This document is intended for students studying the BTEC Level 3 Extended Diploma and need help on their assignments in unit 5 - International Business. The grade received on this essay was D and students may use this to help with the structure and for notes.
Why trade internationally?
Introduction
In this assignment I'm going to be explaining why two contrasting businesses (HSBC and Tesco) operate
indifferent international business sectors. I will also talk about the types of finance available for
international businesses and the main features of globalization that affect HSBC and Tesco.
Four business activities
Imports are businesses that buy goods and services from other countries to trade in their own country.
This type of business allows it to carry out transactions with products that it cannot find in its own country.
Exports are businesses that sell goods and services to other countries and pay tariffs to the government
for bringing goods to their government.
A multinational corporation is a type of business that is operating in multiple countries. It is also known to
avoid taxes by not operating in its own home country.
Associated businesses are businesses that are partially owned by another business.
Tesco is a British multinational grocery and general merchandise retailer that has stores in 12 countries
across Asia and Europe and is the grocery market leader in the uk with 28% market share. Tesco only
has stores in developed, advanced emerging and 1 of the frontier countries which is slovakia. The
purpose of Tesco is to provide great products and value for money (balance of quality and price of the
product) to their customers. Their core purpose ‘serving Britain's shoppers a little better’ is to give
customers the best shopping experience.
HSBC is a multinational financial services company based in London and is currently third in the UK's
banking market. It is one of the world’s largest banks by total assets and is the largest in Europe. The
network covers 63 countries and territories in Europe, Asia, The Middle east and Africa, North America
and Latin America. The purpose of HSBC is to provide their 38 million customers with financial products
and services such as current accounts and loans. HSBC has a 12% share of the market, and is just
behind the Royal bank of Scotland and barclay. The company's goal is to provide its 38 million customers
with a wide range of financial products and services.
Businesses will decide to trade internationally after careful analysis in the local/close by market.
Expecting the market to be drenched and passing on several opportunities for the business to get clients,
they will then decide to open stores abroad for new clients and markets. This is significant to the business
since they get to find extra clients and appropriately produce more pay and advantages. For example
Tesco operates internationally because as a major UK supermarket it has seen massive results in its
home market and due to all the profits gathered over the past years, it has the ability to expand
internationally. They also decided to operate internationally because they saw an opportunity to meet
customer needs and retain more customers than they already have in the uk. HSBC is very active in
international markets operating in 63 countries which allows the company to be more successful.
Another reason why businesses choose to direct their business globally will be to locally achieve levels of
development that is impossible. For example, Tesco that trades internationally will be more successful
than poundland that only operates across England because of the profits they will be receiving from a
range of different markets. HSBC working in so many countries has become much more competitive in
comparison to smaller local banks
Tesco and HSBC also belong to the advanced emerging countries such as Czech Republic, Hungary,
Malaysia and Poland, which means that there will be reduced taxes for them, as they are providing jobs
for the locals and so they benefit from low tax and high profits and the locals get new job opportunities.
They might offer lower wages in those countries, which means that they might get low sales growth as
, Unit 5 Business Btec
people from other countries would not want to shop with them as they are not treating their employees
right and their employees will be less motivated to perform their job effectively and effectively.
Some of the products in Tesco are expensive and this is making customers switch supermarkets and go
to another market which is affordable for them. However, Tesco has invested their money in their own
product lines which are cheaper for their customers to buy, this was done to attract more customers and
to increase profit.
One of the advantages of Tesco and HSBC trading internationally is that labor is not as expensive which
benefits the company. Multinationals can set up their offices in several countries where demand for their
services and products are high while cheaper labor is available. However, Tesco might lower the wages
down in these countries as they are not developed which means the sales growth will go down as people
from other countries would not want to shop with them as they are not treating their employee’s right and
their employees will be less motivated to perform their job properly and efficiently
Multinationals can enjoy lower tax rates in other countries for experts and imports, an advantage that
owners of international corporations can take at any given day. And although not all countries can have
lower tariffs, there are those that believe tax cuts to investors to attract more international companies to
do business in these countries. Tescoa and HSBC benefit from operating in lower tax countries as it
reduces their cost.
The factors that affect the choice of markets for international companies
In china they pay £3.28 but £9.50 in the uk. That means labor costs in China are much lower and the
companies can get more profit.
The electricity in the uk costs 18.9 pence per kw/hr and in China its 7.2p kw/hr which means its twice
lower than uk. Energy is cheaper in China than in the UK which means it's better for companies because
they pay less, lower costs and they can achieve higher profits in china.
Since Tesco and HSBC are international companies, they should think of better approaches to back their
tasks to keep their organizations afloat. Global ventures can support their tasks in one of four ways,
contingent upon their conditions. They might confirm that one choice is useful over the others for various
reasons.
Prepayment by the importer
prepayment by the importer is when a buyer sends a payment in the agreed currency and through agreed
method to a seller before the product is manufactured and/ or shipped. By the business doing this it
ensures that they won't be in any debt, and it creates a sense of trust between the importer and the
business which is a benefit for any future trades. A good example of this would be if, maybe a company
wanted to import coke bottles into their shop to sell. The company will have to make prepayment or part
payment before coke would import their goods to the company.
The advantage of this type of financing is that if the importer does not trust the company they are
importing their goods to, they will be able to trust the company after receiving the payment. A
disadvantage of this method is that the company pays before they are in the ownership of the goods. This
means that there may be cash flow problems, as they will need the goods they can make their own
money.
Letter of credit
Letters of credit are often used within the international trade industry and is a letter from a bank
guaranteeing that a buyer will pay a seller on time and for the correct amount. If the buyer cannot pay,
then the bank will be required to cover the full or remaining amount of the purchase.
HSBC and Tesco use letter of credit when trading with international partners. It provides businesses with
security of being paid even if they are paid, which reduces the risks.
, Unit 5 Business Btec
Export credit
They are government financial support, direct financing, guarantees, insurance or interest rate support
provided to foreign buyers to assist in the financing of the purchase of goods from national exporters. This
is insurance for the business, it is needed if there happens to be my fault with shipped goods. HSBC and
Tesco are guaranteed that they will receive their payment in exchange for goods and services that they
sell to customers in other countries.
Bank loan
Where you borrow a sum of money from a lender, and agree to pay it back over some period of time in
fixed monthly repayments. It's a fixed repayment, as long as the business has the cash flow and can
repay it then it is a good way to get quick money for a business to use when trading.
The disadvantage of this method of obtaining finance is that interest has to be paid.
Agencies to support international business
Uk export finance
(UKEF) helps UK business/organizations by giving them insurances to exporters and giving them an
assurance to banks to share the risk together. This would help international businesses like Tesco and
HSBC. if they don't get their cash from another global bank that trades you that will repay you a
percentage of cash. This would be an huge benefit for international businesses like Tesco and HSBC as
they do a great deal of products to various nations and if the international exporters have issues with
exporting the UK export finance would give them insurance so less risk exporting goods so the bank will
cover the cost when you are importing or exporting goods from another country.
UK Export Finance is a community interest company that is run as a not-for-profit organization. It is
supported by many different agencies including the Federation of small businesses, the Institute of export
and the HSBC bank. The organization supports businesses
going into export by providing training, practical information and webinars so that ideas can be shared.
UKEF helps UK businesses by supporting their exports and helping them to expand internationally,
working alongside them, and helping them to access the export finance they need to grow.
The chamber of commerce is a local organization that gathers business leaders working in the
community. The intention is to advance the goals and interests of your organization and others operating
in the area. It's usually a group of ;locally owned businesses that have a common interest. They have the
authority to vote on the board of directors that helps create and implement policies and run the chamber.
Chambers of commerce can help tesco by trading internationally by certifying the origin of goods,
chambers help to reduce the possibility of overseas customs authorities stpp british shipments, helping to
ensure the smooth passage of uk goods across international borders.
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