4.2 Global Markets and Business Expansion Flashcards

1
Q

How is Economies of Scale defined?

A

Increasing the scale of production leads to a lower cost per unit of output. Increasing size or speed increases efficiency and lowers costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How is Labour Productivity defined?

A

The amount of goods and services produced by one hour of labour.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How is Off-shoring defined?

A

Shifting jobs to other countries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How is Outsourcing defined?

A

Shifting jobs to other organisations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How is Product Life Cycle defined?

A

the stages that many products go through:development; introduction; growth; maturity; decline.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How is Pull Factors defined?

A

Factors that entice firms into new markets and are the opportunities that businesses can take advantage of when selling into overseas markets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How is Push Factors defined?

A

Factors in the existing market that encourage an organisation to seek international opportunities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How is Risk defined?

A

The probability of an event happening multiplied by its (negative) impact.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How is Saturation defined?

A

The point when most of the customers who want to buy a product have done so already, or there is limited remaining opportunity for growth in sales.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How has trade grow over the years for the UK?

A
  • International trade has been going on for a long time, bronze from the Great Orme has been found across the Mediterranean, but since the industrial revolution trade has exploded.
  • Innovation and the entrepreneurial spirit led UK dominating the world economy in 19th century, exporting pumps, steamships, railway locomotives, this helped develop its banking sector.
  • In recent years – UK has been 4th largest exporter, fifth largest importer, largest financial sector and pharmaceuticals also a big exporter.
  • Conditions for this include economic (eg being part of EU), entrepreneurial drives to seek new markets (graphene). Trade has continued to expand and we have a global consumer culture. Opportunities for new customers, new resources, cheaper production costs.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are Push Factors?

A
  • Adverse factors in existing market that encourage the organisation to seek international opportunities. Perhaps overcoming weaknesses in current market or looking to lower costs.
  • Saturated Markets
  • Competition
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How is Saturated Markets a Push Factor for Businesses?

A
  • a saturated market is where most people who would buy the product already have it, or limited opportunity for growth in sales.
  • e.g. a cycle manufacturer may look to another country where cycling is taking off.
  • most people in UK own a phone so a phone manufacturer either needs to differentiated its product in the home market or look somewhere else
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How is Competition a Push Factor for Businesses?

A
  • If more competition in the domestic market it may force a business to sell abroad
  • Competitors in the domestic market may sell similar products at a lower price or higher quality. which makes selling the original product difficult or unprofitable.
  • When selling products abroad the products may needed to be adapted to meet the tastes of those consumers.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are Pull Factors?

A

Opportunities to entice firms into new markets:

  • New or bigger markets
  • Lower cost or secure resources, such as minerals, land or labour
  • Lower cost of transportation
  • Technological expertise, including research facilities
  • Managerial or financial expertise
  • Organisational skills
  • Assets, such as brands, patents or other intellectual property.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How is Economies of Scale a Pull Factor for Businesses?

A
  • The increase in production leads to lower costs per unit of output. You can use labour better (division of labour to increase efficiency) , buy in bulk, invest in more efficient machinery, many fixed costs would decline, but if the business gets too big, sometimes resources are spread too thinly (law of diminishing returns)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How is Risk Spreading a Pull Factor for Businesses?

A
  • The probability of a bad event happening multiplied by its negative impact. Can be financial, strategic, operational risks. Some can be insured against, others pose a threat to the business. Selling abroad reduces the risk on the domestic market losing sales, maybe due to recession or change in demographic.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is Off-shoring?

A
  • shifting jobs to another country
  • the main aim is to lower costs or to hire workers with particular skills, but there is a danger to your reputation if you are cutting lots of jobs in the home nation. Other risks include language, cultural differences and PESTLE, loss of IP.
    It can fail, the project can increase management costs, reduce efficiency or quality damage reputation and could expose firms to corruption
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is Outsourcing?

A
  • shifting jobs to other organisations
  • Shifting functions like HR, operations, finance to another company to reduce costs, specialise areas (focus on what the business is good at, improve quality and flexibility) and to comply with rules or regulations.
  • risk can include –> loss of experience/expertise, poor communication and differing interests (can be indirectly expensive to the business)
  • but is often less controversial to off-shoring
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is Labour Productivity?

A
  • Firms often cite ‘cheaper’ labour as a pull factor, but this is not a good way to describe the quest for lower labour costs
  • it is not simply workers can be paid a lower wage, its that each worker costs less per unit of output that they produce.
  • many factors may affect the productivity of workers e.g. skills, working conditions, technological support
  • Moving abroad for cheaper labour is not good from a moral point of view, but if its for higher productivity then it’s more accepted, which could be because of better skills, qualifications, working conditions and technologies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How can you extend the a product’s life cycle by selling in multiple markets?

A
  • When in the Decline stage, falling sales and profits as well as market saturation occurs
  • could choose to move product to new markets in order to cut costs allowing the firm to increase margins
  • or they could choose to sell there product in new markets, where the product could be in the Maturity stage in Europe but in the introduction stage in Asia.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How is Disposable Income defined?

A

The amount of money that a person has left over after they have paid their taxes, national insurance and other deductions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How is Exchange Rate defined?

A

The price of one currency against another.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How is Infrastructure defined?

A

The basic systems, facilities, services and capital equipment required for a country’s economy to function, which might include its roads, communication systems and power services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are some factors to consider in the Assessment of a Country as a Market?

A

to decide whether or not a country is a good place for investment takes a huge amount or research here are some key factors:

  • Levels and growth of disposable income
  • Ease of doing business
  • Infrastructure
  • Political Stability
  • Exchange rates
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How is Levels and Growth of Disposable Income a Factor to consider in the Assessment of a Country as a Market?

A
  • Many businesses will look to sell their products abroad, but they must evaluate whether customers have sufficient disposable income to actually but their good/service
  • Disposable income is the amount of money a person has left over after they have paid their taxes, national insurance and other deductions, which can be used for consumption or savings.
  • It is important to understand the average level of household disposable income in comparison to other countries –> a falling level of disposable income may mean that a person with low income are struggling to pay for a minimum standard of living whereas those with high income may be reducing expenditure on luxuries and unnecessary items. –> therefore people are consuming less and are saving more.
  • a business may want to consider a country where disposable income is stable or have been growing in the past few years so consumers will be able to buy its product in the future
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How is Ease of Doing Business a Factor to consider in the Assessment of a Country as a Market?

A
This is an important factor to consider when evaluating a country as a potential market. Any potential issues may put off a business as it could delay sales, increase costs and potentially affect other parts of the distribution chain
The World Bank uses 10 indicators:
1 - Starting a Business
2 - Dealing with Construction Permits 
3 - Getting Electricity 
4 - Registering Property 
5 - Getting Credit 
6 - Protecting Minority Investors 
7 - Paying Taxes 
8 - Trading across Borders 
9 - Enforcing Contracts 
10 - Resolving Insolvency
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

How is Infrastructure a Factor to consider in the Assessment of a Country as a Market?

A

-Communication and transport links is important.
Many developing countries may have disposable income but have underdeveloped and unreliable transportation infrastructure
-This can add significantly to a company’s production and operating costs. Eg awkward or inefficient entry points (ports and airports), few or unreliable train lines or shipping lanes, poor warehousing facilities, road networks.
Electric shortages and poor internet connections may lead to inefficiencies for businesses who want to co-ordinate product, sales and distribution electronically
- A deal or failure to deliver due to poor infrastructure can lead to lost sales and increased costs.
- Dubai has used it proceeds from its oil to develop infrastructure by creating an artificial harbour for ships and the Jebel Ali Free Trade Zone

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

How is Political Stability a Factor to consider in the Assessment of a Country as a Market?

A

A country with a calm political climate can minimise uncertainty, which makes the country more attractive as a potential market to businesses. Some issues to consider:
- The nature of the government and its relationships with business.
- The nature of the government and its relationship with major international institutions, such as UN, WTO, IMF and World Bank.
- Governments approach to regulation and taxation.
Possible political risks in near future, eg elections, increasing authoritarianism, factions in government, levels of corruption coups, terrorism, invasions, protests or human rights issues.
- Hard to measure corruption of a country –> Transparency International is a non-gov organisation which measures perceived levels of public sector corruption

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

How is Exchange Rate a Factor to consider in the Assessment of a Country as a Market?

A
  • Currencies appreciate and depreciate against others. Businesses will look at fluctuations, but consider the longer term trend.
  • If the Pound is strong against other currencies it make it cheaper to buy products and pay dividend to foreign shareholders but exporters products are more expensive so they may lose out of sales and profits.

Exchange Rate trends over long periods are uncertain. A business might want to protect itself from adverse movements:

  • Taking out insurance to protect it from financial loss
  • Using financial instruments, such as hedging, to try and hedge against financial risks.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

How is Re-shoring defined?

A

Bringing production back home after using foreign production facilities for a period of time.

31
Q

How is Trade Bloc defined?

A

A group of countries situated in the same region that join together and enjoy trade free of tariffs, quotas and other forms of trade barrier.

32
Q

What are the 9 Factors to consider as Assessment of a Country as a Production Location?

A
1 - Costs of production
2 - Skills and availability of labour 
3 - Infrastructure
4 - Location in a trade bloc
5 - Government incentives
6 - Ease of doing business
7 - Political stability
8 - Natural resources
9 - Likely return on investment
33
Q

How is Costs of Production a Factor to consider as Assessment of a Country as a Production Location?

A
  • Having low production costs can give you a competitive advantage, Asia tends to have low labour, energy, raw materials and land costs. Low wages particularly important in those industries with high staff levels.
  • Wages in China are starting to go up, Europe has seen an increase in energy bills in recent year –> this could effect businesses’ plans for the location of the production of their goods.
34
Q

How is Skills and availability of labour a Factor to consider as Assessment of a Country as a Production Location?

A
  • A business is not likely to locate a factory in another country only for cheaper labour
  • Businesses don’t want to invest in training, so will avoid low wage countries if they also don’t have the skills. As they cannot afford the consequences of poor-quality work.
  • Between 2012 and 2015 – a number of businesses went through a process of re-shoring to improve the quality of the work due to Poor Quality control in the Far Eastern Factories.
  • A business would also need to consider if there are enough workers near the chosen site –> whether there would be enough workers in the future if the facilities needed to expand
35
Q

How is Infrastructure a Factor to consider as Assessment of a Country as a Production Location?

A
  • Are Roads poorly constructed and inadequately
    maintained –> slows downs transportation of goods
  • Some areas are prone to natural disasters –> could
    cause a break in vital components supply chains.
  • access to good broadband networks is now
    increasingly more vital for the operations of most
    businesses.
  • Some countries may not have modern airports and
    ports –> this might make it difficult for business
    personnel to travel to and from production facilities,
    and to ship goods out of the country
  • Railway networks may be undeveloped or not exist –>
    might not be able to transport bulky or heavy foods if
    they need to be transported in large quantities.
  • lack of investment in education –> affects the quality of
    human capital - discourage managers and other senior
    staff from locating near to the site
  • There may be a difference in the quality of hospitals –>
    the quality of health care generally might also impact on
    the quality of human capital
  • A lack of commercial services and suppliers may
    discourage a business –> businesses may need access
    to printers, IT support, bankers, manufacturers of
    components etc.
36
Q

How is the Location in a Trade Bloc a Factor to consider as Assessment of a Country as a Production Location?

A

Being located inside a trade bloc can help avoid trade barriers such as tariffs and quotas. Japanese company Nissan, Honda, Toyota have factories in EU to avoid EU trade barriers

37
Q

How is Government Incentives a Factor to consider as Assessment of a Country as a Production Location?

A
  • Governments want FDI as it brings benefits such as
    income and employment
  • So they may provide incentives to locate there, mostly
    financial incentives, eg tax breaks, lower rates of
    company tax, interest-free loans, cheap land and
    preferential rates on business premises.
  • UKTI ( UK Trade and Investment) – helps UK businesses trade abroad. In April
    2015 UK reduced corporation tax to 20% the lowest in
    the G20.
38
Q

How is Ease of doing Business a Factor to consider as Assessment of a Country as a Production Location?

A

A business would need to consider:

  • The ease with which business can be started and closed down
  • The efficiency with which contracts are enforced
  • The amount of bureaucracy e.g. the ease with which permits can be obtained for construction projects
  • The availability of trade credit
  • the efficiency of tax collection
  • the ease of resolving insolvency
39
Q

How is Political Stability a Factor to consider as Assessment of a Country as a Production Location?

A
  • Some countries are politically unstable –> this might mean that it is too dangerous to do business in such countries.
  • Alternatively, the exposure to possible financial loss might be far too high due to political tensions
  • in some countries their is risk of kidnapping –> it is widely reported that Western business people are common targets for kidnappers who want to extract ransoms
  • there also might be corruption and bribery occurring in some political systems which may be accepted in that country as “doing business”
40
Q

How is Natural Resources a Factor to consider as Assessment of a Country as a Production Location?

A
  • Some business activity requires large quantities of natural resources e.g. mining is specific to certain locations where there are proven mineral deposits.
  • Manufacturers may want to be near the resources e.g. steel factories near iron ore and coke mines
41
Q

How is Likely Return on Investment a Factor to consider as Assessment of a Country as a Production Location?

A
  • SWOT and PESTLE analysis can help to assess the suitability of different locations
  • Also quantitative techniques might be used to help make the final location decisions
  • Quantitative techniques can aid evaluation of the financial costs and benefits of investing particular location
42
Q

What are three Quantitative Methods which can be used for Investment Appraisal?

A
  • Payback method
  • Average Rate of Return
  • Discounted Cashflow
43
Q

What is the Payback method?

A
  • calculates how long it will take to recoup the initial investment
  • e.g. if the initial cost if £200m and each year they have a positive cash flow of £50m it will take 4 years to recoup the initial investment
44
Q

What is Average Rate of Return (ARR)?

A
  • the net return ( overall income over the time period minus the initial investment) divided by the initial investment, divided by the time period expressed as a percentage
  • the formula therefore is:

[(overall income-initial investment)/(initial investment x time period)] x 100

45
Q

What is Discounted Cashflow?

A

The value of future cash flows must be discounted to the present.
- the important point about discounted cash flow is that, the value of cash available today is worth less in the future due to inflation

  • to calculate this, for each year you take the original discount value (1) and divide by the discount rate e.g. if discount rate is 15% you divide by 1.15 each year. –>
  • then multiple the annual return for each year by its respective discount number. this gives you thePresent Value (NPV)
  • add all PV’s together to get the Net Present Value (NPV) take away the initial investment to give you the Net Cashflow
46
Q

How is Franchising defined?

A

Establishing a long-term co-operative relationship whereby one party, the franchisor, contracts with another, the franchisee, to run its business. McDonald’s is a well-known example of a franchise.

47
Q

How is Intellectual Property defined?

A

A product that is a creation of the mind, such as an invention, literary work or artwork, that the law protects from unauthorised use by others. Types include patents, copyright and trademarks.

48
Q

How is Licensing defined?

A

A contract with another firm to use its intellectual property or to produce its product or service in return for a fee.

49
Q

Why do businesses join together?

A

there are many reason why a firm might wish to make a direct equity into another country, exporting may not make sense if, the other countries can product the product or service more cheaply. Arrangement such as licensing or franchising may not make commercial sense either
- Licensing –> a contract with another firm to use its
intellectual property or to produce its product or
service in return for a fee.
- Franchising –> establishing a long term cooperative
relationship whereby one party, the franchisor,
contracts with another, the franchisee, to run its
business
Other than licensing or franchising, firms may opt for join venture or cross-border mergers and acquisition (can also include takeovers) –> most common form of FDI

50
Q

What are the reasons businesses might undertake a global merger or join venture?

A

1 - Spreading risk over different countries or regions
2 - Entering new markets and trade blocs
3 - Acquiring national and international brand names or patents
4 - Gaining access to intellectual property
5 - Securing resources or supplies
6 - Maintaining or increasing global competitiveness

51
Q

Why may a business undertake a global merger to spread risk over different countries or regions?

A
  • During economic downturns, even companies with strong balance sheet can face serious difficulties
  • Spreading these risk across multiple countries/regions means that it is less likely that economic downturns will occur at the same time as they occur in the home market
  • this means that a business wont face too much difficulties if one market is facing economic issues
52
Q

Why may a business undertake a global merger to entering new markets and trade blocs?

A
  • Instead of organic growth, a shorter route to international growth is through mergers and acquisitions. Sometimes it’s the only route, as the maturing industry they are in is too competitive for organic growth.
  • An example of this is when 4 big brewers- (AB-InBev, SABMiller, Heineken and Carlsberg) have undertaken various global mergers to gain EoS and new growth that they now own 50% of the global market volume
53
Q

Why may a business undertake a global merger to acquire national and international brand names or patents?

A
  • A business may want to become a global player in the international market. however , it may lack brand recognition or a patent that prevents other business form copying its product or producing a similar product
  • by purchasing a business or a product with a strong brand name and strong brand loyalty, it could obtain both quickly
  • This can limit competition for the product, a business will not face the high risk, cost and uncertainty of launching a new product
  • However, brands can easily be damaged if mergers are not done correctly, they can impact staff morale leading to poor customer satisfaction.
54
Q

Why may a business undertake global merger to gain access to intellectual property?

A
  • developing IP internally, through in-house research and development can take a very long time and involve a lot of financial risk.
  • IP is protected through:
    • patents - inventors
    • Copyright - literary works and computer program
    • trademarks - brand names and designs
  • Since establishing intellectual property can be expensive it is often easier to gain access to intellectual property by buying it in an acquisition or through a joint-venture agreement
55
Q

Why may a business undertake a global merger to Secure resources or supplies?

A
  • Buying businesses to cover each step of sector of industry – Primary/Secondary/Tertiary – also known as backward vertical integration. A business might want or even need to merge with another firm because:
    • The resources maybe scarce or hard to require, so
      you want to ensure reliable sourcing.
    • You need to ensure the supplies are of a suitable
      quality/price.
  • Eg Starbucks has bought its on coffee farms after multiple disease threats to coffee plants.
56
Q

Why may a business undertake a global merger to maintain or increase global competitiveness?

A
  • Merging can provide bigger markets, scale and scope economies and cost savings. This can make the firm more competitive with pricing power over customers AND suppliers.
  • when there is lots of competition in a market, or where the firm is hoping to become a dominant player on a global scale, merging or acquiring another firm can be part of a successful strategy
  • Alternatively, two firms can cross-sell product ranges or services, thereby increasing overall l sales and perhaps lowering internal costs e.g. banks and financial services firms have merged in order to provide one contact point for customers to a range of financial services products
  • Merging to other countries can lead to tax benefits as you base your head quarter in the country with the lower tax, but can be consider unethical
  • Some take overs are also defensive - to stop them growing into a formidable competitor or to stop other competitors taking it over e.g. Facebook bought WhatsApp - which was making a loss but was a superior form of messenger
57
Q

How is Barriers to Entry defined?

A

Factors that make it difficult for a company to enter an industry or type of business and compete efficiently. These can include incumbent’s high capital investment and strong economies of scale, restrictive government policies and labour unions.

58
Q

How is Competitive Advantage defined?

A

The advantage one company has over another, or several others, in the provision of a particular product or service. For instance, a car maker may have a competitive advantage because its car break down less often - in other words are of a higher quality - even thought it may be more expensive

59
Q

How is Cost Competitiveness defined?

A

Through acquiring ever-increasing economies of scale, a company create the cheapest product on the market.

60
Q

How is Cost leadership defined?

A

A concept developed by Michael Porter, it describes a way to establish the competitive advantage and essentially means the lowest cost of operation in the industry.

61
Q

How is differentiation defined?

A

Rather than focusing on costs, differentiation is when a firm selects certain attributes of its products and tries to match these with specific customers. The business may then try to command a higher price.

62
Q

How is Economic risk defined?

A

Risk that future cash flows will change due to unexpected exchange rate changes.

63
Q

How is Global competitiveness defined?

A

The extent to which a business or geographical area such as a country can compete against rivals.

64
Q

How is Skill Shortages defined?

A

Where potential employees do not have the skills demanded by employers.

65
Q

What benefits do Multi-National Companies have over Single-Nation Companies?

A
  • Global operations can bring much bigger economies of scale.
  • Global sourcing can give you the scope for the best quality and prices.
  • Global operations allows you to get closer to international customers, both before and after sales.
  • MNC’s can tap into much more knowledge and scope for innovations.
  • MNC’s can diversify risk.
    However the competitiveness of an MNC is also affect through the global market in which it operates
66
Q

What effect can exchange rate fluctuations have on a business in the global market?

A
  • A depreciation in the exchange rate means exports are cheaper so an exporter can benefit from more sales
  • However If the pound appreciates, their exports will be more expensive and will have an impact on the competitiveness of exporting firms
  • a firm may have to consider lowering their profit margin and reducing their price to stay competitive
  • A appreciation in the pound would benefit manufacturer as the rising buying power of the pound might allow it to pay a lower for the raw materials to make its product
  • And when the pound depreciates demand, demand for the manufacture’s products may increase, but so might the cost of making them/
67
Q

What is the significance of change in the exchange rate on a business?

A
  • Elasticity of demand –> if the pound depreciates the
    effect it will have on a business and its products
    depends on its PED
    • if they a price inelastic, then the fall in price would
      have only a relatively small increase in demand (UK
      tend to be price inelastic)
    • if exports are price elastic the there will be a bigger
      percentage increase in demand
      -Economic growth in other countries –> if it is slowing, demand will drop regardless of exchange rates
  • If there is an appreciation in the pound because there have been improvement in efficient and productivity then businesses will be able to absorb the stronger pound more easily
  • However if the pound rises due to speculation or due to weaknesses in other countries, then businesses could be uncompetitive because the rise in the [pound is not related to either improved competitiveness or productivity.
68
Q

Why may Businesses take out Fixed Contracts?

A

Many businesses use fixed contracts to counter fluctuations in the exchange rate. This means that temporary changes in the exchange rate will have a smaller impact.
- these contracts are usually agreed a 12-18 months in advance

69
Q

What economic risks can occur when businesses trade internationally?

A
  • This is defined as risk that future cash flows will change due to unexpected exchange rate changes
  • This is one of the gravest financial risk facing an international firm because future cash flows form the basis of a business’s overall value.
  • Consequently, managing this risk requires careful analysis of the political, regulatory and cultural environments affecting currency over time.
  • The most serious is the long-term risk that a strategy of locating in a low–cost production area is undermined by the appreciation of the target country’s currency
  • E.g. lots of companies moved production to China in the 90’s Over time the yuan has steadily appreciated which has eroded these low-cost advantages of production
70
Q

What is Competitive advantage?

A
  • This is where a business has some sort of distinctive strength that its competitors do not, such as cost advantages, size, technical or managerial expertise.
  • Having a competitive advantage is key to entering and succeeding in an overseas market.

There are two types of competitive advantage that play a role in many in international firms’ success are cost competitiveness and differentiation.

71
Q

How is Cost Competitiveness a competitive advantage for international firms?

A

By having low costs e.g. through economies of scale, you can make more profit, or charge low prices.
- You could even attempt to create the cheapest product on the market however this cost leadership strategy only works if your product meets minimum standards of the industry., eg Aldi and EasyJet ( with their bare bones flights that eliminates tickets, check-ins, in-flight meals and cutting turn-around times at airports).

72
Q

How is Differentiation a competitive advantage for international firms?

A

Making your product stand out rather than going for low prices.

  • They must work hard to stay ahead of the competition. By fully understanding its own strategy and its customers while being one step ahead of the competition who may be using a similar strategy
  • Barriers to entry make it difficult to new entrants. large firms have and advantage here as they have brand recognition, intellectual property or protected supply and distribution chains if it is to use differentiation to remain competitive
73
Q

How can Skill Shortages impact international competitiveness?

A
  • Many industries require highly trained engineers, scientists, technicians or professionals, to compete
  • Companies who have long term access to skilled and low cost labour have an advantage of companies that don’t . e.g. if the labour market in there home market is good they may be and to produce and export more effectively than its comeptitors
  • When a company wishes to expand production and chooses to locate abroad, it will hope to enhance these competitive advantages or at least ensure that they are not eroded
  • Governments and businesses define skill shortages slightly differently, the government is concerned that the relative education and skills of other countries make them more competitive. Businesses are more concerned if they can’t get vacancies filled or people who can not do it to the right level.