21BSP033 International Business Environment Assignment Sample
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Abstract
Porter’s diamond framework has given insight about the Tata chemicals’ overall strategies and the scope of enhancing the business in the UK with the wholly owned subsidiaries. Additionally, an effective economical mitigation process has provided a solution of transactional, translational and economic risk for the company and to maintain the pace of the business in the UK. The institutional environment of home and host country had a significant impact on the foreign market entry strategy of a company and the organizational structure and strategy also had quite an impact on the same and Tata Chemicals had chosen a wholly owned subsidiary as the foreign entry mode in the UK.
Introduction
Economic globalisation enhances the scope for the interdependence of the global economies as a consequence of the increasing scale of cross-border trade of commodities as well as services with a strong commitment to globalising the trade operation. Tata Chemicals is a well known company and is committed to deliver trade operations throughout the globe to enhance the brand reputation with continuously increasing customer satisfaction to satisfy the consumer base as well as brand reputation. The company deals in a worldwide range from India to UK and the huge access to the market indicated the company’s motive to expand globally and use the market opportunity to obtain high revenue at the end of the day.
National competitive advantage analysis
Porter’s framework Analysis
Firm strategy and rivalry is the competition among the company and other rival companies which derives innovativeness and more advanced product as well as helps the company to grow continuously with more prosperity and creativity. The aim of the company Tata Chemicals is exploiting the chemical science and uses two options of chemistry are basic chemistry as well as speciality Chemistry through which they provide a range of products such as detergents, biscuits, pharma, bakeries and so on (Tata Chemicals ltd. 2022). Tata Chemicals implements several strategies to maintain the growth in the competitive home market as well as to expand the business globally and obtain overall profit as well as give competition to other companies. Addition to this, the company has implemented next-gen technologies such as developing capacity to work on biology-synthesis, over-expression for enzymes, gene synthesis as well as use rapid generation advance technology in crops strengthening, improving bio activities. so on for future readiness. The company has highly effective resources such as Human resources, financial resources and technological resources which aid the company to retain competition from other companies in the national market.
The key products of the company are varieties of biscuit, glass, soda and so on and the quality of the products has huge demand in the national market and it provides a tough situation for other companies (Refer to Appendix 1). Tata Chemicals uses a single factor model Average Cumulative Abnormal Return (CAR) which may help to create better coordination with the suppliers of the company to maintain the growth of the company (Sharma, 2017).
National institutional analysis
Theoretical framework
Tata Chemicals operates the business successfully as well as maintains the business growth and the SWOT analysis may provide strong national institutional analysis of the company regarding its operations. Tata Chemicals established the Rallis Innovation Chemistry Hub, Tata Chemical Innovation Centre to enhance the productivity of the company, providing strength for the company to expand the business in the UK (Tata Chemicals Limited, 2022). Effective Supply Chain management (SCM) within the organization is one of the most important strengths that provide opportunity to the company regarding the distribution of the products in a significant manner. The company implements Information Technology (IT) enabled SCM to ensure strategic and operational convenience which gives a competitive advantage for the company as well as the scope for operating globally (Tarofder et al., 2019).
The competitors in the market may pose a threat for the company as the company retains the brand name as well as the customer base to maintain the growth of the company. Negative impact of the competition may disrupt the environmental peace within the company and this may affect the productivity directly as well as the growth of the company in the host country as well (Duanmu and Pittman, 2018).
Home institutional environment
The concept of home institutional environment is of extreme importance when it comes to the foreign expansion of any firm to an international market and it is assumed that a better home country environment enables an organization to have a more effective expansion to a different market. Tata chemicals is an Indian company, indicating that the nation is its home country and it is imperative to analyse the country’s external environment as that has a significant impact on the strategic behaviour and performance of a given firm. The analysis of home institutional environment is largely based on three aspects, such as political, economical and socio-cultural condition of a country. If India is to be talked about then it may be stated that the political environment of the country is relatively stable with occasional chaotic circumstances from time to time indicating that Tata Chemicals is able to operate within a stable political environment.
The economical condition of the country is not the best as India is still considered a developing nation, however, in the recent years the Gross Domestic Product (GDP) of India has seen a significant rise with a momentary decline during the peak of the pandemic (Oecd.org. 2022). This indicates that the company is able to do significant business in the country if seen from a financial point of view, however, expanding to foreign markets may prove to be more beneficial for Tata Chemicals. The socio-cultural environment of the country is also fairly positive as there are multiple ethnic groups living in India, which goes on to prove that the organizational culture of Tata Chemicals is significantly diverse too.
Host institutional environment
Along with the institutional environment of the home country, the institutional environment of the hot country is also imperative to determine the financial performance and innovation of a firm and in this case the host country is the UK. The institutional environment of the host country has quite an impact on the performance of multinational enterprises and a similar relationship is more efficient when an organization belongs to a country that has equal financial condition similar to the host countries (Usman et al., 2021). The political environment of the UK is quite stable, however, there was a slight description in the political stability of the country after Brexit, which refers to the UK’s exit from the European Union.
Moreover, the UK is a highly developed nation and the economic stability of the country is also highly strong, meaning that Tata Chemicals will be able to have a flourishing business there and thus, Tata Chemicals’s foreign expansion will be fruitful within the UK. The socio-cultural aspect of the country is also quite similar to India as there are diverse groups of people living in the country, indicating that the organizational culture will also be inclusive within the UK too.
Comparison and implications on international business
From the above-mentioned discussion, it is understood that the institutional environment of the home country, which is India, is quite affirmative, however, the economic condition of the same is not similar to the UK. In comparison to India, the economic stability and financial stability of the UK is far more superior, which depicts that if Tata chemicals is to expand its business to the UK, presumably the company will be able to generate more profit and revenue from the given international venture. The collective result indicates that the expansion of Tata Chemicals from India to the UK and becoming Tata Chemicals Europe has great potential to be an excellent business move.
Organizational structure
Internationalization strategy
The concept of internationalization strategy holds extreme importance when it comes to the expansion of any business in a foreign market as this concept helps firms to decide on several strategies through which a firm may sell its goods and services to a different market. It needs to be mentioned that if Tata Chemicals wants to expand its business to the UK market then the company may start a wholly owned subsidiary within the UK. Multinational enterprises prefer this kind of international strategy or market entry mode when the parent company wants to have complete control over manufacturing and other aspects of business that the company has opened in a different international market. Having full ownership and control over all the business activities, it will be even more possible for the company to mitigate any risks that may befall unprecedentedly and from a financial point of view it will be quite beneficial as well. A suitable company structure is essential for firms to efficiently handle business activities in a foreign market and firms are able to select from amongst different means of foreign market entry, such as exporting, joint venture, establishing a wholly own subsidiary and more (Lin and Ho, 2019).
Structure-strategy fit
The strategy of an enterprise is its commitment for the future and the organizations adopt a significant structure that is suitable for helping it to attain all the goals and organizational objectives, which will further be helpful to promote the effectiveness of the given organization. It needs to be mentioned that when the management or the executives of a given firm decides on developing any corporate strategy, the individuals start with always analyzing the environmental aspects in which the companies operate (Refer to Appendix 3). The structure of a company works in alignment with the strategies of that given firm to achieve the goals and relevant objectives that have been set by the business. In this case, the structure of Tata Chemicals needs to fit with the company’s strategy which is to have a successful business venture within the UK market and for that the company needs more innovative practices implemented within the company culture. Innovation is known as the development of value with the help of relevant knowledge and substantial resources for converting an idea into a new process, product or practice and also making improvement on the existing dynamics as well (Varadarajan, 2018).
Impact of home/host institutions
It needs to be mentioned that the impact of the home and host institutions have quite an effective significance on the organizational culture, as it has already been mentioned that the structure of a firm needs to be aligned with the given strategy it has set. According to research, emerging multinational companies develop a significant approach that to a great extent is regarded as the reflection of the perceived weaknesses and strengths of the institutions within the home country (Edwards et al., 2019). The impact of home and host institution on the organizational structure and internationalization strategy of Tata Chemicals is quite relevant as without the proper strategy and having an effective organizational structure Tata Chemicals would be unable to have successful business in both institutional environments. Evidence has shown that the institutional development of a company’s home country along with the host countries in which the multinational enterprises are installed have significant potential to drive the company’s intensity of research and development (Ellimäki et al., 2022).
Foreign entry strategy
Evolution and current form
It has already been mentioned that the foreign entry strategy for Tata Chemical’s expansion to the UK has been chosen as a wholly owned subsidiary by the company in the host country. The relevance of choosing the most appropriate foreign market entry strategy has been perceived as extremely critical by many within the context of internationalization of market as it has a great impact on international activities and also the company’s future performance within the international markets (Redalyc.org., 2022). The market entry strategy through the means of wholly owned subsidiaries has remained a great means of entering into a foreign market as it helps organizations to have total control over their business operations.
This aspect of the strategy reduces the risks of the organization having any significant risk within its business operations which further indicates that there will be more possibilities of earning a lot more revenue as well. Research suggests that in case a country decides to enter an international market, the company needs to do thorough analysis of the market it is going to operate in along with having suitable marketing plans as well (Tien and Ngoc, 2019). The concept of having a wholly owned subsidiary in an international market was not as simple, however, with the rapid development of globalization and technology it has become much simpler and provides significant results as well.
Impact of home/host institutions
The impact of home and host institution has a relevant impact on the market entry strategy of an organization as well, since it needs to mention that the political, economical and socio-cultural aspects of both the countries directly affect the way an organization may enter an international market. For instance, if the economic and political stability of the UK and India is not significant then Tata Chemicals may experience challenges in terms of receiving the official and legal assistance it needs to set up a subsidiary in the UK. Such activity requires permission from the government of both the host and home countries. Establishing a wholly owned subsidiary in an international market is crucial to international venture as the total ownership and control facilitates a company’s market within the local market (Pehrsson, 2020).
Foreign exchange risks and mitigation
The motto of the company is always to expand its business in the UK and it always adopts strong mitigation processes as the company may face several risks to do the processes. The risks to enhance the business globally are such as transactional, translation and economic risks through which companies may face hindrances in order to increase the trade boundary in other countries (Refers to Appendix 2). The company may expand the business in the UK with the help of wholly owned subsidiaries, in this case the parent company such as India has to pay more taxes than the subsidiaries and it opines the transactional risk. The Transaction of the company needs translation of the transaction of the company which may create the business process complicated due to currency diversification between home and host country.
The complex tax policy of the UK may pose a threat of economic risk for Tata Chemicals and it may create conflict among the subsidiaries and the parent company. The foreign exchange risk includes currency risk which means the varying value of currency in the UK may pose a threat for the company in financial transactions as well as may incur losses to the business (Sudacevschi, 2017).
However, the company considers several risk management tools such as transaction through only one currency, building protection for trade contracts, avoiding natural foreign exchange hedging and so on to enhance the business successfully. The company may use only one currency to avoid transactional risk and it provides a flawless transaction method for the company and the subsidiary companies, smoothes the way for trading conditions. Various foreign exchange clauses may help Tata Chemicals to avoid the foreign exchange risk due to the different financial rates in the UK and it may aid the company to maintain the pace of the business. Nudges and boosts are two efficient options through which a company may boost the economic decision under uncertain situations and pave the way to manage the risk as well as successfully operating the business (Franklin et al., 2019).
Conclusion
From the above discussion, it may be concluded that Tata Chemicals has a robust infrastructure and it may successfully operate the business in the UK with the wholly owned subsidiaries. Several steps regarding sustainability such as saving energy, saving the whale shark project and so on taken by the company grabs the attention of the customer and it is a real opportunity to grow the business. The robust structure and management of the company pose a great challenge for the other contemporary companies and it also enhances the scope for the company to grow without any interruption as well as earn brand reputation.
References
Duanmu, J.L., Bu, M. and Pittman, R., 2018. Does market competition dampen environmental performance? Evidence from China. Strategic Management Journal, 39(11), pp.3006-3030.
Edwards, T., Schnyder, G. and Fortwengel, J., 2019. Mapping the impact of home‐and host‐country institutions on human resource management in emerging market multinational companies: A conceptual framework. Thunderbird International Business Review, 61(3), pp.531-544.
Ellimäki, P., Hurtado-Torres, N.E. and Cordón-Pozo, E., 2022. The impact of home and host country institutional development on multinationals’ R&D intensity. BRQ Business Research Quarterly, p.23409444221076495.
Franklin, M., Folke, T. and Ruggeri, K., 2019. Optimising nudges and boosts for financial decisions under uncertainty. Palgrave Communications, 5(1), pp.1-13.
Oecd.org. 2022. India Economic Snapshot – OECD. [online] Available at: <https://www.oecd.org/economy/india-economic-snapshot/> [Accessed 21 February 2022].
Pehrsson, A., 2020. An acquisition or a greenfield subsidiary? The impact of knowledge on sequential establishments in a host country. International Marketing Review.
Redalyc.org., 2022. International markets entry strategy determinants: an exploratory study in Peru. [online] Redalyc.org. Available at: <https://www.redalyc.org/journal/2250/225057026002/html/> [Accessed 21 February 2022].
Sharma, A., 2017. Global Mergers and Acquisitions-An event study analysis on Tata Chemicals and British Salt. Research Journal of Humanities and Social Sciences, 8(4), pp.451-458.
Sudacevschi, M., 2017. Foreign currency risk hedging. Challenges of The Knowledge Society, pp.742-746.
Tarofder, A.K., Jawabri, A., Haque, A., Azam, S.M. and Sherief, S.R., 2019. Competitive advantages through it-enabled supply chain management (SCM) context. Polish Journal of Management Studies, 19.
Tata Chemicals Limited. 2022. Company profile – About Us – Tata Chemicals Limited. [online] Available at: <https://www.tatachemicals.com/about-us/Company-profile> [Accessed 21 February 2022].
Tien, N.H. and Ngoc, N.M., 2019. Comparative Analysis of Advantages and Disadvantages of the Modes of Entrying the International Market. International journal of advanced research in engineering and management, 5(7), pp.29-36.
Usman, M., Shabbir, R., Ahmad, I. and Zubair, A., 2021. Host Countries’ Institutional Environment and Multinational Enterprises: Does Home-Host Developmental Status Matter?. Journal of the Knowledge Economy, pp.1-25.
Varadarajan, R., 2018. Innovation, innovation strategy, and strategic innovation. In Innovation and Strategy. Emerald Publishing Limited.
Appendices
Appendix 1
Appendix 2
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