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A LEVEL BUSINESS - ALL > 4.2 global markets > Flashcards

4.2 global markets Flashcards

1
Q

CONDITIONS THAT PROMT TRADE:

A
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2
Q

what are push factors?

A

adverse situations that force businesses to look for opportunities in/expand to international markets

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3
Q

what may expanding help the business to do?

A

-access new markets
-diversify their customer base
-gain a competitive advantage

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4
Q

examples of push factors:

A

-market saturation
-competition
-shareholder pressure

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5
Q

push factors: market saturation

A

-demand for goods has reached a peak
-it’s hard for businesses to grow / growth slows
-businesses look for international markets with high growth potential & expand

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6
Q

push factors: intense competition

A

-domestic competition (or that of other international firms) can make competing at home unprofitable

-in a competitive market, businesses need to find ways to differentiate themselves
↳ by exporting goods and services to new markets, businesses can reduce their reliance on a single market and diversify their revenue streams

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7
Q

push factors: shareholder pressure

A

pressure for return on investment can cause businesses to seek new opportunities for growth

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8
Q

what are pull factors?

A

they encourage businesses to expand to international markets which present significant growth opportunities

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9
Q

examples of pull factors:

A

-economies of scale (cost savings)
-risk spreading

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10
Q

pull factors: economies of scale

A

-economies of scale can occur when a business expands its production to international markets (increases the scale of operations)
-businesses may be able to buy raw materials and labour at lower prices than within their domestic markets

(in some developing countries certain costs (e.g. labour, tax) are cheaper than in the UK)

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11
Q

pull factors: risk spreading

A

-by accessing multiple markets, businesses can diversify their customer base and reduce risks associated with operating in a single market (economic, political)

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12
Q

two approaches to becoming a multinational are…

A

-off-shoring
-outsourcing

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13
Q

what is offshoring?

A

when a company moves part of the production process, or all of it, to another country

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14
Q

benefits of offshoring:

A

-lower wage rates → increased profits
-access to raw materials/components (better quality)
-access to a skilled workforce (better quality service)
-economies of scale

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15
Q

drawbacks of offshoring:

A

-damage to business reputation in home country
-as economics develop production costs also rise

-cultural and language barriers → possibly poor customer service due to language and cultural differences between domestic consumers & foreign workers

-increased costs in short term (relocation costs, new premises, training)
-employer/employee relations may suffer due to relocation as domestic workers lose jobs

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16
Q

what is outsourcing?

A

when a business hires an external organisation to complete certain tasks or business functions

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17
Q

key reasons for businesses to outsource:

A

-reduced costs
-allows business to focus on core competencies

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18
Q

what is the main difference between outsourcing and offshoring?

A

offshoring is still carried out under the same business, whereas outsourcing is done by a completely different business

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19
Q

benefits of outsourcing:

A

-takes advantage of a country’s comparative advantage (can take advantage of specialist skills that another business has)

-cost effectiveness (businesses avoids high set up costs)

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20
Q

drawbacks of outsourcing:

A

-reliance on third parties (limited control)
-cultural and language barriers (poor communication can cause issues → increased costs & disruption)
-businesses are less flexible if tied into a contract with a specialist provider
-damage to brand image if working standards are poor

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21
Q

what does the produce life cycle represent?

A

the value of sales from the time a product is introduced into the market until it is no longer sold

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22
Q

what are the stages of the product life cycle?

A

introduction, growth, maturity, decline

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23
Q

what is an extension strategy?

A

a method used by a business to lengthen the life cycle of a product or service

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24
Q

how can the life cycle of a product be extended?

A

by moving into international markets…
➢ exporting the product to international markets
➢ if the product has reached maturity in one market it could then be introduced into another market → more revenue

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25
Q

ASSESSING A COUNTRY AS A MARKET

A
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26
Q

what happens when businesses are considering new markets?

A

they have to consider the attractiveness of the market doing market research and using models
(boston matrix, PESTLE)

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27
Q

factors to consider before entering new countries:

A

-levels and growth of disposable income
-ease of doing business
-infrastructure
-political stability
-exchange rate

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28
Q

what is disposable income?

A

the income individuals have left after paying direct taxes and other deductions

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29
Q

analysing the level of disposable income:
(assessing a country as a market)

A

selling products in a country with higher disposable income is likely to lead to more sales

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30
Q

analysing the growth of disposable income:
(assessing a country as a market)

A

businesses should look at trends in income levels over time to see if there is potential growth in sales in the future

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31
Q

analysing the ease of doing business:

A

rules and regulations involved in set up:
➢ time involved in & cost of setting up and running the business

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32
Q

analysing the infrastructure:
(assessing a country as a market)

A

-considers factors such as roads, transportation and communication (mobile coverage/internet)
-good infrastructure improves the production process and delivery of goods and services to the customer
↳ reduces costs and increases sales

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33
Q

analysing political stability:
(assessment of a country as a market)

A

-businesses may be at risk of not gaining a return on their investment in a country with political instability
-a country with political instability will be subject to corruption, lack of law enforcement and higher levels of crime

(an economy with a stable economy and government is seen as a less risky investment for a business)

34
Q

what is an exchange rate?

A

the price of one currency in terms of another

35
Q

analysing exchange rate:
(assessment of a country as a market)

A

-exchange rates can be subject to extreme fluctuations due to external factors
-businesses should look at the historical trends of the currency of the country
-businesses moving to countries with stronger currencies can import raw materials and components for production at a lower price

36
Q

ASSESSING A COUNTRY AS A PRODUCTION LOCATION:

A
37
Q

what does a production location entail?

A

manufacturing and any services associated with the business that the business chooses to set up in other countries

38
Q

factors to assess when deciding considering setting up production facilities in another country:

A

-costs of production
-skills and availability of labour force -infrastructure
-location in trade bloc
-government incentives
-ease of doing business
-political stability
-natural resources
-likely return on investment

39
Q

costs of production
(assessment of a country as a production location)

A

businesses want to keep costs of production low, this can help them increase their profit margin or allow them to sell at a lower price to gain a competitive advantage

40
Q

skills and availability of labour force
(assessment of a country as a production location)

A

-the quality of the workforce is important → directly affects the quality of the goods and services produced in an economy

-literacy rates and whether the workforce has the right skills needed for the business

-businesses may choose to locate production in a market where the labour costs are lower

41
Q

infrastructure
(assessment of a country as a production location)

A

-businesses need to consider the infrastructure needed such as roads as this will affect the production process

(eg: the transportation of raw materials for the production)

42
Q

location in a trading bloc
(assessment of a country as a production location)

A

-a business located in a market within a trade bloc will be able to access many advantages

(eg: japanese companies nissan and
toyota have invested in manufacturing facilities in the UK (prior to Brexit) to gain access to the EU market)

43
Q

government incentives
(assessment of a country as a production location)

A

Businesses may be offered incentives (e.g. grants, business loans and tax breaks) by the government of the country

44
Q

ease of doing business
(assessment of a country as a production location)

A

-a business will want to locate in an area where there is limited regulation, so setting up production isn’t time consuming or doesn’t incur high costs

45
Q

political stability
(assessment of a country as a production location)

A

-a country with political instability will be subject to corruption, lack of law enforcement and higher levels of crime
& is more likely to have disruption to production → possibility to not make a profit

-an economy with a stable economy and government is seen as a less risky investment for a business

46
Q

natural resources
(assessment of a country as a production location)

A

-it’s important that a business has easy access to their raw materials as this can help to reduce transportation costs and help to reduce any potential delays to the production process

47
Q

return on investment
(assessment of a country as a production location)

A

-assessing the return on investment in different markets will reduce the risk of the initial investment not being paid for
-investment appraisal techniques can be used to tell a business what their potential return on investment could be

48
Q

what is a global merger?

A

two businesses from two different countries join together to create one organisation

49
Q

what is a joint venture?

A

two separate businesses collaborating to achieve a shared goal

50
Q

what are some barriers to entry when a business is attempting to access an international market?

A

-low brand awareness
-cultural/language differences
-knowledge of the market
-additional costs incurred through exporting

51
Q

what would the alternative to global mergers and joint ventures be?

A

businesses may choose these methods of reaching a new market as they may be more cost effective than exporting, licensing and franchising

52
Q

reasons for global mergers and joint ventures:

A

-spreading risk over different countries/regions
-entering new markets/trade blocs
-acquiring national/international brand names/patents
-securing resources
-maintaining/increasing global competitiveness

53
Q

spreading risk over different countries/regions

A

-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

54
Q

entering new markets/trading blocs:

A

-entering a market using a merger/joint venture is a quicker method than using organic growth
-forming a joint venture with a local company allows the joining business to gain knowledge and business of the local markets

55
Q

what is a patent?

A

the legal right to an individual/business to make, use or sell an invention and exclude others from doing so

56
Q

acquiring national/international brand names/patents

A

using a merger/acquisition is a method businesses can use to get access to intellectual property or a business with a strong reputation as developing intellectual property can be a long and expensive process

57
Q

securing resources / supplies

A

-businesses can merge or create 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

58
Q

maintaining/increasing global competitiveness

A

-by merging, a business can benefit from economies of scale which leads to lower costs → reduced prices → increased sales → higher market share

59
Q

benefits of global mergers:

A

-economies of scale
-diversified risk
-opportunity to enter new markets

60
Q

drawbacks of global mergers:

A

-high initial merging costs
-no guarantee of a return on
investment (unsuccessful)
-possibility of a culture clash between the two businesses
-when two businesses join together, redundancies can occur → can affect the motivation of remaining workers

61
Q

what is global competitiveness?

A

the ability of a business to perform better than its rivals across markets in different countries

62
Q

what can affect the cost competitiveness of a business?

A

-exchange rates
-skill shortages

63
Q

what specifically about exchange rates affects a business?

A

currency appreciation and depreciation

64
Q

what is appreciation?

A

the value of a currency increases against another currency

65
Q

example of appreciation:

A

if £1= $1.60 and then increases to
£1 = $1.80, the value of the £ has appreciated against the US$

66
Q

advantage of appreciation:

A

-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

67
Q

disadvantages of appreciation:

A

-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

68
Q

what is depreciation?

A

value of the currency decreases against another currency

69
Q

example of depreciation:

A

If £1 = $1.60 and then falls to £1 = $1.20, the value of the £ has depreciated against the US$

70
Q

advantagesof depreciation:

A

-if businesses export goods/services abroad, they become more competitive because their products are cheaper to purchase
-un the domestic market, there may be less competition from foreign firms as imports are now more expensive for domestic consumers to purchase

71
Q

disadvantages of depreciation:

A

-if a business imports raw materials or components from abroad, they are now more expensive
-an increase in the costs for a business → passed onto consumers in the form of higher prices

72
Q

acronym for exchange rates:

A

S - strong
P - pound
I - imports
C - cheaper
E - exports
D - dearer

W - weaker
P - pound
I - imports
D - dearer
E - exports
C - cheaper

73
Q

how does global competitiveness increase?

A

when a firm has a competitive advantage

74
Q

what are two ways to get a competitive advantage?

A

cost competitiveness and differentiation

75
Q

what is cost competitiveness?

A

when a business becomes the lowest cost producer in their industry

76
Q

strategies of cost competitiveness:

A

-increasing the productivity of their workforce (economies of scale)
-using machinery and technology efficiently
-outsourcing
-offshoring
-backwards vertical integration

77
Q

benefits of cost competitiveness:

A

-reduced prices
-increased profit margins

78
Q

what is differentiation?

A

when the business makes the characteristics of their products/services different to those of their competitors

79
Q

strategies of differentiation:

A

-developing a strong brand
-better design
-better quality
-customer service

80
Q

the impact of skills shortages:

A

-the skills and knowledge within a company can lead to competitive advantage

-at times a business will face skills shortages and this can reduce the effectiveness and productivity of its workforce

-operating at an international level gives businesses the opportunity to access labour internationally, this allows them to access unique skills that may not exist in their home nation

81
Q

skills shortages & cost competitiveness

A

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

82
Q

skills shortages and differentiation:

A

less likely to occur where workers lack the skills and expertise to produce highly differentiated products
↳ a business can use outsourcing and offshoring to access the skills needed for their business

A LEVEL BUSINESS - ALL (9 decks)

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