Essay
Unit 39 Assignment 4 P5 P6
- Institution
- Pearson (PEARSON)
P5: Identify why businesses operate internationally P6: Explain the business strategies used by a business operating internationally.
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Ellie Mae Smith Unit 39 Assignment 4P5: Identify why businesses operate internationally
In this task I will explain why business chooses to operate internationally including the
benefits and challenges of doing so.
Benefits
New Markets
Businesses like Pizza Hut would benefit from trading internationally in order to increase the
chances of their business succeeding on a larger basis. Growth of a company and becoming
international would give them more opportunities as they would be accessing new markets,
which could be more successful that the market they are currently in. When businesses like
Pizza Hut expand into new countries it gives them access to new markets where they can
offer their products to new ranges of people, which would lead to an increase in profits. The
factors which make each market different include different buying powers, culture,
population, wealth, location and GDP.
Cheaper manufacturing
Another benefit of a business trading internationally is the options of finding cheaper
manufacturing in different locations, this could be due to the fact of cheaper labour costs in
different countries, which would help an international business massively. Cheap
manufacturing locations essentially means that workers are paid less to perform the job, in
comparison to countries such as the UK and US where the minimum wage for workers is
fairly high. Cheap manufacturing locations include Brazil, Taiwan, India, Pakistan, Philippines
and Mexico, these are countries where residents receive low income, this is a positive for
large businesses because they can use these people for cheap labour and sell their products
at a higher price to the richer population of the countries to make a larger profit. In the
great scheme of things it could be more beneficial to locate branches in these types of
countries compared to richer countries (UK and US) because staff wages are much lower.
Economies of scale
If a company increases in size of operating units and become international the economies of
scale will decrease in long-term averages and marginal costs rise. This will be positive for
businesses such as Pizza Hut because as they expand into new countries/markets their
product rate will increase and therefore the cost of each unit will decrease, making
production more affordable for Pizza Hut to sell more and earn more profit with every single
sale.
Tax Benefits
It’s good for businesses to expand internationally because some countries don’t charge
taxes and none of the profits made would need to be paid to their government, these
countries include Ireland, Switzerland, Singapore and Luxembourg. Countries which offer
tax-free zones for companies have a good economic structure and high population of
employable people. This would be a positive for Pizza Hut because the government in these
tax free countries wouldn’t take a percentage of their earnings and there would be people
they could employ who would be an asset to the company.
Technology and social media
Businesses like Pizza Hut promote their products and market in various ways, particularly
using technology to create and broadcast it, which enables them to reach a very large
audience all over the world. Pizza Hut has millions of followers on social media meaning
they have a large exposure online and can reach a huge amount of people, sending
messages to them instantly.
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