The following journal will analyse two potential countries and a chosen business which should commence international trade with one of the nati

BTEC Business Studies 5.2

External Factors and Cultural Differences

PART ONE The following journal will analyse two potential countries and a chosen business which should commence international trade with one of the nations. The external factors of the two countries will be researched to determine the country which will be chosen. The external factors of the business will also be examined in order to identify the reasons why the business would be successful in the country. This process will be carried out by researching a number of different countries and businesses, then narrowing the selection down to just two countries and one business.

Company Research Apple Apple Inc. is a company that was created on January 3rd, 1977 by Steve Jobs, Steve Wozniak and Ronald Wayne. The launch of their first iMac computer on August 15th, 1998 helped them become a well recognised company which then allowed Apple to grow as a firm, eventually becoming the most valuable brand in the world. Apple designs, manufactures and markets mobile phones, home and work computers, music players and other devices. They also produce their own software for their devices such as iOS for mobile phones and other handheld devices and the macOS for their iMac computers. The company provides digital downloads for applications, videos, books, etc.., through their operating systems for the appropriate devices. As of 2011, Apple has 490 stores in 20 different countries, although they operate globally through mobile network carriers and mobile phone and electronic devices shops. Apple Inc. is reliant on thousands of independent factories for cheap production in China, but the country is volatile in terms of political and social unrest. If a political issue arises concerning the United States, then Chinese production would be hindered and Apple would face many issues as they are not receiving the supply relative to the demand. If there is a social dispute in China, such as a strike by workers for higher wages, Apple will lose some of the positive effects of having their products made overseas as they will not have such a wide profit margin. By using cheap labour to produce their devices, Apple has created some moral concerns about the ethics behind production. Apple products are quite expensive in comparison to their most threatening competitor, Samsung, and if the purchasing power of the public is lower, then they will probably choose the cheaper alternative. Pollution and other environmental side effects from factories in China are a growing concern. This could lead to increased regulation for pollution and higher manufacturing costs at some point in the future. China’s efforts to cut greenhouse gases and limit fossil fuel use could increase electricity rates and manufacturing costs for Apple.

Nike

NIKE, Inc. is a global company that focuses on the design, marketing and distribution of sports clothing, footwear and equipment. Nike is a brand that designs, produces and sells athletic apparel and equipment. They also sponsor hundreds of sports teams and endorse athletes such as Cristiano Ronaldo, Kobe Bryant and Maria Sharapova Nike operates in 120 countries with over 40,000 employees worldwide. Their main production locations include, but are not limited to, Indonesia, China, Taiwan, India, Thailand, Vietnam, Pakistan, the Philippines and Malaysia.

For Nike, if the purchasing power of customers falls due to an economic crisis in certain parts of the world, consumers may opt for alternative brands and products which may be cheaper. Nike’s revenues are to some extent dependent on the low cost of labour in Eastern countries. Because of social change this may result in higher prices for Nike products due to the development of third world countries. Nike receives a lot of backlash for its production methods. By using cheap labour in Asian countries to boost profits, the company has created a lot of controversy even though it is not a recent issue, resulting in people being more aware and conscious of the process behind Nike and an overall fall in prices. Nike has had some issues regarding the law; as a large corporation, they have been known for tax evasion and hiding certain details about their finances. Other legal issues include fake discounts on certain clothing items as part of misleading marketing strategies. Due to the use of mass production factories in the Far East, it is undoubtedly causing some harm to the environment due to the pollution created in the process. This includes both aerial pollution and waste being disposed directly into rivers.

Chipotle Mexican Grill

Chipotle Mexican Grill is a Mexican style fast-food restaurant chain that was founded on 13 July 1993 in Denver, Colorado, United States. Chipotle serves traditional Mexican cuisine in a fast-food format. Their menu includes burritos, tacos and bowls which can be customised with a variety of different meats, vegetables, rice and sauces. Currently, Chipotle operates in the United States, Canada, Germany, France and the United Kingdom. An issue that may arise from operating internationally is their supply chain. Chipotle Mexican Grill has high and strict standards for how animals are raised in farms and they may find it difficult to find different suppliers across the world that meet their quota. CMG may also have trouble adapting to different markets across the world as they have a non-generic menu, unlike other fast-food chains like McDonald’s and Burger King. This means that the popularity of their restaurants will fluctuate between different countries.

Google

Google was founded in 1996 by Larry Page and Sergey Brin. The company is currently known as Alphabet Inc., which trades under 2 names: “GOOGL” and “GOOG”. Google’s main focus is their search engine, which is what truly brought the company to fame. Their search engine uses automated programs called spiders or crawlers, just like most search engines. Also like other search engines, Google has a large index of keywords of where those words can be found. Google’s headquarters are in San Francisco but their search engine and other online services are available globally. Additionally, the company has other headquarters around the world and they also have their Google Maps services, which requires their specialised vans equipped with 360 degree cameras to travel around the world, photographing different locations to put on their maps. The company does not have many challenges because they are a mostly digital company but one of the challenges that they may face is being able to adapt to different languages and cultures since they are such a large corporation. Another problem they may have to deal with is not being able to photograph certain areas in the world, such as Area 51, because they are confidential and not open to the public. Some content on Google can also breach copyright laws, which they must be aware of in order to prevent litigation.

Country Research China China is an ancient country, with a civilization that originates from over 5000 years ago. It is located in Asia and it is the 4th largest country in the world, just behind the USA, Canada and Russia. It has a population of over 1.3 billion people, the most in the world. Their products that they make the most are computers, broadcasting equipment, telephones, office machine parts and integrated circuits. In general, their main focus is technology as the country is abundant with minerals and some metal ores. China’s most valuable trading partner is the USA, with around $521 billion worth of goods traded in 2013. They also trade with Japan, South Korea and Germany. Their most valuable region is the European Union, with a total of $567 billion traded in 2011. An issue that has arised from international trade with China is that it has sacrificed the quality of their products over quantity. Products made in the country have been branded with the image of bad quality due to mass production. Another implication of global trade is that the factories that big brands have partnered with in China have been known to use forced, illegal labour to mass produce and cut down on labour costs in order to maximise profit margins. This has given some brands a negative reputation, causing them to cancel their contract with independent Chinese factories. USA The United States of America is the third largest country in the world, in terms of population and size. The country is made of 50 different states, including the island of Hawaii and Alaska. Their total population is 318.9 million people. The USA’s main imports are machinery, transportation and, of course, crude oil and fuel. Their main exports also include machinery and transportation, such as planes and trucks. The different imports and exports fluctuate according to every state. For example Kansas’ imports mostly consist of airplane parts and their exports are, coincidentally, made up especially of manufactured airplanes

The United States’ main trading partners are China. The Asian country sells them computer parts, electronic devices and other electronic machines while America sells different minerals and chemicals such as gold and coal to China.

Perhaps the largest issue that has arisen, mostly from greedy demand, is the disputes with oil suppliers. Due to a high number of cars in the US, the demand for oil is high, which has caused some US traders to force their way with oil suppliers. It is even highly suspected that the 9/11 attacks were an inside job planned by former president George Bush to allow the US military to attack Iraq. It is possible that this was an excuse for the United States to get to Iraq’s abundant oil supply for their own

gain. America’s high demand for oil has weakened relations between the States and some middle eastern countries like Kuwait and Saudi Arabia.

Portugal

Portugal is a small mediterranean country with a population of 10.46 million people. The nation is known for its nice beaches and warm weather, great cuisine and the best football player in the world, Ronaldo. The south region of Portugal, Algarve, is a famous holiday destination, especially for North European countries such as the Netherlands and Germany as well as the UK. In fact, the Algarve is the permanent residence of some British people, with over 50,000 Brits living in Portugal.

Portugal’s main imports are Crude Petroleum ($7.58B), Cars ($3.53B), Petroleum Gas ($2.84B), Vehicle Parts ($2.73B) and Packaged Medicaments ($2.21B). The main exports for Portugal are Refined Petroleum ($3.27B), Cars ($2.82B), Vehicle Parts ($2.39B), Leather Footwear ($2.3B) and Uncoated Paper($1.44B).

Portugal’s biggest export partners include Germany ($6.71 bn), France ($6.89 bn), UK ($3.83 bn) and Spain ($13.4 bn). Their main import origins include ​Spain ($25.2B), Germany ($9.6B), France ($5.55B), Italy ($4.1B) and the Netherlands ($4.05B). An issue that will soon come will be related to one of their main export destinations, the UK. Once the referendum takes full effect, trading policies will be changed meaning that trading with the UK will be more expensive as they are no longer in the free trade area of the EU. This means that the exports from Portugal will either be cut down massively or just stopped completely.

Situational Analysis of China & Portugal The following situational analyses will examine two different countries with the PESTLE and SWOT methods to determine which nation is more suited for my chosen business, Chipotle Mexican Grill, to expand into. I will be choosing which country, between Portugal and China, the business should open their first branch in. PESTLE Analysis – China China has a well organised government and policies, which can help improve its economy. The Chinese government’s policies for investors allow them to invest different amounts in different industries. The government has also focused on the development of e-commerce, which is purchasing and selling goods over the internet (online shopping). During the past five years, the economy of China got excellent growth rate in GDP and China can also continue its pace on its development. It has a tremendous rate of savings, large number of skilled workers, and has an extensive export business. With an increase in GDP (Gross Domestic Product; the value of services and goods produced during a certain time period within a specific country), the purchasing power of consumers increases which means that more products are purchased. Due to cheaper labor cost which maximise profit margins, companies are growing economically which leads to a physical growth in the scale of the company. This means that they can then expand to another country, creating the process of globalisation. An issue that is still present within the country is high inflation due to overproduction. High interest rates as well as high property prices means that mortgages will be very expensive and it would be hard for new companies to grow without being in a large amount of debt. The demographics of population growth and fluctuation in age distribution have changed and they are important aspects in social and cultural terms of the country. They have the potential to change the social and cultural trends and values of their society. China’s literacy is up to 90% currently and it is crucial towards the economic development of the country. With social developments, more people are able to access the internet and do online shopping Technological factors for China include areas such as new product development, new purchasing methods, new manufacturing technology, new distribution methods (such as the internet) and new methods of labour, mostly related to technology. One problem that may hinder the development of the Chinese industry in technological terms is the lack of secure online payment systems. Although this is the case, only 1

percent of people had used credit card payments during 2005 and the following years. This means that even though online payments are not secure and not widely accepted, they are the method which is most used. The legal Chinese structure for e-commerce (online shopping), which is a rapidly developing industry, is still very recent and has already faced some security issues. China has almost no experience with passing e- commerce legislation for problems such as copyright protection, taxes and secure transactions. There are also no regulations or agreements as of yet that help with the many different aspects of the growth of e-commerce such as privacy and consumer rights, as well as a reliable system for digital signature recognition and validation of electronic contracts. In recent years, the Chinese government’s main targets were decreasing the poverty rate and developing their economy, therefore there hasn’t been much focus on the environmental factors. With the large increase in the outsourcing of jobs to China and use of cheap labour, the pollution emitted by factories which produce for many large companies has increased exponentially for almost 40 years. Being the world’s leader for manufacturing, the country has the highest pollution rating in the world. Now that there has been some developments in the economy and education, the government can educate the public about their impacts on the environment and also set regulations for factories to reduce pollution.

Strengths: – The country has a government

structure which allows for quick decision making.

– High employment rate. – Not reliant on shadow banking

(financial activities conducted under unregulated conditions).

Weaknesses – Under-funded banks. – Too much residential property

which people are not using. – Industrial production rate is

becoming slower.

Opportunities: – It is estimated that over 100

million people will move into China’s cities which are under-habited

Threats: – Disputes with Japan and Korea

over the East China Sea – Corrupt government – Rich Chinese residents planning

to emigrate elsewhere.

PESTLE Analysis – Portugal Portugal has a parliamentary democracy, which means that voters can elect a parliament which forms the government. However, there have been economic recessions in the past years which has created economic instability. It has also led to the loss of trust in international markets with other trading partners due to their economic issues. Furthermore, the government is suspected of being corrupt, which hinders the recovery of the Portuguese economy. Although the country has had a crisis recently, it is easy to start a business in Portugal due to its liberal economy. In addition, the cost of living in Portugal is relatively low, therefore so is the price of property, meaning that the property market is booming. Due to corruption in the government and a poor level of education, Portugal is unable to grow more economically. Because of the 2010-14 crisis, the country has now got of the worst performing economies in Europe. Not only is unemployment is rapidly increasing, the government is also unable to control their spending. The Portuguese society was heavily affected by fascist regimes for nearly 50 years (1926-74), which still to this day reflects on the modern society. During this time period, there were no attempts at improving social conditions. This has led to the hindrance of social developments. As a result, the image of a normal Portuguese person is seen as a low paid, uneducated but also satisfied person. The technological improvements are always developing in Portugal and they combine the latest skills set along with innovation and creativity to create a fluent and solid product and a brand. Companies have access to a well organised infrastructure for research through Research and Development (R & D). Additionally they also have access to an accomplished infrastructure of communications and internet infrastructure. Research and Development means that the country is technologically advanced. Although a large quantity of research is done in the Science and Technology field, not much of it is materialised. Starting a business in Portugal can be very difficult, as it is not easy to penetrate the red tape (excessive use of regulations and adherence to official rules). This is even more difficult when trying to set up a business if you don’t speak the language yourself. Apart from that, there are no specific legal factors that stand out.

Air and water pollution are significant environmental problems especially in Portugal's urban centers. Portugal's water supply, especially in coastal areas, is threatened by pollutants from the oil industry. The nation's wildlife and agricultural activities are threatened by erosion and desertification of the land.

Strengths: – High production capacity. – Flexible solutions to changes in

different markets. – Specialised expertise. – Developed human resources. – Popular tourist destination

Weaknesses: – High production/capital costs. – Level of production is lower than

the capacity. – Weak structure. – Weak economy.

Opportunities: – Market demands differentiation. – Increasing demand for

international trade.

Threats: – Vulnerable to terrorism,

underlying terrorist threats. – Unstable economy could lead to

recessions. – High concentration of drug

imports(trafficking). Some features of the external environment may be more important to Chipotle than to other businesses because not all businesses are identical, therefore they have different needs. For Chipotle, the major factors that affect them are economic and social, but also political. Compared to other fast-food restaurants, Chipotle’s prices are higher. This means that if the purchasing power of the average consumer falls, then sales will mirror the fall. Even if there are no changes in the purchasing power of consumer bases, many people may still opt for cheaper alternatives. As for social aspects and personal preferences, this restaurant appeals for the large Mexican/South American population in the US as well as adding some variety to the range of fast-food available, straying away from the typical burgers and fries. Instead, Chipotle provides traditional Mexican cuisine in a fast-food format, making it a unique and popular restaurant. However, due to the recent election of President Trump, there has been even more discrimination towards hispanic people and the social tension between different nationalities and races has been increased massively. This could affect CMG as they are a Mexican-style restaurant chain which may be frowned upon by many, especially those who support Trump.

Chipotle Mexican Grill – PESTLE Analysis

Political Most political factors don’t directly impact Chipotle apart from the regulations set by the US Food and Drug Administration and other administrations in the different countries that they operate in.

Economical CMG is heavily impacted by economic factors. For example, inflation or a lack of supply can lead to an increase in the price of ingredients, ending in lower returns on investments. As a result of higher ingredient prices, the price of menu items will increase. Chipotle is slightly more expensive than their competitors; if there was a sudden inflation, usual customers would likely choose the cheaper alternatives.

Social Social factors have impacted Chipotle and many other fast-food chains because average consumers are becoming more health conscious and cutting down on fast-food. However, Chipotle is a healthier, higher end fast-food chain meaning that they may not be as heavily impacted as other restaurants; in fact, they can actually benefit. Chipotle appeals to the younger generation, also known as “Millennials”, which is a generation that has been built up on consumerism.

Technological As a company, Chipotle has integrated itself online by providing information about their menus, prices and locations on the internet. Although their business mostly consists of face to face dialogues between customers and employees, finding suppliers and communicating with business partners is much easier with the use of technology (specifically the internet).

Legal Much like political factors, they don’t heavily affect Chipotle apart from different regulations set by the US FDA. An issue that has arised in the past was the E-Coli outbreak in November 2015, which led to thousands of people getting food poisoning and as a result, numerous court settlements.

Environmental Environmental factors are a high priority for Chipotle; they are an environmentally friendly chain that promotes sustainability through 100% recyclable packaging and organic food sourcing. CMG has very strict guidelines for the standards of living for animals and does not use preservatives in their food.

There are many support systems in place which have helped Chipotle Mexican Grill to expand into different countries. The following systems have become available to any business in the world due to the rapid development of modern technology, which has allowed for the globalisation of numerous colossal firms. The most common and helpful support system is the internet. This has allowed businesses to expand globally for years and has simultaneously developed other systems. Through the WWW (World Wide Web), businesses can communicate with each other to create partnerships, negotiate contracts and purchase items in bulk, sourced from all over the globe. Due to the common use of the internet, the exchange of information has improved massively as large amounts of information can be stored digitally while also being made available globally. The development of technology has enabled countries to also mass produce and have effective systems in place for providing services and products. Marketing through social media is a strategy that many companies now use; this has been proven to be extremely successful due to the enormous amount of people who use social media, meaning that it is easy to reach a very wide audience at a low cost. The use of the internet has permitted Chipotle Mexican Grill to grow exponentially in the past two decades. With the growth in technologies and communications in the past two decades, McDonald’s were able to invest $360 mn in Chipotle through online transactions. This led to the fast-food chain growing from just 16 restaurant locations to over 500 from 1998 to 2005. Chipotle was able to find a new source of pork for their restaurant chains with the use of the internet, after their old supplier violated the terms and conditions for the standards of living for their farm animals in early 2015. After only a third of their restaurants served ​carnitas ​(pork) in their menus for the first half of the year, CMG were able to find a new supplier based in the UK which met their animal welfare standards. With the use of social media, Chipotle has grown their customer/fan base massively, simply by sharing photos, videos and links relating to their products, restaurants and customers. This is a form of marketing that is very cost effective; companies now have social media managers who specialise in advertising their company on social media and communicating with customers through this platform to answer questions and resolve complaints. Employing social media managers is cheaper than paying for advertising and it has proven to also be more effective. Due to the lack of online services such as takeaways, online transactions have not affected Chipotle on the same level as other businesses, but they still have facilitated payments between partners. Needless to say, all of the strategies which Chipotle has used to expand have been extremely effective, especially because all of them are carried out on the same

platform, the internet, making the processes much easier and cost effective. This is evident, as their stock price grew by 645% in a 4 year period between 2011-2015. The company Chipotle Mexican Grill should target Portugal for international trade for various reasons. The country shares some of its traditions and values with other Latino countries, such as Mexico, which is the country that is known for the food that inspired Chipotle’s menu. Chipotle should expand into Portugal because one of the strengths are the similarities in the cultural background that are shared with Mexico, the country which Chipotle’s menu originated from. This means that their food would likely appeal to Portuguese people, as the cuisine is similar in some aspects between the two countries. This nation is also neighbours with Spain and there is a large Spanish community in Portugal as a result. Spanish cuisine is also very similar to Mexican cuisine, which would also appeal to the Hispanic community who reside in Portugal. Traditional restaurants and cafes are part of the Portuguese social culture and Chipotle can take this into account in order to adapt their branches to the country by adding different items to their menu that are exclusive to Portugal, while maintaining its original values. In economic terms, Portugal has had a low, but continuous growth in GDP ​(average of +0.39% from 1988 to 2016), which poses the opportunity for further economic growth, should Chipotle launch new branches in the country. Even though this nation has shown improvement in the economy, Portugal is still subject to economic instability. As a result, Chipotle may encounter problems, such as a lower amount of sales,

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