4.2- Global Markets And Business Expansion Flashcards
Define push factors
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
What is meant by a saturated market
A saturated domestic market means that a business or group of businesses has sold a product to just about everyone who will buy one
How can a saturated market have push factors
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
How is high competition in home market a push factor
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
Define pull factors
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
How is opportunities in overseas markets a push factor
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
How is the ability to spread risk a pull factor
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
How is the ability to gain economies of scale a pull factor
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
What is offshoring
Offshoring is when a business relocates some of its production process to another country
What is outsourcing
This is where a business function, such as payroll, is contracted out to a third party business
What are the four types of outsourcing
Production, payroll, purchasing, delivery
What is meant by outsourcing production
This means sending some of the production to other companies to complete
What is meant by outsourcing payroll
Payroll is the most common task that companies outsource to other businesses who specialise in this task
What is meant by outsourcing purchasing
Purchasing and maintaining information systems
Hiring and evaluating IT staff and training users can be very costly and time consuming for SMEs
What is meant by outsourcing delivery
Larger businesses might prefer to contract a major delivery firm rather than maintain their own fleet
What are some advantages of moving to a call centre in India
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
What are the disadvantages of moving a call centre to India
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
What are the 5 stages of a product lifecycle
1) Development
2) Introduction
3) Growth
4) Maturity
5) Decline/Extension
What is meant by extension in a product lifecycle
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
How do you assess a country as a market
1) levels and growth of disposable income
2) ease of doing business
3) infrastructure
4) political stability
5) exchange rate
What is meant by disposable income
Disposable income is the amount that a customer has to spend after all their bills have been paid
What is the ease of doing business index
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
What is meant by infrastructure
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
Why is infrastructure important to sales
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
What is meant by political stability
The world bank has a series of worldwide governance indicators, one of which is the political stability and absence of violence and terrorism
What is the risk factor of political stability
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
Why is political stability important
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
Why would natural resources be a reason to operate in a certain country
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
Define joint venture
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
Define a merger
A merger is where two businesses come together to become one, on a permanent basis e.g. Orange and T mobile became EE
How is spreading risk and joint ventures linked to
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
What are the advantages of joint ventures
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
Disadvantages (risks) of joint ventures
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
How is brand name acquisition and mergers linked
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
How is patent acquisition and joint ventures linked
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
How can joint ventures secure reasources
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
How can a joint venture maintain global competitiveness
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
Define exchange rates
Exchange rates are defined as the value of one currency in terms of another
What does SPICED stand for
Strong
Pound
Imports
Cheaper
Exports
Dearer
What is the link between the appreciation of the pound and exports
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
What is the link between the appreciation of the pound and imports
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
What is the link between depreciation of the pound and exports
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
What is the link between depreciation and imports
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
Define competitive advantage
“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)
What are the two ways to achieve competitive advantage
1) Low cost leadership
2) Differentiation
What is meant by low cost leadership
With this strategy a business will seek to produce the same quality products as its competitors at a lower price
What is meant by differentiation
With this strategy a business will produce a unique product or give a unique service
How does skill shortages impact international competitiveness
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
How does skill shortages impact competitive advantage
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
