Company Outline
In this particular report on the Global Business in Context, the small and medium-sized United Kingdom based manufacturing-oriented firm, Kingfield Electronics Limited is being considered for expansion into the mainland European country, which is Germany. In this report identification and critical evaluation of the four highly immediate factors of the macro business environment will be taken into account when it comes to assessing the internationalisation decision of the business. After search evaluation, recommendations will be provided through the accurate mode of entry that will be recommended for the profitability of the organisation in the long run (Peng 2016).
Kingfield Electronics Limited is a small and medium scale business in the United Kingdom that provides a range of contract electronics manufacturing solutions to the companies who are operating within a large variety of the high expectation, high reliability, and high technology market sectors. Along with the total product manufacturing solution, they even provide a large-scale range of other supporting services from product servicing to engineering support and prototyping along with total life cycle management. The company has been providing their contract manufacturing solutions to the market’s leading companies since the year 1985 from Chesterfield, Derbyshire, to the company who are operating within various low to high reliability, volume, quality, and functionally critical market sectors (Kingfield-electronics.co.uk 2022).
Kingfield Electronics Limited needs to consider the international expansion aspect into the other European countries, which in this case, will be Germany. The global electronic contract design, as well as manufacturing service’s size of the market, was initially valued at $417 billion in the year 2019, with an increased CAGR of about 8.5% from the year 2020 to the year 2027. Further enhancing functionalities, for instance, the component assembly, design, and engineering of the printed circuit boards, functional testing, and sub-assembly manufacturing are offered by the contract manufacturer who is expected to drive the entire market for the forecasted period (Gereffi 2020). Germany will be a suitable option for expanding into mainland Europe which Kingfield Electronics Limited can opt for because it is Europe one of the biggest electronic markets in terms of production and sale and their entire industry generates a turnover of 191.5 billion euros in the year 2017, with the export of over 52%. Presently there are 858,000 employees working within this industry, their innovation expenditure is 26.5 billion euros. Germany possess the research and development leadership along with the leader of technological trends, therefore, Kingfield Electronics Limited can benefit from this industry in order to enhance their own capabilities and resources (Moon and Lee 2017).
The United Kingdom
The political stability of the United Kingdom has severely affected the electronic manufacturing industry. After assigning the professional UK and EU Brexit trade agreement in the year 2020 the uncertainty within the electronic manufacturing industry of the United Kingdom has reduced, however, there are certain challenges involved as the confidence within these industries has been affected. Due to Brexit, it is witnessed that the cost associated with importing the electronics will be increased for being able to transfer the products through the European Union’s borders which is the requirement for any customs checks because of the ‘Freedom of Movement Act’ in 1993. Several large-scale organisation has portrayed their concerns for pursuing their business in the United Kingdom which has affected the economy. Such political instability has affected the business environment of the United Kingdom as previously the country was one of the easiest and safest places to conduct their business in the entire world (Huws, Spencer and Joyce 2016). It is one of the highest-ranking countries within the ease of doing business index presented by the World Bank, where there are business laws, robust market infrastructure, and golden standards for corporate governance. They have liberal and flexible labour laws, in comparison to other European countries. Previously political stability has been one of the greatest strengths which the country possessed, although, after the withdrawal from the European Union, there have been constant political and uncertainties debates which have resulted in large-scale chaos and restricted the business to immerse in other opportunities which are present in other countries as well (Wang et al. 2017).
Discussion
Germany
Germany is undergoing political stability along with the consistent economic uncertainty which has disrupted the United Kingdom, during their Brexit crisis and has shifted across the continent towards the largest economy of Europe. The country has avoided the technical recession in the year 2019 by a narrow margin. Political system is undergoing a period of instability with a grand coalition of Chancellor Angela Merkel’s Christian Democratic Union (CDU) (Lasserre 2017). From a business perspective in the year 2019 the country witnessed a foreign direct investment low into the country amounted to be $36,358.64 million, import volume of the services and goods in Germany are being forecasted to increase by 3.54 % in the year 2025. On the other hand, the export volumes of the services and goods in Germany are now being forecasted to grow by 3.26 % in the year 2025. Germany even offers a competitive tax environment, securing a highly developed economic and political framework and investment incentives. As per the political stability index, Germany has -2.5 weak and 2.5 strong as per the data derived between the years 1996 to the year 2020. The average value for the Germany during the entire period was about 0.87 points with minimum of about 0.57 points in the year 2019 and a maximum point was 1.41 in the year 2020 (Amankwah-Amoah 2016).
The United Kingdom
The economy of the United Kingdom has been recovering and have expected to reach the pre-crisis levels during the initiation of the year 2022. The output has been projected to increase by around 6.9% in the year 2021, with the growth moderation of about 4.7% in the year 2022 and 2.1% in the year 2023. The consumption is one of the major drivers of the growth during the entire projection period. The business investment will be enhanced although it continues to be held back because of uncertainty. There has been an increased border cost followed by their exit from the European Union single market which is being on the exports and imports (Shibata, Uemura and Suzuki 2016). In addition to that the unemployment rate is declining and the inflation is increasing because of the increase in commodity prices, continue and higher energy rate, where it has increased to 4.9 % during the beginning of the year 2022. The United Kingdom law has applied to every aspect of running an organisation such as there are Tax and National Insurance legal factors, for the sole traders, Limited companies and partnership companies. There are other employment legal requirements such as registering with the HRMC, Right to work, employment contract, minimum wage, salary, work pension, employers’ liability and health and safety aspects. There are particular laws relating to these namely Health and Safety at Work Act 1974, Equal Pay Act 1970, Race Relations Act 1976 and Employment Protection Act 1978 (Hakanen, Helander and Valkokari 2017).
Germany
The economic projection for Germany has witnessed a growth of 2.9 % in the year 2021, 4.1 % in the year 2022, and 2.4 % in the year 2023. Their economic recovery has been hampered due to the shortage of the key manufacturing inputs, however, they possess a large stock of unfulfilled orders which is a strong potential for the rebound as there has been the ease in the supply constraint. Private consumption will be accelerating in the year 2022 as consumer and business confidence increases. Along with that solid investment will be underpinned by the low rate of interest and the increasing pressure capacity (Dutta, Lanvin and Wunsch-Vincent 2018). The inflation rate will likely be least in the year 2022, however, will remain elevated. Due to the covid-19 pandemic, there has been a persistent shortage within the supply chain which is essential for the industries and has therefore the recovery process. In Germany, the corporate tax has been set at 15% where the businesses are required to pay the solitary surcharge of 5.5 % on the corporate ta as well as about 14 to 17% of the trade tax rates by the local municipalities. For the business, The German Company Law has been widely provided every regulatory guidelines relating to the corporate as well as the legal frameworks for the continuous business operations for every legal entities recognised by the Germany (Brenkert 2019).
Reasons for Expansion
The United Kingdom
The total trade balance on January 2022 maintained by the United Kingdom is £16,159. In the month of January, 2022, there were certain change made to the manner of HM Revenue and Customs (HMRC) collected data for the both imports from as well as exports to European Union due to all these changes caution which should be taken when the interpreting the last estimates of last months. The total good being imported, which excluded the precious metals that rises by the £4.7 billion, that is, 11% in January, 2022 due to £4.7 billion, that is, 24.3% which increase in the imports from the European Union countries while the imports are from the non-European countries remains consistent (Reuber, Tippmann and Monaghan 2021). The total export of the goods, baring the precious metals, has decrease by almost £2.5 billion, that is, 8.7% in January, 2022 as it has been driven by almost a £3.0 billion, that is, 20.7% which has decreased in the exports to the European Countries while the exports to the non-European countries has been increased by the £0.6 billion, that is, 4.2%. It has been assessed that the impact of the changes will help in rising the confidents in the imports from the European Union which has been resulted in an increase within the trade. After the United Kingdom leaves the European Union during the subsequent transition period, due to the impact of the COVID-19 pandemic (Hooper 2016).
Germany
Trade has been representing almost 81% of the total Gross Domestic Product of Germany in the year 2020, which has reduced from the previously year, as it was 87.6% in the year 2019. Germany is the third largest exporter and importer in the entire world. The country is the largest exporter of the automobiles in the whole world which is 19.3% of the total exported vehicles globally. In the year 2020, the computer or electrical as well as optical equipment counts for 9.1%. Their major import has been of computer or electrical optical equipment, vehicles and vehicles parts, machinery, electrical equipment, chemical products and so on (Oberoi et al. 2021). The primary trade partner of Germany is the European Union which accounts for 67.1% of their exports and 65.3% of their imports. Other than that they majorly export to the United States, China, France and the Netherlands. Imports are majorly from the Netherlands, China and the United States as they are the most open economy among the G7 countries. The trade balance of the countries has been structurally position in the year 2020. The trade between the United Kingdom and Germany in terms of goods and services was £114.4 billion within the fourth quarter till the end of third quarter in the year 2021. The total export by the United Kingdom to Germany has accounted for £47.4 billion during the same period and the import has amounted for £67.0 billion. Germany was the second largest trading partner of the United Kingdom within the fourth quarters till the end of the third quarter of the year 2021 which has accounted for 9.1% of the total trade made by the United Kingdom (Radovi?-Markovi?, Salamzadeh and Vuji?i? 2019).
Macro Business Environment Related To Internationalisation
The United Kingdom
The United Kingdom has been recovering from the COVID-19’s impact, although the risks remains domestically for the financial stability of the country as they try to achieve their pre-COVID levels, where the asset prices remains stretched and the global risk of any new loans towards highly indebted corporates. In the year 2020, the financial service sector has made a contribution of about £164.8 billion to the United Kingdom’s economy and 8.6% of the total economic output. The sector has been largest in London, the United Kingdom where the output has been generate (Adekola and Sergi 2016). The United Kingdom’s financial services sector was deemed to be the third largest in the entire OECD in the year 2020 for their proportion of the national economic output. In terms of technology and innovation, the United Kingdom has the fourth best communication technology in the entire world. The United Kingdom’s sector of digital technological keeps accelerating faster when compared to the other part of the economy as the turnover of the companies has increased by 4.5% when compared to the GDP. The start-up situation of the United Kingdom has been flourishing, they have been attracting a significant amount of investment from all over the globe, they have become a digital suburbs and have set their success for support tech as well. The country has become a hub for both technological and financial institutions where businesses are including new technologies as well as offering the best of solution to the other companies and consumers (Kasemsap 2016).
Germany
Germany is one of the largest economies in terms of GDP in the entire Europe, although most of their financial markets are smaller when compared to the United Kingdom or France. Due to cultural reasons, Germany’s retail investors are hesitant to invest into the stocks when compared to the other European countries as they have lesser needs to do as owning to the generous government pension provided by the government. The contribution made by the manufacturing companies to the total Gross Domestic Product is much larger in Germany when compared to the other countries as it reduced the stock market’s centrality for the generation of the revenue when compared to the other countries who possess high portion of the financial services companies such as the United Kingdom (Bidault et al. 2018). In terms of technology and innovation, Germany is at the top when compared to the other countries. As per the Global Competitiveness Report by World Economic Forum, Germany has been deemed to be the most innovative economy with the score of about 87.5 out of 100 in terms of innovative capability pillar. Their innovative economy has been measured through interaction and diversity, commercialisation, administrative requirement, entrepreneurial culture and research and development (Häberli 2017).
Entry Mode Analysis – Mode of Expansion
There are various expansion models which Kingfield Electronics Limited can avail other than their usual operations in terms of contracting with the other companies in foreign countries. For the establishment of their manufacturing unit within the Germany, the company can opt for three major strategic expansion model such as;
Political Environment, State And Business Actors
Strategic and partnership alliance: Through strategic and partnership alliance the company can enter into the German market where they will have to form a lines with the local partners through a certain contractual agreement which will help them stipulate their cooperation and involvement in order to achieve the common goals and objectives. The cost of expanding can be either shared among the parties and the lesser amount of the investment which is required during the risk situation was significantly lesser the company will be considered as one of the local entities that will help them to further grow into the market. Although the cost associated will be much higher when compared to the exporting mode of expansion. Further there might be corporate culture clash between the two organisations which might further result in conflicts (Chahal, Jyoti and Rani 2016).
Acquisition: Another method which Kingfield Electronics Limited can utilise for their international expansion is where the organisation can acquire local organisation which has a production and manufacturing unit as well as a well-established position within the local market. The company through this means can easily build themselves within the new market where they can tap into the currently existing production and manufacturing unit along with the human resource. By utilising this fast entry mode the company can get access to the already established operational units, although the cost of acquiring will be expensive along with that there may be several integration challenges as well (Djelic and Quack 2018).
Greenfield venture: The Kingfield Electronics Limited can launch their company as the wholly owned subsidiary in Germany as the subsidiary of their parent brand. It is to be considered as one of the effect manner of international expansion due to the reason that though this knowledge relating to the local market which is present as well as the brand which will be considered as one of the local businesses. The firm will also get the access to local workers and employees as well as will have the major control over their operations. Although the cost will considered to be high and there are several risks associated with the same, where the time necessary for the establishment will be more (Brennan, Canning and McDowell 2020).
Recommendation And Conclusion
Since, Kingfield Electronics Limited is a small scale firm, they will have lack of surplus as well as financial resource. Due to this reason the strategic and partnership alliance form of market expansion will be appropriate, if the company is success is generating a contractual agreement with the other similar form of companies, they will be considered as a local entity. Therefore, the most appropriate form of expansion into Germany market will be through this particular means because the country is technological advanced and at the same par with the United Kingdom, therefore, it will be easier for them to integrate their organisation appropriately. Through the analysis on the Germany based market and economy, it can be witnessed that even though the market is not financial sound as the United Kingdom, from the technological perspective, Kingfield Electronic Ltd. can expand smoothly (Bartz and Winkler 2016).
Legal Environment And Economic Integration
References
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