decided and the market has been stable. So Tesco will not face much difficulties.
 Changes in exchange rates- The cost of products is effected due to the changes in home
or foreign currency. If the currency is down the exporters capacity is increased and
increase in currency value will reduce the capacity.
Political risks- They arise because of the change in situations of politics in the concerned
import and export nations. Any changes in party power in concerned nations,the civil wars and
rebellions impact the company's operations. All these can be avoided by selection of nations
where company may get insurance of goods. Export Credit Guarantee Corporation helps the
business organizations in covering these risks.
Foreign laws risks- Each nation has its own commercial laws which businesses have to
follow. These laws are very complex and very expensive also increasing the cost of goods. Tesco
can avoid it by incorporation of provision for appointment of arbitrator for any case of dispute
about terms of contract(Rendtorff, 2020) .
Cargo risks- Cargo transportation has been going under the radical improvements for a
long period. The export of the products is done by the sea medium. Transport risks are very

common for company's who are involved in export and import business. The risks are storms,
thefts,collisions,leakage,spoilage,explosion,fire and sea robbery. Tesco can eliminate this risk by
taking marine insurance and transfer the financial risks which are resulting from sea perils which
reduces the cost of company.
Credit risks- Credit transactions have inherited risks and especially in international
trades as global trades is more riskier than domestic trade. In global business the credit ability is
decided on competitive and favourable terms. The business of export is very risky as selling on
credit basis is becoming common. The insolvency rate is increasing day by day as balance of
payment is becoming difficult and making operations of business also difficult. Tesco can avoid
it by having enough funds for offering credit to buyers globally and be ready to take credit risk.
Foreign exchange fluctuation risks- If Tesco has invoiced in buyers currency, then
they will be subjected to fluctuations of foreign exchange. If the currency depreciates than the
exporter will get less amount and vice versa. If the bill of export is purchased or negotiated under
credit letter the banks will bear the risk. All these will affect on the business of the company.
Advantages of international trade
International trades allows the nations,states,brands and businesses for buying and selling
in international market places. The trades diversifies the goods and services for receiving of
domestic consumers. It offers the company for developing and expansion. Tesco may benefit
greatly by exporting the goods and services and offer global markets the cheaper but high
quality products(Dyatlov and Selishcheva, 2020). Here are some advantages related to it-
 It gives foundation for international growth- Tesco which wants to indulge in
international trade can achieve growth which is not possible in domestic markets. It will
give them the opportunities for achieving more sales from diversified portfolio of
consumers in various markets.
 Global trade improves the financial performance- Tescos can also improve its
financial performance by entering in global markets as they can get significant returns.
They can offer various products in international markets which will greatly benefit them.
 It reduces the brands risk- Tesco can protect them from risks by diversification of
products in international markets. Company's presence in international markets will help
them survive in economic recession and maintain profits even in a unstable markets.

 Global trades encourages market competitiveness- When the Tesco will operate in
global markets they must focus on being competitiveness for thriving. They can offer
quality design,goods development for continuous diversification.'
 Global exchange rates can be beneficial to business- Tesco can reduce the risk in
international trade by taking the monetary exchange rate benefit as organization does all
its transactions in US dollars but can trade in Japanese Yen to spread the exchange rate
risk which will add to the company's profits(Demidenko, Kulibanova and Maruta, 2018).

CONCLUSION
The above report concludes that international business opens different growth channels
for businesses by aiding organizations in generating more revenue and profits. The evaluation of
the international environments by the Pestle analysis was also done with the value and limitation
in the business context was also stated. Range of techniques which can be applied to the process
of management planning for determination of strategies and goals in the global context was also
done. It also discusses the various risk and advantages associated with international trade.

REFERENCES
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