National Floorcoverings Ltd: Expansion Strategy & Environment Analysis

This report provides an analysis of the external macro environmental factors crucial for National Floorcoverings Ltd as it considers expanding its business operations into Germany. Using PESTEL analysis, the report examines political, economic, social, and technological factors, highlighting the implications of Brexit, tax policies, economic growth, and social attitudes. The analysis contrasts the business environments of the United Kingdom and Germany, focusing on aspects such as taxation, wage legislation, and economic stability. The report also assesses the potential benefits of operating in Germany, including its stable economy, lower tax rates, and skilled workforce. Furthermore, it considers the impact of the COVID-19 pandemic and Germany's recovery plans, emphasizing the opportunities for National Floorcoverings Ltd to enhance its sales and profits in the German market. The study concludes with recommendations for the company's expansion strategy, focusing on leveraging Germany's economic and political advantages.

Aspects of the Business
Environment

EXECUTIVE SUMMERY
The aim of making this report is to analyse the external macro environmental factors which are
necessary for the organisation to know before making and developing any strategy which is
related to the business operations. In this report, National Floorcoverings Ltd. is planning to
expand their business in Germany. It is necessary to analyse all the situations for the purpose of
smooth running of organisation which help them in earning large amount of profit. The
recommendations are also provided in order to select the method of expansion of organisation.

Table of Contents
EXECUTIVE SUMMERY..............................................................................................................2
INTRODUCTION...........................................................................................................................1
COMPANY OUTLINE...................................................................................................................1
ASPECT OF BUSINESS ENVIRONMENT..................................................................................1
EXPANSION OF BUSINESSES..................................................................................................12
RECOMMENDATIONS...............................................................................................................13
CONCLUSION..............................................................................................................................13
References:.....................................................................................................................................14

INTRODUCTION
Sum total of all those activities which influence the business operations are defined as the
business environment. It plays an important role in the success of any business. While any
business organisation performing the operations in any country, they should firstly analyse the
environment and then make any decision. Below mentioned report is based on National
Floorcoverings Ltd. which is a producer of fibre carpets, indoor and outdoor sports surfaces. The
purpose of making this report is to analyse the business environment when the company is
expanding their business from United Kingdom to EU country i.e. Germany. This report also
deal with the mode of expansion chosen by the National Floorcoverings Ltd.
COMPANY OUTLINE
National Floorcoverings Ltd. is a small manufacturing company which is located in
Liversedge, United Kingdom doing production of fabric carpets along with the indoor and
outdoor sports surfaces. From a recent report it is found that there are 126 employees are
working in this organisation and the revenue is they generate is $28.41 million (USD). The
organisation wants to earn high profit by covering more customers, they decide to expand their
business operations in Germany.
The management of National Floorcoverings Ltd. Select Germany for the expansion of
their business operations because they have prosperous economy (Rico and et. al., 2020). It
means that the Germany is the largest economy in Europe. Along with this, it is also analysed
that the Germany has the highest GDP. It means that Germany is the largest consumer market in
the entire Europe. This country touches the boundaries of nine countries which include Poland,
The Czech Republic, Switzerland, Austria, France, Luxembourg, Belgium, The Netherlands and
Denmark. Hence it is the best location for the shows related to the trade. Germany country is
well known because of higher reputation in innovation and productivity, it implies that their
workforce is highly skilled which always implies positive impact on the business.
ASPECT OF BUSINESS ENVIRONMENT
It is found as essential to know about the factors of business environment which implies
affect on the business operations (Pedi 2021). PESTEL analysis is a marketing tool which is used
by the companies for the purpose of doing evaluation of external factors of a business
organisation. National Floorcoverings Ltd. is working in UK and now they want to start their
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business operations in Germany. The external factors get different from country to country,
which is a huge challenge for the organisation to adopt all the changes. Below mentioned is the
detailed discussion on all the aspects of business environment:

Political Factors: These factors has vital role in knowing about the factors which can
impact the profitability of National Floorcoverings Ltd. in a specific market or country.
They are performing business operations in more than 130 countries and expose
themselves. Germany is a democratic republic country. This organisation can take the
advantage of stability of politics (Wild J. 2014). Bureaucracy brings various changes in
the operations of business organisation in United Kingdom. Expansion of business in
the Germany will remove all these changes and give a stable working environment
which implies generation of higher revenue.National Floorcoverings Ltd as UK have
taken its exit from EU which means that the tradining between EU states may be
difficult for it as there will be restrictions being imposed
Brexit is one such factor which can affect the expansion of National Floorcovering
Ltd as UK have taken its exit from EU which means that the training between EU states
may be difficult for it as there will be restrictions being imposed which can affect its
business. When National Floorcovering Ltd will expand its business in Germany, it can
trade there independently but there may be issues of exporting to Germany due to changes
in the policies due to Brexit. By the political environment of Germany will provide support
to it in order to enhance its profitability.
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Figure 1Impact of Brexit on Business, 2020
From the above graph, it can be interpreted that the cost of the production for UK
businesses will rise post Brexit and there will be major impact on the sales as well as
exports due to changes in national policies, laws and standards. National Floorcoverings
Ltd. may expand its business in order nation so that it can lower down the impact of
Brexit and make high profits. As Germany is highly developed country, there is high
probability that business will earn more profits in Germany.
Taxation policy is the another political factor which is beneficial for National
Floorcoverings Ltd. as the organisation have to pay higher taxes while they are working
in the United Kingdom but if they expand their business in Germany, it will result in
earning higher profit because of less tax rates. The organisation will pay less amount of
tax (Mann 2020). Along with this, wage legislation of both the countries are different. It
is found that the organisation have to less wages to the workforce of Germany because
of their wage legislation.
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Figure 2Tax rates, 2017
From this graph, it can be analysed that the tax rates in UK and Germany tend to be
different and there are high taxes in UK which lowers profitability of firm while
Germany has low tax rates which helps in enhancing taxes so National Floorcovering
Ltd. will grow its business in Germany when expanding.
Rules and regulations regarding the pricing of products in UK and Germany are
different. The pricing strategy of Germany is much beneficial for the organisation as it
will help them in charging high prices from their customers.
National Floorcoverings Ltd. will also get the benefit of trade regulation. They
can do the business globally without paying any extra charges and fees. Basically, the
political stability of Germany attract the National Floorcoverings Ltd. to start the
business operations there (Wall 2015). There is less availability of risk of military
invasion. It can be consider as the another political factor which implies benefit to the
organisation. The government of Germany provide various benefits regarding the
contract enforcement. The organisation will also get the benefit of several anti trust
laws which are developed by the government of Germany. The workforce of Germany
can work more hours in a week as compared to the labour of United Kingdom.

Economic Factor: It include several macro factors which include savings rates, foreign
exchange rate, interest rate, inflation rate and many more. According to the economic
cycle of the country, aggregate demand and investment have been analysed (Li and et. al.,
2020). National Floorcoverings Ltd. can use the economic factor of Germany such as
inflation and growth rate, which gives the idea of purchasing power of the people living
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in Germany. The manufacturing of carpets and surfaces comes under the secondary
sector and it has been found that the secondary sector of economy of Germany is stable
which is a positive factor for the organisation. The exchange rate and stability of the
currency of Germany is high as compare to the country of United Kingdom. (Deresky
2017).
As there has been economic shutdown in whole nation of UK due to the international
pandemic opf Covid-19, so the operations and business of National Floorcoverings Ltd has
been badly affected due to reduction in sales due to national lockdown. Moreover, the
lockdown has affected the employability rates in the country which have lowered the
purchasing power of the people, thereby affecting business of National Floorcoverings Ltd in
UK. Now that the company expand its operations in Germany, it can seek the opportunity to
enhance its sales and profits as there is more scope for the business as the economy of
Germany is super developed.
Figure 3Impact on UK businesses, 2020
5

Figure 4Post covid-19 recovery response of Germany. 2021
From these above two pictures, it can be analysed that UK businesses have been badly
affected by the pandemic of covid-19 and there has been economic impact on Germany
businesses too. But the post covid-19 recovery plan of covid-19 has been highly impression
which shows that there are high chances of companies in Germany to recover from the losses
which have been caused due to pandemic. The National Floorcovering Ltd. can make an
expansion in Germany and take advantage of its r3ecovery plans so that it can generate high
revenues and profits.
In the market of Germany, National Floorcoverings Ltd. can easily raise the capital
in local market. If they start business in Germany, they will also get the competitive benefit
of host country and industrial goods sector. Germany is found as an advance country as they
have lots of new technologies, so it will become easy to do the manufacturing of carpets
which result in the reduction in labour cost and increase in the productivity in the economy
(Kim and et. al., 2020). The economic growth rate of Germany is also going higher day by
day which will give advantage to the company. It leads to the generation of higher revenue
by doing the production of sports surface and selling them to the customers of Germany. This
country is found as the 4th largest economy in the world having the GDP of $4.2 trillion in
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2019. The unemployment rate of Germany is the lowest in the entire world which state that
the people of Germany are spending high amount on purchasing the products and services. It
means that the demand of carpets and sports surface will be high there.
Figure 5GDP of nations, 2020
From this graph, it can be interpreted that the GDP of Germany as compared to UK is
more and this will be benefit the company as the economic growth will support the new
businesses in Germany.
In addition to this, the people who are working in the Germany have to pay less
taxes as the income tax for employees is very less i.e. 5.5% which result in having less
deduction in salaries and growth of economy as a whole. If the National Floorcoverings
Ltd. work in Germany, they will be the part of the country of higher economy.

Social Factor: The culture of society implies the manner of performing the activities
which affect the business operations. Attitudes and beliefs of people living in society
affect the organisation a lot (Prentice Hall 2016). It has been found that the skills level of
the people of Germany is very high as compared to the people living in United Kingdom.
Along with this, Germany is known as the best country to do the business in the world as
the people living there are wealthy, healthy, educated and they are living a quality life. It
may leads to the generation of higher revenue and higher demand of carpets and surfaces.
Germany is consider as the second most popular country of Europe as it has population of
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almost 82 million. The class, power and hierarchy structure of society of Germany is also
suitable for the National Floorcoverings Ltd. The people of Germany are living a life of
standard which state that they will rise the demand of quality product (Fraser 2019).
National Floorcoverings Ltd. is a manufacturer of high quality of carpets. Generally the
people of normal living do not arise the demand of such products. Higher the demand of
these products have been made by the people who are living their life with a specific
standard.
Figure 6 Comparison of UK and Germany in terms of education, 2016
From this graph, it can be analysed that the literacy rate in Germany is higher than UK
which helps in giving more skills and knowledge to the German people as compared to UK.
With the high literacy rates, the National Floorcovering Ltd, can get benefit in manufacturing so
that there is innovative offering being offered to people in Germany. This will help in providing
benefit to the company.
Furthermore, Germany is found as the best in several sports which include golf,
hockey, tennis, skiing, ice hockey, football and many more. Hence they have a
requirement of sports surface more as the availability of more sports academy. Majorly
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highly expensive lifestyle of people of Germany result in higher demand of carpets and
surfaces. On the other hand, it is found that the people living in Germany are ready to
spend more amount in order to get the the best quality product and National
Floorcoverings Ltd. is doing manufacturing of carpets and floor surface of good quality.

Technological Factors: Change in the technology in all industries is the highly
influencing factor of a business organisation (Cavusgil 2016). Transportation of products
can be taken as example. In manufacturing industry, the materials can be transported to
anywhere in the short duration of time. Introduction of new technologies not only make
the work simple but it also save the time. Slow speed of working always consume time
and this factor have been removed with the introduction of advancement of technology.
Recently development in technology in the organisations of competitors of National
Floorcoverings Ltd. is a technological factor for the organisation. Germany is the country
which is found as advance in technology as it is the 5th best technological advance
country in the world (Egea 2019) but UK is more advanced which can help the business
in Germany as it can use its technology when manufacturing in Germany. This factor
may not support the company at initial level but the organization can go for exports so
that it can incur less cost for expansion. The people of Germany are found to be
innovative as they are highly qualified and skilled as compared to the people of United
Kingdom. Various of leaders of medicine market, scientific research, engineering,
designing, technological market is found in the Germany. If National Floorcoverings Ltd.
start their business operations in Germany, they will get to know about several new
technologies which they can use in the process of production of carpets and floor
surfaces. They can also improve the style of their designing which result in higher
attraction of customers towards their product (Rose 2021). Along with this, it is also
helpful in decreasing the cost of production as it removes the costing of labour. It results
in increasing the revenue and profit of organisation.
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Figure 7Technology savvy countries, 2017
The government of Germany has spend a lot ODF amount on the research of Artificial
Intelligence. The objective of this research is to introduce various new aspects of technology in
the working culture of organisation in order to making the production process more easier. It also
leads to the removal of gap of software led innovation among the Germany and other American
& Asian giants.

Environmental Factors: The norms of each and every market is different which implies
effect on the profitability of a business organisation. Environmental and liability laws of
each and every country are also different. It is necessary for National Floorcoverings Ltd.
to analyse and evaluate the environmental standards which are essential in performing the
business operations in the specific market. Tourism industry is the major industry in
Germany which contribute around 4.5% to the national GDP. It is found that the world's
top tourist destinations in the world is Germany (Drobyazko and et. al., 2019). It is the
positive factor for National Floorcoverings Ltd. as they can design their carpets which
will attract the tourists towards their products. The culture, history, festivals, mountains,
fairs of Germany are very unique. By starting business operations in Germany, the
management get to know about these unique aspects. It also provide the ideas to design
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such culture and history on carpets, so that the tourist can attract towards their product. It
result in the generation of higher revenue.
Climate change is one such factor which also affects the business of organizations. Any
change in the weather pattern can pose dramatic risk to the business, be it small or large. If
National Floorcoverings Ltd installs emission control system, it can be expensive for it and the
company has to report it as the business cost. This can decrease its profitability. Moreover, the
change in climate can also alter the consumer behaviour which can be detrimental or beneficial
to business
Along with this, it is also found that the Germany is very attractive place to visit, it result in
facing various enormous environmental changes. The government of Germany is taking various
steps in order to improving various environmental challenges which include water pollution, air
pollution, acid rain and many more. They had strictly made several rules under which the people
of country Germany stop burning the coals for the purpose of doing production of electricity
(Harrison 2014). There are various rules and regulations of government of Germany which will
support the organisation to support the renewable energy. National Floorcoverings Ltd. will
recycle the products in order to producing and saving the energy.

Legal Factors: When an organisation perform operations they have to follow various
rules and regulations made by government. National Floorcoverings Ltd. should analyse
the complete laws before entering in the market of Germany. It has been found that the
government of Germany promotes the establishment of new companies as it leads to the
development of country and their people (de Sousa Jabbour and et. al., 2020). If the
National Floorcoverings Ltd. start their business operations in Germany, the organisation
will get several support from the government with the help of different laws which
include employment law, health and safety law, consumer protection act, data protection
and many more.
Along with protecting the rights of consumer, the government also support the
employer as well by protecting their data and helping them in providing capital under
various laws which are applicable in Germany. They also issued health and safety law
under the government also take care the people who are working in their country. By the
use of copyright, patents or intellectual property law, the government ensures the rights
of employer and protect them from several harmful factors.
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EXPANSION OF BUSINESSES
There are various international expansion entry modes which can be accepted by the
organisation who wants to expand their business operations internationally. Each and every
mode of entry has their own advantage and disadvantage (de Kerviler and et. al., 2019). It is the
responsibility of management to make choice of the best method which is suitable for the
strategies and goals of the organisation. Some of modes of expansion are given below: Exporting: It is the best and the easiest mode of expansion of businesses. Hence it has
been found that most of organisation start their international expansion by selecting this
mode of entry. It can be defined as the process of selling goods and services in the
foreign countries which are collected from the home country. This source gives the huge
benefit to the organisations as it will save the expenses of establishing operations in a
new country. Licensing and Franchising: Under this agreement, an overseas based business pay the
firm a royalty or commission fees for the purpose of using their brand name, trademarks,
products, manufacturing process and any other IPs (Rudner 2020). The licensee and
franchisee is responsible for all the losses and risks but share some part of revenue and
profit. This mode of expansion of business is useful for those companies who already
enjoying the loyalty of consumers in the complete market. This source includes the
minimum cost of expansion. Along with this, it is a source of unresisting income with
less risk. On the other hand, the company takes a huge risk of their reputation and brand
image only because of their incompetence of their franchisees and licensees.

Partnerships and strategic Alliances: It involves an agreement made among the two or
more business organisation under which they are ready to cooperate in a specific way for
a specific time period in order to achieve the common goal (Bartosik-Purgat and et. al.,
2020). It has been found that the local business organisations are more familiar with the
local culture and market. They can do partnership with the business having reputable
brand image in the country or they have good relationship with their target customers.
Strategic alliance is beneficial for the small business organisations as they do not have
sufficient amount of capital to expand the business or to enter in a new market.
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RECOMMENDATIONS
Above mentioned section is showing various methods of expanding the business
operations internationally. National Floorcoverings Ltd. is recommended to adopt either
Exporting or licensing and franchising method for the purpose of expanding their business
operations in Germany. exporting is being recommended to it as it is a small company and
people are not aware about the brand, so it is not beneficial for the organisation to go for exports
so that it can initially capture the market in Germany and after few years, it can use licensing or
franchising in order to initiate its manufacturing in germany. By analysing all the factors of
expansion, export is found as the best source of doing expansion (Santoro and et. al., 2020).
Sometimes, high competition in the local market leads to the delay in receiving payment but in
the case of exports, National Floorcoverings Ltd. can take advance payments and then export
their products so that there is less financial risk. It also leads to bringing the foreign currency in
UK. Along with this, government also provide several benefits and incentives to the one who is
bringing foreign currency such as rebate in service tax and many more. The prices of carpets and
surfaces will be high in Germany as compared to the UK market. It can be considered as the best
reason why the organisation is suggested to use the source of exporting for the purpose of
expansion of business.
CONCLUSION
From the above report, it is concluded that the business operations get affected by the
factors which influence them internally or externally. If any business organisation is planning to
adopt any change in their functions, it is necessary for them to completely analyse the
environmental factors which can influence the business activities. For the same purpose, the
organisation perform PESTLE analysis. Expansion of business can be done in various ways. The
organisations select any source of expansion according to their comfortability. Furthermore, it is
analysed that National Floorcoverings Ltd. can easily expand their business in Germany as there
are lots of similarities in the business environment of UK and Germany so they can easily
cooperate with them. https://howandwhat.net/pestel-analysis-germany/
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