Flashcards in Global Markets And Business Expansion - 4.2 Deck (64):
what are 3 push factors which prompt trade?
1. Saturated market
2. Increasing number of competitors
3. the need to extend the product life cycle
what may businesses do when the market is saturated?
look for opportunities overseas as competition may be affecting/ limiting profitability
what may businesses do when there is an increasing number of competitors?
look for under developed markets to gain first mover advantage
what are 5 conditions which prompt trade?
1. saturated market
3. offshoring and outsourcing
4. risk spreading
5. economies of scale
what is a risk bearing economy of scale?
the ability of large firms to spread the costs of uncertainty over a wider range of activities and therefore reduce their unit cost.
what is the definition of offshoring?
act of basing some of a businesses processes or services overseas
what is the definition of outsourcing?
sub-contracting another business to work for you
can businesses offshore and outsource at the same time?
What are 3 gains of outsourcing?
1. sub-contract to a specialist - more efficient (have specialist equipment) resulting in cost gains
2. Expertise (which you may not have)
3. time saving
what are 5 gains of offshoring?
1. labour costs much lower
2. proximity to raw materials
3. reduced regulations ( working conditions/ pay)
4. corporation tax is lower
5. more land with lower rent
what are 5 push factors?
1. Saturated domestic market
2. low growth opportunities
3. end of product lifecycle at home
4. need to diversify
5. need to reduce risk
what are 4 pull factors?
1. attraction to new overseas markets in emerging economies
2. opportunity to gain EOS by expanding overseas
3. opportunity to exploit competitive advantages in new markets
4. ways to extend the product lifecycle
how can products at stage 3/4 of the product lifecycle model prompt trade opportunities? (2)
1. look for sales opportunities overseas
2. market development - invest in cash cow
how can products at stage 3 of the product lifecycle model prompt trade opportunities? (1)
use extension strategies to make the product suitable to the market
what are pull factors?
positive factors overseas that entice a UK business to look outside the UK
what are push factors?
negative factors within the UK that push a UK business to look overseas
what is the definition of a saturated market?
market where growth has ceased and there are no significant opportunities to boost sales other than stealing market share from existing rivals
what are 5 factors which influence a markets attractiveness?
1. levels and growth of disposable income
2. ease of doing business
4. political stability
5. exchange rate
What is the definition of disposable income?
total income an individual has available to spend after paying income taxes and other statutory payments
what is a good indicator for levels of disposable income in international markets?
GDP per capita
What are 5 things which can make it difficult to trade in different countries?
1. political stability
2. language barriers
3. legislation - regulations
4. type/ success of business
5. trade barriers
why do businesses need infrastructure? (3)
1. set up production/ offices
2. distribution networks
3. access local labour force
what is the most significant factor for a business looking at markets for attractiveness?
what are 5 factors which suggest there is political instability?
1. exploitation of workers (lack of regulations)
2. income inequality
3. corruption/ bribery
4. intellectual property theft
5. civil unrest
what is the definition of exchange rates?
price of one currency expressed in terms of another
what happens to exchange rates in recessions in comparison to a boom?
boom - appreciates - strengthens
recession - depreciates - weakens
what are a governments objectives for trade? (3)
1. high stable economic growth
2. low inflation
^ trade off for one another
3. low unemployment
4. balance of payments surplus (exports to be higher than imports)
what are 3 of 9 factors which businesses use to asses a country as a production location?
1. cost of production
2. skills and availability of labour force
4. location in trade bloc
5. government incentives
6. ease of doing business
7. political stability
8. natural resources
9. likely return on investment
what 3 factors could affect the cost of production?
1. labour costs rising
2. capital intensive - investment in capital equipment
3. land/ rent
what does a surplus of supply labour lead to?
a downward pressure on wages (due to the competition of jobs)
why is the location of a country in a trade bloc important to a business wanting to produce in that country? (5)
1. Ease/ cost effectiveness of trade is better - reduced trade barriers
2. FDI from other countries (benefit)
3. Access to staff
4. Wide pool of customers/ target audience
5. resources/ raw materials are easier to access
What incentives do the government offer to encourage businesses to produce in a country?
1. have business enterprise zones - to attract multinationals to designated zones
2. reduce taxes
3. provide/ invest in infrastructure
4. have a wide pool of skilled staff
why is having natural resources an important factor for a business looking to produce in a country? (3)
1. cheaper to use natural resources that exist there Vs importing
2. certain economies possess valuable commodities
3. access to labour force skilled in accessing resources - part of the culture
why is the likely return on investment an important factor for a business looking to produce in a country? (2)
1. profitability is the main objective for firms
2. heavy investment is required to move into a new country
what is the definition of a multinational?
a company based in one country but with operations in many
what is the definition of a merger?
a legal combining of two countries into one new business
what is the definition of a joint venture?
a separate business entity created by 2 or more parties, involving shared ownership, returns and risk.
what are 5 reasons for a joint venture or merger?
1. spreading risks over different countries - market development
2. entering new markets - distribution networks
3. acquiring national/ international brand names/ patents
4. securing resources/ supplies
5. maintaining global competitiveness
what are 2 benefits of a joint venture rather than a merger?
1. retain/ negotiate percentages
2. experience benefits of synergy without losing control
what are 4 negatives of a joint venture rather than a merger?
1. deal negotiated could exploit weaker business
2. language and cultural differences
3. culture clash risks
4. risk of joint venture failing
what is the definition of a merger?
a combination of two previously separate firms which is achieved by forming a completely new firm into which the two original businesses are integrated
what are 3 of 5 benefits of merging?
1. immediately increase market power
2. increase market share and sales
3. competitive advantage
4. gain from EOS (lower costs so can invest in R&D)
5. market dominance - price influencer
what are 3 of 5 negatives of merging?
1. duplicate roles - employees have to reapply for jobs (lose job safety so motivation falls)
2. cultural differences with different ethos
3. lead to a change in the organisational structure/ the way the business is managed. (span of control is wider)
4. large businesses can exploit their position (consumer price and choice available)
5. Dis EOS - harder to communicate and coordinate
what is the definition of a backwards vertical takeover?
buying a business in the same industry but at an earlier stage in the supply chain
what is the definition of an exchange rate?
the price of one currency expressed in terms of another
what happens when the value of 1 currency strengthens? (1)
1. shows confidence in the economy
in the economic cycle, when does the value of one currency strengthen?
in the boom
what does the acronym SPICED stand for?
strong pound, imports cheaper, exports dearer
what does the acronym WPIDEC stand for?
weaker pound, imports dearer, exports cheaper
when calculating exchange rates, to convert pounds to another currency, what do you do?
times by exchange rate
when calculating exchange rates, to convert a currency to pounds, what do you do?
divide by exchange rate
what are 5 impacts of exchange rates changing?
2. could impact where MNCs invest
3. ability to sell (export their goods) - affects prices (depends on PED) and then revenue in another country
4. affects the cost of raw materials (imports) from overseas
5. lose value on profits - repatriated (sent) back to home country
what is the definition of cost advantage?
where a business is able to produce its product at a lower cost than its competition
what is definition of differentiation advantage?
where a business is able to differentiate its product from the competition such that the customers perceive superior value
in a strategic matrix, with a broad market, where a business tries to minimise costs what is this called?
in a strategic matrix, with a narrow market, where a business tries to minimise costs what is this called?
in a strategic matrix, with a broad market, where a business tries to differentiate what is this called?
in a strategic matrix, with a narrow market, where a business tries to differentiate what is this called?
what are 3 of 6 ways to achieve differentiation?
1. quality/ USP
2. R&D/ innovation
3. enhanced through targeted marketing
4. distinct branding
5. wide distribution across major channels
6. sustained promotion - advertising/ sponsorship
what can be done by a business to overcome skills shortages? (3 of 6)
1. offshore to find people with skills
2. invest in training programmes
3. inorganic growth - locate skills
4. head hunt
5. locate near universities
6. pay for apprenticeships/ sponsored degrees
what can be done by the government to overcome skills shortages? (3 of 5)
1. go into schools to encourage STEM subjects/ subjects where there is a skills shortage of
2. relax immigration laws
3. reduce costs of certain university degrees - subsidise
4. create business enterprise zones - give grants to MNCs
5. change educational policies
what are 3 strategies to achieve cost leadership?
1. raising productivity
what is the definition of appreciating?
when the value of currency rises