4.2 Global Markets and Business Expansion Flashcards

Question

Why may a business undertake a global merger to entering new markets and trade blocs?

Answer 1

- Instead of organic growth, a shorter route to international growth is through mergers and acquisitions. Sometimes it’s the only route, as the maturing industry they are in is too competitive for organic growth. - An example of this is when 4 big brewers- (AB-InBev, SABMiller, Heineken and Carlsberg) have undertaken various global mergers to gain EoS and new growth that they now own 50% of the global market volume

Answer 2

- A business may want to become a global player in the international market. however , it may lack brand recognition or a patent that prevents other business form copying its product or producing a similar product - by purchasing a business or a product with a strong brand name and strong brand loyalty, it could obtain both quickly - This can limit competition for the product, a business will not face the high risk, cost and uncertainty of launching a new product - However, brands can easily be damaged if mergers are not done correctly, they can impact staff morale leading to poor customer satisfaction.

Answer 3

- developing IP internally, through in-house research and development can take a very long time and involve a lot of financial risk. - IP is protected through: - patents - inventors - Copyright - literary works and computer program - trademarks - brand names and designs - Since establishing intellectual property can be expensive it is often easier to gain access to intellectual property by buying it in an acquisition or through a joint-venture agreement

Answer 4

- Buying businesses to cover each step of sector of industry – Primary/Secondary/Tertiary – also known as backward vertical integration. A business might want or even need to merge with another firm because: - The resources maybe scarce or hard to require, so you want to ensure reliable sourcing. - You need to ensure the supplies are of a suitable quality/price. - Eg Starbucks has bought its on coffee farms after multiple disease threats to coffee plants.

Answer 5

- Merging can provide bigger markets, scale and scope economies and cost savings. This can make the firm more competitive with pricing power over customers AND suppliers. - when there is lots of competition in a market, or where the firm is hoping to become a dominant player on a global scale, merging or acquiring another firm can be part of a successful strategy - Alternatively, two firms can cross-sell product ranges or services, thereby increasing overall l sales and perhaps lowering internal costs e.g. banks and financial services firms have merged in order to provide one contact point for customers to a range of financial services products - Merging to other countries can lead to tax benefits as you base your head quarter in the country with the lower tax, but can be consider unethical - Some take overs are also defensive - to stop them growing into a formidable competitor or to stop other competitors taking it over e.g. Facebook bought WhatsApp - which was making a loss but was a superior form of messenger

Answer 6

Factors that make it difficult for a company to enter an industry or type of business and compete efficiently. These can include incumbent’s high capital investment and strong economies of scale, restrictive government policies and labour unions.

Answer 7

The advantage one company has over another, or several others, in the provision of a particular product or service. For instance, a car maker may have a competitive advantage because its car break down less often - in other words are of a higher quality - even thought it may be more expensive

Answer 8

Through acquiring ever-increasing economies of scale, a company create the cheapest product on the market.

Answer 9

A concept developed by Michael Porter, it describes a way to establish the competitive advantage and essentially means the lowest cost of operation in the industry.

Answer 10

Rather than focusing on costs, differentiation is when a firm selects certain attributes of its products and tries to match these with specific customers. The business may then try to command a higher price.

Answer 11

Risk that future cash flows will change due to unexpected exchange rate changes.

Answer 12

- A depreciation in the exchange rate means exports are cheaper so an exporter can benefit from more sales - However If the pound appreciates, their exports will be more expensive and will have an impact on the competitiveness of exporting firms - a firm may have to consider lowering their profit margin and reducing their price to stay competitive - A appreciation in the pound would benefit manufacturer as the rising buying power of the pound might allow it to pay a lower for the raw materials to make its product - And when the pound depreciates demand, demand for the manufacture's products may increase, but so might the cost of making them/

Answer 13

- Elasticity of demand --> if the pound depreciates the effect it will have on a business and its products depends on its PED - if they a price inelastic, then the fall in price would have only a relatively small increase in demand (UK tend to be price inelastic) - if exports are price elastic the there will be a bigger percentage increase in demand -Economic growth in other countries --> if it is slowing, demand will drop regardless of exchange rates - If there is an appreciation in the pound because there have been improvement in efficient and productivity then businesses will be able to absorb the stronger pound more easily - However if the pound rises due to speculation or due to weaknesses in other countries, then businesses could be uncompetitive because the rise in the [pound is not related to either improved competitiveness or productivity.

Answer 14

a rise in the currency - makes exports more expensive and imports cheaper

Answer 15

a fall in the currency, makes exports cheaper and imports expensive

4.2 Global Markets and Business Expansion Flashcards

(39 cards)