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AQA A level Business > 3.9.3 Assessing Internationalisation > Flashcards

3.9.3 Assessing Internationalisation Flashcards

1
Q

what is internationalisation?

A

Internationalisation is when a business seeks to expand into overseas market

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2
Q

what is driving internationalisation?

A
  • trade agreements
  • increasing internationalisation
  • improvements in transport
  • improvements in communications technology
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3
Q
  • what are trade agreements?
  • what do they aim to do?
  • how do they achieve this?
A
  • Sets out the rules that cover trade between 2 or more countries.
  • They aim to make trading easier between those countries.
  • They do this by reducing the restrictions on imports and exports between them.
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4
Q

what are the 2 types of trade agreements?

A
  • customs union

- free trade area

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5
Q

what is a customs union?

A

e.g. the EU: there are agreed restrictions on non-member countries trying to sell to the EU, but there is free trade amongst the member countries

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6
Q

what is free trade area?

A

e.g. NAFTA and ASEAN: members agree to either reduce or eliminate trade barriers for all goods and services, resulting in trade liberalisation

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7
Q

how does improvements in tech drive the increasing internationalisation of businesses?

A

Improvements in technology in particular ICT has made it easier and cheaper for businesses to operate around the world

Developments in communications technology has brought people around the world closer to each other – i.e. in terms of what they watch, read and listen to.

Better technology people in one country can easily see what it happening in another country, so people can identify trends and access products more easily

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8
Q

how does improvements in transportation drive the increasing internationalisation of businesses?

A

Transportation costs have fallen significantly in the last 50 years

It is now cheaper to move items by air or sea. Example: development of containerisation for transporting 30 tonnes of products in standardised containers in one hour.

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9
Q

what are the 8 factors that drive the increasing internationalisation of businesses?

A

1-Trade to GDP ratios are increasing for most countries

2-Expansion of Financial Capital Flows between countries

3-Foreign Direct Investment and Cross Border M&A

4-Rising number of global brands – including from emerging countries

5-Deeper specialisation of labour – components come from many nations

6-Global supply chains & new trade and investment routes

7-Increasing levels of international labour migration and migration within countries

8-Increasing connectivity of people and businesses through mobile and Wi-Fi networks

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10
Q

what is protectionism?

A

Protectionism involves any attempt by a country to to impose restrictions on trade in goods and services.

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11
Q

what is the aim of protectionism?

A

The main aim of protectionism is to cushion domestic businesses and industries from overseas competition.

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12
Q

what are the main types of protectionism businesses must overcome to succeed in international markets?

A
  • tariffs
  • quotas
  • export subsidies
  • domestic subsidies
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13
Q

what are tariffs?

A

A tariff a tax or duty that raises the price of imported products and causes a contraction in domestic demand and an expansion in domestic supply. For example the USA has an 11% import tariff on imports of bicycles from the UK!

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14
Q

what are quotas?

A

Quotas are quantitative (volume) limits on the level of imports allowed or a limit to the value of imports permitted into a country in a given time period. For example, until 2014, South Korea maintained strict quotas on imported rice. It has now replaced a quota with import tariffs designed to protect South Korean rice farmers.

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15
Q

what are export subsidies?

A

A subsidy is a payment to encourage domestic production by lowering their costs. Well known subsidies include Common Agricultural Policy in the EU, or cotton subsidies for US farmers and farm subsidies introduced by countries such as Russia.

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16
Q

what are domestic subsidies?

A

Domestic subsidies involve government help (state aid) for domestic businesses facing financial problems e.g. subsidies for car manufacturers.

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17
Q

why do businesses increasingly want to target international markets?

A
  • reduce dependence on domestic market
  • access faster- growing markets & demand
  • achieve economies of scale
  • better serve customers located overseas
  • build brand value, particularly global brands
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18
Q

what are the 10 reasons for targeting, operating in and trading with international markets?

A 
1- low cost
2-increased wealth
3-spread risk
4-specialist skills
5-proximity to raw materials
6-proximity to market
7-government incentives
8-tax advantages
9-shared expertise
10-new markets
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19
Q

what are 14 factors influencing the attractiveness of international markets?

A

1- size and growth of target customer base
2-ease of entry to an international market
3-extent to which product will need to be adapted
4-existing competitive structure in the target market
5-economic conditions in the target economy
6-need for local expertise or partners
7-consisitency with corporate objectives
8-other external environment factors (e.g. legal)
9-trade agreements
10-political stability
11-cultural differences
12-infrastructure including transportation, logistics and costs
13-opportunties e.g. for alliances or licencing
14-assessment of risk

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20
Q

what are the main methods of entering international markets?

A
  • exporting
  • licensing
  • alliances/ventures
  • direct investment
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21
Q

what is exporting?

A

Exporting - selling goods and services produced in one country to another country

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22
Q

what is licensing?

A

Licensing - a business gives permission to a third party to sell their goods or services abroad (this is often linked to an exclusivity deal for a specific country or region)

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23
Q

what is alliances/ventures?

A

Alliances/ventures - forming partnerships with one or more businesses operating in another country

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24
Q

what is direct investment?

A

Direct investment - capital expenditure to establish a physical presence in another country e.g. setting up sales outlets or a manufacturing plant

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25
Q

what are the benefits of exporting?

A
  • Relatively low risk
  • Uses existing systems – e.g. e-commerce
  • Online promotion makes this cost-effective
  • Can choose which orders to accept
  • Direct customer relationship established
  • Entire profit margin remains with the business
  • Can choose basis of payment – e.g. terms, currency, delivery options etc.
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26
Q

what are the drawbacks of exporting?

A
  • Potentially bureaucratic
  • No direct physical contact with customer
  • Risk of non-payment
  • Customer service processes may need to be extended (e.g. after-sales care in foreign languages)
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27
Q

what are benefits of licensing?

A
  • Third Party Agent or distributor should have specialist market knowledge and existing customers
  • Fewer transactions to handle
  • Can be cost effective – commission or distributor margin is a variable cost, not fixed
28
Q

what are drawbacks of licensing?

A
  • Loss of profit margin
  • Unlikely to be an exclusive arrangement – question mark over third party agent and distributor commitment & effort
  • Harder to manage quality of customer service
  • Third Party Agent / distributor keeps the customer relationship
29
Q

what are benefits of alliances/ ventures?

A
  • Speed & potentially transformational
  • Popular way of entering emerging markets
  • Reduced risk – shared with joint venture partner
  • Buying into existing expertise and market presence
  • JVs may be a requirement in some markets
30
Q

what are the drawbacks of alliances/ ventures?

A
  • Higher risk, particularly if the wrong JV partner or takeover target is selected
  • Significant cost & investment of management time
  • Need to understand and comply with local legal and tax issues
  • Costly to withdraw if the strategy goes wrong
31
Q

what are the benefits of direct investment?

A
  • Local contact with customers & suppliers
  • Quickly gain detailed insights into market needs
  • Direct control over quality and customer service
  • Avoids tariff barriers
32
Q

what are the drawbacks of direct investment?

A
  • Significant cost & investment of management time
  • Need to understand and comply with local legal and tax issues
  • Higher risk
33
Q

what is a multinational company (MNC)?

A

A multinational company (MNC) is a business that has operations in more than one country. Note that a business does not become an MNC simply because it sells its goods and services overseas. The key to being an MNC is that the business has business operationsin two or more countries.

34
Q

what are some key reasons for the rapid growth of MNCs?

A
  • Global brands seeking to drive revenue and profit growth in emerging economies (in particularly seeking rising demand from increasingly affluent consumers)
  • The search for economies of scale, to reduce unit costs by concentrating production in a few key international locations
  • The perceived need to supplement relatively weak demand in existing, developed economies
  • The need to operate in many countries to avoid protectionism
  • Increased takeover activity that has built businesses with widespread international operations
35
Q

advantages of MNCs?

A
  • Economies of scale
  • Economies of scope
  • New market development
  • Strong brand recognition
  • Market dominance
  • Shared expertise
36
Q

what are some potential benefits of MNCs to the countries in which they operate in?

A

1-provide significant employment and training to the labour force n the host country
2-Transfer of skills and expertise, helping to develop the quality of the host labour force
3-add to the country GDP through their spending- local suppliers + through investment
4-Competition from MNCs acts as an incentive to domestic firms in the host country to improve their competitiveness, perhaps by raising quality and/or efficiency
5-MNCs extend consumer and business choice in the host country
6-Profitable MNCs are a source of significant tax revenues for the host economy

37
Q

what are some potential drawbacks of MNC Activity in The Countries in Which They Operate?

A

1-Domestic businesses may not be able to compete with MNCs and some will fail
2-MNCs may not feel that they need to meet the host country expectations for acting ethically and/or in a socially-responsible way
3-MNCs may be accused of imposing their culture on the host country, perhaps at the expense of the richness of local culture.
4-Profits earned by MNCs may be remitted back to the MNC’s base country rather than reinvested in the host economy.
5-MNCs may make use oftransfer pricingand othertax avoidancemeasures to significantly reduce the profits on which they pay tax to the government in the host country

38
Q

what is offshoring?

A

Offshoring involves the relocation of business activities from the home country to a different international location

39
Q

what are some key features of offshoring?

A
  • It is the changed international location of where the business activity is performed that is key
  • Offshoring has traditionally been associated with the relocation of manufacturing activities from a domestic economy overseas (e.g. from the US to China, or UK to Poland)
  • However, offshoring is also increasingly common with business services (e.g. UK financial services using call centres based in India)
40
Q

what is the difference between offshoring and outsourcing?

A 
offshoring= the work is done overseas
outsourcing= someone else does the work
41
Q

what is outsourcing?

A

thedelegationof one or morebusiness processesto anexternal provider, who then owns, manages and administers the selected processes to an agreed standard

42
Q

why do businesses outsource?

A

Businesses choose to outsource because there are other businesses that are specialised in the tasks required and can do it better and cheaper.

43
Q

why do businesses move production overseas? (offshoring)

A
  • manufacturing costs lower
  • potentially better skilled & higher quality
  • makes use of existing capacity overseas
  • take advantage of free trade areas
44
Q

what are some potential drawbacks with offshoring?

A
  • longer lead time for supply
  • implications for CSR
  • additional management costs
  • impact of exchange rates
  • communication: language & time zones
45
Q

what is reshoring?

A

Reshoring is the reverse of offshoring. It involves the repatriation of business activities from overseas back to the home country

46
Q

what are some reasons for reshoring?

A

1-Greater certainty around delivery times (including shorter delivery times)
2-Minimise risk of supply chain disruptions
3-Reduce complexity of supply chain
4-Easier to collaborate with home suppliers
5-Greater certainty about the quality of inputs and components
6-Cost advantage of producing or sourcing overseas is not as significant as it used to be

47
Q

what is the Bartlett & Ghoshal Model?

A

The Bartlett & Ghoshal Model indicates the strategic options for businesses wanting to manage their international operations based on two pressures: local responsiveness & global integration

48
Q

what are the 2 forces in the Bartlett & Ghoshal Model?

A
  • force for local responsiveness

- force for global intergration

49
Q

what is the force for local responsiveness?

A
  • Extent to which local tastes differ and the need to adapt products as a result
  • Ease with which products can be altered
  • Responding to cultural diversity
50
Q

what is the force for global intergration?

A
  • Extent to which the business wants to be globally integrated or less integrated
  • How important is standardisation of the product in order to operate efficiently (e.g. economies of scale)
51
Q

draw the Bartett and Ghoshal Matrix

A

double check with the word document

52
Q

what is level of pressure for local responsiveness
+
the level of pressure for global integration for international strategy?

A

level of pressure for local responsiveness: LOW

the level of pressure for global integration: LOW

53
Q

what are some key features of international strategy?

A

1-Business primarily runs from the home country
2-Existing products are simply sold abroad
3-Products are not adapted to local needs
4-Little integration in terms of how the business operates

54
Q

what is level of pressure for local responsiveness
+
the level of pressure for global integration for multi- domestic strategy?

A

level of pressure for local responsiveness: HIGH

the level of pressure for global integration: LOW

55
Q

what are some key features of multi-domestic strategy?

A

1-Different parts of the business operate independently in their own regions
2-So overall organisation is a collection of different local businesses (multi-domestic)
3-Each one adapts to its local environment in terms of what it offers and how it runs itself
4-Strategies for each country

56
Q

what is level of pressure for local responsiveness
+
the level of pressure for global integration for global strategy?

A

level of pressure for local responsiveness: LOW

the level of pressure for global integration: HIGH

57
Q

what are some key features of global strategy?

A

1-Standardised products
2-Centralised (way of doing business is set out by Head Office)
3-Overseas operations implement head office policies
4-Focus on efficiency (economies of scale)

58
Q

what is level of pressure for local responsiveness
+
the level of pressure for global integration for transnational strategy?

A

level of pressure for local responsiveness: HIGH

the level of pressure for global integration: HIGH

59
Q

what are some key features of transnational strategy?

A

1-Aim is to maximise responsiveness and integration across all divisions around the world
2-Products adapted to meet the needs of local markets and respond to their different needs.
3-Business is very integrated, with wide sharing of expertise, ideas, technology, staff etc).

60
Q

what factor influences which approach from the Bartlett and Ghoshal Matrix?

A

Nature of the industry
e.g May be easier to adopt a global approach in oil, than in publishing where there may need to be significant variations for different markets

61
Q

what are some risks of internationalisation?

A
  • Cultural differences – differences in language, attitudes, customs and religion
  • Differences in negotiating and decision-making style
  • Anti-globalisation feelings – pressures /protests against businesses operating globally
  • Instability of the country – political and economic uncertainty
62
Q

what impact does a decision of internationalism and offshoring have on marketing?

A
  • changes on how to promote and price products
  • market research to understand different markets
  • marketing to different cultures, languages and religions
  • product portfolio
  • new market development
63
Q

what impact does a decision of internationalism and offshoring have on finance?

A
  • accounting standards
  • tax liabilities
  • exchange rate fluctuations
  • initial costs and investments to establish presence abroad
64
Q

what impact does a decision of internationalism and offshoring have on human resources?

A
  • changes on how and where to recruit
  • differences in management of staff abroad
  • workforce planning
  • health and safety
  • language barriers
  • communication
65
Q

what impact does a decision of internationalism and offshoring have on operations?

A
  • relocation of production facilities/ development of operations abroad
  • working with suppliers
  • maintaining quality
  • research and development
  • technological advancements

AQA A level Business (13 decks)

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