Business 4

Question 1

What are imports and exports

Answer 1

• Businesses that trade internationally import and export goods/services

• Imports are goods and services bought by people and businesses in one country from another country e.g. importing raw material for production of goods

• Exports are goods and services sold by domestic businesses to people or businesses in other countries

Exports generate extra revenue for businesses selling their goods abroad
Imports result in money leaving the country which generates extra revenue for foreign businesses
Importing and exporting is the easiest way for business to trade internationally= but risk associated with fluctuations in the exchange rate = influence costs and demand from foreign buyers

Question 2

The link between specialization and competition advantage

Answer 2

• Businesses/ country specialize when they focus on a specific goods/services e.g.
Apple focus on the production of technological products and services

• Countries can also specialise on a narrow range of goods and services e.g. Ghana specialises in cocoa and gold - they have a comparative advantage- the country more efficient at producing certain goods

Specialization can also lead to a competitive advantage
- if they increase the added value on the their g/s= help them to gain an edge over their competitors

Question 3

What are FDI and its benefit

Answer 3

Foreign Direct Investment (FDI) is investment by taking a controlling ownership in a company in one country by company based in another country.

Can be an investment by foreign firms which results in more than 10% share of ownership of domestic firms.

Businesses typically grow through FDI as mergers, takeovers, partnerships or joint ventures are created with a foreign(local) business in order to enter new markets. Also may buy assets in a foreign country
Countries benefit from FDI as this can lead to:
• Increased economic growth as there is an inflow of money into the country, also more competition in market= help lower price for consumer
• Increased job opportunities as businesses expand operations
• Access to knowledge and expertise from foreign investors ( competitive advantages)
- access to resources

However far riskier than importing or exporting

potential for conflicts and disputes between the investing company and the host country

loss of control over strategic industries and resources

Due to economic growth= may result in natural resource depletion which makes market unsustainable

Question 4

Difference between inward and outward FDI

Answer 4

Inward FDI occurs when a foreign business invests in the local economy

Outward FDI occurs when a domestic business expands its operations to a foreign country

Question 5

advantages of specialization

Answer 5

Specialisation can increase the quantity and quality of goods and services. This has many benefits including:

• Lower unit costs due to Economies of scale as costs are spread over a large output

• Lower unit costs allow the business to lower prices for consumers leading to more sales

• If businesses do not lower their selling price, then due to the lower costs they are able to to increase their profit margins

Question 6

What is globalization

Answer 6

• Is the increasing integration and cooperation between countries and the growth of international trade

• Globalization creates many opportunities for international and domestic business.

• Globalization restriction still exist e.g. protectionism and caps on migration in some countries

Question 7

What is trade liberalization and evaluation

Answer 7

Trade liberalisation is the removal or reduction of barriers to trade between different countries

This increases globalisation

Benefits:

can lead to economic growth through increased trading opportunities, access to new markets, and improved competitiveness.

• Freer trade helps businesses to reduce costs as imported raw materials and components can be sourced more cheaply

• Increased international trade allows businesses to increase their market size This leads to increased output and countries can benefit from economies of scale

drawbacks

Domestic firms, in particular, Infant industries may not be able to compete against international firms as they become larger= business failure

Risk of higher structural unemployment if domestic demand shifts away from home suppliers to imports –wage inequality

• greater exploitation of workers in developing countries

Question 8

An explanation of factors that contributing to increase globalization

Answer 8

• political change-
  Changes in the government of a country can influence the country’s attitude to trade. Rise to democracy across the world= better trade relation between countries
  E.g. China joined the World Trade organisation

Reduce cost of transport and communication

• Economies of scale due to innovation in containerisation on large ships has reduced business costs
• Technological advancement and communications network due to the internet/mobile technology have improved made it easier for buyers and sellers to
connect with one another = its faster

Increased significance log transnational companies

• A transnational company is a business that operates in more than one country
• They will have their headquarters in one country but have other branches in other countries
E.g. Nike
= there’s an increase pressure by countries to engage in free trade

Increase in FDI
FDI is important for job and wealth creation within an economy
• It allows businesses to establish themselves in countries where they may face trade barriers

Migration- is the movement of people from one location to another
Lead to increase globalization as better transportation. And deregulation have allowed workers to have more flexibility when looking for work=New culture= increase in diversity

Growth of the global labour force
- due to growth of emerging countries such as india
This has increased globalisation due to the following reasons
• More people in work means more income to spend on goods and services boosting global demand
• An increased supply of labour leads to falling wages which is beneficial in reducing business costs

Structural change- occurs when a country, industry or market changes which sector of industry they operate at

• off shoring speeds up process of globalization

Question 9

What is offshoring

Answer 9

• occurs when a business takes part of their production process and relocate it to a low cost country

Question 10

What is protectionism and tariffs

Answer 10

• • Protectionism is when a government seeks to protect domestic industries from foreign competition

• A tariff is a tax placed on imported goods from other countries•
A tariff increases the price in imported goods/s which helps to shift the demand for that p/s from foreign business to domestic business

When the USA places a tariff on imported cheese from Britain, the price of British cheese in the USA rises
–American customers are more likely now to purchase American cheese as the tariff has now made British cheese more expensive

Question 11

Benefits and disadvantages of tariffs

Answer 11

The benefits of tariffs include
• They protect infant industries so they can eventually become more competitive globally

• An increase in government tax revenue, as tariff is a tax and imports will enter domestic market= can invest in healthcare, education

• Reduces dumping by foreign businesses as they cannot sell below the market price (dumping when business sells their products abroad in export markets at significantly low prices)= saves domestic jobs

The disadvantages of tariffs include

Increases the cost of imported raw materials which may affect businesses who use these goods for production, leading to higher prices for consumers

Reduces competition for domestic firms who may become more inefficient and produce poor quality products for their customers

Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them

Question 12

What are import quota and evaluation

Answer 12

An import quota is a government imposed limit on the amount of a particular product allowed into the country

Advantages
• Restricting the physical amount of imports means that domestic businesses face less competition and benefit from a higher market share. More of the domestic demand is now met by domestic producers

domestic businesses may need to hire more workers which reduces unemployment and benefits the wider economy

The higher the price for the product= may encourage new business to start up in the industry

Disadvantage

The disadvantages of import quotas include
• Quotas limit the supply of a product and whenever supply is limited, the price of the product rises

• They may generate tension in the relationship with trading partners

• Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition

Question 13

Other trade barriers

Answer 13

Gov legislation
- gov an impose laws to restrict certain imports to protect customers and business
.benefits- allows domestic firms to grow as they have limited competition from business abroad
Drawbacks- can lead to retaliation form countries facing the legislation

Domestic subsidies- payment are given to domestic business to help lower cost of production
- post brexit , the gov is providing subsidies to its farmer= in order to decrease their COP

Benefits
- reduce cost = lower price= more competitive than the international market as their export are cheaper
- protect jobs
drawbacks
- business may become inefficient as they know their cost are being subsidized
Become over dependent

• short term long term effects- affects gov finance
• also the fact that there opportunity cost like healthcare

Question 14

What are trading blocs

Answer 14

A trading bloc is a group of countries that form an agreement to reduce or eliminate protectionist measures between each other
• Joining a trading bloc is a key method of increasing trade liberalisation and leads to trade creation

Question 15

What are the largest trading blocs

Answer 15

The European Union
(EU), The Association of Southeast Asian Nations (ASEAN), and The North American Free Trade Agreement (NAFTA)

European Union - an economic union - bring a member of eu includes free movement of good and people
Have no trade restrictions between themselves
The UK bored to leave the EU in 2016, officially left in 2020

ASEAN- less integrated then EU
- a free trade area aimed at to achieve free flow of goods in the region

NAFTA also aims to to promote free trade between ( Canada, Mexico and USA)

Many USA businesses relocated their manufacturing to Mexico as goods could be produced there much more cost effectively due to the lower wages paid to Mexican workers
The products could then be imported back into the USA without and tariffs being incurred
Mexico benefitted from this agreement as it helped to create many new industries and jobs within the country

Question 16

The impact of belonging outside the trading blocs on business

Answer 16

• Businesses outside the trading bloc will face higher costs from protectionist measures such as tariffs and trying to meet legal requirements inside the trading bloc
• This will make them less competitive when trying to sell goods to member countries within the bloc

• Being outside the bloc is likely to decrease their sales volume to countries within the bloc

• This will make them less competitive when trying to sell go to member countries within the bloc

Question 17

The benefits of belonging to a trading bloc

Answer 17

1.Access to more markets
Businesses are able to sell to more customers due to free movement of goods

2Infrastructure support
Businesses may gain additional support from the government to enable them to maintain their competitiveness against businesses in countries inside the trading bloc

3Free movement of labour
Trading blocs may also have free movement of labour allowing businesses to source workers from a wider pool

Question 18

The drawbacks of belonging to a trading bloc

Answer 18

Increased competition
• There is increased competition for businesses within the trade bloc which may be more of an issue for small businesses as they have less resources available with which to compete

Common rules and regulations
In order to operate as one market, new rules and regulations may be put in place that all businesses must adhere toE.g. The EU working time directive states that employees can only work a maximum of 48 hours per week

Inefficiency
- although theses increase competition between countries within bloc= there’s less competition from business in countries outside the bloc
= refuse incentive of business to be more efficient

Question 19

Factors to consider when assessing a county as a market

Answer 19

• level and growth of disposable income
• ease of doing business
• infrastructure
• political stability
• exchange rate

Question 20

Factors to consider when assessing a country as a production location

Answer 20

• cost of production
• skills and availability of labour force
• infrastructure
• location in trading bloc
• government incentives
• natural resources
• likely return on investment

Question 21

Definition of global merger and joint venture

Answer 21

A global merger is a permanent agreement between two businesses from two different countries to join together

• A joint venture is when two businesses join together to share their knowledge, resources and skills to form a separate business entity for a limited period of time

Question 22

Reasons for global merger or joint venture

Answer 22

Spreading Risk
• Businesses operating in different markets spreads the risks associated with fluctuating economic conditions
o If there is an economic downtum in one market, they may still gain sales in
another market that is less affected

Entering new markets/trading blocs
• Entering a market using a merger/joint venture is a quicker method than using organic growth

• Forming a joint venture with a local company allows the joining business to gain knowledge and business of the local markets

Acquiring national/international brand names/patents
• A patent is the legal right given by the government to an individual or business to make, use or sell an invention and exclude others from doing so
• The process of developing intellectual property can be a long and expensive process
• Using a merger/acquisition is a method businesses can use to get access to intellectual property or a business with a strong reputation

access to resources e.g land and raw materials
• This allows business to quickly gain access to resources which helps to speed up the production process
• Businesses have to be aware of any ethical issues concerning the resources as this can damage the reputation of the business e.g. perhaps being unaware that the company they are joining with uses child labour

increasing global competitiveness-

• By expanding, a business can benefit from economies of scale which leads to lower costs
• Businesses can reduce prices which can increase sales, leading to a higher market share

Question 23

Drawbacks of global mergers and joint venture

Answer 23

-. The initial cost of merging can be significantly high such as legal and regulatory fees,redundancy fees.= no guarantee s business will gain a return on their investment if it’s not successful

Diseconomies of scale can occur due to communication issues and lack of control as the business expands

A culture flaw between 2 business can affect the quality of the business = leading to poor sales

Question 24

(Marketing) what is glocalisation and global market strategy

Answer 24

-Global marketing strategy is the process of planning, producing, placing and promoting a business’s product or service to the global market

• Glocalisation is a strategy where businesses aim to reach customers globally and also take into consideration the needs of the local market

Question 25

Different marketing approach

Answer 25

Domestic/ ethnocentric

This approach is based on the belief that the company’s home country culture and marketing practices are superior to those of other countries
• There will be no changes to the products for overseas customers and marketing of the product will be the same
• E.g. Apple sells standardised products across their global markets e.g. iPhone,

Advantages
- can benefit EOS as the product is standardized and produced on a large scale
- cost also lower as there’s no investment in product development to adapt products into new markets. Also not required for market research
- brand consistency

Disadvantage
-potentially lose sales as the product not tailored to needs and wants of market overseas
- approach can lead to cultural insensitivity and may not resonate with local customers in other countries

Geocentric/. Mixed approach
This approach utilises the benefits of standardised products but also tailors products to meet the needs of local markets overseas while maintaining a consistent brand image across markets
Advantages
-. Sales likely to increase as it’s tailored to meet the needs of customers
- help develop brand loyalty in overseas markets

Disadvantage-
Cost associated with product developments
Requires detailed market research

Expensive to implement due to increased training and relocation costs

Polycentric -The business adapts their marketing strategy to the local market, providing products tailored for that market.

Advantages -
By tailoring products and strategies to local needs, increase in sales and local brand loyalty due to the market orientation of the product

Better cultural understanding: Companies adopting a polycentric approach tend to have a deeper understanding of local cultures
.
Disadvantages-Difficult to compete with
established local brands

b. Lack of global consistency- won’t gain EOS
A drawback is that average product costs will increase due to new product development

Question 26

Adapting alter marketing mix to global markets

Answer 26

Place-. Business have to identify the best channel for distribution or get the p/s to the customer in a particular market
Also need to consider the available tech as many transaction take place via e commerce

Product- business need to consider how much they should modify or adapt their products to meet new market overseas-consider on ethnocentric or geocentric

Price- should consider consumer incomes, cost of production and taxes
- also consider the product life cycle the product is at within that stage
- also the state of the economy(. Recession or boom)

Promotion- needs to be adapted to meet to language and cultural differences. Maybe social media is an effective method

Question 27

Adapting and ansoff matrix into global market

Answer 27

Ansoff’s Matrix is a strategic planning tool that helps businesses identify potential growth opportunities by analysing their product and market strategies

• The matrix consists of four growth strategies - market penetration, market development, product development, and diversification

• Expanding outside of domestic markets generates risks for the business, so they need to ensure that they adopt the right strategy
• By doing so, businesses can effectively penetrate global markets and achieve long-term success

Market penetration
Carries the least risk - if a business already operates in a market and launches another product, customers are already familiar with the business

Market development
• Businesses may have to adapt the product to meet the needs of customers in global markets who have different preferences
o This strategy carries more risk as customers may not understand the product

Diversification
• This strategy involves businesses developing new products for new markets
• A high risk strategy as the business may have limited knowledge about the market

• This strategy requires a deep understanding of local market conditions and consumer behaviour to ensure that the new product and market are a good fit for the business

Product Development
• A growth strategy where a business aims to introduce new products into existing markets

• This requires market research to identify the target market’s needs and preferences, developing products that meet those needs, and adapting the marketing mix to ensure that the products resonate with local consumers

Question 28

What is cultural diversity

Answer 28

Cultural diversity recognises the ideas, customs and social behaviour of a particular people or society in different global markets

• Businesses need to take into account the different groups of people have different interest and values

0 E.g. In India, beef and pork are not consumed for religious reasons. Fast food outlets have adapted their menu to take this into consideration

Question 29

Features of global niche markets

Answer 29

• global niche market are a small segment of the global market that are characterized y unique and specific needs and preferences

Features
- excellent customer service = due to customers usually paying higher prices for the p/s
Innovation- ensures that the product are highly differentiated and maintain USP that meets the needs of the target market
Prioritize profit over market share = so they can re invest into improving the product/ service
Emphasis on quality= need to ensure its exceptional as they are targeting wealthier customers who pay for high value products
Understanding needs/ wants of customers

Question 30

Adapiting the marketing mix to suit global niche

Answer 30

• price- involves offering a pricing strategy that is attractive to the target audience

-A business that produces organic products can offer competitive prices similar to mainstream products to attract consumers who are looking for healthy and sustainable options.
Alternatively, a business that produces sustainable fashion can offer a premium price that reflects the exclusive and high-quality nature of the product

Promotion
Adapting the promotion to suit a global niche market involves using marketing communication strategies that resonate with the target audience E.g. Abusiness that produces luxury products can use influencer marketing to communicate the exclusivity of the product to wealthy customers

• Place
Adapting the place to suit a global niche market involves choosing a distribution strategy that is convenient for the target audience E.g. A business that produces gluten-free products can distribute them through local specialty stores and online platforms to reach customers

Question 31

Cultural and social factors in global marketing

Answer 31

• Businesses need to understand cultural differences in areas such as values, beliefs, customs, and traditions, and adapt their marketing strategies accordingly

• Tastes and preferences vary greatly between cultures and regions
• Businesses must ensure that their products/services are adapted to meet local preferences

Businesses must ensure that their marketing messages are translated accurately and appropriately= otherwise can damage the brand and reputation and loss of credibility . So business should consult local experts

Unintended meanings can arise when businesses use images, symbols, or language that have different connotations in different cultures
• E.g. The colour white symbolises purity andi innocence in Western cultures, but it represents death and mouming in some Asian cultures
Shouldn’t be offensive

Question 32

What are MNCs

Answer 32

• multinational company (MNC) is a business that has operations in more than one country.
  Such as Starbucks

Factors such as globalization have control growth in MnCs

Key Reasons for the Growth of MNCs

Gaining access to lower costs of production

Many MNCs have taken advantage of lower production costs from operating in developing economies. In some cases this can be achieved by outsourcing and offshoring production to suppliers based in those economies

Avoiding Protectionism

Question 33

The impact of MNCs on the local economy

Answer 33

Advantages
- lead to job creation for the local community
- mnc may offer more competitive wage than local business
-may offer better condition working than local business

Disadvantage
- may exploit workers if employment regulation weak or not enforced
- tend to establish production facilities in regions where labour cost lower = pay relatively low wages
- may not create jobs for local workers as they may relocate worker from their own country to work abroad

Advantages for local business
- help boost the local economy creating opportunity for local business
-if population beneftting from higher wages= may spend more on local business products

Potential opportunities for joint ventures and partnerships with MNC who seek to gain knowledge of the local market = may learn new skills and production method that allow them to become more efficient

Disadvantage
- MNCs ‘at reduce the supply of workers available to local business if they offer better pay and working conditions
- MNC able to produce at lower cost = compete with local business= may lose local customers
- If local business lose customers = may cause unemployment for workers of local business

Advantages for local community and environment

Local residents benefits form job opportunities
Mnc often invest to improve infrastructure = better roads, transportation, access to water and electricity =help local community in addition to helping the MNC operate more efficiently

• mnc may have to pay taxes to local authorities = these funds can be reinvested back into local community

Disadvantage
- may cause damage to local environment during the production process

Question 34

Impacts of MNCs on the national economy

Answer 34

— there will be an inflow of money into the country if MNCs decides to invest into a country through FDI
Advantages
- initial large sum of money that enter the country to pay for the investment =this money enriched local firm or citizens who now have more money available to spend in the economy

• if this money is reinvested back into local community = generate new jobs, boost economic growth

Disadvantages
• Assets from the home country are now owned (or partly owned) by foreign businesses
• The local firms or individuals who have sold the asset, may not reinvest the money into the local economy but may move it abroad/offshore

—MNC can help improve the balance of payment of a country as the FDI flows into the country.
Any goods and services exported for sale by the MNC will generate further
inflows to the country s balande of payments
Negative impact: If the MNC buys raw materials or equipment abroad (imports), there is a flow of money out of the country
• If the MNC send profits back to their home country, it will also represent a flow of money out of the country

— mnc can bring new tech and skills to local business = improve efficient and productivity = helping domestic business becoming more competitive in the national and international markets

—consumers have wider choice of g/s
Lower price of MNC pass their cost advantages in form of lower price
Better quality
Improved living at = due to higher income and job creation
Negative impact: However in the long run, MNCs can push domestic businesses out of the market leaving customers with less choice
• This may lead to MNCs exploiting customers with higher prices and low quality products as they have limited choice

— can impact business culture = as it can encourage entrepreneurship
However MNC may demonstrate unethical behavior and have a company culture of exploitation

— potential to get tax revenue=improve public service and infrastructure
However, MNCs seek to maximise profits and will try to reduce their tax liabilities

• Transfer pricing is a method used by MNCs ty shift profits from where they are generated to countries with lower tax rates

Question 35

What are business ethics

Answer 35

Business ethics refers to the principles and norms that govern business behaviour

Unethical actions can damage the brand and result in a loss of profitability
• Unethical actions are usually pursued as they result in higher levels of profit for the business (or its owners)
• Customers around the world are putting more and more pressure on brands to behave ethically

Question 36

Stakeholder conflict

Answer 36

• a stakeholder is an individual or group that has an interest or can be affected by a business
  Different stakeholder have different level of power and different priorities= create the potential for conflict

Management v workers

Management may be more focussed on output or reducing costs, than on worker safety or creating a positive working environment— want to be safe and have a comfortable environment in which to work

Owner vs management
• The owners (shareholders) want management to maximise the business profits and, for example, be less interested in the mental well-being of the employees
• The management work daily with the employees and will often sacrifice some profit in the interest of looking after their workers health and mental well-being

Company profit vs resource depletion
The owners (shareholders) aim to maximise output so as to generate increasing levels of profit
• Higher output requires more rapid usage of natural resources and generates more environmental damage

Question 37

Ethics- pay and working conditions

Answer 37

• MNCs may demonstrate unethical behaviour by exploiting workers in LEDCs by paying them lower wages
Also behave unethically by providing poor working conditions in order to cut cost
Another issue is child labour where school aged children are working extremely long hours

Question 38

Ethics - environmental issues

Answer 38

Waste management
Many developed countries have regulations about how businesses should dispose of their waste
Developing countries -There is usually poor waste management infrastructure
• MNCs can also dispose of waste in LEDCs at a cheaper cost which allows them to maintain their high profits

Emissions- often released from factories or from the products made by MNCs

Question 39

Ethics- supply chain considerations

Answer 39

• The supply chain consists of all the suppliers involved in the manufacturing of product/service
• Many MNCs have suppliers in different countries and increasingly they are held accountable for the working conditions of these suppliers
• Many MNCs are now taking action to reduce unethical labour practices as part o their Corporate Social Responsibility (CSR)

Some MNC have manufacturing facilities in counties where child labour is common= using child labour in their supply chain = face backlash which can damage their brand and affect sales

Also exploitation of labour= low wage and poor working conditions

MNCs are under increasing pressure from governments, customers and institutions such as the International Labour Organisation to take action to ensure their product/services do not involve exploited labour

Question 40

Ethics- marketing considerations

Answer 40

—misleading labeling

Labelling must comply with the regulation of the country
• The information must be correct and not include any false
information aimed at generating higher sales
• Examples of misleading information include false information about
Size, feature, functionality

— promotional activities should not be offensive or illegal

Question 41

Factors to consider when controlling MNCs

Answer 41

-Political influence
enforce laws and regulations which businesses need to adhere to
• When MNCs establish themselves in a new country, they must work within the institutional framework of that country
• MNCs in developed countries are often able to exert pressure on national governments through lobbying to create favourable conditions for their business

MNCs in developing countries can influence governments as they may establish deals which are beneficial to politicians like bribe

Legal control
Governments can enforce legislation and regulation to control the operations of
MNCs
E.g protecting producers and consumers from anti-competitive or unfair practices = can boost economy

Pressure groups

Pressure groups are organisations that operate to influence company and public policy in the interest of a particular cause
- do lobbying by taking issue directly to gov, protest, strikes

Social media
-involves the interaction of people via electronic devices using social media platforms

• MNCs can use social media to their advantage to spread awareness and prom their business on a global scale

• However social media also enables stakeholders to freely share information about the unethical behaviour of MNCs

• MNCs are forced to address the issues raised on social media as there is a hi level of public exposure and information can spread rapidly

• MNC influence on social media may be limited in some countries as they have regulations in place to manage social media power
• E.g. The Chinese and Russian governments closely monitor social media to regulate information being spread