30th March Exam Flashcards
definition of globalisation
it refers to the increasing interdependence and interconnection between the world economy
it is the flow of money and goods on not only a domestic scale but also international, operating on a global scale
- trade agreements/open economies in terms of trade
definition of emerging economy
used to describe an economy that is going through rapid industrialisation (manufacturing) and growth, markets are making a transition
definition of Gross domestic product and its pros and cons
the value of all the goods and services produced within an economy over a specified time-period such as a year
pros
- quantitative, easy to compare
cons
- doesnt show localised economy or inequality
definition of purchasing power parity
GDP or GDP per capita adjusted for different costs of living
definition of human development index (HDI)
a composite indicator of developing that that combines GDP with life expectancy and literacy
what are 5 features of an emerging economy?
1) market volatility
- political instability, more vulnerable to risk of fluctuations in exchange rates and market performance, their economy is not stable enough
2) high rates of economic growth- they tend to implement policies that favour industrialisation and rapid economic growth
3) growing disposable income- rise in the middle class, simulating demand for products from businesses in the developed world
4) TRANSITION, economies are making a transition, restructuring their economy
5) they have a struggle to access global markets, lack of global presence in terms of trade
what does BRICS and MINT stand for?
Brazil, Russia, India, China, South Africa
Mexico, Indonesia, Nigeria, Turkey
explain the growth rate of the UK
- it has grown at around 2.25% a year for more than 200 years
- the annual growth rate of real GDP has been weakening since 2014 due to weakening in consumer confidence due to economic uncertainties
what was the annual growth rate in china, UK, Nigeria, turkey and Indonesia in 2018
China- 6.1%
UK- 1.5%
Nigeria- 2.2%
Indonesia- 5.2%
explain the Philippine’s economic growth
- 6.7% growth in 2018
- a growing middle class
- a large young population
- economic dynamism is rooted in strong consumer demand supported by a vibrant labour market
- major infrastructure projects boosting related industries
what are the 5 opportunities to uk businesses of growing economies
- Opportunities for outsourcing and offshoring as their manufacturing industry develops
- Competition could drive them to be more successful through innovation and growth, or a threat through over-saturation of markets
- Lots of opportunities for expansion to meet a growing market, rise in middle class and disposable income
- Opportunities to position product in a different setting, product extension strategy, PLC
- Risk spreading
- Opportunities for mergers and joint ventures where there are high barriers of entry
- Cultural shifts means there is higher demand for personal products
what are the 5 threats to uk businesses of growing economies
- competition and risk of saturation, out innovate markets
- decline in certain industries, structural gaps, job shortages
- inadequate protection of brands and intellectual property (copying brands, rayberry), disregarding trade marks
- undervalued currencies makes exports cheaper
- cultural differences/sensitivities, need to do market analysis
- political instability (corruption)
- pace of growth, long term?
explain the implication of economic growth for employment patterns
- causing sector shifts, the move to tertiary and quaternary, structural change in employment
- Key implication of growth is the transfer from physical labour to machinery, and people-focused jobs in services
- Working women, rise in home working
- the rise of the middle class tends to sit alongside the structural change in employment
what are the points for why and why not emerging economies are likely to continue to enjoy high growth rates?
yes:
- their economies growth will eventually decelerate
- their way of growth is unsustainable, risk of overtrading
no:
- per capita growth, innovation and infrastructure will continue to grow
- technological advancements in many emerging markets
- workforce will continue to improve skills and be more productive
what are the 4 indicators in measuring growth?
- GDP per capita
- Health
- Literacy
- HDI
explain the use of GDP per capita as a measure of growth along with its pros limitations and examples
- measuring GDP per head of population means that you have an effective measure of changes in living standards
- it gives a better representation of the individual wealth
- India = $1640, USA = $54,600
pros: - quantitative, easy to compare
- relative to the size of the population
limitations:
- the dispersion of wealth issues
- doesnt show localised economy
explain the use of health as a measure of growth along with its pros and limitations and examples
- as societies become more prosperous, malnutrition falls and life expectancy rises
-measured through life expectancy, maternal mortality, infant mortality
LE in China= 75, 80.5 in the UK, Norway on top at 88.3 - it affects the no. of people in employment
Pros: - Indicates quality of services
- Affects the no. in employment
limitations:
- even a struggling economy can provide good healthcare, as long as the gov has the determination
- depends on gov priorities
explain the use of literacy as a measure of growth along with examples and its pros and limitations
- having good literacy levels leads to higher economic growth through better qualifications
- india sees high economic growth but its high levels of illiteracy may hamper the ability for them to expand
adult illiteracy in India 2015 = 28.8%
adult illiteracy in china 2015 = 3.6%, they spend 4% on their education
pros:
- sustainability of growth
- numerical measures
cons:
- may be impacted by political factors, views on gender equality
explain the use of HDI as a measure of growth along with its pros and limitations and examples
- combines life expectancy, education and GDP per capita, published by the UN in 1990
top 3 in 2014: Norway, Australia, Switzerland
bottom 3 in 2014: - Sierra Leone, chad, Central African republic
pros:
- holistic measure
limitations:
- standard HDI measures does not take into account quantitative factors such as human rights, political freedoms
- the GDP per capita figure and therefore HDI figure takes no account of income distribution
- hard to know weighting
definition of outsourcing
contracting another business to perform a business function on your behalf.
definition of offshoring
the act of basing some of a business’ processes or services overseas, so as to take advantage of lower costs
definition of economies of scale
when average costs per unit falls as output increases
definition of competition
rivalry between a business and another business who offers a similar product/service to a similar market
definition of dumping
selling off surplus stock on a foreign market at below cost which puts domestic businesses in the foreign market at a disadvantage
how is an MNC affected by a growing economy?
- Lots of opportunities for expansion to meet a growing market
- Offshoring and outsourcing as the country develops their manufacturing industry
- Growth in innovation in the east acts as a source of opportunity in the west
- Competition could drive them to be more successful, or a threat through over-saturation of markets
- Drop in demand through intense competition abroad offering cheaper prices
- growing middle class and disposable income sees opportunity
- transfer of skills
state 3 pull factors encouraging international trade
- Economies of scale, if they can see costs drop as a result, possible cheaper resources, reduced transport costs?
- Risk spreading/diversification, if demand collapses in one particular market
- Opportunities for mergers and joint ventures where there are high barriers of entry
- possibilities for offshoring and outsourcing
state 4 push factors encouraging international trade
- Saturated markets at home
- Intense domestic competition (if a powerful competitor comes in)
- the need to extend PLC, if PLC stage in decline, but a product in the growth stage of another country
- High tax rates and regulations
List 3 possible corporate objectives that may be behind a business’ decision to being trading internationally
- Lower average costs
- Increase productivity
- Grow customer base
explain the difference between offshoring and outsourcing and what is its opportunity
Offshoring involves moving a business function to another country.
Outsourcing involves contracting another business to perform a business function on your behalf
- Cheaper labour and accessibility of resources, lower-cost source of supply overseas
- Lower average costs
what is meant by the product life cycle?
This covers the different stages of growth within a product launch and its eventual decline
how can expanding internationally increase the product life cycle?
- once a product hits its decline stage those who want to extend its PLC may look to international sales as a successful way to boost sales, a good extension strategy
- helps avoid the heavy investment and uncertainty involved in introducing a new product
- launching into new territories serves as an extension strategies
what is the definition of a push and pull factor and state some examples
push factors
- where businesses sees they have to expand internationally because of domestic/home market issues
e. g: - domestic market saturation
- intense domestic competition (focusing on a new foreign market if a powerful competitor comes in)
- PLC stage (if in decline), a product in the growth stage of another country
- regulations, high tax rates
pull factors
- where businesses are attracted by compelling opportunities to grow by expanding internationally
e. g: - economies of scale, if costs are to go down
- offshoring and outsourcing. labour costs drop, lack of restrictions allow for exploitation
- risk spreading/diversification, less risk, extending product life cycle by selling in multiple markets, risk of only operating in one market if its economy crashes
- opportunities for mergers, joint ventures, where high barriers of entry
what is a saturated market like?
a market where growth has ceased and there are no significant opportunities to boost sales other than stealing market share from existing rivals. fewer opportunities for growth, differentiation is needed
what are the 6 types of economies of scales explained
purchasing- when you buy in bulk, unit costs drop the more you buy
managerial- a form of division of labour, large scale manufacturing employ specialists to supervise production systems, manage marketing systems and oversee human resources, co-ordiante operations
financial- larger firms are usually rated by the financial markets to be more ‘credit worthy’ and have access to credit facilities, with favourable rates of borrowing, smaller firms often have access to higher rates of interest
marketing- a large firm can spread it advertising and marketing budget over a large output and can purchase its input at bulk at a discounted price, e.g Coca Cola dont need to do separate advertisements, for all stores around the world
technical- large scale businesses can afford to invest in expensive and specialist capitalist machinery, e.g. Tesco investing in technology that improves stock control, not possible for smaller businesses
risk-bearing economies- the ability of large firms to spread risks over a larger number of investors, diversification of location
what is a global merger?
it is when two businesses join together as one, they become one legal entity
what is a joint venture
it is when two organisations pool their resources together, they are separate entities, they keep their own legal identity
how do mergers aid global expansion?
- they often have very large platforms (market share) and so partnering with another helps them together influence
- resources pooled together to achieve more
what are the issues of joint ventures and global mergers?
- difficulties in management, loss of control and such a large scale means it is hard to manage employees and operations
- conflicts may arise, different objectives, cultural clash
- risk spread onto one another
what are the two types of takeover?
hostile takeovers- when they are taken over by force
agreed takeover- the firm agrees that it is necessary
what is horizontal integration, vertical integration and diversification?
horizontal integration- when two businesses join together in the same industry from the same stage of production
vertical integration- when two businesses join together from the same industry but at different stages of production
diversification- when two firms join from completely different industries
what are the 6 main reasons for global mergers or joint ventures?
1) spreading risk over different countries/regions
- if sales fall in a particular region, you will have the sustained sales in another region
2) entering new markets/trade blocs
- going into a growing market, trade blocs’ favourable trading incentives
3) acquiring national/international brand names/patents
- obtaining brands that have a history which gives them credibility globally
- obtaining patents, you will be the only one with the right to introduce products into markets
4) securing resources/supplies
- china going into Africa
- resources becoming increasingly scarce
- backwards vertical takeover (buying suppliers)
5) maintaining/increasing global competitiveness
- increasing market share
- increase ability to achieve EOS
- joining with overseas rivals
6) synergies
- reducing COS, increased revenues, marketing synergy
- synergy merge, shareholders benefit from increased share prices due to the synergistic effect of the deal
explain the EPG model
Ethnocentric- where the promotion of the product is undertaken based on the beliefs of the home nation and is presented to the host nation as such
Geocentric- where the promotion of the product is undertaken based on a global point of view, it is not based on the perspective of either the home or host nation
Polycentric – where the promotion of the product is undertaken based on the beliefs of the nation in which the business is operating
what is a synergy, giving the example of a marketing and financial synergy
Synergy- when the value of two businesses brought together is higher than the sum of the value of the two individual businesses, e.g. ie. 1 + 1 = more than 2
Marketing synergy is when multiple marketing initiatives combine to create an effect greater than the sum of their parts
financial synergies are when when the joining of two companies improves financial activities to a level greater than when the companies were operating as separate entities, they get a higher bargaining power to get a lower cost of capital
LINKED TO A REDUDCTION IN COSTS
