4.2 Flashcards
Why target international markets?
-Reduce dependence on domestic markets
-Access faster growing markets & demand
-Achieve economies of scale
-Better serve customers located over seas
What are push factors?
Where businesses feel they have to expand internationally because of domestic market issues
Define pull factors
Where businesses are attracted by opportunities to grow by expanding internationally
Define Offshoring?
Relocation of business activities (Work done overseas)
Define Outsourcing
When a business hires an external organisation to compete tasks for you.
What are some considerations for entering markets in new countries?
-Growth opportunities and disposable income
-Infrastructure
-Political stability
-Exchange rate
-Ease of doing business
What are some considerations for choosing production locations?
-Cost of production
-Skills & availability of labour force
-Infrastructure
-Location in trade bloc
-Return on investment
-Political stability
-Ease of doing business
-Natural resources
-Gove incentives.
Define joint venture
Two businesses come together to share their knowledge, resources and skills to form a separate entity.
Benefits of a joint venture
-Gain eachothers expertise and resources
-Diversifies risk due to products being in multiple markets
-Economies of scale
-Opportunity to enter new markets
Drawbacks of a joint venture
-High initial costs of merging
-Diseconomies of scale
-Culture clash
-Redundancies can occur which effects morale of workers.
Define merger?
A combination of two previously separate firms forming one completely new firm
Key reasons for mergers and joint ventures
-Spreading risk
-Entering new markets/trading blocs
-Securing resources/suppliers
-Maintaining/ increasing global competitiveness
Factors affecting cost competitiveness?
-Exchange rates
-Productivity & labour skills
-Out sourcing
-Off shoring & reshoring
Define exchange rate?
Price of one currency in expressed in terms of another
Define Reshoring
Involves the repatriation of business activities from overseas back to the home country
What are some reasons for Reshoring?
-Greater certainty around delivery times
-Minimise risk of supply chain disruption
-Easier to collaborate with home suppliers
What can businesses do to overcome skill shortages?
-Raise wages & other remuneration
-Offer better training, non-financial rewards
-Offshore activities to obtain skills needed
What can the government do to overcome skill shortages?
-Investment in vocational education
-Offer better apprenticeships
-Encourage inwards migration of oversea citizens with appropriate skills
-Provide incentives to businesses to invest in training & education
Key features of offshoring?
-Traditionally associated with the relocation of manufacturing activities from a domestic economy overseas
-Offshoring increasingly common with business services
Define differentiation
When a business aims to offer a product that is distinctively different from competition
Ways of achieving differentiation?
-Superior product quality and design
-Strong brand recognition
-Sustained promotion
-High customer service
What are some push factors
Market saturation and intense competition - businesses may therefore considering engaging in International trade.
Define Market saturation
When demand for goods and services has reached its peak so it becomes challenging for a business to grow.
Examples of pull factors
- Economies of scale: cheaper raw materials in different countries
- Spreading risk: accessing multiple markets business can diversify customer base reduces risk with operating in a single market.
Advantages of offshoring
-Lower labour costs, increases profitability
-Access to specialised suppliers
-Economies of scale
-Access to skilled workers
Disadvantages of offshoring
-Employee/employer relations may suffer eg due to relocation
-Increased short term costs eg relocation, training
-Poorer customer service due to cultural and language barriers.
Advantages of outsourcing
-Take advantage of specialist skills
-Cost effective
-Higher labour productivity
-Easier to comply with rules & regulations
Disadvantages of outsourcing
-Damage to brand image if outsourced firm isn’t ethical
-Poor communication can increase costs/cause disruption
Define extension strategy
A method used by a business to extend the product life cycle of a product or service. Eg sell product in new International markets
Factors to consider when entering new markets: Infrastructure
Good infrastructure improves production process reducing costs and increasing sales. (Roads, transportation, and communication.)
Factors to consider when entering new markets: Ease of doing business
Rules & regulations may be relatively simple or very harsh, registering properties and enforcing contracts to be considered.
Factors to consider when entering new markets: Levels of growth and disposable income
Selling in countries with high income = more sales
Selling in countries with low income = slower sales growth
Factors to consider when entering new markets: Exchange rates
Can be subject to fluctuations, countries with stronger currencies can import raw materials at a lower price, exports more expensive to abroad customers.
Factors to consider when entering new markets: Political stability
Businesses at risk of not gaining a return on investment in countries with political instability eg corruption, lack of law enforcement & high crime rates. Countries with stable economy and Gove seen as less risky investment
Factors when assessing production location: Cost of production
Keeping costs low increases profit margins or allows firms to sell at a low price = competitive advantage
Factors when assessing production location: Skills & availability of labor force
Quality of work force directly impacts the quality of goods, businesses need to consider literacy levels and skills needed for businesses. Firms may choose to locate in markets with low labor costs
Factors when assessing production location: Location in trading bloc
Operating in a market within a bloc advantageous as it reduces protectionist measures
Factors when assessing production location: Ease of doing business
Firms want to locate in areas with limited bureaucracy so process of establishing production facilities is not delayed or doesn’t incur high costs
Factors when assessing production location: Natural resources
Important that businesses have access to raw materials as this will reduce transport costs and delays of production.
Factors when assessing production location: Government incentives
Gov may offer grants, loans and tax breaks to firms that may be choosing to operate in their country.
Define Currency appreciation
Value of a currency increases against another eg if £1=$1.60 and then increases to £1=$1.80 the value of the £ has appreciated against the $ (£ can buy more $)
Advantages of currency appreciation
Imports cheaper from abroad = increases profit margins
Disadvantages of currency appreciation
Exports more expensive for customers = fall in sales, shift of demand to domestic businesses.
Define Currency depreciation
When the value of one currency decreases against another eg if £1=$1.60 and then falls to £1=$1.20 the value of the £ has depreciated abasing the $
Advantages of currency depreciation
-Exports abroad are cheaper so business more competitive
-Imports more expensive = less competition fro foreign businesses.
Disadvantages of currency depreciation
Imports from abroad are now more expensive = increase costs = high prices for consumers.
SPICED
Strong pound imports cheaper exports dearer
WPIDEC
Weak pound imports dearer exports cheaper
What are the two ways of gaining a competitive advantage?
Cost leadership and Differentiation
What is Cost leadership?
When a business becomes the lowest cost producer
How is cost leadership achieved?
Using machinery and technology, outsourcing and offshoring
How can businesses utilise cost leadership?
They can utilise their position to keep prices the same whilst having low costs which increases profits.
