4.2 Global Markets and business expansion Flashcards
What are the forces encouraging businesses to operate in other countries
-pull factors -> reasons attracting a business to a new foreign market
-push factors -> reasons driving a firm away from its domestic market
Name 3 reasons why a firm may want to leave its domestic market (push factors)
-saturated markets
-competition
-extending product life cycle
Why may saturated markets push businesses out of its domestic market
-> in this market customers who want the product already have it -> limited opportunity for growth in sales -> new market for existing product -> market development
Why might competition push businesses out of its domestic market
competition in domestic markets -> decreases sales -> due to ^ availability of substitutes -> companies leaving the market
Why might extending its product life cycle lead to a firm leaving its domestic market
-as product nears its decline phase -> entering new international markets -> extends/ prolongs life cycle
Name 3 factors attracting a business into foreign markets (pull factors)
-economies of scale
-possibility of offshoring, outsourcing
-risk spreading
How does economies of scale attract businesses to foreign markets
-> entering foreign markets -> ^ scale of production -> lower unit costs -> FC spread across all units -> ^ profit margins
How does offshoring and outsourcing attract businesses into foreign markets
-lower costs -> in labour, land, services aborad -> lower overall costs
e.g. may be -> directly investing in facilities abroad (offshoring)
outsourcing production to low labour cost locations
What is offshoring
moving 1 or more business functions -> foreign country
What is outsourcing
contracting another business to perform a business function on your behalf
-> e.g. usually production performed by business in lower cost country
How does risk spreading attract businesses into foreign markets
selling in one country = risky if the product fails
-> entering more international markets -> spreads risk -> reduces business failure
Name the 6 ways businesses judge whether or not a country is right for them to start selling in (market attractiveness)
-levels and growth of disposable incomes
-ease of doing business
-quality of infrastructure
-political stability
exchange rates
What is disposable income
money a household has available to spend from income after income tax has been deducted
How does level and growth of disposable income determine whether a market is attractive to a business
disposable income -> refelection of standards of living in a country
->so businesses need to ensure consumers have sufficient DI to spend -> must be growing -> afford to buy products now & future
->low disposable incomes -> unattractive for luxuries
How does ease of doing business determine whether a company chooses to set up in a certain country
-> if firm faces problems in market -> likely to discourage foreign firms -> delay on sales -> ^ costs
How does the quality of infrastructure determine whether a company chooses to set up in a certain country
-> developing countries -> unreliable, underdeveloped transport, infrastructure -> delay in delivering -> ^ costs -> unattractive to businesses
How does political stability determine whether a company chooses to set up in a certain country
country with calm political situation -> reduces uncertainty before entering market
-tax regulations
-corruption
How do exchange rates determine whether a company chooses to set up in a certain country
fluctuating exchange rates -> uncertainty
-will be considered when deciding to enter new market
-strong pound -> if investing into country -> assets should be purchase when strong pound
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Name the 8 factors in which are taken into consideration when judging if a country is suitable to manufacture products
-costs of production
-skill & availability of workforce
-infrastructure
-location in a trading bloc
-government incentives
-ease of doing business
-political stabiility
-likely return on investment
Why is political stability assessed when assessing a country as a production location
-political unstability -> uncertainity -> financial loss
Why are government incentives assessed when assessing a country as a production location
governments try to attract FDI -> brings income & employment
-can do this by offering tax breaks, interest free loans, cheap land, labour better rates
Why is locating in a trading bloc assessed when assessing a country as a production location
-> some firms enter countries to avoid trade barriers -> allows them
Meaning of labour intensive
business process that relies more on ppl than machinery
Meaning of capital intensive
business process that relies on machinery more than ppl
skills and labour force
-uk is seen to have a highly skilled labour force -> but there’s often shortage of skilled workers
-can be resolved by locating in other countries -> utilising skills there
-but often involves traiing workers
infrastructure
-
location in a trading bloc
-locating in a trade bloc (EU, NAFTA, ASEAN) -> allows easier access to markets within those countries -> lower export taxes
-increase want for a business to set up production inside trade bloc
-
government incentives
-national & local governments can provide incentives (grants)
-maybe to try ^ employment in deprived areas
-attracts businesses to the area
-ease of doing business
how responsive governments are to demands of business
-govs may not want business to compete with domestic businesses -> making it difficult for company to set up
political stability
-corruption has been seen to be a major influence on whether large foreign businesses are allowed to set up in some countries
natural resources
-countries that have lots of natural resources -> gas, oil, minerals
-sensible to set up production here -> gain access to these resources
-
likely return on investment
-look at:
-days to start a business
-days to get electricity
-days to enforce a contract
-days to import an item
What is a merger
when 2 firms agree to come together to create a new busines
what is a takeover
when 1 business buys interest in another business
what is a joint venture
formal agreement between 2 seperate businesses to work together for fixed time on specific porject
Name 5 reasons why large international companies seek to work together
-spreading risk
-entering new markets/ trade blocs
-acquiring national/ international brand names
-securing resources & supplies
-maintaining/ increasing competitiveness
-spreading risk
-by operating in a number of countries -> business reduces risk
-countries are in diff stages of business cycle -> if 1 country -> recession another may be undergoing growth
-profits in one area can sustain business elsewhere
-> overcome short downturns
-entering new markets
-saturated markets & heavy competition in domestic market -> less opportunities for business
-> new market development -> developing countries can provide future opportunities for revenue
-. gaining access to trade blocs -> allows business to develop ability for free movement of capital
acquiring national/ international brand names
-taking over variety of brand names, patents allows business to market its products in many diff countries
-global advertising -> business getting more advertising at lower unit costs
securing resources/ supplies
-supply chaain management is enhanced if business operates in country where it secures its resources
-do this by producing in country where resources originate
-reduces costs
-decreases shock to supplies as business has its own source
maintaining/ increasing global competitiveness
`-^ global presence -> allows business to enter markets more effectively
-> ^ customer service
-> products can be adapted for local needs -> glocalisation
-> supply chain management -> easier, cheaper when sourced in geographic area
`Meaning of global compeititveness
ability of business to succeed against domestic rivals & foreign competitors in international markets
Name 2 benefits of a business competing on a global scale
-dominating its domestic markets with minimal penetration from imports
-ease of entry, strong global competitiveness in foreign markets -> strong brand recognition
porter and global competitiveness
-> competitiveness achieved through cost leadership
-> firms with lowest costs -> undercut rivals prices
or
-> competitiveness achieved through diffeentiation
->good for wealthier markets where cust less bothered abt price
