This assignment was awarded the distinction grade for the Level 3 BTEC Business course by Pearson.
The company this assignment focuses on is Innocent Drinks and begins with a brief company history and introduction. It also contains references at the end.
This assignment will fully discuss, e...
Unit 5 Assignment 2: External Factors and Cultural
Differences
Introduction
This article will discuss international business and the cultural factors that affect it. It will
begin by explaining the external factors that influence a business that trades internationally
and will then explain how business support systems enable a business to do so. This article
will then carry out a situational analysis on two countries that a business may consider
trading in, and then recommend a country that may be a good target for international trade
and justify why that country is a good choice. Then, this article will go on to explore the
cultural differences that affect international businesses and analyse how these differences
affect different international businesses. Finally, this article will evaluate the impact that
cultural differences have on international business and conclude with a summary of its
findings.
Company history
Innocent Drinks started up in 1999 with the business goal to make it easier for people to
drink healthier, good quality drinks. They first began by bringing their smoothies to a music
festival, and having people vote whether they should quit their jobs and pursue making
smoothies. By the end of the day the ‘yes’ bin was full, so they resigned from their jobs and
Innocent Drinks began the very next day. Within their first year of trading, they were
supplying Waitrose, expanding to Ireland a year later in 2002, and Europe in 2004. In 2009
they attracted major investment from Coca Cola, and ten years and many new products later
expanded into Japan. Since then, they have grown to be a very large company with their
own charitable foundation and aim to be carbon neutral by 2025, with a major focus on
sustainability. (https://www.innocentdrinks.co.uk/a-bit-about-us)
Task 1
P5 – Explain the external factors that influence a selected business
considering trading internationally
When choosing to trade internationally, there are many factors that a business must
consider. This is also true when moving into a selected country even when already trading
internationally.
Innocent currently trade ‘across Europe in over 30 different countries’
(https://uk.linkedin.com/company/innocent-drinks). Due to this, they are probably aware of
external factors affecting international business, however new countries may bring in new
challenges. Below is a PESTLE analysis of external factors that could influence Innocent
when trading internationally that they must consider.
Political
o Brexit – this has introduced new trade rules for the UK and the EU. This will
affect Innocent’s trade between the UK and the EU, in that additional
restrictions and charges may be imposed. This could make trade more
, restricted and expensive, and therefore have a negative effect on the
products they create and the prices they charge.
o Government policy – different countries may have varying government
policies regarding imports and exports, how much tax they charge external
companies from other countries, and different trade policies. This could make
it more difficult for Innocent in some countries because they may not be able
to access the resources that they need to make their smoothies, or they might
be charged too much tax for it to be financially viable.
Economical
o Exchange rates - this could affect Innocent because different currencies have
different rates and strengths which could affect how much money they spend
on resources and facilities, and the profits they make in a particular country.
Some countries may have volatile and unstable exchange rates which affect
expenses and profits, whilst others may be more stable which could make a
particular country more favourable for a company looking to expand
internationally.
o Economic growth - Innocent may be looking to expand into countries with a
higher economic growth because their products are quite expensive and
considered more of a luxury than a necessity, and people would have more
disposable income in these countries. This means that people in countries
with a slow economic growth would be unlikely to buy their products due to
less disposable income. Similarly, countries with a fast economic growth
where people can afford luxury products such as Innocent smoothies, would
be more attractive to Innocent.
Social
o Lifestyle attitudes – in the case of Innocent, lifestyle factors would be a very
large consideration that they must undergo when expanding into new
countries. This is because supplying healthy drinks is their main selling point
as a company. For example, if they were thinking to expand into a health-
conscious country, they may find it to be more profitable compared to
somewhere where people are more concerned about convenience and
cheaper prices rather than spending a little bit more money to be healthier.
o Cultural barriers – there are so many cultural barriers when considering
expanding internationally, such as language, religion, social norms, and
attitudes. Language barriers may make communication between businesses
difficult, and differing religions may mean that on some days people may be
unable to work for religious reasons. Social norms may change how people
view products and businesses, and different attitudes to work and business
may affect how well people perform at work. These will be discussed in
greater detail later.
Technological
o Technological awareness – Innocent Drinks have introduced their sustainable
and carbon-neutral factory, The Blender https://www.innocentdrinks.co.uk/a-
bit-about-us/the-blender). This factory is highly technologically advanced and
will be the main area in which their smoothies are produced. Should it be
more beneficial for Innocent to produce in a country they want to expand into,
technological awareness could be a deciding factor due to their commitment
to their brand values.
o Automation – Since the factory The Blender has not yet been built, their
current factories must be developed enough as their entire manufacturing
, process is automated. They want to be able to replicate that across the world
to keep up with demand, and so they will be looking for countries where this is
developed enough to be a possibility.
Legal
o Copyright and trademarks protection – when expanding to a new country,
Innocent Drinks must make sure that there isn’t an existing business
producing similar or identical products. This could lead to legal issues if there
is and could prevent them from producing some of their products.
o Employment laws – if they are looking to employ people in a particular
country, they must make sure they adhere to the employment laws in that
country, even though these may be different to laws in their original country.
Environmental
o Sustainability – this is a significant part of their brand and reputation. Innocent
Drinks might not want to expand into a country where sustainability is not
encouraged or even not possible. This could damage their reputation and
company values. The Blender factory is also another example of their
dedication to sustainability, as it will help them towards their goal of being
carbon neutral by 2025 (https://www.innocentdrinks.co.uk/a-bit-about-us/the-
blender). This project is costing Innocent $250 million to build which further
shows their dedication to being a sustainable and environmentally friendly
company (https://www.beveragedaily.com/Article/2020/10/14/The-blender-
Innocent-creates-250m-carbon-neutral-plant).
o Pollution – different countries will have different laws regarding levels of
pollution emitted by factory plants. Should Innocent decide to manufacture in
a different country rather than just import the products, they would have to
make sure they adhere to the country’s laws. Similarly, should Innocent wish
to simply import their products, there may be restrictions on pollution levels
created by distribution, such as lorries and planes.
P6 – Explain how business support systems enable a selected business to
trade internationally.
Without business support systems in place, trading internationally could be very difficult.
However, with varying support systems, payment methods, and the use of the internet,
businesses are increasingly able to trade internationally with fewer barriers.
The majority of the support systems available to businesses are to help them financially.
This ensures there are minimal disputes between companies, which helps keep good
relationships between them and keeps trade flowing. These systems include international
credit card, letters of credit, cash in advance, international bank transfer, open accounts,
commercial methods of payment such as Apple and Android Pay, Google Wallet and Bitcoin,
and consignment. The Internet is also one of the available support systems for businesses.
This article will now discuss these below and discuss how these methods enable Innocent
Drinks to trade internationally.
International credit card – This is a credit card where the spender is not charged any
additional money for spending money outside their original country. The spender is also not
charged exchange fees. This is very convenient for businesses looking to expand
internationally, as it means they could get materials and supplies without any added fees. In
the case of Innocent Drinks, they may be able to use this to purchase quality fruits within the
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