External Environment - Globalisation issues Flashcards
1
Q
Globalisation and its benefits
A
- Access to developing countries with growing living standards (aspirational population)
- Access to over 700 million customers, much larger than home market
- creating trade relationships often reduces/removes tariffs on imported goods
- Allows for the sharing of expertise and knowledge between business and industries
- Access to cheaper operating resources such as Tech components or labour
-Access to new markets allows for business growth = increased revenue = retained profits = being able to spread risk
2
Q
Globalisation and its costs
A
- Particular countries can be politically unstable and socially unstable (Risky)
- Language and currency differences may also reduce the success of international trade
3
Q
Effects of globalisation on UK businesses
A
- cost savings through purchasing, production and marketing economies of scale
- choice of cheaper locations as businesses no longer stick to the one country
- higher consumer expectations as customers can now browse the internet and compare products very easily
- increased competition as a result of the increase of global companies setting up in the UK and online
4
Q
Reasons for growth of MNC’s - Increased market share & dominance
A
- Existing on a larger scale allows for market domination
- Your business quickly becomes associated with a certain product/service & become the go to business
5
Q
Reasons for growth of MNC’s - Closeness to local markets
A
- Setting up as a MNC in another country instead of a business that sets up in only country but exports to other countries
- It allows the MNC to engage with the local community
- The UK company have an established production plant in Australia. The product range in these countries differ from the UK. Local tastes dictate
6
Q
Reasons for growth of MNC’s - Often leads to lower labour costs particularly when setting up in less developed countries
A
- There is a minimum wage disparity between the EU & 3rd world countries
- The EU aims to establish a minimum wage in developing countries but it is very hard to establish
- If EU businesses set up in 3rd world countries and pay their minimum wage it would look very bad so they may have to pay a higher wage
7
Q
Reasons for growth of MNC’s - Falling cost of transportation of people and goods
A
- Cost of freight and passenger travel continues to come down, as competition increases & cost of oil drops
- Meaning it’s more economical for producers to export around the globe
- This will result is transportation being less of a reason against setting up in a foreign country
8
Q
Methods of growth - FDI
A
- FDI occurs when overseas companies set-up or purchase operations in another country
9
Q
Methods of growth - The main reasons often quoted for FDI
A
- To access new overseas markets or better serve existing markets
- To take advantage of lower manufacturing and wage costs
- To access new technology and skills, particularly in R&D
- To locate a business function near clusters of similar or related companies
10
Q
Methods of Growth - Two methods of FDI
A
- Creating new facilities in the host country: this method takes time and effort and finance. e.g. building, hiring, training.
- An advantage is that it can effectively replicate corporate culture
- Building over an existing company in the host country: A quick way to expand into new markets
- The advantages are overseas company can gain knowledge & experience of local markets and can often buy loss making companies and “Turn them around”