Global factors impacting on UK business organizations

Assignment 2

Task 1

Introduction

Selecting an international UK company as an example to study and analyze the case. Topshop is my choice to illustrate the evidences that meet the criteria stated below.

4.1) Significance of international trade to UK business organizations

International trade refers to the exchange of capital, goods and services across borders. Countries engage in trade only if the gains outweigh the costs. Significance of international trade to UK business organizations can be explained by the concept of comparative advantages. If each country has comparative advantage to manufacture products to be traded, the trading countries can be benefited mutually.

International trade creates market opportunities of UK business organizations. If a British company only sells its products domestically and not introducing its product to foreign market, it would limit its potential. UK business companies are capable to maintain a steady sales performance from domestic market, as the brand has already established a goodwill in UK. In sight of this, Topshop set up branches in emerging economies, like BRICS. Therefore, under international trade, UK business organizations can have new market opportunity, which increases customer numbers and sales.

The European recession began in the US. It spreads to Europe rapidly and most European countries are suffering notable economic setbacks. In order to enhance competitiveness and increase market shares in both domestic and foreign markets, UK organizations establish their own brands worldwide through international trade. As a British organization, Topshop increases sales and profits by setting up branches globally. Since the domestic market of UK is small, Topshop expand its business in the countries that have larger purchasing power parity (PPP), like the US, Japan, Brazil, Germany and Indonesia, according to the IMF report (IMF, 2014). Topshop began its expansion in the mid-2000s; and set up retail stores, including those that are franchised, in the top 3 UK’s export partners (i.e. the US, Germany and the Netherland), leading to a double in sales performance. In sight of this, international trade is a key element for UK business organizations to expand its business, so as to enhance the sales performance.

4.2) Impact of global factors on UK business organizations

Businesses can be affected by external environment. Global factors influencing business includes political, economic, social, technological and environmental.

• Political factor

  It refers to the changes in government and governmental policies. Political factors influence the operation of business greatly. Topshop considers the stability of the political environment and governmental policies, when it broaden its business. In order to have a steady development of business, it chooses politically-stable countries to set up branches, such as Ireland (14 retail stores), Singapore (5 retail stores) and Hong Kong (3 retail stores). Topshop does not expand its business in Afghanistan and Syria, those countries that are politically-unstable.

• Economic factor

  It involves changes in the global economy. This factor influences on decision-making and operation of an organization, and purchasing power of potential customers. A rise in living standard imply an increase in demand of products, and thus providing greater chances for businesses to make profits, since customers are willing to spend money on fashionable items. Also, changes in the interest rate, wage rates, and inflation rate can also affect business. In case of low interest rates and increase in demand, businesses are encouraged to expand and take risks.

Since UK is a member of WTO, the proportion of imports into developed countries from all sources facing tariffs rates of more than 15% declines from 7% to 5% (WTO, 2015). For example, Japan, the US and Russia are developed countries. When Topshop desires to set up more stores in those countries, it can reduce its production costs because it can enjoy from the tariff cuts.

• Social factor

  It includes cultural aspect (e.g. religious, customs, lifestyle patterns) and demographic aspect (e.g. gender, structure of population, age distribution). In a global environment, the cultural and social differences are vary from country to country. In order to cater to different consumers, Topshop adopts localization to attract more potential customers in different countries by injecting different cultures during operation of the business. For instance, during New Year, Topshop in Hong Kong lunches a production line of red costumes, while Topshop in Thailand mainly lunches white costumes. Thai believes in Buddhism and white colour symbolizes Buddhism.

• Technological factor

  It helps the business to reduce costs and develop new products. Lots of information can be securely shared by means of databases and thus enabling vast cost reduction and improvement in service. The advancement of logistics results in lower costs of transportation. Topshop is able to provide free standard shipping on orders over a particular amount of money. It is a convenient way for customers to shop at home. They can purchase clothes or accessories through online-stores.

With the rise of Internet, social websites are ubiquitous. Topshop utilize e-commerce to attract more potential customers. It is an effective way to develop close relationship between customers and Topshop. Customers can share their opinions or outfits on Facebook, Twitter, Instagram and Tumblr; and Topshop can broadcast fashion shows via those social websites. Also, Topshop creates a blog on Inside-Out, providing some fashion ideas to netizens. It produces fashion films and posts them on YouTube. Topshop perceives the latest relevant technological advancements for its business can help stay competitive.

• Environmental factor

  In this society, environmental protection is essential to businesses. Topshop is involved in a variety of community initiatives actively, under its Corporate Social Responsibility (CSR) banner. It has long-term relationships with suppliers and works with them to make improvements to social, working and environmental conditions. The program deals with issues that are important to stakeholders, like livelihoods of the workers along the production lines, working conditions, community involvement and the reduction of the environmental impact resulting from the manufacture, distribution and sale of the products. For example, “fashion targets breast cancer” is the longest running charity collaboration of Topshop. Every year, it create an exclusively designed t-shirt, the proceeds of which go direct to the charity that gives help women who are diagnosed with breast cancer (Topshop, 2015).

4.3) Impact of policies of the European Union on UK business organizations

The European Union (EU) is a politico-economic union consisting of 28 member states. Member states and business organizations operating in the EU have to adopt regulations and directives created by the EU.

The EU promotes free trade between member states by imposing uniform tariffs, value-added tax (VAT), and consumption tax. Also, the EU operates a competition policy intended to ensure undistorted competition within the single market. As the competition regulator, the European Commission is responsible for antitrust issues, approving mergers, working for economic liberalization and breaking up cartels (Wikipedia, 2015). Therefore, Topshop can easily establish its business with little trade barriers to enter the European market.

Some policies of EU are beneficial to UK business organizations, meanwhile, some policies bring disadvantages. The members of EU supposed to adopt Euro as the common currency, but there are 9 countries, like UK, Denmark and Sweden, have not adopted Euro. So, there is an exchange rate problem. When some branches of Topshop are located at Eurozone, the revenue from those retail stores needs to be converted into British Pound. This may involves additional transaction fees while converting Euro into Pound, resulting in an increase of its production cost.

Conclusion

International trade is beneficial to a MNC, as it helps increase its market opportunity and sales. Various global factors can affect an organization’s decision-making and business strategies. The policies of EU can be advantageous or unfavourable to UK business organizations, however, the benefits outweighs the drawbacks.

References

IMF (2014). Report for Selected Countries and Subjects (PPP valuation of country GDP) [Online], Available: http://www.imf.org/external/pubs/ft/weo/2014/02/

[11 Feb 2015]

Topshop (2014). About Us – Topshop [Online], Available: http://www.topshop.com/en/tsuk/category/about-us-80/home?cat2=273012&intcmpid=W_FOOTER_%20ABOUT#fragment-1

[11 Feb 2015]

WTO (2015). Understanding the WTO – Tariffs more bindings and closer to zero [Online], Available: http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm2_e.htm [11 Feb 2015]

Wikipedia, the free encyclopedia (2015). European Union – Wikipedia, the free encyclopedia [Online], Available: http://en.wikipedia.org/wiki/European_Union

[11 Feb 2015]

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