International Trade - I have been asked to investigate the possibility of a company (David Lloyd) and see what affects it could have on a new country outside the EU.

International Trade

I have been asked to investigate the possibility of a company (David Lloyd) and see what affects it could have on a new country outside the EU.

David Lloyd is a well-established company in England with over 27 gyms opened up in the England.

Its advantages are that it has a variety of different sports facilities available to the members that attend there. These facilities are used to good affect as you can go there any time of the day between its opening and closing hours.

In this coursework I will be looking at whether David Lloyd could be successful in opening up in China and whether people there would take a shine to as people have over here.

A variety of celebrities also have memberships with David Lloyd these include Trevor McDonald, Elton John, Ralph Lauren and various footballers.

International Trade

This is the exchange of goods and services between nations. “Goods” can be defined as finished products, as intermediate goods used in producing other goods, or as raw materials such as minerals, agricultural products, and other commodities. International trade commerce enables a nation to specialize in those goods it can produce most cheaply and efficiently, and sell those that are surplus to its requirements. Trade also enables a country to consume more than it would be able to produce if it depended only on its own resources. Finally, trade encourages economic development by increasing the size of the market to which products can be sold. Trade has always been the major force behind the economic relations among nations; it is a measure of national strength.

If David Lloyd wants to be successful in attaining a competitive environment with its other competitors in China the company will have to look at how opening up a gym can offer consumers benefits and problems.

The advantages of International Trade are that besides this basic advantage, further economic benefits result when countries trade with one another. International trade leads to more efficient and increased world production, as a result allowing countries (and individuals) to consume a larger and more varied bundle of goods. A nation possessing limited natural resources is able to produce and consume more than it otherwise could. As noted earlier, the establishment of international trade increases the number of potential markets in which a country can sell its goods. The increased international demand for goods translates into greater production and more general use of raw materials and labour, which in turn leads to growth in domestic employment. Competition from international trade can also force domestic firms to become more efficient through modernization and innovation. Within each economy, the importance of international trade varies. Some nations export cheaply to expand their domestic market or to aid economically dejected sectors within the home economy. Other nations depend on trade for a large part of their national income and to supply goods for domestic consumption. International trade is also viewed as an important means to promote growth within a nation’s economy; developing countries and international organizations have increasingly emphasized such trade.

Government Restrictions

Because international trade is such an integral part of a nation’s economy, governmental restrictions are sometimes introduced to protect what are regarded as national interests. Government action may occur in response to the trade policies of other countries, or it may be taken in order to protect specific industries. All nations seek to achieve and maintain a favourable balance of trade—that is, to export more than they import, or at least to keep the surplus of imports over exports to a minimum.

In a money economy, goods are not merely bartered for other goods; rather, products are bought and sold in the international market with national currencies. In an effort to improve its balance of payments (that is, to increase reserves of its own currency and reduce the amount held by foreigners), a country may attempt to limit imports by controlling the amount of currency that leaves the country.

Import Quotas

One method of limiting imports is simply to close the ports of entry into a country. More commonly, maximum allowable import quantities may be set for specific products. Such quantity restrictions are known as quotas. These may also be used to limit the amount of foreign or domestic currency that is permitted to cross national borders. Quotas are imposed with the aim of stopping or even reversing a negative trend in a country’s balance of payments. They are also used as a means of protecting domestic industry from foreign competition. Modern economic thought tends to condemn both quotas and the aims they serve as economically damaging protectionism.

Tariffs

The most common way of restricting imports today is by imposing tariffs, or taxes on imported goods. A tariff, paid by the buyer of the imported product, makes the price higher for that item in the country that imported it. The higher price reduces consumer demand and thus effectively restricts the import. The taxes collected on the imported goods also increase revenues for the nation’s government. Furthermore, tariffs serve as a subsidy to domestic producers of the items so taxed; the higher price that results when a tariff is imposed encourages the competing domestic industry to expand production.

Non-Tariff Barriers to Trade

In recent years the use of non-tariff barriers to trade has increased. Although these barriers are not necessarily administered by a government with the intention of regulating trade, they however have that result. Such non-tariff barriers include government health and safety regulations, business codes of conduct, and domestic tax policies, or even “austerity” campaigns aimed at cutting the consumption of (frequently imported) luxury goods. Direct government support of various domestic industries is also viewed as a non-tariff barrier to free trade, because such support gives the supported industry an additional advantage versus non-assisted industries in local or even international markets.

If a business is to be successful it will have to look at import quotas and tariffs as this can affect the companies affect on the market.

Because a quota is important to a company as it will lead to a restriction in supply in that market this will be affect to David Lloyd because they may only be allowed to open up a certain amount of outlets in China.

Tariffs will be of importance to David Lloyds in some perspective as the company will have to import a few things but the majority of its materials will be brought from China therefore reducing any imports needed in affect reducing the companies costs.

The imposition of quotas is important as when there is a situation in which there is free trade and no barriers to trade are imposed then at the world price Pw domestic producers will supply Q1 and Q1-Q2, which will be imported.

Figure 1

The following is an explanation of Figure 1

The supply curve to the domestic market will be Abd1.

The effect of imposing a quota will be to limit the amount of imported goods. Let us suppose the quota cuts imports from Q1-Q2 to Q1-Q3. A new supply curve can now be drawn incorporating the amount of the quota, BC, and the amount that domestic producers supply, AB ( at prices below Pw) and Cd2 (at prices above Pw).

The world price Sw no longer acts as the relevant supply curve. The effect of the quota will raise the market price to Pq. This will reduce the benefit to consumers causing a loss of consumer surplus.

The advantages of the quota is that its affect will be more clear-cut that that of a tariff. With a tariff the impact of the tariff on the quantity imported by a company will depend on the price of elasticity of demand for imports.

Tax will also be important to David Lloyds as their members will constantly pay a membership fee and some of the money will be taken by the government as a form of tax and as David Lloyds is a company based outside of China this will have a bigger affect on David Lloyds as more tax may be taken as the government know that it is making money outside China as well. So revenue of David Lloyd will be coming in from China and the UK and this will not have a positive affect and the tax deducted will be taken from David Lloyds overall profits and figures. This can cause problems for the company as they will have to manage their wages and expenses better and more efficiently in order to continue operating and not be taken into administration.

Absolute Advantage

In order to understand more fully how international trade takes place and increases the welfare of its citizens we need to consider why trade takes place. To do this the principles of comparative and absolute advantage takes place. A country has absolute advantage over its competitors its competitors if it’s able to produce more. As a company is able to do this the company will remain competitive in the market. This may be because of the fact that they may have more of a good service and provide more even with the same amount of resources which they have available to them.

This will be of some importance to David Lloyds as the management will have to consider how they can not only meet the resources required to their competitor gym in China but also how to beat it in terms of service as just matching them is not enough they have to offer that something special as consumers will be looking for that when David Lloyds tries to sell itself in China.

Principle of Comparative Advantage

David Ricardo when he talked about his theory said that countries should specialize and trade goods and services in which they have a comparative advantage.

It is easy to see that if countries have and absolute advantage there are rewards to trade for that particular company.

But if a company has absolute advantage over its trading partner in the production or amount of services offered to its consumers.

Specialization and trade can still result in there being welfare gains made from trade.

A country has Compartitive advantage in the production of a good or service that it produces at a lower opportunity cost that its traders.

Some countries even have an absolute disadvantage. This is when the country is not good at producing services and goods when compared to its trading partners.

The theory just argues that it is better for a country that is inefficient at producing a good or service to specialize that in the production of that good that it is least good at producing (best at producing).

The production possibility curve can be used to show the principles of this theory.

Figure 2

As you can see in Fig 2 Country A has an absolute advantage in the production of both maize and wheat. At all points its production possibility curve lies on the right of that of country B.

Country B has an absolute disadvantage. Due to the abundance of raw materials or more productively efficient production techniques, Country A is able to produce more wheat and more maize when compared with country B. Perhaps common sense tells us that Country A should produce both goods and export surpluses and Country B neither. However, when comparative advantage is considered a different picture emerges.

Consider the opportunity cost of Country A producing one more unit of maize. Half a unit of wheat has been expected. When country B produces one more unit of maize two units of wheat are predetermined. Economics is concerned with the allocation of scarce resources. Fewer resources are taken if Country A concentrates its resources in the production of maize. Now consider the opportunity cost of Country B producing one more unit of wheat. Two units of maize have been taken. When Country B produces one more unit of wheat only half a unit of maize is taken. Fewer resources are used if Country B specialises in the production of wheat.

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In the above case Country A should produce maize and Country B wheat. The surpluses produce should then be traded.

This is important to David Lloyd, as they will have to think whether or not they have a Compartitive advantage over the other gyms and this can play a vital role in their possible success and downfall of the company. David Lloyd’s will also have to produce well planned out marketing strategies in order to promote and sell their gym well to customers within China.

Manufacturing Activities of United States, China and ...

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In the above case Country A should produce maize and Country B wheat. The surpluses produce should then be traded.

Manufacturing Activities of United States, China and Afghanistan

The three different stages of development mainly consist of a developing country, a developed country and a non-developed country.

Developed Country United States

The United States is a developed country as it has all the resources needed to them and they are financially secure as the country is wealthy. The United States has established itself as a powerful country both financially and as a force. The government that has been elected also work together and strive to continue to improve the financial state of the country. This is seen in their sharp increase in GDP over the last few decades from 3,228.6 to 10,416.8 in 2002 see appendix a and fig 1. This helps to show the power, which the United States has. The United States is the worlds leading trading nation as it has a trade volume of US$1,330 billion in 1995. Total merchandise exports in 1995 amounted to US$585.7 billion, and imports to US$743.4 billion. Beginning in the mid-1970s, the nation’s imports of expensive foreign petroleum and of manufactured goods from Canada and Asia (especially Japan) created a trade imbalance. From 1984 to 1990 the annual merchandise trade deficit regularly exceeded US$100 billion.

Non-agricultural products usually account 90% of the yearly exports and agricultural amounts to 10% respectively and this shows Machinery and transport equipment make up the leading categories of exports, amounting together to about 33 per cent of the value of all exports. You can see this in appendix a under Structure of the economy which helps to show that manufacturing services and industry account a higher percentage when compared to agricultural. It shows that agriculture has decreased as have industry but services have seen an increase and all of these including manufacturing account for a higher percentage when compared with agriculture. Also the U.S.A.’s exports have rapidly increased which means that their products are more and more in demand by other countries. They have increased from 216,442 in 1982 to 693,517 in 2002 see appendix a.

Figure 3

America can also put across the fact that Manhattan, which is one of the boroughs of New York, is the headquarters of much of the world’s international trade although the Sep 11th tragedy did hinder the progress of trade within the country as well as the world. Below is a picture of the towers before the tragedy of Sep 11th. For a better view on what U.S.A imports and exports and it main trading partners see appendix c: 1.

Figure 4

China Developing Country

China is a developing country because over the last few decades it has seen a boom in the number of exports that it has needed to do also the technology it offers has improved vastly and this has seen a demand in the amount of countries and businesses that are interested in buying this new type of technology.

China has seen a steep increase in the number of exports it makes.

This has risen from 24,906 million $ in 1982 to 325,565 million$ in 2002 see appendix b this has had a good impact on China as the money that is received can be used to improve the conditions of the country and improving the infrastructure of the country and by this it can help travel and reflect well on the country as a whole.

As the money being received gets higher and higher and the financial situation of the country gets better and better it will look good as the money received can be used to open up hostiles for homeless people to live in and this can look good for the country as less and less people will be living on the street as China is providing care and help for the homeless.

Also money received by the exports can be used to help fund scientists with the money needed to find cures for viruses and reduce the amount of people being killed by disease and famine.

The SARS case, which recently came into China, is a prime example of this. China by doing this will be on its way of being a country that can be put alongside the ranks of the UK and USA.

In 1979 China relaxed certain trade restrictions, paving the way for increases in the relatively small foreign investment and trade activity. By 1996 exports totalled about US$151.1 billion and imports about US$138.9 billion. By 1994 over US$39 billion of foreign investment had entered China, and foreign-funded firms were responsible for over 27 per cent of its exports. The main Chinese exports included crude and refined petroleum, cotton fabric, silk, clothing, rice, pork, frozen shrimps, and tea. Among the major imports were machinery, steel products, other metals, cars, synthetics, agricultural chemicals, rubber, wheat, and ships. Japan is China’s chief trading partner, followed by Hong Kong and the United States. China also has widespread trade relations with countries such as Germany, Taiwan, and Singapore. Trade relations with the United States were in doubt in 1993 when the United States threatened not to renew China’s “most favoured nation” (MFN) trading status unless human rights conditions in China improved. However, in May 1994 the United States renewed China’s MFN designation, even though the Chinese government had made little progress towards improving its human rights record.

Figure 5

As you can clearly see in figure 3 China is quite a big country therefore the population in the country will be high so a lot of people within the country will be employed and earning money this helps the annual growth of the country. You can see in appendix b that about force has seen a steady increase from 1996-2002. Also China have to be aware of the fact that there are bound to be people homeless so China will have to cater for this as at the moment it is 5 % of the population which is under the national poverty line. Although China is still developing it will not be long until it is in line and as powerful as other countries such as the UK and U.S.A.

Afghanistan- Non-Developing Country

This is a country that is poverty stricken and a country that has problems with its finance this was all due to the talibans and their strict regime that they put people through and this was not good as the government was also heavily intimidated by Osama Bin Laden and his crew.

As the events of September the 11th grew it affected the country vastly as the person responsible for this was living in Afghanistan and in order for the USA to find him they had to bomb Afghanistan this lead to innocent lives being lost and a whole load of refugees leaving the country and inhabiting others.

This was not good for the country, as the damage that they received would put dents in their already poor financial position.

Although America helped out it still left problems with food and starvation and the amount of people killed.

This was not good, as Afghanistan had nothing really to export from which it could receive money and revenue.

As the war scenario cleared up a rebuilding process began in Afghanistan as they were now rid of the talibans regime and this meant that the country had a second chance to start again and build itself but the country is still in this process of building itself and it has still got nothing much to export and until the country has something to offer other countries such as oil, gold, silver e.t.c. It will not start to develop.

Most of the foreign trade of Afghanistan is in theory controlled by the government or by government-controlled monopolies. For the year ending March 20, 1991, annual exports earned about US$235.1 million and yearly imports cost US$884 million. The USSR was the leading trading partner in that year. Reliable estimates for more recent years are scarce, in view of the continuing civil trouble. Principal exports were natural gas (42 per cent), dried fruits and nuts (26 per cent), cotton, rugs, and karakul skins. The leading purchasers of Afghan products, in addition to the USSR, have been Pakistan, the United Kingdom, Germany, and India. Imports include textiles, building materials, petroleum, machinery, hardware, tea, and sugar. As you can see Afghanistan is a relatively small country so it would be easy to intimidate and as it has a low economy and little defense this would be an ideal country to rule. Also Afghanistan is isolated and people living there are relatively poor as there are certain people with money there such as Osama Bin Laden who had money. Also the country has very little natural resources it can offer to other countries where countries such as India have gems jewels and tea that it can offer and Afghanistan is limited to resources it can offer.

Figure 6

Current Export Activities of David Lloyd’s

David Lloyd’s is at the developing stage as it is still expanding its business and it is currently situated in the UK with over 55 clubs opened up but they are currently in the stage of opening up a variety of new clubs one in Brussels this will be the first club built by David Lloyd’s which is outside the United Kingdom.

The expansion of David Lloyd’s will help the world know that this is one off the best gyms around.

The gym in Brussels will continue the expansion of David Lloyd Leisure and this will be the first mainland European club. David Lloyd Brussels will open late 2004 and the gym will have a exceptional array of facilities aimed at the growing Belgian market. The club will be situated in the Uccle district of Brussels and occupies a six-acre site. Figure 7 helps to show clearier where the club will be situated.

Figure 7

The club will offer the following facilities

55 indoor and six outdoor tennis courts
2 squash courts
2 Studios
Gymnasium
Enhanced Food and beverage operation
Crèche
Health and Beauty suite
25m Indoor and Outdoor
Spa area with steam, sauna, Jacuzzi and sun beds

David Lloyd Brussels will be the first large scale and up-market tennis, health and well being club for families and this club will undoubtly be one of the finest clubs in Europe. Also the fact that David Lloyd’s has taken over a Madrid Club also helps t show that they are starting to develop as a business. The club at Madrid also boasts a variety of facilities this shows that David Lloyds is investing well and developing. Although the club is not named David Lloyds it is owned by Lloyds.

SLEPT Analysis for David Lloyd

Social Benefits

This will be of a benefit to the public in China because it will make the place more sociable as people will join to make friends and work out.

The consumers will be able to enjoy them selves and have a good time and not think about work for a little while.

Also it will make the public more healthier as they are training and using weights, playing sports e.t.c.

As the gym opens up it will lead to more jobs being available and all this will lead to public morale being good and this can be seen through a good atmosphere around the public.

As more and more people join it will help them become more involved in sport and as this happens future sports people may be found and this will be of a benefit of China as they will be able to show this through major sports events such as the Olympics.

Economical

This gym if opened up and run successfully and run efficiently will create jobs for people (the public).

As more people are employed by David Lloyds it will help to keep the employment rate up as more and people are become employed it will only have this effect if the amount of gyms opened up are of a huge number.

By employment rates going up it will have a good affect on the economic state of the country.

This will be helpful to the government as if the employees that are employed by David Lloyd are over 18 the government will be liable to tax them and this will be of economic benefit as the China government can use this to improve infrastructure and help charities or homeless people.

This tax money along with other businesses can be helpful to improve the economic state of China.

Political Factors

This will not have a huge affect on the daily day to day running of a business as the gym will not be interfering with any political issues and moral views although the gym will have to ensure that everything is safe and in tip-top condition. Because this will be vital if David Lloyds is to be given a permit to be able to run a gym.

Technological

This will be important to David Lloyds as they will want to make sure that their gym has a advantage over their rival gyms and this will be done through market research respectively.

The market research results gathered will help David Lloyds vastly as they will be able to determine whether or not they are to be successful.

The company can also visit its rivals gym(s) and see what sort of machines they have and what ideas they have thought of this can then be taken in by the company and related to their own gym.

Legal

This will be important to David Lloyd, as they want to ensure that they stay in the constraints of their legal laws and regulations. Because the company can come into a huge debt when concerning fines and this will affect their final profits.

David Lloyd also wants to make sure that any lawsuits are not filed against them.

David Lloyd will have to ensure that all safety requirements as authorised by the Chinese government are met before they open up and start business in the country.

How David Lloyd will adapt to meet the needs of other countries

David Lloyd will have to look at a number of different factors when it comes to adapting to other countries needs if David Lloyd’s was opened up in China.

Lloyd’s would have to carry out extensive market research to see whether people in China go to the gym and if they do the researchers can ask how many times they go. The research will be split into primary and secondary research. The research will range from Mintel reports to questionnaires. All this will help David Lloyd’s realise what facilities and prices Chinese people are willing to pay for memberships at Lloyd’s. This will give the company framework on which to build as David Lloyds has gathered information which is relative to them opening up a gym in China. As David Lloyd analyse the information and interpret it for their use they will have a better idea on how successful or disastrous the opening of a new gym would be. Lloyds would also have to look at social aspects of the country as countries have different routines when compared with England. For example in Italy the working hours are 3-10 this is because of the nightlife in Italy and this makes shops open later but close later. This is also the case with jobs. So David Lloyds would have to think about the opening times of the gym, as it should coincide with the hours the majority of Chinese people work. The company should cater for this by having opening times that are appeasing to the Chinese people. Lloyds would also have to think about the language barrier as this would be vital to the success of Lloyds as China have a range of languages Official Language Mandarin Chinese (Putongua) Other Languages Six other major Chinese dialects (including Tibetan and Mongolian) and at least 41 other minority languages. This would be difficult as China has a lot of languages to overcome this problem over the language barrier by having the staff of David Lloyd trained or hired depending on whether or not they speak the languages of China. Although not all the staff that Lloyd hired would be able to speak every language that people throughout China speak. So David Lloyd could employ staff who speak a variety of languages and they must be able to speak Mandarin which is the official language of China and any other language spoken by a staff member would be helpful as it could be all that easier to overcome customers who don’t speak Mandarin. Lloyd would also have to ensure that they adapt to the surroundings of China and the infrastructure that the country has.

The company would have to ensure that its club is situated in the right place and is easily accessible for the Chinese people. This will make travel to and from David Lloyd’s ‘China’ much easier. David Lloyd would also have to adapt to the currency that China has and Lloyd would have to adapt its prices depending on currency and labour costs, as labour costs may be cheaper then the costs of other countries such as the UK. All this would be considered by Lloyd’s in order to adapt to the countries needs and for the company to settle down fairly quick and get on with its business.

Intermediaries

Intermediaries are the middle people that represent the company. The intermediaries play a role in the amount of people/customers a business such as Lloyds receives. The intermediaries will be to a great resource to David Lloyds as when the company tries to open up and set up its business.

The company will have no links other than the ones that they knew before. Also as David Lloyds have no contacts in China and by the company using intermediaries David Lloyds can easily get customers and this will be to an advantage to them because the intermediaries that are used are very experienced and are good at doing there jobs.

The intermediaries’ main job is to bring about new customers to join David Lloyd’s and as more and more customers come in and join Lloyd’s the company will reap in the benefits. All this will help to cement Lloyd’s place as a strong competitor when it comes to gyms.

Intermediaries will provide the business not to worry about the hassle of bringing in customers, as intermediaries will be trying to find them customers. David Lloyds will also be able to employee people that are specialised in training people specific things such as aerobics. The instructors that come and teach their aerobic course will be paid by the customers so David Lloyds will not receive any money but it will be beneficial to them as they will be receiving customers and as the customers see the wide range of facilities they offer, also as they are of a high standard it will help attract more people through word of mouth, as customers will be amazed at the range of facilities David Lloyd offers.

There are a variety of benefits, which occur from using intermediaries this is because they narrow down the amount of operations that a business is required to do. Also the managing of the business and its operations are easy to manage.

The awareness in the market is also continuously looked upon by the business. The competitive edge it has also has over other organisations for example Primark will have more value added to its products and the nearest place accessible will cause the total value chain more effective.

Intermediaries are the middle people that represent the company. The intermediaries play a role in the amount of people/customers a business such as David Lloyds receives. The intermediaries will be to a great resource to Lloyds as when the company tries to open up and set up a business and trade. Also intermediaries will offer wide coverage as David Lloyd will have someone else selling their gym and it will benefit them in a wide coverage of markets.

The company as they will have no links in China and by Lloyds using intermediaries that are experience and good at doing their job this will create Lloyds to be in the hands of good intermediaries as they will try their best to gather customers for them and by them being experienced it will help create Lloyds as one of the strong competitors and the will announce there arrival in China.

Intermediaries would bring more business, as they would create marketing strategies in order to sell Lloyds onto the Chinese people.

The strategies will include what sort of way Lloyds should go about promoting their gym. There are a variety of strategies that can be used. The strategy is also the final piece of the jigsaw as Lloyds would have already have their objectives set out their Pestle analysis done, their customers, resources and competitors also made aware of.

The intermediaries will think of the four P’s place, product, price and promotion.

Possible strategies

Price

The following in price can also be introduced

Skimming- this is when you set a high price of memberships when the gym is first introduced this can cause more initial returns to the company. Skimming is more effective when the demand is inelastic and people are willing to buy the product at any price. But as prices will eventually have to be lowered many people may wait until this happens and then go out and buy the product. The price will have to be lowered as the competition commission may intervene if they think that the price has been kept artificially high for too long. So skimming does have its advantages because if the price first introduced is high people may buy the product because the product that is being brought may have a novelty or scarcity value. Computer games are normally associated with taking this pricing strategy on board.

Penetration- Setting a low price of the membership when the gym is opened this guarantees entry into the market. This is used by companies to ensure that they gain a foothold in the market so that they can establish themselves in the market which is very competitive and after they have accomplished this they will start to raise prices either progressively raised or selectively. Examples of companies that have used this are digital when they brought out their new boxes. Also Gillette had used this as well because they sold their razors for cheap but then sold their blades for a higher price. Exporters have also used this method as the Japanese motorcycle industry found out their means of penetration pricing paid of immensely as it virtually destroyed the UK industry. The method is usually most effective when the demand is elastic so that consumers are usually tempted away from their usual supplier.

Competitive pricing-This is a situation where the business sets a price of their product, which is roughly similar to its competitors. Much will depend on the type of competition that exists for the product particularly the number of sellers and the buyers. This works most effectively if the cost structures of the companies are roughly similar. This sort of pricing strategy may be used by companies that already have a established market share and certain companies may offer a unique selling point in order to set itself apart from other companies and the actual price between the products may not be a part to play in means of competition and the companies will try to use something else in order to compete such as special offers and they may even deploy tactics such as advertising on TV e.t.c.

Also as the club is opening up in China the membership fees will vary, as labour costs will be cheaper in China. Thus David Lloyd should not charge as much as they do in the UK as labour costs and income of people has to be taken into consideration.

Product

A product features and benefits associated with goods and services it is part of the 4 p’s.

The product which is a gym will give the customers something which has not been put on the market it will entail both tangible and intangible benefits along with design and performance.

The tangible benefits will be-

-Up-to-date facilities available

-Top class services

-Experienced staff

-Reasonable prices

The intangible benefits will be: -

-Luxury gym

-Sexy and swarf facilities

-Security of knowing you are getting fit

-Knowing you are attending a top quality gym

Tangible benefits- These can be measure i.e. a gym in Southall which only has one opened up is obviously not going to be as good as Lloyds as they have a number opened up In the UK.

Intangible benefits- these are not measure and emphasis more on lifestyle i.e. Hagen dazs ice cream this emphasises on pleasure e.t.c.

Promotion

The third P will be promotion this is about communication it tells customers about my product and the extent to which they are filling a gap in the market. Promotion is all about persuading the customer to buy it normally consists of above the line and below the line.

Above the line normally consists of TV and the Internet.

Below the line this consists of posters and leaflets

Promotion Advertising

Below this line Above the line

Posters Using the media

Leaflets TV Radio

Brochures Newspaper

Must reflect target audience

During promotion the product may enter sponsorship deals e.t.c. if the gym was to be sponsored by a well known magazine and the advantages you would gain would be:-

A wider range of potential customers would see it. The sales could also go up.

But disadvantages would be you would be held to a contract and the company would have to pay in order for the product to sell. Promotion should always be informative, persuasive and reassuring.

Promotion can also inform people about new products by:-

Direct selling-Customers are approached directly this will tell them about the gym and what its uses are.

Direct marketing- this includes mail shots and this can include detailed information about the gym i.e. detail about facilities

Point of sale- Promotional material is often used where the product is being sold. It may include models of the gym and people can look at it. Special offers I can say if the customers at the point of sale attend this and decide to buy membership to the gym they get free accessories like tennis balls, tennis rackets and trainers.

Incentives- This includes bonuses and bonus points I can say when you buy membership to the gym and then when future gyms are opened up then you can go to that gym with your existing membership.

Besides TV, cinema and radio all other forms of promotion are seen to be below the line this would include direct selling, and promotional activities such as incentives. Businesses normally use more then one method to promote their product. They will have a mixture of activities. This can be known as a promotional mix. The mix will need to be balanced so it can be effective as possible. The mix can depend on

*The size of the market

*The type of product

*The cost.

From the list above a company can determine the promotional mix because if the market is big already it will be harder to promote a product as consumers will be spoilt for choice and the product will have to have a good USP in order to sell effectively and get notice of some consumers. The type of product will also depend on how well a product sells for example if a new tablecloth was introduced to the market it wouldn’t really affect choice unless the tablecloth had something unique to offer. The cost of a product is always important as it can make or break your product. Because if a cheap product came out consumers would think it had no quality but if the price was set to high some people would not be able to afford it. Lloyds will also have to think about the way their going to advertise the product, as they will have to accommodate their promotion due to what Chinese people want and their tastes and attitudes.

Place

Place can also attract customers if you decide to attract people to the gym at a area like a small town not as many people would come to see it, but if you situated the gym in a big area more customers are expected to come the main reason is because the areas are seen as a place of quality e.t.c. The key questions you have to ask yourself are:

What is the best place for opening up a gym so it is reaching potential customers?

How can I convince customers to come to the gym?

What’s the most effective way to get the gym to be acknowledged by customers?

Although Lloyds is not selling a product information on how products get to consumers will be useful as it will help Lloyds find out how they can get their gym to customers obviously it can not be done traditionally as this would be hard but place would still be important all the same as the gym has to be situated in an area which is busy and lots of business people go and people surround as this will help customers come to the gym as some business people may go to it as it is right near their work. This will be done through primary and secondary research.

The primary research is available already this is reports and Mintel reports which can be found thorough the internet and secondary research is information that the company has to get themselves this can be through questionnaires.

From the information gathered David Lloyd would be able to find out particular information such as how much customers are willing to pay for membership.

Problems with Intermediaries

The problems that may occur from this is that David Lloyd’s reputation is at stake because it is already a well established company and David Lloyd’s have it own objectives and these objectives may interfere with one another as if David Lloyd wants to make a certain amount of profit and reduce staff wages by opening up a new club the objectives may not be met.

The companies control over sales may be limited as they are allowing others to sell their service to the market.

The profits of the company may be affected depending on whether it is successful or not as David Lloyds is not from China it will affect how much commission and taxes they have to pay. All this will affect the financial status of David Lloyd.

Chosen Country and its main trading partners

My chosen country is China as I said before China is a developing country this is because of the fact that it has seen a steep increase in the number of exports the country makes and if this continues to happen then the economy state of the country will increase and make the country developed.

The current currency of China is the yen and as well as having a wide range of resources available to them it has also got to import products from other countries because like any other country they have not got everything available to them. China has to rely on importing machinery, chemicals, synthetics and food. For a better breakdown on what China exports and imports see appendix c. China is a big country as you can see below in figure 8. The fact it is so big will be a problem as David Lloyd’s will have to decide where it wants to situate its new gym there will be a number of different factors that affect the decision they will range from accessibility to manageability.

Figure 8

Like any other country China has trading partners that it imports and exports from the countries that China trades with are Hong Kong, Japan and the United States this is what China sees as its main trading partners. They exchange products with one another from this David Lloyd will gather information on what is exported and imported this will be helpful when it comes to them importing machinery and tools to build their gym. As Hong Kong may offer cheaper and better materials than the United States. This will be important when it comes to looking at the budget that David Lloyd has and if they save money a higher profit will be made by the company.

Barriers and trading agreements to trade China may have

There are a number of things that affect the running of a business they can be barriers and agreements that the country in which you are launching your product has agreed to.

The barriers can be any number of things these can be things such as tariffs and quotas.

Tariffs

This is a tax on imported goods. If a business tries to import a product with tax added on the demand will fall of the particular product. Tariffs are like taxes, which can be levied on all imports or on specific commodities. The effect of a tariff always depends on demand of the product. If there is relatively inelastic demand and the domestic industry is unable to produce the product at a price which is less than the import price plus the tariff then the tax will be relatively ineffective.

Quotas

A restriction, which is physical on the number of products that can be imported. For example in the 1970’s and 1980’s there was a restriction on the number of vehicles that could be imported. Quotas may be statutory (imposed by the government) or voluntary.

China will like any other country have quotas and tariffs this will affect David Lloyds as they may have to pay extra causing profits to decrease. Imports on machinery to make the product will affect how much Lloyd pays. Also the fact that a new gym has to be made will cause David Lloyd’s to reach deep into their pockets and fork out money so that they could finance the project. But quotas will restrict the number of products that David Lloyd can import, as it will cost them even more and add onto their expenses.

There are a variety of barriers to trade these are barriers that increase costs and barriers which prevent market entry as well as barriers which distort the market.

Barriers, which increase costs

An example of this type of barrier might be unnecessary delays at customs. Whilst this may not prevent competition, it does increase the cost of the incoming or outgoing product and this may deter competition.

Barriers that may prevent market entry

Examples might include the technical requirements laid down by various member states governing the standards required of the products. The ‘public procurement’ policies, which are frequently adopted whereby a government will only buy goods or services from its own country. Barriers of this nature will actually prevent competition from taking place this can affect David Lloyds as it can have an impact on whether the government will buy Lloyd’s services of them, as they are not from China this can cause David Lloyd’s not to be successful in the launch of its new gym.

Barriers, which distort the market

Specific taxes and subsides and price controls will distort the level of competition, which is possible within a country. This type of policy will obviously favour the native nation. This can affect David Lloyds, as they want the policy not to favour the China and you want the government to favour other countries such as the UK because Lloyds is from there this will distort the level of competition in China.

Customs Union

Association formed when two or more independent states agree to eliminate or reduce trade barriers among themselves and to adopt a common trade policy towards outsiders. Customs unions are designed to lower costs of imported goods and to enlarge markets. They inspire commerce and industry within the union by allotting to each member a specialized economic structure in which each country may concentrate on those products that are easiest to produce in terms of its resources and, when possible, may import other essential products from the member countries at least expense.

Economic and Monetary Union

(EMU), ongoing process with the aim of establishing a single currency and a single monetary authority in the European Union (EU). The EMU is a basic aspect of the project of European political and economic addition.

The idea of EMU was first clearly expressed in the Werner Report (1970), which proposed monetary integration by 1980. Further progress was halted by the oil shocks and worldwide inflation of the mid-1970s and the almost inevitable disagreement of exchange rates in response to these developments.

Subsidies

Government grants to those who produce or supply goods or services. The effect of a subsidy is always to keep prices below what they would be in a free market, even though the stated aim of government may be to keep a company in business, support the incomes of producers such as farmers, or to maintain what are considered socially desirable services such as public transport links to remote areas. During the post-war period it has been common for governments to give subsidies to companies. British taxpayers funded huge subsidies to what used to be British Leyland and is now the Rover car company. Other European carmakers in countries such as Italy and France have also received large amounts of state aid. Exporters of farm produce in the European Union (EU) get refunds of the difference between the EU's internal prices and the lower world market price.

Lloyds can remove the barrier but it is not going to be easy. But they can do this by using GATTS trade policies. They will help Lloyd’s in numerous ways and this will cause GATT to see if the policies and barriers have a way around them. The WTO could also help as China is part of them and it has laws which state that eliminates dual pricing and say’s that their should not be discrimination.

World Trade Organization

International body established to promote and enforce global free trade. The World Trade Organization (WTO) was founded in 1993 by the Final Act that concluded the Uruguay Round of multilateral negotiations under the General Agreement on Tariffs and Trade (GATT), which it supersedes, and exists to administer and police the 28 free-trade agreements in the Final Act, oversee world trade practices, and referee trade disputes referred to it by member states.

GATT

General Agreement on Tariffs and Trade (GATT), treaty signed at the Geneva Trade Conference in 1947 by representatives of 23 non-Communist nations, including the United States. The major achievement of this agreement was the formation of an international forum dedicated to the expansion of mutual trade and the appeasement and settlement of international trade disputes. This replaced the proposed formation of a United Nations (UN) International Trade Organization, which failed to arise due to war tensions. Going into effect on January 1948, the treaty was accepted by an increasing number of nations. By 1988, 96 nations, representing a major share of world trade, went to GATT as full contracting parties, with others participating under various arrangements, including de facto treaty acceptance. GATT members have sponsored eight specially organized rounds of trade negotiations from 1947. The seventh conference, the Tokyo Round, was completed in 1979. The eighth round of trade negotiations, the Uruguay Round, began in late 1986 and was finally concluded three years late in 1994, with final agreements that included the super session of GATT by the World Trade Organization.

Trade Polices

GATT members studied and proposed policies to minimize new and existing trade barriers, including reducing import tariffs and quotas and abolishing superior trade agreements between member countries. Tariff concessions were negotiated on the principle of giving in return. A concession made on an item applied to all contracting parties, though a country could request an escape clause in order to withdraw its original acknowledgment in case a tariff reduction causes serious injury to its domestic industry. A basic foundation of GATT was the principle of unbiased trade relations between member nations. Countries under GATT's authority agreed to a policy of most-favoured-nation status among members. These nations agreed to treat all other GATT members equally. All tariffs, whether or not determined by a concession, were included under this policy. GATT members in theory advocated the closing down of all non-tariff barriers to trade. The first attempt to reduce such barriers was made during the Kennedy Round talks (1962-1967). Much emphasis was placed on further reducing these barriers during the Tokyo Round and the Uruguay Round.

Trading agreements that China has will be with the United States, Hong Kong and Japan so any agreements will be with their trading partners. The trading agreements may be that China has to export an x number of machinery and clothes to the United States by a certain time. This may also be the case for Hong Kong and Japan. China will do this and the United States and Honk Kong as well as Japan will have agreements with China as they may also have to make a y amount of products and export them to China by a certain time. The trade agreements may be useful depending on what is imported and exported by China.

Also as China is part of ASEAL helps, as they are part of a alliance of eight independent nations. ASEAN was founded in Bangkok in August 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand; Brunei joined after attaining independence in 1984, while Laos and Myanmar were admitted in 1997. The permanent subdivision of the group is in Jakarta, Indonesia. ASEAN's principal objectives, outlined in the Bangkok Declaration (1967), were to accelerate economic growth and promote regional peace and stability.

Recommendations

David Lloyd will have to look into a variety of things in order to be successful in China and they will have to break down barriers such as the language this will be done only if they analyze the strengths, weaknesses, opportunities and threats that David Lloyds may have to deal with if they arise.

SWOT analysis

Strengths

The gym is well known around England and this shows that Lloyds has potential to become a success in China. See appendix e

It targets people who are looking to be fit as Lloyds offers top quality service and facilities. Appease the fat people of China.

Being part of David Lloyd offers incentives as you belong to a top quality gym, which provides excellent service.

Possible members will feel a significant change in their health if they join on the courses to lose weight e.t.c.

Labour costs will be cheaper than UK costs helping the financial status of Lloyd’s

As you can see David Lloyd’s offers a variety of different strengths and this can be taken into account to evaluate the possible success of David Lloyd’s if it opens up in China.

Weaknesses

There will be only one branch of David Lloyds opened up and people may find it hard to travel their all the time therefore they will go to their local gym.

Membership may be at too high of a price so therefore only certain people with enough disposable income can afford to buy a membership.

Language barrier may prove difficult for the staff, as there are a variety of different languages spoken in China and even if the staff speaks the main language Mandarin people in China may speak other languages thus causing difficulty in understanding.

As you can see there are also problems that occur and David Lloyd can go about trying to find a way around them and resolve the problem. This can to evidently play a part in how successful David Lloyds is.

Opportunities

David Lloyds is seen as a well-respected company and as people in China hear about the facilities through Lloyd’s using intermediaries Lloyds will be deemed a well-reputed club.

A lot of jobs will be available and thus helping the employment ratio in China

As more members come it will create a harmonious social environment because members will create more friends.

It will also create jobs for trainers as they can come to Lloyds and teach a class weekly and get paid for it, and at the same time Lloyd’s will be receiving customers

As you can see a number of opportunities will arise from this and this will be beneficial to David Lloyds.

Threats

David Lloyds will have fierce competition from rival gyms

If the language barrier is not sorted out then this will cause profit loss for David Lloyd’s

David Lloyd will have to find a suitable place to situate its gym as if the gym is placed in an isolated position then customers may not come thus creating losses for the company

Threats

David Lloyds will have to ensure that its machinery is safe and doesn’t hurt and possible user and regular safety checks on the clubs facilities will have to be taken out.

Personal opinion on whether David Lloyds will be successful if opened up in China

From the following SWOT analysis I have just done in my opinion David Lloyd would be successful, as David Lloyds has already decided to open up a new branch in Belgium and has another one opening up in Oxford.

And the continuing growth of the business will be of great help to the company and as David Lloyd’s opens up in China it will create a new market in which Lloyd’s can immerse itself in as the Asian market is still to be broken by Lloyds as they have never opened up one their before.

The reason for David Lloyd’s being successful is because it is already a well renound company and has established itself as a big competitor when compared to other gyms in the UK and it has opened up 55 clubs and it has over 285,000 members and this is why it is the UK’s number one health and fitness club.

If David Lloyd continue to grow and opens up in China it will be a great success as they have all the necessary resources available to them both financially and in terms of facilities and managing directors. Lloyds will offer a wealth of expertise from fitness specialists to tennis coaches.

I have personally seen the facilities it offers as I have a branch nearby where I live and the facilities they have are second to none.

Also Lloyds also has a personal bar in which people can just relax and this will be good in China as this means families can join and this will create more customers to join Lloyds.

Also as David Lloyd does here it will create a good friendly social environment where people can create new friends.

But David Lloyds will have to overcome a few problems and barriers such as the languages issue as China has a variety of languages spoken in the country

Bibliography

Below is a comprehensive list of the resources that I have used during my assignment that I have done on International Trade.

A Level Business Studies

David Symons, Andrew Adams

Pg 181-192 Information on International Trade

Business Studies Second Edition

Ian Marcouse, Andrew Gillespie, Barry Martin, Malcolm Surridge, Nancy Wall

Information on marketing strategies

David Lloyd Leisure information about facilities

www.davidlloydleisure.co.uk

United States and China at a glance

Internet sites

United States at a glance.com

China at a glance.com

The following was used in my assignment and I gathered and picked out useful information that was relevant.

International Trade - I have been asked to investigate the possibility of a company (David Lloyd) and see what affects it could have on a new country outside the EU.

International Trade

Absolute Advantage

This is a preview of the whole essay

Current Export Activities of David Lloyd’s

The club will offer the following facilities

How David Lloyd will adapt to meet the needs of other countries

David Lloyd will have to look at a number of different factors when it comes to adapting to other countries needs if David Lloyd’s was opened up in China.

Intermediaries

Possible strategies

Price

Product

How can I convince customers to come to the gym?

Document Details

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