Analyzing International Trade Issues: Tesco's Expansion into Laos

This report provides a comprehensive analysis of the key international trade issues that Tesco, a global retail company, may face when entering the Laos market. It begins by introducing the background of both Tesco and the Laos economy, highlighting Laos's developing, free-market nature as both an opportunity and a challenge. The report then delves into specific trade issues such as PDR tariffs, foreign currency fluctuations, political instability, legal complexities, and payment-related challenges. For each issue, the report provides detailed explanations, supported by academic literature, and discusses their potential impact on Tesco's operations. The report concludes with clear recommendations for Tesco to mitigate these risks, along with an implementation plan, aiming to guide the company in successfully navigating the international trade landscape in Laos. Desklib provides access to similar solved assignments and study resources for students.

MANAGING
INTERNATIONAL TRADE

Table of Contents
INTRODUCTION...........................................................................................................................4
Background information of economy/ company.........................................................................4
Analysis of Key Trade Issues......................................................................................................5
CONCLUSION .............................................................................................................................10
Recommendations......................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Managing international trade is a process in which the global companies need to manage
the exchange of the goods and services between several countries. For the present report, the
selected company and economy is Tesco and Laos respectively. The reason behind the selection
of Tesco company is such that it is one of the most growing business in the present time and does
not have its presence in the Laos economy. Laos is basically a lower-middle income developing
economy along with a free market economies which is a benefit for the company to enter the
market easily. However, Tesco will also face various international trade issues which might
affect their business in such country.
The report will discuss the different international trade issues such as foreign currency,
tariffs and payment system etc. which affect Tesco to large extent while entering and open their
business in Laos. Further, the report will also state the various clear recommendations to
company so that they can deal with this issue. All the information will be supported by the
academic sources and literatures in which the implementation plan of implementing
recommendations will be also included.
Background information of economy/ company
Laos is officially named as Lao people's domestic republic. The business environment at
the Laos is very progressive and government find it supportive to encourage the business
transactions at the international level. The culture of the country is progressive enough to support
the overall economic development and advancement in the economy. The Tesco Company was
established in the year 1919 by the founder Jack Cohen. The organisation is currently operating
globally at bunch of selected locations (Fan and et.al., 2021). The company is associated with the
retail sector that allow the business to enhance and boost the overall growth and development of
the company. International trade create a fundamental challenges for the company in respect to
finance and other such aspect. Company is currently not operating into the Laos. The economy is
emerging rapidly in context to the growth of the gross domestic product and further rising the

trade in the country. The emergence of the economy could support the management at Tesco
Company to enhance the international trade by initiating business operations into the selected
region. The organisation is aiming to hold the huge growth and development possibilities that
will benefit to the business to deliver better business objectives (Atki and Khandelwal, 2020).
The Laos is a region of economic transaction that will support the business to expand the
international trade along with strengthening the growth of the company. The international trade
offer various opportunities but at the same time the international business further offer bunch of
issues and challenges which company require to face in order to conduct the international trade.
These issues will restrict the business possibility to enhance and maximise the overall growth
and development possibilities. The retail sector that is currently Tesco Company is engaged with
in order to deliver business operations are highly competitive in nature. There are numerous
companies which offer the aggressive level of competition to the organisation which further
include Marks and Spencer, Wallmart and many more. Tesco Company need to deal with this
aggressive level of market competition in order to ensure the overall business objective in the
respective target market.
Analysis of Key Trade Issues
International trade is al about make the trade at the international level outside of the local
territory belong to the organisation. Tesco Company is based in United Kingdom and any trading
activity that is conducted by the company outside the scale of United Kingdom wil consider as
the international trade for the business (Flaaen, Hortaçsu and Tintelnot, 2020). Trade issues are
consider as barriers belong to the business that will restrict the organisation in achieving the
business objective over such location. These barriers are key issue which company face as a
result of doing business at such location or areas internationally. The various key international
trade issues that may be faces by Tesco while entering Laos economy are as follows:
PDR Tariffs:
The first key issues of trade which is face by Tesco is import tariffs which increases their
expenses to large extent. Import tariffs are the cost which is need to be paid by the companies in
order to import their goods and services in Laos. The PDR tariffs rate of the Laos economy
fluctuated over the period which create both positive and negative impact. The PDR tariffs rates
of Laos has increases in the year 2019 and continue to 2021 by 0.03% with the total rate of
0.76% (see appendix 1). As per the opinion of the Knirsch, Unterweger and Engel (2018), an

increase in the rate of import tariffs which increases the spending of the company i.e., Tesco and
on the same side their profits will decreases. Further, the company also need to increase their
prices of the products in order to increase its profit margin which might decrease Tesco sales. It
is because the people of Laos can't afford expensive products because of their lower and middle
income.
On the other hand, Laso PDR tariff rates is lower than other countries name India,
Bhutan, Colombia etc. (see appendix 2). The Biroon, Hadidi and Abdollahi, (2019), has stated
that while comparing with the other country's tariff rates, the cheapest and lowest tariff rates is in
Laos. This means that it helps Tesco managers in managing the cost of entry. In simple term, if
Tesco need to pay low expenses in Laos and relatively earn high profit than it benefits the
managers in motivating their employees by paying high income. Thus, Loas is best for Tesco but
the company just need to thoroughly research on the tariffs rate and adopting the ways to deal
with this issue.
Foreign Currency:
Another key issue of international trade that Tesco will suffer while entering Laos market
is foreign currency. It is because of the uncertainty in the future exchange rates which causes loss
to the company. As per the views of Kim, Chung and Cho, (2018), The change in the Laos
currency and UK currency will cause loss to Tesco at the time when rate of UK currency in
exchange for Laos value decreases. For example, if one of the client of Tesco situated in Laos
has agreed to pay the payment of £500 with the value of pound at LAK 15151.87 than the
company will receive the amount of LAK of 7575933.75. But in case, if the value of pound has
decreased to LAK 14151.81 later than the company will receive only LAK 7075905 with the loss
of LAK 500028.75. On the basis of this example, it can be state that the change or decrease in
the pound value as compared to the LAK will cause heavy loss to the company. Thus, it is
important for the company that they should keep their eyes over the changes in the future
exchange rates.
However, in contrast to above statement the author has argued that when the value of the
foreign currency increases the company will able to earn extra profit and benefits. The value of
pound sterling will be stronger when compared to the currency value Laos in the year 2022 i.e.,
GBALAK 15160 (+0.62%) (see appendix 3). This means that if Tesco will enter the new market

they will able to earn profit (Liu, Wang and Woo, 2019). But on the same side, the company
manager also need to keep their close eyes towards the quote prices because of the continuous
fluctuations in foreign currency rates. Basically, the foreign currency is one of the crucial issues
of international trade which require deep knowledge of the same. The foreign currency is an
issue which provides both benefit and loss to the company and in order to gain from the
international business, Tesco have to hire expert teams.
Political instability
Political instability is one of the major international trade issue company face. The
political situation and environment in the country play a comprehensive role for the companies to
support the overall growth and development requirement while conducting the international trade
transaction. Political instability create a hige issue for the companies as political situation of te
country provide direction to each individual activity entertain inside the territory of the country.
The impact of the political stability in the country make a direct impact and influence negatively
to the business operations (Cohen, Ferguson and Oppenheimer, 2019). This is a high barrier
Tesco Company face at all its international trade locations where the political instability exist for
the company. The instability do not allow the businesses to formulate and design the long term
policies and practices to support international trade. Further, the instability create a leadership
related barriers as the leaders of company do not get proper support from the government on a
regular basis to maximise the business operations in the location. Laos also hold the political
instability which will further create a massive issues for the company to deliver its business
objectives (Valarezo and et.al., 2018). The instability at the region will not assure the right
suitable environment and culture for the company in against of delivering the business operations
successfully. Political instability will cause to many serious challenges and issues that will
further restrict the organisation in executing all its business transactions effectively. Political
instability result into the fact that the policies of the government do not last long for many years,
modifications in the practice keep on happening that causes to the serious damage for the
business in providing a particular direction to the business transaction operate by the companies.
Political instability may cause to failure of the businesses as well.
Legal issues
International; trade deliver by the businesses further allow the organisation to face
various legal issues and challenges. Tesco Company is natively belong to United Kingdom.

Laws at the United Kingdom and the Laos are different from each other. Legislative
requirements are also unique at all the international locations (ur Rahman, Khan and Iqbal,
2018). While executing business transactions at the international level companies also require to
meet up the legislative requirement assemble at each international location. In context to the
legal implication the issue is more serious in nature as in case of any lack in meeting up the
legislative compliance this further result into various government restrictions that completely
damage the feasibility of doing business. Once any of the government restriction impose it is
very difficult to deliver business operations freely. The Tesco Company needed to overcome this
challenge or issue in order to achieve success in the international market.
Payment related issues
Payment is one of the major concern businesses face in international market. Payment is
an issue in case of emerging and developing economies at a global level. Laos is among the
emerging economies at a global level. Emerging economies further involve the low income base
and limited buying power or capacity of the target customer which also need to face by the Tesco
Company in against to deliver business operations at such locations. Lacos is a country where
majority of transactions are perform with cash only (Leonidou and et.al., 2018). Cash create a
high liquidity related issues which also require to face by the Tesco Company while executing all
different business transactions. The company is already conducting its business operations in
locations like United Kingdom, Ireland and such other where digital payments are also a part of
fashion. The new location will require to the company to change its way of dealing into cash.
Further, in case of digital transnational issues like hacking, security of data and information and
such other are also involve. Tesco Company need to build a strong system on the basis of the
need and requirement of the organisation to overcome all different payment related issues
associated with the Lacos. The Tesco Company is also involve in the e-commerce business
operations. The sector is massively depend upon the digital payment structure. This will create a
huge risk of loosing customer satisfaction against making a trade of e-commerce platform or
network. Payment further involve in liquidity of the company hence, it can stae that due to the
payment related issues the entire cash cycler and liquidity of the business get affected.
International norms
International trades always deal with the international norms that are set to coordinate the
trade in business. The international norms require proper paper work such as billing, important

document, payment slip and such other certificates. Further, the tax rates are also different at
every location which also require to cope up by the company in order to execute the business
transactions. Company also need a license to make a trade which also a time consuming process
to take license in the new location. Once the sale is completed further tax implications are also
different at the Laos in comparison to other part of the world (Williams and Kayaoglu, 2020).
Tesco Company require to face thee international norms in against to conduct the international
trade. IN against to the existing trade norms many new regulations and inclusions are also made
in the existing trade laws at international level which also require to include by the company.
Dealing with the international trade norms is a massive issue or challenge which company face.
Cultural challenge
Every country has its own culture that is different from the rest of the world. Laos have a
different culture in comparison to other western countries. Every time Tesco Company enter into
a new international market it has to redesign the organisation policy on the basis of the culture of
the target country. People in the market contain a massive cultural influence every time they tend
to make a purchase decision. Many ties lack of information about the cultural values situated at
the new international location create an issue for the business to execute business operation
successfully. Tesco Company need to conduct the survey about the cultural aspect of the Laos
and need to design its services and products accordingly (Minahal and et.al., 2020). This entire
practice require huge investment of funds. Even after conducting the detail research there is not
any guarantee that the organisation will be able to cover all aspects and parts to demonstrate
cultural values in business operations practice by the company. There are many situation created
in past where companies irrespective of governing any product efficiency and brand value but
only because the organisation is not capable to deal with the native culture of the international
business location face failure in the business. This issue influence the performance of the
company in international market.
Subsidy
Government under emerging economics provide subsidy to its people so that they can
meet up the day to day requirements. Laos is one of the emerging economic at a global level
which involve huge amount of middle class economic background people along with sufficient
number of poor people live in the country. Government allocate subsidy to such people belong to
the poor economic class or category. The availability of subsidy is an issue for the companies

involve in international trade. People get free products or the products belong to the basic
acquirements at a cost lower than the companies offer in the market. These subsidy which
government offer to its people create an issue for the Tesco Company to cope up with its sales
target and improve revenue of company.
The above mentioned issues are the most significant and prominent issues and challenges
company face in against to conduct the international trade at such a locations. All these barriers
and issues restrict company to sustain an effective presence in the international market.
CONCLUSION
International trade offer various challenges which businesses face that involve tariff,
licensing, political instability, legal issues, payment related issues, international norms, cultural
challenges and such other issues. Tesco Company is planning to introduce its business into the
Laos. The organisation need to face these issues and challenges in against to deliver business
operations at the location.
Recommendations
On the basis of various key trade issues, it is recommended to Tesco company to implement the
following strategies to deal with the same issues. These are as follows:
 Firstly, in order to overcome the tariff issues, it is advisable to Tesco Plc that they should
negotiate with local vendors and suppliers of Loas. It means the company should
negtiates with the local supplier of the country which helps them in reducing the cost
across their supply chain. Further, the company should also enter with the long-term deal
with the suppliers to fix lower rates. But for this, it is also important for the company that
they should build strong relation with the supplier. So, in order to implement these
strategies, the managers of Tesco need to pay the payment of suppliers on time. It will
help in improving the credit worthiness of the company. Beside this, the company can
also raise the price of the products wherever they feel necessary in order to absorb and
offset the impact of increased in tariff rates (Miahkykh, Shkoda and Lytvyn, 2020). For
this, the company basically need to look at their profit margin and the cost which they
can increase. But before making any change in the price, managers of Tesco need to
communicate the same with the consumers or people of Laos.
 Another strategies recommendable to Tesco in order to deal with the foreign currency
issue of the international trade is invoice and contract only on US dollars. This is

basically one of the easiest strategy which help the global company in protecting
themselves against the exchange rate fluctuations. Beside this, by keeping expenses and
revenue in their own currency will also be advisable to Tesco in order to deal with the
international trade issues. Basically, with the help of these strategies the company can
handle the risk of foreign currency fluctuations. Also, the company can also enter into the
forward contracts in order to mitigate the foreign currency exchange rates. In order to
implement these recommendations, the company's managers just need to enter into the
forward contract with the suppliers and vendors (Carayannis, Acikdilli and Ziemnowicz,
2020). As per the opinion of the author, forward contract means the contract between the
buyer and seller to buy or sale the assets at the future date but at a predetermined price.
Tesco company implement this strategy to export their goods in the Laos market and
protect their transactions against the changes occurred in currency.
 Tesco Company should conduct the wide range of research over different aspects of the
Laos. This research will involve cultural factors, political situation, economic situation
and all other aspects that may allow the company to know about the market.
 This is recommended that company can form a legal team who can look after to all laws
applicable at the Laos associated with the retail sector. This will allow the organisation to
mitigate all legal matters and aspects related to the location.
 This is also recommended that at the initial phase of the business company should offer
discounts and such practices. This will allow the company to attract customers at the new
location. Initial stage of the business require the organisation to sustain a customer base
so that sales can take place even at the initial stage of the business. Provide quality
discounts will favour the organisation to attract and make loyal customer even art the
early stage of the business.
 This is recommended that at the initial stage company should focus more on developing
its brand value by providing customer friendly services. This will allow the company to
sustain a loyal customer base at the initial stage of the business. For new businesses
establishing a loyal customer at the early stage of business allow companies to grow.

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