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Why trade internationally
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Distinction graded unit 5 assignment 1. The assignment is on BMW and Alibaba. References are also included.
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Selihom Abraham (40210639)Unit 5 Assignment 1: Why Trade Internationally?
Introduction:
In this report I will be presenting the reasons why BMW and Alibaba operate in contrasting
international markets. With the use of research, I will also talk about the different finances
available for international business and the key features of globalization that can affect them.
In addition to this I will also explore the role of trading blocs on international trade, as well as
analysing the support that is available to BMW and Alibaba and any obstacles/barriers they
face when operating internally.
P1:
BMW history and international trade background
BMW, also known as Bavarian Engine Works, is a globally recognized multinational
corporation that underwent a transformation into a public limited company (PLC) in the year
1918. As a result of this transition, the company's shares are now publicly traded on the
esteemed Frankfurt Stock Exchange. BMW primarily operates within the highly competitive
automobile industry, where it strategically focuses on the production of opulent luxury cars
and top-notch motorbikes. BMW is a publicly limited company, which means it is owned by
individuals who hold shares in the company. These shareholders include Stefan Quandt, a
German industrialist and engineer, who holds a significant 29% stake in BMW. Another
notable shareholder is Susanne Klatten, who is not only a successful investor but also
happens to be the sister of Stefan Quandt. She owns 21% of the company. The Quandt
family, being long-time shareholders of BMW, collectively own a substantial portion of the
company, with both siblings together holding half of the company's shares. The remaining
50% of the company is owned by public investors. This structure as a PLC grants
shareholders limited liability.
PLCs (Public Limited Company) like BMW benefit from liquidity, which allows
shareholders to easily buy and sell their shares. This enhances the flexibility and convenience
for shareholders in managing their investments. Moreover, PLCs offer tax efficiency in terms
of income distribution. Directors and owners can pay themselves a dividend, which provides
them with a tax-efficient method of receiving income from the company. This can be
advantageous for individuals seeking to maximize their financial gains while minimizing
their tax liabilities. Overall, being a PLC brings a range of benefits, including asset
protection, access to capital, liquidity, and tax efficiency, making it an attractive business
structure for many companies.
However, there are legal obligations that BMW must adhere to, one of which involves
submitting a corporation tax return to the HMRC. By law, companies are required to disclose
information and make their main accounts available to the public, resulting in BMW being
subject to inspection by anyone, including competitors who may exploit this situation to their
advantage. Additionally, since anyone can purchase shares of the company, an interested
party could potentially seize control of BMW. Furthermore, the initial expenses associated
with establishing a business are quite costly.
,BMW first traded internationally in 1973. BMW set up its own sales company in France,
becoming the first country where the company established a presence. This marked the
beginning of BMW's expansion into other countries, turning it into a global enterprise. BMW
is a well-established multinational corporation, also known as a TNC, due to its operations in
multiple countries. With a widespread presence, BMW operates in 31 production and
assembly facilities located across 15 different countries. Its global sales network extends to
over 140 countries, contributing to a substantial market share of 14.23%. Impressively, BMW
boasts a workforce of more than 134,600 employees, with its headquarters situated in
Munich, Germany. To effectively operate in various countries, BMW utilizes a network of
branches, subsidiaries, and affiliates in host nations.
BMW has production plants in various countries including Germany, Brazil, USA, UK,
South Africa, China, Hungary, and Mexico. Additionally, they have implemented local
assembly operations using complete knock-down components (CKD) in Thailand, Russia,
Egypt, Indonesia, Malaysia, and India. Moreover, BMW vehicle importers are active in
countries such as Canada, Japan, Philippines, and South Korea. This extensive global
presence demonstrates that BMW is strategically operating in both developed and emerging
markets.
Alibaba history and international trade background:
Alibaba is a Chinese technology company that focuses on e-commerce, retail, and Internet
services. It was established in 1999 and is based in Hangzhou, China. The company offers
various sales services to consumers and businesses, both domestically and globally.
Additionally, Alibaba provides other services such as digital media, logistics, and cloud
computing. It also owns and manages multiple companies in various industries worldwide.
China's e-commerce market has been rapidly growing in recent years, including the cross-
border e-commerce sector. Customs data indicates that in 2021, the value of cross-border e-
commerce transactions in China reached 1.98 trillion, a 15% increase compared to the
previous year. Alibaba Group, a prominent player in the cross-border e-commerce industry,
was founded in 1999 and expanded internationally with the rise of globalization. It
successfully entered the international market by listing on the New York Stock Exchange in
the U.S. in September 2014. By 2016, Alibaba became the largest retail trading platform
globally, serving over 200 countries and regions. In 2021, the Alibaba ecosystem is projected
to have around 1.280 billion active consumers worldwide, with 301 million coming from
overseas.
Alibaba began expanding internationally in 2010 and has since engaged in numerous
investment, M&A, and strategic cooperation activities. The company's internationalization
process was initially slow but accelerated after its listing on the New York Stock Exchange in
2014. From 2015 to 2018, Alibaba's foreign investment projects peaked in 2015, decreased in
2016 and 2017, and increased again in 2018. The company's international presence now
spans five continents, indicating its broad global reach.
After 2010, the company made changes to its organizational and business structure to align
with international developments. It constantly adjusted its direction and adapted to the
changing circumstances. In 2012, Alibaba changed its organizational structure to align with
its internationalization process. It moved from having subsidiaries to having business groups,
consisting of 7 groups. The B2B division was divided into foreign and domestic divisions,
, which paved the way for overseas investments and mergers and acquisitions. In 2015,
Alibaba made another significant organizational restructuring. It introduced a middle desk
business group, transforming the structure into a more flexible network structure. This change
allowed for better management of domestic and international matters.
Since 2010, Alibaba has engaged in numerous overseas M&A activities, investments, and
strategic partnerships in 26 countries and regions. The largest target market for Alibaba is the
United States, making up almost one-third of their focus, indicating their continued strategic
emphasis and ambition for the US market. Additionally, India and Israel make up
approximately 10% of Alibaba's international target markets. Although the US makes up
most, Alibaba chooses to focus on trade in developing countries unlike BMW who prefer
trade to trade in developed countries.
Different types of markets and the chosen markets BMW and Alibaba focus trade on.
Developed economies: Developed nations are characterized by their advanced economies,
well-established infrastructure, mature capital markets, and high standards of living. These
countries, primarily located in North America, Western Europe, and Australasia, have highly
developed financial systems and regulatory bodies, as well as high household incomes.
Examples of developed markets include the United States, Canada, Germany, the United
Kingdom, Australia, and New Zealand.
Less developed economies: Least developed countries are countries with low-income levels
that are facing long-term barriers to development. These countries have limited human
resource development and are at risk of experiencing negative social, economic, and
environmental impacts.
Developing/Emerging economies: Emerging markets are experiencing fast growth and
development, but they have lower household incomes and less mature capital markets
compared to developed countries. They have yet to catch up in terms of infrastructure and
household incomes.
BMW
Since BMW operates in developed economies such as the United States and the United
Kingdom it allows the company to tap into a vast market, which in turn enables them to
establish closer proximity to their customers. By doing so, BMW can potentially bypass the
need for exporting and importing their products, thereby minimizing the associated taxes, and
subsequently reducing their overall company expenses.
One additional advantage is that currencies in developed countries hold more value compared
to those in underdeveloped countries. For instance, the US dollar has a higher value than the
currency of South Africa. As a result, developed markets can offer greater value to BMW
cars due to their high demand and the provision of superior value-added services. In addition
to these benefits, developed countries also boast a higher per capita consumption rate, which
can enhance a company's profile and success. Moreover, these countries are often home to a
larger pool of professionals and skilled workers who possess expertise in their respective
fields, thereby offering a wealth of talent for companies to tap into. This, in turn, leads to
higher employment levels and an overall improvement in the economy. However, it is
important to note that operating in a developed country does come with its fair share of
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