To: EDU
From: Hazal Inekci
Subject: Why trade internationally?
Date: 27/10/2022
Introduction:
In this assignment I will be speaking about the operations of two contrasting
businesses and why they conduct businesses in international markets. I will also be
analysing the finance and support that is available to the businesses. I will be
explaining the role of trading blocs on international trade as well evaluating the main
features of globalisation that affect each business. I will also be conducting an
analysis of the barriers to each business of operating internationally and lastly, I will
be explaining the impact of globalisation over the last 5-10 years.
New Look
Founded in 1969 in Somerset, United Kingdom by Tom Singh, New look is a British
fashion retailer that sells both womenswear and menswear. Their products include t-
shirts, jumpers, accessories, dresses, trousers and more. New Look is
headquartered in Dorset, United Kingdom however they are a multinational business
that operates in other European countries such as: Belgium, the Republic of Ireland,
Netherlands, Germany and Malta. They operate over 570 stores with over 10,000
employees globally. New Look has a subsidiary which is New Look Retailers
(Ireland) Limited. [1]
The Home Depot
The Home Depot, also known as Home Depot, is an American multinational home
improvement retail company that sells appliances, tools and construction products.
They are best known for their range of home improvement products which is their
area of speciality. Their products include floorings, paint, lamps, gardening tools,
fridges and many more. Home Depot is headquartered in Atlanta, Georgia United
States and is the largest home improvement retailer in the United States. They
operate 2,380 stores with 490,600 employees in the USA, Mexico and Canada. It
was founded in Marietta, Georgia, USA in 1978 by co-founders Bernard Marcus,
Arthur Blank, Pat Farrah, Ron Brill and Ken Langone. The current CEO and
president of the company is Edward Decker. The Home Depot has subsidiaries
companies, these are: Home Depot of Canada, HD Supply, Home Depot Direct,
Homer TLC, and Interline Brands [2]. The company continues achieving great
success as they received over $155 billion in sales in 2022.
Why new Look operates internationally:
Many businesses operate internationally for the overall aim of gaining more sales
and money. New Look has many reasons to trade internationally as they have a
well-established business in the UK, it gives them the opportunity to expand to
different markets in efforts to gain more sales revenue.
The first reason why New Look is operating internationally is to increase revenue.
New Look first opened in the United Kingdom but expanded their business as they
became very successful by fulfilling customers’ demands. Their aim is to increase
revenue because they hope and anticipate for their business’ success to increase in
,order for them to open many more stores around the world. When New Look
became successful in the United Kingdom, they decided to expand by operating
stores in other countries in Europe. Their first store opened in Amsterdam, The
Netherlands which reached a lot of success as they sold clothes that were trending
and of high quality and 53 years later, they have a well-established brand image
around Europe.
The second reason for them operating internationally is to increase market share.
Market share refers to a percentage of a company’s total sales in an industry/sector.
This creates competition between companies to gain the most market share and be
the most successful company in the industry as it will influence more customers to
shop with them e.g Apple. New Look’s current market share is 12% and their
competitors include Next and H&M. The current market leader is Nike with 38.23%
valuing the brand for £22.8 billion [3]. New Look aspires to increase market share so
they can improve sales as loyal customers purchase more from a company, they are
familiar with.
Why The Home Depot operates internationally
One reason Home Depot operates internationally is to increase revenue. Similar to
most companies, Home Depot’s primary focus is to increase the revenue of the
business to increase sales and success. To work closer to this objective, they
decided to first operate stores in the USA, after years of success Home Depot
owners operate 1,994 stores across the country and have therefore chosen to
operate in other countries in North America (Canada and Mexico). After 44 years of
staying in business with a total of 2,300 stores they are they are so successful that
they have been declared the largest home improvement retailer in the USA. In 2022,
Home Depots’ annual revenue is $151.157 billion.
Another reason Home Depot trade internationally is because of cheaper tax rate.
When Home Depot became very successful in America and established brand
awareness by using promotional methods to be visible to more people, it was
successful as people made purchases from the business and kept going back every
time, they needed something as they have a wide range of products that are
manufactured with high quality. They decided to expand their business in North
America because the highest federal tax rate of Canada is 33% whereas in America
it is 37% [4]. There is a high amount of difference e.g if one store in America made
$1 million sales, and a store in Canada made $1 million worth of sales after
exchanging to the US dollar. After taxes the American store would have $630,000
whereas the Canadian store would have $660,000 leftover. The Canadian Home
Depot would have $30,000 equivalent more which is a high amount that Home Depot
saves that could be used to invest back into the business. Another country they
operate in is in Mexico which also has lower tax rate of 30%. Home Depot have
chosen these countries because paying less tax will give them more money that can
be used to buy more goods.
Trading internationally benefits both New Look and The Home Depot as
Expanding to different markets creates more potential clients therefore
operating in different countries gives them the opportunity to attract more
customers.
, It gives them the opportunity to specialise and lead in a market. This has been
achieved by Home Depot as in 2020 they were the leading home
improvement retailer in Canada by making $10.4 billion. [5]
They can reduce risk by researching about the market and the gaps as well
as researching what customer demands are and if they are being met.
Operations of New Look: Structure and activities
New Look’s Structure:
New Look is a private limited company. This is whereby a business is owned by its
shareholders, managed by the directors and where the liability of shareholders for
the debts of the company is limited. it's not currently open to investors through the
stock market therefore shares can only be sold if the shareholders agree. New Look
currently has one shareholder who is also the founder, Tom Singh for that reason, he
owns 100% of the company. Tom Singh decided for New Look to be a private limited
company as he will have limited liability. This exemplifies that the shareholders'
assets are protected if the company goes into liquidation. If the company goes
bankrupt, the owner will only be liable for the amount they have invested in the
company. Any company's money remains with the company which the owner is not
responsible or liable for. [6]
Advantages of private limited company
Tax efficient. Private limited companies are tax efficient as they can claim
corporation tax relief on their profits meaning that the business pays the least
amount of taxes required by law. This allows businesses to save money which
increases profits that can be invested back into the company.
Flexible management structure. In private limited companies, the owners are given
complete control over managing the business. This allows shareholders to manage
the company through an incorporated board of directors and appoint committees
where necessary without having to forego a process.
Security. Private limited companies have more control than plc companies
because the company cannot be lost to outsiders as shareholders can only be
invited. This provides an extra layer of security.
Easily transferable. Shares can be easily transferred at any time.
Disadvantages of private limited company
Fee. Companies are required to pay an incorporation fee to register at
Companies House.
Accounting requirements. Private limited companies must keep detailed
accounting records which need to be filed with Companies House which can
be complex and time consuming.
Privacy. The company has limited privacy as the company’s shareholders,
directors and the registered office address are all on public records with
Companies House.
Making changes. Private limited companies have to follow strict rules about
how they can change their structure, name or share capital which can be
expensive and difficult for the company if they would like to make changes. [7]
