3.3.2 Demand side factors in the global market

Question 1

social and cultural differences

Answer 1

Vary for individual society → many groups will different values and expectations

Question 2

joint ventures

Answer 2

Foreign businesses working with a local producer

Question 3

global niche market

Answer 3

Small specialised market segments that offer products with specific features; cannot get economies of scale so prices will be higher but consumers are willing to oay fior them

Question 4

why is it important that international trade understands cultural differences

Answer 4

• International trade needs awareness of social and cultural differences between themselves and the new country
• Being informed about cultural differences can reduce the risks
• Without this costly mistakes can be made through ignorance of customs and expectations
• Sales will not be maximised

Question 5

why is understanding cultural differences important in business negotiations

Answer 5

• It is important to understand the culture of your potential business colleagues
• Some cultures believe in directness rather than diplomacy whereas other cultures put diplomacy before directness
• Some cultures are more emotional and some are more reserved
• Some are literal/coded lang
• Failure to appreciate differences → poor relationships when one side gets the wrong impression or feels insulted

Question 5

ikea opening in hyderabad india case study

Answer 5

• Indian culture not used to build-it-yourself flat packs → employ cheap labour
• Ikea adapt product by supplying extra service that connects customers with builders/carpenters
• Cheaper as labour is low cost due to low wages in a low income country
• Problems: tools available in a country with lower average incomes? More expertise skills?
• Keep product the same and provide an additional service
• Ikea do do this sometimes in the UK eg for kitchens and bathrooms
• This is because labour has a higher cost due to higher wages (high income country)
• Less expensive to build it yourself
• Branding, store layout and products are similar
• Low prices to bring traction and customers → otherwise lose profit, price sensitive
• Low disposable income and haggling cultures
• Small profit margins, so sell more, sell price elastic products

Question 6

what do businesses need to ensure clear communication in a foreign market

Answer 6

• Effective and clear communication to avoid misunderstandings
• Businesses need bilingual people to ensure no translation errors and understand a foreign market
• Needed to make sure ads are appropriate
• Joint ventures → gain experienced people who know lang and culture
  Work well in EE

Question 7

joint ventures and franchise

Answer 7

• Two or more business join together to pursue a common project
• Firms want to benefit from collaborative work in reaching a mutually agreed strategic target
• Main seek to share the fixed costs of major business reasearch/infrastructure projects
• Franchise: individual entrepreneur who sets up business → main owner but become a franchisee but you get their branding, market knowledge etc
• Indian market is usually highly regulated, ease of doing business is harder and chinese market

Question 8

importance of joint ventures for businesses entering a foreign market

Answer 8

• Minimse risk → will new products be popular?
• JV allows access to a foreign market, knowledge of the market, supply chains which MINIMISES RISK
• Knowing about supply chains in a local area
• Regulations of foreign markets

Question 9

global niche markets

Answer 9

• Smaller, more specialised part of the global market where customers have particular needs and require a differentiated product
• Low competition, inelastic prices
• Smaller markets but globally large → smaller niches make large market
• Market for luxury goods in EE grows as income grows in EE
• Niche markets may expand very quickly
• Some businesses will never have a mass market but can expand by having speicaisled products or seeking out new markets
• Adaptation may b needed to preserve business
• Niche markets exist as there a few consumers who want their products; usually few suppliers but will thrive in a global market if there is demand
• Niche markets may rely heavily on online marketing

Question 10

niche markets and internet sales

Answer 10

• Online retailing requires access to internet and delivery
• Convenient for niche and mass markets
• Mass can develop without them if they have physical stores
• EE: niche markets are limited by consumers who live close

Question 11

advantages of operating in a global niche market

Answer 11

• Focusing on a smaller segment means the business can provide specialist products/services which are more valuable, higher demand, greater added value
• Demand price inelastic so can charge higher price
• Less competition
• Smaller markets lead to better knowledge of customers, so more effective marketing so higher sales and profits

Question 12

disadvantages of operating in a global niche market

Answer 12

• Small scale production, so economies of scale not gained
• Market limited
• Success may attract takeover bids
• Narrow focus may be affected severely by change
• If successful may expand and so may lose benefits of being niche

Question 13

ansoff matrix with ikea

Answer 13

• MARKET PENETRATION: Additional store in Swedish town
• MARKET DEVELOPMENT: New store in Egypt
• PRODUCT DEVELOPMENT: selling carpets in Sweden
• DIVERSIFICATION: selling chicken meatballs, selling pho in Vietnam