WHY TRADE

INTERNATIONALLY?
Unit 5 International Business

Tesco and McDonalds

Oskar Zgodzinski
Contents
Explain why two businesses operate in contrasting international markets.............................................2
Introduction.......................................................................................................................................2
Tesco – Who are they and why they operate internationally..............................................................2
Reasons for trading internationally................................................................................................2
McDonald’s – Who are they and why they operate internationally...................................................4
Reasons for trading internationally................................................................................................4
Explain the types of finance available for international business...........................................................6
Letters of credit..................................................................................................................................6
Bank loans.........................................................................................................................................6
Prepayment by the importer...............................................................................................................6
Export credit......................................................................................................................................6
Grants................................................................................................................................................6
Explain the main features of globalisation that affect two contrasting businesses.................................7
Explore the role of trading blocs on international trade.........................................................................8
Analyse the support that is available to contrasting businesses that operate internationally..................9
Analyse the barriers of operating internationally for two contrasting businesses.................................10
Evaluate the impact of globalisation on a business..............................................................................11
References...........................................................................................................................................12
Appendix.............................................................................................................................................13

1
Explain why two businesses operate in contrasting international
markets.

Introduction

In this report I will evaluate the impact of globalisation on both Tesco and McDonald’s. I will
also cover the effects of diversification, reasons for trading internationally, support for
businesses trading internationally and more. The businesses I have chosen (Tesco and
McDonald’s) are 2 of the largest companies in their respective markets, retail and fast food.
Both businesses trade internationally and have very important operations therefore a lot of
information.

Tesco – Who are they and why they operate internationally

Tesco focus their efforts on general merchandise such as clothing (George), food, toys and
more. Their company have grown from building multiple multi-format stores and online
retailing. Their innovative business decisions have put them on top of UK’s retail store
market share, one of these is the “Clubcard” in which provides cheaper for their customers,
increasing brand loyalty. They have been competing with large UK brands since they first
emerged on the market as a competitor with companies like ASDA, Morrisons, Co-op and
more. Tesco only operate in 11 countries other than the UK, Poland, Turkey, France etc.

Reasons for trading internationally

Trading internationally is a stressful decision any big business, Tesco saw opportunity to
grow their business further by exploring options in different countries mainly Europe and
Asia, even though the UK held up 75% of their annual revenue in 2004 that means they’ve
grown their business by 25% because they expanded operations to Thailand, Poland, South
Korea and Japan alone. These additional revenues helped them acquire more acquisitions in
even more countries to expand into even more markets. For example, Tesco bought stores
into Ireland because they recognised that there was space for them to fill out and succeeded,
receiving roughly 21% of the Irish supermarket/grocery making it the market leader of that
entire country, market leadership in countries that do not have a large supermarket presence
in the market is one of the best reasons to trading internationally.
Trading internationally can help to discover additional revenue streams with companies that
are very big in their home country, Tesco used this to their advantage by partnering with
Samsung to sell their phones in their stores inside South Korea, creating the business
“Homeplus”. Tesco received over ¾ of the shares in the joint venture, increasing revenue
streams by 30% internationally. Another reason for trading internationally is diversification.
Diversification is the process of creating new or improving products or services to benefit the

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company, Tesco have done this by creating self-checkout tills, shop as you go system and
even petrol stations. The Clubcard offering very low prices has been very popular in Asia and
Eastern Europe in the last 2 years, it has been recorded that 70% of the trading profits has
been in correlation to the use of and acceptance of the Clubcard. No other supermarket
franchise uses the same strategy of a loyalty card in Asia and eastern Europe because ASDA
and Lidl (Tesco’s competitors) that have recently adapted to a loyalty card scheme are not
very popular in those regions. This is also a sign of technological dominance, Tesco use their
innovations to internationally present as a feared opponent because of their services.
Brand exploitation is a key game changer when it comes to trading internationally, an
example of this is Tesco Bank, operating in over 10 markets such as Asia and North America,
markets in which they’ve already established themselves in for years, this success of the
recent launch going into financial banking segment is a clear example of brand exploitation,
to achieve success with a risk such as banking is no easy task for any company that has no
experience in that niche. Tesco Bank started by joining the Royal Bank of Scotland buying all
of its shares and renaming it as a subsidiary of Tesco, this is a further example of brand
exploitation because the general public would think that the bank of Scotland would be more
popular as the brand face but it was the opposite, Tesco has more international presence and
therefore their brand is the face of the bank now.
Increasing presence internationally has a domino effect on every other operation that Tesco
has already developed, with further globalisation they increase their economy of scale,
meaning with more production, revenue and overall output the general cost of business
decreases giving Tesco the option to also decrease prices to competitively advance on their
competitors. Giving cheaper options when other businesses cannot offer those prices
increases sales in Tesco’s business helping them fuel further expansion internationally.
Economies of scale is a “hamster wheel” of globalisation. This also affects their fiscal
benefits, meaning what their social protection from tax breaks. In 2020, when Rishi Sunak
was the chancellor of exchequer meaning he controls the finances of the UK, he gave Tesco a
fiscal tax break of £700 million despite their surge of profits, helping Tesco financially to hire
more people and expand their business further internationally, but also another fiscal benefit
of trading internationally is for example, Tesco holds operations in Hungary witch has a
fiscal policy making corporation tax only 9% which is one of the lowest in Europe as a
whole, this means that Tesco doesn’t have to spend that much on tax compared to the UK
increasing revenue profits. This also further affects their preferential tax rate because in the
UK Tesco’s tax rate is 38% compared to Hungary’s 9% tax rate same as their corporation tax,
even if they don’t make as much revenue as their leading country, the UK, because their tax
is so low it comes out to a similar profit margin, which is a big benefit to trading
internationally for Tesco.

3
McDonald’s – Who are they and why they operate internationally

McDonald’s is a leading fast food franchise that has revolutionised restaurants and how we
perceive fast food to this day. McDonald’s was founded in 1940 in California originally as a
hamburger stand. It is now the largest restaurant chain by revenue serving over 60 million
people with over 40,000 franchise stores in the world as of 2021. McDonald’s operates in 100
countries according to their website, holding over 40% of the market share. Their biggest
well-known competitors are KFC, Burger King, Subway and more. However, their biggest
competitor is Yum Brands a Chinese franchise that holds 30% of the market share.

Reasons for trading internationally

McDonald’s doesn’t directly operate each franchise it opens but it does manage it so there is
no backlash on them whether its PR related or financial, they let franchisees use their brand
after a thorough investigation whether its useful, profitable and helpful to them as a brand.
Trading internationally is meant for growth and they accomplish this by opening franchises in
China. China is McDonald’s second biggest country where it holds over 3000 restaurants,
this is important for them because Chinas fiscal policy benefits them through lower
corporation tax, it is 25% compared to 37% in the USA. Fiscal policies such as this one in
China benefit McDonalds with higher profit margins abroad, these policies also affect the
businesses preferential tax rates.
One of the most obvious reasons for trading internationally for McDonalds is the benefits of
growth both for their brand but also for their business, they don’t even have to setup their
business on their own in unknown territory they don’t have experienced in dealing with as in
cultural difference, law etc. Entrepreneurs from countries overseas ask McDonalds to open
one in their home country, generally because there’s none there and they see an opportunity
for investment, this therefore drives their growth and generates additional revenue streams.
For example, in 1990 a Canadian McDonalds president vouched to open a McDonalds in
Soviet Russia and succeeded. There was over 30,000 people waiting in line to try it,
generating approximately over $200,000 in revenue in one day.
Opening a McDonald’s in Russia did a lot for them including access to new markets and with
brand exploitation they were able to increase market share internationally, the event was
reported all over the world, and just snowballed into more sales in other countries. Safe to say
the shareholders were pretty happy after such events because share price increased by over
40% during that year.
Market leadership is of course an important factor for any business because it almost is the
definition of success and its smooth sailing after that, this is why McDonald’s have invested
their effort into implementing their services into Japan and became the market leader. They
also achieved this by diversifying their products to fit the culture there because statistically
their one of the lowest fast food consumption countries in the world, they made new products
exclusive to Japan such as the “Mega Tamago” which is their big breakfast burger and also
the “McPork” which is just a pork sausage. However, they also increased the quality of the
food and perception after it hit an all-time low, so a key strategy was to create a trusted space

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online where all the food’s nutrition and ingredient information could be found. The
packaging had a QR code added that linked to the information and social media was used to
link to the website.

Explain the types of finance available for international business.

Letters of credit

Bank loans

Prepayment by the importer

Export credit

Grants

5
Explain the main features of globalisation that affect two contrasting
businesses.
How is that a good thing
(link to both businesses)

Globalisation

Internationally mobility of labour

International currencies
International currencies are a unique legal tender correlating to each different country to
differentiate and control their economic growth separately from other countries however
some regions such as most of the EU have one currency (the euro) they use together as they
see a benefit for trading internationally making it easier and more affordable. When
expanding globally currencies can deter a company because of the exchange rate or the cost
of converting currencies for example because Tesco is a UK based company, because of
Brexit now their cost of holding or moving operations outside the UK have become
substantially more expensive as the advantage of free international trade in the EU has been
revoked. However, when trading internationally the exchange rate can actually be what
makes it affordable an example of this could be that operating in the UK and the moving to a
country like Poland where the exchange rate is 5x, can make a lot of the product slightly
cheaper. For a company like McDonalds this is especially beneficial as cost of pay-out for the
franchisee becomes in correlation cheaper abroad.
International business communications
When going through globalisation communicating with the different country’s
representatives/ regional managers that you have employed that only speak their native
language can be very hard, Tesco has a special team of translators both in-house speaking
several languages, and also translators ready to go whenever they need to speak face to face
with other branches. Luckily, these days when sending out an email a simple online translator
can be used that is almost as efficient as an actual translator and best part is its free.
McDonalds is almost at the opposite end of the spectrum where they almost don’t need a
translator because they just let people use their franchise from other branches that are already
in operation but they do need some help in international business communications when the
globalisation hasn’t reached a new country and the process of research and development
starts again this is where a translator is needed.
International payment system
There are different forms of payment that each country can prefer to the other, companies
such as PayPal and Stripe are useful services that businesses can use to receive payment in
other currencies and it automatically is exchanged to your currency. However, business such
as Tesco and McDonald’s use more refined systems to process their payments and transfers

6
because most of them are too big to process through the services I have mentioned. Tesco
uses “MoneyGram” mostly because they have a partnership with them and McDonald’s has
recently taken on “Adyen” as a global payment system. International payment systems are
very beneficial for globalisation because they have the fastest transaction rates for
international payments making it very safe for large amounts, although there is a risk of
account being locked out and funds frozen. Increasing anti-money laundering requirements
require payment systems to continuously monitor customer transactions. If the compliance
officer suspects an AML violation, there is a high risk that service access will be restricted.
However, their compliance departments are still more lenient than the banks.

7
Explore the role of trading blocs on international trade.
Discuss each trading bloc
(main ones such as WTO and NAFTA)
NAFTA

NAFTA is a trading bloc that includes Canada, Mexico and the USA. It stands for The North
American Free Trade Agreement, and it was made to eliminate all tariffs barriers to trade and
investment, it was a governmental aim to increase their economic growth by opening trade to
their neighbouring countries and allies. Recently they have renamed this trading bloc to
USMCA (The U.S. – Mexico – Canada Agreement) to make it easier for the general public to
understand. This agreement between the countries has seen much benefit for all the countries
as it created over 5 million jobs and increased the national wage, however there was backlash
because almost 700,000 manufacturing jobs were lost both due to automation and the fact
that it was cheaper to move production to Mexico and ship it over to the US.
Mercosur
Mercosur is the South American trading bloc and its an abbreviation for “The southern common
market” from the Spanish and Portuguese language. It also has members from Argentina, Brazil,
Paraguay, and Uruguay. Like almost all trading blocs this one was created for the free
movement of goods, services and more. It helped these countries in stable and legitimate rule
over their economy, before this trading bloc each country’s economy was in free fall and this
helped them stabilise with indirect influence of the free movement of labour. However there
has been proof that the power sharing has increased costly side payments for things other
than trade such as prices of products and employees’ wages.
EU
Dicsuss Brexit impact on the businesses

EU is the most renowned trading bloc in the world because it has the largest population of
members, it stands for the European Union and was formed
Trading Blocs
Advantages or disadvantages og being in a trading bloc

8
Analyse the support that is available to contrasting businesses that
operate internationally.
Uk export finance
Chambers of commerce
Uk trade and investment
Regional advisory organisations
Uk finance export advisors
Trade fairs

9
Analyse the barriers of operating internationally for two contrasting
businesses.
Trade restrictions
Brexit
Financial requirements
For operating internationally
Communication as in language
Different laws
Different cultures

10
Evaluate the impact of globalisation on a business.
Advantages and disadvantages of globalisation on the business
Conclusion (your opinion) has it helped them.

11
References

12
Appendix

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