Unit 43 Tapping into New and International Marketing Q & A

International Marketing Strategies for SMEs: A Case Study of Derwent & Sons Stationery

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The main aim of the management report provided below is to identify and analyse the opportunities that are available for SMEs in the global environment. The report will effectively help the reader to analyse the implications that might be faced by the business in doing the same. In order to construct the report, the example that has been taken by the researcher is of Derwent & Sons Stationery. The company is a UK based SME which is planning to penetrate into international business industry of South Africa and South Asia. The company works on the base of innovation and trendy products which has helped the company to achieve its saturation point in its home market i.e. UK. In order to increase the profits, it has been suggested that the company should globalise their operations for which the management report will provide a brief industry analysis of South African and South Asian Nations.

Q1) Explain the global business environment in which small and entrepreneurial businesses operate

Globalisation is the phenomenon of integrating the market at the global stage, leading to grow the interdependency and interconnectedness of national economies. Markets can take different forms, such as financial market, credit market, commodity market, etc. The process of globalisation is influenced by many factors, namely political influence, technological advancements, rising economy, and social factors.

In order to analyse the global business environment, the PESTLE analysis of South African and South Asian Markets have been provided below as follows:

Q2) Analyse the threats and opportunities that face SMEs in an increasingly competitive global environment using Derwent & Son's stationery as an example

In order to analyse the opportunities and threats that are being presented by the global industry for Derwent and Sons, the tool of SWOT analysis has been used which has been presented below as follows:

Q3) Provide evidence-based analysis of the global business environment in which small and entrepreneurial businesses operate using specific examples

It should be noted that in the current scenario around each and every business is trying to penetrate the global industry and in such a case many SMEs are presenting a great example. This can also be referred to as the born global firms and companies which are the business organisation that has been developed themselves in such a manner that they are effectively and efficiently able to derive significant competitive advantages from the resources and sales made in other countries (Koopman, et.al, 2014). One such example of Born Global firm is Logitech which started as a domestic company but now is one of the renowned hardware manufacturers in the computing world.

Q4) Critically analyse the implications of threats and opportunities that face SMEs in an increasingly competitive global environment

It should be noted that in the global environment, one of the largest threats that are currently being faced by the small companies in the global environment is the threat from high levels of competition that are posed by the local and big MNCs. It should be noted that the major impact of this high level of competition is seen in the sustainability of the business that opts to operate in the global industry. In the case of Derwent & Sons, this competition can have a major impact on the functioning of the company in the new target market and might disrupt the revenue streams of the organisation as well.

Q5) Determine and analyse the advantages of international trading blocs and agreements for Derwent & Sons Stationery in South Africa and South Asia

A trading bloc can be defined as an intergovernmental agreement in which the governments of two or more countries join hands in order to remove trading barriers such as taxes, duties, etc. for selected states and countries in order to facilitate effective and smooth trade. The types of trading bloc and regional agreement are discussed below:

• Preferential Trade Area: PTA takes place where the country within a region lowers down or reduce the tariff barriers on certain selected products or services.
• Free Trade Area: In this, the country vanishes the trade barriers on all goods.
• Customs Union: In this, the trade barriers are removed only for the members of the union but for the other non-member countries, the trade continuous in the traditional manner.
• Common Market: In this, the members of the union trade unrestrictedly in all economic dimensions, not just in terms of tangible goods.
• Political Union: Here, two or more members share common policies and decision-making bodies.
• Economic and Monetary Union: Members forms an economic agreement in order to vanish the trading barriers and formulate economic policies.

The trade blocs and trade barriers can help small companies like Derwent & Sons to facilitate smooth trade. With the implementation of trade agreement, the globalisation is made easy and the cost of goods via import is also reduced upto significant levels. This not only poses a lucrative opportunity but can also help the companies to increase their profit margins even in the international markets (Baier, et.al, 2014). In case of Derwent & Sons, it should be noted that the economy of UK is being governed by the European Union and trade barriers are applied accordingly. These trade barriers are also applied in the case of South Africa and South Asian nations.

Q6) Explain the various tariff and non- tariff barrier that exists in the international trading environment for Derwent & Sons Stationery as they go into South Africa and South Asia

The tariff and the non-tariff barriers can also be stated as the trade barriers which are used by the government in order to encourage and protect the domestic industry of the country from the international competition. A comparison between the two barriers is given below:-

These trade barriers can have a positive as well as a negative impact on the trade that occurs in the country. It should be noted that there are various kinds of tariff and non-tariff barriers which are implied by the countries in order to regulate the trading practices. These barriers can hamper the motive of small companies that tend to globalise their operations into the new market (Sui and Baum, 2014). The tariff and non-tariff barriers which are implied by South African and Asian nations have been explained below as follows:

• Import Licensing: This is one of the most important non-tariff barriers which implies restrictions or prohibitions on trade. In order to facilitate trade, this barrier can be crossed by the means of obtaining an import license.
• Standard, testing, labelling and certification: This is a rule applied by the government of countries in which there are certain products which can only be sold if they have authorised standards, are tested, have certified labels and are certified by the government of the country.
• Export Subsidies: Export subsidies are the tariff barriers which are applied on the exporting of goods such that domestic support can be provided to the companies internally so that they might be able to compete on international levels.These types of barriers in the trade between two nations can regulate the bilateral relationship and trade between them. Since
• Derwent and Sons Stationery is seeking to expand its business in the international market, it has to understand each of the aforementioned barriers. Generally, these barriers have a positive impact over the organisation, but in some cases they restrict the smooth functioning of the business. For that purpose, trading blocs can really help businesses in lowering down the tariff and non-tariff barriers among the members.

Q7) Evaluate the advantages of international trading blocs and agreements and their implications for SMEs Using Derwent and Sons Stationery as an example

Usually at regional level, sovereign countries club together in order to make free trade agreements. Free trade agreements lower down the barriers in bilateral trade and trigger the trade between the two member nations. For Derwent and Sons Stationery, it is a golden opportunity to expand its business. Generally, trade agreements overcast positive effects on the business, but many a times it gives birth to competition from the other country. Trading blocs are groups of nations that agree to lower down the trade barriers among the members. The benefits include tariff reduction, tax reduction, trading privileges, etc.

Q8) Determine the advantages and disadvantages of importing and exporting and how to secure a deal for a business such as Derwent & Sons Stationery in their new International Market

• Importing: Importing can be identified as a trading activity in which the goods that are made in other countries are brought to the home country for the purpose of sales (Williams, 2013). This is one of the most used strategies by small businesses. On contrary to importing, another strategy that can be used by the companies is exporting.
• Exporting: Exporting can be defined as a trading and financial activity where the company sends its goods to other countries in order to expand their market. In order to do so, it is important that the company must also analyse the demand for their product in the foreign market as well. the advantages and disadvantages of importing and exporting goods have been stated below as follows:

For Derwent & Sons Stationary, there are a wide range of opportunities available in the international market. To secure the business, the organisation has to extend the quality and life of the products and to find the new market to trade them in. Learning to compete against the overseas organisation can also serve the purpose. Conducting foreign market research can be an effective instrument in this case that would help in understanding whether the target market is familiar with the products or not. Starting the campaign to grow internationally and developing the international business plan as per the goals. Evaluating and choosing the methods of distributing the goods abroad. Learning to negotiate deals and setting up the price can help in tapping the international market.

Q9) Explain the differences between merchandise and service imports and exports

In the international market, service trade can be characterised by the sale and purchase (or exchanged) of services between non-residents and residents of a country. These types of trading is done in accordance with the laws and legal requirements as defined in the trading agreement between the countries. On the other hand, merchandise trade deals in exchange of only goods, not services or capital exchange and foreign investments. In context of international trade, merchandise trade is often considered as an indicator of stability of nation’s economy. In normal scenario, merchandise trade deficit is misinterpreted as trade deficits, but they are two different terms. In this section, the key differences and similarities between the two are compared.

Similarities between the two:-

• Both types of trading may include a middleman to sell the services or products.
• Different varieties of costs are incurred by businesses, such as advertising cost, marketing cost, inventory cost, etc.
• Both types of trading require employees in order to keep their operations going and growing.
• Their business structures are pivoted around consumers who will pay for or buy goods or services.

Q10) Apply the appropriate import and export process to an organisation such as Derwent & Sons Stationery and make recommendations on how they could be applied in an international context

Before starting an import or an export business, it is important for Derwent and Sons to keep some basic things in mind which can help them to overcome the high levels of competition which are imposed by the global industry (Beghin and Bureau, 2017). It is required that the company should follow a basic process before indulging into such activity. This process has been stated below as follows:

• The first step in the exporting and importing business is to identify the target market and conduct a deep research in order to analyse the characteristics of such market.
• Next it is important for the company to analyse the economy of the target country such that the business might be able to identify the start-up costs in the new market.
• After this, it is important to analyse the channels through which the company will be undertaking the export/ import operations.
• It is also important for the company to make sure that the targeted market has all the essential and available resources such that
• At last the company should also pay emphasis on the marketing strategy that would be chosen in order to attract the consumers.

Based on this analysis, there are few recommendations for Derwent & Sons:

• It is important for the company to sell good and best quality products.
• In order to increase profit margins, it is important that the organisation should effectively track their financials as well.
• It has been analysed that the company is facing intense competition. In order to deal with it, it is recommended that the organisation should adopt the strategy of competitive pricing.

Q11) Evaluate the various methods by which SMEs can tap into international markets

In order to tap into the international market, it is important that the company must analyse and research the business environment of the targeted market in an appropriate manner. Based on the business structure of Derwent and Sons, the company can effectively use market entry strategies stated below:

• Direct Sales: This is done by the means of export in which the company directly sells their goods to the market where their product is being demanded. This is one of the most cost-effective ways which enables the organisation to enter into the global market (Brouthers, et.al, 2015).
• Distribution: Working with distributors would help Derwent & Sons to take advantage of local presence in the market and would also help in reducing own sales and logistics requirements to significant levels. Here the sales are made to the distributors that buy the product and resell them to the consumers.
• Joint Venture: Entering into the Joint Venture with a local business partner would also help the organisation to take benefits of the local market knowledge and reputation. The local partner might help the company to reduce the discriminations faced in the new industry (Brouthers, et.al, 2015).
• Developing local leadership: Since the culture, language, and rules and regulations of each country is distinct, an organisation need a strong local leadership in order to cater to the demand of customers from that country. This would help in the growth of the business.
• Distribution and Transportation Channel: The products and services are to be distributed by various means in order to make them available for the end users. This process consists of handling, distribution, title of the goods, negotiation between the buyers and sellers. Developing the channel partnerships can help in inventory management, merchandising, and advertisement.
• Licensing and Franchising agreements: It is a type of an agreement that is signed between the licensee and the licensor by virtue of which the organisation provides the acess to trade secrets, patents, and other resources for a fee called royalty.

Q12) Compare and contrast the various ways SMEs can tap into international markets, assessing the pros and cons of each method

No doubt that a global strategy can give wings to the business, but there it has some repercussions and drawbacks of choosing any international strategy (Baier, et.al, 2014).

Pros

• It provides access to new resources and expertise.
• It is for short-period temporary arrangement instead of long-term commitment.
• Both parties bear the equal risks and costs.
• Helps in building networks and long-term relationships.

Cons

• The objectives are often unclear and barely communicated to stakeholders.
• It restricts organisation’s flexibility.
• Sharing equal opportunities and risks are sometime unlikely to occur.
• Clashes due to different culture may lead to poor cooperation.

Direct sales

Pros:

• Liberty to accept the orders
• Establishment of direct customer relationships.
• Entire profit goes to the organisation

Cons:

• There is high risk of non-repayment
• No direct relationships with the customers.

Developing Local Leadership

Pros:

• This can be cost-effective as local leader would be using its own resources.
• Lesser transactions to be taken care of.
• Local leader knows the market better than the bigger organisation.

Cons:

• Reduce the profit margin
• Difficult to handle the quality of customer service.
• Local leader maintains the customer relationship.

Licensing

Pros:

• It is the most affordable way of tapping into international market as both the parties need not to pour large amount of funds.
• For the organisation, it involves minimal risk as investment is almost nil.
• The licensee has a better understanding of the oversea market and demands.

Cons:

• The chances of business formulae and secrets getting revealed are high.
• Licensee may promote its own product in the name of the licensor.

Distribution and Transportation Channel:

Pros:

• It reduces cost and consumption of resources- time and money.
• It assists in focussing on the core competencies.
• It leads to more efficient marketing

Cons:

• Product may lose its importance as the channel is not under the control of the manufacturer
• Due to the involvement of the middlemen, the company can suffer loss in revenue.
• Loss of communication control

Franchising

Pros:

• Low political risks
• Low cost of promotions
• Expansion is easier in this way

Cons:

• Franchises may become future contenders
• Company may lose its name and brand image by the ill-actions of a wrong franchisee.

Q13) Evaluate different methods of SMEs can use to tap into various markets with application to a small business or entrepreneurial venture, making valid recommendations

The digitalisation and technological advancements have made it possible for small business to expand the reach across the international borders. Now they can serve the global customers with their products and services. For that purpose, the small businesses need an effective international strategy. Methods like joint ventures can be the easiest way to expand the business, but only large enterprises can do that because of their financial stability. Joint venture increases the liability over the organisation. When an organisation tap into a global market, international strategy assist in offsetting any loss that a company might face. On the other hand, diversification is an expensive investment. Setting up an overseas business is time consuming and require a lot of resources. It brings financial risk as well. Local leadership development can help in attending the target country’s consumer. Culture and demographic play an important role in customer decision-making process (Baier, et.al, 2014). Local leadership can help in handling such issues. The downside of this method is that it reduces the profit margin and may leads to poor service delivery to the customers.

Conclusion

It is concluded from the above report that the international marketing plays an key role in the business scenario and its applications. The effective analysis helps in the effective completion of all the activities as per the market factors assessed. It is assessed that the effective challenges made helps in providing the company an effective way to develop the strategies and the tactics accordingly in order to attain the results. The implications of the threats and the various opportunities help in the assessment of the competitive business environment and the efficiency in the economy.

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