Global Strategy Assignment Analysing Macro Environment Factors Of Germany For Purity Soft Drinks Ltd.
A small or medium (SME) UK manufacturing company is considering expanding into mainland Europe (one EU country) in June 2022.
Prepare a global strategy assignment identifying & critically evaluating the 4 most immediate factors of the macro business environment it must take into account when assessing the decision to internationalise or not You must use examples and academic models to illustrate your answer.
Purity Soft Drinks Ltd., selected in the present context of global strategy assignment, is one of the leading small and medium scale manufacturing companies, which produces and supplies high-quality drinks made of fruit juices. Purity Soft Drinks Ltd. is headquartered at Wednesbury. The company is operating for more than 124 years across the United Kingdom. The company uses real fruit extracts to offer high quality fruit juices to the target customers across the United Kingdom. Apart from real fruit extracts, still water, high quality ingredients, and active botanicals are used in the making of fruit juices of Purity Soft Drinks Ltd (Purity, 2022). The juices are available in different flavours and all of the flavours are popular among the people of United Kingdom. The market share growth rate of Purity Soft Drinks Ltd. is high. This small and medium scale manufacturer always wants to make sustainability in business to gain effective support from the important stakeholders across the United Kingdom. After the success story of Purity Soft Drinks Ltd. for almost 124 years in the United Kingdom, the management of the company has decided to expand the business reach in international markets. The management has decided to expand the business in a European Union Country to get more success. After getting supportive inputs and conducting in-detailed research, the management of Purity Soft Drinks Ltd. has decided to expand the business network in Germany.
After making decision of business expansion in Germany, it will be important for Purity Soft Drinks Ltd. to decide whether the immediate factors of the macro business environment are successful or not. Challenging macro environment factors might create threats for Purity Soft Drinks Ltd. On the other hand, macro-environmental supportive factors can result in potential opportunities for Purity Soft Drinks Ltd. to do business in Germany. Hence, identification and critical evaluation of four most immediate macro environment factors of Germany for Purity Soft Drinks Ltd. is highly important.
Purity Soft Drinks Ltd. is a UK based soft-drink manufacturing firm. The company has decided to do business in Germany and Germany is the member of European Union. Previously, the United Kingdom was the prominent member of the European Union. In the year 2016, the United Kingdom decided to leave the European Union. This particular BREXIT issue has a great impact on the business operation activities of the UK based manufacturing firm. Now, the UK based Purity Soft Drinks Ltd. has decided to do business in Germany (Shen and Puig, 2018). Hence, it is quite natural that the particular decision might create significant impact on the business operation activities of Purity Soft Drinks Ltd. in Germany due to the BREXIT issues because the micro-environmental dimensions of Germany might get changed for Purity Soft Drinks Ltd. after this BREXIT issue. Political, economic, social, and environmental factors can be considered as four most important macro-environmental factors, which can be considered in this assignment. Followings are the identification and critical evaluation of the mentioned immediate macro-environmental factors of Germany, which will help Purity Soft Drinks Ltd. to determine whether the German market is suitable for doing business or not for the company.
Germany is considered to be a democratic republic. The policies of German Government mainly focus on reduction of the trade barriers for the European Union Countries. Some tax relaxations are offered to the companies of European Union countries as per the regulations and policies of German Government. Germany has successfully pressed the European Union Commission to reduce the regulatory burden for the organisations of member states. On the other hand, German Government also has approached the European Union Commission that countries excluding European Union should not get these kinds of relaxations and competitive benefits (Holtbrügge and Berning, 2018). It was favourable for the UK based companies, when the United Kingdom was member of the European Union. Now, it will be challenging for Purity Soft Drinks Ltd. to do business in Germany compared to other companies belong to the European Union countries because Purity Soft Drinks Ltd. will not get any political support regarding tax benefits and regulation relaxations (Huy et al., 2021). The German Government offers competitive tax environment, secured political framework, supportive investment incentives, and highly developed economic frameworks for the companies of European Union countries. As per the policies of German Government, the management of Purity Soft Drinks Ltd. will not get the above-mentioned benefits.
Apart from the tax related barriers, the management of Purity Soft Drinks Ltd. will not face much difficulties in Germany regarding doing business. Corruption is a serious political challenge for any new international company. Bribery is illegal in the United Kingdom. In the year 2020, Germany is ranked 9th in terms of Transparency International’s Corruption Perception Index (GOV, 2022). Hence, the level of corruption in Germany is very low, which will result in significant political support for Purity Soft Drinks Ltd. in Germany. In addition, it is also important to mention that the German Government has very strict policies and regulations regarding cyber security. This regulation helps the organisations to overcome the threats of cyber-attacks. This political sustainability aspect of Germany will also help Purity Soft Drinks Ltd. to do business without any political barriers on cyber security threats. Now, one thing Purity Soft Drinks Ltd. needs to consider in mind while doing business in Germany. The management of Purity Soft Drinks Ltd. needs to register IP rights of all the products to overcome the possibilities of political and legal challenges. The regulations regarding IP rights in Germany are strict. Hence, it is identical that the management of Purity Soft Drinks Ltd. needs to take care of the regulations of IP rights and follow them strictly to maintain political and legal sustainability in business (Johnstone et al., 2020). In addition, the company will not get additional benefits like the companies of European Union nations due to the BREXIT issue. Otherwise, less corruption and low cyber security threats in Germany will ensure supportive political environment for Purity Soft Drinks Ltd. in Germany.
Germany is considered as fifth largest economy in the world. Most importantly, Germany accounts for one-fifth of the GDP of the European Union. Germany has the population of almost 82.4 Million and it is considered as the largest consumer market in the European Union (Export, 2019). Hence, it will be quite easy to state that Purity Soft Drinks Ltd. will be able to attain positive sales growth and market share growth rate in Germany. Large consumer market can automatically provide an economic benefit to any organisation to attain positive market share growth and enhance positive business growth. The purchasing power and disposable income of Germans are quite high compared to the citizens of other European Union countries. In addition, it is also important to accept that the employment generation in Germany has increased continuously since last 13 years (Export, 2019). Hence, Purity Soft Drinks Ltd. will get sufficient skilled employees in Germany to operate smoothly. Availability of skilled and competent employees in Germany will significantly help the management of Purity Soft Drinks Ltd. to manufacture quality products and distribute those products to the end-customers as per their needs. Looking into these aspects, it will be important here to accept that the economic environment of Germany will be supportive for Purity Soft Drinks Ltd.
On the other hand, Purity Soft Drinks Ltd. will face different kinds of challenges in business in Germany because of ongoing COVID-19 pandemic situation. The German economy has been strongly hit by the pandemic COVID-19. In the first three months of pandemic, the German economic growth has been hurt by 1.8 percent compared to the last quarter of 2020 DW, 2021). Due to this affected economic growth, temporary unemployment growth and low purchasing power of people related challenges are emerged. It is expected that Germany will need few years to get recovered from this situation. Hence, Purity Soft Drinks Ltd. might face some challenges in near future due to the ill effects of COVID-19 pandemic situation. It will be important for Purity Soft Drinks Ltd. to focus on advertisement and price efficiency of the products during the initial phase of time in Germany in order to ensure positive business growth in near future.
Sad news on the future of trade relationships between UK and Germany are emerging. It has been notified that UK is expected to be drop out of the list of top 10 trading partners of Germany. The official German statistic has mentioned about this recent development. Due to the BREXIT issue, the advantages of friction less trade and free movement of people between two countries have been abolished. If the news about this recent development becomes true then it will be a challenging situation for Purity Soft Drinks Ltd. to do business smoothly and comfortably in Germany. Now, the German companies are more influenced in sourcing goods and raw materials from other European Union countries. Germany is actually trying to give priority to other EU members instead of giving priority to UK (BBC, 2021). In addition, increased trade tariffs for the UK based companies like Purity Soft Drinks Ltd. can affect the sales growth rate and profitability of the companies. Hence, it is really challenging and difficult for Purity Soft Drinks Ltd. to do business in Germany considering this particular aspect.
It is already mentioned that Germany is largest country in European Union in terms of total population. Germany is a modern country and people of different cultural backgrounds live in this country. Throughout the years, different kinds of social changes have taken place in German. Despite several transformations, the family is considered as the most important social reference unit across Germany. It is also mentioned in one of the previous sections that German Government has a strict view on controlling corruption. The government does not entertain corruption in business as the government believes that corruption can hamper the social sustainability of the country and lack of social sustainability cannot be a good branding for the developed country like Germany. Protection of human rights is important in Germany (Konon et al., 2018). Consumers are liberal enough to pay money to consume high quality products. Hence, Purity Soft Drinks Ltd. needs to adopt social sustainability in business operation activities in Germany. Fruit Juices are popular products in Germany. People love to consume high quality and differentiated fruit juices. Most importantly, Germans like to consume organic and fresh fruit juices in which real extracts of fruits are used. Purity Soft Drinks Ltd. needs to consider this social trend in Germany in terms of manufacturing high quality fruit juices. This will definitely help Purity Soft Drinks Ltd. to expand the business throughout Germany (Chaouk et al., 2020).
Purity Soft Drinks Ltd. also needs to keep this thing in mind that Germany is a country of high social values in which respect and values for people of different cultures, religions, races, and genders are given. It is true that Germany has a bitter historical fact regarding Second World War. However, Germany has recovered from those horrifying situations and has become one of the peaceful countries for people to live in. Every individual’s social values and cultural orientations are protected within the society. Purity Soft Drinks Ltd. also needs to adopt the traditional workplace culture of Germany. Every international organisation requires effective stakeholder support in international markets to become successful and strengthen brand image. Similarly, Purity Soft Drinks Ltd. also requires positive supports from the stakeholders to do business. In order to get support from the important stakeholders, Purity Soft Drinks Ltd. will need to maintain social sustainability in the business. Social sustainability in the business in Germany can be maintained in several ways. In Germany, companies must empower female and disabled employees. Equality in workplace is important in Germany (Ball and Kittler, 2019). These are social norms and traditions of work culture in Germany, which need to be maintained and followed by the management of Purity Soft Drinks Ltd. in Germany. Hence, Purity Soft Drinks Ltd. needs to focus on securing human rights of both employees and customers to enhance social sustainability and gain significant support from the important stakeholders.
Hofstede Cultural Dimension Theory
Challenges related to cross-cultural differences might be a serious socio-cultural challenge for Purity Soft Drinks Ltd. to do business in Germany. Different countries have specific cultural traditions and cultural dimensions. This is acceptable that Germany and United Kingdom are two countries of Europe. Hence, some similarities in cultural dimension can be seen, but it will be also important to accept that there might be some differences in cultural dimensions between German and UK. Therefore, application of Hofstede’s cultural dimension model is important here to evaluate the socio-cultural differences between Germany and UK. Culture of any country is divided into six different dimensions, such as power distance index, individualism index, masculinity index, uncertainty avoidance index, long-term orientation index, and indulgence index.
Figure 1: Comparison between Cultural Dimension of UK and Cultural Dimension of Germany
(Source: Hofstede-Insights, 2022).
It is clear from the above result that the power distance index and masculinity index of Germany scores similar to the power distance index and masculinity index of the United Kingdom. On the other hand, Germany has scored 67 and UK has scored 89 in individualism index. It indicates that Germany believes in Individualistic approaches and UK believes in collective approaches in workplace. Hence, Purity Soft Drinks Ltd. needs to adopt individualistic approach in Germany to do business successfully. In terms of uncertainty avoidance index, Germany has scored 65 and UK has scored 35. It indicates that Germans feel more threatened threated than the people of UK by unknown and ambiguous situations. Purity Soft Drinks Ltd. needs to give value and respect to the culture and tradition of local traditions of Germany to do business successfully in Germany. In terms of long-term orientation, Germany has scored 83 and UK has scored 51. It indicates that Germany is a pragmatic country and UK is an emotional country. In order to become successful in Germany, Purity Soft Drinks Ltd. needs to become pragmatic approaches in business operation processes in Germany. In terms of indulgence, Germany has scored 40 and UK has scored 69. It indicates that German culture is restrained in nature compared to the culture of UK. Hence, the management of Purity Soft Drinks Ltd. needs to improve the degree of emotional intelligence of the management professionals and employees to do the business successfully in Germany. Overall, the management of Purity Soft Drinks Ltd. needs to integrate cultural diversity in operation management process through which the German cultural dimensions can be integrated in the business (Vaskelainen and Münzel, 2018). This approach will allow Purity Soft Drinks Ltd. to improve social sustainability of the business and taking care of the needs of both local German employees as well as consumers.
German Government has a long-term policy to control and minimise carbon emission to decarbonise the entire country in near future. The German Government has rightly planned about decarbonising the energy sector by cutting the emission level for several years. This particular environmental sustainability plan of German Government is recognised as Energy Transition Plan (Pinsent Masons, 2018). Major goal of German Government is to cut the emission level of carbon by 80 percent by the year 2050. In order to achieve this goal, the government has introduced several strict policies for common people and business enterprises. Especially, the business enterprises have to follow the developed environmental sustainability policies and regulations. Violation of the policies and regulations might result in different strict legal challenges. For international companies, the policies regarding carbon emission control are stricter. Therefore, it is the responsibility of the management of Purity Soft Drinks Ltd. to follow all the policies with strong responsibility to overcome the possibilities of different legal challenges.
As Germany is the member country of European Union, it will be important for Purity Soft Drinks Ltd. to follow the EU environmental sustainability standards in the business operation processes in Germany. For example, Purity Soft Drinks Ltd. needs to ensure environment sustainability in transportation, natural resource consumption, and energy consumption activities. In addition, Purity Soft Drinks Ltd. will also be responsible for promoting the use of low-carbon technological applications as well as low-carbon adaptation measures in the business operation activities (Alqaragholi et al., 2021). These approaches will significantly allow Purity Soft Drinks Ltd. to overcome the possibilities of legal challenges and gain valuable support from important stakeholders.
Purity Soft Drinks Ltd. is a UK based soft-drink manufacturing firm, which has decided to do business in Germany. Germany is an important member of European Union. Previously, the United Kingdom was an important member of the European Union. In the year 2016, the United Kingdom decided to leave the EU and this issue is called BREXIT issue. This issue has a great impact on the business activities of the UK based manufacturing organisations. From the macro-environment analysis, it has been evaluated that Purity Soft Drinks Ltd. will face serious challenges in doing business in Germany compared to other companies belong to the European Union countries. Purity Soft Drinks Ltd. will not get any political support regarding tax benefits and regulation relaxations from German Government due to BREXIT issue. However, level of corruption in Germany is minimal, which will result in significant political support for Purity Soft Drinks Ltd. Purity Soft Drinks Ltd. needs to register for IP rights of all the products to overcome the possibilities of legal challenges.
Now, UK is expected to be drop out of the list of top 10 trading partners of Germany as per the statement of official German statistic. Due to the BREXIT issue, the benefits of friction less trade and free movement of people between two countries have been stopped. If this recent development becomes true then it will be a challenging condition for Purity Soft Drinks Ltd. to do business comfortably in Germany. Purity Soft Drinks Ltd. needs to ensure environment sustainability in transportation, energy consumption activities, and natural resource consumption, In addition, Purity Soft Drinks Ltd. will also be accountable for promoting the use of low-carbon technology and low-carbon adaptation measures in the business operation activities. These will significantly allow Purity Soft Drinks Ltd. to overcome the possibilities of legal challenges and gain support from important stakeholders.
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