4.2 Flashcards
Define push and pull factors
Push factors are factors that push a business to expand outside of their domestic country
Pull factors encourage businesses to operate within markets abroad which present significant growth opportunities
What are 2 push and 2 pull factors
Push
Current market is too saturated
Current market is highly competitive - need a way to differentiate themselves and gain a competitive advantage. New markers - reduce reliance on market - diversify rev streams - reducing their exposure to market volatility and competition
Pull
Benefitting from EOS,eg bus may be able to purchase raw materials at lower prices
Spreading Risk
Offshoring def and 3 reasons why
Offshoring is when a company moves part of the production process, or all of it, to another country
Reasons for offshoring include
Lower labour costs
Access raw materials
Access skilled labour
2 adv and dis of offshoring
Lower labour costs
Access to specialised suppliers
PR and employer/ employee relations may suffer as domestic workers lose jobs
Increased costs in short term such as relocation costs, acquiring new premises and training new staff
Outsourcing def + 3 reasons why
Outsourcing occurs when a business hires an external organisation to complete certain tasks or business functions
E.g. Apple outsources the production of the iPhone to Foxconn in China
The key reasons for a business choosing to outsource include
Reduced costs
Allows business to focus on core competencies
Easier to comply with rules and regulations in other countries as they are often less demanding
2 adv and dis of outsourcing
Take adv of specialist skills of other businesses - complete work more efficiently
Benefit from higher labour productivity
May damage brand image as values of 2 firms may not be in alignment
Poor communication could lead to issues - increased costs + disruption
5 factors to consider when assessing new markets abroad
Ease of doing business
Infrastructure
Political stability
Exchange rates
Levels and growth of disposable income
9 factors to consider when setting up production locations in other markets
Government Incentives- grants, tax breaks, loans ect
Costs of Production
Skills and availability of labour force
Infrastructure
Location in a trading bloc - if within advantages such as reduced protectionist measures
Return on Investment - investment appraisal
Natural resources - easy access to raw materials
Political stability - stable economy and gov less risk as firm may not gain full ROI in country with stability such as crime and corruption causing disruption
Ease of doing business - Want limited bureacracy
5 reasons for Global mergers and joint ventures
Spreading Risk
Businesses operating in different markets spreads the risks associated with fluctuating economic conditions
If there is an economic downturn in one market, they may still gain sales in another market that is less affected
Entering new markets/trading blocs
Entering a market using a merger/joint venture is a quicker method than using organic growth
In emerging economies, many governments inisist that foreign businesses can only operate as a joint venture as this can benefit domestic businesses
Forming a joint venture with a local company allows the joining business to gain knowledge and business of the local markets
Acquiring national/international brand names/patents
A patent is the legal right given by the government to an individual or business to make, use or sell an invention and exclude others from doing so
The process of developing intellectual property can be a long and expensive process
Using a merger/acquisition is a method businesses can use to get access to intellectual property or a business with a strong reputation
Securing resources/supplies
Businesses can strategically merge or create a joint ventures with another business which has access to resources e.g land and raw materials
This allows business to quickly gain access to resources which helps to speed up the production process
Businesses have to be aware of any ethical issues concerning the resources as this can damage the reputation of the business e.g. perhaps being unaware that the company they are joining with uses child labour
Maintaining/increasing global competitiveness
Businesses can increase their global dominance by merging or joining with another business
By expanding, a business can benefit from economies of scale which leads to lower costs
Businesses can reduce prices which can increase sales, leading to a higher market share
3 pros and cons of Global mergers and joint ventures
Pros
Economies of scale
Diversify risk
Opportunity to enter new markers
Cons
Initially high costs
Diseconomies of scale
Culture clashes
Redundancies resulting in fall in employee morale
2 factors which can provide a firm a competitive advantage to increase their global competitiveness
Cost Leadership - When a business becomes the lowest cost producer in their industry
increasing productivity and efficiency - pass on costs as reduced prices
Differentiation occurs when the business makes the characteristics of their products/services different to those of their competitors
eg by developing a strong brand, better design, better quality and customer service
The impact of skill shortages
If a business is unable to find the labour with the required skills it will affect their ability to gain a competitive advantage
Cost leadership could be difficult to achieve if the workers lack skills as they may not be as productive
This could increase unit costs due to factors such as waste
Product differentiation is less likely to occur where workers lack the skills and expertise to produce highly differentiated products
In order to overcome these issues, a business can use outsourcing and offshoring to access the skills needed for their business
