Tapping into New and International Markets

This report discusses various aspects of international or global market for SMEs, including opportunities and threats, advantages of international trading blocs and agreements, tariff and non-tariff barriers, and the advantages and disadvantages of importing and exporting.

Tapping into New and
International Markets

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1: Global Business Environment...............................................................................................1
P2: Threat and Opportunities.......................................................................................................2
LO2..................................................................................................................................................3
P3 Determine and analyse the advantages of international trading blocs and agreements..........3
P4 Explain the various tariff and non-tariff barriers that exist in the international trading
environment.................................................................................................................................4
LO3..................................................................................................................................................6
P5 Determine the advantages and disadvantages of importing and exporting and how to secure
a deal............................................................................................................................................6
P6 Explain the differences between merchandise and service imports and exports....................7
LO4..................................................................................................................................................8
P7 Different methods SMEs can follow to come into international market................................8
P8 Mention difference between methods discussed for SMEs to enter international market.....9
REFERENCES..............................................................................................................................12

INTRODUCTION
In today's international environment, almost all businesses and organizations want to
expand their business operations within international market. Currently the latest technology is
most supportive aspect to the businesses which help in enter the new market. New technology
has reduced many barriers within various industries, it is the main reason behind last statement.
Nowadays, there are great opportunities available to the companies for achieving effective profit
by expanding their operations in global market. This report will discuss various aspects of
international or global market for SMEs. There are different opportunities and threats of global
market which will also be discussed in this report. These opportunities and threats will impact
small businesses in both terms i.e. positively and negatively when they enter the global market.
The various Advantages and disadvantages of exporting and importing will also be included in
this report. There are various methods available to SMEs which helpful in tap into global market.
LO1
P1: Global Business Environment
The United Kingdom is chosen country under Europe region to analyse the international
environment in which SMEs operates.
United Kingdom: United Kingdom is one of the richest country in European continent. There
are great growth opportunities available to all type of businesses in this country. Mainly retail
and food & beverage industries has taken the largest market share within UK. So, SMEs which
based on these both industries gain high profit in the comparison of other businesses (Arnold and
Fischer, 2019). Most people are literate in this country and ready to pay any cost for buying
quality products. In this case, businesses need to provide quality products to customers for
gaining huge profit within UK's market.
In the Global market, UK is very favourable country to many MNCs, because
international businesses are running their operations in this country for the last many years.
These MNCs gained huge profit also in this market. Currently there are approx 5.8 million SMEs
running their operations in this country. These businesses provided great employment
opportunities also to people within the United Kingdom. All SMEs need to follow some business
laws also in this country. The UK government created many rules and regulations for small
business operations. A businessperson always need to implement these rules and regulations
within their operations. Otherwise, government will impose penalty and fine on business. Local
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government has taken many steps for developing small businesses, like; debt relaxation,
insurance facilities, loans on low interest rates, etc. Most businesses taking huge advantages from
these steps. There are political, economic, social, technological, legal, and environmental factors
of this country highly influencing small businesses in both term positively and negatively.
The government providing both importing and exporting facilities to all businesses. Each
organization need to fulfil some paper work formalities to take advantages from these facilities
(Hanohov and Baldacchino, 2018). All SMEs responsible to register their business for PAYE
and VAT to smoothly run operations in this country. The UK's government is too supportive for
the small businesses, because these are giving great contribution in increase GDP. Technological
factors here too favourable to all small firms, because with the help of these factors each firm
able to increase their performance in the market. In this country, there are many opportunities to
SMEs to expand their operations in other European countries. The main reason behind last
statement is, UK offers effective relaxation to those small firms which want to export something
in other countries.
P2: Threat and Opportunities
SMEs faces many opportunities and threats during enter the global market. These all
opportunities and threats are discusses below;
Opportunities
 Increase Market Share: SMEs are able to increase their market share with the help of
global market. Global market give opportunities to all businesses to sale their products
and services worldwide. In this case, A business need to develop high quality products
for gaining huge competitive advantages in the international market (Sahaf, 2019). Many
of SMEs are currently taking various steps to expand their business globally. Each small
firm is able to take effective advantage from this opportunity.
 Use of New Technology: Small businesses has opportunity to use new technology as
well. A firm is able to take great technological advantages by expanding their operations
in global market. Suppose a UK based small firm expanded their operations in the
Germany. In this case, that firm able to use German technology also with English
technology. A business enable to improve its all over performance through this
opportunity. This is the main advantage of this opportunity.
Threats
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 Market Competition: Huge market competition is the biggest threat to SMEs. Currently
lots of businesses running their operations globally. In this case, if a small firm expand
their operations in global market, then it'll face market competition challenge. It is very
big barrier to small businesses. A firm need to produce some exclusive range of products
and services to productively face this challenge during enter the global market.
 Risk of Rejection: Many times customers not accept new products and services in the
market, because they feel comfortable with previous products. So, it is also a big threat to
SMEs in increasingly competitive international market (Hamilton and Webster, 2018).
Suppose a small UK based firm want to expand their operations in Ireland's market by
providing new range of products, but people of this market are not interested in buying
new products. They comfortable with previous products and rejecting new ones. So, this
threat to that small firm in business globalization.
There are owners of SMEs need to complete market research before enter the global
market, because with support of proper market research they will able to take great of
international opportunities. Currently global market offers many opportunities to small business
for increasing their profit, market share, customer base, etc. This the main advantage of global
market to small firms. In other side, the management within SMEs need to develop their current
business strategies to remove such barriers during enter the global market. Huge market
competition is the major barrier to a small firm, in which firm need to offer favourable prices to
customers for effectively dealing with this barrier in the global market. Small businesses are able
to gain huge competitive advantage in international market with the help of their effective
pricing strategies.
LO2
P3 Determine and analyse the advantages of international trading blocks and agreements
Trading blocks are formed when groups of countries within a geographical region dismiss
trade barriers between these countries while maintaining barriers for the rest of the world. Major
trading blocks include European Union (EU), ASEAN, SAFTA etc. While, trading agreements
are the terms on which nations mutually agree to trade with the help of World Trade
Organization (WTO), for example Regional Trade Agreements (RTA), Free Trade Agreements
(FTA), NAFTA etc. Forming these trading blocks and agreements can have significant impact on
the member countries business and economy, international trading dynamics and can offer
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various advantages and disadvantages depending upon the specifics of their implementation
(Ogbor and Eromafuru, 2018). This report analyses some advantages trading blocks and
agreements can offer to small and medium enterprises.
 Competition: This is a major advantage trade blocks and agreements provide to member
countries as discarding trading tariffs creates immense competition amongst
manufacturers to out-compete one other, which puts stress on them to become more
efficient, productive and consecutively, lowering commodity prices to competitive
standards for consumers. Overall product quality is also improved as local manufacturers
have to compete against low priced imported goods to conquer same market share. This
facet of trading blocks can have detrimental effects on small and medium enterprises as it
can be hard for them to compete with larger international business that increase their
production rate to have a better chance in international markets.
 Economies of scale: Increased competition and larger market share forces businesses to
take benefits provided by economies of scale, as average production costs fall as
production rate increases. This process lowers prices for consumers (Jamil, Satti and
Sultana, 2017). This effect also has a negative impact on small and medium enterprises
particularly small businesses, which cannot out produce larger MNC's and have to
decrease their production costs in some other way or look towards alternative approaches.
 Demand: Trade blocs and agreements also have the effect of increasing potential market
share for businesses to capture as with no tariffs, goods can be exported to other countries
and new customers can be serviced. This has a positive impact on small and medium
enterprises as exporting products to meet increased demand in other countries can
increase their market reach and profits generated.
P4 Explain the various tariff and non-tariff barriers that exist in the international trading
environment.
Tariff barriers imposed by a nation charges taxes, customs on all imported goods. Tariffs
can be charged on the basis of units (oil), item (car), percentage value, or a combination of these.
Tariffs raise the prices of all imported goods, decreasing their ability to compete with local
products, making them premium alternatives in most cases (Imbruno, 2016). Following are some
ways tariff barriers can be implemented:
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 Import Tariffs: These are the tariffs imposed by a country on imported goods levied to
increase revenue and protect local businesses.
 Export Tariffs: These are customs imposed by a country on exported goods.
 Transit Tariffs: These are duties imposed by country on goods that pass through its
borders in-route to its destination. These increase market costs of products and limits
commodities traded.
 Specific Tariffs: These are imposed based on specific attributes of goods generally
wheat, rice, cement etc. that charge a specific amount of capital depending upon the
number of units or measurement of the commodity.
Alternatively, governments can use other strategies besides tariffs to impose restriction
on trade, in order to achieve their economic or political objectives. This strategy creates non
monetary barriers that leave a distinct impact (Hadi, Iqbal and Ali, 2019). Countries apply non-
tariff barriers frequently to limit the amount of trade conducted with other nations. Some of the
strategies used are:
 Quotas: This is the process of imposing limits on the numerical quantity of goods that
can be exported or imported into a country for a specified period. If imported quantity
exceeds the prescribed limits, penalties and fines are charged depending upon the
different cases.
 Voluntary Export Restraint: This a type of quota imposed by exporting nation on the
behest of importing nation to limit the maximum numerical quantity of goods to be
exported.
 Subsidies: These are the payments local governments make to their domestic
manufacturers, in order to improve their productivity and efficiency, to get them to
compete against imported foreign products.
 Currency Control: These are the restrictions governments place to control conversion of
local currency. To import goods from other countries, payments have to be made in
foreign currencies such as Dollars, Euros, Yen etc. Limiting the amount of currency
conversion helps regulate trading.
 Embargo: This is the process of banning the import and export of certain commodities,
imposed to meet various economic or political objectives.
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LO3
P5 Determine the advantages and disadvantages of importing and exporting and how to secure a
deal
Foreign trade is conducted by means of imports and exports which facilitate the exchange
of goods and services between countries. Import is the process of purchasing foreign goods and
bringing them to one's country, while export is the process of selling local goods and services to
foreign nations. Different countries have distinct legal processes one must follow in order to
import/export goods even depending upon the target destination (Yüksel and Zengin, 2016). But
in UK, the basic process involves procuring an EORI number, TARIC code, SAD documentation
from HRMC, licences, custom clearance formalities, Letter of credit, insurance etc. As no nation
in the world can remain self-sufficient in the digital age, imports and exports are invaluable for
country's functioning and growth.
Advantages of imports :
Imports provides countries with access to best, newly developed technologies, quality
goods and services present in the world. Imports also facilitate cheap resourcing of raw materials
by procuring them globally, decreasing the market cost of products, raising sales. Imports also
introduce new and unique products into the market forcing local industries to innovate.
Disadvantages of imports:
Most imported foreign products serve as competitors or substitutes to locally produced
goods and may cause domestic manufacturers to lose business or in extreme cases result in
collapse of domestic industry. Amount of goods imported also has a direct effect on a country's
foreign exchange reserves. Imports also represses local manufacturing and may result in
inflation.
Advantages of exports:
Exports increase total market share available, as foreign markets can now be captured,
making businesses less dependent on any single sector and increases a country's foreign
exchange reserves. It also generates huge employment opportunities as industries work towards
expanding production to export goods (Boar, Iovanovici and Ciocarlie, 2017). It also greatly
influences a country's cultural and economic development. Exports also help rid businesses of
excess production by providing them with a foreign market to sell in, instead of incurring losses
by giving deep discounts on excess products.
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Disadvantages of exports:
Although financially profitable, exporting a country's depleting resources such as oil,
minerals, gold etc. will ultimately result in the exhaustion of the nation's valuable resources.
Exporting can also make local businesses lose focus of their domestic customers and market.
Quality of exported goods also has to meet global standards and failure to maintain them can
result in negative reputation of country's products in global markets.
Applying these import and export processes to SMEs such as Swain & Jones Ltd, an
automotive retailer situated in UK, which specializes in the production of auto-mobile
accessories, spare parts, providing maintenance and repair services, tells us that exports of their
spare parts and accessories can help them to generate revenues, while importing raw materials
from Europe at no tariffs can decrease their input costs and increase product quality.
P6 Explain the differences between merchandise and service imports and exports
Merchandises are physical, tangible goods and their manufacturing industries are called
merchandising businesses such as retail clothing, book stores, car showrooms, grocery stores etc.
Some merchandising businesses manufacture the goods themselves, while others purchase and
sell goods wholesale, or a combination of the two approaches. On the other hand services
constitute other people undertaking tasks which provide value to customers by achieving
customer set objectives and the organizations that provide said services are called service
businesses such as schools, hospitals, law firms, hair cut salons etc (Oum, Wang and Yan, 2019).
Some service businesses can also sell goods for example hair cut salons selling shampoos,
conditioners etc. but they primarily generate revenue by providing their services to others.
Merchandise importing is the process through which foreign goods and products are
purchased and brought into a nation for its use or further trading purposes. While, merchandise
exporting is the process through which local goods are sold to foreign countries. Both
merchandise imports and exports are done to maximize profits and enter into foreign markets.
Alternatively, service imports and exports are the processes through which services are
exchanged between two or more countries or between an individual and a foreign country. They
both generate international earnings by only trading in services. The organization or individual
that receives payment in exchange for service provided is making a service export, while the
organization or individual that makes the payment is making a service import. For example when
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an African family tours London and books a hotel to stay at, the hotel becomes service exporter
and the family becomes service importer.
LO4
P7 Different methods SMEs can follow to come into international market.
SMEs should look into three basic factors before entering international market, i.e.,
which market to enter, when to go that is correct time for entering, and the scale. A firm can
enter market at large or small scale depending on the commitment a firm wish to have.
Exporting, Licensing, Franchising etc. are some methods by considering which SMEs can enter
into international market and highlight their presence (Dominguez, 2018).
Exporting : it is considered to be the first step of launching oneself in international market. In
future there are several scopes of expansion on this platform. Exporting is most widely accepted
strategy as can be followed even when company lacks resources and doesn't have sufficient
knowledge and experience.
Turnkey projects : It is a project where two organization or firms are responsible for putting up a
plant or equipment is regarded as turnkey projects (gilli, gunkel and nippa, 2018). Among the
two firms, first posses the resources needed for production and other have technology to proceed
with the production. SMEs which are part of construction, metal, chemical and pharmaceutical
tap international market this particular strategy.
Licensing : This is an arrangement where licensor permits the right over non-physical property
to another company for a specific period in return of a loyalty fee from the licence. This sort of
agreement is common in pharmaceutical industry.
Franchising : Franchisee involves long term commitments. It involves getting rights from a firm
which allows receiver to do particular business activities such as selling the good or service on
the name of specific enterprise. Franchising is a specialized form of licensing which includes
strictly going along with rules by franchisee. The rules cover what business activities to carry,
how to carry, setting of physical space, etc. The organization selling the franchisee is provided
with a royalty payment. Enterprise which enter international market at franchise mode can build
a large presence worldwide in short duration of time.
Joint ventures : When two or more independent companies works together, they form a joint
venture. Both the firms shares revenues, cost and jointly control of the new firm. The strategy is
seen as very viable business as individual companies involved can tribute their skills and make
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international presence. All the agreements in the venture are stated in contract with proper
mention of role and kind of participation of individual firm.
Wholly owned subsidiaries : In a wholly owned subsidiary, organization owns 100 percent of
the goods. There are two ways to shine in international market by using this entry mode, either
by setting up a new project/firm/ in the host country often mentioned as Greenfield venture or by
acquiring established organization in the host nation and use it for promoting products. This is
the most expensive method of going abroad. A firm can wholly buy enterprise in the market it is
willing to expand.
P8 Mention difference between methods discussed for SMEs to enter international market.
Various methods discussed above have, their own pros and cones that has to be discussed
so that respective SME can choose which method to bring in practice to outshine as an
international brand (Stoian, Rialp and Dimitratos, 2017).
Method Advantages Disadvantages
Exporting  Exporting avoids cost of
manufacturing in the host
company.
 Most used strategy as it
requires the least knowledge
and resources.
 Reduced cost of production
can also be a disadvantage as it
results in cheaper goods in the
host country.
 Exporting firms have to bear
cost of transportation.
 Addition of tariff barrier by
the host country can make the
method expensive.
Turnkey
projects
 Useful method when foreign
direct investment (FDI) is
limited by the host country's
government.
 The contractor doesn't have
long-term interest in the
foreign country which affects
it negatively if the country
proves to be a bigger market
for its business.
Licensing  Enterprises which lacks
capital to production in
 Licensing prove limited
control over production,
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abroad, this method can be
useful for them.
marketing and methods used in
the development and sale of
the product.
 There are limitations to the
company's ability to
synchronize planned moves
across different countries by
making profit from one.
Franchising  Franchisee puts up great
presence all over the world in
short period and relatively
includes low cost and risk in
comparison to other methods
discussed.
 The most frequently faced
problem using franchising is
quality control (Kaul,2019).
Quality must be the major goal
when acquiring this method.
Customer demands same type
of services throughout the
world wherever they go.
Joint ventures  An organization benefits from
the local partner's (of foreign
country) knowledge of the
place, culture, language,
business and political system
as in some countries joint
ventures is the only way to tap
international market.
 This method can lead to
conflicts and battle as no form
control over subsidiaries both
local and international is
established in the relationship.
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Wholly owned
stores
 This mode of entry to
international market reduces
the risk of losing control over
the competence.
 Organization establishes a
global production system with
solid control over operations
in different countries unlike
licensing.
 100 percent share in the profit
is gained by the firm in wholly
owned stores.
 It is the most high-priced
method of entering
international market.
CONCLUSION
In this report it has been analysed that SMEs before entering the international market
have to make strong plan considering the three basic factors discussed in introduction which is
the initial stage. Secondly, as per the description perfectly suitable method should be applied.
Also, the method should be eligible with respect to the country the organization wants to enter in.
In this report diverse information about the method has been provided with their suitable
advantages and disadvantage which will efficiently help SMEs chose one among them and
surpass all the difficulties and excel in their goal (Villar and Pla-Barber,2018).
After this extensive study about different methods, it could be recommended that using
exporting and wholly owned stored is a better option to launch a firm in international market
considering there advantages discussed which indicates higher rate of success and lower risk of
failure.
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REFERENCES
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international import-export trade. In 2017 IEEE 14th International Scientific Conference
on Informatics (pp. 31-34). IEEE.
Dominguez, N., 2018. SME Internationalization Strategies: Innovation to Conquer New Markets.
John Wiley & Sons.
Gilli, K., Gunkel, M. and Nippa, M., 2018. Internationalization of SMEs: New Insights and
Future Research Opportunities.
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Oum, T.H., Wang, K. and Yan, J., 2019. Measuring the effects of open skies agreements on
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