9.3d Influences on Buying and Producing Abroad

Question 1

Reasons a firm buys products from abroad:

Answer 1

• Only place it can get inputs from

- Can be bought at a lower cost

Question 2

Ways a firm ensures success of buying products from abroad:

Answer 2

• Find reliable, good quality suppliers

- Pays necessary tariffs and quotes

Question 3

Reasons a firm sells products abroad:

Answer 3

• Wider target market

- Market development

Question 4

Ways a firm ensures the success of selling products abroad:

Answer 4

Geographic segmentation - customising products for local market

Question 5

Reasons a firm produces products abroad:

Answer 5

• Lower labour costs
• More efficient to make products where inputs are bought/where it will be sold
• To avoid tariffs and quotas
• Cost of land is cheaper
• Absorb more local knowledge

Question 6

Ways a firm ensures the success of producing products abroad:

Answer 6

• Being aware of laws and cultures of country

- There is a suitable business infrastructure in place

Question 7

What is the key reason for operating internationally?

Answer 7

Pressures of reducing costs

Question 8

What is the key way in which firms can ensure success of operating internationally?

Answer 8

Making sure that they respond to pressures of local customer needs and demands

Question 9

What do Bartlett and Ghoshal’s Strategies consider?

Answer 9

What strategies a business should follow depending on the balance it strikes between the level of pressure for cost reduction and the level of pressure for local responsiveness

Question 10

Four strategies of Bartlett and Ghoshall:

Answer 10

• Global
• Transnational
• International
• Multi-domestic

Question 11

Features of the global strategy:

Answer 11

• High pressure to reduce costs, low pressure for a local responsiveness
• Aims to be a cost leader (Porter) and so all business activities are done in favourable locations
• Mass produced standardised product will keep costs down

Question 12

Advantages of global strategy:

Answer 12

• Focus on efficiency

- Movement on experience curve

Question 13

Disadvantages of global strategy:

Answer 13

• Not responding to local needs

- Not good when selling B2C

Question 14

Features of the transnational strategy:

Answer 14

• High pressure to reduce costs, high pressure for local responsiveness
• Needs best practice to be shared throughout the business so that adapt products can be produced at a low cost
• Requires firm to be a large profitable multi-national company with lots of resources

Question 15

Example of a business that uses the transnational strategy:

Answer 15

Unilever

Question 16

Advantages of transnational strategy:

Answer 16

• Economies of scale and scope
• Movement down experience curve
• Best practice - benchmarking

Question 17

Disadvantage of transnational strategy:

Answer 17

Difficult to implement

Question 18

Features of international strategy:

Answer 18

• Low pressure to reduce costs, low pressure for local responsiveness
• See’s no need to reduce costs so business will be managed from home country
• Does not need to customise products for local markets
• Centralised

Question 19

Example of a business that uses international strategy:

Answer 19

McDonalds

Question 20

Advantages of international strategy:

Answer 20

• Mass production

- Maintains control

Question 21

Disadvantages of international strategy:

Answer 21

• No understanding of local market

- No benefit from experience curve

Question 22

Features of multi-domestic strategy:

Answer 22

• Low pressure to reduce cost, high pressure for local responsiveness
• Business will transfer its successful domestic strategy into foreign markets
• Provides customised products and marketing strategies in each country

Question 23

Example of a business that uses multi-domestic strategy:

Answer 23

Coca Cola

Question 24

Advantages of multi-domestic strategy:

Answer 24

• Customised to suit local markets

- Set specific objectives

Question 25

Disadvantages of multi-domestic strategy:

Answer 25

• No benefit from economies of scale
• High costs
• Lack of control

Question 26

Competitive nature of internationalism means that a business will eventually have to adapt to what strategy to survive?

Answer 26

Global or transnational

Question 27

In what situation would multi-domestic strategy not work and how would the business overcome this?

Answer 27

• If it faces competition which is trying to compete on price
• May have to move towards a transnational policy if so

Question 28

When does low pressure for local responsiveness happen?

Answer 28

When the demands of markets in other countries are similar to the demands of the home market

Question 29

Ways MNC’s can benefit developing countries:

Answer 29

• Employment opportunities
• Increase standard of living through better pay
• Inward investment on building infrastructure
• Economic growth
• Pay taxes leading to higher government income

Question 30

Disadvantages of MNC’s for developing countries:

Answer 30

• Low wages
• Poor working conditions
• Large quantities of unsustainable natural resources used
• Governments may overlook behaviour because they rely on tax income

Question 31

What is transfer pricing?

Answer 31

When a MNC buys and sells products between parts of the company based in different countries to make profits appear to belong in a country with low tax rates to reduce taxes they pay