9.3 Assessing Internationalism Flashcards
Internationalism
Internationalism is the ideal of countries working together politically, economically and socially to achieve common goals.
Reasons for targeting, operating in and trading with international markets
- Growth and profit
- Economies of scale
- Diversify risk
- Trade liberalisation
- Tax - result of transfer pricing
Trade liberalisations
Relief of trade barriers allowing/ enabling greater international trade.
Transfer pricing
Setting of the price for goods and services sold between related legal entities within and organisation. E.g. if a subsidiary sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is the transfer price.
Factors influencing the attractiveness of international markets
- Risk
- Competition
- Market potential
- Legal and political environment
- Economic factors
- Cost
- Culture
- Methods of entry
Reasons for producing more and sourcing more resources abroad
- Reduced costs
- Consistent quality
- Reliability
Off-shoring
The movement of the operations of a business to another country.
Exporting
Can either export indirectly or directly.
Indirectly:
- through agents
- no direct contact with consumers
Directly:
- relationship is built between the customer and the business
Licensing
When a business grants a licence or the right to a business in another country to produce its product.
Benefits of licensing
- Quick
- Low-cost method
Drawbacks of licensing
- Dependent on local producer who could potentially become a competitor
- Could limit long-term long-term market opportunities and profit
Alliances
Involves a cooperative agreement between a company and an overseas business.
Benefits of alliances
- Access to foreign markets
- Benefits from the knowledge and expertise of the local business
Drawbacks of alliances
- Required to share the knowledge, expertise and technology of the products concerned
- Local business may become a competitor rather than a partner
Direct investment
A business can make a direct investment in the foreign market, setting up its own production facilities (off-shoring).
Benefits of direct investment
- Direct control over operations
- Avoiding tariffs/ trade barriers
- Reduces transportation costs
- Possibility of reducing labour costs
Drawbacks of direct investment
- High initial costs
- Greater exposure to economic risk
- Greater exposure to political risk
- May create problems in terms of management and control of the overseas operation
Multinational company
A multinational company is a business that has facilities and other assets in more than one country.
Influences on buying, selling and producing abroad
Main Reason: Quality and price
Other factors:
- Skills (different expertise levels in different areas)
- New markets
- A business-friendly framework
- More liberal labour and employment rules
- Overcome trade barriers
- Natural resources
Drawbacks of off-shoring
- Ethical issues (inevitable job losses + exploitation of workers)
- Control and quality
- Difficulty in communication due to distance
- IP theft
- British reputation (Made in Britain label)
- Consumer preferences may not be met
Re-shoring
When businesses bring back to their home country operations which had been moved overseas.
Managing international business including pressures for local responsiveness and pressures for cost reduction
Pressures for local responsiveness relates to:
- The tastes of the local market
- The preferences of the local market
- Could be different due to differences if the local market
Pressures for cost reduction:
- Likely to stem from the competitive environment
Bartlett and Ghoshal’s matrix
Identifies four international strategies according to the pressure for local responsiveness (high or low) and the pressure for integration (high or low).
High level of pressure for global integration, High level of pressure for local responsiveness
Transnational strategy
