4.2 Global Markets and business expansion Flashcards
(44 cards)
What are the forces encouraging businesses to operate in other countries
-pull factors -> reasons attracting a business to a new foreign market
-push factors -> reasons driving a firm away from its domestic market
Name 3 reasons why a firm may want to leave its domestic market (push factors)
-saturated markets
-competition
-extending product life cycle
Why may saturated markets push businesses out of its domestic market
-> in this market customers who want the product already have it -> limited opportunity for growth in sales -> new market for existing product -> market development
Why might competition push businesses out of its domestic market
competition in domestic markets -> decreases sales -> due to ^ availability of substitutes -> companies leaving the market
Why might extending its product life cycle lead to a firm leaving its domestic market
-as product nears its decline phase -> entering new international markets -> extends/ prolongs life cycle
Name 3 factors attracting a business into foreign markets (pull factors)
-economies of scale
-possibility of offshoring, outsourcing
-risk spreading
How does economies of scale attract businesses to foreign markets
-> entering foreign markets -> ^ scale of production -> lower unit costs -> FC spread across all units -> ^ profit margins
How does offshoring and outsourcing attract businesses into foreign markets
-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
What is offshoring
moving 1 or more business functions -> foreign country
What is outsourcing
contracting another business to perform a business function on your behalf
-> e.g. usually production performed by business in lower cost country
How does risk spreading attract businesses into foreign markets
selling in one country = risky if the product fails
-> entering more international markets -> spreads risk -> reduces business failure
Name the 6 ways businesses judge whether or not a country is right for them to start selling in (market attractiveness)
-levels and growth of disposable incomes
-ease of doing business
-quality of infrastructure
-political stability
exchange rates
What is disposable income
money a household has available to spend from income after income tax has been deducted
How does level and growth of disposable income determine whether a market is attractive to a business
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
How does ease of doing business determine whether a company chooses to set up in a certain country
-> if firm faces problems in market -> likely to discourage foreign firms -> delay on sales -> ^ costs
How does the quality of infrastructure determine whether a company chooses to set up in a certain country
-> developing countries -> unreliable, underdeveloped transport, infrastructure -> delay in delivering -> ^ costs -> unattractive to businesses
How does political stability determine whether a company chooses to set up in a certain country
country with calm political situation -> reduces uncertainty before entering market
-tax regulations
-corruption
How do exchange rates determine whether a company chooses to set up in a certain country
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
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Name the 8 factors in which are taken into consideration when judging if a country is suitable to manufacture products
-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
Why is political stability assessed when assessing a country as a production location
-political unstability -> uncertainity -> financial loss
Why are government incentives assessed when assessing a country as a production location
governments try to attract FDI -> brings income & employment
-can do this by offering tax breaks, interest free loans, cheap land, labour better rates
Why is locating in a trading bloc assessed when assessing a country as a production location
-> some firms enter countries to avoid trade barriers -> allows them
Meaning of labour intensive
business process that relies more on ppl than machinery
Meaning of capital intensive
business process that relies on machinery more than ppl
