Assessing Internationalisation Flashcards
What has caused greater internationalisation?
Trade agreements
Technology
- information and communications
Transportation costs
What is free trade?
Free trade occurs when there is trade between countries without barriers such as tariffs and quotas
What is a tariff?
A tariff is a tax placed on foreign goods and services
What is a quota?
A quota is a limit on the number of imported goods and services
What is a customs union?
A customs union occurs when there is free trade between member countries but an agreed tariff on non-members
What are the opportunities of greater internationalisation?
Buy from abroad
Sell abroad
- larger target population
- opportunity to reduce risk, by spreading sales globally
Produce abroad
What methods of entering international markets are there?
Exporting
- produce domestically, but sell some product abroad
Licensing
- Sells the rights to an overseas business to produce and/or sell its products
Alliances/ventures
- Domestic business works in a partnership with an overseas business
Direct Investment
- Greatest level of commitment, investing overseas, to establish outlets or production facilities.
What is a multinational company?
An MNC has operations based in overseas markets
Why are MNC’s welcomed by overseas governments?
They can:
- bring skills and expertise
- bring employment
- bring investment
- increase demand for local goods and services
- increase tax revenue
Why are some MNC’s criticised?
- exploiting local resources and not sharing the rewards of the business with the local economy
- keeping senior jobs for their staff and employing local employees for low-level jobs
- finding ways to avoid paying high levels of tax
- being involved in corruption to win contracts
What are the benefits for a business becoming an MNC?
- Direct access to local markets
- Production closer to local customers
- Subsidies and tax incentives
- Spread the risks of being dependent on one country
What are the disadvantages for a business becoming an MNC?
- Bring management challenges, more complex to manage a business with bases in different countries
- Bring criticism from some groups if the business is said to be abusing its power in any way.
What factors influence the attractiveness of foreign markets?
- Size and growth of the market
- Expected costs of entering the market
- The macro environment (PEST-C)
- How culturally similar the country is to the UK
- The degree of competition
- The perceived risk involved
- The fit with the overall strategy of the business and its competences
- Extent to which the business has to be adapted for local requirements
- Impact on the business of overseas growth
What are the reasons for a business wanting to produce abroad?
Costs less
May be nearer to resources
May be more efficient to produce locally in overseas markets and sell there
There may be particular skills or expertise in a given area
May overcome barriers to trade
Influences on buying, selling and producing overseas
Pressure for growth
Pressure for lower costs
Location
Availability of resources locally
Politics/economics
