4.2 Flashcards
what are push factors?
factors that push a business to expand outside of their domestic country
push factors
Saturated Markets - when everyone that wants and can afford to buy something already has
Intense Competition -
In a competitive market, businesses need to find ways to differentiate themselves and gain a competitive edge, which can be achieved by exporting goods and services to new markets. businesses can reduce their reliance on a single market and diversify their revenue streams, thereby reducing their exposure to market volatility and competition
what are pull factors
encourage businesses to operate within markets abroad by choice
pull factors
economies of scale - businesses can buy raw materials and labor at lower prices than at domestic markets
spreading risk - businesses can diversify their customer base and reduce exposure to risks (economic, political, etc)
what is offshoring
when a company moves part of the production process, or all of it, to another country
advantages to offshoring
- lower labour costs may be available ( helps keep costs down and increase profitability )
- access to specialised suppliers
- economies of scale
disadvantages of offshoring
- public and employee relations could suffer as domestic employees lose jobs
- increased costs in short term (relocation costs, new premises, training new staff)
- poor customer service ( language and customer service (indian it helpers) )
what is outsourcing
occurs when a business hires an external organisation to complete certain tasks or business functions
advantages of outsourcing
- Businesses can take advantage of specialist skills that another business has
-Cost effectiveness as businesses avoid having to spend money investing
- higher labour productivity
stages of product lifecycle
Introduction , growth , maturity and decline
factors to consider before entering new countries
- ease of doing business
-infrastructure - political stability
- exchange rates
-levels of growth and disposable income
infrastructure
Good infrastructure improves the production process and delivery of goods/services to the customer which reduces costs and increase sales
Ease of doing business
If businesses face significant challenges setting up a business, this may lead to delays in operations and the business generating sales
Levels of growth and disposable income
Selling products in a country with higher disposable income is likely to lead to more sales
political stability
An economy with a stable economy and government is seen as a less risky investment for a business
Exchange rates
An exchange rate is the price of one currency in terms of another
S - strong
P - pound
I - imports
C - cheaper
E - exports
D - deaerer
what is a global merger
a permanent agreement between two businesses from two different countries to join together
what is a joint venture
when two businesses join together to share their knowledge, resources and skills to form a separate business entity for a short period of time
reasons for global mergers and joint ventures
- spreading risk
- entering new markers
- getting brand names and patents
- getting resources and supplies
- maintaining / increasing global competitiveness
reasons for global mergers and joint ventures
spreading risks
spreads risks associated with changing economic conditions (if theres an economic downturn in one country, theyre still good)
reasons for global mergers and joint ventures: entering new markets
- quicker than using organic growth
- forming a joint venture with a local business can help them gain knowledge and business of the local market
reasons for global mergers and joint ventures
Acquiring national/international brand names/patents
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
reasons for global mergers and joint ventures
Securing resources/supplies
Businesses can strategically merge or create a joint ventures with another business which has access to resources
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
reasons for global mergers and joint ventures
Maintaining/increasing global competitiveness
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
drawbacks of mergers and joint ventures
The initial costs of merging can be significantly high
- no guarantee a business will gain a return on their initial investment if it is not successful
- Diseconomies of scale can occur due to communication issues and a lack of control as the business
A culture clash between the two businesses can affect the quality of the business, leading to poor sales
When two businesses join together, redundancies can occur (This is likely to affect the morale of the remaining workers)
advantages of currency appreciation
If businesses import raw materials and components from abroad, they will now be cheaper
This will help the business to reduce their costs and possibly increase their profit margin
disadvantages of currency appreciation
- If businesses exports goods/services to foreign consumers, the goods will be more expensive for international customers
This may lead to a fall in sales as consumers now shift demand to domestic businesses
advantages of currency depreciation
- If businesses export goods/services abroad they become more competitive because their products are cheaper to purchase
- In the domestic market there may be less competition from foreign firms as imports are now more expensive for domestic consumers to purchase
disadvantages of currency depreciation
- If a business imports raw materials or components from abroad, they are now more expensive
- This leads to an increase in the costs for a business, which could then be passed onto consumers in the form of higher prices
what is cost leadership
when a business becomes the lowest cost producer in their industry
how can cost leadership be advantageous
Businesses can utilise this position as a cost leader to reduce their prices or keep their prices the same which results in an increase in profit margins
what is differentiation
occurs when the business makes the characteristics of their products/services different to those of their competitors
impact of skill shortages
- 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
