4.2 Global markets and business expansion Flashcards
(19 cards)
Define push factors
adverse situations which force businesses to look for opportunities in international markets
Define pull factors
Opportunities for businesses to take advantage of lower production costs or new growing market places
What are 3 push factors
Market saturation- will look towards expanding globally
Competition- domestic competition can make competing at home unprofitable
Shareholder pressure- pressure for ROI can cause businesses to seek new opportunities
What are 3 pull factors
Acquiring brands and intellectual property- foreign businesses may own intangible assets that are difficult to develop or replicate
Economies of scale- significant cost savings to increasing scale of operations
Cost savings- in some developing countries certain costs are cheaper E.G tax and labour
What are 2 approaches to becoming a multinational corporation
Outsourcing
Offshoring
Define off shoring
Moving manufacturing or service industries overseas
Define Outsourcing
Using a third party to perform services or produce goods
What are the ads and dis of offshoring
Ads:
- Lower wage rates
- Access to raw materials
- Access to skilled workforce
Dis:
- Damage to business reputation in home country
- As economy develops production costs will rise
- Cultural and language barriers
What are the ads and dis of outsourcing
Ads:
- Allows the business to upgrade
- Takes advantage of a country’s comparative advantage
- Access to specialist facilities and knowledge
Dis:
- Reliance on third parties- limited control
- Cultural and language barriers
- Businesses are less flexible if tied into a contract
How does moving into international markets affect the product life cycle
It can extend the life cycle of the product, this may be done by innovation to meet the needs of local culture
Why do businesses assess the market of another country
This is to reduce the risk by identifying the greatest opportunities and structures to support trade and stability
What factors contribute to a country’s infrastructure
Rail
Airports
Roads
Quality of hospitals
Quality of schools and universities
Ports
Define a merger
Where two companies join together to create one organisation
Define a joint venture
Involves two separate businesses collaborating to achieve a shared goal
What are barriers to entry when trying to enter an international market
- Low brand awareness
- Cultural/language differences
- Knowledge of the market
- Additional costs through exporting
Why do businesses merger and joint venture GLOBALLY
Spread risk- by operating in different markets it spreads the risk if one fails
Global competitiveness- merging can cause a business to remain competitive
Securing resources and suppliers- may choose to merge with a business that provides it with resources, this ensures long term stability and can reduce costs
Entering new markets- merging can gain a presence in the international market
How can exchange rate fluctuations affect competitiveness
Elasticity of demand- the demand for some products is less responsive to a change in price caused by exchange rate fluctuations
Economic growth may counterbalance a fall in demand for exports as a result of an appreciation in the currency
The use of fixed contracts- this reduces the impact of exchange rate fluctuations
How does cost competitiveness help a global business be competitive
MNC’s can find it easier to achieve economies of scale due to multiple operations, this can help reduce unit costs
Can use vertical integration to remove the mark up from suppliers
How does differentiation allow a business to be competitive
Can use a ploycentric approach to marketing and adapt to their products to meet the needs of local markets
May include differentiating a brand to fit its specific market
