International Business: Environment, Strategies and Globalization

This report delves into the intricacies of international business, exploring the global environment, trade regulations, and cultural impacts on businesses. It examines globalization, its advantages and disadvantages, and the mechanisms that govern international trade, including free trade and the role of organizations like the World Trade Organization. The report utilizes McDonald's as a case study to analyze how environmental factors, including political, economic, social, technological, ecological, and legal aspects, affect international operations. It also discusses the monetary environment's influence and identifies the reasons why businesses expand internationally, highlighting strategic approaches like transnational strategies. The report provides a comprehensive overview of the challenges and opportunities businesses face in the global market, emphasizing the importance of adapting to local contexts and leveraging global integration for success.

International Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain the international business environment in which a selected organisation operates..1
P2 Describe the mechanisms that regulate international trade...............................................2
P3 Describe how the environment and culture of another country affects a business operating
internationally.........................................................................................................................3
P4 Describe how the monetary environment affects businesses that operate internationally.5
P5 Identify why businesses operate internationally...............................................................6
P6 Explain the business strategies used by a business operating internationally...................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
In this current time period, most of organisations wants to expand their business at
international level due to enhance export and import level of products and goods. International
business assist to provide several opportunities to society's persons as well as it plays significant
role in economic development. Moreover, this research project will be discussing about
international business environment as well as culture and surrounding how to impacts upon
international business, it will be defining in effective and efficient manner. In this light,
monetary environment of country how will be impacting on it that will be explaining. It is very
important to properly analyse and identify the major factors, which will elaborating in
appropriate way.
TASK 1
P1 Explain the international business environment in which a selected organisation operates.
a) Explain what is meant by the term globalization?
Globalisation is the process by which the world is becoming increasingly interconnected
as a result of massively increased trade and cultural exchange. Globalisation has increased the
production of goods and services (Birkinshaw, 2011). The biggest companies are no longer
national firms but multinational corporations with subsidiaries in many countries.
b) Describe two factors that have led to the development of globalization.
Containerisation
The costs of ocean shipping have come down, due to containerisation, bulk shipping, and
other efficiencies. The lower unit cost of shipping products around the global economy helps to
bring prices in the country of manufacture closer to those in export markets, and it makes
markets more contestable globally
Technological change
Rapid and sustained technological change has reduced the cost of transmitting and
communicating information – sometimes known as “the death of distance” – a key factor behind
trade in knowledge products using web technology
c) Describe two advantages and two disadvantages of globalization.
Benefits / Gains from Globalisation
1

1.Encourages producers and consumers to benefit from deeper division of labour and economies
of scale
2.Competitive markets reduce monopoly profits and incentivise businesses to seek cost-reducing
innovations
3.Advantages from the freer movement of labour between countries
4.Gains from the sharing of ideas / skills / technologies across national borders
5.Opening up of capital markets allows developing countries to borrow money to over a
domestic savings gap
6.Increased awareness among consumers of challenges from climate change and wealth/income
inequality
7.Competitive pressures of globalisation may prompt improved governance and better labour
protection
Drawbacks / Risks of Globalisation
1. Inequality
2. Inflation
3. Vulnerability to external economic shocks
4. Threats to the Global Commons
5. Race to the bottom
6. Trade Imbalances
P2 Describe the mechanisms that regulate international trade
Free trade
Free trade is an international trade left to its natural course without tariffs, quotas, or other
restrictions. This means there are no guidelines or rules to disrupt trade process. Free trade
enables foreign companies to trade just as efficiently, easily, and effectively as domestic
producers (Cantwell, 2010). Free trade adds to encouraging international trade because it allows
people to trade with no restraints because normally there are some blockages however with this
in place people can trade fair and efficiently.
Due to the fact that the country is allowed to free trade it would only make sense that they
use the benefit. This would enable them to import and export products knowing barriers aren’t in
place. Barriers of trade In international trading there are barriers of trade. Oil and these sort of
things are put into place which have restraints on trading. The most common one would be the
2

tax that have to be paid when importing goods from overseas. This could hinder some
companies’ progress because tax may be too high and they wouldn’t be willing to pay that much
which would result in them brining less products from overseas.
Illustration 1: International business, 2017
(Source- International business, 2017 )
World Trade Organisation
The ‘World Trade Organisation’ is a company that is based in Geneva that deals with
rules which each country has to abide by, they monitor laws such as imports and exports and
create agreements which have to be signed by all countries (Dunning, 2013). The goal of the
WTO is to help producers of goods and services conduct business in a legal way.
The McDonald is a union that consists of 28 states that are within Europe; they deal with
domestic and home affairs as well as markets. An advantage of being part of the McDonald is
that legislations and agreements are reinforced which means that they are stronger; this is a
benefit because it ensures that each person abides by the legislation and everyone has the same
rights. Goods and services are able to be traded easily by being part of the McDonald because
trading is able to be done easily because citizens that are part of the McDonald are able to travel
freely
P3 Describe how the environment and culture of another country affects a business operating
internationally.
McDonald’s has the opportunity to expand its business based on improved international
trade, which can enhance global supply chains. McDonald’s also has the opportunity to reform
its practices and strategies to lessen the impact of taxation on the business without violating the
3

law. However, public health policy increasingly tends to discourage people from consuming fast
foods from firms like McDonald’s. Nonetheless, the company has the opportunity to address this
external factor by improving the healthfulness of its products (Cavusgil and et.al., 2014). In this
aspect of the PESTEL/PESTLE analysis of McDonald’s, the political external factors present
opportunities that outweigh threats.
Economic Factors Important to McDonald’s
Slow but stable growth of the U.S. economy (opportunity)
Stable but risky European economies (threat)
Slowdown of the Chinese economy (threat)
McDonald’s has the opportunity to grow, even slowly, in the American economy, which
is the firm’s biggest market. However, the current economic conditions in Europe could threaten
McDonald’s growth in the region. Also, the slowdown of the Chinese economy threatens the
company’s growth in Asia.
Social/Sociocultural Factors Influencing McDonald’s Business Environment
Widening wealth gap (opportunity)
Increasing cultural diversity (opportunity)
Healthy lifestyle trend (threat & opportunity)
Based on the external factor of the widening wealth gap, McDonald’s has the opportunity
to grow because the company’s target consumers are mostly from medium and low-income
households (Dunning, 2013). Also, McDonald’s has the opportunity to improve its products mix
to satisfy a more diverse target market. However, the healthy lifestyle trend is a threat because
many of McDonald’s products are often criticized for their negative health effects. Nonetheless,
the company has the opportunity to improve the healthfulness of its products.
Technological Factors in McDonald’s Business
Moderate R&D activity in the industry (opportunity)
Increasing business automation (opportunity)
Increasing sales through mobile devices (opportunity)
McDonald’s has the opportunity to increase its research and development investments to
improve business effectiveness and efficiency. Also, McDonald’s can apply more automation to
maximize productivity, based on the external factor of increasing business automation.
4

Furthermore, McDonald’s can improve its mobile services to tap more consumers via its website
or mobile app.
Ecological/Environmental Factors
Rising interest for corporate environmental programs (opportunity)
Increasing emphasis on sustainable business strategies (opportunity)
Climate change (threat)
McDonald’s can expand its corporate social responsibility strategies to reach even high
performance in addressing environmental concerns (Killing, 2012). However, climate change
remains a threat because of its negative effects on farms and, thus, McDonald’s supply chain.
Legal Factors
New legal minimum wage levels in the U.S. (threat)
Local health regulations in workplaces and schools (threat)
Animal welfare regulation (threat & opportunity)
McDonald’s faces the threat of higher minimum wages, which lead to higher costs and
prices. Also, local health regulations impacting food service in workplaces and schools could
reduce the company’s revenues from these areas. In addition, McDonald’s must address animal
welfare regulatory effects on its supply chain. For example, the company can implement new
policies to ensure animal welfare among meat producers.
P4 Describe how the monetary environment affects businesses that operate internationally.
In the modern world businesses are increasingly affected by the actions of international
competitors as a result of the globalisation process (Kolk, 2010). Globalisation occurs because of
the shrinking of business distance so that it is much easier to access markets in far flung parts of
the world. For example, a company like MacDonald has production units around the world
giving access to global markets. Fast Internet connections developed by companies enable the
shrinking of communication time bringing together buyers and sellers on opposite sides of the
globe within seconds. In addition global marketing and advertising has enabled the development
of global brands and the communication of global messages.
The result of this globalisation process has been that multinational companies are
increasingly targeting the whole or substantial parts of the globe as their domestic markets. The
British business that fails to respond to this change stands to lose out to much bigger
international competitors that are enjoying global economies of scale.
5

There are two main ways to respond:
1. To increase your global presence by operating in more and more overseas markets. This can
be done by setting up overseas plant, and hiring overseas specialists directly, or developing joint
ventures with overseas partners.
2. Another related approach is to develop global power brands. This is where a company will
focus on the range of brands in which it has greatest competitive advantage, and will sell off non-
core brands. Most large companies do this (Welch and et.al., 2011). It enables them to sell a
narrower range of leading brands into more and more geographical markets.
The dangers of not developing a global business strategy is that you will come off second
best in competing with the big global companies. Companies like MacDonald therefore realise
the importance of being market leaders rather than followers in their chosen industries.
1. A power brand is a strong brand that a company is particularly good at producing and
marketing, and is well known in a range of global markets.
2. A multinational is a company that operates across international frontiers and typically has its
head office in a particular country where its shares are quoted on the national Stock Exchange.
P5 Identify why businesses operate internationally.
McDonald employs a transnational strategy in terms of local responsiveness and global
integration. They recognized that overseas market required an extremely high degree of local
responsiveness and since their business has grown too big they also need to manage business
spread across different regions effectively and efficiently which would not be achieved through
any of the other strategies (Lundan, 2010). The value chain needs to be constructed taking into
consideration of local culture, legal-political and economic environments in mind.
It isn’t much of a stretch to suggest that McDonald’s has lost its way as a company, let
alone a category leader. Last year was a miserable year for McDonald’s … in terms of sales, as
well as earnings. Same store sales were up a mere 0.2% in 2013, while profits grew just 2% on a
2% uptick in company-wide sales. And earnings per share of MCD stock fared only a tad better,
with a 4% increase in 2013.
Broadly speaking, things didn’t get much better last quarter. The company’s Q1 earnings
report posted this morning indicated a 1.7% decline in U.S. same-store sales, and a troubling 4%
decline in profits.
6

For CEO Don Thompson, who only took the helm in July of 2012 and made some pretty
significant changes right out of the gate, it’s the kind of start that can leave a board wondering if
they’ve got the right guy steering the ship.
Well, while it’s a bit premature to say McDonald’s is out of the woods yet, at the very
least (and despite this morning’s news) it’s becoming clear that Thompson now “gets it.” The
question is, can he actually do anything about it before it’s too late? The answer is probably yes,
but that journey isn’t going to begin where most MCD stock owners are expecting to see it.
P6 Explain the business strategies used by a business operating internationally.
Pricing Strategy
Companies entering into different countries for business have to evaluate their pricing of
products based on income distribution of citizens, local inflation and other factors like currency
exchange rate. Because of exchange rate it is possible that you end up paying different prices for
same product in different countries. McDonald's mainly open their shops in major cities targeting
middle and upper class citizens as they can afford the prices. After this they start targeting lower
middle class citizens.
Growth Strategy
McDonald's growth strategy is based on three elements
 Increasing number of restaurants
 Maximizing sales and profits at existing restaurants
 Improving international profitability
Maximising sales and profits at existing restaurants will be accomplished through better
operations, reinvestment, product development and refinement, effective marketing and lower
development and operating costs (Wild, 2014). McDonald's believes that its long term
sustainability and growth depends on stakeholders - franchisees, suppliers, and customers. They
believe that as long as franchisees and suppliers are profitable, so would the company.
CONCLUSION
As per above mentioned report it has been concluded that, international business is one of
the fastest growing organisation. Because all business wants to explain their business at
international level. Due to, increased export and import of products and goods. International
7

level of enterprise helped to increase awareness of company as well as increase production level
and profitability as well.
8

REFERENCES
Books and Journals
Abdi, M. and Aulakh, P. S., 2012. Do country-level institutional frameworks and interfirm
governance arrangements substitute or complement in international business
relationships? Journal of International Business Studies. 43(5). pp.477-497.
Cotton, D., Falvey, D. and Kent, S., 2012. Market Leader: Elementary: Business English Course
Book. Pearson education.
Franke, G. R. and Richey, R. G., 2010. Improving generalizations from multi-country
comparisons in international business research. Journal of International Business
Studies. 41(8). pp.1275-1293.
Hennart, J. F., 2010. Transaction cost theory and international business. Journal of Retailing.
86(3). pp.257-269.
Hill, C. W., Cronk, T. and Wickramasekera, R., 2013. Global business today. McGraw-Hill
Education (Australia).
Luo, Y. and Shenkar, O., 2011. Toward a perspective of cultural friction in international
business. Journal of International Management. 17(1). pp.1-14.
Michailova, S., 2011. Contextualizing in international business research: why do we need more
of it and how can we be better at it? Scandinavian Journal of Management. 27(1).
pp.129-139.
Papadopoulos, N. and Heslop, L. A., 2014. Product-country images: Impact and role in
international marketing. Routledge.
Preston, L. E. and Windsor, D., 2013. The rules of the game in the global economy: Policy
regimes for international business. Springer Science & Business Media.
Rogerson-Revell, P., 2010. “Can You Spell That for Us Nonnative Speakers?” Accommodation
Strategies in International Business Meetings. The Journal of Business Communication
(1973). 47(4). pp.432-454.
Online
International Business Career Quick Facts, 2017. [Online]. Available through:
<http://www.allbusinessschools.com/international-business/>. [Accessed on 24th August
2017].
9