Methods of Internationalisation: Business Environment Essay

This essay delves into the complexities of the international business environment, emphasizing the crucial role of internationalisation for business growth. It explores various methods of internationalisation, including exporting (direct and indirect), licensing, franchising, strategic alliances, joint ventures, and foreign direct investment (FDI). The essay uses the case of Morrisons, a UK supermarket chain, considering its potential expansion into the emerging market of China, to illustrate these methods. Furthermore, it highlights the importance of PESTEL analysis (political, economic, social, technological, environmental, and legal factors) in assessing the macro-environmental factors influencing business decisions, particularly within the Chinese market. The challenges of operating in China, such as cost reduction, differentiation, and strengthening core competencies, are also considered. The essay underscores the significance of understanding the nuances of international business to achieve strategic objectives and navigate global markets effectively.

International Business
Environment

Table of Contents
INTRODUCTION...........................................................................................................................3
Essay ...............................................................................................................................................3
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The international business environment comprises of businesses that are managed outside
the boundaries of country and for managing business in a foreign country it has to be dealt with
various cultural and environmental differences. In this report the methods of internationalisation
are discussed in detail(Cantwell Dunning and Lundan 2010). Internationalisation is a process
which involves all the activities that a company needs to go through to do business in foreign
countries. For internationalisation certain things are needed to be taken care of and these are:
international economic environment, these are the global factors that are external factors and are
not in control of the individual organisations , but they sure have the influence that they can
affect the business , factors like inflation rates, labour rates, and unemployment rates.
Internationalisation is important as it helps the business grow. It gives access to the new markets,
core competencies are developed and many more. For internationalisation of a business in the
emerging market the analysis of certain factors are important like political, social, economical,
technological.
Essay
Various Methods Of Internationalisation
Internationalisation is a process of designing your domestic business in such a way that it can
serve and grow in international markets also(Wild, Wild, and Han 2014). There are many
advantages associated with internationalisation such as earning valuable foreign currencies- by
exporting its goods to other countries they can earn foreign currency., labour division- when the
goods are produced in the place in which it is specialised , then the cost of making them I that
place becomes cheap, and thus quality of goods increase as it has maximum advantage.,
optimum utilisation of available resources - as every country produces only those goods for
which they have abundant resources. , international peace and harmony- it helps in resolving
rivalry and it coordinates the resources of the two countries and make them a healthy business
environment., cultural development- diversities in the culture of the two countries makes them
exchange the ideas and culture(Cavusgil and et. al 2014). They can adopt things like food dresses
and other cultural related things from each other. So its very good opportunity for a business to
move its operations in a international environment. In the context of Morrisons (they are the
fourth largest chain of supermarkets in UK.)they wanted to expand their business internationally

in an emerging market like China. For moving in international market there are some modes
through which a business can enter. These are-
EXPORTING: It is the most traditional form of internationalisation. it is the most secure
way to reach the international markets, as your company does not need to move their premises,
they just have to deal with the clients in a foreign country and it can be done over phone or video
conferencing etc. but there are some risks associated with these as you don't know the other party
and they may cause default in payments or in delivery(Dunning 2012), whatever the case may
be. Risk is of both the parties. Exporting is the process of selling the goods and services
produced in one country to another country. It can be of two types: direct and indirect exporting.
Direct Exports- it is the most basic mode of exporting which is done by a holding company ,
capitalising on economies of scale, in the production that is done in the home country and have
the control over distribution. In direct exports there is no role of intermediaries.
Advantages :
It has the control on the selection of foreign markets
Trademarks , Goodwill, Patents, and other intangible property rights can be protected .
Encourages sales, thus resulting in greater profits.
Disadvantages:
Costs are high for starting up.
There is more risk as opposed to indirect exporting.
Takes long time for transactions.
Indirect Export- This includes intermediaries( Kolk and Van 2010), they are domestically based
export intermediaries. It results in loss of control on the part of exporter. This includes: export
trading companies, export management companies, export merchants, confirming houses,and
non conforming purchasing agents.
Advantages:
Markets can be accessed fast.
Production resources are concentrated
Outsourcing is done that helps in alleviating the pressure of management team.
Export processes are not handled directly(Forsgren and Johanson 2014).
Disadvantages:
minimal control over sales, distribution, marketing

if the distributor gives the wrong feedback then whole reputation goes in vain, and affect the
international success of the company.
Companies who wants to capture a market internationally would prefer direct exporting and
those who does not want to take financial risk will go for indirect exporting. The parties to
exports are exporter, importer,transport provider,government.
LICENSING: It is the procedure where one company gives license to other company for
doing business or using their property(Dunning 2013). Its a safe way for market penetration as it
does not need much from the part of licensor, he only has to handover the right to the licensee.
These rights may include patents, trademarks, goodwill, copy rights, technology etc. An
international licensing agreement , allows firms that are not domestic, to manufacture a
proprietary product for a specific time period in fixed term either exclusively or non exclusively.
In this foreign market entry mode the home country provides some rights and resources to the
host country. The methods through which licensor gets paid is one time payment or lump sum
payment, royalty payments, technical fees (Beamish 2013). For expanding internationally
advantages associated with the licensing are:
Advantages:
Extra income for knowing the technical know how.
Reach new markets which is not accessible by export from existing facilities.
Quick and easy expansion as the property rights are accessed and doesn't require large capital
investments.
Make the way for future investments.
The risk associated with the political factor is minimised as the license is 100% locally owned.
Disadvantage:
Compared to income generation from other marketing modes it has lower income.
Risk of loosing the reputation of brand (Klappe and Parker 2010), as trademark is used by
licensee so he has the control to operate.
The foreign partner can become a competitor by selling its production in places where the
parental company is already in.
If the partner is incompetent it can ruin the business.
FRANCHISING- a franchising system can be defined as a semi independent business
owner called franchisee gives royalties to the parent company called franchiser, for getting the

right to become identified with its trademark(Welford 2013), for selling it products or services .
Franchisees are taken for a long term basis and the franchisor offers a broader package of rights
and resource that comprises of equipments, operation manual, initial trainings, site approval etc.
and all the other facilities to run business as it is ran by the franchisor. Franchising only includes
trademarks and the operating know how of the business.
Advantages:
Political risk is very low
Low cost
It allows expansion as simultaneous chains of the business into different regions of worlds.
Partners bring financial investments and managerial capabilities to the operation.
Disadvantages:
franchisor face difficulty in maintaining control over franchisee.
Chances of conflicts increases( Verbeke 2013). (legal disputes).
Franchisees after gaining all the knowledge and know how of the business may start their own
business and become their competitors.
STRATEGIC ALLIANCE- In this type of entry mode , different firms shares
cooperative agreements such as shared research , joint ventures, or minority equity
participation(Khilji 2012). The focus of strategic alliance is on creating new products and
technologies rather than distributing the existing ones.
Advantages :
Technologies are exchanged as it is difficult for some alliances to conduct their own R&D efforts
and to gather all resources on their own.
Global competition can be handled if the domestic companies came into alliance with the global
company ,they can face competitions.
Alliance proves as an alternative to merger as it lifts the constraints of cross border mergers and
acquisitions.
Disadvantages:
Its difficult to fin a partner that you need.
Unable to form equal partnership
Loss of control
Difficult to maintain relationships across borders

JOINT VENTURES- When two companies come together for doing a particular
specific business is called joint venture(Hill Cronk and Wickramasekera 2013). They are
partners only for the time period of venture only. The objectives for the business to form a joint
venture is to enter the market, risk and rewards sharing, of technology,to develop a joint product
and abiding to government regulations(Jonge 2011). These ventures are proved to be successful
when their strategic goals are converge and competitive goals are diverge., when they both want
to work together in good faith. Their present individual market share, resources are small in
comparison to market leaders. The things needed to be considered in a joint venture are pricing,
agreement, local firm capabilities, ownership .
Problems that can arise in a joint venture are: conflicts arise over asymmetric investments like
one partner has invested more than the other then the chances of conflict increases, mistrust
between the partners can lead to many problems like not trusting the other one for proprietary
knowledge( Doz 2011), they are unclear about how to divide work and the performance also
remains unclear.
In joint ventures sometimes people of different origin comes together and they for a venture,
because of this their cultural belief may clash and generates a bigger problem. When the terms
and conditions of termination of relationship is not clear may further creates the problem.
FOREIGN DIRECT INVESTMENT – FDI is an investment made by a company or
individual in one country in business interest in another country, for acquiring business assets in
the other country for acquiring ownership or to have control interest in foreign country. It gives a
right of decision making of foreign business. FDI' s can be done by opening of a subsidiary or by
means of mergers or joint ventures with a foreign company.
As Morrisons wants to do business beyond their countries boundaries. They can adopt
any of the above mentioned strategies for internationalising their business in China(Kelley and
Shenkar 2013). They wanted to open their supermarket chain in china also an for that he can
enter to the market through any of the modes he finds suitable. For assessing the conditions of
China following analysis is done and this is done basically for knowing the influence of certain
factors that may affect their business. PESTEL analysis is done for assessing the macro
environmental factors, it helps in taking decisions and management processes.. As china is one
of the most attractive locations in the world and its an emerging market and is considered good
for doing business with. They are known to be the super powers of market(Trkman 2010), their

legal system too has improved. The investors wants to do business with china because of the
reasons that the size of their market is huge, the cost of labour there is the cheapest and china has
a growth potential which can foster their business also. China has opened itself for cross border
economic trades. PESTEL analysis stands for political, economical, social and technological
factors. The challenges for doing business in china is to attain strategic objectives for reduction
of cost(Abdiand Aulakh 2012). Differentiation is difficult, strengthening of core competencies in
some area and business activities is a challenge.
POLITICAL FACTORS- political factors have a huge impact on china in the form of:
Government Regulations: political force is claimed to be the most unsettled force. Firm must
abide by the Govt. regulations and forma and informal rules.
Legal Issues: government is trying to bring e commerce and its in early stage . As china is
having a little experience in drafting of e-commerce topics of legislations such as taxation,
intellectual property right(Li Lai and Wang 2010). The regulations for supporting any privacy,
digital signatures recognition, validation of consumer rights, these are yet to be incorporated.
ECONOMIC FACTORS- China's economy is experiencing a significant growth in its
GDP rate. Speculations are made that if it continues to grow like this it will surpass the GDP of
US. Factors contributing in this are: savings rate is high, skilled labour available at low prices as
they are abundant in number. China has a large number of exports in his hands. The GDP of
china is indicating the contribution of every citizen and they are adding value to the nation., that
has increased the purchasing power of consumer and because of the low cost labour all the
companies wants to hire labour from here(Milhauser and Rahschulte 2010) . With all the positive
points comes negatives also. The trends that are increasing in china and can lead to problem is
the high inflation rate and high prices of property that may restrict some investors to invest. The
bank rates has been increased , the reserve that commercial bank has to be kept is nine times
higher. And the central bank has limit the other banks to lend less loans and put limit on home
purchases.
SOCIAL FACTORS- The cultural and social factors plays an important role in the
constant changing of demographics. For example age plays a major role as almost 75% of the
population is old and they don't have more youngsters. These can alter social trend and cultural
values. Decision often being impacted by the size of the family and social behaviours. Other
factors of social concern are lifestyles of consumers, education, religion, and emigration. The

literacy rate of china is over 90% and they are highly literate(Doh and et.al 2010). They are
internet friendly people and have almost 420 million internet users. e-commerce has changed
their way , but there is still a group who does not prefer this.
TECHNOLOGICAL FACTORS- these are the development of new products, intranet
and extranet has become the new purchasing mechanism, the production of new technology,
internet has become the new distribution mechanisms, mobile telecommunications is the new
system of communication now. The problem with china is that B2C industry does not have a safe
and secure online payment gateway. the problem is not solved as they are on high avoidance
level . The usage of credit card systems is very low in china and the payment system to support
online trading card is facing low usage(Birkinshaw Brannen and Tung, 2011). The reason for the
low usage is they don't have secured payment gateways.
ENVIRONMENTAL FACTORS- These factors has the deep impact on the people and
thus have importance of environment protection. The emerging technology has make the
industry very speedy and has make everything easy. The e-commerce industry has make them
shopping online very easy and they don't have to go out or anywhere just by sitting at home
people can shop., when less number of vehicles are there then there will be less pollution which
helps in protecting environment. China is the most impressive and attractive market. They use
the system of car pools and that also results in less no. of vehicles on road which can damage the
environment and pollute it.
LEGAL FACTORS- with the flourishing of e-commerce and the Govt. has also started
working on the legal frameworks and policies foe e-commerce. China is working on the drafts of
e-commerce legislation on various aspects like taxations(Rugman Verbeke and Nguyen 2011),
intellectual property rights. As of now no regulation is made to recognise to support privacy,
recognise the digital signatures, validation of electronic contracts and for the protection of
consumer rights. The legal system should be most effective so as to protect the country from
various crimes. To protect from cheating and online thefts, which is proven to be a great concern
for this industry to develop and work for the betterment of the industry. For providing latest and
excellent products at cheaper rates , the role of legal factors is very important. With the increase
number of efficient legislature in the industry , the capacity of work will also increase.
On the analysis of PESTEL of china it can be concluded that China is a flourishing
market and there is only few changes that needed to be taken. Companies can gain benefit if they

understand fully the macro environment in which they want to operate in the future. The factors
that attract the investors in china are its really impressive economic growth depicted by increase
in GDP , its stable political conditions and the regulations of government to0 make e-commerce
more lucrative to investors(Iskanius Page and Anbuudayasankar 2010). With a fairly neutral
macroeconomic policy stance, growth is projected to peak in 2014 and then edge down to around
7.5% in 2015. Money and credit growth need to be reined in. The key one-year deposit rate
should gradually be lifted, so that real rates come back closer to their long-term average.
Transparent measures should be taken to ensure the resolution of local government borrowing
platforms and they are unable to meet interest payments without fiscal subsidies. The
government should increase the levels of some social benefits and move towards its target of
lowering out-of-pocket expenditure on health to 30% of total costs(Adeoye and Elegunde 2012).
With the economy recovering, there is now a favourable window to push forward with structural
reform, in particular financial liberalization, encouraging labour mobility and tax reform.
CONCLUSION
As per the above essay , the international business environment has been discussed in
detail and the methods of internationalisation has been detailed out and is critically assessed and
analysed for the internationalisation of Morrisons that wanted to do business in the cross borders
and align with the emerging market of China. For that the market conditions in China is to be
analysed, PESTEL analysis has been conducted in which thorough study of China market has
been done. The result of analysis has suggested that china provides great opportunity for
businesses, and working in the markets of china will provide success to the business of
Morrisons as the macro environmental factors are supporting and favourable.

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