Operating and Trading Internationally (AQA A Level Business): Revision Note

Reasons for targeting international markets

• Businesses looking to grow often look at overseas markets for a variety of reasons

Targeting international markets

1. Pursuing sales growth in larger or faster-growing markets

   • When demand in the home market begins to level off, entering overseas markets allows a firm to attract new groups of customers to keep revenue rising

     • E.g. Apple expanded aggressively into China and, more recently, India; international sales now account for well over half of its total turnover

2. Spreading risk through market diversification

   • Operating in several economies means that an economic downturn or a government policy change is less likely to threaten the whole business

     • E.g. Starbucks relied on rising sales in China and the Asia–Pacific region to offset periods of weaker sales in North America

3. Gaining economies of scale and lower unit costs

   • Supplying a global customer base supports longer production runs, bulk purchasing and shared research and development

     • E.g. Toyota builds cars like the Corolla on shared global designs, making them in large numbers for sale worldwide, which lowers the cost of each car

4. Extending the product life cycle

   • A product that is mature at home may still be in its introduction or growth phase abroad, allowing the firm to generate additional revenue without having to change the product's design

     • E.g. Netflix launched its streaming service in South America and Africa after US subscriber growth slowed

Exporting

• Exporting is the act of selling goods or services produced in one country to customers located in another country.

  • A business manufactures or supplies the product at home

  • It finds overseas buyers, usually through agents, distributors, trade fairs or online platforms

  • The firm handles (or outsources) tasks such as packaging for international transport, arranging shipping, completing export paperwork and complying with foreign regulations

• Exporting is the simplest step into international trade

  • The product is still made in the home country; only marketing and delivery cross national borders

Advantages and disadvantages of exporting

Licensing

• Licensing is a legal arrangement where a business (the licensor) grants a foreign company (the licensee) the right to make or sell its product, use its brand name or make use of technology in return for a fee or royalty payment

  • The product is usually made and marketed by the licensee in its own country.

  • The licensee follows set standards to protect the licensor’s brand or patents

  • The licensor monitors quality and may exert some influence on strategy in the new market

Advantages and disadvantages of licensing

Strategic alliances

• A strategic alliance is a formal agreement where two (or more) separate businesses team up to work on a specific task, while each business keeps full ownership of itself

  • Examples include designing a new product, making it, selling it or distributing it

• The partners agree on clear goals

  • E.g. how they will enter a new country together, how research costs will be shared or how savings or profits will be split

• Each firm brings something it already does well so the combined effort is stronger than going alone

  • Examples include ideas, production, sales outlets, or a strong brand

• They do not set up a new joint company

  • They stay independent and follow a contract that sets out who does what and how the rewards are shared

Advantages and disadvantages of strategic alliances

Direct investment

• Direct investment, often called foreign direct investment (FDI), is when a business sets up or buys assets, such as factories, offices or shops, in another country

• Typical forms include

  • Greenfield investment: building a brand-new site from the ground up

  • Acquisition: buying an existing foreign firm to gain its sites, staff and customers in one go

  • Major expansion: turning a small overseas branch into a full production base

Examples of UK businesses making direct foreign investments

Business	Explanation
Jaguar Land Rover	In 2018, JLR opened a brand new £1 bn assembly plant in Slovakia The greenfield investment gave JLR full control over production close to key European customers It also freed-up space in its crowded UK factories
Tesco	Britain’s largest supermarket chain has spent more than two decades building and expanding hypermarkets in Hungary and the Czech Republic These stores, distribution centres and local head offices were financed directly by Tesco

Advantages and disadvantages of direct investment