Unit 4 Business Flashcards
(93 cards)
1
Q
Growing economies
A
2
Q
emerging economies
A
Emerging economy could be defined as one with rapid economic growth – usually measured by GDP
-Emerging markets are likely to grow more quickly than developed ones and they may be experiencing an increase in incomes.
3
Q
BRICS
A
BRICS economies are: Brazil, Russia, India, China and South Africa
4
Q
MINT
A
MINT economies are: Mexico, Indonesia, Nigeria and Turkey
-Consumers in these countries are earning more income
-Increased demand for western goods and services
-Companies from these countries are becoming more powerful, challenging the firms from developed regions
5
Q
trade opportunities for businesses
A
Demand in emerging economies is likely to be income elastic, providing significant opportunities for increased revenues and profit
6
Q
employment patterns
A
Equally, low labour costs and proximity to a market that is growing in size has led to more firms deciding to outsource production/customer service facilities to locations such as China and India.
This has had implications for employment in the UK in certain, but not all, industries.
7
Q
Indicators of growth
A
8
Q
gross domestic product (GDP) and GDP per capita
A
Gross domestic product (GDP) is the total monetary value of all goods and services produced in an economy (1) over a period of time such as a year or a quarter (1)
9
Q
human development index (HDI)
A
The Human Development Index is a statistic combined index of life expectancy, education, and per capita income indicators, which are used to rank countries in regards to human development
10
Q
international trade and business growth
A
11
Q
Import
A
refers to bringing goods and services from other countries to the home country
12
Q
Export
A
refers to selling goods and services from the home country to other countries
13
Q
Specialisation
A
Specialisation means economies or businesses concentrate their resources in the areas that they do best, excess output is then traded
14
Q
specialisation on commodities
A
specialisation in commodities does not add as much value as manufacturing
15
Q
foreign direct investment (FDI)
A
-FDI is the flow of money out of one country from businesses in another country
-A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.
16
Q
Trade liberalisation
A
The process of making trade between countries easier usually by the removal or partial removal of barriers to trade such as tariffs or regulations.
17
Q
World Trade Organization (WTO)
A
is the only international organisation dealing with the global rules of trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
18
Q
Protectionism
A
-in commodities does not add as much value as manufacturing
-not ideal long-term because it uses unsustainable resources jeopardising future generations,
19
Q
foreign direct investment (FDI)
A
-FDI is the flow of money out of one country from businesses in another country
-A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.
20
Q
Trading blocs
A
A trade bloc is a group of countries with a trading agreement between themselves
21
Q
Impact on businesses of trading blocs
A
-Easier to export - because no tariffs can be added or quotas imposed – increase in sales – more profit/market share
-Easier to import cheaper materials – costs are lower – high profit margins or lower / competitive prices
-Access to more potential workers – as movement of people within the trading bloc may be easier
22
Q
Drawbacks selling goods and services to a country within an expanding trading bloc
A
-Increase in imported goods – creates competition – lose market share
-business may have to adapt product to sell to other members – increase in costs – lower profits margins
23
Q
ASEAN members
A
Indonesia, Thailand, Singapore, Malaysia, Philippines, Vietnam, Cambodia, Brunei, Myanmar (Burma), Laos
24
Q
European Union
A
-27 member states that are located primarily in Europe
free movement of people like goods, services and capital within the internal market
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Benefits of Businesses in Trading Blocs
-selling goods and services to a country within an expanding trading bloc
-Easier to export - because no tariffs can be added or quotas imposed – increase in sales – more profit/market share
-Easier to import cheaper materials – costs are lower – high profit margins or lower / competitive prices
-Access to more potential workers – as movement of people within the trading bloc may be easier
26
NAFTA (North American Free Trade Area )
-It was a trade agreement between Mexico, the United States, and Canada.
-It removed taxes on products traded between the United States, Canada, and Mexico.
Now called USMCA
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Drawbacks of Businesses in Trading Blocs
-Increase in imported goods – creates competition – lose market share
-business may have to adapt product to sell to other members – increase in costs – lower profits margins
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Conditions that prompt trade
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Evaluate whether push or pull factors are more important for an international business
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Push factors ( Intern. Business)
These are conditions that make a business’ current location less desirable and may cause it to leave and move elsewhere
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Pull factors ( Intern. Business)
These are conditions that exist elsewhere that appear to be more advantageous and may cause a business to move to those areas to take advtanges of them
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What are the kinds of Push factors
1.Saturated markets or competition
2.Supply chain issues
2.Issues with quality production
3.High labour costs
4.Restrictive and costly legislation
5.Weak economies
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What are the kinds Pull factors
1.Cheap labour
2.Low business tax rates
3.Ease of doing business
4.Levels of infrastructure
5.Trading blocs
6.Political stability
7.Natural resources
8.Government incentives
9.Growing middle classes
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off-shoring
Off-shoring is the relocation of a business function, usually manufacturing or customer services, to a location overseas.
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outsourcing
-Outsourcing is where a business function is contracted out to a third party.
-The third-party organisation may or may not be located overseas
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Extending the product life cycle
-Products can be in different stages of the product life cycle depending on a given country;
-a product in the decline phase in the UK can be in the growth phase in emerging markets
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Assessment of a country as a market
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Assess the importance of the level and growth of disposable income for a business when considering entering a market such as Peru.
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Factors to consider:
1.levels and growth of disposable income – amount of money that households have available for spending and saving after taxes have been paid
2.ease of doing business
3.political stability
4.exchange rates
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Porter’s five forces
-It can be used to investigate the intensity of competition within an industry
--They can help a business to analyse the competitive forces it faces and so to devise an effective strategy for achieving competitive advantage
---However, like other marketing tools, Porter’s five forces is only a model and cannot take into account all variables that might affect a business.
???
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Assessment of a country as a production location
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Assess the importance of political stability in a country when choosing a production location
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Factors to consider when choosing a location for production
1.costs of production
2.skills and availability of labour force
3.infrastructure
4.location in trade bloc
5.government incentives
6.ease of doing business
7.political stability
8.natural resources
9.likely return on investment
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1.skills and availability of labour force
2.infrastructure
3.government incentives
4.ease of doing business
5.political stability
1.Government incentives include lower tax rates, grants and subsidies, training of the labour force and reduction of red tape
2.Infrastructure refers to the systems and services that an economy needs to function effectively, these include transport links and communication such as broadband
3.Political stability is important because it means that the business is less likely to be disturbed by political events beyond its control. Economic policy is less likely to change, corruption will be lower
4.The labour force is the human element in production that may be seen in terms of cost or skill levels. A large supply of labour may result in lower wage costs
5.Ease of doing business refers to the number and severity of barriers a business faces when entering a new market/country. There will be less barriers such as dealing with government regulations, access to energy sources, tax regimes and employment law
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Global markets and business expansion
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Reasons for global mergers, takeovers or joint ventures
a) Spreading risk and economies of scale.
b) Entering new markets/trade blocs.
c) Acquiring national/international brand names/patents.
d) Securing resources/supplies.
e) Maintaining/increasing global competitiveness.
f) Reducing competition.
g) Making use of local knowledge.
h) Government or legal requirement.
i) Accessing supply chains/distribution networks.
j) Sharing costs/risks.
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joint ventures
A joint venture is when 2 or more businesses collaborate on a specific venture. It is not a formal takeover or merger, and the businesses remain independent of each other
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mergers or takeover (inorganic growth)
-This is when 2 (or more businesses) join together to operate as one
-Is when one business buys more than 51% share ownership of another
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Benefits of entering a joint venture
-Share knowledge of local market (adapt products to meet customers need)
-Share assets such as existing locations and machinery (saves costs – higher profit margins)
-Share brand names (gain customer recognition – attract customers)
-Share patents (USP – competitive advantage)
-Access to existing suppliers (quick and easy to enter market – saves time – start selling quickly – gain sales )
-In some countries it may be a legal requirement (
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Drawbacks for entering a joint venture
-Profits are shared
-Culture clash
-Decision making is made jointly, this can be slow
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Benefits of growing inorganically
-Quick way to enter a new market (– saves time – first mover advantage – customer loyalty)
-Immediately grow in size with no need to wait for sales to increase
-Immediate use of suppliers (– quick and easy to enter market – saves time – start selling quickly – gain sales )
-Remove competition from the market
-Increase in size (Economies of scale
Market power (link to five forces)
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Drawbacks of of growing inorganically
Culture Clash
Communication problems
Cost
Diseconomies of scale
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Example questions
1.Assess the likely benefits for European pharmaceutical companies, such as Reckitt Benckiser, of expanding by takeovers.
2.Evaluate the merits of expanding by takeovers for a business such as Revlon
3.Assess the likely importance of mergers and takeovers in L’Oréal’s international success.
4.Assess the likely benefits for BAT of expanding by mergers and takeovers
5.Tata is an Indian multinational. Assess the likely consequences for Tata of expanding by mergers and takeovers
6.Explain two possible reasons why Marico has chosen to expand by takeovers
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Global markets and business expansion
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Exchange rates
The price of one currency expressed in terms of another
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SPICED
-Strong
-Pound
-Imports
-Cheaper
-Exports
-Dearer
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EXPORTS
-Zara Spanish company – trade globally. UK is a big market for them.
-The value of the € has fallen against the £ over the last year
-Zara will export to the UK. As the value of the € has fallen this means that their exported goods will appear cheaper to UK consumers / buyers
-the demand may increase. Therefore they may sell more. Meaning higher revenue and as a result overall more profits.
58
IMPORTS
-Zara produces some of their clothes in Turkey
-The value of the € has appreciated against the Turkish Lira
-This means that the cost of imports from Turkey to Spain will be cheaper
-Zara will see a fall in their variable costs. Assuming they keep their prices the same they will now experience more profit for each T-Shirt sold.
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Marketing
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Global marketing strategy
-A business does not change any elements of its marketing mix
-It uses a “one size fits all” approach
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global localisation (glocalisation)
-A business will change some or all of the elements of the marketing mix
-They will adapt to meet the needs of the foreign market
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Different marketing approaches
-domestic/ethnocentric (marketing mix is not changed at all)
-mixed/geocentric (some elements of the marketing mix are changed )
-international/polycentric (marketing mix is adapted to meet the needs of the local market)
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Benefits of domestic/ ethnocentric
-Cheap – Economies of scale
-Fast
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Drawbacks of domestic/ ethnocentric
-Bad image as seen as not adapting
-Less customers attracted as it doesn’t suit their needs
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mixed/geocentric
Benefits and drawbacks depend on how much is changed
-If a lot is changed – expensive but more likely to attract customers
-If a little is change – cheap and less likely to attract customers
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international/polycentric Benefits
-Customers are more attracted to the goods – higher demand
-Good image as less offensive / prevention of culture clash
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international/polycentric Drawbacks
-Expensive to adapt product – higher costs
-Takes time to research local market and make changes – miss out on 1st mover advantage
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Application and adaptation of the marketing mix (4Ps) to global markets
promotional activities may need to be adapted to be culturally relevant or avoid offence
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Application and adaptation of the marketing mix (4Ps) to global markets
-promotional activities may need to be adapted to be culturally relevant or avoid offence
-products may need to be changed to meet differing needs or cultural sensibilities.
Price….
Place….
69
Global niche
-small part of a global market with certain special characteristics
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Evaluate whether or not a business benefits by operating in a global niche market
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Cultural diversity
Different markets have different cultural and religious sensitivities
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Features of global niche markets
-Less competition
-Less price elastic
-Focus on a small % of the population
-Meets a specific need
-Less likely to benefit from economies of scale -compared to global mass markets BUT they do benefits from economies scale compared to local niche markets
73
Application and adaptation of the marketing mix (4Ps) to suit global niches
Price: is likely to be higher than regular sized clothes in all global market
Place: it is likely that these clothes will be sold online in all global markets, as it is aimed towards a smaller % of the population it may not be financially viable to high lots of stores on the high street
Promotion: due to being a niche market it is likely that promotion methods will be similar in terms of targeted online ads, and not mass methods like TV. However in some countries such as the U.S. TV shopping channels may promote these goods
Product: in terms of their USP the products will carry the XXXL sizes, however in some countries such as Japan XXL may be the biggest whereas in the U.S. sizes may go up to XXXXXXL. The style of some clothing items may differ also depending on the country.
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Benefits Global Niche Markets
-less direct competition therefore ability to charge higher prices - able to charge premium prices and increase profitability
-more precise targeting of market segment which helps to increase sales
-greater customer loyalty thus increasing profitability
-price inelastic demand – relatively unaffected by economic changes
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Drawbacks Global Niche Markets
-not being able to fully exploit economies of scale meaning that average costs may be higher than in the mass market; so whilst prices are higher so too are average costs
-the niche may be limited in size and so limits potential growth to a smaller group of customers
-the future threat from mass market MNCs who may adapt their products to suit the global niche if it proves to be a lucrative market in the long run
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Cultural/social factors
Differences between national markets that may be based on religion, cultural values and beliefs, political systems, gender roles and ethnicity
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Considerations for businesses
1.cultural differences
2.different tastes & preferences
3.Language & unintended meanings
-inappropriate/inaccurate translations
5.inappropriate branding and promotion
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benefits of social and cultural differences when trading internationally
-without an awareness of cultural and social differences to avoid costly mistakes
-enables the product/service to be more precisely targeted at the consumers
-useful source of competitive advantage over other competitors
-working with partners/agents/suppliers/distributors is easier
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drawbacks of social and cultural differences when trading internationally
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The impact of MNCs
-local labour, wages, working conditions and job creation
-local businesses
the local community and environment
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Benefits of the Impact of MNCs on the local economy
-Provide local jobs
-Local business may be involved in supplying MNCs
-Technology transfer from MNC to local economy
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Drawbacks of the Impact of MNCs on the local economy
-Competition for local domestic businesses … fall in demand…business closure
-Exploit local workers – badly paid jobs / poor working conditions
-Produce pollution in the local area
-Take away land or natural resources when building or producing
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Impact of MNCs on the national economy
-FDI flows
-balance of payments
-technology and skills transfer
-consumers
-business culture
-tax revenues and transfer pricing
-economic growth
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Global industries and companies (multinational corporations) - International business ethics
84
Ethics
1.Environmental considerations:
-emissions
-waste disposal
2.Supply chain considerations:
-exploitation of labour
-child labour
3.Marketing considerations:
-misleading product labelling
-inappropriate promotional activities
85
Stakeholder conflicts
-There may be a trade-off between ethical behaviour and financial performance when it comes to shareholders' expectations of profit as a stakeholder
-There are a range of stakeholder groups that may have potentially experienced conflict:
-Employees
-Consumers
-managers
-supplier
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Possible Qs
1.Assess the extent of stakeholder conflict that may result from Colgate’s ethical initiatives
2.Evaluate the impact on a multinational business of operating ethical and sustainable policies
3.Evaluate the extent to which ethical considerations might affect a business such as Lush.
4.Businesses operating in the African continent might need to deal with a number of ethical considerations. 5.Evaluate the potential stakeholder conflicts that this might create
6.Evaluate the likely value of an ethical trading policy for multinational corporations such as Disney and Hasbro
7.Analyse why there might be a conflict between ethical behaviour and profitability in the cigarette industry.
8.Assess the extent to which a positive ethical image might determine a company’s international success.
9.Assess the potential trade-off between ethical behaviour and profitability for a MNC such as BP.
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Global industries and companies (multinational corporations) - Controlling MNCs
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Who can control the MNCs?
1.Politicians / government – set laws and regulations
-Minimum wage – UK £8.72 per hour / Cambodia US $140 per month
-Maximum working hours
-Health & safety laws
2.Pressure groups – Greenpeace, WWF, Amnesty International
-Campaigns
-Protests
-Public awareness
3.Consumers
-Boycott the products
-Demand fair trade goods
4.Media
-Newspapers
-Social media sites
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Assess the extent to which MNCs can be controlled
1.Yes, government can control by setting laws such as minimum wages
-MNCs have to follow laws, change the way they treat the workers
-Pay them higher wages
2.However, MNCs may decide to leave that country and set up in one with less laws
-MNCs do not change their behaviour
90
Assess the extent to which MNCs can be controlled
1.Yes, Consumers may boycott and refuse to buy products from unethical MNCs
-MNCs will be forced to change their behaviour so they can gain sales
2.However, this may only be a small number of consumers
-Not enough to make a difference to the sales of MNC
-MNCs will not change their behaviour
90
Assess the extent to which MNC can be controlled (Factors to consider):
-Their political influence
-The activities of the MNC
-Power of MNC
-The country in question
