4.2- Global Markets And Business Expansion

Question 1

Define push factors

Answer 1

There are some PUSH factors which may force a business to consider selling abroad;

High levels of domestic competition

Saturated markets with only low growth opportunities

Question 2

What is meant by a saturated market

Answer 2

A saturated domestic market means that a business or group of businesses has sold a product to just about everyone who will buy one

Question 3

How can a saturated market have push factors

Answer 3

While R&D is taking place the business needs to continue to trade and to grow and so will look for a new markets for the products abroad

Question 4

How is high competition in home market a push factor

Answer 4

High levels of competition in the home markets mean that a business will look abroad to where there may be less competition and lucrative market opportunities to trade

Question 5

Define pull factors

Answer 5

There are some PULL factors which may force a business to consider selling abroad;

Significant opportunities to sell to overseas markets

Ability to spread risk across more markets

Ability to gain economies of scale

Question 6

How is opportunities in overseas markets a push factor

Answer 6

Exporting is one way for a business to increase sales and this can contribute to increased profits

An export opportunity may arise when demand increases for your product in other countries

A business selling in overseas markets will be able to grow faster than those limited to domestic markets

Question 7

How is the ability to spread risk a pull factor

Answer 7

A key benefit of exporting to other nations is that it allows the business to spread the risk

By selling in other countries the business is less vulnerable to changes in the domestic economy

Different countries may have different growth rates at any time, selling in multiple countries can give a balanced portfolio of growth

Question 8

How is the ability to gain economies of scale a pull factor

Answer 8

Exporting is an excellent way to drive production to a level that delivers economies of scale, particularly if the product or service is standard across export markets with little or no need for adaptation.

Achieving greater economies of scale will allow the business to become more cost-competitive

Question 9

What is offshoring

Answer 9

Offshoring is when a business relocates some of its production process to another country

Question 10

What is outsourcing

Answer 10

This is where a business function, such as payroll, is contracted out to a third party business

Question 11

What are the four types of outsourcing

Answer 11

Production, payroll, purchasing, delivery

Question 12

What is meant by outsourcing production

Answer 12

This means sending some of the production to other companies to complete

Question 13

What is meant by outsourcing payroll

Answer 13

Payroll is the most common task that companies outsource to other businesses who specialise in this task

Question 14

What is meant by outsourcing purchasing

Answer 14

Purchasing and maintaining information systems

Hiring and evaluating IT staff and training users can be very costly and time consuming for SMEs

Question 15

What is meant by outsourcing delivery

Answer 15

Larger businesses might prefer to contract a major delivery firm rather than maintain their own fleet

Question 16

What are some advantages of moving to a call centre in India

Answer 16

India is a hub of talent. It has skilled call centre professionals who can provide businesses with efficient services at fraction of the UK cost.

Indian call centres utilise the best of technology, software and infrastructure.

The time zone difference between western countries and India makes it possible for companies to offer customers quality services on a 24x7 basis.

A vast majority of the Indian population speaks English. They also have workers who can speak other foreign languages like French, German, Spanish

Question 17

What are the disadvantages of moving a call centre to India

Answer 17

One of the biggest disadvantages of outsourcing is the risk of losing sensitive data and the loss of confidentiality.

Losing management control of business functions mean that businesses may no longer be able to control operations as well as if the were in domestic markets.

Problems with quality can arise if the outsourcing provider doesn’t have proper processes and/ or is inexperienced in working in an outsourcing relationship

Question 18

What are the 5 stages of a product lifecycle

Answer 18

1) Development
2) Introduction
3) Growth
4) Maturity
5) Decline/Extension

Question 19

What is meant by extension in a product lifecycle

Answer 19

Extending the product lifecycle by selling in multiple markets

This means being able to sell a product that might be in decline in the UK into a new international market as a new product

Question 20

How do you assess a country as a market

Answer 20

1) levels and growth of disposable income
2) ease of doing business
3) infrastructure
4) political stability
5) exchange rate

Question 21

What is meant by disposable income

Answer 21

Disposable income is the amount that a customer has to spend after all their bills have been paid

Question 22

What is the ease of doing business index

Answer 22

The ease of doing business index is an index created by the World Bank Group

Higher rankings (a low number) indicate better, usually simpler, regulations for businesses and stronger protections of property rights e.g. patents

Question 23

What is meant by infrastructure

Answer 23

Infrastructure is the basic physical and organisational structures and facilities (e,g. Buildings, roads, power supplies) needed for the operation of a society or business

Question 24

Why is infrastructure important to sales

Answer 24

Infrastructure can mean road, rail and transport. Without this a business cannot deliver to its customers on time

Infrastructure can also mean telecommunications, without this a business cannot communicate with its suppliers and its customers

Question 25

What is meant by political stability

Answer 25

The world bank has a series of worldwide governance indicators, one of which is the political stability and absence of violence and terrorism

Question 26

What is the risk factor of political stability

Answer 26

Political instability in a country could be a major risk factor so should be taken into consideration when assessing a potential country as a market for your products

Each new government may seek to impose a series of laws which will need to be adhered to e.g. environment laws, employment laws which could have an impact on the business

Question 27

Why is political stability important

Answer 27

An aggressive takeover of a government, a coup could lead to riots, protests and looting

It can also lead to civil war, notable recent examples are Egypt, Syria and Sri Lanka

Even more recently the government in Venezuela has faced challenges which have led to a great deal of political unrest

Question 28

Why would natural resources be a reason to operate in a certain country

Answer 28

Some countries have an advantage that they have natural resources that are not found elsewhere

For example China has a monopoly on rare earth metals

Question 29

Define joint venture

Answer 29

A joint venture is a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities, this is only a temporary arrangement

Question 30

Define a merger

Answer 30

A merger is where two businesses come together to become one, on a permanent basis e.g. Orange and T mobile became EE

Question 31

How is spreading risk and joint ventures linked to

Answer 31

Moving production or sales into another country can be very complex and risky for a single business to go it alone

Often a business might decide to enter into a joint venture to share the risk, perhaps with a business already trading in that country – which can help them navigate the paperwork and cultural differences

Question 32

What are the advantages of joint ventures

Answer 32

Access to knowledge and resources such as capital, staff and technology

Access to new opportunities such as new markets or greater distribution reach

Shared exposure to risks, financial responsibility and workload

Question 33

Disadvantages (risks) of joint ventures

Answer 33

A large number of joint ventures fail because of the many risks involved and the complexity of integrating operations and work culture of two different companies

Coping with differing cultures, management styles, and working relationships that are in each company

50% of all joint ventures fail

Question 34

How is brand name acquisition and mergers linked

Answer 34

A business may look to merge with another business in order to acquire a lucrative brand name

For example Ben and Jerrys sold their company to the Anglo-Dutch company Unilever in 1999.

They loved Ben & Jerry’s but never wanted to sell it, but Unilever offered so much money that, in the end, responsibility to the shareholders won out

Question 35

How is patent acquisition and joint ventures linked

Answer 35

A joint venture allows inventors to move their products to market quickly with much less financial risk

Inventors can team up with manufacturing companies who will help them; design, build and make the prototypes necessary to help get the product to market

Question 36

How can joint ventures secure reasources

Answer 36

A business in one country may need resources that are only found in another country and so they may enter into a joint venture to secure access to these resources

For example Chinese Railway and electric co went into a joint venture with the Gecamines in the Congo which mine nickel, cobalt and
copper

Question 37

How can a joint venture maintain global competitiveness

Answer 37

A joint venture or merger may
be essential to ensure that the
business remains competitive in a dynamic global market

The local partner may be able to provide critical market data, local knowledge on the domestic market and information on customers, tastes and trends which will help the parent business to maintain competitive advantage

Question 38

Define exchange rates

Answer 38

Exchange rates are defined as the value of one currency in terms of another

Question 39

What does SPICED stand for

Answer 39

Strong
Pound
Imports
Cheaper
Exports
Dearer

Question 40

What is the link between the appreciation of the pound and exports

Answer 40

If the £pound appreciates, gets stronger against other currencies then UK exports to other countries will be more expensive

This may mean that the business that exports, out of the UK, has lower sales or may have to reduce their prices in other countries to keep demand levels up

Question 41

What is the link between the appreciation of the pound and imports

Answer 41

As the pound appreciates – gets stronger – against other currencies then imports to the UK will be cheaper

This will be good news for all those who like a bottle of French wine with their Nandos, or who like a nice French cheese with some biscuits

Businesses that sell imports will have lower costs, and therefore may enjoy higher profits

Question 42

What is the link between depreciation of the pound and exports

Answer 42

If the £pound depreciates - gets weaker against other currencies it will make exports to those countries cheaper

The business can decide to either:
Keep prices to other countries the same and enjoy the higher profit

Lower prices to other countries and gain market share and more revenue from extra sales

Question 43

What is the link between depreciation and imports

Answer 43

If a business imports while there is depreciation it will make those imports dearer

If the imports are raw materials to make other products in the UK then these products will cost more to make and be more expensive for the consumer which may affect demand, sales revenue and profit

Question 44

Define competitive advantage

Answer 44

“A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.” Michael Porter (1985)

Question 45

What are the two ways to achieve competitive advantage

Answer 45

1) Low cost leadership
2) Differentiation

Question 46

What is meant by low cost leadership

Answer 46

With this strategy a business will seek to produce the same quality products as its competitors at a lower price

Question 47

What is meant by differentiation

Answer 47

With this strategy a business will produce a unique product or give a unique service

Question 48

How does skill shortages impact international competitiveness

Answer 48

The lack of ability to find skilled workers can cause a decline in competitive advantage

Those businesses that follow a differentiation strategy will suffer the most from skills shortages

Question 49

How does skill shortages impact competitive advantage

Answer 49

Not enough talent coming through to take UK businesses into the digital era to make them competitive on a global scale

Many careers are developing and very fluid due to the fast changing world of IT, telecoms and the Internet