4.2 Flashcards
Define push factors and give the 2
Push factors for trade- Push the business away from its domestic market
-Saturated markets: Market is full, little room for growth → Selling abroad offers new opportunities
-Competition-Too much competition at home = harder to grow or profit.
→ Businesses look overseas to escape intense rivalry.
Define pull factors and give the 2
Pull Factors for trade-Pull the business towards international markets
-Economies of scale- Producing more = lower unit costs.
→ Larger markets abroad help achieve this.
-Risk spreading:
Selling in different countries spreads risk.
→ If one market struggles, others may still perform well.
What are the 2 ways of becoming an MNC
-Offshoring
-outfsourcing
Define offshoring and give adv and dis
Moving part of the business (e.g. production) to another country to cut costs.
ADV of offshoring
- Lower costs eg wages
- Increased access to raw materials
- Increased skilled workers
DIS of offshoring
- Damage to reputation in home country
- cultural and Communication Barriers= poor customer service
- political and economic risks
-Managing operations from afar can lead to quality issues. Standards of production or service may differ between countries, and maintaining consistent quality can become more difficult.
Define outsourcing and adv and dis
Hiring another company (often abroad) to do certain tasks (e.g. customer service).
ADV of outsourcing
- Access to knowledge/specialists without having to directly invest= cost efficiency
- Flexibility
- Take adv of comparative adv
DIS out outsourcing
-Damage to brand image as the values of the two businesses may not be in alignment
-Poor communication between the businesses can cause issues, which can lead to increased costs and disruption for the business choosing to outsource
Factors influencing Assessment of a Country as a Market
- levels and growth of disposable income
- ease of doing business eg is there taxes/permits/buracracy
- infrastructure, Poor infrastructure = delays, higher costs.
- political stability- Stable countries = safer long-term investment.
> May be corruption in some countries so not good - exchange rates
EVAL for exchange rate fluctuations
- PED- some products are less sensitive to fluctuations in exchange rates= if prices increase= no significant effect on business
- Economic growth, if growth occurs and exchange rates increase it may counterbalance
Assessment of a Country as a Production Location.Factors to consider:
- costs of production
- skills and availability of labour force
- infrastructure
- location in trade bloc- business located in a market within a trade bloc will be able to access many advantages such as reduced protectionist measures
- government incentives eg tax breaks/subsidies
- ease of doing business eg is there regulation/ bueacracy
- political stability
- natural resources
- likely return on investment- Businesses must assess whether the expected return on investment (ROI) justifies the costs and risks involved in setting up operations in a particular country.
Skill shortages and their impact on international comp
- Skill shortage = decreased efficiency and productivity= increased costs and decreased competitiveness
-EVAL- operating at an international level= access to new labour and unique skills which do not exist in theri country
Define global merge and joint venture
Global merger- two companies from different countries combine to form one legal entity
Join venture- 2 or more businesses join together to pursue a common project
Reasons for global mergers/joint ventures
- Spreading risk over different countries/regions- if one market fails they can switch to another
- Entering new markets/trade blocs =helping businesses to expand their customer base and increase revenue
- Acquiring national/international brand names/patents= adds value and quicker to buy than build it also patents= quicker to buy a company and therefore own patent/right
- Securing resources/supplies = decreased cost as firms can supply and gives access to resources. Also by partnering with or acquiring companies that provide these resources, a business can reduce the risk of supply chain disruptions.
- Maintaining/increasing global competitiveness= increase their size, expand their reach, and improve their ability to compete internationally.
Benefits of global mergers and joint ventures
- Gain skills and expertise which could help reduce mistakes and costs
- Access to resources previously unavailable eg lower costs due to existing factories
- No change of ownership (joint venture)
-Economies of scale gained from costs spread over larger output can lead to increased profit margins
DIS of global mergers and joint ventures
- Conflict of objectives= time wasting= culture clash
- diseconomies of scale
- High cost and time needed (merger)
- Knowledge gained can be used against each other after demerge
- Confusion can arise on business working together and fall in sales
Comp adv in global scale.
2 easy in which you can achieve it
> Cost Competitiveness
- MNCs may achieve EOS due to operating in different markets = decreased unit costs
- Allows firms to charge lower prices or maintain higher profit margins.
- Vertical integration = allows firms to reduce mark up added by suppliers
> Differentiation
- Offering unique features or strong branding to stand out.
- Justifies premium pricing and increases customer loyalty.
- Can use polycentric approach = meets local needs
- Buy a firm or brand already established to use your product
