4.2 - Global markets and business expansion Flashcards
What are the different ways a firm can trade internationally?
- 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
What do push and pull factors mean?
There are several circumstances and enviroments which promote international trade, and these can be split into push and pull factors.
What are push factors?
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.
What do push factors include?
Push factors include saturation and competition in the domestic market.
What are saturated markets?
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.
What is competition push factor?
High levels of competition can reduce sales and profitability to a point where firms are forced to go abroad.
What are pull factors?
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.
What are the common pull factors?
- Spreading of risk
- Economies of scale
- New and untapped markets
- More profitable markets
- Lower production costs
- Lower material costs
- Higher availability of resources
What is offshoring?
Offshoring means moving parts of a business to cheaper countries.
Offshoring is often used for customer service and manufacturing departments.
What is reshoring?
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.
Why do businesses reshore?
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.
What has offshoring led to for countries?
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.
What is outsourcing?
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.
What is the benefit of outsourcing?
Outsourcing can benefit businesses since they can benefit from the specialised knowledge of the businesses they outsource to.
What is the drawback of outsourcing?
The main disadvantage of outsourcing is that the business doesn’t have control over the quality of the outsourced work.
What are the factors that businesses take into account when assessing a country as a market?
- 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
Why do businesses look at how much money people have to spend when assessing a country as a market?
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.
Why do businesses look how easy it is to sell when assessing a country as a market?
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.
Why do businesses look at how goods the infrastructure is when assessing a country as a market?
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.
Why do businesses look at the political state when assessing a country as a market?
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.
Why do businesses look at exchange rates when assessing a country as a market?
Businesses have to consider exchange rates when making decisions about which countries to sell to or buy from.
What are the main factors for businesses when assessing where to locate production?
- Costs of production
- Skills and availability of labour force
- Infrastructure
- Trading blocs
- Ease of doing business
- Government incentives
- Political stability
- Natural resources
- Likely ROI
What are the most common methods of investing in a foreign business?
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.
What is a joint venture?
A joint venture is a legal agreement between two or more firms to work together on a joint project.