3.9 - Business growth Flashcards

Question

-ve vertical integration

Answer 1

: Firms may have no expertise in industry they took over. Diseconomies of scale could be considered. § Vertical integration- barriers to entry- might discourage or limit the entrance of new firms- lead to a less efficient market- firm has little incentive to reduce average costs when their market share is high. § Mergers can often create new problems of communication and coordination- DEOS

Answer 2

franchisors grants a license to another businesses to allow it to trade using the brand/ business format Internal growth. Organisations may look to franchise their brand to grow- useful strategy as: § Classical growth strategy for proven business format § Enables much quicker geographical growth for relatively low investment § Option to open locations that are operated by franchisor § Capital investment by franchises an imp source of growth finance

Answer 3

§ Running your own business § Pre established business- less risk § Easier to raise finance § Buying power of franchisor § Low risk methods

Answer 4

Not cheap – initial fees + commission § Restrictions in action. § Franchisor owns the brand § Could fail

Answer 5

combining firms that are at the same stage of the production process in the same industry–

Answer 6

§ Reduce competition as competitor is removed - increases market share, firms power to influence markets, l/r pricing power. Potential to secure revenue synergies § Firms grow quickly, which can give them a competitive edge over other firms in the market § Firms specialise and rationalise, reducing the areas of the businesses which are duplicated.(cost savings) § Grow in a market where it already has expertise, which is more likely to make the merger successful. § Monopsony power- buy their stock at a lower price, increasing efficiency. § Firms can increase output quickly, so they can take advantage of economies of scale. (lower LRAC) § The 2 firms have expertise in the same industry, so the merged firm can gain advantages, such as in marketing. § Wider range of products – diversification creates opportunities for economies of scope § Buying an existing and well-known brand = cheaper than organically growing = BTE higher 4 rivals higher l/r monop profits

Answer 7

Increase risk for the business as if that market fails, waste of investment § Risk of diseconomies of scale - clashes of management style and culture, § Mergers risk destroying shareholder value - synergies never materialize. mergers fail to achieve gains SV § Risk of attracting investigation from the competition authorities= lessening of competition in a market § Recued flexibility- more personnel -need for transparency, accountability slow down the rate of innovation

Answer 8

combining firms which operate in completely different markets § Product extension mergers- firms making related products § Geographic extension merger- firms in same industry, different geographic markets

Answer 9

§ It is useful for firms where there may be no room for growth in the present market. § The range of products reduces the risk for firms and if a whole industry fails, they will still survive § It will make it easier for each individual part of the business to expand than if they were on their own as finance can be easily obtained and managers can be transferred from company to company within the firm.

Answer 10

. The problem with this is that firms are going into markets in which they have no expertise. It can often be damaging for the business. D.E.O.S

Answer 11

Adv of joint venture: § Partners benefit from expertise and resources § Partner may have option to acquire in future § Reduces risk of growth Dis: § Conflicts in decision making § Split profits

Answer 12

firms become too confident and expand rapidly without organising long term funds and put a strain on working capital w/o org l/t funds. During rapid expansion this means a firm needs to buy more and more materials, but lacks the money because its customers have not yet bought the goods.

Answer 13

Keen to open new outlets § Have to pay rent in advance, pay shop fitters, pay for stock § Large outlay before sales § Businesses rely on l/t contracts also at high risk of overtrading

Answer 14

§ Reducing inventory levels § Leasing rather than buying capital equipment § Obtaining better payment terms from suppliers § Enforcing better payment terms with customers § Scaling pace of rev growth till profit margins/ reserves improved

Answer 15

Growth is achieved by making significant capital investment in production or operations capacity before revenues are generated § Sales are made on credit and customers take too long to settle amounts owed § Significant growth in inventories is required in order to trade from the expanding capacity § A long-term contract requires a business to incur substantial costs before payments are made by customers under the contract

Answer 16

§ Eliminate duplicated functions & services § Better deals from suppliers § Higher productivity & efficiency from shared assets Revenues § Cross-selling to customers of both businesses § Access to new distribution § Brand extensions § New geographic markets opened up Takeovers- negative synergy= reduces efficiency

Answer 17

Much quicker and can rapidly increase capacity, workforce, tech, assets- inc Sales- INC MS § Diversification- combine with existing business § Reduce comp- takeovers and mergers in same market § Move into another country- combine with comp w established infra § Same industry- E.O.S and scope

Answer 18

They may want to maintain the culture of a small business. § The business will become more complicated to manage as it gets bigger. § Growth requires the business to secure additional financial resources, which can be complicated. § They may not want to put too much strain on their cash flow position.

Answer 19

describes different phases of growth over time but periodically reach a crisis point § Suggests each phase of growth is followed by a crisis where action needs to be taken- a revolution

Answer 20

Phase 1: Creativity—leadership crisis § When a business is starting up its often very creative and everyone in the business can share ideas easily. Once the business gets to a certain size, there’s a need for strong leadership to give company direction and structure Phase 2: Direction—Autonomy crisis § Leaders set up a formal organisational structure with defined dept and roles. Employees become more experienced- more say in decisions and business will be too big for senior managers to manage everything. More autonomy through delegation is needed (DECENTRALISATION) Phase 3: Delegation—control crisis § More power and responsibility is delegated down to middle-managers and the organisational structure may become decentralised. Leaders may try to regain some control in order to have a more coordinated business that is optimising its use of the resources available. Phase 4: Coordination—Red tape crisis: § As control is regained by senior managers, certain decisions become centralised and new procedures to coordinate diff areas of the business are implemented, however, can be too many procedures, decrease efficiency as people ae constantly waiting for decisions to be made and approved. Phase 5: collaboration—Growth crisis: § To continue growing- some formal procedures are replaced by collaboration between dept and teams. More focus in on communication and info management. Company might struggle to grow internally and consider external growth Phase 6: Growth through alliances- mergers, takeovers—Growth Crisis (overtrading)

Answer 21

It provides a number of identifiable challenges companies may face. * It's simple to understand and shows a way forward for growth. * Different phases for a company to identify their current position are highlighted.

Answer 22

simplistic § Not every business will suffer crises as it grows – many adapt easily § doesn’t really take account of pace of growth, particularly in an increasingly dynamic external environment

Answer 23

Greiner's Growth Model predicts the six phases and five crises that businesses go through as they grow. § Growth is hard. Poses many management and leadership challenges (crises) § Leadership and organisational structure has to evolve to reflect the growth of a business § Businesses that don’t adjust will experience lower growth than those that do

Answer 24

an improvement or a new idea for an existing product, process, service within the marketplace with the intention for it to be a success

Answer 25

Invention- the creation of a product of introduction of a process or new type of service for the first time

Answer 26

making new goods/ services or improving existing ones. Developing an invention- brand new product

Answer 27

changing a process of production that already exists or putting into practise a brand new production process. E.g. – innovate new customer experience, new functionalities of product, new corp culture

Answer 28

- drives innovation. Stay ahead of competition- expand markets= increase market share

Answer 29

recoup R + D costs- sell their licenses § Businesses maintain the unique features of their products for as long as the patent last. They do not have to worry about competitors copying their exact invention § Some industries are particularly fast moving and need to constantly develop new products

Answer 30

Initially charge higher prices for innovative products/services before competitors - similar products to market. § Being innovative -good for firm's reputation –first to launch exciting new products in the past, people will naturally be interested in their future products. § Innovations in processes - add value to existing products and services. § PR coverage- added value- word of mouth § Increase MS- patented USP- porters barriers to entry § Financial rewards and meet shareholder expectations. First mover adv (loyalty)- premium pricing- high market capitalisation- perceived value increase § Businesses with lots of innovative products -take advantage of economies of scope § Enhanced reputation – innovative company

Answer 31

Innovation can be a very costly and time consuming process – businesses risk running out of money if they invest too much into R&D and don't get the products to market quickly enough. High initial costs § End up wasting resources by developing something customers don't want. § Might not be able to produce the new product on a large scale at a low enough cost- not guaranteed return on investment. § Other businesses- likely to react with their own § Businesses risk ruining their reputation if the innovative product is poor quality. § Potential legal implications § Uncertain returns. Government

Answer 32

Improved productivity- CADreduces cost, quality, functionality § Improved quality § More responsive customer service § Greater flexibility

Answer 33

§ Profit-. Profits are likely to increase and thus in turn. Increase profit margins if innovation proves successful and demand increases. Profit could actually decrease as the demand wasn’t there- market is saturated- can’t move into a new market § Market share – innovation can create barriers to entry- deter competitors from entering the market- attract more customers- increase market share. Disruptive technology. § Product design- innovation can improve product design, therefore § Brand image- improve brand image and reputation. A company known for innovation- people will naturally be interested in their future products. § Unit costs- can increase your unit costs as first- high R&D costs – however in the l/r- as you innovate – unit costs are likely to lower- better technology, r and d costs are recouperated- unit costs decrease- economies of scale. Product life cycle – development – high § PED: more a business innovates, e.g. apple- inelastic demand . Great impact on PED, especially if the product is elastic. Innovative products tend to have a USP- carries a premium price increases a product that is price elastic and could drastically reduce demands. ;less innovation in inelastic goods. Technological products have brand loyalty like- relatively inelastic

Answer 34

1. Competitor pressure- gain greater MS, fear of falling behind competitors. First mover advantage- loyal- MS 2. Market- demand by consumers, high added value products, differentiation 3. Business growth More competition- globalisation 4. Survival is necessary in a competitive market. Shareholder pressure- dividends

Answer 35

Japanese philosophy of the continuous improvement of working practices, personal efficiency and marginal gains. Empowerment/ teamwork § Encouraging employees to improve the way they work and processes they use all the time- l/t= innovation § Workers control over decision making- working environment – innovation can thrive § All members involved- highly motivated- committed § Vital component of TQM- improve the quality of production process

Answer 36

Benefits- business doesn’t have to spend money on R&D- processes= more efficient * ideas come from the workers themselves, they are less likely to be radically different, and therefore easier to implement * helps encourage workers to take ownership for their work, and can help reinforce team working, thereby improving worker motivation Disadvantages: § Probably won’t lead to innovative new products as workers aren’t really encouraged to think about the wants and needs of the customers § Kaizen – making small changes over time rather than thinking about how big changes could be to the whole process- big innovation leaps= rare § Resistance to change- kotterprx

Answer 37

§ Protection § Early planning § Developing supportive culture § Maintaining secrecy § Remembering the consumer

Answer 38

§ Research undertaken to innovate and introduce new products and service. Technical and scientific Large businesses- usually the ones to have a specialist R&D dept`; § Pharmaceuticals- FDA, MHRA

Answer 39

Advantages: timescales. § Competitive edge § USP (patent)- barriers to entry § Increase revenue § Reputation, brand image Disadvantages: high costs, long timescales. Competitors beat you

Answer 40

- large businesses enable employees and managers to demonstrate entrepreneurial behaviour in their work to the benefit of their employer- encouraged to solve a problem by coming up with innovative new ideas. Businesses allow intrapreneurs to take risks and experiment with lots of different ideas until they find the § most productive and effective way to complete a task – their solution can then be implemented across the whole department or company.

Answer 41

foster creative culture done alongside the intrapreneur's regular role, so the company isn't wasting money employing someone just to try new things. Even if intrapreneur doesn't find a solution, still have produced some work along the way - slow decision making, risk of inconsistenc

Answer 42

§ Intrapreneurship can lead to innovation of the technology used by the company. For example, in a publishing company, an intrapreneur might investigate different publishing software in order to find the most efficient type for making a book – this software could then be implemented across the whole editing department. § Intrapreneurs can also come up with innovative goods and services during their experiments and research. E.g. Google allows its workers time to be creative and work on personal projects – one of the biggest § successes to come out of this is Gmail

Answer 43

§ Structured time away from work § Encourage cross department communication- job rotation e.g. § Create judgement free zone- culture where people aren’t criticised § Hackathon- facebook- a good product was the like button § Distribute rewards

Answer 44

aims to innovate by adopting same methods. Leadership, strategic moves § Benchmarking is the process of identifying high level performance and then using it as a comparison when actual results are available. § If the business fails to meet the benchmark, management-create new strategies – business can meet the benchmark

Answer 45

Advantages: § Encourages analysis into results, higher aspirations § Motivate staff- encouraging to introduce process/ product that you've seen working successfully somewhere else than introducing something unknown. § Provides early warnings to businesses about technology or methods that might allow their competitors to overtake them. Disadvantages: § Is the benchmark realistic?, reduces innovation if copy rivals? § That it won't directly lead to new products – competitor products are likely to be protected by a patent or copyright (see next page) and you need to be careful what ideas you take from them. § Processes can't always be transferred between different corporate cultures- what works for one company might not for another company with a different culture.

Answer 46

e.g. in 2010, TESCO introduced Click+collect. This was benchmarking of the popular drive-though service offered at fast-food restaurants

Answer 47

Intellectual property tends to arise from innovation. Innovation is more likely to benefit an organisation if competitors cannot copy the ideas generated through the innovation process. ‘Protection’ of these ideas can be achieved primarily through patents and copyrights. Innovation that arises through marketing and brand image may be protected by trademark.

Answer 48

- legal protection that gives its owners the right to exclude to others form making, suing , selling an invention for a limited period of time 1. Patents- physical inventions/innovations 2. Copyrights- songs, stories 3. Trademarks- anything representing your brand, logos, name 4. Trade secret- recipes

Answer 49

Keep control of IP § Maintain USP § Maximise ROI- recoup costs § Reduced threat of competition § Creates barriers to entry § If you don’t have patents, no one would bother on R&D § Raise finance- x

Answer 50

- IP protection that gives the owner the exclusive right to copy and distribute their creative work usually for a limited time. Original and tangible § Books, paintings, computer programs, sculpture, films, databases, advertisements, maps, choreography

Answer 51

Trademark- symbol, design, word, or group of words, legally registered by use a representation

Answer 52

§ Create positive reputation- large patent portfolio, company known for innovation- more likely to purchase later products. Higher quality, invested years into this so end product is of great quality § Attract external investment- cannot be copied, ROI is secured. Not a large possibility of company being used, recoup investment § Secures exclusivity and market position…

Answer 53

§ Protection- patents, copyrights, trademarks § Early planning § Developing supportive culture § Maintaining secrecy § Remembering the consume

Answer 54

Research and development dept can turn raw ideas gathered through market research into innovative new products using the NPD process Idea: The business comes up with new ideas, explore and develops existing ideas or modifies competitor ideas. New ideas are discovered through market research finding out what consuemrs want, or from customers submitting request to a firm. Businesses can sometimes also use patented dieas for a few Analysis and screening business wants to see if product can be produced- sold at profit. All aspects of the idea = investigated – whether there's a potential market for it or not, based on market research, whether the tech nd resources exist to develop it, whether a competitor has an existing patent on a similar idea. At this stage, a prototype may be made to see what the product will look like Development: The R&D department develop a working prototype. They test it scientifically, and tweak the design to make the functional design (how it works) and aesthetic design (how it looks, feels and tastes if it's a food) as good as possible. This is the real "meat" of research and development. Value analysis: The business tries to make the product good value for money. This means balancing the function, features and appearance of a product with the cost of making, warehousing and distributing it the goal is to make a product that is good value for both business and consumer. Test Marketing: The business sometimes sells the new product in a limited geographical area, and then analyses consumer feedback on the product, price and packaging. This allows modifications to be made before a wider launch. Launch: A successful launch requires enough stock of the product to be distributed across the market. It also needs an effective promotional campaign in place to inform retailers and consumers about the product and persuade them to buy it.

Answer 55

§ Trade to GDP ratios are increasing for most countries § Expansion of financial capital flows between countries § Foreign Direct Investment and cross border M&A § Rising number of global brands § Deeper specialisation of labour § Global supply chain & new trade and investment routes § Increasing levels of international labour migration § Increasing connectivity of people and businesses through mobile & Wi-Fi networks

Answer 56

Reduce dependence on domestic market § Access faster-growing markets & demand § Achieve economies of scale § Better serve customers located overseas § Build brand value, particularly global brands

Answer 57

Protectionism involves any attempt by a country to impose restrictions on trade in goods and services. The main aim of protectionism is to protect domestic businesses and industries from overseas competition and prevent the outcome resulting solely from the interplay of free market forces of supply and demand

Answer 58

Tariffs- A tariff a tax or duty that raises the price of imported products and causes a contraction in domestic demand and an expansion in domestic supply Quotas- quantitative (volume) limits on the level of imports allowed or a limit to the value of imports permitted into a country in a given time period. Export Subsidies- a payment to encourage domestic production by lowering their costs. Domestic Subsidies- involve government help (state aid) for domestic businesses facing financial problems

Answer 59

International marketing- satisfying customer needs across different national boundaries at a profit

Answer 60

Businesses can inc their market size by selling existing products in new countries (market development strategy) bigger the market the more they’re likely to sell and higher revenue will be. Tesco nearly saturated the UK market – can still inc the size of their market by targeting other countries § Businesses can extend the life cycle of their products by launching them in new countries as the product enters maturity in its home market. This is common with cars – businesses can sell models that are old-fashioned in the UK to developing countries like India. § Businesses - reduce costs by getting their raw materials from countries with the cheapest prices- buy components from overseas countries at cheap prices - then put the final product together in the UK – this is called global sourcing. Cost advantage § Operating in developing countries with low wage rates can also reduce costs (relocating factories). Tax aadv § UK economy = recession, businesses can secure revenue by in international - exporting to a growing economy § Specialist skills, proximity to raw materials, gov incentives, shared expertise

Answer 61

. Exporting- producing goods in one country and selling it in another country. e.g. amazon § Businesses can easily enter international markets by importing or exporting goods and services. Buying from or selling to companies- consumers in other countries.

Answer 62

: least risky, popular § Businesses importing from other countries = benefit from greater variety and cheaper prices. § Benefit from an increased market size. § Manufacturing stays in UK aiding QC § Reduces risk and little investment is required § Less capital expenditure to ‘set up’ abroad § Speeds up entry to international marketsfastest § Makes use of existing facilities = inc e.o.s

Answer 63

Disadvantages: § Putting infrastructure for importing or exporting = expensive= these costs will decrease value added unless price of the product is increased. § May have limited knowledge of international markets- Limits access to local information about international markets, particularly in the case of indirect exporting- tastes, cultural issues § May face import tariffs and other trade barriersTariffs and Quota may apply to country you are exporting too § Incurs transport costs § Products may need to be customised/specialised

Answer 64

licenser gives rights to licensee the rights to use its brand, in return for fee - royalties Businesses can get foreign firms to produce their products under licence (e.g. another firm makes the product, but the original company's name is on the product) - this is known as licensing. Disadvantages: § Lack of control- can’t manage quality/ brand § Risk of brand being damaged § Only receiving a small proportion of profits § Common to offer exclusive rights within agreement § Licensee may become competitor Advantages: § Business benefits from the infrastructure foreign firms have - make money without having to do very much work and with a very low amount of risk. § Business gains access to an existing distribution network § Licensing fee revenues will be earnt from agreement (low risk) § Reduces risk- licensee better knowledge. Little investment for licenser is required. Reduce risk for licensee as strong brand § Speeds up entry to international markets § Avoids import tariffs and other trade barriers § Makes use of existing facilities and therefore increases E.O.S

Answer 65

: a partnership between 2 or more countries in another country joint ventures § Businesses can join forces with similar companies abroad, combining local knowledge with a product that has already proved successful in their own country Advantages: § Business alliance - have local knowledge § Combines resources/ strengths of two or more companies = Synergies may be created § Potential for learning, benefiting from each other – shared exp § Less investment required that going alone § Spread out the costs and risks and help businesses overcome trade barriers. Reduces risk- shared with joint venture partner § Business alliance is made with may support issues with cultural differences. Disadvantages: § Loses control over their venture. Trade secrets may be revealed § Can be difficult to manage – diff obj= d.e.o.s – synergy failue § Share profits. Businesses-diff obj § Less control than going it alone § Greater risk than exporting and licensing § Partner in alliances may become a competitor. Competitor presence

Answer 66

Direct investment is when a business takeover or merges with a business in a different country. § Business with headquarters in its home country sets up additional operations in another country. e.g. offshoring Advantages: § Allows business to enter markets quickly and have an instant share of market- speeds entry to intnl markets § Business doesn't need to invest in establishing its name and reputation in the new country. § Closer to local market § Reduce risk of failure –business benefits from knowledge and experience of local market and culture provided by the business it joins with. § Business retains control over foreign operations, foreign suppliers § Direct control over quality and customer service § Profits are kept and not shared § Direct investment may seek vertical integration (to secure supplies) § Avoids import tariffs and other trade barriers § Makes use of existing facilities and therefore increases economies of scale Disadvantages: § High investment outlay -> capital expenditure- risk § Different organisational culture -> pressure on HR (Hofstede) § Higher level of risk – using your own resources than other methods § Requires huge resources and long-term commitment § Requires well thought out strategy for managing local plants and resources, including overcoming cultural barriers

Answer 67

1. HR may start recruiting people who can speak multiple languages so they can communicate more effectively within the business and with their customers they might also have to help current employees relocate abroad. 2. The finance department will have to put methods in place for dealing with fluctuating exchange rates as goods are bought and sold in different currencies. 3. Marketing may have to split into separate international and national departments as products will be priced and promoted differently depending on the country they are being marketed in

Answer 68

Cultural differences: a business needs to understand local cultural influences in order to sell its products effectively. For example, a product may be viewed as a basic commodity at home, but not in the target overseas market. The sales and marketing approach will need to reflect this. Language issues: although the common business language worldwide is now English, there could still be language issues. Can the business market its product effectively in the local language? Will it have access to professional translators and marketing agencies? Legislation: legislation varies widely in overseas markets and will affect how to sell into them. A business must make sure it adheres to local laws. It will also need to consider how to find and select partners in overseas countries, as well as how to investigate the freight and communications options available.

Answer 69

§ Inc sales, revenues and profits § Reduce risk of only having one market § Make most of economies of scale § Make most of experience curve

Answer 70

Locating abroad can reduce costs: § Pay foreign workers much lower wages than they would have to pay their UK employees. Some companies have been accused of not paying foreign workers enough to live on - this is unethical. § Cost of land and office space also tends to be cheaper overseas, especially in emerging markets. § Utilities like water and electricity might also be cheaper abroad. Locating abroad is a way of targeting new international markets § Locating a firm close to the overseas market= easier to spot local market trends. § Company is able to absorb more local knowledge- it's less likely to make expensive marketing errors - might even spot new market niches. § Locating close to a new international market will also make distribution of products to the market easier and decrease the company's distribution costs to that market. Locating abroad helps companies avoid trade barriers § Some countries create trade barriers to protect domestic companies from foreign competition- these barriers might be things like taxes or restrictions on sales of goods from abroad. § Locating part of a business within a country with trade barriers helps companies get round these penalties. § Trade barriers can protect domestic industries from international competition, causing them to become inefficient= foreign company that locates in country with trade barriers = competitive advantage- likely to be more efficient. Locating abroad has been made easier by improved transport and communication links § Price and availability of air travel = easy for people to travel between overseas locations. § Trading overseas - made easier because countries with emerging markets are investing heavily in infrastructure. This means that they have better road and rail networks and ports than they had in the past. § Doing business overseas has also been made easier by technological developments. Businesses can communicate internationally by email and video-conferencing - so people don't have to leave the UK.

Answer 71

Business activities or processes are moved abroad. Trends → China, India, Philipines, Poland, Malaysia, Mexico, Indonesia Many businesses locate some of their departments such as call centres or payment processing department overseas Reduce costs § Production costs : capital § Raw material costs: location/proximity § Labour skills : larger talent pool = better quality § Component costs § Labour costs: lower wages? § Take advantage of free trade areas § Make use of existing capacity overseas Increase revenues § MNC nearer to growing markets § Overcome tariffs or quotas Disadvantages: § Initial transition costs (1) § Long lead times for supply § Exchange rate risks (2) § CSR risks/ implications (3) § Additional management costs § Communication: language & time zones § Logistics/ supply chain pressures: lead times (4)

Answer 72

Involves the repatriation of business activities from overseas back to the home country § Some businesses are moving departments back to UK in reaction to changing customer attitudes. § Customers are more aware of a business's overseas activities than they used to be – businesses that are seen to treat overseas staff poorly will get a bad reputation and face a backlash from their customers. Benefits: § Re-shoring allows a business to improve the quality of its products and processes as manufacturing is easier to monitor and control if everything is made in the same country. § Re-shoring also means that distribution to the home market is cheaper and more efficient as products don't have to be shipped all over the world – businesses can offer a better delivery service to their customers. § Sometimes the low wages of overseas labour are still too appealing for companies – however, as the wage gap between UK workers and overseas workers decreases, more and more companies will begin to re-shore. § Extra contemporary marketing angle of ‘made in Britain’ or ‘served in Britain’ Reasons for reshoring § Greater certainty around delivery times (including shorter delivery times) § Minimise risk of supply chain disruptions § Reduce complexity of supply chain § Easier to collaborate with home suppliers § Greater certainty about the quality of inputs and components § Cost advantage of producing or sourcing overseas is not as significant as it used to be

Answer 73

§ As a result of offshoring- some countries have become specialised in providing certain skills or services § Countries that specialise in particular areas- attracts lots of business from overseas companies- creates a competitive environment in that country which can lead to cheaper prices and better services being offered 1. India specialises in communications (e.g. call centres) and IT services, so they can offer competitive prices and a pool of suitably trained workers. Businesses take advantage of this by moving their customer service department to India. 2. China and Brazil have lots of cheap and skilled labour – some businesses have moved their manufacturing departments to these countries to take advantage of this. Their products are made for relatively low labour costs but often to quite a low standard as they focus on volume rather than quality. 3. China also attracts lots of Research & Development departments as they relocate to be closer to the manufacturing department and to take advantage of the skilled low-cost labour and infrastructure. 4. Philippines - young university graduates with very strong work ethics and very good digital communication infrastructure. Some businesses have begun moving their IT departments to the Philippines to benefit from the people and technology that they already have in place. Countries that offer specialised services may face problems: § Workers lose motivating as majority of available jobs are in same industry or size of industry may lead to D.E.O.S. § Risk another country will find a way of providing the skills or service even more efficiently

Answer 74

§ Relationship with suppliers- loss of supplier power – new infrastructure- reconstructing supply chain- can’t negotiate with suppliers – higher costs § Barriers to entry- more competitors

Answer 75

Non-financial benefits: § Will create new jobs in that country- inc peoples income and SOL. Companies invest into host country by paying for factories, roads etc to be built and by paying taxes to local gov Non – financial costs: § Loss of jobs and investment in original country- overseas workers can be exploited if they aren’t protected by employment laws and there may be a rise in pollution § Companies should still weigh up the impact that these issues have on their reputation before making any decisions

Answer 76

§ multinational company is a business that has branches or departments in more than one country. § Its head office will be based in one country and it will coordinate its global activities from there- have offices or factories in other countries that offer services or produce goods. § Multinationals - utilise the different locations of their factories in order to produce goods in the most cost-effective way – this has increased the overall level of international trade. § Some of the largest multinationals now have annual turnovers larger than the GDP of some countries. This means these businesses have a lot of economic power

Answer 77

1. Multinationals increase employment opportunities for the populations of countries where they're based. 2. Multinationals increase the local standard of living. Although they get paid less than workers in developed countries, the employees of multinationals in developing countries often receive better pay and conditions than employees of local companies in the developing country. 3. Inward investment into the host country increases because multinationals spend money on building the factories and infrastructure (roads, etc.) that they need. This is called foreign direct investment (FDI). 4. Multinationals cause economic growth for each country they expand into. The GDP of the host country increases as a result of additional spending like inc travel into the area and demand for hotel rooms from visiting businesspeople. 5. Multinationals locating in developing countries will pay taxes to the local g

Answer 78

rts page 26

Answer 79

MNCs – significant employment and training to the labour force in the host country- economy grows § Inc of local standards of living- paid less than workers in developed countries – employees often receive better pay and conditions than employees of local companies § Inc potential customers= inc reach= inc target market= inc sales § Access to cheaper suppliers= unit cost= higher profit margisn, more competitive § Inward investment inc as multinationals spend money on building factories and infrastructure- FDI § MNC’s cause economic growth- GDP inc as inc spending- inc travel. for example with local suppliers and through capital investment § Transfer of skills and expertise, helping to develop the quality of the host labour force= inc efficiency, innovation § Competition from MNCs acts as an incentive to domestic firms in the host country to improve their competitiveness, perhaps by raising quality and/or efficiency § MNCs extend consumer and business choice in the host country- inc SOL § Profitable MNCs are a source of significant tax revenues for the host economy (for example on profits earned as well as payroll and sales-related taxes) inc gov income- schools and hospitals § Ethical multinationals – benefit countries by paying fair wages – inc costs – trade ethically- higher prices

Answer 80

§ Businesses may not be able to compete with MNCs and some will fail § MNCs may not feel that they need to meet the host country expectations for acting ethically and/or in a sociallyresponsible way (Carolls CSR). Low wages to reduce costs- sweatshops § Exploit developing countries- max profits § MNCs may be accused of imposing their culture on the host country, perhaps at the expense of the richness of local culture Hofstede- power distance, MAS, IDV § Profits earned by MNCs may be repatriated back to the MNC's base country rather than reinvested in the host economy. § MNCs = transfer pricing and other tax avoidance measures to significant reduce profits on which they pay tax to the government in the host country § In a developed country a company would be required to minimise its environmental impact, but in some developing countries, environmental laws are less strict, and multinationals might take advantage § The governments of developing countries might overlook unlawful behaviour by multinational businesses because they rely on the tax income they generate, so they won't want the business to relocate away from their country. § Multinational might extract large quantities of unsustainable natural resources, oil, gas or minerals- might also fail to redevelop the landscape when there's no more to extract § In a developed country a company would be required to minimise its environmental impact, but in some developing countries, environmental laws are less strict, and multinationals might take advantage § The governments of developing countries might overlook unlawful behaviour by multinational businesses because they rely on the tax income they generate, so they won't want the business to relocate away from their country. § Many multinational companies are increasingly committed to Corporate Social Responsibility so exploitation is less common than it used to be.

Answer 81

§ As multinational corporations operate in many different countries, each with its own laws, governments sometimes coordinate their approaches to control and manage the activities of multinationals. § European Union - tried to standardise employment laws such as equal opportunities and health and safety standards to ensure that MNCs within the EU have to meet minimum standards wherever they locate. This is known as harmonisation. § Governments sometimes use protectionist policies like tariffsand quotas to protect their own economies § Pressure groups sometimes try to influence government policy on multinational organisations. They try to persuade governments to put tighter controls on how multinationals from one country operate in other countries (e.g. to stop multinationals from using child labour in foreign countries). § Transfer pricing is when a multinational business buys and sells products between parts of the company based in different countries – it can make it very difficult for governments to control the taxes a multinational pays. Transfer pricing can be used to make all the profits appear to belong in a country with very low tax rates, which reduces the amount of tax a multinational pays. However, this might conflict with any Corporate Social Responsibility (CSR) code the business has

Answer 82

§ Volvo cars, Swedish premium car market, UBER- worlds leading ride sharing company- join forces- autonomous driving cars

Answer 83

Inc profits via a decrease in costs § Economies of scale § Experience curve § Centralised structure § Marketing campaigns § Operations- design and development § HR- staffing 1. Standardised products- industrial goods 2. Cost leadership

Answer 84

Product § Centralised structure for major decisions § Finance § Operations- designs § Implemented by local teams § Limited cost pressure Key competence: 1. Not in local markets 2. Risk- long term

Answer 85

Considerable variations between each market § Therefore inc need for adapting § Localisation strategy Portfolio of relatively independent companies in each location Decentralised: § Marketing, product development, r&d Risk= long term may get comp, pressure to move towards transnational

Answer 86

High profits Mixture of centralised and decentralised Dec- operation, marketing Centralised- global sharing, value and knowledge 1. Economies of scale 2. Experience curve

Answer 87

The management strategies needed to run a multinational are very different from those needed to run a domestic business. § Multinationals are very complex – different parts of the business are subject to the laws, culture, economy and markets of the country they operate in. § If a multinational only operates in countries with similar laws, cultures and market condition- centralised. Multination with different laws= decentralised § Bartlett and Ghosal- proposed that a multinational could adopt one of four different strategies for management, depending on the nature of the business and needs of its market § Pressures business faces to be successful when entering international market

Answer 88

Local pressures: § Understand culture § Adjusting prices § Differentiation Global pressure § Low cost- E.O.S § Standardisation

Answer 89

low local pressure, low global pressure § If the demands of markets in other countries are similar to the demands of the home market, the pressure for local responsiveness is low. If pressure to reduce costs through global coordination is also low, then an international strategy is adopted. § The business structure will remain very centralised with most of the research, big decisions and development being carried out at head office= decisions = implemented in parts of business located abroad. § Aims to achieve efficiency by focusing on domestic activities, international operations are largely managed centrally, relatively little adaption of product to local needs Market. Conditions- competitive structure. Luxury brands- rolls royce

Answer 90

high local pressure, low global pressure § When the demands of the different markets are very different and there is little pressure to reduce costs through global coordination, a multidomestic strategy should be implemented. § The business structure becomes decentralised and the business operates as if it were lots of independent companies each running itself. Most decisions are made locally to meet the local needs. § Different branches of the business will look and work differently – products will be adapted and promoted to suit the local markets, and knowledge won't be shared between the separate branches. Aims to maximize benefits of meeting local market needs through extensive customization, decision-making decentralized, local businesses treated as separate businesses, strategies for each country E.g. Virgin group

Answer 91

- low local pressure, high global pressure § A global strategy is used when the demands of the different markets are similar and global coordination of the business could reduce its costs significantly. § The business structure will be centralised and it will coordinate operations across countries to take full advantage of economies of scale. § Products will remain standardised and innovation and development will take place at a central location, with knowledge and resources being passed on to the different branches. § A business may decide to only sell specific products in certain countries rather than its full range. § Highly centralized, focus on efficiency (economies of scale), little sharing of expertise locally, standardised products E.g. Pfizer, BP

Answer 92

high local pressure, high global pressure § When pressure to reduce costs and meet local needs are both high, a transnational strategy is best. § Very hard to achieve § The focus of a transnational strategy is on developing knowledge and ideas locally and sharing them globally in order to benefit the whole business. § The business structure will be a balance between centralisation and decentralisation, where the responsibilities passed down to each branch of the business are based on its experience and capabilities Complex to achieve, aim is to maximise local responsiveness but also gain benefits from global integration, wide sharing of expertise (technology, staff etc.) Mc Donald’s

Answer 93

§ Businesses face pressure to update their digital technology § New digital tech in constantly being developed and businesses must decide which developments will provided them with the greatest ROI § If businesses make the correct decision- and adopt right tech at the right time, grow rapidly= upper hand on competitors § If businesses are too late to new tech- lose against competitors, lose MS Serve existing customers better § Reach new customers in new segments & locations § Offer new ways of delivering products and services using digital technology § Reduce costs by integrating digital technology into operations § The need to respond to digital innovation by competitors § Access, analyse and action data that provides key insights into customer needs and business performance

Answer 94

The R&D department can incorporate up-to-date digital technology in new products - these innovative products have a chance to revolutionise the market and make the business a lot of money. § Digital technology can offer small upgrades to existing products to keep the business ahead of its competitors. § Smartphones = always upgraded to offer better cameras, powerful processors, wider variety of features = small upgrades allow business to retain its market share. § The internet allows businesses to monitor updates to digital technology on a global scale. E.g. an R&D department in the UK might see an invention in Japan and find a way of incorporating it in their own product

Answer 95

§ It is often very expensive to develop new products that are based on new digital technology - if these products never make it to market then the business has wasted a lot of money. § New technology hasn't always been fully tested, so if a business chooses to use it in their product they are running the risk of their product having lots of bugs and not working properly. § Problems with digital technology can be difficult to diagnose, customers can get frustrated with a company if they can't get products to work properly. § Businesses run the risk of the new technology not catching on. E.g. Nintendo® brought out the Wii UTM in 2012 but it never really sold very well and was discontinued in 2017.

Answer 96

1. E-commerce, m-commerce 2. Big data 3. Data mining 4. Enterprise resource planning (ERP) 1. E-commerce involves digitally enables commercial transactions between among organisations and individuals 2. Sharing economy- uber Airbnb 3. Music streaming- spotify, imusic 4. Filestoring and sharing:dropbox Morrison’s = last of 4 major grocery retailers Ikea= late to expand to its e-commerce offer § 2016- offers sales in 13 of 40 countries Slower movers= target low-income producers

Answer 97

New technology can lead to changes in the way that products are made –positive changes, e.g. better quality products, increased capacity and increased efficiency. § Businesses need to weigh up whether the expense of implementing new digital technology in the production process is actually going to be profitable in the long-term. § It can take a long time to apply new technology to the process – by the time you've implemented it and got the process running efficiently again, there may be better technology available. § To use new technology efficiently, staff often require some specialised skills – retrained so that they have the skills required to interact with the new technology= means that efficiency will fall until staff are properly up to speed with the new processes. § If a business introduces too much new technology to their production process, staff will become overwhelmed and resistant to the changes.

Answer 98

Advantages for businesses: § Cost effectiveness – Reduced overhead/FC/rent, dec BEO, inc MOS § Flexibility. Targeted adv- cheaper § Increased demand - Access wider market. Strong intnl demand § Improved efficiency § Greater profit margins § Gain insight into existing customer § online marketing tools- target specific audience- segmentation Disadvantages: § Greater competition § Lack of tactile experience for customers § Costs of new technology § Website- cost of operation, maintenance, developers, training £ § Customer service = low § Can’t try online- sales decline. Exchange rate § Poor website= poor repu- low sales

Answer 99

Advantages for consumers: § Wider choice § Greater convenience § Improved information § Lower prices Disadvantages for consumers § Security § Lack of tactile experience § Impersonal § Faulty products

Answer 100

E-commerce- Involves digitally enabled commercial transactions between and among organisations and individuals Big Data- process of collecting and analysing large data sets from traditional and digital sources to identify trends and patterns that can be used in decision-making Data mining-the process of analysing data from different perspectives and summarising it into useful information, including discovery of previously unknown interesting patterns, unusual records or dependencies Enterprise resource planning- A software system that a system that helps businesses integrate a

Answer 101

§ Widespread availability of smartphones and the associated app "eco-system" has created new ways of delivering existing products & services § Global e-commerce platforms such as Amazon, ebay, Google, Alibaba etc, have made it much easier for small businesses to access their target customer base § E-commerce has made it much easier to expand into international markets § Technological change - shortened PLC - enabled new market entrants challenge established market leaders

Answer 102

§ Improvements in digital technology have allowed businesses to gather big data – they can collect it using social media, loyalty cards, etc. or they can buy it from other businesses. § Big data can then be analysed using computers and specially designed digital software to spot correlations and trends – this analytical process is know as data mining. § Data mining can make sense of big data and supply useful information on customers and competitors to the functional areas of the business. For example, the R&D department can use this information to develop new products, the marketing department can use it to inform decisions about the marketing mix and the finance department can use the information when making cash-flow forecast

Answer 103

§ Improvements in digital technology have resulted in e-commerce becoming the primary way for some businesses to trade goods and services= businesses don't need to invest as much money in stores = can reach a much bigger customer base through a website. § The growth of e-commerce has given businesses greater access to international markets - businesses can translate their website into different languages and offer worldwide delivery to expand their markets. § Manufacturers can use their own website or online market places to sell directly to consumers rather than selling through an agent or retailer – this allows them to keep all of the revenue for themselves. § Companies such as amazon® keep track of the online order history of their customers= personal recommendations to customers that they know will be interested. § Business are able to interact more directly with their customers through social media= businesses can regularly update customers about improvements to their goods and services. § Businesses are able to deal with customer complaints more efficiently by switching from telephone services to live online assistance - this means that a customer service assistant can deal with many customers at once. § However, customers also have access to this technology-they are able to look up reviews of a product and find prices of similar products within seconds= products and prices a business offers have to be genuinely competitive. E.g. they can't gain an advantage by being the only DIY shop in town.

Answer 104

Analysis of operation § Marketing information § Improving decision making § Improving security

Answer 105

§ Data protection legislation prohibits the use of data when the person has not agreed to this= difficult to track with the high levels of data being used. § The reliability of data can be questionable and can lead to likely incorrect conclusions

Answer 106

* Data counting and analysis . Clustering and grouping * Correlation and regression analysis * Decision trees * Network analysis/ critical path analysis

Answer 107

Enterprise Resource Planning = business management software that allows a business to monitor activities in every department through the collection and interpretation of data. § HR department - track the work rates of staff to see who needs extra training or when productivity drops – e.g. in a supermarket, managers can monitor the scan speed of their checkout operators. § The finance department might use data from previous infrastructure changes to budget for upcoming changes. § Marketing department to keep track of how well their promotional products are selling and to compare sales before and after promotion. § It can be used to track stock levels, distribution networks and productivity to see how well operations department is functioning and if any improvements are needed. § The core business processes that tend to be automated are activities such as processing customer orders, keeping inventory records, scheduling, operations and maintaining records of financial transactions § ERP operate through business software that brings together the activities needed to satisfy customer orders and to monitor the performance of those activities = performed cost effectively and to customer’s satisfaction

Answer 108

§ Integration of all business processes so that all aspects of the business work towards the same goal § Greater efficiency for automation § Closer scrutiny of all activities

Answer 109

* To reduce costs * To make a business more accessible for other businesses to do business with * To efficiently manage future growth * To manage growth expectations in a coordinated manner * To improve customer response times * To overcome difficulties in coordinating activities taking place in different location * To help innovation to increases added value.

Answer 110

§ Order processing § Manufacturing § Supply chain management § Inventory control § Sales and customer service § Human resource management § Financial accounting

Answer 111

- Retail e-commerce databases - User-interactions with websites and mobile apps - Usage of logistics, transportation systems, finance, and health care - Social media data - Location data (e.g. GPS generated) - Internet of things (IoT) data generated (e.g. google search) - New forms of scientific data

Answer 112

§ New tool, very recent Benefits of data mining: § Identify relationships § Predict future trends + behaviour § Extract value § Generate business actions

Answer 113

§ Generating marketing insights § Improved decision making- dynamic pricing § Better security of business systems § More efficient management of capacity

Answer 114

Sales forecasting § Market segmentation § Database marketing § e-commerce basket analysis § Tesco= Clubcard loyalty promotions

3.9 - Business growth Flashcards

(144 cards)