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Business Studies Theme 4 > 4.2 - Global markets and business expansion > Flashcards

4.2 - Global markets and business expansion Flashcards

1
Q

Define Push factors

A

There are the reasons driving a firm away from its domestic market

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2
Q

Define pull factors

A

There are the reasons that attract a business to a new foreign market

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3
Q

Examples of push factors

A
  • Saturated markets
  • Competition
  • Extending product life cycle
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4
Q

Saturated markets - push factors

A
  • Where a firm is keen to grow, new customers must be sought
  • Growth can only come in two ways: widening the range of products being sold or selling to new markets
  • For a business that does not feel it has the talent or assets to broaden its product range, new markets must be found
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5
Q

Competition - push factors (3)

A
  • If a giant new competitor enters a merger, existing businesses may recognise that in the long term that their survival lies in fleeing the competition
  • A huge new firm entering a market can bring financial and distribution strengths to quickly eliminate smaller rivals
  • Potentially forcing smaller rivals to leave the market and seek their fortune in a new international market as a route to survival
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6
Q

Extending product life cycle - push factors (3)

A
  • As a product nears the decline phase of it life cycle, entering a new international market may be an extension strategy
  • Sustaining a high level of sales ensures the product continues to generate a positive cash flow which can be invested in new product development
  • In some cases, entering new markets may be a away of prolonging the growth of the life cycle
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7
Q

Examples of pull factors

A
  • Economies of scale
  • Possibility of offshoring and outsourcing
  • Risk spreading
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8
Q

Define offshoring

A

Means moving one or more business functions to a foreign country, usually to take advantage of lower labour costs

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9
Q

Define outsourcing (2)

A
  • Means contracting another business to perform a business function on your behalf
  • Frequently that function will be production, often performed by a business located in a lower cost country
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10
Q

Economies of scale - pull factors (3)

A
  • The opportunity to boost unit sales through successfully entering new international markets brings with it the opportunity to benefit from economies of scale (is more noticeable if production is concentrated in a few locations globally)
  • Purchasing economies of scale will be likely as well as technical and managerial economies of scale
  • Economies of scale comes with a reduction in unit costs, boosting profit margins
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11
Q

Possibility of offshoring and outsourcing - pull factors (2)

A
  • Can allow for lower costs as labour, land and support services are much lower in many developing countries compared to the UK
  • Therefore, the opportunity to significantly reduce costs can act as a very strong pull factor for UK-based businesses to shift production abroad
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12
Q

Risk spreading - pull factors (3)

A
  • Entering a number of international markets is an effective way of spreading risk
  • If sales in one country fail, there are other markets where sales may remain stable
  • Although entering a new markets has an element of risk also
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13
Q

Factors to consider when assessing a country as a market

A
  • Levels and growth of disposable income
  • Ease of doing business
  • Infrastructure
  • Political stability
  • Exchange rate
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14
Q

Levels and growth of disposable income - Factors to consider when assessing a country as a market (3)

A
  • Growing levels of disposable income will represent more of an opportunity for business as people earn more they can spend more
  • As disposable incomes rise, new niche markets emerge, satisfying consumer wants rather than needs - entering these niches can be a major step to success in a new country
  • Countries with growing levels of disposable income represent opportunities to firms looking to expand abroad - it is dependant on timing if too early may not be a large enough market if enter too late rivals may already have established brand loyalties
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15
Q

Ease of doing business - Factors to consider when assessing a country as a market (7)

A

• Ease of doing business is measured typically via assessment of the time taken for many common business activities such as

  • Days to start a business
  • Days to wait for construction permit
  • Days to get electricity
  • Total tax rate as a % of profit
  • Days to import an item
  • Days to enforce a contract
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16
Q

Quality of infrastructure - Factors to consider when assessing a country as a market (2)

A
  • Infrastructure describes the services needed to make modern life function including: roads, railways, running water, reliable electricity, WiFi and broadband connection
  • These are important as they determine the speed at which goods are transported which has a major impact on operations
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17
Q

Political stability - Factors to consider when assessing a country as a market (3)

A
  • Political stability cover issues such as: policy instability, tax regulations, labour regulations, government bureaucracy and corruption
  • The more stable a potential market, the more confident a business will feel about forecasts of its future performance in that market
  • Some firms will favour stability over other factors while more entrepreneurial businesses may be willing to accept the risks involved in instability of other factors make a market attractive
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18
Q

Exchange rates - Factors to consider when assessing a country as a market (3)

A
  • Exchange rates fluctuate
  • This makes them hard to access when they main gain or lose strength in the long term
  • However, they are an important consideration when deciding to endure a new market
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19
Q

Factors to consider when assessing a country as a production location (9)

A
  • Cost of production
  • Skills and availability of labour force
  • Infrastructure
  • Location in trade bloc
  • Government incentives
  • Ease of doing business
  • Political stability
  • Natural resources
  • Likely return on investment
20
Q

Cost of production - Factors to consider when assessing a country as a production location (3)

A
  • The main reason for lower production costs in one country compared to another is lower edge costs
  • However, the key is to consider whether production is labour intensive or capital intensive
  • Often the cost differential is down to the ability to source materials and components more cheaply abroad, along with lower costs of land business services
21
Q

Skills and availability of workforce - Factors to consider when assessing a country as a production location (3)

A
  • Producing abroad needs a skilled, or at least semi-skilled, workforce
  • The skills required to operate machinery may not be available in many less economically developed location
  • Without a strong education system to provide literate staff with necessary skills, some countries will struggle to be seen as attractive locations for production
22
Q

Infrastructure - Factors to consider when assessing a country as a production location (2)

A
  • Transport and utilities must be il to scratch for a modern manufacturing facility to be able to reliably service the markets it is designed to serve
  • This is why some multinationals will take responsibility or improving the infrastructure in a location as well as building their own facilities
23
Q

Location in a trading bloc - Factors to consider when assessing a country as a production location (3)

A
  • Presence within a trading bloc is a vital pull factor for a location
  • When Britain was still a member of the EU it became an extremely attractive manufacturing base for non-European firms
  • Building cars in the UK meant that car manufacturers avoided tariffs that would have been charged on cars imported from Japan, or indeed anywhere outside the EU
24
Q

Government incentives - Factors to consider when assessing a country as a production location (2)

A
  • National governments may be keen to attract foreign companies to set up production facilities in their country reasons for this include: job creation, extra tax revenues, a boost for local suppliers, increasing skill levels among local labour force, potential for a positive impact on the balance of payments
  • In order to do so governments will use a variety of incentives such as: grants, tax breaks, investment in local infrastructure, investment in local training
25
Q

Ease of doing business - Factors to consider when assessing a country as a production location (7)

A

• A business planning to operate in a new country will need to assess how much regulation, government interference and bureaucratic inefficiency it may suffer from. Typical issues include:

  • Days to start a business
  • Days to wait for a construction permit
  • Days to get electricity
  • Total tax rate as a % of profit
  • Days to import an item
  • Days to enforce a contract
26
Q

Political stability - Factors to consider when assessing a country as a production location (3)

A
  • Businesses expect to be able to plan for the future,something which is made almost impossible if governments change frequently and make drastic policy changes as a result
  • This can impact the level of investment needed to start producing needing to be higher
  • These investment will take longer to pay back and generate positive return on investment
27
Q

Natural resources - Factors to consider when assessing a country as a production location (2)

A
  • Firms need to locate in places where there is a plentiful supply of natural resources
  • This is even more important for firms that initially process raw materials as they will need large quantities of relatively bulky resources - which will be expensive to transport over long distances
28
Q

Likely return on investment - Factors to consider when assessing a country as a production location (2)

A
  • Cheaper locations will seem more attractive, since the initial investment will be lower - however this can limit the likely future revenues the location can earn (false economy)
  • A country where the investment will be 50% higher that can generate revenues that are 100% higher will ultimately offer a better return on investment for firms that are willing to take a long-term view
29
Q

Reasons for global mergers or joint ventures (5)

A
  • Spreading Fisk over different countries/ regions
  • Entering new markets/trade blocs
  • Acquiring national/international brand names/patents
  • Securing resources/supplies
  • Maintaining/increasing global competitiveness
30
Q

Define joint venture

A

Is a formal agreement between two separate businesses to work together for a fixed time on a specific project

31
Q

Define merger

A

A merger occurs when two firms agree to come together to create a new, single business

32
Q

Define takeover

A

A takeover occurs when one business buys a controlling interest in another business

33
Q

Spreading risk - Reasons for global mergers or joint ventures (3)

A
  • For a successful business selling in just one or two national markets, a downturn in one or both markets can spell disaster
  • It may therefore make sense to ensure that the business is selling across a range of national markets
  • This is to ensure that some of their markets are likely to remain buoyant, even if some fail
34
Q

Entering new markets/trade blocs - Reasons for global mergers or joint ventures (4)

A
  • Entering a new foreign market is a way firms can boost sales to achieve growth
  • As Ansoff said danger of this is lack of understanding of that market
  • Merger and take overs can be a smart way to overcome this problem; buying a business filled with local experts can be the route to acquiring missing local understanding
  • Joint ventures with domestic firms, without the permanence of a takeover can also overcome this initial lack of understanding
35
Q

Acquiring national/international brand names/patents - Reasons for global mergers or joint ventures (4)

A
  • The opportunity to buy intellectual property - especially brands and patents - can drive global mergers or takeovers
  • Buying up a strong portfolio of brands offers a lower risk way to penetrate new international markets
  • Buying businesses that hold patents is a quick route to effective new product development
  • Once an idea or new process has been patented, the resources of a global firm may be able to bring that idea to market more successfully than a smaller, national businesses
36
Q

Securing resources and supplies - Reasons for global mergers or joint ventures (3)

A
  • Ensuring secure, reliable and resonantly priced supplies can represent a problem
  • The solution can be setting up a joint venture, with the company extracting resources - however this can lead to problems if the joint venture partner is not maintaining standards of quality or ethical treatment of staff leading to bad publicity for both partners
  • A full takeover gives more control over how the former supplier operates
37
Q

Maintaining/increasing global competitiveness - Reasons for global mergers or joint ventures (3)

A
  • Boosting competitiveness by driving costs down may help to explain many global merger or takeovers due to the economies of scale that such deals promise
  • Porter’s low-cost strategy could be a perfectly viable route for one cost leader in any market. As porter pointed out there is only room for one cost leader
  • Buying similar businesses across the world, with similar points of differentiation, can also explain a number of global mergers and takeovers
38
Q

Challenges of global growth via merger or takeover - Reasons for global mergers or joint ventures (3)

A
  • The major problem of any merger or takeover is overcoming the potential for a clash of cultures as two businesses come together - these problems can be intensified when the deal crosses national boundaries
  • Other problems include: synchronising IT systems, agreeing new policies and procedures, adjusting organisational structure
  • Dealing with staff uncertainties over job security
39
Q

Define global competitiveness

A

Measures the ability of a business to succeed against both domestic rivals and foreign competitors in international markets

40
Q

Impacts of a high exchange rate (3)

A
  • If the Pound strengthens companies that rely on export markets will find it harder to sell their goods in foreign markets due to increased prices, or must accept lower profit margins
  • Companies whose domestic market is subject to competition from imports will find their foreign rivals’ imported products seem cheaper to UK consumers if pound appreciates
  • Companies which need to import significant quantities of raw materials or components may be the only ones to celebrate an appreciation in the value of the pound as a stronger pound buys more foreign currency meaning imported products cost less
41
Q

Impacts of a low exchange rate (3)

A
  • For a company that relies on export markets products will seem cheaper in foreign markets, boosting export sales
  • For companies whose domestic market is subject to competition from imports - imported products will become more expensive in pound terms increasing the competitiveness of domestic producers in their home markets
  • Companies which need to import significant quantities of raw materials or components - imported materials will now cost more, pushing up production costs unless the same materials can be sourced at home
42
Q

Competitive advantage through cost competitiveness

A
  • Raising productivity - come from an increasingly effienct use of resources such as Human Resources and tangible non-current assets
  • Outsourcing
  • Offshoring
43
Q

Raising productivity - Competitive advantage through cost competitiveness (3)

A
  • Clearly motivates staff are likely to achieve a higher level of productivity however it’s important to consider that productivity can be based how well planned and organised processes are
  • The assets that a business uses to generate revenue include property, machinery and equipment. If a way can be found to gain more output or revenue from the same assets, the unit cost will fall,
  • For example, opening an automated car wash for longer hours can generate higher revenues without adding too much to the costs - finding a way to ensure that machinery breaks down less often thus producing more will reduce average cost per unit
44
Q

Competitive advantage through product differentiation (2)

A
  • Businesses based in the UK will find it hard to be cost competitive
  • Instead they are far more likely to achieve global competitiveness through effective and long-lasting product differentiation such as branding, advertising, sponsorship and celebrity endorsement
45
Q

Skills shortages and their impact on international competitiveness (4)

A
  • If companies have failed to plan for the future workforce needs or provide appropriate training for stage they may find themselves lacking in staff without appropriate skills to cope with changes in the market
  • To overcome this staff may need to poach staff from other businesses which will require paying higher wages therefore increasing costs and damaging competitiveness
  • Where this failure to plan and invest is mirrored by that of the government, a company may find itself unable to access any suitably skilled staff to fill vacancies
  • Where national shortages exist businesses need to consider outsourcing abroad or relocating where skills are more readily available

Business Studies Theme 4 (4 decks)

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