4.2 - Global markets and business expansion

Question 1

What are the different ways a firm can trade internationally?

Answer 1

• Selling products in overseas markets
• Obtaining raw materials from overseas
• Setting up an overseas prescence, such as a branch in a foreign country
• Moving production abroad
• Relocating to another country

Question 2

What do push and pull factors mean?

Answer 2

There are several circumstances and enviroments which promote international trade, and these can be split into push and pull factors.

Question 3

What are push factors?

Answer 3

Push factors are negative factors in the domestic market, they motivate a firm to look at business opportunities in other countries.

Push factors are often threats to a firms profitability and survival in their current market.

Question 4

What do push factors include?

Answer 4

Push factors include saturation and competition in the domestic market.

Question 5

What are saturated markets?

Answer 5

A saturated market is one in which all consumer demand has been, or is being met.

Saturated markets are crowded, so they have few opportunities for sales growth.

Question 6

What is competition push factor?

Answer 6

High levels of competition can reduce sales and profitability to a point where firms are forced to go abroad.

Question 7

What are pull factors?

Answer 7

Pull factors are positive factors in overseas markets, it is something which makes it attractive for a business to trade abroad.

Pull factors are likely to be opportunities.

Question 8

What are the common pull factors?

Answer 8

• Spreading of risk
• Economies of scale
• New and untapped markets
• More profitable markets
• Lower production costs
• Lower material costs
• Higher availability of resources

Question 9

What is offshoring?

Answer 9

Offshoring means moving parts of a business to cheaper countries.

Offshoring is often used for customer service and manufacturing departments.

Question 10

What is reshoring?

Answer 10

Reshoring is when a business moves departments back to its country of origin.

Changing consumer attitudes mean that some firms are moving their departments back to the UK.

Question 11

Why do businesses reshore?

Answer 11

Consumers are becoming more aware of firms overseas activities.

Businesses that are seen to treat overseas staff poorly might get a bad reputation and can lose sales.

Therefore, many businesses decide to reshore to help build a better brand image.

Question 12

What has offshoring led to for countries?

Answer 12

As a result of offshoring, some countries have become specialised in providing certain skills or services.

Countries that specialise in areas will attract lots of business from overseas firms, which can create a competitive enviroment in that country, leading to cheaper prices and better services.

Question 13

What is outsourcing?

Answer 13

Outsourcing (subcontracting) is when businesses contract out some activities to other businessses rather than doing them in-house.

Businesses can do this to manage an increase in demand.

Question 14

What is the benefit of outsourcing?

Answer 14

Outsourcing can benefit businesses since they can benefit from the specialised knowledge of the businesses they outsource to.

Question 15

What is the drawback of outsourcing?

Answer 15

The main disadvantage of outsourcing is that the business doesn’t have control over the quality of the outsourced work.

Question 16

What are the factors that businesses take into account when assessing a country as a market?

Answer 16

• How much money people have to spend
• How easy it is to sell in the country
• If the country has goods infrastructure
• If the country has political instability
• Exchange rates

Question 17

Why do businesses look at how much money people have to spend when assessing a country as a market?

Answer 17

The wealth of the population will affect the size of a business’s potenital market.
Businesses might want to move to a country with high levels of disposable income so that they have more customers.

Question 18

Why do businesses look how easy it is to sell when assessing a country as a market?

Answer 18

A firm will look at the ease of doing business in different countries that it’s considering expanding into.
Businesses will find it easier to trade with countries with similar cultures and languages to the one that they already operate in.

Question 19

Why do businesses look at how goods the infrastructure is when assessing a country as a market?

Answer 19

Infrastructure is the physical systems and services a country has that allow soicety and businesses to work effectively.
A country with poor infrastructure would be a difficult market for a business to operate in.

Question 20

Why do businesses look at the political state when assessing a country as a market?

Answer 20

Political instability can mean that a business in that country is at risk from unpredictable changes in policies.
These changes could affect people’s employment, which would affect how much disposable income people have.

Question 21

Why do businesses look at exchange rates when assessing a country as a market?

Answer 21

Businesses have to consider exchange rates when making decisions about which countries to sell to or buy from.

Question 22

What are the main factors for businesses when assessing where to locate production?

Answer 22

• Costs of production
• Skills and availability of labour force
• Infrastructure
• Trading blocs
• Ease of doing business
• Government incentives
• Political stability
• Natural resources
• Likely ROI

Question 23

What are the most common methods of investing in a foreign business?

Answer 23

It can be easier for a firm to enter a country by investing in a foreign business rather than edevloping an overseas business from scratch, since they may lack knowledge.

The most popular methods of this are joint ventures or mergers with foreign businesses.

Question 24

What is a joint venture?

Answer 24

A joint venture is a legal agreement between two or more firms to work together on a joint project.

Question 25

What is a global merger?

Answer 25

A global merger is when two or more firms in different countries agree to become a single business, which usaully create MNCs.

Question 26

What are the main reasons why global joint ventures and mergers are done?

Answer 26

• Spreading risk - a business might enter into a joint venture merger to spread risk across different countries or regions
• Access to different markets - The firms involved in an international merger or joint venture will have access to different markets
• Securing resources and supplies - Global joint ventures and mergers can give a firm access to supplies of raw materials and other resources
• Firms can obtain intellectual property
• Can help a firm beat the competition

Question 27

How can mergers and joint ventures help a firm to beat competiton?

Answer 27

• If a merger increases the size of a firms global market, it can take advantage of economies of scale which will reduce unit costs, allowing the firm to reduce prices, making it more competitive.
• Firms may enter a merger with a competitor to remove that competitor from the market

Question 28

How can global businesses try to maintain or improve their competitive advantage?

Answer 28

Global businesses often try to maintain or improve their compeitive advantage through:

• Cost competitveness - when a business has relatively low costs compared to its competitors, which allows it to charge lower prices
• Differentiation - when a product is seen to have unique features that are not possessed by its competitors

Question 29

How do movements in exchange rates affect a business’s competitveness?

Answer 29

The exchange rate between two countries’ currencies affects the price of imports and exports between those two countries.

This can affect the competitveness of businesses that import or export products.

Question 30

What is appreciation in exchange rates?

Answer 30

Appreciation is when one currency rises in value relative to another

Question 31

What is depreciation in exchange rates?

Answer 31

Depreciation is when a currency falls in value relative to another.