Question

Question 9:

Read the following mini-case and answer the questions listed below: Jim Logan’s business, the Sports Exports Company, continues to grow. His primary product is the footballs he produces and exports to a distributor in the United Kingdom. However, his recent joint venture with a British firm has also been successful. Under this arrangement, a British firm produces other sporting goods for Logan’s firm; these goods are then delivered to that distributor. Logan intentionally started his international business by exporting because it was easier and cheaper to export than to establish a place of business in the United Kingdom. However, he is considering establishing a firm in the United Kingdom to produce the footballs there instead of in his garage (in the United States). This firm would also produce the other sporting goods that he now sells, so he would no longer have to rely on another British firm (through the joint venture) to produce those goods.

1. Given the information provided here, what are the advantages to Logan of establishing the firm in the United Kingdom?

2. Given the information provided here, what are the disadvantages to Logan of establishing the firm in the United Kingdom?

Answer 1

1.

ADVANTAGES OF SETTING UP BUSINESS ABROAD (UK)

i) A large pool of talent

There are a number of locations across the world where you can gain access to largely untapped pools of skilled workers. In places such as Asia, there are highly skilled workers available that welcome new and innovative ideas to take their skills to the next level. There are also firms in the native country that can help with resourcing. As an example, if you were considering recruitment in UK to start your business, then you could consider outsourcing the task of recruitment to INS Global, as they will have local knowledge and expertise.

ii) Untapped market opportunity

Another benefit of starting a business abroad looks at the possibilities of tapping into less saturated markets. Your current industry may be extremely competitive on home soil. However, if you look at the same markets in different countries, you may find a virtually untapped opening. These opportunities mean you could potentially open yourself to a ‘big fish in a small pond’ scenario until other companies catch on. There may also be lower operating costs in these countries, so the margin of profit may increase too.

iii) Vast opportunities

If you are looking to tap into a larger market, developed countries are a source of opportunity. Many countries in the EU are an ideal place to set up due to the long-standing relationship created by the European Union agreements. If you are established in one of these countries, you can access the free movement of goods and services within other EU countries. This makes transporting and selling products cheaper. There is also fantastic infrastructure, and the EU also has excellent ties with the rest of the world to make selling outside of the EU simpler.

2.

DISADVANTAGES OF SETTING UP BUSINESS ABROAD (UK)

i)Cost of establishing and termination of an entity

Whether you are planning a long-term expansion, or just testing a market you need to prepare and factor in both setting up and shutting down costs. Building infrastructure, setting up a business entity and paying local workers can be very costly. Not to mention, very time consuming.

ii) Compliance risk

Entering into new markets can be complex. When expanding into a new market, a business must adapt and operate accordingly to the country’s regulations. These regulations may be very different from your home country. Therefore, it’s important to partner with the right people who will help you to remain compliant and ensure the correct business procedures are in place from day one.

iii) Business practices and cultural barriers

Culture and business operations are different in each country and as such can present some challenges. If you are expanding to a country that has a different business culture to your own, it’s best to receive some cultural training in their business practices as well as social customs.