9.3 Assessing internationalisation Flashcards
Advantages of internationalisation
- Gives businesses access to a larger market of customers which can increase sales revenue and profit
- Can reduce a business’ risk in case demand in the home market declines rapidly following a change in tastes and fashions
What is exporting
Allows a business to access international markets by selling products abroad
What is licensing
Allows a business to access international markets by providing overseas businesses with a license to sell and produce its products in that country
What are alliances
Allows a business to access international markets through working in partnership together to share risk
What is direct investment
Allows a business to access international markets through investing in facilities, such as a production centre, abroad
The factors affecting a business when choosing an international market to enter
- Size of the local market (growth rate and size must be considered as a large or growing market will be more attractive)
- Political stability and culture in which the international market is located (can affect the complexity of entering the market)
- Local competition (affects the likelihood of a foreign business being able to access the market with success)
Why does a business source its raw materials from overseas suppliers
May be cheaper than raw material bought from the home market
What is off shoring
Involves a business moving part of its production process to an overseas manufacturer
Advantage of off shoring
Can reduce costs which allows a business to lower its selling price or increase profit
Disadvantage of offs horing
Can lead to quality problems if overseas producers do not uphold the same quality standards as the business which outsources
What is re-shoring
Involves a business bringing its production processes back to the original country
Advantage of re-shoring
Can increase quality as production can be monitored more closely which can build a business’ reputation
Disadvantage of re-shoring
Can increase costs which means business may need to increase its selling price or accept reduce profit
Multinational organisations
Businesses can target overseas market by becoming a multinational organisation - it is a business which has production facilities in more than one country
Influences on the decision to enter an international market
- Quality
- Cost reduction
Factors influencing the management of an international business
- Cultural differences (trading may involve dealing with different cultures)
- Legal differences (dealing with different laws when trading)
- Markets and customer demands (demands for different products or services, or adapted products and services)
Bartlett and Ghoshal’s Model
Proposes four strategies to support international businesses
Bartlett and Ghoshal’s measures
Pressure for local responsiveness (the requirement to adapt a product according to location) and pressure for reducing costs to decide the most appropriate strategy for a business to pursue
Global Organisation
Low local responsiveness, High global integration
Transnational Organisation
High Local responsiveness, High global integration
International Organisation
Low Local responsiveness, Low global integration
Multidomestic Organisation
High Local responsiveness, Low global integration
Local responsiveness
If customer requirements differ significantly in different countries, local responsiveness pressure is high
Cost reduction
If the business competes based on its efficiency and therefore requires, e.g, economies of scale, to operate competitively, there is a pressure for cost reduction
