4.2 Global Markets and business expansion

Question 1

What are the forces encouraging businesses to operate in other countries

Answer 1

-pull factors -> reasons attracting a business to a new foreign market

-push factors -> reasons driving a firm away from its domestic market

Question 2

Name 3 reasons why a firm may want to leave its domestic market (push factors)

Answer 2

-saturated markets
-competition
-extending product life cycle

Question 3

Why may saturated markets push businesses out of its domestic market

Answer 3

-> in this market customers who want the product already have it -> limited opportunity for growth in sales -> new market for existing product -> market development

Question 4

Why might competition push businesses out of its domestic market

Answer 4

competition in domestic markets -> decreases sales -> due to ^ availability of substitutes -> companies leaving the market

Question 5

Why might extending its product life cycle lead to a firm leaving its domestic market

Answer 5

-as product nears its decline phase -> entering new international markets -> extends/ prolongs life cycle

Question 6

Name 3 factors attracting a business into foreign markets (pull factors)

Answer 6

-economies of scale
-possibility of offshoring, outsourcing
-risk spreading

Question 7

How does economies of scale attract businesses to foreign markets

Answer 7

-> entering foreign markets -> ^ scale of production -> lower unit costs -> FC spread across all units -> ^ profit margins

Question 8

How does offshoring and outsourcing attract businesses into foreign markets

Answer 8

-lower costs -> in labour, land, services aborad -> lower overall costs

e.g. may be -> directly investing in facilities abroad (offshoring)
outsourcing production to low labour cost locations

Question 9

What is offshoring

Answer 9

moving 1 or more business functions -> foreign country

Question 10

What is outsourcing

Answer 10

contracting another business to perform a business function on your behalf

-> e.g. usually production performed by business in lower cost country

Question 11

How does risk spreading attract businesses into foreign markets

Answer 11

selling in one country = risky if the product fails

-> entering more international markets -> spreads risk -> reduces business failure

Question 12

Name the 6 ways businesses judge whether or not a country is right for them to start selling in (market attractiveness)

Answer 12

-levels and growth of disposable incomes
-ease of doing business
-quality of infrastructure
-political stability
exchange rates

Question 13

What is disposable income

Answer 13

money a household has available to spend from income after income tax has been deducted

Question 14

How does level and growth of disposable income determine whether a market is attractive to a business

Answer 14

disposable income -> refelection of standards of living in a country

->so businesses need to ensure consumers have sufficient DI to spend -> must be growing -> afford to buy products now & future

->low disposable incomes -> unattractive for luxuries

Question 15

How does ease of doing business determine whether a company chooses to set up in a certain country

Answer 15

-> if firm faces problems in market -> likely to discourage foreign firms -> delay on sales -> ^ costs

Question 16

How does the quality of infrastructure determine whether a company chooses to set up in a certain country

Answer 16

-> developing countries -> unreliable, underdeveloped transport, infrastructure -> delay in delivering -> ^ costs -> unattractive to businesses

Question 17

How does political stability determine whether a company chooses to set up in a certain country

Answer 17

country with calm political situation -> reduces uncertainty before entering market

-tax regulations
-corruption

Question 18

How do exchange rates determine whether a company chooses to set up in a certain country

Answer 18

fluctuating exchange rates -> uncertainty

-will be considered when deciding to enter new market

-strong pound -> if investing into country -> assets should be purchase when strong pound

-

Question 19

Name the 8 factors in which are taken into consideration when judging if a country is suitable to manufacture products

Answer 19

-costs of production

-skill & availability of workforce

-infrastructure

-location in a trading bloc

-government incentives

-ease of doing business

-political stabiility

-likely return on investment

Question 20

Why is political stability assessed when assessing a country as a production location

Answer 20

-political unstability -> uncertainity -> financial loss

Question 21

Why are government incentives assessed when assessing a country as a production location

Answer 21

governments try to attract FDI -> brings income & employment

-can do this by offering tax breaks, interest free loans, cheap land, labour better rates

Question 22

Why is locating in a trading bloc assessed when assessing a country as a production location

Answer 22

-> some firms enter countries to avoid trade barriers -> allows them

Question 23

Meaning of labour intensive

Answer 23

business process that relies more on ppl than machinery

Question 24

Meaning of capital intensive

Answer 24

business process that relies on machinery more than ppl

Question 25

skills and labour force

Answer 25

-uk is seen to have a highly skilled labour force -> but there’s often shortage of skilled workers

-can be resolved by locating in other countries -> utilising skills there

-but often involves traiing workers

Question 26

infrastructure

Answer 26

-

Question 27

location in a trading bloc

Answer 27

-locating in a trade bloc (EU, NAFTA, ASEAN) -> allows easier access to markets within those countries -> lower export taxes

-increase want for a business to set up production inside trade bloc

-

Question 28

government incentives

Answer 28

-national & local governments can provide incentives (grants)

-maybe to try ^ employment in deprived areas

-attracts businesses to the area

Question 29

-ease of doing business

Answer 29

how responsive governments are to demands of business

-govs may not want business to compete with domestic businesses -> making it difficult for company to set up

Question 30

political stability

Answer 30

-corruption has been seen to be a major influence on whether large foreign businesses are allowed to set up in some countries

Question 31

natural resources

Answer 31

-countries that have lots of natural resources -> gas, oil, minerals

-sensible to set up production here -> gain access to these resources

-

Question 32

likely return on investment

Answer 32

-look at:

-days to start a business

-days to get electricity

-days to enforce a contract

-days to import an item

Question 33

What is a merger

Answer 33

when 2 firms agree to come together to create a new busines

Question 34

what is a takeover

Answer 34

when 1 business buys interest in another business

Question 35

what is a joint venture

Answer 35

formal agreement between 2 seperate businesses to work together for fixed time on specific porject

Question 36

Name 5 reasons why large international companies seek to work together

Answer 36

-spreading risk

-entering new markets/ trade blocs

-acquiring national/ international brand names

-securing resources & supplies

-maintaining/ increasing competitiveness

Question 37

-spreading risk

Answer 37

-by operating in a number of countries -> business reduces risk

-countries are in diff stages of business cycle -> if 1 country -> recession another may be undergoing growth

-profits in one area can sustain business elsewhere

-> overcome short downturns

Question 38

-entering new markets

Answer 38

-saturated markets & heavy competition in domestic market -> less opportunities for business

-> new market development -> developing countries can provide future opportunities for revenue

-. gaining access to trade blocs -> allows business to develop ability for free movement of capital

Question 39

acquiring national/ international brand names

Answer 39

-taking over variety of brand names, patents allows business to market its products in many diff countries

-global advertising -> business getting more advertising at lower unit costs

Question 40

securing resources/ supplies

Answer 40

-supply chaain management is enhanced if business operates in country where it secures its resources

-do this by producing in country where resources originate

-reduces costs

-decreases shock to supplies as business has its own source

Question 41

maintaining/ increasing global competitiveness

Answer 41

`-^ global presence -> allows business to enter markets more effectively

-> ^ customer service

-> products can be adapted for local needs -> glocalisation

-> supply chain management -> easier, cheaper when sourced in geographic area

Question 42

`Meaning of global compeititveness

Answer 42

ability of business to succeed against domestic rivals & foreign competitors in international markets

Question 43

Name 2 benefits of a business competing on a global scale

Answer 43

-dominating its domestic markets with minimal penetration from imports

-ease of entry, strong global competitiveness in foreign markets -> strong brand recognition

Question 44

porter and global competitiveness

Answer 44

-> competitiveness achieved through cost leadership

-> firms with lowest costs -> undercut rivals prices

or

-> competitiveness achieved through diffeentiation

->good for wealthier markets where cust less bothered abt price