9.3d Influences on Buying and Producing Abroad Flashcards
Reasons a firm buys products from abroad:
- Only place it can get inputs from
- Can be bought at a lower cost
Ways a firm ensures success of buying products from abroad:
- Find reliable, good quality suppliers
- Pays necessary tariffs and quotes
Reasons a firm sells products abroad:
- Wider target market
- Market development
Ways a firm ensures the success of selling products abroad:
Geographic segmentation - customising products for local market
Reasons a firm produces products abroad:
- 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
Ways a firm ensures the success of producing products abroad:
- Being aware of laws and cultures of country
- There is a suitable business infrastructure in place
What is the key reason for operating internationally?
Pressures of reducing costs
What is the key way in which firms can ensure success of operating internationally?
Making sure that they respond to pressures of local customer needs and demands
What do Bartlett and Ghoshal’s Strategies consider?
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
Four strategies of Bartlett and Ghoshall:
- Global
- Transnational
- International
- Multi-domestic
Features of the global strategy:
- 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
Advantages of global strategy:
- Focus on efficiency
- Movement on experience curve
Disadvantages of global strategy:
- Not responding to local needs
- Not good when selling B2C
Features of the transnational strategy:
- 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
Example of a business that uses the transnational strategy:
Unilever
Advantages of transnational strategy:
- Economies of scale and scope
- Movement down experience curve
- Best practice - benchmarking
Disadvantage of transnational strategy:
Difficult to implement
Features of international strategy:
- 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
Example of a business that uses international strategy:
McDonalds
Advantages of international strategy:
- Mass production
- Maintains control
Disadvantages of international strategy:
- No understanding of local market
- No benefit from experience curve
Features of multi-domestic strategy:
- 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
Example of a business that uses multi-domestic strategy:
Coca Cola
Advantages of multi-domestic strategy:
- Customised to suit local markets
- Set specific objectives
