2 Flashcards
(44 cards)
Push factors (forcing business to consider selling abroad)
- High levels of domestic competition
- Saturated markets with only low growth opportunities
Saturated markets as a push factor
A saturated domestic market
means that a business or group of businesses has sold a product to just about everyone who will buy
one
E.g Chinese smartphone manufacturers; Apple, Samsung, Huawei and LG all now sell to
overseas markets
High competition in home market (push factor)
High levels of competition may force a business somewhere with less competition
For there example there is a buoyant market unusual food imports into other countries
pull factors
(towards another country)
Factors that may attract a business to sell abroad
- Significant opportunities to sell to overseas markets
- Ability to spread risk across more markets
- Ability to gain economies of scale
Opportunities in overseas markets (pull)
Exporting is one way for a
business to increase sales and
this can contribute to increased
profits
A business selling in overseas
markets will be able to grow
faster than those limited to
domestic markets
Ability to spread risk (pull)
By selling in other countries the
business is less vulnerable to
changes in the domestic economy
Different countries may have
different growth rates at any time,
selling in multiple countries can
give a balanced portfolio of growth
ability to Gain EOS (pull)
Exporting is an excellent way to
drive production to a level that
delivers economies of scale,
particularly if the product or
service is standard across export
markets with little or no need for
adaptation.
Offshoring
Offshoring is when a business
relocates some of its production
process to another country
This may be to cut costs in terms
of labour pay rates
Outsourcing
This is where a business function,
such as payroll, is contracted out to
a third party business.
This third party business may or
may not be located abroad
Outsourcing Examples
Production - This means sending some of the production to other companies to complete
Payroll - Payroll is the most common task that companies outsource to other businesses who specialise in this task. Services include weekly/monthly payroll
and will involve the completion of
the complex HMRC paperwork
purchasing - By outsourcing the IT function the business can obtain the
latest technology and suitably
skilled personnel
Delivery - Larger businesses might prefer to contract a major delivery firm rather than maintain their own
fleet.
Assessment of a country as a market
- levels and growth of disposable income
- ease of doing business
- infrastructure
- political stability
- exchange rate
Disposable income -market
Disposable income is the amount
that a customer has to spend after
all their bills have been paid
This helps a business to see if the
citizens of the country will be able
to afford the products that they
want to sell there
Ease of doing business-market
The ease of doing business index
is an index created by the World
Bank Group.
Higher rankings (a low number)
indicate better, usually simpler,
regulations for businesses and
stronger protections of property
rights e.g. patents
Infrastructure - market assesment
Infrastructure can mean road,
rail and transport. Without this a
business cannot deliver to its
customers on time
Infrastructure can also mean
telecommunications, without
this a business cannot communicate with its suppliers and its customers
political stability - market
The world bank has a series of
worldwide governance
indicators, one of which is the
political stability and absence of
violence and terrorism
if a county is politically unstable. Each new government may seek
to impose a series of laws which
will need to be adhered to e.g.
environment laws, employment
laws which could have an impact
on the business
An aggressive takeover of a
government, a coup could lead
to riots, protests and looting or a civil war
Exchange rates - market
- Strong
- Pound
- Imports
- Cheaper
- Exports
- Dearer
Assessment of a country as a production location
Costs of production
Skills and availability of labour
force
Infrastructure
Location in trade bloc
Government incentives
Ease of doing business
Political stability
Natural resources
Likely return on investment
Cost of production
UK - minimum wage is high , production of goods are expensive , most raw materials are imported …
main cost of production is the wages of employees
Skills and availability of labour - production
unemployment rates - A large unemployed population
means a large pool of candidates
for every position . this depends on the skill set required.
A business may need a skilled
labour force and one of the ways
to assess if a country has this is
to look at the global school
rankings
Comparative advantage is the idea
that some countries can make
products better than others.
This may be down to a range of
factors such as skills of the locals,
availability of raw materials etc.
Infrastructure- production
A business will need to assess if the
country have adequate road, rail, sea and air transport systems so goods can be exported and imported easily
The business will also need to know if the country have suitable buildings and
The country have a reliable power system e.g. in Ethiopia power cuts are a daily occurrence
Location in trade bloc - production
Some businesses may start production in a country as a way into a trade bloc.
For example Honda, Nissan and Toyota all have manufacturing plants in the UK to gain access to the lucrative rich and developed EU market for cars
Government incentives - production
Tax incentives are given to
companies in the hope that foreign
investors will bring in capital to
support economic development
and create local employment
Ease of doing business - production
World Bank – EODB graphic
EODB rank will help a business
to find out the time period
required to start a business and
the number of paperwork
obstacles to be overcome
EODB higher rank implies that
the business could start quickly
reducing start-up costs and this
may be a good reason to choose
a location
Location may however depend
on access to raw materials
The business may require high
skills and good infrastructure
rather than cheap labour which
may effect the decision of where
to produce
natural resources
You may need raw materials from that country If you don’t locate there you may have to import which could be expensive This will push up the costs of your production this will reduce your profits
