business unit 4 Flashcards
1
Q
What is market saturation?
A
It occurs when a market no longer shows new demand for firms products. Product is entering decline stage and company has to innovate, add value, introduce new products in order to maintain competitiveness and remain in the market.
- reduced profit margins, increased competition, price pressure, less demand.
2
Q
What is a merger?
A
When 2 or more businesses join together when operating overseas.
3
Q
What is a joint venture?
A
a joint venture is when 2 or more independent businesses collaborate on a specific venture.
4
Q
Benefits of a joint venture
A
+ it spreads risks and cost of investment
+ joint venture might understand the culture and language of certain country better and explain it to the other business
+ they might know business rules and regulations that can help guide the joint venture, and make it easier to get the venture going and avoid any difficulties
+ local partner may have an existing supply chain which reduces costs and time of finding a new one and doing a research which might be expensive.
+ local partners may have access to resources, legal patents or brand names which the MNC wishes to take advantage of
5
Q
Drawbacks joint venture
A
- costs are shared, however profits as well
- there might be a clash of culture that causes difficulties and prevents efficient operations
- decision making may need to be jointly made, which can take time and result in conflicts
- some local partners may steal ideas from the MNC and set up as a rival business.
6
Q
Takeover?
A
Takeover is when one business buys more than 51% share ownership of another.
7
Q
Reasons for merging
A
- entering new markets
- securing resources
- maintaining/increasing global competitiveness
- reducing competition
- accessing supply chain
- sharing costs/risks
- economies of scale
- acquiring international brand names
8
Q
Benefits of a merger
A
- share knowledge of local market, adapt products to meet customers needs, higher demand/market share
- share assets such as existing locations/machinery, it saves costs therefore higher profit margins
- quick way to enter a new market, it saves time and therefore getting first mover advantage, which increases competitiveness and gives customer loyalts.
9
Q
Drawbacks of a merger
A
- have to share profit and revenue, resulting in loss of income therefore less chance to expand
- there might be a conflict between workers/managment which can result into staff turnover,, lowering productivity and performance
- communication problems, therefore culture clashes, mistakes are more likely to happen which can result in poor quality and bad reputation.
10
Q
Push factors?
A
- conditions that make a business current location less desirable and may cause it to leave and move elsewhere.
- saturated markets
- high competition
- issues with quality production
- high labour costs
- restrictive and costly legislation
- weak economies
11
Q
off shoring?
A
- the relocation of a business function, usually manufacturing or customer service, to a location overseas.
12
Q
Pull factors?
A
- conditions that exist elsewhere that appear to be more beneficial and may cause a business to move to those areas to take benefits of them.
- cheap labour
- ease of doing business
- political stability
- trading blocks
- low tax rates
- government incentives
13
Q
outsourcing?
A
- is where a business function is contracted out to a third party. It may or may not be relocated.
E.g. Nike hires a different company to produce their products, they dont own the factory, however they pay the third party to produce them
14
Q
Benefits off/out
A
+ cheaper workers
+ materials are cheaper
+ skilled workers
+ trading blocks access
+ no fixed costs (outsourcing)
15
Q
Drawbacks off/out
A
- poor quality
- unethical which leads to bad reputation
- cost of transportation
- culture differences
- communication problems
16
Q
Extending the product life cycle
A
- Products may be in a different stage in a different country
- businesses might add value, or introduce the existing product to the new market (market development)
17
Q
Factors to consider when choosing a location for production
A
- costs of production
- skills and availability of labour force
- infrastructure
- location in the trade block
- government incentives
- ease of doing business
- political stability
- natural resources
18
Q
Costs of production
A
- in countries such as China and India, costs of production are lower as lower wages are paid and materials might be cheaper if they are made in that country. This allows business to put their prices lower or increase profit margins.
- However, they might be seen as unethical and gain bad reputation
19
Q
Skills and availability of labour force
A
- it will increse production efficiency and quality of products
- it will ensure good reputation
- however its expensive and it might increase costs of the business
20
Q
Infrastructure
A
- refers to the systems and services that an economy needs to function effectively, these include transport links and communications
21
Q
Infrastructure benefits
A
+ choosing a production location with good infrastructure makes it easier to run an effective business, it reduces start up costs and saves valuable time.
22
Q
infrastructure drawbacks
A
- however, other factors might be more important such as avaliablity of labour.
DEPENDS ON NATURE OF THE BUSINESS.
23
Q
Location in the trade block
A
- if they produce in EU they will have benefits that EU members do, they wont have to pay tariffs and taxes when exporting to other EU countries
- this cuts costs, lower prices or higher profit margins
- however, in the EU trade block there are a lot of regulations that have to be followed which not all businesses would do
24
Q
Government incentives
A
It refers to anything a government is willing to do to attract FDI
- lower tax rates, grants, training of the labour force, all paid by government.
lower cost
25
Ease of doing business
number of barriers business faces when entering new market.
Its easier to produce in countries with less strict employment laws, lower tax and not as much government regulations
26
Political stability
- business is less likely to be disturbed by political events beyond its control
- pressure groups, boycot
27
Likely return on investment
- it refers to profits made from an investment such as setting up a production location in another country.
+ it helps evaluate cost-effectiveness of setting up production in a particular location. Considering factors such as labour cost, raw materials, taxes and tarrifs. Location with lower costs and higher ROI can increase profitability.
+ ROI analysis considers the market access and potential for sales growth in a specific location. Such as, ease of reaching customers and proximity to target markets, expanding market share. Better market access and higher growth potential lead to higher ROI.
- ROI calculations are based on assumptioms about future costs, revenues and market conditions, which may not alaways be accurate which can result into a decision that is not relibale and can introduce uncertainty.
28
International business ethics
1. environmental considerations
- emissions
- waste disposal
- business is seen as more ethical if they reduce waste and recycle.
29
supply chain considerations
who makes the products and were
- exploitation of labour (low wage, bad treatment)
- child labour
30
marketing considerations
- misleading product labelling (fat free, but it contains high levels of sugar)
- inapporprriate promotion - something sexists, racist
31
Groups that might experience the conflict because of the trade-off, being ethical or making more money
1. workers
2. consumers
3. managers
4. suppliers
32
E.G.
- paying good wages to workers means they are happy, however business has higher costs therefore managers might not like it as they want lower costs
Shareholders want high dividents but higher costs mean lower dividents
Customers might need to pay higher prices because costs for business increased
33
Benefits of being ethical
+ good reputation, therefore more popular which leads to higher demand and higher sales revenue
+ added value, consumers might be willing to pay higher prices which leads to higher profits
+ gain competitive advantage/USP it helps stand out, which leads to better marketing and bigger market share
+ it motivates workers as they are treated well, which increases production and quality of the products which results in customer satisfaction
34
Drawbacks of being ethical
- higher costs, which leads to lower profit margins and can result in stakeholder conflict
- putting higher prices, not everyone will pay them which lowers the demand
- lower production levels, cant exploit workers, may have to tak ebreaks, less production and less supply which can lead to delays and higher costs.
35
Porters strategic matrix
- a method that can be used in the development of a corporate strategy, helps to identify the sources of competitive advantage that a business might achieve in the market.
36
Cost leadership
- striving to be the lowest cost provider in the mass market
They try to keep prices the same but gain higher profit margins (cut cost) or they want to lower prices to gain market share
- firms need a large market share in order to achieve cost leadership - economies of scale and negotiating with suppliers
37
Benefits/Drawbacks
+ can increase demand if price is competitive, the firm gains competitive advantage
- Can result in lower brand image (customers might perceive it as low quality if prices are lowered)
38
Differentiation
- operating in a mass market with a unique position (USP)
A firm needs to offer a level of differentiation from the competitiors (quality, design, brand, customer service)
39
Benefits/Drawbacks
+ can charge premium prices
- can be expensive to build up differentiation (market research and development...)
- copycats, they offer lower prices therefore customers might go to them and demand will fall.
40
Focus
- targeting a narrow range of customers, its used by small and specific firms
Cost focus: minimizing cost in a narrow market (ALDI)
Differentiation focus: differentiation within a narrow market (FERRARI)
41
Benefits
+ can help create a high level of customer satisfaction/loyalty as they understand them well
- not a lot of market share
42
Limitations of Porters Strategic Matrix
- ignores external factors such as Covid-19, weather, inflations
- only one tool, Ansoff and Boston Matrix if used together more useful
- ignores profit margins, profitability which are crucial indicators of business performance, therefore it might only lead to short term gains
Profitability affects a company's ability to invest in RandD, marketing and other areas that are crucial for maintatining competitiveness. Other companies might take the lead and higher sales and their market share.
43
Imports?
Imports refer to bringing goods/services from other countries to the home country
- Fulfills demands of goods that are lacking.
44
Exports?
Exports refers to selling goods/services from the home country to other countries.
- Creates more foreign income and it increases global presence and trade
45
Specialisation
- means economies or businesses concentrate their resources in areas that they do best, excess output is the traded.
(Ghana is one of the biggest producers of cocoa in the world)B
46
Benefits of specialisations
+ Allows for goods and services to be produced at a lower unit cost, which then allows a country to reduce its prices or increase its profit margins, which can increase competitiveness in the market
+ Helps increase the level of exports, leading to the development of international trade and economics
+ helps to create jobs, as workers who are skilled and specialize in their domestic economy have more opportunity for working leading to higher productivity and firms are more likely to hire them
47
Drawbacks
- vulnerability to external shocks such as changes in global demand and weather
- might become too reliant in only one area, if something happens to it the economy will suffer a lot, can lead to unemployment rises.
- limited market access: dependece on a narrow range of products can make it difficult to enter new markets or compete with diversified economies offering a wider range of goods/services.
48
Protectionism
- putting trade barriers (tariffs, quotas)
Its aim is to reduce number of imports coming into the country, therefore it reduces foreign competition for domestic businesses
- protects employment
- tax revenue goes to the government
- protect and help infant industries grow and develop
49
Tariff
- indirect tax (%) that is added to the cost/price of imports
50
Benefits tariffs
+ protecting domestic business, giving them an advantage in the market which protects jobs and helps infant businesses grow.
+ tariffs go to the governmnet, meaning they use it to invest into domestic health systems, schools and environment.
+ tariffs on imports would decrease the demand from abroad and consumers would buy products from domestic sector more, therefore there will be more national security as they are not overly relying on imports.
51
Drawbacks tariffs
- higher prices for consumers, this can impact lower income households who spend a larger porportion of their income on basic necesities.
- imposing tariffs can provoke retaliation from trading partners, leading to trade wars. This can escalate tension between countries and harm global trade relationships, leading to economic slowdowns.
However it does depend on how much of disposable income they have. And how big of a tariff is put and if prices even increase due to this. It also depends on PED, gas even if higher people will still buy it.
52
Quota
- limit on the number/amount of foreign goods imported in a country (once its met the remaining demand for the good has to come withing the country that set the quota)
53
Benefits quota
+ To protect domestic businesses, government benefits from tax
+ protects jobs, therefore government doesnt have to pay benefits to unemployed.
54
Drawbacks quota
- other countries might put the quota as well, therefore falls in exports
- supply chain distruptions, industries that heavily reliant on imported inputs will have limited access to imported materials which can lead to production delays, increased costs and decreased competitiveness for domestic businesses.
- limit the quantity of imported goods, reduced customer choice. This can lead to higher prices due to limited avaliability and competition.
55
Government legislation
- Laws imposed by the govenrment which may make importing more difficult for some countries and businesses.
E.G. New Zealand intends to ban smoking. EU regulations in sugar levels of food...
56
Domestic subsidies
- part of costs is covered by the government, financial aid is given by the government, therefore businesses can compete with foreign imports that might be cheaper than domestic ones.
57
trade liberalisation
- the process of making trade between countries easier, usually by the removal or partial removal of barriers to trade such as tariffs or regulations.
58
Benefits TL
+ exposes domestic industries to greater competition from foreign firms. This can drive effiency and innovation as businesses strive to remain competitive in the global market. In addition, they can access foreign markets more easily, which can help businesses expand their customer base, increase sales and achieve economies of scale.
+ increased trade can stimulate economic growth by providing opportunities for businesses to expand into new markets and by faciliating the flow of capital and knowledge across borders. This can lead to higher levels of investment, employment and income.
59
Drawbacks TL
- can lead to displacement of domestic industries that are unable to compete with foreign firms. This can result in job losses, especially in sectors that are less competitive on the global stage.
- increased relience on international trade exposes countries to risks associated with global economic fluctuations and trade disputes. Sudden changes in global demand or supply conditions can have significant impacts on domestic industries and employment.
60
WTO
- this is the only international organization that deals with the global rules of trade.
Its main focus is to ensure that trade flows as smoothly, predictably and freely as possible
61
Roles of WTO
- it encourages countries to draw up trade agreements
- ensuring members are trading by rules
- settling trade disputes
- encouraging new countries to join
62
Factors leading to increased globalisation of markets
63
Political stability
- trade agreements can lead to liberalisation of barriers, countries can faciliate flow of goods and investments across borders which increases globalisation of marekts
- countries that are more politicaly stable are more likely to attract foreign investment and engage in international trade, leading to greater integration into global economy
- can influence development and adoption of technology and communication infrastructure, ones that invest in it can faciliate the flow of information and goods across borders, therefore increasing globalisation
64
reduced cost of transport and communication
- travel and trade are easier, leading to more accessible markets, which can increase competitiveness and globalisation
65
migration
- labour is more mobile, migration has spread ideas and culture, leading to closer globalisation.
- it increased GDP by producing more leading to more global trade and growth
- Migrants can supply low cost labour which is attractive to businesses.
66
Structural change
- changes in basic ways a market operates
- from agriculture to manifacturing (switching sectors), as a result it might provide an opportunity for foreign firms to expand their global market.
67
Growth of the global labour force
- low cost labour, MNC's might outsource the production which increases international division of labour and globalisation of production
- more people are willing to migrate which increases globalisation of markets as sports for those were skills are needed are filled up and there is higher competition for jobs and higher wages.
68
Increased FDI
FDI is the value of investment from other countries/businesses into a country over a period of time.
- it enables MNC's to expand and locate in other economies which often brings new ideas and techologies into countries. Output is then exported which increases connections and trade links between economies.
- emploment caused by FDI creates income, which increases demand for goods and services and more trade which increases globalisation
- FDI enables MNC's to expand and benefit from economies of scale and lower input costs, enabling more people to buy/trade their products.
69
FDI however,
- its not the sole driver of globalisation
- trade liberalisation, driven by WTO has enabled FDI to increase
- expanding to free trade areas such as EU break down barriers
- political stability, attracts FDI and it increases globalisation
- transport and communication improved which speeds up process of globalisation
OVERALL, IMPORTANT BUT IS ONE OF FACTORS RESPONSIBLE AND IS DEPENDENT ON THE OTHERS.
70
Increased significance of global companies MNC's
71
Global marketing strategy
- business does not change any elements of its marketing mix and it uses a one size fits all approach (Apple)
72
Global localisation
- a business will change some or all of the elements of the marketing mix. They will adapt to meet the needs of the foreign market
73
Different marketing approaches
domestic/ethnocentric
+ cheaper, fast, economies of scale
- less customers attracted as it does not suit their needs
74
international/polycentric (4P's are adapted)
+ customers are more attracted as it meets their needs , therefore higher demand for the goods and services
+ good image, less risks of culture clashes
- expensive to adapt, higher cost, it takes time and money to research the market and make a change, might miss the 1st mover advantage.
75
mixed/geocentric
- if a lot is changed, expensive however attractive to customers
- if a little is chnaged, cheap but less likely to attract customers.
76
4P's
1. PROMOTION - activities may need to be adapted to be culturually relevant or avoid offense
2. PRODUCT - need to be changed to meet different needs and cultural sensibilities
3. PRICE - may need to be adjusted, have to consider costs, use of different pricing strategies based on market conditions and competitiveness
4. PLACE - may need to invest into warehousing, trasportation to ensure delivery on time and availability of products. Might outsource to different marekts to cut costs.
77
Global niche
- small part of a global market with certain special characteristics.
78
Characteristcs
- less competition
- good PED
- focus on small % of population
- meets a specific need
- less likely to benefit from economies of scale
79
Cultural diversity
- different markets have different cultural and religious sensitivities.
80
4P's niche
1.PRICE - higher
2.PLACE - online, certain shops
3.PROMOTION - might be TV, more likely online targeted ads
4.PRODUCT - usually same
81
Benefits
+ less direct competition can charge premium prices, higher profitability
+ more precise targeting of market segment which helps to increase sales
+ greater customer loyalty
+ good PED, unaffected by economic changes
+ smaller markets allow a business to develop more effective marketing and sales strategies, thereby boosting sales and profitability.
82
Drawbacks
- not being able to fully exploit economies of scale. average costs are higher
- niche is limited in size therefore it limits potential growth to a smaller group of customers
- future threat from mass market MNC's who may adapt their products, however selling with lower prices if it proves to be a lucrative market in the long run.
83
Exchange rates
the price of one currency expressed in terms of another
SPICED
STRONG POUND IMPORTS CHEAPER EXPORTS DEAER.
84
exchange rates overall
- they change constantly
- can be important for businesses that import or export because currencies need to be exchange for trade to take place
- changes in exchange rates may create uncertainty and can be the difference between making a profit or a loss (MNC's are prone to this)
85
exchnage rates chages
- appreciation is bad for exporters and good for importers
Businesses that import raw materials are likely to see a fall in costs of production
- depreciation is good for exporters and bad for importers
Businesses that import raw materials are likely to see an increase in costs of production
86
exchange rates, depends on
- by how much and for how long they change
- PED important, if inelastic no impact, who has elastic might change to chepaer substitute
- can reduce risks of currency fluctations, such as operating in one currency trading block (EU)
OVERALL, other factors migjt be more important, infrastructure, political stbaility, level of competition depending on nature of the product or business.
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