4.2 Flashcards
joint venture definition
separate business entity created by two or move parties, involving shared ownership, returns and risks
potential benefits of a joint venture
- can benefit from each other’s expertise and resources
- reduces the risk of growth strategies
- can overcome protectionism, trade bloc access
potential drawbacks of a joint venture
- unequal investment and expertise
- objectives are different
- poor communication
- cultural issues
what is a multinational company
a business that has operations in more than one country. however, a business can’t be a MNC from selling products overseas
key reasons for the rapid growth of MNC’s/TNC’s
- economsjes of sclae
- avoid protectionist measures
- brands are seeking to increase profit in emerging economies
- takeover or joint ventures
- need to supplement relatively weak demand in existing, developed economies
potential benenfits of MNC’s in the countries they operate in
- employment and training to the labour force
- transfer of skills and expertise
- increase GDP
- competition - leads to firms improving quality/efficiency etc
- extend consumers and business choice
- tax revenues increase
potential drawbacks of MNC’s in the countries they operate in
- local businesses can’t compete
- may not meet host country expectations for acting ethically/ socially responsible
- maybe accused of imposing their culture at the expense of local culture
- profits may be reinvested back to the MNC’s base country
- may use transfer pricing and other tax avoidance measures to pay less taxes to the host country
- pollution
definition of push factors
adverse factors in the existing market that encourage an organisation to seek international opportunities i.e. overseas market
push factors include:
- saturated markets
- competition
features of saturated markets
Where most customers who would buy a product already have it, or there is a limited opportunity for growth in sales.
in this market its important that the businesses products are differentiated or sell where there is demand.
features of competition as a push factor
A rise in competition or a high level of competition in the domestic market may force a business to sell abroad.
- Competitors could sell similar products at a lower price or a higher quality which makes selling the product unprofitable or very difficult.
- The business may change the products to meet the needs and tastes of new customers
definition of pull factors
Pull factors entice firms into new markets. They are the opportunities that businesses can take advantage of when selling in overseas markets. there are many pull factors but they depend on the nature of the business or the current state in the home market
pull factors include:
- new or bigger markets
- economies of scale
- spreading risk
- lower costs of transportation
- technical expertise i.e. research facilities
- managerial or financial expertise
- organisational skills
- assets such as intellectual property or patents
spreading the risk
The probability of a bad event happening is multiplied by its negative impact. By spreading risk businesses can limit the reliance and dominance on one market and encourage investment in another. if one market decreases or stops growing then the business is still invested in another market
what is offshoring
offshoring involves moving manufacturing or service industries to a location with lower costs (abroad)
benefits of offshoring
- reduced costs - including the workers
- hire workers with particular skills
drawbacks of offshoring
- moving jobs to other countries can be controversial if there are lot of jobs lost in the home country
- can damage a business’s reputation
- language barriers
- cultural differences
- risks with external factors
definition of outsourcing
this involves moving an entire business function or project to a specialist external provider (doesn’t have to be abroad)
benefits of outsourcing
- reduced costs - including workers
- specialisation in areas of the business
- comes with specialist rules and regulations
drawbacks of outsourcing
- comes with risk
- reliance on 3rd parties labels a business vulnerable to their mistakes
-the business objectives may not be aligned - poor commnucation
key factors influencing overall cost competiveness
- exchange rates
- productivity and labour skills
- outsourcing
- offshoring & reshoring
what is offshoring
invovles the relocation of business activites from the home country to a different international location
why do businesses offshore
- manufacturing costs are lower
- potentially better skilled & higher quality
- makes use of existing capacity overseas
- take advantage of free trade areas
Drawbacks of offshoring
- longer lead times fro supply
implication fro CSR - additional management costs
- impact of exchange rates
- communication - language and time zones
what is reshoring
it involves the repatriaiton of business activities from overseas back to the home country
reasons for reshoring
- greater certainty around delivery times
- Minimise risk of supply chain disruptions
- reduce complexity of supply chain
- Easier to collaborate with home suppliers
- greater certainty about the quality of inputs and components
- cost advantage of producing or sourcing overseas is not as significant as it used to be
what can the government do to overcome skills shortage
- Invest in vocational education
- Provide firms and industries to offer more and better apprenticeships
- Encourage inwards migration of overseas citizens with suitable skills
- Provide tax and other incentives for firms to invest in training & education
what can businesses do to overcome skills shortage
- Raise wages and other remuneration
- Offer better training and other non-financial rewards than competitors
- Collaborate with firms in an industry to recruit into the industry as a whole
- Offshore activities with skills shortages
- Outsource to specialist providers
Competitive advantage through:
o cost competitiveness
Where a business is able to produce its product at lower cost than the competition
Competitive advantage through:
o differentiation
Where a business can differentiate its product from the competition such that customers perceive superior value
Ways to Achieve Differentiation
- Superior product quality (features, benefits, durability, reliability)
- Branding
- Wide distribution across all major channels
- Sustained promotion
