Exploring International Markets: Global Business Environment of SMEs

This document explores the global business environment of SMEs and the opportunities and threats they face in international markets. It covers topics such as international trading blocs, tariff and non-tariff barriers, import and export processes, and methods for tapping into international markets. The case study of Softwire Technology Ltd, a UK-based SME, is used to illustrate these concepts.

UNIT 43 - EXPLORING
INTERNATIONAL
MARKETS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
P1: Global business environment of SMEs.................................................................................3
P2: Threats and opportunities......................................................................................................5
LO 2.................................................................................................................................................6
P3: International trading blocs and agreements...........................................................................6
P4: Tariff and non-tariff barriers in international environment...................................................7
LO 3.................................................................................................................................................9
P5: Import and export..................................................................................................................9
P6: Difference between merchandise and service import and export........................................10
LO 4...............................................................................................................................................11
P7: Evaluate the various methods to tap up into international market......................................11
P8: Compare and contrast various ways of SMEs for tapping into international markets........12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Global business Environment refers to the international factors of internal and external
nature which impact the functioning of SMEs when they try to explore international markets.
SMEs are continuously looking for opportunities to expand with the rise in technology and
decrease in barriers due to globalisation. A UK based SME, Softwire Technology Ltd which was
established in the year 2000 and provides computer solutions, data & AI services, mobile & app
development, advisory and bespoke software development across London; is taken to access how
organisation can move into global markets by addressing the opportunities and threats by an
analysis of the external environment. The report will be explained from the perspective of a
junior executive and will contain brief description of international trading blocs and agreements,
tariff and non-tariff barriers, overview of appropriate import and export process, difference
between merchandise and service exports, various methods for tapping international market by
assessing pros and cons for each method.
LO 1
P1: Global business environment of SMEs
The global business environment for small and medium enterprises are the evolving ways
through which forces shape the nature and dynamics of global commerce. It is viewed in context
of integrated and shared environment and the drivers are technological advancements,
intercultural effectiveness and competitive dynamics. It is the environment present in various
nations and exogenous factors in the home surroundings of an organisation which influence its
decision-making, usage of resources and capabilities. It can be classified into internal and
external environment (Civelek and et.al., 2016). The internal environment of the business
includes value system, mission and objectives, organisational structure, technological
capabilities, quality and efficiency of human resources, physical resources, capabilities and
corporate culture. External environment includes Micro and Macro factors which influence the
SMEs business operations.
1) Micro External factors
a) Suppliers of inputs: The Suppliers control the market if they have high bargaining
power or have monopoly. The components or services from suppliers can be a major
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part of businesses and can differ in global context. IT companies like Softwire need
suppliers for hardware, software and network therefore they can impact the business
operations.
b) Customers: The customers depending upon B2B, B2C, local or international impact
enterprises with their reasons of purchase and the marketing and promotion
approaches towards them. Softwire operates on a B2B model.
c) Marketing intermediaries: The services or goods produced by the organisation can be
marketed by third party resellers or retailers and wholesalers. If a retailer of a grocery
seller has a reputed name, then it can be leveraged in the marketing of products.
Softwire has communication intermediaries such as ad networks.
d) Competitors: Those who are involved in the sale of similar product line or services
tend to increase the competition in the market, especially when they are locally
established, which makes it difficult for small enterprises to expand. If Softwire
expands in Germany, the pre existing software companies can become a major threat
for the company like Elecks, Avenga and Softserve (Testa and et.al., 2016).
2) Macro External factors:
a) Political & legal factors: The political environment of the countries can influence
major pricing policies and business operations. This includes taxation policies, export
and import tariffs etc. For example, Brexit referendum has created challenges for a UK
business to operate in other European countries. Complex law structure in different
countries can affect Softwire’s business expansion.
b) Economic factors: The level of income, unemployment and inflation can impact the
economic conditions of countries, which could further create challenges in the product
development and expansion due to labour unions, high priced products etc. Expansion
to emerging economies is difficult as income level is low and there are pre-existing
low-cost IT solution companies (Civelek and et.al., 2016).
c) Socio-cultural factors: The social factors like underling values, beliefs and traditions
in various cultures is different and the lifestyle changes affect the consumer behaviour.
If expansion in Japan is being done, then the formalities and procedure are important
in terms of business and cultural ethics.
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d) Technological factors: Technological upgradation is essential in global business
environment to always stay in the competitive market as companies are adopting
changes through continuous research and development, automation, new software
incentives and increased use of social media and digital platforms etc. This can be a
plus point for Softwire as they operate using latest computer languages such as Java
and Python (Tripathy and Jyotishi, 2020).
P2: Threats and opportunities
Threats:
Competition: Globalisation comes with intense local and global competition in terms of market
share, revenue and sales, strength of customer base etc. MNCs have an established infrastructure
which can ease their production cost and let them dominate in the market while local companies
are well versed with market structure. Tech giants like ServiceNow, WorkDay, Cvent and
Salesforce can give tough competition to Softwire. To stay in the competition SMEs will have to
optimally utilise their resources to gain competitive advantage (Sammut‐Bonnici and Galea,
2015).
Lack of resources: If Softwire has no adequate infrastructure and equipment, it can be a
challenge to enter into international markets.
Cultural Differences: The population or customer base of the market can be sensitive towards
their traditions, religion, language or way of operations. The company cannot apply same
marketing tactics everywhere and must involve cultural and social aspects of the specific nation
in its business practices. Certain events of offending the culture can even cause boycott of
businesses (Sarsby, 2016).
Political Climate: If the international relations between the host country and home country are
not good, the business might have to face high tariff barriers, complex legalities and taxations,
restrictions on import and export. UK’s trade relations with China are not good which can create
issues for Softwire (Del Vecchio and et.al., 2018).
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Opportunities:
E-commerce: The major opportunities for SMEs are using the technologies and tools like e-
commerce for going global. This can include virtual shopping, creation of websites or apps to
penetrate the market digitally. Softwire can grab this opportunity as their nature of business
allow them to operate digitally in global market place with reduced cost (Gürel and Tat, 2017).
Niche markets: Small and medium enterprises can tap into narrow and niche markets where the
reach of international organisations is limited. Navigating new markets, new customers, new
requirements can provide many opportunities for growth. Softwire can tap into the market of
creating apps for new businesses or focussing on cybersecurity options.
Sustainable industrialisation and recognition of rules: Softwire can overcome cultural barriers
and recognise the requirements of the nation like following environment friendly ways, or create
job opportunities in the country, recognising the regulations and standards and operating
accordingly (Cretu, 2018).
LO 2
P3: International trading blocs and agreements
There are ways in which countries can protect the domestic economies from international
competition of regional or international trade, such as international agreements and by using
trading blocs. A trading bloc is a governmental agreement among nations, usually a part of
regional intergovernmental constitution where regional barriers, tariff and non-tariff barriers are
eliminated or reduced for participative countries to ease the trade operations (Hannan, 2016).
Examples include: The European Union (EU), The European Economic Area (EEA), The
Central European Free Trade Agreement (CEFTA), European Free Trade Association (EFTA)
and North American Free Trade Agreement (NAFTA) etc. Regional trade blocs are established
for promotion of trade at global level and the restrictions like tariff on produced goods,
government subsidies, import quotas or extensive bureaucratic import processes (Acharya,
2016). The advantages of such trade agreements and blocs include:
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Economies of Scale: This trade blocs can help in the development of markets and improve the
economies of scale. It would help in reducing the average cost of production and making bulk
production accessible. Different nations specialise in different production or service activities
and the foreign trade is based upon this for gaining competitive advantage. In case of the
organisation Softwire, a trade agreement is between two countries for easy outsourcing of IT
services can help the company (Kerremans and Switky, 2018).
Trade effects: The trade blocs remove tariffs which reduce the cost of import of services and
goods. The change in demand leads to better provision of alternatives and choices to customers
and lets them purchase thigs at lowest prices possible. The import cost goes downward due to no
inclusion of tariffs.
Competition: Although there will be high competition between closely working companies, it
would lead to increased efficiency of business operation as Softwire can focus upon improving
the quality and standards of its services (Hannan, 2016).
Market efficiency: Due to the rise in competition and promotion of free trade the overall quality
of services tends to rise and there are increased chances for innovation and creation. This leads to
upward direction in the consumption of good and services which ultimately boost the economy.
Foreign-direct investment: The main advantage of trade agreements is the influx of foreign
direct investment which will be beneficial for the economy of the participating countries. A
bilateral trade agreement between UK and US can lead to low cost of tariffs in services and IT
solutions which could benefit Softwire (Baqaee and Farhi, 2019).
P4: Tariff and non-tariff barriers in international environment
Tariff and Non-tariff barriers refer to the restrictions that are imposed on the international
trade for the movement of goods or services, ideally for exports and imports. The reasons they
are imposed are national security, protection of jobs, protection of customers, retaliation
purposes or protection of newly established or infant industries and reducing overall competition
from international firms.
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Tariff barriers: It is a duty, tax or custom that is imposed on products that move across
international boundaries and the words duty/custom/tariff are synonymous and is the most
popular instrument used to control import and export.
a. Export tariff: It is the custom or duty that is imposed on goods that are being exported by
a country. Examples of products that are taxed include mineral or agricultural products.
b. Import duties: This is a custom tariff that is imposed and levied by importing country on
the goods that are being imported to the country. It is levied for raising revenue and
protection of domestic industry (Cheong and Tang, 2018).
c. Transit duties: This tariff is imposed on commodities that originate from one country and
are cross consigned to another. The tax is levied by the country whereby the good pass.
The outcome is increase in the cost of goods and reduction in the quantity of commodity.
Other tariff duties include specific duty, Ad valorem duty, compound duty etc.
Nontariff barriers: These impositions are non-tax restrictions which come under Government
procedures to impact overseas trade as well as government regulations and policies.
a. Quotas: It refers to the numerical limit that is set on the quantity of products which are
being imported or exported in a particular duration. The quantity is usually mentioned in
the license of the company. If more quantity is imported, the importer faces a penalty
(Egger and et.al., 2015).
b. Subsidies: This is a type of payment made by the government to a domestic manufacturer
for competing against foreign goods. It can be in the forms of a cash grant, tax holiday,
equity participation of government or subsidised input price. It facilitates trade support to
a local firm in order to control the market or reduce costs.
c. VER: Voluntary Export Restraint is a quota levied on exports which is fixed by the
country which is exporting goods on the request of the import country. The exporting
country decides a quota for maximum quantity which can be exported to the country
(Kinzius, Sandkamp and Yalcin, 2019).
Other non-tariff barriers are Administrative dealings, product standardisation and testing, local
content requirement, Embargo, currency control etc.
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LO 3
P5: Import and export
Due to the expansion of internet and increased globalisation, business have started to
compete on an international scale. Importing and exporting of goods and services can help in
going international. But there are merits and demerits to both procedures.
Import: It refers to the process of purchase of good or services from another country.
Advantages: The major advantages of importing are expansion into new markets, introduction of
new products and services at global scale, reduction in costs by reducing the manufacturing costs
and getting products from another country instead, to become a leader in the industry by
importing unique technology or services or products and sale of high-quality products (Cordes,
A., and et.al., 2016).In case of Softwire, which is mainly a service company, can import
technologies and latest software designs from US or latest hardware like discounted computer
systems from Dubai instead of high-priced systems from home country and reduce its costs of
operations (Seelkopf, Lierse and Schmitt, 2016.).
Disadvantages: It can lead to disruption of domestic companies and markets and lead to a trade
deficit and ultimately harm the economy of the country as a whole (Gushkhani, Akif and Anna,
2020).
Export: It refers to sale of goods and services to another country.
Advantages: Exporting can help in increasing the sales potential by increasing the revenue,
increasing international experience, can create further opportunities like overseas production or
franchising for expansion of businesses, it can hep in increasing the profit margins as there are
high number of customers and wider reach than home country and give chances of creating
larger customer bases for small and medium industries (Sokolov-Mladenović and et.al., 2016).
Softwire can export its services of software development, IT solutions and mobile/app
developments to other countries on need and gain international experience and larger customer
base and can also indulge in B2B business by exporting its services via internet to businesses in
need for services or conduct outsourcing for firms (Cordes, A., and et.al., 2016).
Disadvantages: The major disadvantage for SMEs are the lack of resources, expertise and human
resources for conducting big projects or operations on a global scale. There can be chances of
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inefficient market analysis and barriers of cultural and political nature which are tough to
counter. Foe services like technology and customer support, customers are becoming more
knowledgeable and have increased demand (Anil, Shoham and Pfajfar, 2016).
P6: Difference between merchandise and service import and export
Merchandise export and import Service import and export
Merchandise imports are those
product or goods which brings into
country. On the other hand,
merchandise imports are such goods
or products which deliver out of the
country. In other word, import and
export intangible things which can
be visualized and touched
(Holtgrave and Onay, 2017).
While service imports and exports are
those services that brings international
earning. For example, a organization
receives payment in order to make service
export. On contrary other company pays
for making service import. In other word,
import and export of intangible things
which can be feel or experience only. For
example, when a Indian family visits
England and books hotel for staying
purpose, in that state stay family becomes
service importer while hotel becomes
service exporter (Genç and
Wesselbaum, 2021).
Merchandise export and import
posses’ high transaction but less
value (Genç and Wesselbaum,
2021). For example, when product
exports and import in country that
keep less value for the company.
As compared service export and import
keeps limited transaction but gives high
value (Holtgrave and Onay, 2017). In
simple word, when company gets value in
term of money that keeps high value.
There are various companies which
are highly involved in goods trade.
So, goods trade is quite higher and
it’s manageable (Malkowska and
There are very less companies who offers
import and export services. the reason
behind is that it involves in high risk and
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Malkowski, 2021). investments (Gnangnon, 2020).
Merchandise important is procedure through which foreign countries products are
acquired and brought in to a country for utilization as well as further retailing purpose. On the
other hand, merchandise importing is the procedure of selling local goods into foreign countries.
However, both merchandise importing and exporting are conducted in order to maximize
economical profit and enter into foreign market for expansion purpose (Karami and Tang, 2019).
While service export and import are the significant procedures through which services are
interchanged between two or foreign countries. These both processes make international earning
through trading in services.
LO 4
P7: Evaluate the various methods to tap up into international market
Business planning for tap up into international markets
 Accessing markets: It is one of the most effective method for the SMEs because when
they have idea about certain countries like customers need, expectations, government
regulation and growth of the market then they can successfully tap up in targeted markets
(Krishnan and Scullion, 2017). So, it is essential for the company to keep deep research
about markets whereas they are going to establish their firm or exports their products or
services. SOFTWIRE is UK-based company and operates at small scale. It has goal to
expand business at international level. So, it is good method that will support to tap up
into foreign markets effectively.
 Financial support: It is another method that plays significant role in entering into
international markets. For example, when organization has good funding source then it
will enable to establish its business in the foreign countries effectively. SOFTWIRE
company requires to improve funding sources through which it can tap up into
international markets in efficient manner (Asemokha and et.al., 2021).
 Distribution and transportation channels: It is another important method that helps to
create platform between domestic and international market. When SMEs like
SOFTWIRE company posses’ effective distribution and transportation channels that will
suport to trade it’s good and services into foreign markets.
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 Legal consideration and international regulations: Whenever any SMEs like
SOFTWIRE company has planned to expand its business at international level (Krishnan
and Scullion, 2017). Then it must practice this method because when it has knowledge
about foreign countries norms then it can take step for trading it’s good. Licensing and
Franchising agreements: License holder gives specific rights to licensee in the country
wherein products are going to host. However, rights can be demonstrated at different
forms i.e. technology, skills of management etc. On the other hand, franchising pays to
franchiser for using it’s trademark in order to sell product and services. So, small-
medium enterprises can use these methods as well (Oum, Wang and Yan, 2019).
 Partnership: It is another method for tapping into international markets. In this method,
small-medium sized enterprises can build good relation or can collaborate with other firm
which already has captured large market share in other foreign countries. The reason
behind is that when a company operates in multiple countries then SMEs like
SOFTWIRE company can easily access on different foreign markets by collaborating
with such company. So, it is another best method for the SMEs (Asemokha and et.al.,
2021).
From the above discussion can be analysed that SMEs like SOFTWIRE company requires to
implements different methods i.e. accessing markets, partnership for tapping into international
markets.
P8: Compare and contrast various ways of SMEs for tapping into international markets
There are various ways of small medium-sized enterprises like SOFTWIRE that will implement
in tapping into international markets such as:
 Accessing market: It is appropriate method that supports SMEs to successfully enter into
foreign markets. The major advantage of the method is that it brings high understanding
in employer about foreign markets like competitors, growth of the market, disposable
income of consumers, government norms and support, and market size. With such
knowledge small scale business like SOFTWIRE can easily penetrate foreign markets in
effective manner. The major drawback of the method is that it requires effective
managerial skills and expertise. In addition, it is quite time-consuming process. Training
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and development class can overcome this issue because individuals can easily understand
how to conduct market research effectively (Oparaocha, 2015).
 Licensing and franchising method: The major advantage of the licensing method is that It
supports in tapping quickly without concerning about risk and capital. It possesses some
limitations i.e. this method provides lower income as compared other tapping mode.
While franchising method is quite effective as compared licensing because it is cost-
effective and provides low political risk but creates difficulties on controlling franchisees.
SOFTWIRE can overcome this issue by distributing responsibilities between staff
effectively (Lobo and et.al., 2020).
 Partnership: The major benefit of this method is that it brings strong collaboration
between two organization. With this method SMEs i.e. SOFTWIRE can easily enter into
foreign markets without worrying about financial and political risk. But this method also
posses’ some limitations such as SOFTWIRE company have to give involvement partner
company in its business strategy so, in that state it may not allow to take decision
independently. But it can overcome this issue by keeping mutual understanding with its
partners (Morgan, Sui and Baum, 2018).
CONCLUSION
From the above report, it can be concluded that globalisation has made it easier for
organisations to tap into global market through upcoming technologies, political alliances, free
trade agreements and reduced import restrictions. The global business environment of an SME
consists on internal and external factors. External factors include micro environment like
suppliers, intermediaries and customers while macro environment includes political & legal
factors, economic and technological factors as well as socio-cultural factors. The report
described the advantages of various trade blocs and international agreements and explained tariff
and non-tariff barriers. The import and export analysis in context of the organisational Softwire,
UK was conducted and various methods through which SMEs can tap into international markets
like financial support, licensing and franchising and partnerships were evaluated.
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