Bang & Olufsen's Expansion into Portugal: A Business Report

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Business Organisations and Environments in a
Global Context
“The establishment of Bang & Olufsen in Portugal”
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Executive Summary
This report has detailed analysis of the business environment of Portugal. It has information
about the background of the company Bang and Olufsen that desires to establish the company in
Portugal. The study further throws light upon the background information of the country which
is further analysed on the political, economical, technical, social, legal and technological front.
Moreover, this also comprises of competitive advantage the company can have over its
competitors. In addition to these, it also shows the market equilibrium of the company in the
Portugal market.
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Table of Contents
Introduction......................................................................................................................................4
Background Information on Bang & Olufsen.................................................................................5
Background information on the Business Environment in Portugal...............................................6
Analysis of the Business Scenario...................................................................................................7
Conclusion.....................................................................................................................................16
Reference List................................................................................................................................17
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Introduction
When a company makes any contribution in the form of investment in another company with an
intention to exert control over that company is known as Foreign Direct Investment (Hers et al.,
2018). The real nature of international trade is described through the words Global Business
Environment. The ambience in different sovereign countries with elements that is external to the
familiar ambience of the enterprise affecting decision making on capabilities and use of the
resource is known as global business environment (Wood et al., 2015). In this research, a
detailed analysis of the business environment including the external factors affecting the business
environment of Portugal would be presented. Further, this research would even comprise of the
competitive advantage and market equilibrium of the industry. This analysis together would help
the company Bang & Olufsen to understand the advantages and constraints the business
environment of Portugal would be offering to the company.
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Background Information on Bang & Olufsen
Bang & Olufsen (B & O) having its headquarter in Struer, Denmark is an extravagant and lavish
electronics company. Peter Bang and Svend Olufsen founded B & O in 1925. The company
manufactures and designs telephones, audio products and television sets. Legally the company is
a public limited company and is working with great power and strength. An upgraded system of
legal has been created to establish a logical dependency on the legal structure. Further, across the
globe to efficiently manage the product assortment the framework of the legal structure has been
upgraded. In 2018 the company recorded a growth of 11% in revenue and the margin of EBIT
increased at the rate 3%. As on 2018, the company has 565 mono - branded stores and 6705
stores that are multi branded (Bang-olufsen.com, 2019). The revenue income of the company for
the year ended as on 2018 is 3,285 million.
The employee strength of the company as on 2018 is 1028 employees. The gross margin of the
company as on 2018 is recorded as 45.2%. The company is driving growth by discovering
existing and new products. A recent new product discovered by the company is Beoplay E8
wireless earphones (Bang-olufsen.com, 2019).
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Background information on the Business Environment in Portugal
Bang & Olufsen (B & O) a company producing high end audio desires to establish the company
in Portugal. As per the World Economic Forum Global Competitiveness Report 2018, Portugal is
ranked 42nd in the economically developed country. As per the Political stability index Portugal
was marked at the value of 1.80 which is moderate (theglobaleconomy.com, 2019). The state
provides enough support to investors. In the opening ceremony of Venture Summit the PM of the
country announced a programme of co investment for companies that are dealing in innovation
and has any urgent requirement of venture capital. Bureaucracy has been conquered and is
diminishing. An investment of €200 million has been made to support the potential investors by
the government of Portugal (theportugalnews.com, 2019).
Portugal has become a fountain of stability. The government is able to keep all the promises that
they did to the people of Portugal. Portugal is a high income and advanced economy. In Portugal
the far – right populism that has been raging in Europe is absent. Of the great majority of
International trade done with European Union 72.8% is the export from Portugal and 76.5% is
the import from Portugal. The economy of Portugal has been consistent, steady and is expanding
at a very rapid speed. The economic stability has been accomplished by a downfall in the
unemployment rate of the company and was recorded at 6.6% as on December 2018 (Ferraz and
Duarte, 2015). This downfall in the unemployment rate is followed by an increase in GDP
growth at a rate of 2.1%. The annual GDP of the country as recorded on 2018 was 201,613M. €..
The GDP per capita of the country as recorded in 2018 is 23,153.243 USD. The GDP
distribution is sectored as industry: 23.1%, agriculture: 2.4%, services: 74.4%.
Out of the total population of Portugal 19% is below poverty line as recorded in 2018. In terms
of GDP growth, Portugal is ranked 34th for ease of doing business. Education in Portugal is
compulsory and free. The country comprises of many universities of World Class level that has
helped the country to improve its education level to a great extent. The literacy level of the
country as recorded on 2018 is 95.4% (Klapper et al., 2015). The legal system of Portugal is free
from the legislature and executive. Two parties named the social democratic party and socialist
party dominate the party system. Portugal was termed as “flawed economy” by the Economist
Intelligence Unit in 2016.
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Analysis of the Business Scenario
Pestle Analysis
Elements Factors Analysis
Political  Government Stability – The
political stability index
marked Portugal at 1.8 in
terms of stability of the
government (Lains, 2019).
 Level of corruption – The
country was ranked 30th in
the year 2018 and it rose to
64 in the year 2019. The
level of corruption of Portugal
is quite high (Branco and
Matos, 2016).
 The government is gaining
stability. The country faces
considerably less number
of group protests, violence
and terrorism. The
moderately stable
government would have a
positive impact on the
company. This stability
would help to increase the
consumer’s and investor’s
confidence in the business.
 Inefficient government
bureaucracy is one of the
most eminent constraints in
doing business. This would
negatively impact the
business. High corruption
in the government would
lead in loss of resources by
the business. It would
weaken the development of
business. Further, there
would be an increase in the
crime if there is an
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involvement of business in
corruption.
Economical  Inflation Rate – The inflation rate
of Portugal in 2018 is recorded as
1.17%. As per Jan 2019, the
inflation rate has been recorded at
0.9% and it has decreased by .5%
in May 2019 (Moura, 2019).
 GDP rate – In the year 2018, the
annual GDP was 201,613M€ and
the growth was recorded at about
2.1%. In the year 2019, the
annual GDP recorded as on May
2019 is $58,823 million (Cabrito
et al., 2019).
 The low inflation rate and
the gradual decrease in the
rate constantly would
positively impact the
business. The business
would prosper as the cost
of living is controlled and
reasonable. The consumer
would have enough money
to spend on services and
goods and the business
would considerably grow.
Further, the cost of
production and wages
would also be less that
would definitely bring
economic prosperity to the
business.
 The GDP rate is used by
the business to predict the
growth of the business.
The GDP of Portugal is
booming so B & O would
be positively impacted.
The business would choose
to expand as the result of
booming GDP. They
would be able to hire more
skilled and efficient
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employees. They would
also be able invest more in
promotion and
development of new
products.
Social  Unemployment rate – The
rate of unemployment in
2018 is 6.6%. It was
recorded at 6.7% as on
June 2019 (Duarte et al.,
2019).
 Literacy rate – The
literacy rate of Portugal
recorded as on 2018 is
97.4%. The literacy rate is
growing at the rate of
6.38%. The rate grew to
99.44% in 2019 (Costa et
al., 2019).
 The decrease in
unemployment rate means
the labour market has less
supply and more demand.
This would negatively
impact the business of B
& O. In order to capture
the labour market the
company would have to
pay more wages, this
would lead to an increase
in the cost of production of
the company.
 High rate of literacy would
positively impact the
business. High literacy rate
would let the company to
have high productivity.
The resources would be
properly utilised. The
machines and equipments
would be effectively used.
High literacy rate means
high population of skilled
and efficient labourers in
the economy that would
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work to eliminate wastage
and would lead to decrease
in the cost of production of
the business.
Technological  Information and communication
technology – The growth of
information and communication
technology market in Portugal in
2019 has risen to $5 billion
(Frogeri et al., 2019).
 3G and 4G infrastructure
investment – The market forecast
shows that there would be 68.1
million devices by 2019 to lead
out the research and development
products (Hu, 2016).
 The market of
communication and
information technology is
expanding at a rapid
growth. B & O would
positively impact the
business. The big data and
analytics, cyber security
solutions and cloud
computing has driven this
growth in tech industry of
Portugal. Such unique
integration of technology
in the country would help
in the research and
development of the
business. The company
would be able to gain
competitive strength in the
business environment.
Moreover, the company
would be able to
confidently invest over
these technologies as they
have presented effective
results over the years in the
country.
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 The availability of well
developed front runner 3G
and an attractive future
investment in 4G has made
the Portugal business
market highly appealing.
This would positively
impact the business of B &
O as the company would
be able to conquer the
substitute market through
the use of this lucrative
technology. Further, the
country is planning to roll
out 5G technology that
would also positively
impact the business of B &
O.
Legal  Employment and labour law 2019
– This law covers the issues of
labour and employment regarding
employee, employment and
discrimination among the
employees. The employment and
labour law in Portugal is of
stringent nature and is followed
strictly (Cardoso et al., 2017).
 This stringent law would
have a positive impact on
the business of B & O. As
the company would not be
able to discriminate among
the employees there would
be no complaints on
labourers’ front. Therefore,
the function would be
carried on efficiently.
Environmental  Climate change – There are
chances of climatic change in the
Portugal. Therefore, the country
 Probability of climatic
change would negatively
impact the business of B &
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has adopted initiatives and tools
like carbon pricing and science
based targets (Shahbaz et al.,
2015).
 The Industrial Emissions Regime
– The main threshold for
pollutants of Portugal are
contained in this law. Recently,
the country has improvised this
law and the new requirement is to
present a report of baseline for the
assessment of potential
contamination (Russo et al.,
2016).
O. Moreover, the company
has to adopt the measures
the government has
adopted to curb down the
harmful affect the
manufacturing process of
the company would be
having on the environment.
This may lead to an
increase in the cost of
production of the company.
 The industrial emissions
regime would have a
negative impact on the
company. As the business
requires cleaning up the
contamination of the
environment caused by its
acts and procedures.
Table 1: Pestle Analysis of Portugal
(Source: Created by learner)
Porter’s five forces analysis
Elements Influences
Competitive Rivalry
(High)
Portugal is a developed economy. The country is home to many
developing industries and companies. The Portugal market is growing at
a rate 2.7%. The macro economical imbalances are also not much in the
environment. Therefore, the environment of Portugal is highly
favourable for the development of new companies. Bang & Olufsen
would be facing high competitive rivalry in the industry. It is important
that the company sticks to sophisticated strategy and operations to
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