4.2 Flashcards
Reasons for remaining in the UK
- Reduction of transportation to domestic consumers
- Close to customers (USP)
- Quality
- Heritage
- Customer service
- Lack trade bloc
Reasons for manufacturing in other countries
- Reduce labour/production costs
- Access to raw materials
- Increase market share
- Falling domestic demand
Push factors
Factors that encourage businesses to leave the UK
- Saturated domestic markets
- Low growth opportunities
- End of product life cycle (domestically)
- Need to diversify
- Government policies that encourage trade
Pull factors
Factors that encourage businesses to enter new markets
- Attraction to new overseas markets in emerging economies
- Opportunity to gain economies of scale by expanding overseas
- Untapped markets
- ways to extend product life cycle
Offshoring
Work done overseas
- take advantage of low labour costs in manufacturing, cost efficiencies and supply chains
Outsourcing
Someone does the work for them
- tasks carried out by businesses contracted by third party
- may/may not be abroad
- marketing research & call centres for example
Factors affecting country as a market
- Levels and growth of disposable income
- Exchange rate
- Ease of doing business
- Political stability
Factors affecting country as a production location
- Costs of production
- Skills and labour force availability
- Location in trade bloc
- Government incentives
- Natural resources
- Likely return on investment
- Ease of doing business
- infrastructure
- Political stability
Ease of doing business
- Looks at regulations and policies important for starting and growing a business
- Issues such as taxing, trading, contracts, permits & labour regulations
- Important to attract more firms, reduce costs and encourage faster growth.
Competitive advantage
Having something that other businesses can’t replicate
Factors influencing competitiveness
- Brand name
- Product reliability
- Quality and design
- lower labour costs
- investment in tech
- R & D
- lower prices - value of currency
- customer service
- global supply chains
- economies of scale
2 strategies to build competitive advantage
1) Cost leadership - produce same quality as comp at lower price, due to good resource management, efficient production methods, waste minimisation. E.g. Aldi
2) Differentiation - provide unique product/service. E.g. performance, style, design, consistency. Can charge premium prices. E.g. Rolex
Economic factors that influence global competitiveness
- Movement in the exchange rates
- Labour skill shortages
How can devaluation make uk businesses more competitive?
- exports cheaper
- domestic customers switch to domestic companies
- international buyers raise demand
How can devaluation make uk businesses less competitive?
- less incentive to cut costs and become more efficient, causes increased costs
- less sales from uk customers
- imports expensive ~(push inflation)
- less attractive to foreign workers, have to increase wages
Financial risks of international trade
- Difficulty in transportation and
communication - Risk in Transit
- Import and export restrictions
- Problems in payments
- Frequent Market Changes
- Investment for longer period
- Intense Competition
Marketing risks of international trade
- Different language
- Study of foreign markets
- Frequent Market Changes
- Intense Competition
Political risks of international trade
- Import and export restrictions
- Problems in payments
Operational risks of international trade
- Distance
- Different language
- Difficulty in transportation and
communication - Risk in transit
- Study of foreign markets
- Intense Competition
Advantages of international expansion
-Access to new customers
-Lowering costs-Access to
cheaper raw materials and
labour have led to considerable
outsourcing and offshoring.
-Spread business risk by
competing in multiple markets
so risk is spread out among
many economies and
customers.
-First mover advantage
Disadvantages of international expansion
-New preferences and tastes
-Different cultures
-Lack of knowledge of the
market
-Loss of control through
outsourcing
-As economies grow- pressure to
increase pay
-Spread business to thin
-Different regulation and red
tape
Merger
A merger is a deal to unite two existing companies into one new company.
Joint venture
A joint venture is a arrangement in which two or more businesses agree to create a new business that they own in partnership
Reasons for Mergers/Joint Ventures
-Spreading risk over different countries/regions
-Entering new markets/trade blocs
-Acquiring national/international brand names/patents
-Securing resources/supplies
-Maintaining/increasing global competitiveness
Why do businesses spread risk over different countries
Can help businesses to strengthen their businesses position during economic downturn
Political Stability
-Businesses prefer to operate in political systems that
are stable
-Changes in business taxation and regulations can
impact business operations
-More serious instability such as riots, civil war and
terrorism can impact on business and it may make
them reluctant to invest in new capital or enter new
markets.
Infrastructure
-An adequate road, rail, sea and
air transport systems so goods
can be exported and imported
easily
-Buildings and premises where
the goods could be
manufactured
-Reliable power system
Disposable Income
-Disposable income is defined as
the total amount of
household income that’s available
for spending and saving after
paying income taxes.
-If disposable income increases,
households have more money to either save or spend, which
naturally leads to a growth in
consumption.
Position in a Trading Bloc
-A trade bloc is a type of government agreement, where barriers to trade (tariffs and others) are reduced or eliminated among the participating states.
-Positioning within a country that is part of a trade blocs gains many benefits to firms
-Firms will be attracted to countries within trading blocs as costs and administration will be lower
Financial Considerations
-Natural resources in the country will lower production
costs
-Government incentives such as lower taxes can attract
foreign companies
-Likely return on investment will impact on the
willingness of firms to invest
Skills and Availability of Workforce
Business will be interested in countries that have:
-Low unit labour costs
-High productivity
-Skills and levels of education
-Size of the workforce and any shortages there may be in
key areas
