Essay
Unit 5
- Module
- International business
- Institution
- PEARSON (PEARSON)
Essay of 23 pages for the course International business at PEARSON (Unit 5 assignment 1)
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Unit 5 International Business Assignment 1Introduction
In my essay I will be presenting the reasons why two businesses (BMW and River Island)
operate in contrasting international markets. Using the information from this research I will
equally proceed in explaining the types of finance available for international business and
the main features of globalization that affect BMW and River Island. In addition to this I will
explore the role of trading blocs on international trade, as well as analyzing the support that
is available to the businesses and the barriers of operating internationally.
BMW
BMW (standing for Bayerische Motoren Werke GmbH, which means Bavarian Engine works)
is a German multinational company founded on the 7th March 1916 in Munich, Germany,
by Karl Rapp, Camilo Castiglioni, Gustav Otto and Franz Josef Popp. They are now a world
leading, big manufacturer of luxury automobiles and motorcycles, as well as one of
Germany’s big three producers, with a global presence and a well-known household name.
(During WW1, BMW developed engines for planes). BMW is also a subsidiary to; Rolls-Royce
motor cars, Drive now, BMW Bank, John Cooper works and many more. This company is
incorporated and owned by shareholders, who are: “Stefan Quandt, Susanne Klatten , the
Quandt family, and Public investors. BMW’s headquarters is based In Germany.
River Island
River Island is a London Headquartered fashion brand company, founded in 1948 in East End
of London, by Bernard Lewis and brothers. Owned by the Lewis Family. With over 60 years
of fashion retailing experience, River Island is one of the most well-known and loved brands
on the High Street.1 This company is owned by shareholders, who are: Bernard Lewis, Leo
Lewis (senior executive and son of Bernard Lewis), Clive Lewis (Chief executive) and Ben
Lewis (Bernards nephew), this is a family incorporated business.
P1: Explain why two businesses operate in contrasting international market
BMW
BMW (Bavarian Engine works) is a multinational company and turned into a public limited
company (PLC) in 1918, as such it is publicly traded on the Frankfurt Stock Exchange. They
are involved in the Automobile industry, producing luxury cars and motorbikes. As BMW is a
PLC they are owned by shareholders, who are; Stefan Quandt (a German industrialist and
engineer) who owns 29%, Susanne Klatten (a successful investor and sister to Stefan
Quandt) who owns 21%, the Quandt family (a long-time shareholder of BMW AG, and
between a brother and sister, they own half of the company) and public investors own the
other 50%”2 Given that it’s a PLC company shareholder have limited liability. PLC company
has its advantages and disadvantages.
Advantages:
, - Shareholders' personal assets are safeguarded; in the event of a corporate failure,
they would only lose the money they invested.
- Improved access to financing and the chance to raise money by selling shares. Although the
public could seize control of the corporation, this might aid in its growth and expansion.
- Liquidity, which makes it possible for shareholders to buy and sell their shares.
- Tax-efficient income that allows directors and owners to distribute money to themselves.
Disadvantages:
- Numerous legal obligations, such as submitting a corporation tax return to HMRC.
- The business must (by law) disclose information and make its primary financial statements
available to the public, which means that BMW can be scrutinised by the general public and
that rivals may exploit the situation to their advantage.
- Given that anyone can purchase their shares, the corporation could be taken over by an
interested party.
- Setting up expenses are high.
They can export thanks to government support since the government helps businesses that
make investments in local communities and boost the economy. It exports 70% of its
output. BMW employs direct exporting because it can increase profitability, gives them
more control over marketing operations, and aids in the development of the company's
foreign marketing plans. BMW also employs direct exporting through distributors; for
example, ABMC is a BMW distributor in the United Arab Emirates. Over a million BMWs
have been produced in the United States since 1994 and exported.
BMW operates in multiple nations, making it a multinational corporation or TNC
(Transnational Corporation). They have a global sales network in more than 140 countries,
operate in 31 production and assembly sites across 15 nations. BMW has about 134,600
employees4 and a market share of 14.23%, with their headquarters in Munich, Germany. In
the host nations, they operate through a network of branches, subsidiaries, and affiliates.
They have factories in Germany, Brazil, the United States, the United Kingdom, South Africa,
China, Hungary, and Mexico. Additionally, they have local assembly operations in Thailand,
Russia, Egypt, Indonesia, Malaysia, and India using full knock-down components (CKD). Their
auto importers are active in South Korea, Japan, Canada, and the Philippines. This allowed
us to observe that BMW is active in both developed and developing markets.
BMW has the advantage of a sizable market because it operates in a developed economy
like the US and the UK. This may enable BMW to be closer to its customers and avoid export
and import tariffs, which may lower total company costs.
Another advantage is that the currencies of industrialised nations are more valuable than
those of developing nations; for instance, the US dollar is worth more than the South
African rand. As a result of their strong demand and high value-added services, BMW
vehicles can fetch a higher price in developed nations. Additionally, they consume more per
, person, which might raise the company's prominence. Higher employment rates and the
presence of more professionals and trained individuals who are subject matter experts will
boost the economy. This could also indicate that the product will be costly and its
production costs high. However, there are drawbacks to doing business in a developed
nation, such as intense competition because other businesses, including those that compete
with BMW, such as Mercedes, Audi, Lexus, Ford, Porsche, Jaguar, Honda, Alfa Romeo, etc.,
would also like to operate there.
Additionally, there would be less competition in growing and developing economies like
China and India where there would also be unexplored markets and demand, making it
simpler for their brand to be recognised. Additionally, there would be lower labour costs,
fewer legal constraints in LEDCs (Less Environmental Development Consideration), and they
would have access to more resources and supplies. There would be more options to
buy/acquire land and expand the business. A total of 723,680 BMW and MINI vehicles were
supplied to consumers in China by the BMW Group in 2019, an increase of 13.1% from the
year before. Since the corporation first entered the Chinese market in 1994, this was its
best-ever sales performance there.
Contractually, doing business in emerging and developing nations may involve political risk
due to the possibility of unstable markets, which could have negative effects on the
economy and investors due to the difficulty in raising cash.
River Island
An international Private Limited business is River Island. It functions in the fashion sector.
The owners (Bernard Lewis, Leo Lewis, Clive Lewis, and Ben Lewis) are known as
shareholder estate agents since they are Private Limited Company's and because they own a
portion of the business. Additionally, because the company is successful, the shareholders
receive financial incentives (dividends). Because it is a private limited company, the
shareholders' liability is restricted. However, private limited companies offer advantages
and downsides.
Advantages:
- Like with a public limited company, shareholders also have limited liability, meaning
that, in the event of a failure of the business, they would only lose the money they
have invested.
- There is no cap on the number of stockholders, therefore more money can be obtained.
- As opposed to a PLC, a private limited company has more control because new shareholders
can only be invited, preventing it from being taken over by outsiders.
- Free and simple transferability of shares—shares may be transferred to another owner in
the event of a shareholder's death.
- Better tax efficiency
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