Foreign investment
Foreign investment refers to an international business such as Apple Inc investing finance from other countries. Apple Inc does not sell products in only America but globally. Because the business sells on such a large scale results to the business receiving investments. The investment can be physical investment such as assets being in another country. The definition of this however can be extended to include lasting interests in enterprises that operate outside of the economy of the investor. In
terms of Apple Inc having a foreign investment would be offices and premises in many other countries. Having such assets is a foreign investment.
Developing countries
The developing countries allows trade and provides a large amount of contribution for the Apple business. These developing countries such as Japan and China allow Apple to make the products with the best resources. The country being developed will mean that there are large amount of educated people who will be able to increase the technology of the products which is what the company aims to do. The business will only sell its products if they are able to increase the technology each time releasing a new product. The social factors of the business are to increase the technology as time goes. People want to see products that are new, and if a business is not offering them with those products the business will decline. The latest product that Apple have introduced is the iPhone. This would have only been possible because of the developing countries such as China. Vast amounts resources have been used in order to design such a product.
Developing countries do not only have an impact on the technology of the products but also with the labour costs. Manufacturing products in America will be much more expensive than manufacturing it in another developing country as costs can be lower.
P2
There are many economic activities such as those that the government inflict upon that will either encourage or restrict international trade. For any international business it is an aim that they are able to trade around countries without any restrictions to gain full benefits of their business.
Barriers to trade
A trade barrier is usually referred to any government policy that is preventing any international trade from occurring. There are many forms of barriers of trade that can take place. These are:
- Import duty
- Subsidies
- Tariffs
- Import licences
- Voluntary export restraints
The import duty and tariffs can affect Apple Inc from trading their products overseas. The duty is placed when goods are moved across a political boundary.
Tariffs and Quotas
Tariffs and Quotas are government schemes to ensure that the economy is stable during international trade.
Tariffs raise the domestic price above the world price by the amount of the tariff. A tariff is a tax placed on imported goods that a business trades across the globe. If there is an increase in the domestic price it will lead to a decrease in domestic quantity demanded and an increase in the quantity supplied. Tariffs will have an impact on a business as it will tax the business for the import of goods. Higher tariffs increase the price of foreign goods relative to the domestic goods; this will then have a higher output increasing the savings. Tariffs raise the revenue for the government.
Quotas are restriction on the maximum amount of products that can be imported. Because of the restriction the amount available to consumers is restricted and the prices are increased. Using quotas creates a surplus of licence holders. A charge of fee for licences would be made in order for the government to capture surplus from import quotas. A quota is distributed in two ways:
- It can be auctioned off to the highest bidder
- The distribution of quota can be made without payments
In the case of auctioning off the quota, the revenue would go to the government resulting to the same affects of tariffs. Distributing the quota without payments would create extra surplus equivalent to a tariff.
Embargoes
An embargo makes it forbidden to trade with a certain country. This is done so that the country becomes isolated and makes it suffer internally. Reasons for this may be on previous disagreements with one country and another so the country may choose to inflict such restrictions upon them so that they are able to show such disagreements. Another reason for embargoes to occur is if a country owes a large sum of money to another. A way to resolve this issue may be to introduce this type of trade restriction until the country has received their payment in full.
Tax
There are taxes that are put on from the government on any service or product that is imported by the country. The main taxes are:
These have been previously been discussed.
Free trade
Free trade has many benefits for a business. However there are only a few free trade zones. These are:
- European Unions
- North American free trading agency
- Association of Southeast Asian Nations
- South American’s Mercosur
Having such zones allows a business to import and export without being charged by tariffs.
P3
The environment and the culture of another country can affect a business operating internationally in many ways. Each country will have its own culture and values, which will vary across the world. This will affect an international business as not only just one culture be considered but several. What may be acceptable in one country may not be in another.
The environment of another country will have factors such as:
- Political
- Economical
- Social
- Technological
The political factors will affect international businesses. The political factors mainly revolve around legislations in that country. If a country prohibits a business from exposing more than 35% gas emissions, the business operating in that country will have to abide to that. Other political factors that the business will have to abide is the way the country operates with the employment. A business cannot treat the employees of that country working for them to suit their needs but will have to consider how the country operates politically. Each country will have their consumer rights, environmental issues and government taxes and subsidies which will all need to be taken into account.
The economical factors for international businesses that will need to be considered are:
- Pay levels
- Labour, supply and demand
- Energy prices
The pay levels for each country will differ. A business will need to consider this as this will affect the financial aspect of their business. Each country will vary with the amount of pay levels. A business such as Toyota will have many people working for them all over. The amount of minimum wage will vary widespread because of the economical factors within that country. The labour, supply and demand in the country may cause issues to arise upon the international business. For example raw materials may have an effect on the country due to the import reasons. If country for example has restricted trade such as embargo this could affect international businesses operating in that particular country. This may cause the business to have to close the business in that country temporily or make other arrangements. Each and every business will use vast amounts of energy in order to provide the service or product. The amount of energy they use and will have to pay will vary from country to country. This like other factors will need to be taken into consideration, as a business
when locating themselves in other countries will have to evaluate whether the business operating there will be beneficial or not.
Social factors in each country will affect the businesses that operate financially. Social factors can be considered as those that are discussed below. A business operating internationally will find that the social factors constantly change. For example in most western countries the emphasis on diet is being emphasised upon society. Coca cola an international business may find that these social factors may have an impact on their product which could in affect reduce the sales.
Technology has become increasingly popular in the past few years. The internet especially has become a global network linking millions of computers across the world. Video calling has been set across from country to country and helps international businesses to communicate well between other countries. Other ways in which technology has affected international businesses is with the use of the internet. The internet allows products to be sold on a worldwide basis through e business. This will allow a business to increase its sales dramatically providing the marketing is done well.
The types of culture that will need to be considered are:
- Language
- Religion
- Values
- Attitudes
- Customs
- Education
- Work attitudes
Language is an issue that needs to be taken into account. The universal language spoken is English; however there are many countries which do not use English as a preferred language and would much rather speak a language that is in their own culture. Businesses need to consider language for many reasons. When selling products a business must consider the fact that English may not be able to be understood. For example Apple, the business has introduced many of its products all over the world and has had to introduce many languages into the products. The iPod and laptops have a selection of countries and languages installed which are asked to be selected when starting the product. Countries such as the UK and USA who both share English as their common language are also included as they also share cultural differences. For example the American’s refer to many things differently to what the English do such as sweets and candy. Another point to address is the communicational differences that will arise when the business chooses to work in another country. Apple Inc works mostly in China where the language spoken is Chinese. This can have a direct impact upon the business as the language many create communicational difficulties.
There are many religions in the world. Each religion will have its own beliefs and the business will have to take this into consideration when selling products. Some religions may forbid certain aspects such as listening to music where Apple will be
unable to sell many if its products. A way that religion can affect the business is by advertisements. Certain types of advertisements will be frowned upon such as someone showing too much flesh. Many businesses introduce this in their advertisements such as lynx. This type of advertisement may be restricted in many countries where there is no approval of showing flesh as it is frowned upon in society. An example of this can be the Islamic religion which forbids showing flesh. Such things should be considered by an international business when marketing their products.
The education of one country can benefit an international business. Many businesses operating in technology have seen the benefits that have come from countries such as China and Japan. The education of those in that country have led to minds that have enabled technology to increase to the next level, which has allowed many companies to be successful. Many other countries are restricted to the education that can be given such as India where not every child attends schools, colleges or Universities. Education can affect a business as different ways of teaching are imposed the children learning. For example ways of solving mathematical problems may be solved differently in one country than in another.
The attitudes and values of a country will differ across. Most cultures aim to have a society that does not inflict pain or harm on anyone. There are many cultures that do not have an emphasis on religion where as some do. Countries such as Bangladesh do strain religion upon all those living in the society. The way a person is looked at will also be perceived differently in each country. In Bangladesh a women wearing short items of clothing will not be valued highly of where as someone fully clothed will. Issues such as this will be taken into consideration by more businesses than other. Clothing designers for example will value this more than Apple will.
The work attitudes in one country may differ to that of another. For example some countries are able to work for excessive amounts of hours where this is no problem for the people. However in countries such as England there is a limit on how many hours a person is able to work for. The way people work will also have be culturally different. Some countries may force people to work in a very relaxed environment where as others may choose to work in a more pressurised environment. This will have an impact on companies that choose to operate their business manufacturing in other countries as the amount of production they produce will rely on how people work in their environment.
P4
International business are supported financially. The international monetary fund is located in America. The purpose of this organisation is:
- to monitor the global financial health
- present the guidance that is required by those who need it
- maintain the global monetary cooperation
- help international trading
- ensure financial stability
- encourage high levels of employment and work
- lower poverty in the world
International businesses are supported with loans and for the purposes of economical improvements. A world bank came into existence in 1940 to assist a country on the economic state. However to borrow money from the world bank a country must be part of the IMF. A requirement is made on developing countries such as the UK and USA to put money into the fund. The reason for this is to support those countries who are not as developed. Using organisations such as these will encourage international trading as support is available for those who wish to trade overseas.
The foreign exchange system can affect the business in many ways. Between two countries the foreign exchange system specifies how much each currency is worth than the other. The affects the international trading system as each currency is different in each country so when trading is involved a country may receive more on product or import a product for less. The value of rupees or yen are much lower than the value of pounds, so importing products from those countries will value you those living under the pound as they theoretically will be paying a much cheaper price from importing from those countries rather than getting what they want from the country they are in.
The balance of payments measures the payments that flow between any individual country and all the countries. This is determined by the imports and exports of goods, services, financial capital and financial transfers.
International debt is where the business owes payments through debt. The collection agencies operate as agents of creditors. The agencies will collect debt from these businesses on a percentage of the total amount owned by the business. A problem with debt collection working internationally is that the collection of the debt will require different language speakers and the knowledge of the different legal systems and laws that are placed around so that this debt can be collected.
P5
Marketing
With many international companies there are many forms identifying the markets. The ways in which identification of markets can take place is:
- demographic
- geographic
- psychographic
These will differ from each country however from the general response of each country a business will base their market upon that.
Demographic refers to the general classification such as age, gender, income levels, religion, occupation etc. An understanding of the demographics of customers is important for most businesses when releasing a product internationally. It is important that an international business does the right market research as different countries will react differently for example western cultures will react differently to the market research undertaken that non western cultures. Certain products may be acceptable in some countries where as in others it may not be. Taking McDonald’s as an example, if they introduce a new product containing pork, countries with a large population of Muslim’s or Jew’s will not purchase that product as they are forbidden to eat it.
Geographics is refered to where a person lives. Different countries will have different customs, beliefs and values as discussed previously. The type of country it is will influence the way people live and spend their money. The habits of one country may be different to another. For example one country may enjoy spending money luxurious items such as gadgets whereas the other may spend money on more valuable things such as housing property.
Psychographic is the lifestyle, attitudes, personality and values. Each country will have different types of poepel however this may be divided into further types within the country itself for example England will have Goths, Chavs, etc. When selling products these factors will need to be considered.
Apple will use these marketing identifications tools in order to establish which country will be most beneficial in selling its products. The demographic identification will be used to see whether the countries are able to afford such items at the price that the business aims to sell them for. Apple business will not sell its products in a third world country after looking at the demographics. The business will also take into account the geographical factors and psychographic factors. The identification of products will allow Apple to consider and evaluate which country will be most beneficial to the business and will enable them to have an increase in sales.
Advertising internationally will take place through many forms. The advertisement of Apple varies from country to country. When considering to advertise the products of Apple the business will need to take into account the national and international legislations of that country, trade and industry practices and relevant advertising codes and standards.