3.2 Economic Factors in Business Expansion Flashcards
What are the main push factors
Market saturation - Sales expansion becomes difficult because there are few new customers left to target
Competition - In a saturated market, competition is strong
Current state of domestic economy (recession?)
The product is in its decline stage of the product life cycle
What are the main pull factors
Increasing economy of developing countries
Economies of scale - bigger business - purchasing eofs
Risk spreading - if it fails in one market you have many to fall back on
What’s an emerging economy?
Rapid economic growth in a developing country
How is selling abroad an extension strategy?
No matter what the business does it isn’t selling in its domestic market. Therefore, selling abroad starts the product’s life cycle all over again
How can expanding abroad benefit capacity utilisation?
Businesses with under-utilised capacity may make better use of their resources abroad. Increased demand is likely to use their resources to their limit in order to achieve capacity utilisation. Therefore, average costs are reduced which improves competitiveness
What is under-utilised capacity
Business has premises, stock or employees that aren’t being used to increase output.
What are the 9 key factors which influence expansion into a market
- Return on investment
- Infrastructure
- Skills/availability of workforce
- Location in a trading bloc
- Ease of doing business
- Exchange rate
- GDP of the country
- Natural resources
- Political stability
Explain how return on investment may influence expansion into a market
A business is likely to go to a country which will be profitable in the long term. Forecasting this may be difficult.
Explain how infrastructure may influence expansion into a market
it includes all transport and communication as well as energy/water. Growth requires infrastructure, trade requires transport. Effective communication is a must. Weak infrastructure increases costs.
Explain how skills/availability of workforce may influence expansion into a market
Wage costs are critical in maintaining competiveness. if they need training, this will cost. The regulation around hiring and firing is important. The level of education is also important.
Explain how location in a trading bloc may influence expansion into a market
Trade barriers may increase costs for some countries and therefore the country be picked based upon where it is positioned.
Explain how ease of doing business may influence expansion into a market
The ease of doing business index was created by the world bank and rates countries for the time/cost of setup, regulations, hired/fired rights, taxes and trade barriers.
Explain how the exchange rate may influence expansion into a market
If the exchange rate is high, import cost are likely to be low and exports are competitive.
Explain how the GDP of a country may influence expansion into a market
If the GDP is growing, it is more enticing to open up here as consumers have a higher disposable income and are more likely to buy the product
Explain how natural resources may influence expansion into a market
Lower transportation costs are enticing due to the natural resources (commodities) being close to production
