4.2 global markets and business expansion Flashcards
what are push factors?
factors in the market that encourage an organisation to seek international opportunities, like saturated markets and competition
what are saturated markets and how are they a push factor?
a saturated market is a market where most producers who would buy a particular product already have it, and there is limited opportunity for growth.
it is a push factor because it would encourage businesses to find a new market that isn’t saturated
how is competition a push factor?
high competition in a business would drive businesses away from the market as the competitors can charge lower prices for higher quality, putting pressure on the business
what are pull factors?
factors that entice firms into new markets, these are opportunities a business can take advantage of when selling into overseas markets, like economies of scale and risk spreading
how is economies of scale a pull factor?
if moving into a larger market, the production would increase, leading to lower costs per unit of output (economies of scale)
what is risk spreading and how is it a pull factor?
by expanding into other countries and markets, a business may be able to limit the risks that it faces, like how over dependence on one marker may leave a firm vulnerable in the short term if that market faces an economic challenge, like a recession, but by expanding into new markets, the risk is lowered
what is off-shoring? why would a business want to off-shore?
shifting jobs to other countries with lower costs, for example, the relocation of call centres from the UK to India. a firm would off-shore to:
- reduce costs
- hire more skilled workers
what are 3 limitations of off-shoring?
lots of jobs are lost in the home country, which could damage a firms reputation
there are also language/cultural differences
reduce efficiency/quality
what is outsourcing? why would a business outsource?
the movement of a business function/project to a specialist external provider. a firm would outsource to:
- reduce costs
- specialise areas of the business to improve speed and quality
what are limitations of outsourcing?
- reliance on third parties can leave a firm vulnerable due to external factors like them moving away or shutting down
- poor communication issues can be disruptive and expensive tot the business
what is the difference between off-shoring and outsourcing?
offshoring is shifting jobs to another country and outsourcing is shifting jobs to other organisations
how is labour productivity a pull factor?
labour productivity is the amount of goods and services produced by one hour of labour. the higher the productivity, the lower the labour costs, and people may go to a market where there are more skilled workers to increase the output per hour
how can a business extend the product life cycle by selling in multiple markets?
when a product has reached the decline stage in one market, a firm could choose to move their products into other markets to reduce costs, or it could explore selling to new markets, so the product could be in the maturity stage in one market and in the introductory stage elsewhere like reviving the product
spreading the risk over different countries or regions (reasons for global mergers)
a business can enter a new market in attempt to avoid the risk there is of the current market
entering new markets and trade blocs (reasons for global mergers)
businesses may want to merge with firms in other markets
acquiring national and international brand names and patents (reasons for global mergers)
by purchasing a business or a product with a brand name, a business would be able to build their brand recognition and become a global player in the International market
gaining access to intellectual property (reasons for global mergers)
it is often easier to gain access to an intellectual property (invention, artwork etc) by a joint venture agreement, as it would avoid the barriers of copyrights, trademarks or patents
securing resources or supplies (reasons for global mergers)
businesses may want to join a venture to secure resources or supplies that are scarce or hard to acquire
maintaining or increasing global competitiveness (reasons for global mergers)
merging can provide bigger markets and cost savings, which would in turn make the business more competitive in terms of pricing power over customers and suppliers
how does exchange rate fluctuation impact global competitiveness?
a depreciation in exchange rate would make exports cheaper, so exports can benefit , but an appreciation would make exports more expensive and will have an impact on the competitiveness of exporting firms
how would changes in the exchange rate impact elasticity of demand?
if there is a depreciation in the value of the pound, it will have an impact on price elasticity of demand
if the demand is elastic, it will have more of an impact
how would fixed contracts impact exchange rates?
temporary changes in the exchange rate will have a smaller impact if they have a fixed contract. they often help to decrease the uncertainty around exchange rate fluctuations
how can a competitive advantage be achieved?
through cost competitiveness and differentiation
skill shortages and their impact on international competitiveness
businesses that have access to skilled low cost labour are at a competitive advantage over other businesses