4.2 Global Markets & Business Expansion

Question 1

Define Push Factors

Answer 1

Push factors are factors that push a business to expand outside of their domestic country

Question 2

Define Saturated Market

Answer 2

A saturated market is where demand for goods and services has reached a peak. It becomes challenging for businesses to grow and expand within the local market.

Question 3

Define Pull factors

Answer 3

Pull factors encourage businesses to operate within markets abroad which present significant growth opportunities

Question 4

Define Offshoring

Answer 4

Offshoring is when a company moves part of the production process, or all of it, to another country

Question 5

Reasons for offshoring

Answer 5

1. Lower labour costs
2. Access raw materials
3. Access skilled labour

Question 6

Advantages of offshoring

Answer 6

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

Question 7

Disadvantages of offshoring

Answer 7

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

Question 8

Define Outsourcing

Answer 8

Outsourcing occurs when a business hires an external organisation to complete certain tasks or business functions

Question 9

Advantages of Outsourcing

Answer 9

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

Question 10

Disadvantages of Outsourcing

Answer 10

Damage to brand image as the values of the two businesses may not be in alignment

E.g. Foxconn workers producing Apple products were committing suicide due to the low pay and poor working conditions

Poor communication between the businesses can cause issues, which can lead to increased costs and disruption for the business choosing to outsource

Question 11

What is the product life cycle?

Answer 11

The product life cycle represents the value of sales from the time a product is introduced into the market until it is no longer sold

Question 12

Assessing new markets abroad

Answer 12

1. Infrastructure
2. Ease of doing business
3. Political stability
4. Exchange rates
5. Levels and growth of disposable income

Question 13

Define exchange rates

Answer 13

An exchange rate is the price of one currency expressed in terms of another

Question 14

Factors when assessing production location

Answer 14

1. Cost of production
2. Skills & availability of labour force
3. Infrastructure
4. Location in a trading bloc
5. Return on Investments
6. Natural resources
7. Government incentives

Question 15

Define Global merger

Answer 15

A global merger is a permanent agreement between two businesses from two different countries to join together

Question 16

Define Joint venture

Answer 16

A joint venture is when two businesses join together to share their knowledge, resources and skills to form a separate business entity for a limited period of time

Question 17

Reasons for mergers/ joint ventures

Answer 17

1. Spread risk
2. Enter new markers/ trade blocs
3. Acquiring international brand names and patients
4. Securing resources/supplies
5. Maintaining/ increasing global competitiveness

Question 18

Benefits of Globals merger/joint ventures

Answer 18

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

Question 19

Drawback of Global Mergers & Joint Ventures

Answer 19

The initial costs of merging can be significantly high

There is no guarantee a business will gain a return on their initial investment 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 remaining workers

Question 20

Define Global competitiveness

Answer 20

Global competitiveness is the ability of a business to perform better than its rivals across markets in different countries

Question 21

Advantages of a Currency Appreciation

Answer 21

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

Question 22

Define Currency appreciation

Answer 22

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

Question 23

Disadvantages of an Appreciation

Answer 23

If businesses exports 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

Question 24

Define Currency depreciation

Answer 24

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

Question 25

Advantages of Depreciation

Answer 25

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

Question 26

Disadv. of Depreciation

Answer 26

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 passed onto consumers in the form of higher prices

Question 27

Define Cost competitiveness

Answer 27

Cost competitiveness is when a business becomes one of the lowest cost producers in their industry Cost competitiveness 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

Question 28

Define Differentiation

Answer 28

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

Question 29

Impact of Skills Shortages

Answer 29

The Impact of Skills Shortages If a business is unable to find the labour with the required skills, it will affect their 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 In order to overcome these issues, a business can use outsourcing and offshoring to access the skills needed for their business