Theme 4 LOAs

Question 1

Emerging markets benefit

Answer 1

-as emerging economy is fast growing but not fully developed

-growing number of middle income earners

-who have increased demand for luxury goods

-not currently met by domestic businesses in emerging economy

-opportunity for foreign businesses (uk businesses) to export to emerging economy

-increased demand

-PED or GDP link

Question 2

Emergency markets drawback - growth in industrialisation

Answer 2

-as emerging economy fast growing but not fully developed

-rapid growth in industrialisation

-UK business may outsource production to capitalise on low cost of labour

-less employment opportunities in UK

-fall in employment rate

-fall in incomes, reducing spending

-fall in GDP

Question 3

Emerging markets drawback - greater risk (Ansoff)

Answer 3

-if UK business attempt to target growing middle income earners

-greater risk (market development Ansoff)

-as need to understand cultural differences in new market

-increased investment in market research

-increased cash outflows

-link to liquidity

Question 4

Exports benefit

Answer 4

-increased exports leads to increase is sales volume for domestic businesses

-increased sales revenue

-increase GDP

-government can raise more tax revenue

-increase fiscal spending

-improvements in education

Question 5

Exports drawbacks

Answer 5

-increased exports could lead to pollution + resource depletion

-more goods produced for international market

-using countries resources

-supply shortages for raw materials

-increased price of raw materials

-increased cost of production for businesses

-may increase prices for domestic customers

Question 6

Imports benefit

Answer 6

-increased imports lead to access to foreign goods

-potentially cheaper than domestic goods

-reducing cost of raw materials

-higher GP leading to higher net profit

-increase corporation tax

-increase tax revenue used for fiscal spending…

Question 7

Imports drawback

Answer 7

-increased competition for domestic firms

-as domestic customer may buy more competitive foreign goods

-fall in demand for domestic goods

-reduced capacity for domestic firms

-increased redundancy

-increased unemployment

Question 8

Benefit of a country specialising

Answer 8

-focus tax revenue on improving knowledge and technology in one industry

-produce more advanced workers + production methods

-increased productivity

-FC spread

-lower unit FC

-lower selling price compared to other countries

-improved international competitiveness

-increased exports of the good

-increase GDP

-increased government fiscal spending

Question 9

Drawback of a country specialising

Answer 9

-if country specialises in one or narrow range of products

-likely to be vulnerable to changes in…

-social trends, raw materials, competition, labour

-if one or more change

-country will experience fall in demand

-decreased international competitiveness

-fall in exports

-fall in GDP

Question 10

FDI benefit - increased productivity

Answer 10

-foreign money invested into country leads to improved knowledge + skills in economy

-introduce new technology + training

-increased productivity

-FC spread over more units

-lower unit costs

-lower selling price

-improved international competitiveness

-increased exports

-increased GDP

-increased government fiscal spending

Question 11

FDI benefit - increased domestic demand

Answer 11

-foreign money invest into country can create new jobs

-increased average incomes due to lower unemployment

-increased spending on luxury and normal goods

-increased sales from domestic business

-increased GDP

-increased tax revenues

-increased government fiscal spending

Question 12

FDI drawback - increased competition

Answer 12

-new foreign competition in country

-fall in demand for existing domestic goods

-existing business may be unable to compete

-struggle to survive

-foreign businesses dominate market

-create a monopoly

-lower buyer power

-increased prices in long term

Question 13

FDI drawback - increased cost

Answer 13

-foreign business requires labour

-lead to labour/skill shortage

-increased cost of labour

-increased FC for domestic businesses

-pressure to increase prices

-cost push inflation

Question 14

Offshoring benefit -differentiation

Answer 14

-choosing to locate services + production in foreign countries

-to take advantage of access to skilled local labour

-improved quality

-less defective goods

-porter differentiation

-increased sales in domestic + foreign markets

Question 15

Offshoring benefit - lower unit costs

Answer 15

-choosing to locate services + production in foreign countries

-recruit from local labour supply

-take advantage of lower labour costs e.g. lower average wages

-lower costs of production

-reduce selling price

-increased demand

-EOS

Question 16

Offshoring drawback

Answer 16

-increased FC to research local legislation + obtain planning permission

• use case study e.g required to improve local infrastructure

-increases expenses

-lower OP

-lower RP

-reduced total equity

Question 17

Outsourcing benefit - differentiation

Answer 17

-choose organisation to run a function or department of

-use case study - what they specialise in

-specialist workers in that field

-improved quality

-less defective goods (manufacturing)

-Improved customer service (service)

-porter differentiation leadership

-increased sales in domestic + foreign markets

Question 18

Outsourcing benefit - lower unit costs

Answer 18

-choose an organisation to run function or department of

-use case study - what they specialise in

-experts in their field

-increased productivity

-increased output

-FC spread

-low unit FC

-lower selling price to increase global demand

Question 19

Outsourcing drawback

Answer 19

-employees of outsourcing company not recruited by organisation

-not part of organisational culture and shared values

-may lack care for…

-more defective goods/ poor customer service

-example from case

-lower sales…

Question 20

tariffs - benefit for domestic business

Answer 20

-tariffs can have positive impact on domestic manufacturers

-make it more expensive to import foreign goods due to new tax

-recued level of imports

-increased demand for domestic products whos prices are now lower than imports

-increased employment

-increased spending

-increased tax, GDP

Question 21

tariffs - Increased FDI

Answer 21

-government imposes tariff on price inelastic goods

-demand wont fall significantly as result on price increase

-increased tax rev

-increased government spending on infrastructure

-more attractive investment to foreign

-increased FDI

-increased knowledge/skills

-improved international competitiveness

Question 22

drawback of tariffs - inflation

Answer 22

-tariff will increase cost of imports

-if good cannot be produced domestically business will continue to import

-may increase prices of goods as result of increased cost of sales

-less disposable income

-employees demand higher wages

-increases expenses

-businesses increase prices

-cost push inflation

Question 23

drawback of tariff - reduced exports

Answer 23

-tariff on certain goods

-lead to other countries imposing their own tariffs

-more expensive for foreign countries importing

-reduced exports

-negatively impacts trade balance

-reduced tax rev, GDP

Question 24

import quotas - benefit

Answer 24

-limits supply of foreign goods

-limiting availability

-businesses has to source domestic suppliers

-increased demand for domestic

-increased sales rev for domestic

-increased OP, corporation tax

-increased fiscal spending

Question 24

import quotas - drawback

Answer 24

-limits supply of foreign goods -limiting availability -increased cost of goods -cost push inflation -increased spending on necessities reducing disposable income -reduced spending on luxury + normal

Question 25

subsidies - benefit

Answer 25

-increased cash (from government) without capital/interest to pay -increased R+D spending -improve innovation leading to differentiation -increased competitiveness (porter) -increased foreign demand -increased exports -increased tax + fiscal spending

Question 26

subsidies - drawback

Answer 26

-increased cash (from government) without capital/interest to pay -reduced fiscal spending in other areas due to less government cash to spend -reduced spending on infrastructure -weaker broadbrand speeds + access to reliable utilities -disruption in services e.g banking -falling demand for uk banking sector leading to reduced exports

Question 27

globalisation - reduction of international trade barriers

Answer 27

-decrease in use of tariffs/quotas -reduces price of imported products -foreign businesses able to compete with domestic goods on price -wider choice of products available to consumers/more opp to grow abroad

Question 28

globalisation - political change

Answer 28

-increase in world politics e.g EU -sharing of ideas + policy e.g reduction in tariffs + setting up trade blocs -to help reduce global poverty through trade -increased employment opps globally -increased incomes -increase demand for goods around the world

Question 29

globalisation - containerisation

Answer 29

-large container ships used to transport goods overseas -more goods can be transported -fixed costs of transport e.g fuel spread over more units -lower unit transport cost -lower cost for exporting -lower price of foreign goods -increased demand for foreign goods

Question 30

globalisation - reduced cost of communication

Answer 30

-internet makes international communication easier -business able to respond quickly to orders from abroad -increase availability of foreign products -business able to order supplies/operate in multiple countries

Question 31

globalisation - increased significance of TNCs

Answer 31

-increased number of TNCs e.g mcdonalds -globally recognised brands with operations in multiple countries -e.g producing goods in asia to be sold in U.K -increased interconnectedness between countries

Question 32

globalisation - increased FDI

Answer 32

-increased FDI to avoid tariffs/take adv of foreign labour -business operating in multiple countries -jobs reliant on businesses from foreign countries -increased interconnectedness between countries

Question 33

globalisation - migration

Answer 33

-increased migration between countries -increased access to skilled labour -ensures skilled workers can work on r&d for innovative goods -increased global demand for countries goods -increased interconnection between countries

Question 34

globalisation - growth of global labour force

Answer 34

-increase world population -increased size of global labour force -less likely to experience labour shortages -businesses able to set up anywhere in world

Question 35

globalisation - structural change

Answer 35

-increase demand for service and goods -easier to acquire raw materials due to technology improvements -developing countries experience growth in secondary sector -developed countries outsource manufacturing

Question 36

benefit of expansion of trading blocs (increased demand)

Answer 36

-increased number of potential customers -who have tariff free access to goods -reduced price for more foreign customers -significant increase in demand if elastic -increased revenue -higher GP + OP -increased retained profit

Question 37

benefit of expansion of trading blocs (lower costs)

Answer 37

-tariff free access to raw materials -(if supplier part of bloc) -lower cost of sales -increased GP + OP -increased retained profit

Question 38

drawback of expansion of trading blocs

Answer 38

-customers will have tariffs free access to foreign competitors -making competitors more price comp -significant fall in demand if elastic as customers switch to foreign imports -fall in revenue -fall in GP + OP -lower dividend payments -fall in share price leading to lower share capital

Question 39

saturated market - push factors that promote trade

Answer 39

-market size isnt growing -products/services in market meeting maturity point -sales rev stays constant without growth causing profits to remain same -shareholders grow unhappy with progression -share prices fall leading to pressure to increase profits -business looks to new country where market for product growing -sell products in country via foreign retailers -new customers increasing sales rev

Question 40

increased competition - push factors promoting trade

Answer 40

-increase in substitutes in market -more price elastic -increase in price leads to fall in demand -pressure to keep prices low resulting in lower rev + GP -pressure to avoid losses or improve profit -business looks to new country, potentially where their product not currently sold -less elastic in new market as little/no substitutes -increase price, increase rev + GP

Question 41

risk spreading drawback - pull factors promoting trade

Answer 41

-may be a global recession -meaning GDP falling in multiple countries -causing business to make workers redundant due to decreased demand -fall in average wages across multiple countries -fall in demand for luxury/normal goods in multiple countries -eliminating benefit of spreading risk

Question 42

risk spreading benefit - pull factors promoting trade

Answer 42

-may sell income elastic luxury good -if incomes fall in country demand for good will fall -however if business sells product in multiple countries risk spread -sales different in each country -income may be increasing in new country -increase in sales -increase will offset decline in sales from another country -increased OP

Question 43

economies of scale drawback - pull factors promoting trade

Answer 43

-selling in multiple countries may require business to produce there -to keep transportation cost and lead times down -therefore may have to source new suppliers in new country -may lead to multiple orders to different suppliers -rather than bulk orders to one supplier -cant benefit from bulk buy discount

Question 44

disposable income benefit - assessment of country as market location

Answer 44

-the country has population with growing incomes -evidence e.g rising GDP -lead to significant demand -especially if it is income elastic luxury good -making it likely that its location will be a success -increased vol sold - purchasing EOS

Question 45

disposable income drawback - assessment of country as market location

Answer 45

-depends on stability of economy -e.g if economy goes into recession -sales may drastically fall -causing lower sales rev -lower cash inflows from given country -coupled with high outflow for market research from initial set up in country -causing expansion into country negative impact on net cash flow

Question 46

ease of doing business benefit - assessment of country as market location

Answer 46

-country has high ease of doing business score -suggests there is reduced bureaucracy -e.g less process involved in seeking planning permission -product accessible to foreign customers sooner -reduced initial FC associated with setting up -porter cost leadership - comp adv to reduce prices -e.g adopting penetration pricing

Question 47

ease of doing business drawback - assessment of country as market location

Answer 47

look at case study for other possible countries with higher score or consider the fact score could change with time e.g lack of gov investment in infrastructure

Question 48

infrastructure benefit - assessment of country as market location

Answer 48

-if country has good infrastructure e.g reliable rail transport -supply chain to shops in country will be reliable -goods will arrive on time without disruption to buffer stock levels -adequate stock -maximise sales -purchasing EOS

Question 49

infrastructure drawback - assessment of country as market location

Answer 49

depends on reliability of suppliers - explain impact a strike could have on delivery of goods

Question 50

political stability - assessment of country as market location

Answer 50

-if country is politically stable - means tax + legislation policies are predictable -means consumer spending is predictable -can make reliable sales forecasts -can attract investment as reliable sales suggest sale investment -increased capital to build scale -EOS

Question 51

exchange rates benefit - assessment of country as market location

Answer 51

-if country has strong appreciating currency -with general upward trend -might continue into future -suggesting if sold goods there, the value of sales made in that country will rise -when converted back to host country currency -increased return on investment -making country attractive location to market

Question 52

average incomes/wages benefit - assessment of country as production location

Answer 52

-country has low average income -meaning workers wont demand high wages -reducing FC of wages -porter cost leadership strategy -able to reduce SP -comp adv -increased sales vol + rev

Question 53

lack of legislation benefit - assessment of country as production location

Answer 53

-country doesnt have strict environmental protection legislation -dont need to develop environmentally friendly methods of production -reduce FC of r&d -porters cost leadership strategy -able to reduce SP -comp adv -increase SV + SR

Question 54

low cost of production drawback - assessment of country as production location

Answer 54

-paying low wages/damaging environment -makes business seem unethical -damaging brand image -low loyalty -price elastic -pressure to keep prices low -fall in GP + OP

Question 55

skills of labour force - assessment of country as production location

Answer 55

-country has high level of expertise -workers are highly skilled in industry -produce higher quality products -porters differentiation strategy -increased loyalty -comp adv -inelatic LOA

Question 56

infrastructure - assessment of country as production location

Answer 56

-country has poor infrastructure e.g roads -may lead to times for raw materials longer -more difficult to manage stock -may be unable to produce products -less reliable for customers -lose customer loyalty -elastic LOA

Question 57

trad bloc - assessment of country as production location

Answer 57

-country is part of trad bloc -can sell to others within bloc without having tariffs added -product cheaper to buy for customers within bloc -able to be more competitive on price -increase SV + SR -increase all profit

Question 58

gov incentives (subsidies) - assessment of country as production location

Answer 58

-gov provides subsidies -business receives money to set up in country -be used to pay for equipment -to increase productivity -FC spread -lower FC per unit -increase OP -offer lower SP

Question 59

gov incentive - tax rates

Answer 59

-country has lower tax rates -business can keep larger amount of RP -increase total equity -more capital to reinvest -able to purchase more equipment -increase productivity -spread FC across units

Question 60

ease of doing business - assessment of country as production location

Answer 60

-country is 'easy to do business' in -led 'red tape' + bureaucracy -reducing FC -porters cost leadership strategy -increased OP margins -able to reduce SP -comp adv -inelastic LOA

Question 61

political stability - assessment of country as production location

Answer 61

-country has stable gov -can plan for long term -predict future costs e.g tax rates -able to produce accurate cash flow forecast -ensure they dont have liquidity problems -able to pay day to day bills -wont have to sell NCA to pay debts -continue operations with disruption

Question 62

natural resources - assessment of country as production location

Answer 62

-country has lots of natural resources -business can access raw materials easily -without having to transport them long distances -reduced transport costs -lower FC -porters cost leadership -reduce SP to gain comp adv -increase SV

Question 63

benefit of global niche marketing

Answer 63

-meet specific needs of specific group in multiple countries -use case study -product differentiated - porter -inelastic LOA

Question 64

drawback of global niche marketing

Answer 64

-meet specific needs of specific group in multiple countries -requires specific understanding of local needs -niche product in one country may not meet needs in another -requires detailed market research -to discover specific needs of each country before making product for niche -increased FC -lower OP -lower ROCE - reduce investor confidence

Question 65

MNC positive impact on local labour for local business

Answer 65

-may recruit local graduates or school leavers -put them on graduate programme -train them to become engineers, scientists or technicians -improving skill of workers in local labour supply -if these employees leave MNC -is an improved supply of skilled local labour for other local businesses -improved product innovation leading to improved international competitiveness

Question 66

MNC negative impact on local labour for local business

Answer 66

-may recruit from local labour -reducing labour supply from domestic/local businesses -shortage of employees in local labour market -harder to attract employees as less out of work -need to increase wages to attract employees -increased expenses -lower OP

Question 67

MNC negative impact on working conditions

Answer 67

-may offshore production to different country to reduce costs -locate to country with relaxed employment legislation -take advantage of this by using NCA's that are less safe or insisting staff work longer hours -poor working conditions in industry -negative impact on standard of living for local people -as working conditions have negative impact on physical/mental health -increased health care spending -opportunity cost could've been spent on education -lower skilled workers resulting in lower wages and lower income tax

Question 68

MNCs negative impact on environment

Answer 68

-may offshore production to different country to reduce costs -locate to country with relaxed environmental legislation -such as no or reduced landfill tax -increased use of non recycled material -negative impact on local environment -increased use of landfill -damage local environment and wildlife

Question 69

MNCs impact on national economy - FDI

Answer 69

-FDI can create new jobs -increased average income due to lower unemployment -increased spending on luxury and normal goods -increased sales from domestic business -increased GDP -increased tax rev -increased gov spending -improved education

Question 70

impact of MNCs on national economy - balance of payments

Answer 70

-MNCs operating in country -profit from that country send back to their headquarters -increased outflows from economy of host country -increased deficit on the current account on balance of payments -fall in tax rev -fall in fiscal spending -worsened education

Question 71

impact of MNCs on consumers

Answer 71

-sell and product in multiple countries -able to benefit from EOS -lower average costs than domestic business -able to reduce prices -consumers have wider variety of products to purchase -which are more affordable -consumers able to purchase more luxuries

Question 72

impact of MNCs on business culture

Answer 72

-establish production overseas -introduce new technology/production methods -have different corporate culture -domestic business may adopt these working practices over time -leading to increased productivity -lower cost of production -increased price competitiveness in international markets -increased demand for exports

Question 73

tax revenue and transfer pricing

Answer 73

-MNCs make high revenue in host country -but will make large payments to operations in lower tax rate countries -e.g for raw materials -therefore meaning no/low profit in host country -and high profits in low tax rate country -MNC will pay little/no tax to host country -reducing tax rev -less funding for spending on education

Question 74

Benefit of mergers and takeovers - easier to exploit EOS

Answer 74

-if business takes over or mergers with another -significant increase in sales -without having to invest into NCA -as business has increased scale -will be able to exploit EOS -EOS LOA

Question 75

Benefit of mergers and takeovers - reduced competition

Answer 75

-if merger or takeover is within same industry (horizontal integration) -will reduce level of competition within market -reducing choice for customers -market more inelastic -inelastic LOA

Question 76

Drawback of mergers and takeovers

Answer 76

-if business mergers or takes over another -will mean that 2 company’s workforces will need to join -may cause difficulties establishing new set or corporate values -if joint workforce are unable to agree on values -business will develop weak or toxic culture -employees demotivated to work towards same goal -impact of demotivation

Question 77

Define domestic/ethnocentric marketing

Answer 77

Selling the same product in multiple countries with same marketing mix

Question 78

Define mixed/geocentric marketing

Answer 78

Selling the same product in multiple countries with different marketing mix although product remains the same

Question 79

Define international/ polycentric marketing

Answer 79

Changing the entire marketing mix to suit the needs of the customers in the new country