Welcome to International Business!
Have you ever wondered why you can buy a smartphone designed in California, assembled in Asia, and delivered to your doorstep in Northern Ireland? Or why local Northern Irish businesses sell their goods to customers all around the world?
In this chapter of Unit 1: Marketing, we will explore International Business. We will look at why businesses expand across borders, the challenges they face, how exchange rates work, and how businesses must adapt their Marketing Mix (The 4 Ps) for foreign customers.
Exam Note: Even though international trade sounds like business growth, for your CCEA GCSE it is assessed right here in Unit 1: Starting a Business under Marketing!
1. Key Definitions to Know
Let us begin with the core terms you need to master for your exam:
• International Trade: The exchange of goods and services across national borders.
• Global Market: The activity of buying or selling goods and services in all the countries of the world.
• Exchange Rate: The price of one currency in terms of another (for example, \(£1 = \$1.25\)).
2. Business Size Classifications (CCEA Specifics)
In CCEA Business Studies, businesses are categorized into four sizes based on employee numbers and annual turnover. Knowing these exact thresholds is essential for your exam:
• Micro-business: 1–9 employees; turnover less than £1.7m.
• Small business: 10–49 employees; turnover less than £5.6m.
• Medium business: 50–249 employees; turnover less than £22.8m.
• Large business: 250+ employees; turnover greater than £22.8m.
Quick Review: An enterprise with 30 employees and a turnover of £3m is officially classified as a Small business.
3. Benefits of International Trade
Why do businesses take the leap into selling overseas? Here are the four major benefits:
A. Increased Market Size
Selling only in Northern Ireland or the UK limits the number of potential buyers. Expanding internationally opens up access to millions (or even billions) of new customers, boosting potential sales and revenue.
B. Economies of Scale
When a business produces more units to satisfy global demand, the average cost per unit falls. This is known as economies of scale. Lower costs per item can lead to higher profit margins or allow the business to offer lower prices.
C. Spread of Risk
If a business relies entirely on its home market and the domestic economy enters a downturn, sales will plunge. By selling to multiple countries, a drop in sales in one nation can be balanced by steady or growing sales in another.
D. Access to Resources
International trade allows firms to obtain raw materials, components, or specialized skills that simply are not available or are too scarce in their home country.
Key Takeaway: Going global provides more customers, lower average costs, lower risk, and access to needed resources.
4. Drawbacks and Challenges of International Trade
Selling across borders is not always smooth sailing. Businesses must overcome several significant hurdles:
A. Exchange Rate Risk
Currency values change every single day. If the value of the British Pound changes against another currency, it can directly affect costs and profit margins.
Memory Trick — SPICED:
• Strong
• Pound
• Imports
• Cheap
• Exports
• Dear (Expensive)
Example: If the pound becomes stronger, UK exports become more expensive (dear) for overseas customers to buy, which can cause foreign sales to fall.
B. Cultural & Language Barriers
Different countries have different languages, traditions, humour, and social norms. Translating a slogan incorrectly or ignoring local customs can lead to embarrassing and costly marketing failures.
C. Legal & Political Factors (Trade Barriers)
Governments often create rules to protect domestic businesses:
• Tariff: A tax placed on imported goods entering a country, making them more expensive for local buyers.
• Quota: A physical limit on the quantity of a good that can be imported into a country.
Common Mistake to Avoid: Do not mix these up! A tariff is a tax; a quota is a quantity limit.
D. Logistics & Distribution
Transporting physical goods thousands of miles involves freight costs, customs paperwork, longer delivery times, and a higher risk of damage or delay.
5. Impact on the Marketing Mix (The 4 Ps)
A business cannot simply take the exact same marketing strategy it uses at home and apply it overseas. It must adapt each element of the Marketing Mix:
1. Product
Products often need physical changes to meet international needs:
• Legal Standards: Ensuring electrical products meet safety laws or have the correct plug design (e.g., UK 3-pin plugs vs. European 2-pin plugs).
• Cultural & Dietary Tastes: Altering ingredients or flavours to suit local diets and religious requirements (such as offering halal or vegetarian options).
2. Price
Setting prices internationally requires careful planning:
• Prices must cover extra transportation costs and tariffs.
• Businesses must consider the purchasing power and income levels of consumers in the target country.
• Prices must account for fluctuations in exchange rates.
3. Promotion
How a business communicates its message must fit the local audience:
• Advertising messages, slogans, and instructions must be accurately translated.
• Imagery and branding must be culturally sensitive and avoid offensive symbols or colours.
• Promotion must comply with local advertising regulations (such as restrictions on advertising certain products on television).
4. Place
Getting the product into the hands of foreign buyers requires altered distribution channels:
• Using local agents or distributors who know the local market and already have established networks.
• Entering joint ventures with local businesses.
• Using e-commerce and m-business (mobile commerce) to sell and ship directly to customers abroad without physical overseas shops.
6. Top Exam Tips & Common Pitfalls
• Be Specific with the 4 Ps: If asked how an international business should adapt its marketing mix, do not just write "it changes its promotion." Explain why and how (e.g., "The business must accurately translate its advertising slogans to avoid offending local culture").
• Remember Unit 1: Remember that International Business is tested in Unit 1 (worth 40% of your GCSE).
• Use the SPICED Rule: Use the mnemonic whenever you need to explain what happens when the exchange rate rises.
Quick Summary Checklist
Before you sit your exam, make sure you can:
• Define International Trade, Global Market, and Exchange Rate.
• State the 4 size classifications (Micro, Small, Medium, Large) with their staff and turnover limits.
• Explain the 4 benefits: increased market size, economies of scale, spread of risk, access to resources.
• Explain the 4 drawbacks: exchange rates, culture/language, trade barriers (tariffs vs. quotas), logistics.
• Describe specific ways to adapt each of the 4 Ps for international customers.