9.3d - Influences on Buying, Selling and Producing Abroad Flashcards
Why would a firm buy products from abroad?
- Only place it can get inputs from
- Can be bought at a lower cost
How can a firm ensure success of buying products from abroad?
- Find reliable, good quality suppliers
- Pay necessary tariffs and quotas
Advantage of selling products abroad:
- Wider target market
- Market development
- Economies of scale
How can a firm ensure the success of selling products abroad?
Geographic segmentation
Advantages of producing products abroad:
- Lower labour costs
- More efficient to make product where inputs are bought/where it will be sold
- Avoid tariffs and quotas
- Cost of land is cheaper
- Absorb more local knowledge
How can a firm ensure the success of producing products abroad?
- Being aware of laws and cultures
- There is a suitable infrastructure in place
What is the key reason for operating internationally?
The pressure to reduce costs
Bartlett and Ghoshal’s strategies definition
A model that considers 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
What are the four strategies suggested by Bartlett and Ghoshal?
- Global
- Transnational
- International
- Multi-domestic
Features of the ‘global’ strategy:
- High pressure to reduce costs, low pressure for local responsiveness
- Aims to be a cost leader
- Mass produced standardised products
Advantages of the ‘global’ strategy:
- Focus on efficiency
- Movement on experience curve
Disadvantages of the ‘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
- Benchmarking
- Good communication
- Large MNC
Advantages of the ‘transnational’ strategy:
- Economies of scale and scope
- Movement down experience curve
- Customise products to meet local demand
- Benchmarking
Disadvantages of the ‘transnational’ strategy:
It is difficult to implement
Features of the ‘international’ strategy:
- Low pressure to reduce costs, low pressure for local responsiveness
- Business managed from home country
- Centralised
Advantages of the ‘international’ strategy:
- Mass production
- Maintains control
Disadvantages of the ‘international’ strategy:
- No understanding of local market
- No benefit from experience curve
Features of the ‘multi-domestic’ strategy:
- Low pressure to reduce cost, high pressure for local responsiveness
- Transfers successful domestic strategy into local markets
- Decentralised
Advantages of the ‘multi-domestic’ strategy:
- Customised to suit local markets
- Set specific objectives
Disadvantages of the ‘multi-domestic’ strategy:
- No benefit from economies of scale
- High costs
- Lack of control
When does low pressure for local responsiveness occur?
When the demands of markets in other countries are similar to the demands of the home market
The competitive nature of internationalism means that a business will eventually have to adapt to which approach to survive?
- Global
- Transnational
A multi-domestic strategy may work unless what?
It faces competition which is trying to compete on price (will have to move towards a transnational policy if so)
Advantages of MNC’s for developing countries:
- Employment opportunities
- Increased standard of living through better pay
- Inward investment on building infrastructure
- Economic growth
- Pay taxes
Disadvantages of MNC’s for developing countries:
- Low wages
- Poor working conditions
- Products don’t meet EU safety standards
- Use large quantities of unsustainable natural resources
- Government may overlook unlawful behaviour because they rely on the tax income
Transfer pricing definition
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 the tax that they pay
What has the EU ruled in regard to employment laws for MNC’s?
The EU has standardised employment laws to ensure that MNC’s within the EU have to meet minimum standards wherever they are
