business theme 4 Flashcards
what are the 3 measurements of HDI
life expectancy
mean years of schooling
gross national income
what is foreign direct investment (HDI)
direct investment into a country leading to a business becoming a multi national corporation.
What are reasons for FDI
investment in expanding industries and fast growing profitable businesses
access to local resources e.g copper
access to local knowledge and skills
methods of FDI
setting up a production facility
a joint venture with a local firm
buying assets in a foreign country
causes and features of globalisation
developments in transport and communication
migration
trade barriers
transnational companies/FDI
politics
labour force
methods of protectionism / trade barriers
tarrifs (tax on imports)
subsidies - gov grants to support businesses to lower prices or make a product
quotas - limits set on imports/goods sold
risks of protectionism
forces businesses to use expensive domestic suppliers which decreases competitiveness
encourages businesses to move abroad to avoid trading barriers
what are trading blocks and examples
agreements between nations to allow free trade and collaboration
e.g NAFTA and ASEAN
What are the 3 indicators of growth
Gross domestic product
Literacy rate
HDI
What is protectionism?
Protecting domestic businesses against foreign competition and limiting imports into the country
What are the benefits of free trade?
Provides growth opportunities for both markets
People can access goods and services from other countries for cheaper
Businesses can access raw materials for cheaper than before
What are the benefits of trading blocks?
Easier to source labour if free movement is permitted
Businesses can benefit from comparative advantage as products are cheaper and better quality
Provides opportunities to expand into new markets
What are the drawbacks of trading blocks?
Small businesses are vulnerable to large international competitors
Tensions with regions outside of the trading blocks
conditions that prompt trade:
market saturation - look for markets w high growth potential
competition - domestic competition can make competing at home unprofitable
shareholder pressure
Conditions that prompt trade: pull factors
acquiring brands and intellectual property - easier to buy foreign businesses intangible assets than develop them
economies of scale - risk bearing economies of scale by operating in different int. markets
cost savings - in developing countries e.g labour and tax
what is off -shoring ?
moving manufacturing to a part of the world with lower production costs
what is outsourcing?
moving a business function to a specialist external provider in another country
what are 3 benefits of offshoring?
lower wages
access to a skilled workforce
access to raw materials
what are the drawbacks of offshoring?
damage to business reputation in home country e.g primark
as economics develop production costs also rise
cultural and language barriers
what are 3 benefits of outsourcing?
allows the business to upgrade
takes advantage of a countrys comparative advantage
access to specialist facilities and knowledge without having to directly invest
what are 3 drawbacks of outsourcing?
reliance on third parties - limited control
cultural and language barriers
businesses are less flexible if tied into a contract with a specialist provider
what is comparative advantage?
a company’s ability to specialise in producing goods that they can produce more efficiently or at a lower opportunity cost than other countries
explain how growth affects the product life cycle
moving into international markets can extend the life cycle for products that have reached the maturity phase
this might involve:
a) exporting the product to the new country
b) using innovation to ensure product meets the cultural needs and standards
why might businesses want to assess a potential market before investing in FDI?
to reduce the risk and ensure its easy to do business in that country because usually trading abroad can result in high costs and complications that they want to avoid.
5 points in the country trading market checklist?
- growth in disposable incomes - will there be demand from customers?
- ease of of doing business- time and cost of setting it up and running it + trade barriers
- political stability
- stable exchange rate
- corporation tax rate
factors contributing to a countrys infrastructure?
ports
rail
roads
quality of hospital
airports
broadband
quality of schools and universities
assessment of a country as a production location checklist
costs of production (including labour)
skills and availability of labour
location in a trading bloc
government incentives
developed infrastructure
natural resources
what is a merger?
two companies join together to create one organisation
(usually one company survives and the other dissapears)
what is a joint venture?
two separate businesses collaborating to achieve a shared goal e.g creating a 3rd business
barriers to entry when trying to access an international market?
low brand awareness
cultural/ language differences
knowledge of the market
additional costs incurred through exporting
reasons for global mergers and joint ventures ?
spreading risk
global competitiveness
entering new markets
aquiring national and international brands
access to intellectual property
what is intellectual property?
intangible property that is the result of creativity such as patents and brands
the significance of exchange rate fluctuations on a company depends on what 3 things?
elasticity of demand - some products are less responsive to a change in price
the relative economic growth in international markets
the use of fixed contracts (pre agreed exchange rate)
mitigates the impact of fluctuations
what is the polycentric approach
differentiating a brand and product to ensure it fits a specific niche in an international market
one positive and one drawback of the polycentic (international) approach
p: products are better targeted to meet the needs of specific countries and cultures
d: this method is expensive and it may be difficult to launch new versions to compete with established local brands
what is the ethnocentric (domestic) approach
little or no attempt to adapt to the international market
advantages and disadvantages of ethnocentric (domestic) approach
adv: standardisation and economies of scale
neg: may not take into account cultural differences across nations
what is the geocentric (mixed) approach
slight adaptations and tweaks to suit each international market also referred to as a glocal approach
pros and cons of geocentric approach
products may be tailored to the local market with lower development costs
what are features of a global niche market
a clear understanding of the needs and wants of customers
an emphasis on quality
expertise in the product area
what is a global niche market
businesses that operate in global markets but target niches instead of mass global markets
factors contributing to international desirability
the internet and ecommerce
social media
ease of travel
music film and tv
cultural and social factors in successful marketing
cultural differences
unintended meanings/ bad branding
language differences
different tastes
how does MNCs create jobs
opportunities for development of skills and growth in pop as people relocate to work there
a new factory can create hundreds of jobs
how does a MNC influence wages and working conditions
high demand for labour in a local area is likely to create more competition for skilled workers if unemployment is low(employment is high )
if supply doesn’t increase to meet this demand wages will rise
how do MNCs affect the community and environment
they can cause conjestion and pollution in the local area
to counteract this the MNC might build parks or improve transport links and invest in facilities like schools, rail links and other infrastructure
how does MNCs affect social enterprise
large MNCs may set up charities and social enterprises to support the local community. may do this to fulfil their social responsibility or develop a positive image
what is foreign direct investment (FDi)
when an overseas business locates a facility is a foreign country and invests a huge amount of capital into that country.
the investment could lead to spending in the economy which creates jobs and lowers unemployment
what may FDI lead to
reduction in national debt
increased employment
increased incomes
increased tax revenue
what factors are influencing the actions of MNCs
political influences
social media
pressure groups
taxation policies
legal controls
name 4 international stakeholder conflicts
shareholder
customers
governments and NGO’s
communities
what are global ethics that businesses must consider?
environmental considerations
pay and working conditions
marketing considerations
supply chain considerations
