Unit 5: International Business (Part C & D)
Sample Coursework for BTEC Level 3 Business Studies
Chamber News
Which Country Should Shepherd Neame Target for International Trade?
Shepherd Neame
Shepherd Neame is Britain’s oldest brewer selling a range of beers and has over 300 pubs and hotel. They are known for their traditional lagers and ales such as Spitfire, Bishop’s Finger and Kent’s Best. They mainly sell in the UK but also export some of their products within the EU. With craft beers becoming more popular globally and the UK seeing a rapid increase in competition, Shepherd Neame should consider looking at international markets to spread their risks.
How can international business support systems help Shepherd Neame expand internationally?
International business support systems refer to the infrastructure, communication platforms and processes that support businesses in their international operations.
One major support system is the internet which allows for good communication with people in other countries and the other is international payments systems which allows businesses to easily take payments quickly from overseas customers. The internet has changed exponentially over the past 20 years.
As a business established in 1698, Shepherd Neame has had long established systems that have now moved online. One change that the internet has brought is the ability to create a website. This has allowed them to communicate their product range to customers in other countries. Prior to the internet, it would have been very difficult to communicate this to customers in different geographical areas which would have limited their potential market.
International Payment methods have improved with the rise of international trade. This is different depending on whether a business is supplying B2B (business to business) or B2C (business to customer). When supplying B2B, usually a business would give credit terms of 30 – 90 days. However as international trade brings more risk, uncertainty and potentially longer delays on payments, exporting firms may decide to ask for cash in advance or a letter of credit from a bank to guarantee payment. They may also use a consignment method, where they use a third party such as a retailer in the other country. Other payment systems which have evolved are international credit cards and bank transfers. Shepherd Neame allow B2C customers to pay on their credit card before their beers are dispatched.
How do external factors influence business decisions on trading internationally?
When expanding overseas, businesses are faced with countries that have lots of differences; some make trade appealing, and some make it more difficult. Navigating these complexities is crucial for success. This article will explore some of the factors that may affect Shepherd Neame when explanding overseas using a PESTLE Analysis. PESTLE stands for political, economic, social, technological, legal and ethical.
The first potential country that Shepherd Neame can potentially export their beers to include Norway, which is a European country but not part of the EU. The second country is Malaysia which is in South East Asia.
Political Factors
Norway is seen as politically stable. According to globaleconomy.com, Norway scores 1.29 on a scale of -2.5 to +2.5. Malaysia is less stable with a score of 0.22 over the same time period. The benefits of operating in a country that is more politically stable is that it is easier to make business forecasts and predictions as there is less chance of major changes in regulation or civil unrest that can have a negative impact on business activity.
In terms of fiscal policy, Norway and Malaysia charge a similar corporation tax. This is tax that businesses have to pay on their profits. As the UK and Norway are both part of the EEA, there are no tariffs on importing goods from the UK to Norway. However, alcohol import tariffs in Malaysia can be as high as 60%.
Economic Factors
Norway has a GDP per capita of approximately 78,000 USD whereas Malaysia has a GDP per capita of approximately 11,000 USD. This means that there is more money per person in the economy in Norway than Malaysia which indicates that people may have more disposable income to spend on beer.
Norway has an unemployment rate of 3.7% and Malaysia has an unemployment rate of 3.3%. These are both relatively normal and similar which would mean it would not be a factor to consider for Shepherd Neame.
Malaysia has an inflation rate of 0.7% and Norway has an inflation rate of 2.2%. This means that imported goods may seem cheaper to customers in Norway as the prices of their local products rise. However, as Norway’s inflation, devalues their currency, they may get less GBP for their currency and UK beers may be more expensive.
Social Factors
Norway has a population of approximately 5.5 million and Malaysia has a population of approximately 33 million. This means that there is a larger potential market in Malaysia than there is in Norway which make Malaysia more appealing as an export market. However, the per capita consumption of alcohol in Malaysia is 7 litres compared to 83 litres in Norway. This indicates that alcohol is a much more popular product in Norway with 457 million litres being drunk in Norway compared to 231 in Malaysia.
Technological Factors
The internet speed in Norway is 52.6 Mbps and in Malaysia it is 22.12Mbps. This means that operations such as online sales processing, advertising and communications will be faster and efficient in Norway. It has been predicted that Malaysia’s e-commerce market is growing quickly with a 24% growth rate per year. Revenue in the e-commerce market in Norway is expected to reach $6,850m in 2021 and almost $11,000m in Malaysia. This means there is more potential for growth in online sales in the Malaysian market.
Legal and Regulatory Factors
Customers have to be at least 18 years old to buy alcohol in Norway. There are some restrictions on times that they can buy alcohol. Customers cannot buy alcohol after 8pm on weekdays, after 6pm on a Saturday and they cannot buy it at all on a Sunday. There is no restriction on the quantity of imports but the alcohol volume cannot exceed 60%. This would not affect Shepherd Neame as beer alcohol content would not be that high. In Malaysia, it is illegal to sell alcohol to anybody under the age of 21. This is a fairly recent law change from aged 18 which has made alcohol laws stricter. It is also illegal to sell alcohol to a Muslim. These laws make it more difficult to sell beer which may be a strong reason for Shepherd Neame not to export to Malaysia.
Environmental and Ethical Factors
Consumers are increasingly putting pressure on organisations to act in ways that reduce their damage to the environment and are more ethical in their treatment of people and animals. The capital of Norway, Oslo, is 1,061 miles from London. The capital of Malaysia, Kuala Lumpur, is 6,555 miles from London. When making a choice on where to export to, Shepherd Neame may wish to consider the environmental impact of transporting their beer to Malaysia compared to Norway.
Where should Shepherd Neame target for international trade?
Based on this situational analysis of Malaysia and Norway, there are arguments for each economy in terms of opportunities to trade. Malaysia has a much larger population which could indicate a larger potential customer base. They also have low and stable inflation which could lead to easier forecasting that economy. However, Malaysia has strict alcohol laws and import tariffs on alcohol which make trading this specific product more difficult.
Although Norway’s population is much smaller, their alcohol consumption is much higher which indicates that the largest market is actually in Norway. Other benefits such as the environment impact of transporting goods to Norway being smaller than transporting to Malaysia creating a better image and the more sophisticated internet infrastructure in Norway indicate that overall, Norway is the better option for international trade based on this situational analysis.
Cultural Factors
Language
The main language spoken in Norway is Norwegian but 90% of the population speak English. Norway has been ranked as one of the 5 top nations in English proficiency. The main language spoken in Malaysia is Malay. However, English is commonly taught in school and 60% of the population are thought to be proficient in English. This means that it is highly likely that Shepherd Neame would be able to find staff to work with who are proficient in English in each country.
Social structures
The religion in Norway is predominantly Christian at almost 85%. There are no strong rules about alcohol in Christianity and religion is also thought to be on the decline in Norway. In Malaysia, the main religion is Islam. There are more strict rules regarding alcohol consumption in Islam and this has informed the overall laws in Malaysia. Social structures in Malaysia tend to be very family orientated. Homes may have many generations of a family living with them. Although families are important in Norway, they tend to be smaller and children become more independent of their parents at younger ages.
Attitudes to work
In Norway, attitudes to work have been described as professional yet casual with a relaxed attitude to work with a great emphasis on balancing work life and family life. In Malaysia, workers accept longer working hours, often working 9 hours a day 6 days a week. This may not have an impact on the sales of beer but if Shepherd Neame were looking at relocating manufacturing, this is something they may consider.
Openness to change.
Openness to change refers to the attitudes of people in a society and how comfortable and flexible they are with changing their routines and habits. In this case, how attached are people to the drinks that they have and their social life. Norway may appear to be a better place to trade beers based on what has been discussed so far but Shepherd Neame should also investigate how likely people are to switch from their existing beer brand.
The Impact of Cultural Differences
Communication can be challenging when operating internationally. First of all, when there are language differences a business needs to translate their written materials including packaging, advertising and business communication into a second language to be understood. This can be time consuming and increase costs. Even when documents are translated, phrases can be ‘lost in translation’. This occurs when phrases are literally translated into another language and the meaning is lost or changed into something that doesn’t make sense and is at times offensive.
Workplace Etiquette varies between different cultures. Different countries have different approaches to working hours, conduct in meeting and greeting and levels of formality amongst other differences. A lack of understanding of the local etiquette can lead to confusion and offense caused by behaviour that is normal to you but unexpected in a different culture. For example, normal working hours of 10am until 7pm may be normal in one culture but when working with people in cultures where normal working hours are 8am until 5pm, you may give the impression you are lazy by arriving late or you may find it difficult to arrange meeting times.
Power Distance is a measure of the relationship between people in higher positions of authority and people in lower positions of authority. People in different cultures have different comfort levels in speaking out to people who they believe to have a higher status to them. This could lead to situations where managers assume they have heard the views of everybody in a decision making meeting because they are from a culture where people are more comfortable speaking to managers. This can lead to a reduction in the range of views that are consulted in making business decisions.
Overall, culture has a strong impact on businesses that operate internationally. If a business that wishes to trade internationally does not fully understand the culture of the country they are looking to trade with, they may face a culture clash.
