Factors Affecting International Expansion

Answer (a) 

Fame Pharmaceuticals is a well established company in Myanmar operating since 1994. The company specializes in providing natural and organic herbal products to the citizens of Myanmar. The company actively promotes eco-friendly practices in their business operations to support the economic and cultural sustainability for the local farmers.

Fame Pharmaceuticals aims to expand their business in the UK. The following analysis of UK shows various factors that are suitable for international business.

• UK is relatively fair in terms of business regulations, with public influence on the working system, proactive and politically stable government generating confidence among the international investors.
• Economically, UK is in a better position than Myanmar. It has world’s 5^thhighest GDP, only second to Germany in Europe (Mason and Harrison 2015). It has a big diversified economy with large private and public sectors that is drawing high amount of Foreign Direct Investment (FDI) every year from investors across the world (Feenstra 2015).
• Standard of living is very high in UK  
• UK is one of the advanced countries of the world, and hence, it offers high quality innovation skills and expertise in IT and science, high level of international competition to stimulate the growth and intellectual property protection laws (Barber, Metcalfe and Porteous 2016).
• UK has been contributing largely in environmental projects, which could provide a good platform for Fame Pharmaceuticals and its organic, natural and eco-friendly products.
• The labor laws of UK contain many beneficial laws, such as, minimum legal wage, more generous maternity and paternity benefits, and reduction of discrimination in the workplace (Keeble and Wever 2016).

All these factors can are beneficial for international investors to expand their business in the UK.

On the other hand, there are some factors that can restrict the investors from growing their business in the UK.

• Corruptions in the country that hampers the growth of the businesses to some extent.
• Recovery of the economy was slow after the global financial crisis and huge money is spent on giving free services to the public.
• There is increasing dependency ratio as the level of unemployment is rising, along with some social unrest regarding the migration issue.
• The migration laws are being stricter which could create problems for the immigrants.
• Technological growth is quite slow compared to the other developed countries, such as USA (Mansfield and Reinhardt 2015).
• Lastly, the economic uncertainty, emerged due to the Brexit referendum, has depreciated the GBP, which makes the business opportunities less profitable (Keeble and Wever 2016).

Answer (b) 

Trade between the countries can be increased by reducing the trade barriers, such as, reducing the impact and extent of tariffs and taxes on the imports, providing export subsidies and increasing competitiveness in the global market. Policies with high tariffs and import restrictions lead to a fall in the level of international trade, which affects the balance of payments of the nations (Rugman, Collinson and Hodgetts 2006). Brexit might have negative impact on the expanding business of Fame Pharmaceuticals. Due to Brexit, UK will lose its access to the single market of European Union, which would raise the cost of importing and reduce the benefits of exporters (Cumming and Zahra 2016). Taxes and tariffs will be increased, leading to a higher price of the products. There is an uncertain business environment, which make the international investors apprehensive about their profit and losses from the business or investment ventures (Dhingra et al. 2016). As the value of GBP has fallen dramatically after the Brexit referendum, the new venture of business expansion might not be as profitable as it would have been earlier.

Monetary environment is one of the major conditions other than political environment that determines the direction and extent of foreign trade among the countries. Monetary environment includes the economic factors, such as, exchange rate fluctuations, international payment methods, monetary policies by the central bank, trade policies and regulations, trade insurances, inflation level in the country and UK and the EU grants (Cavusgil et al. 2014).

Bank of England, the central bank of UK, determines the monetary policies for the nation. The objective of monetary policies is to increase the money supply in the economy, reduce unemployment and inflation. The changes in the short term interest rates influence the investors before making any business decision. Lower interest rate attracts more international investors, as they now have to pay less money as interest and gets more return on their products or services. At the same time, lower interest rate lowers the value of the currency relative to other country’s currencies, which raises the import cost and decreases the export cost. This will have a positive impact on the local industries, as the manufacturers would become more competitive for the global market. The lower interest rate and value of GBP will help Fame pharma to avail the benefits in UK market and in the global market through the export of more products. The access to the foreign exchange increases in case of international business operations (Galí 2015). Level of export increases leading to inflow of more foreign exchange, which Fame Pharmaceuticals can reinvest for further expansion.

Impact of Brexit on the Business

The international payment methods are particularly important for any international business. Fame Pharmaceuticals must use the technologically advanced method of payment while expanding its business in UK. Wire transfer is the most suitable method of payment in case of international business expansion. The usage of credit note, and third party intermediates, such as, Paypal, are helpful in monetary transactions across many countries and makes operations easier (Hardy 2014). Apart from that, the UK and EU financial grants are beneficial to promote the growth of the industries, which in turn helps in decreasing inflation and unemployment. Institutions such as, ECGD (Export Credit Guarantee Department), UKTI (UK Trade and Investment), World Bank, IMF and EMU (European Monetary Union) provide monetary support to the investors bringing in FDI into the UK (Hamilton and Webster 2015). These grants and support services are helpful for an international business to take up the expansionary ventures. There are many policies that support businesses with sustainability practices and eco-friendly products, which will help Fame Pharmaceuticals of Myanmar to expand its business in UK successfully.

There are few commonly used market entry strategies for expanding the business internationally. Those strategies are as follows.

• Franchising the brand:Firms with a repeatable business model, such as, food chains, and established brand takes up franchising strategy by allowing the other business owners to take up the name and open an outlet in exchange for a certain fees and certain profit cut off (tradestart.ca 2015).
• Direct exporting:It is about directly selling the product in the international target market through agents and distributors. Before entering the foreign market by opening up stores or franchises, direct exporting is helpful to gauge the demand for the product and anticipate if it will be successful in that market.
• Partnering up: This strategy is most suitable for business expansion in a foreign country. Partnering up helps the new company to know about the characteristics of the foreign market and its regulations well and with the help of the local partner, it can gain a headstart in a new land.
• Joint ventures:This is a legal partnership between two companies with an equal share in the investment and profits.
• Buying a company:It is another easier strategy to enter a new market in a foreign land. Buying up a company helps the foreign business to gain already an established market share and brand image of the existing local company. The regulations will already be placed and licensing would have been done. However, this also brings along the problems faced by the old company.
• Turnkey products or solutions:These are particular to the businesses providing services like environmental consulting, construction, engineering and architecture. In this strategy, a product is developed and turned over to the client, which is mostly the government for direct plantation. The financing come from international financing agencies, such as, IMF and World Bank (tradestart.ca 2015).
• Piggybacking: The firms with unique products or service sell those to large domestic companies operating in the international market to include the product in their inventories. This reduces the risk and cost of expansion as the marketing is being done by the larger firm in the international market (bubblestranslation.com 2017).
• Licensing:In this strategy, a company transfers the rights of using the good or service to another company. This works best when the new entrant has a large market share in the new market.

Fame Pharmaceuticals can choose the strategy of piggybacking with a local pharmaceutical company of UK. Although, Fame Pharmaceuticals is an established company in Myanmar, it does not have a market share in the UK. Hence, the cost and risk of expansion would be large if they want to adopt any other strategy, such as, buying an existing company, joint ventures or partnering up. Piggybacking is an easier strategy for initial ground break in the UK. The initial marketing and brand creation will be done by another large domestic company and the performance of the products will help Fame Pharmaceuticals to expand further in the UK (Agarwal, Dreszer and Mina 2017).

References

Agarwal, A., Dreszer, J. and Mina, J., 2017. What’s next for pharma in emerging markets?. [online] McKinsey & Company. Available at: https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/whats-next-for-pharma-in-emerging-markets [Accessed 16 Mar. 2018].

Barber, J., Metcalfe, S. and Porteous, M. eds., 2016. Barriers to growth in small firms. Routledge.

bubblestranslation.com, 2017. 8 Strategies to Enter a New Foreign Market. [online] Bubblestranslation.com. Available at: https://www.bubblestranslation.com/8-strategies-to-enter-a-new-foreign-market/ [Accessed 16 Mar. 2018].

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.

Cumming, D.J. and Zahra, S.A., 2016. International business and entrepreneurship implications of Brexit. British Journal of Management, 27(4), pp.687-692.

Dhingra, S., Ottaviano, G., Sampson, T. and Van Reenen, J., 2016. The impact of Brexit on foreign investment in the UK. BREXIT 2016, 24.

Feenstra, R.C., 2015. Advanced international trade: theory and evidence. Princeton university press.

Galí, J., 2015. Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press.

Hamilton, L. and Webster, P., 2015. The international business environment. Oxford University Press, USA.

Hardy, J., 2014. International payment methods – which is best for you?. [online] Real Business. Available at: https://realbusiness.co.uk/exports/2014/03/05/international-payment-methods-which-is-best-for-you/ [Accessed 16 Mar. 2018].

Keeble, D. and Wever, E. eds., 2016. New firms and regional development in Europe (Vol. 9). Routledge.

Mansfield, E.D. and Reinhardt, E., 2015. International institutions and the volatility of international trade. In THE POLITICAL ECONOMY OF INTERNATIONAL TRADE (pp. 65-96).

Mason, C.M. and Harrison, R.T., 2015. Business angel investment activity in the financial crisis: UK evidence and policy implications. Environment and Planning C: Government and Policy, 33(1), pp.43-60.

Rugman, A., Collinson, S. and Hodgetts, R., 2006. International business. 4th ed. McGraw-Hill, Inc.

tradestart.ca, 2015. Market Entry Strategies. [online] Tradestart. Available at: https://www.tradestart.ca/market-entry-strategies [Accessed 16 Mar. 2018]