Tapping into New and International Markets

This report explores how small and medium enterprises can enter into new international markets to expand their operations. It discusses the global business environment, threats and opportunities faced by SMEs, advantages of international trading blocs, and the merits and demerits of imports and exports. The case study of Fontain Motors, a UK-based SME, is used to illustrate these concepts.

Tapping into New and
International Markets

Table of Contents
INTRODUCTION.................................................................................................................................3
LO1.......................................................................................................................................................3
Global Business Environment in which Small and Medium Enterprises Operate..............................3
Threats and Opportunities faced by Small and Medium enterprises..................................................5
LO2.......................................................................................................................................................6
Determine and analyse the advantages of international trading blocs and agreements......................6
Tariff and Non Tariff Barriers in International Trading Environment...............................................7
LO3.......................................................................................................................................................8
Imports and Exports along with their merits and demerits.................................................................8
Merchandise and service import and export......................................................................................9
LO4.....................................................................................................................................................10
Methods to Tap into International Markets......................................................................................10
Merits and Demerits of Methods Used to Tap into International Markets.......................................11
CONCLUSION...................................................................................................................................12
REFERENCES....................................................................................................................................13

INTRODUCTION
In order to operate successfully in today’s international markets, business need to
constantly be aware of the markets in which they operate in and look out for various
opportunities and threats. In this report we will study how small and medium enterprises can
enter into new international markets to expand their operations and the various difficulties
that can arise. For this purpose, we have chosen a SME called Fontain Motors, a private
limited company established in 1990, that operates from Buckinghamshire
UK. Fontain motors primarily deals in the resale of old used cars and light motor vehicles and
the repair and maintenance of motor vehicles.
LO1
Global Business Environment in which Small and Medium Enterprises Operate.
Businesses and industries operating in a market all have to function within a dynamic
business environment which directly affects and influences their operations, performance,
productivity and efficiency. Hence business environment can be referred to as the external
pressures and factors that affect the industries and influence their decision making and
operating functions (Hamilton and Webster, 2018). Due to the recent advancement in
technology and globalisation of trading, it is now for business to expand their operations into
international markets, albeit after due analysis and preparation.

Small and Medium Enterprises in UK such as Fontain Motors play a major role in
influencing the country’s business environment. An estimate by recent survey concluded that
there are close to 5.7 million small and medium enterprises operating in the UK, which
account for close to 99.9% of all privately owned businesses in the UK as of 2018. Out of
these a total of 1.4 million enterprises relied on using employees for their operations, while
almost 4.3 million business employed no external personnel and were capable of operating
autonomously (Business population estimates 2018, 2018). Small and medium enterprises
also employ a huge number of people adding to the economy of UK. By recent surveys it was
found that nearly 16.3 million people were employed in various small and medium
enterprises in the UK, which accounts for almost 60% of all the people employed in various
private sector industries in the UK. Out of all the 5.7 million small and medium enterprises
operating in UK, 99.3% of businesses operate by employing 0-49 people, 0.6% of small and
medium enterprises operate by employing 50-249 employees and the remaining 0.1% if
businesses numbering in 7500 enterprises function by employing more than 250 employees
(International trade budget boost for global Britain, 2018). It was also found that small and
medium enterprises of UK such as Fontain Motors also contributed to a total annual turnover
of 2 trillion pounds towards the British economy, which accounted for almost 52% of all the
annual turnover of private sector businesses.

Threats and Opportunities faced by Small and Medium enterprises
There are multiple opportunities and threats present in the global business market for
small and medium enterprises such as Fontain Motors to make use of or to stay aware of in
order to expand their operations and increase their productivity, performance, profitability
and efficiency. Some of these are as follows:
Opportunities:
Technology: Implementation of new and advanced technology to aid in the operation of
small and medium enterprises can help increase the business efficiency while decreasing
input and staffing costs and raising productivity and profitability.
Online Services: Small and medium enterprises can also make use of the digital trends and
shift a part of their business to operate on the internet (Kljucnikov and et.al., 2016). This will
effectively help them increase their market share and customer base, while also increasing
customer satisfaction and loyalty metrics.
Government Schemes: Small and medium enterprises should also make use of the various
governmental aids and schemes that have been implemented to aid the operations of such
business in order to help them compete with large organisations in the market. These include
tax exemptions, subsidies etc.
Threats:
Economies of Scale: Large industries make use of the principle of economies of scale in
order to manufacture products in bulk quantities and effectively drive their individual cost
low. This is a huge threat to small and medium enterprises as they have to look for other
ways to decrease costs lowering their product quality.
Increased Competition: Increased competition in the market particularly from large global
industries is a major threat for the operations of small and medium enterprises as they now
have to outcompete businesses that possess resources and capital much larger than small
industries have.
Sustainability: Due to the public becoming increasingly environmentally conscious,
businesses have now opted to switch towards sustainable models of operations which do not
harm the environment because of their operations (Cepel, and et.al., 2018). Though larger
business can invest into these measures and technologies in hopes of making profit in the
long run, small and medium businesses do not have the necessary capital or resources to
switch towards these sustainable models and doing so will actually decrease their
profitability.

LO2
Determine and analyse the advantages of international trading blocs and agreements.
An official agreement formed between the governments of
often neighbouring countries or countries within geographic vicinity with respect to
eliminating or reducing the regional trading barriers to international trade including both
tariff and non tariff barriers is called a trading bloc. Trading blocs are created by governments
with the intention to promote regional trading activities. Formation of trading blocs between
countries eventually leads to trade liberalisation which is the process of emancipating
international trading activities from governmental protectionist laws and measures.
Governments of countries create trading blocs between them with the intent to facilitate free
trading between each other at reduced tariffs and taxes while establishing trading barriers
with countries that aren’t a part of the trading bloc. Formation of Trading blocs between
countries also create additional trading opportunities between them as traders from member
countries are treated more favourably when compared to traders from non member countries
who have to jump through additional legal hoops in comparison (Imran, 2016). Hence the
creation and functioning of various trading blocs around the world have a huge impact on
global trading trends and patterns. Currently there are a few trading blocs in practice, the
most significant of which are the European Union (EU)- world’s largest trading bloc formed
between 27 member nations of Europe as United Kingdom has officially withdrawn, North
American Free Trade Agreement (NAFTA)- formed between USA, Mexico and Canada,
Association of Southeast Asian Nations (ASEAN) etc.
Trading blocs provide various advantages to member countries in regards to
international trading. Some of these are as follows:
Economies of Scale: As the creation of trading blocs lead to larger international markets for
business to capture, organisations can make use of the principle of economies of scale in
order to produce goods at a larger scale and driving their cost low in order to gain additional
market share globally.
Competition: Trading blocs also force domestic manufactures to compete against larger
international organisations, which forces them both to optimise their efficiency in order to
outcompete each other’s product prices. This increased competition is good for consumers as
increased competition drives the prices of goods low.

Foreign Direct Investment: Formation of trading blocs between countries also directly leads
to an increase in foreign direct investment in the countries as foreign business flock to
capture new markets.
Eliminating trade barriers: Trade barriers also reduce or eliminate tariff and non
tariff trading barriers between nations, increasing their international trading activities.
Tariff and Non Tariff Barriers in International Trading Environment
Governments of countries create various trading barriers between other countries due
to a plethora of industrial, economical, social, political and environmental reasons and in
order to protect local manufacturers. These trading barriers can be of two major types:
Tariff Barriers: These are the types of barriers implemented by government of a country in
order to limit or curtail the trade of particular goods incoming into the country or limit trading
with certain countries by levying additional customs, taxes, duties on the import and export of
goods (de Vries, 2019). There main types of tariff barriers that governments can implement
are:
Import Tariffs: These are the additional customs charged on the importing of goods by
importing country imposed in order to raise domestic revenue and to protect local industries
Export Tariffs: These are the customs levied on the export of goods and services y exporting
country. These tariffs are mainly used on the export of agricultural goods.
Transit Duties: These are the customs charged by countries that have to play transit as the
goods have to pass by their country in order to reach their destination.
Apart from these there are also other types of tariff barriers present such as Ad
valorem duties, specific and compound duties etc.
Non Tariff Barriers: These are the types of barriers government of a country imposes in
order to limit or curtail the trade of particular goods incoming into the country by
imposing non monetary restrictions through governmental rules and regulations. Failure to
adhere to these non tariff barriers results in penalties and fines. The major types of non
tariff barriers are:
Quotas: These barriers set a finite numerical limit on the quantity of products that are
allowed to be imported or exported into a country (Schuenemann and Kerr, 2019).
Voluntary Export Restraint: These barriers are imposed by exporting country on the request
of importing country. These also limit the quantity of goods exported to a nation.

Subsidies: These are the governmental aids given to domestic manufacturers and industries in
order to help them compete with large foreign industries in the market.
LO3
Imports and Exports along with their merits and demerits
Imports and exports both are processes through which international trade between
countries takes place. To conduct business globally businesses engage in the processes of
importing and exporting. If a country’s net import of international goods and services is
higher in value than its net export of domestic goods and services, it is known as the
country’s balance of trade is negative also called trade deficit.
Imports: It is the process through which a country brings internationally produced goods and
services into its territory in exchange of foreign currency. Countries usually import goods and
services that its domestic manufacturers fail to produce economically or efficiently in
comparison to the exporting country (Yüksel and Zengin, 2016). There are various
advantages and disadvantages to a country engaging in imports:
Advantages of Imports:
Profit: Businesses can import raw materials or necessary goods and services at a cheaper rate
than domestically available substitutes, which effectively increases their profit margins.
Technology: Imports allow a country access to state of the art advanced technologies
developed in other countries in order to increase the productivity and efficiency of their
domestic industries.
Quality of Goods: Importing global standard goods and services into local markets
raise overall quality of goods and services available to the consumers.
Disadvantages of imports:
Competition: Importing foreign goods raises the competition in domestic markets because of
which small local businesses can suffer.
Loss of foreign Exchange: For a country to import global goods and services it has to deal in
foreign currency which results in the depletion of its forex reserves.
Exports: It is the process through which a country sells its locally produced goods and
services in international markets in exchange of foreign currency (Whitehead, 2018).
Exporting goods to foreign countries also present various advantages and disadvantages to a
nation:
Advantages of Exports:

Foreign Exchange: Exporting locally produced goods and services to other countries
effectively increases a nation’s reserves of foreign exchange.
Employment: To export goods and services, industries have to increase their production
which increases the employment opportunities in the country.
Economy: Exporting goods and services also increases a country’s economy and gross
domestic product.
Disadvantages of exports:
Depleting local resources: Exporting local resources and raw materials to other countries
effectively depletes the local reserves of those natural resources, whose replacement can
never be found.
Country Reputation: As exporting goods and services have to meet international standards,
failure to meet these demands can have a major impact on the reputation of a country’s total
products in the global markets.
Financial Risk: Exporting goods and services to other countries is not always a sure fire way
of generating profits and carries its own financial risks.
Merchandise and service import and export
Merchandise import is the process through which a country buys tangible
merchandises or products from another country in exchange of its own foreign currency.
Examples include an African company selling toy action figures to New Zealand. In this case
New Zealand engages in Merchandise imports. While merchandise export is the process
through which a country sells its locally produces tangible products or merchandises to
another country in exchange of foreign reserves. For example the African company in the
previous example selling toy figures to New Zealand engages in merchandise export.
On the contrary service imports and exports are done without buying or selling
tangible goods and services, instead they deal in non product service trading between
countries and its respective members. The business or individual that makes the payment in
exchange of services engages in service import, while the business or individual providing
service and receiving payment engages in service export (Dweik, Ghoussoub and Palmer,
2019). For example when an Nigerian family takes a tour of Canada and stays at a hotel in
Toronto in exchange of Canadian Dollars, the Nigerian family making payment in exchange
for using the hotel services, engages in service import. While the Canadian hotel that
provides its services and receives the payment, engages in service export respectively.

LO4
Methods to Tap into International Markets
Small and medium sized enterprises such as Fontain Motors can tap into new
international markets in an attempt to increase their market share, productivity and
profitability by engaging in various methods of international trading between countries. Some
of these are as follows:
Exports: Generally exporting domestically produced goods and services is the easiest way a
business can perform international trade and enter new global markets. The business
exporting goods has to invest into marketing and promoting its products in the new markets.
Small and medium sized businesses usually export to nearby countries in an effort
to minimise logistics expenditures.
Licensing: Licensing is a legal arrangement between businesses which allows one company
legal rights to manufacture goods and products of another company for a specified period of
time agreed upon by both the parties. This process is initiated through the creation of a legal
document which allows such operations between businesses called License (Zahra, 2019).
This particular method is also quite beneficial to small and medium sized businesses as it
affords them huge expansion potential in new international markets at little risk involved.
Acquisitions: Acquisition is a process through which a business takes over the operations of
another business either by paying out the owner of the business or purchasing the a majority
of the business’s stocks. Although risky in nature as it can be hard to operate a foreign
business, acquisitions provide huge potential to business for international growth and
expansion but are largely engaged in by large scale business looking to increase their
productivity, performance, efficiency and profitability or to take out a competing business out
of the market.
Joint Ventures: Joint ventures are strategic alliances formed between two businesses in
different countries in order to engage in international trade without taking on all of the risks
and responsibilities involved in the process (Tsang and Yamanoi, 2016). Through these
alliances different businesses agree on sharing legal ownership and cooperating to seek out
business opportunities together. This method is less risky than acquiring a foreign business
to expand into international markets.

Merits and Demerits of Methods Used to Tap into International Markets
Method Merits Demerits
Exports
Entering global markets by
exporting locally produced
goods and services is a fast
process and involves less risks.
Exporting also eliminates any
potential expenses
had business decided to start
operations in new country.
Businesses are required to
figure out how they will
promote and distribute their
local produced product to
foreign customers. Exporting
goods also has its own
logistical transportation costs
attached.
Licensing
It also is a fast process of
entering international markets,
and involves less risks and
minimal costs attached.
It provides less control to the
licensing business and after the
specified time is over the
licensed business may become
a competitor
Acquisitions
This method offers fast entry
into international markets and
offers huge rewards when
done successfully (Hoffman,
Munemo and Watson, 2016).
Can be used to eliminate
competitors from market.
There are high costs attached
with acquiring another
business and also involves
considerable risks as
businesses usually find it hard
to integrate the operations
of foreign business into their
own.
Joint Ventures
This method
offers great amount of control
to both businesses with respect
to handling their own
operations and expands both
company’s market share,
knowledge and experience.
Joint Ventures are very slow
processes of entering
international markets as every
minute detail of venture has to
be agreed upon by both parties
and also involves high risks.
Based on all the information, it is recommended that Fontain Motors enter new global
markets by employing the licensing method as it is a very fast and efficient process of

expanding business operations and offers quite less risks which is perfect for small and
medium enterprises such as Fontain Motors. If due examination of licensing firm is done
by Fontain motor’s administration, they can effectively expand their operations globally and
increase their market share, productivity and profitability in the process.
CONCLUSION
Through this report we evaluate the international business environment small and
medium enterprises such as Fontain Motors operate in and identify the various threats and
opportunities present to them. The report then studies international trading blocs and various
international trading barriers, comparing their merits and demerits. Then the report evaluates
the different types of imports and exports including service and merchandise import exports
along with their advantages and disadvantages. Finally, the report analyses different methods
through which small and medium sized enterprises like Fontain Motors tap into international
markets while comparing their advantages and disadvantages and recommending the best
way Fontain Motors can enter into international markets.

REFERENCES
Books and Journals
Cepel, M. and et al., 2018. Business environment quality index in the SME segment. Journal
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de Vries, J., 2019. A review of tariff barriers and trade costs affecting the Creating Industries
across European borders. Work.
Dweik, S., Ghoussoub, N. and Palmer, A.Z., 2019. Optimal Controlled Transports with Free
End Times Subject to Import/Export Tariffs. Journal of Dynamical and Control
Systems, pp.1-27.
Hamilton, L. and Webster, P., 2018. The international business environment. Oxford
University Press.
Hoffman, R.C., Munemo, J. and Watson, S., 2016. International franchise expansion: the role
of institutions and transaction costs. Journal of International Management. 22(2).
pp.101-114.
Imran, M., 2016. European Union Trading Bloc: Motivation for East Asian Countries.
European Journal of Economic Studies. (1). pp.259-266.
Kljucnikov, A. and et.al., 2016. The entreprenurial perception of SME business environment
quality in the Czech Republic. Journal of Competitiveness. 8(1).
Schuenemann, F. and Kerr, W.A., 2019. European union non-tariff barriers to imports of
African biofuels. Agrekon. 58(4). pp.407-425.
Tsang, E.W. and Yamanoi, J., 2016. International expansion through start‐up or acquisition:
A replication. Strategic Management Journal. 37(11). pp.2291-2306.
Whitehead, C. and et.al., 2018. The International Partner as Invited Guest: Beyond Colonial
and Import–Export Models of Medical Education. Academic Medicine. 93(12).
pp.1760-1763.
Yüksel, S. and Zengin, S., 2016. Causality relationship between import, export and growth
rate in developing countries.
Zahra, S.A., 2019. Technological capabilities and international expansion: the moderating
role of family and non-family firms’ social capital. Asia Pacific Journal of
Management, pp.1-25.
Online
Business population estimates 2018, 2018 [Online] Available through:<
https://www.gov.uk/government/statistics/business-population-estimates-2018>
International trade budget boost for global Britain, 2018 [Online] Available through:<
https://www.gov.uk/government/news/international-trade-budget-boost-for-global-
britain>