4.2 - Global markets and Business expansion Flashcards
Push factors
Factors that push a business to expand outside of their domestic country
Two main push factors for a business
Saturated markets and Intense competition
Saturated markets (push)
Occur when the demand for goods and services has reached a peak and it becomes challenging for business to grow and expand within the local market.
Intense Competition (push)
In a competitive market, businesses need to find ways to differentiate themselves, one way is by exploring new markets and expanding customer base.
Able to diversify revenue streams and reduce exposure to competition.
Pull factors
Encourage businesses to operate within markets abroad which present significant growth opportunities.
Two main pull factors for a business
Economies of scale and Risk spreading.
Economies of scale (pull)
Able to purchase raw materials and labour at lower prices than within their domestic markets.
Spreading risk (pull)
By accessing multiple markets, businesses can diversify their customer base and reduce their exposure to risks associated with operating in a single market.
Offshoring and outsourcing
Used to develop a businesses international trade.
Offshoring
When a company moves part of the production process to another country.
Outsourcing
Occurs when a business hires an external organisation to complete certain tasks or business functions.
Outsourcing benefits
Reduced costs
Offshoring benefits
Lower labour costs
Access raw materials
Access skilled labour
Factors to consider before entering new markets abroad
Levels of growth and disposable income.
Exchange rates.
Political instability.
Infrastructure.
Ease of doing business.
Factors to consider before setting up production locations in other countries.
Government incentive
Ease of doing business
Political stability
Natural resources
Return on investment
Location in trade blocs
Infrastructure
Skills and availability of labour force.
Cost of production.
Cost leadership
When a business becomes the lowest cost provider in the market.
Differentiation
When a business makes the characteristics of their products different to those of their competitors.
Joint venture
when two businesses join together to form a separate business entity for a limited period of time.
5 reasons for mergers or joint ventures
Spreading risk.
Entering new markets/trading blocs.
Acquiring national/international brand names and customers.
Securing resources/supplies.
Maintaining/increasing global competitiveness.
