4.2- Global markets and business expansion

Question 1

Explain push factors as a condition that prompts trade

Answer 1

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

Question 2

Explain the two push factors which prompt trade

Give examples

Answer 2

Saturated markets- markets where most of the customers who would buy a product already have it or there is limited opportunities to grow. E.g. UK cycle manufacturer would have to find a foreign market where there is opportunity to grow.

High levels of competition- may force a business to sell abroad or to differentiate their product to give it a usp

Question 3

Explain pull factors as a condition that prompts trade

Answer 3

Are factors that entice firms into new markets and are opportunities that businesses can take advantage of when selling in overseas markets.

Question 4

Explain the pull factors that prompt trade (5)

Answer 4

Economies of scale- occur when increasing scale of production leads to a lower average cost.

Risk spreading- expanding into other countries and markets limits the impact of risk upon the firms profitability

New or bigger markets
Lower transportation costs
Organisation skills

Question 5

Explain Offshoring as a factor that prompts trade

Benefits and drawbacks

Answer 5

Involves moving manufacturing or service industries overseas where there are lower costs.

A
Reduced costs
Hire workers with particular skills
D
Can damage a firms reputation 
Jobs are lost in home country
Complications over language and cultural differences
Risk of failure

Question 6

Explain Outsourcing as a factor that prompts trade

Benefits and drawbacks

Answer 6

Involves contracting out a business function or project to a specialist external provider .

A
Reduced fixed costs
Specialise areas of the business to improve speed and flexibility
D
Reliance on other firms can lead to a loss of enterprise
Increased risk
Objectives may not be aligned
Poor communication can lead to increased costs

Question 7

Explain extending the product life cycle of a product as a factor that prompts trade

Answer 7

Can be achieved by changing the function of the product or by selling into new markets. The product life cycle can be extended into international markets

Question 8

State the factors that prompt trade

Answer 8

Push factors 
Pull factors 
Offshoring 
Outsourcing
Extending the product life cycle

Question 9

List the factors a business takes into account when choosing a production location as a percentage

Answer 9

Costs (40%)- labour, land and energy
Risks (20%) - natural disasters, energy and economic
Conditions(40%) - Labour quality, sustainability, access to markets

Question 10

State the factors a business takes into account when choosing a production location (9)

Answer 10

Cost of production
Skills and availability of labour force 
Infrastructure 
Location in a trade bloc 
Government incentives 
Ease of doing business 
Political stability 
Natural resources 
Likely return on investment

Question 11

Explain the costs of production as a factor a business takes into account when choosing a production location

Answer 11

Many firms locate in countries with low production costs, to allow them to gain a competitive advantage. Low labour, energy, raw material and land costs can attract a business.

Question 12

Explain the skills and availability of the labour force as a factor a business takes into account when choosing a production location

Answer 12

The quality of a labour force is important, whether they have the skills required to maintain quality standards. A firm cannot afford the consequences of poor quality work where workers are unskilled and poorly educated

Question 13

Explain infrastructure as a factor a business takes into account when choosing a production location

Answer 13

In some countries the quality of infrastructure might be inadequate to support a large production facility. Poor quality airports and ports, a lack of investment in education and slow broadband networks may discourage a firm from entering a country

Question 14

Explain location in a trading bloc as a factor a business takes into account when choosing a production location

Answer 14

Some firms locate production in certain countries that are part of a trade bloc in order to avoid trade barriers, such as tariffs and quotas. Leads to lower import and export costs

Question 15

Explain government incentives as a factor a business takes into account when choosing a production location

Answer 15

Governments who are keen to attract foreign investment can provide incentives to businesses to locate production in their country. Usually includes financial incentives such as tax breaks, lower rates of corporation tax, interest free loans and cheap land

Question 16

Explain the ease of doing business as a factor a business takes into account when choosing a production location

Answer 16

A firm may choose a location based on how easy the firm can be set up and closed down, availability of trade credit, efficiency of tax collection, ease of resolving insolvency and ease of obtaining permits.

Question 17

Explain political stability as a factor a business takes into account when choosing a production location

Answer 17

Some countries are politically unstable meaning it is too dangerous and the financial cost may be too high. There are also countries with a risk of kidnapping westerners, corruption and bribery is accepted

Question 18

Explain natural resources as a factor a business takes into account when choosing a production location

Answer 18

Businesses that require large quantities of natural resources and sustainable producers are likely to set up in countries near sources of natural resources

Question 19

Explain the likely return on investment as a factor a business takes into account when choosing a production location

Answer 19

Quantitative techniques can be used to evaluate the financial costs and benefits of investing in particular locations

Question 20

Explain the quantitative methods a business considers when choosing a country as a production location (3)

Answer 20

Payback methods- how long it will take the firm to recoup its initial investment
Average Rate of Return (ARR) - The net return is divided by the initial investment and expressed as a percentage
Discounted cash flow- the value of future cash flows discounted back to the present, the money invested today will grow in value over time

Question 21

Define a Joint Venture

Give an example

Answer 21

Is a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities, on a temporary basis.

Google provided expertise on Nasa projects

Question 22

Define a merger

Answer 22

Where two businesses come together to become one, on a permanent basis.

Question 23

State the reasons for global mergers or joint vergers

Answer 23

Spread Risk over different countries

Entering new markets and trade blocs

Acquiring national and international brand names or patents

Gain access to intellectual property

Secure resources or supplies

Maintain or increase global competitiveness

Question 24

Explain spreading risk over different countries as a reason for global mergers and joint ventures

Answer 24

Firms try to protect themselves from economic downturn by locating in markets where risks are less likely to occur

Question 25

Explain entering new markets and trade blocks as a reason for global mergers and joint ventures

Answer 25

Instead of growing organically, firms can take a shorter route to international growth. Firms may want to tap into markets that are growing, but do you not find it easy to gain access, so merge/joint-venture with an existing firm in the market

Question 26

Explain enquiring national and international brand names or patents as a reason for global mergers and joint ventures

Answer 26

A firm may want to become a global player in the international market, but like the brand recognition or patents, so merge/joint-venture where they will gain strong brand recognition and reputation

Question 27

Explain gaining access to intellectual property as a reason for global merges and joint ventures

Answer 27

Gives access to already existing inventions which are trademarks or painted and are expensive

Question 28

Explain securing resources or suppliers as a reason for global mergers and joint ventures

Answer 28

May merge to secure resources or surprise further back in the supply chain

Question 29

Explain maintaining or increasing global competitiveness as a reason for global mergers and joint ventures

Answer 29

Can provide bigger markets and economies of scale, mergers can lead to a firm being dominant in a competitive market, increasing sales