Mr. Nadeem has been running a business of leather products since 1997. He has been producing a range of leather products including jackets, purses, and belts. Fifteen years back, he started the business in a small shop as a sole-proprietor but now he is the owner of a well-known leather manufacturing company, which has a wide network of branches all over Pakistan. Although he had captured a big deal of market in a few years but the new entrants in the leather market were creating some threats for his business. So, he decided to shift his focus towards the global expansion of his business in 2005 as he had become well aware of the importance of a globally operated business. He tried to globalize his business but he could not do so due to certain restrictions on cross border movements. Before going international, he used to operate solely in Pakistan without importing or exporting his products in other countries. In 2008, he once again took step to go international and got succeeded due to the facilitations provided on cross border movements. So, he opened his first
international branch in the same year in Bangladesh considering it as a nearby country and having some similarities in cultural values. He learnt the experience of operating the business internationally for two years and then he decided to open his second international branch in 2010 in Dubai. While operating his business in Dubai, he noticed that the demand of his major leather product, the jacket, is not quite reasonable due to the dry and hot weather across the major portion of the year. One of his consultants, Mr. Hashim, suggested him to expand his business towards those western countries where the weather conditions remain quite frozen and the demand for such product (leather jacket) is quite high. By considering the suggestion of his consultant, Mr. Nadeem opened his third international branch in Rhode Island (a state in USA) in late 2011. As expected, he observed high demand of his products here. He had been operating in Muslim countries only but he had to deal in a non-Muslim state for the first time so he came across certain cultural issues. After settling down the issues here, Mr. Nadeem will further decide how far he can expand his business internationally in the best manner.
1. Identify and discuss the factors, which influenced Mr. Nadeem for global expansion. (10)
Businesses are affected by an external environment as much as they are affected by the competitors. Global factors influencing business are legal, political, social, technological and economic. Understanding of these factors is important while developing a business strategy.
a. Social factors – These factors are related to changes in social structures. These factors provide insights into behaviour, tastes, and lifestyles patterns of a population. Buying patterns are greatly influenced by the changes in the structure of the population, and in consumer lifestyles. Age, gender, etc all determine the buying patterns and understanding of such changes is critical for developing strategies which are in line with the market situations. In a global environment it is important that business strategies are designed keeping in mind the social and cultural differences that vary from country to country. Consumer religion, language, lifestyle patterns are all important information for successful business management.
b. Legal factors – These factors that influence business strategies are related to changes in government laws and regulations. For a successful business operation it is important that the businesses consider the legal issues involved in a particular situation and should have the capability to anticipate ways in which changes in laws will affect the way they must behave. Laws keep changing over a period of time. From the point of view of business it is important that they are aware of these changes in the areas of consumer protection legislation, environmental legislation, health & safety and employment law, etc.
c. Economic factors – These factors involve changes in the global economy. A rise in living standards would ultimately imply an increase in demand for products thereby, providing greater opportunities for businesses to make profits. An economy witnesses fluctuations in economic activities. This would imply that in case of a rise in economic activity the demand of the product will increase and hence the price will increase. In case of reduction in demand the prices will go down. Business strategies should be developed keeping in mind these fluctuations. Other economic changes that affect business include changes in the interest rate, wage rates, and the rate of inflation. Incase of low interest rates and increase in demand Businesses will be encouraged to expand and take risks. Therefore, business strategies should have room for such fluctuations.
d. Political factors – This refers to the changes in government and government policies. Political factors greatly influence the operation of business. This has gained significant importance off late. For example: companies operating in the European Union have to adopt directives and regulations created by the EU. The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. Business must consider the stability of the political environment, government’s policy on the economy etc
e. Technological factors – These factors greatly influence business strategies as they provide opportunities for businesses to adopt new innovations, and inventions. This helps the business to reduce costs and develop new products. With the advent of modern communication technologies, technological factors have gained great impetus in the business arena. . Huge volumes of information can be securely shared by means of databases thereby enabling vast cost reductions, and improvements in service. Organisations need to consider the latest relevant technological advancements for their business and to stay competitive. Technology helps business to gain competitive advantage, and is a major driver of globalization. While designing the business strategies firms must consider if use of technology will allow the firm to manufacture products and services at a lower cost. Firms can select new modes of distributions with the help of technology. It has become easier for companies to communicate with their customer in any part of the world.
2. Identify and discuss the pattern of expansion Mr. Nadeem adopted while expanding his business towards Bangladesh. (2)
3. Identify the pattern of expansion Mr. Nadeem adopted while expanding his business towards Rhode Island. (2)
4. Discuss certain cultural issues, Mr. Nadeem may face in non-Muslim state after having a plenty of business experience in Muslim countries. (6)
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