4.2 - global markets and business expansion

Question 1

push factors

Answer 1

• factors that encourage an organisation to seek international opportunities
• examples = competition, saturated markets, risk spreading, economies of scale

Question 2

pull factors

Answer 2

• entice firms into new markets
• examples = new/bigger markets, lower cost of transportation, organisational skills

Question 3

outsourcing

Answer 3

moving an entire business function or project to a specialist external provider

Question 4

offshoring

Answer 4

relocation of a business’ activities from the home country to an international location

Question 5

re-shoring

Answer 5

production brought back to home country

Question 6

labour productivity

Answer 6

the number of goods and services produced by one hour of labour

Question 7

product life cycle

Answer 7

development
introduction
growth
maturity
decline

Question 8

factors to consider when assessing a country as a market

Answer 8

• disposable income = amount of money people have left over after they’ve paid their taxes, national insurance and deductions
• ease of doing business
• infrastructure
• political stability
• exchange rate

Question 9

factors to consider when locating production abroad

Answer 9

• costs of production
• location in a trade bloc
• infrastructure
• skills and availability of labour
• government incentives
• political stability
• ease of doing business
• natural resources

Question 10

joint venture

Answer 10

a commercial enterprise undertaken jointly by two or more parties that otherwise retain their distinct identities, but remain separate businesses

Question 11

merger

Answer 11

combination of two previously separate firms which is achieved by forming a completely new business into which the two original firms are integrated

Question 12

takeover

Answer 12

• involves one business acquiring control of another business
• most common form of external growth

Question 13

spreading risk with a joint venture

Answer 13

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

Question 14

spreading risk with a merger or takeover

Answer 14

risk reduced by entering into a long-term arrangement with a merger or takeover

Question 15

advantages of joint ventures

Answer 15

• access to knowledge and resources e.g. capital, staff, and technology
• access to new opportunities e.g. new markets, greater distribution
• shared exposure to risks, financial responsibility, and workload

Question 16

disadvantages of joint ventures

Answer 16

• 50% fail because of the risks involved and the complexity of integrating operations and work culture of two different companies
• coping with different cultures, management styles, and working relationships
• shared gains (often 50/50)

Question 17

why might a business form a joint venture to acquire a patent?

Answer 17

because they may want to become a global player in the international market

Question 18

how do joint ventures/mergers help secure access to natural resources and supplies?

Answer 18

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

Question 19

how does merging/creating a joint venture with a foreign business in a foreign market help maintain global competitiveness?

Answer 19

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

Question 20

exchange rates

Answer 20

value of one currency in terms of another country’s currency

Question 21

SPICED

Answer 21

Strong Pound Imports Cheaper Exports Dearer

Question 22

impact on a UK business of an appreciation in sterling against other currencies

Answer 22

• importer = imports become cheaper, lower costs, higher profits
• exporter = exports become more expensive, lower sales, reduced prices

Question 23

impact on a UK business of a depreciation in sterling against other currencies

Answer 23

• importer = imports become more expensive, higher costs, expensive for consumers, affect demand, sales revenue, and profit

Question 24

ways exchange rates impact business activity

Answer 24

• the price of exports in international markets
• cost of goods brought from overseas
• revenues and profits earned overseas
• converting cash receipts from customers overseas

Question 25

factors affecting the significance of exchange rates on businesses

Answer 25

• how much they export
• facing strong competition
• business relies on imported goods
• price elasticity of demand
• fixed contracts

Question 26

cost advantage

Answer 26

where a business can produce its product at a lower cost than the competition

Question 27

differentiation advantage

Answer 27

where a business can differentiate its product from the competition such that customers perceive superior value

Question 28

porter’s generic strategies

Answer 28

• cost leadership
• cost focus
• differentiation leadership
• differentiation focus

Question 29

low-cost leadership

Answer 29

• a business will seek to produce the same quality product as its competitors at a lower price
• typical industry = mass-produced items
• gain cost leadership due to: good resource management, efficient production methods, waste minimisation

Question 30

differentiation

Answer 30

• a business will produce a unique product or give a unique service
• attributes: performance, style, design, consistency, durability, reliability, repairability
• business can charge premium prices

Question 31

skill shortages impact on international competitiveness

Answer 31

• lack of ability to find skilled workers can cause a decline in competitive advantage
• businesses that follow a differentiation strategy will suffer the most from this

Question 32

what can be done to overcome skills shortages?

Answer 32

• by businesses = raise wages, offer better training, collaborate with other firms, offshore activities, outsource
• by governments = invest in vocational education, offer better apprenticeships, encourage inwards migration, provide tax and incentives