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A-Level Business Theme 4 > 4.2 - Global Markets & Business Expansion > Flashcards

4.2 - Global Markets & Business Expansion Flashcards

1
Q

What are Push Factors?

A
  • Factors that push a business to expand outside of their domestic country
  • Saturated Markets
  • Competition
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2
Q

How are saturated markets a push factor?

A
  • Saturated markets occur when the demand for goods and services has reached a peak and it becomes challenging for businesses to grow and expand within the local market
    *This often prompts businesses to explore opportunities in other global markets, which can help sustain their growth and profitability
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3
Q

How is competition a push factor?

A
  • In a competitive market, businesses need to find ways to differentiate themselves and gain a competitive advantage
    *One way to achieve this is by exploring new markets and expanding their customer base
  • By exporting goods and services to new markets, businesses can reduce their reliance on a single market and diversify their revenue streams, thereby reducing their exposure to market volatility and competition
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4
Q

What are Pull Factors?

A
  • Factors that encourage businesses to operate within markets abroad which present significant growth opportunities
  • economies of scale
  • risk spreading
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5
Q

How are economies of scale a pull factor?

A
  • Economies of scale usually occur when a business expands its production in new markets abroad
    *Businesses may also be able to purchase raw materials and labour at lower prices than within their domestic markets
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6
Q

How is spreading risk a pull factor?

A
  • By accessing many markets, businesses can diversify their customer base and reduce their exposure to risks associated with operating in a single market
  • This can include economic, political, and other types of risks that could impact their operations and profitability
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7
Q

What is offshoring?

A
  • Offshoring is when a company moves part of the production process, or all of it, to another country
  • Reasons for offshoring include,
  • lower labour costs
  • access raw materials
  • access skilled labour
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8
Q

What are the advantages of offshoring?

A
  • Lower labour costs may be available in other countries, which help businesses keep costs down and increase profitability
  • Access to specialised suppliers in countries abroad who provide better quality service, raw materials, or components
  • Economies of scale as businesses sell to a larger international market
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9
Q

What are the disadvantages of offshoring?

A
  • Public relations and employer/employee relations may suffer due to relocation as domestic workers lose jobs
  • Increased costs in short term, such as relocation costs, acquiring new premises and training new staff
  • Possibly poor customer service due to language and cultural differences between the domestic consumers and foreign workers
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10
Q

What is outsourcing?

A
  • Outsourcing occurs when a business hires an external organisation to complete certain tasks or business functions
  • Key reasons may be,
  • reduced costs
  • allows for business to focus on core competencies
  • easier to comply with rules and regulations in other countries as they are often less demanding
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11
Q

What are the advantages of outsourcing?

A
  • Businesses can take advantage of specialist skills that another business has or that can complete a particular task more efficiently
  • Cost effectiveness as businesses avoid having to spend money investing in new facilities abroad
  • Businesses can benefit from higher labour productivity in other countries
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12
Q

What are the disadvantages of outsourcing?

A
  • Damage to brand image as the values of the business may not be in alignment
  • Poor communication between the business can cause issues, which can lead to increased costs and disruption for the business choosing to outsource
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13
Q

How can a business expand its product life cycle?

A

A business could sell the product in new international markets
- a product could reach maturity in one market but could then be introduced into another market
- this allows the business to generate more revenue

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14
Q

What factors should be considered when assessing countries as a market?

A
  • Ease of doing business
  • Levels and growth of disposable income
    *Exchange rates
  • Political stability
    *Infrastructure
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15
Q

Why should infrastructure be considered when assessing countries as a market?

A

*Infrastructure considers factors such as roads, transportation, and communication
- good infrastructure improves the production process and delivery of goods and services to the customer, which reduces costs and increases sales

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16
Q

Why should ease of doing business be considered when assessing countries as a market?

A
  • Rules and regulations involved in establishing a business in a particular market may be relatively simple or extraordinarily hard
  • issues to consider include credit access, property registration, and enforcing contracts
  • if businesses face significant challenges setting up a business, this may lead to delays in operations and the business generating sales
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17
Q

Why should levels of growth and disposable income be considered when assessing countries as a market?

A
  • Disposable income is the income individuals have left after paying direct taxes and other deductions
  • selling products in a country with higher disposable income is likely to lead to more sales
  • selling in a country with lower disposable income is likely to lead to slower sales growth
    *Businesses should look at trends in income levels over time to see if there is potential growth in sales in the future
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18
Q

Why should exchange rates be considered when assessing countries as a market?

A
  • An exchange rate is the price of one currency in terms of another
    *Exchange rates can be subject to extreme fluctuations due to external factors
  • businesses should look at the historical trends of the currency of the country
    *Businesses moving to countries with stronger currencies can import raw materials and components for production at a lower price
  • exports from this country will be more expensive to customers abroad
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19
Q

Why should political stability be considered when assessing countries as a market?

A

*Businesses may be at risk of not gaining a return on their investment in a country with political instability
- subject to corruption, lack of law enforcement, and higher levels of crime
- it is more likely to have disruption to trading
*An economy with a stable economy and government is seen as a less risky investment for business

20
Q

What factors should be considered when assessing a country as a production location?

A

*Costs 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

21
Q

Why should costs of production be considered when assessing a country as a production location?

A

Businesses want to keep production costs low as this can help them increase their profit margin or allow them to sell at a lower price to gain a competitive advantage

22
Q

Why should skills and availability of labour force be considered when assessing a country as a production location?

A
  • The quality of the workforce is important as this will directly impact the quality of the goods and services produced in an economy
  • e.g. literacy rates and skills
    *Businesses may choose to locate production in a market where the labour costs are lower
23
Q

Why should infrastructure be considered when assessing a country as a production location?

A
  • Businesses need to consider the infrastructure needed such as roads as this will affect the production process
  • e.g. transportation of raw materials for the production process
24
Q

Why should location in a trading bloc be considered when assessing a country as a production location?

A

*A business located in a market within a trade bloc will be able to access many advantages such as reduced protectionist measures

25
Q

Why should return on investments be considered when assessing a country as a production location?

A
  • Assessing the ROI in different markets will reduce the risk of the initial investment not being paid for
  • Investment appraisal techniques can be used to tell a business what their potential ROI could be
26
Q

Why should natural resources be considered when assessing a country as a production location?

A

It is often important that a business has easy access to their raw materials as this can help to reduce transportation costs and help to reduce any potential delays to the production process

27
Q

Why should political stability be considered when assessing a country as a production location?

A
  • Businesses may be at risk of not gaining a ROI in a country with political instability
  • a country with instability will be subject to corruption, lack of law enforcement, and higher levels of crime
  • it is more likely to have a disruption to production
  • An economy with a stable economy and government is seen as a less risky investment for a business
28
Q

Why should ease of doing business be considered when assessing a country as a production location?

A

A business will want to locate in an area where there is limited bureaucracy, so the process of establishing production facilities is not delayed or does not incur high costs

29
Q

Why should government incentives be considered when assessing a country as a production location?

A

Businesses may be offered incentives, e.g. grants, business loans, and tax breaks by the government

30
Q

What is a global merger?

A

It is a permanent agreement between two businesses from two different countries to join together

31
Q

What is a joint venture?

A

When two businesses join together to share their knowledge, resources, and skills to form a separate business entity for a limited period of time

32
Q

What are the main reasons for global mergers or joint ventures?

A

*Spreading risk
* Entering new markets/trade blocs
*Acquiring national/international brand names and patents
* Securing resources/supplies
*Maintaining/increasing global competitiveness

33
Q

What are the advantages of global mergers and joint ventures?

A

*Economies of scale gained from costs spread over larger output can lead to increased profit margins
*Diversifying risk due to having products in several markets so if there is a fall in sales of certain products, the business can still generate revenue from other products
*Opportunity to enter new markets which otherwise may be closed to the business

34
Q

What are the disadvantages of global mergers and joint ventures?

A
  • The initial costs of merging can be significantly high
    *There is no guarantee a business will gain a ROI if it is not successful
    *Diseconomies of scale can occur due to communication issues and a lack of control as the business expands
    *A culture clash between the two businesses can affect the quality of the business, leading to poor sales
    *When two businesses join together, redundancies can occur
  • this can affect the motivation of workers
35
Q

What is global competitiveness?

A

It is the ability of a business to perform better than its rivals across markets in different countries
- fluctuations in exchange rates can influence the competitiveness of business

36
Q

What is currency appreciation?

A

An appreciation of the exchange rate means the value of a currency increases against another currency

37
Q

What are the advantages of appreciation?

A

*If businesses import raw materials and components from abroad, they will now be cheaper
- this will help the business to reduce their costs and possibly increase their profit margin

38
Q

What are the disadvantages of appreciation?

A
  • If businesses export goods/services to foreign consumers, the goods will be more expensive for international customers
  • this may lead to a fall in sales as consumers now shift demand to domestic businesses
39
Q

What is currency depreciation?

A

A depreciation of the exchange rate means the value of the currency decreases against another currency

40
Q

What are the advantages of depreciation?

A
  • If businesses export goods/services abroad, they become more competitive because their products are cheaper to purchase
  • In the domestic market, there may be less competition from foreign firms as imports are now more expensive for domestic consumers to purchase
41
Q

What are the disadvantages of depreciation?

A
  • If a business imports raw materials or components from abroad, they are now more expensive
  • this leads to an increase in the costs for a business, which could then be passes onto consumers in the form of higher prices
42
Q

What are the acronyms to help remember the impacts of currency fluctuations on imports and exports?

A

SPICED
S-tronger
P-ound
I-mports
C-heaper
E-xports
D-earer
(+ the opposite, WPIDEC)

43
Q

What two factors provide a competitive advantage?

A

*Cost leadership
*Differentiation

44
Q

How does cost leadership lead to a competitive advantage?

A
  • Cost leadership is when a business becomes the lowest-cost producer in their industry
    *Cost leadership can be achieved using strategies such as:
  • increasing the productivity of their workforce
  • using machinery and technology efficiently
  • outsourcing
  • offshoring
    *Businesses can utilise this position as a cost leader to reduce their prices or keep their prices the same, which results in an increase in profit margins
45
Q

How does differentiation lead to a competitive advantage?

A

*Differentiation occurs when the business makes the characteristics of their products/services different to those of their competitors
* Methods of differentiation include developing a strong brand, better design, better quality, and customer service

46
Q

What is the impact of skills shortages?

A
  • If a business is unable to find the labour with the required skills, it will affect its ability to gain a competitive advantage
  • Cost leadership could be difficult to achieve if the workers lack skills, as they may not be as productive
  • this could increase unit costs due to factors such as waste
    *Product differentiation is less likely to occur where workers lack the skills and expertise to produce highly differentiated products
  • To overcome these issues, a business can use outsourcing and offshoring to access the skills needed for their business

A-Level Business Theme 4 (2 decks)

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