Global Markets and Business Expansion Flashcards
What are the reasons for remaining in the UK?
-History of the business
-Maintain control over quality
-Better customer service
What are the reasons for manufacturing elsewhere?
-Lower production costs
-Falling demand in home markets
-Supply of workers
What is a push factor?
Factors that push a business to expand outside of their domestic country
e.g.
-low growth opportunities
-need to diversify
What is a pull factor?
Encourage businesses to operate within markets abroad which present growth opportunities
e.g.
-way to extend product lifecycle
-emerging economies abroad
What is offshoring?
A business may decide to move part of the production process, or all of it, to another country
What is outsourcing?
When a business hires an external organisation to complete certain tasks or business functions
How can companies extend the product life cycle?
-Discounts/offers
-Change the packaging
-Add new features
-Promotion strategies
What do you do to assess a country as a market?
-Levels of growth and disposable income
-Exchange rates
-Ease of doing business
-Infrastructure
-Political stability
How do you assess a country for production?
-Cost of production
-Skills and availability of labour force
-Trade blocs
-Natural resources
-Government incentives
What is the ease of doing business in a market?
Looking at regulations and policies that are important for starting and growing a business
e.g. taxes, trading, contracts
What is political stability in a market?
Operating in places where political systems are stable
e.g. riots, civil war, terrorism
What is infrastructure in a market?
-Includes roads, transportation, communication, buildings, reliable power systems and premises
-Good infrastructure improves the production process and delivery of the goods which reduces costs and increases sales
What are levels of growth and disposable income in a market?
If disposable incomes increase that can mean a growth in consumption leading to more sales
What are exchange rates in a market?
-If the £ strengthens it will be more difficult to sell to that market for UK firms
-If the £ weakens it will be easier to sell to that market for UK firms
What factors do you consider when choosing a country as a production location?
-Trade blocs
-Skills of labour/availability of labour
-Ease of doing business
-Distribution links
-Infrastructure
What are the costs of production?
Labour, electricity, gas, operating costs
Benefits:
-Reduces production costs
-Increases profits
-Gain competitive advantage by passing the cost reductions onto customers
What is skills and availability of labour force?
Low unit labour costs, high productivity, level of skills and education, size of workforce
Benefits:
-Reduces unit cost per item
-Can improve quality of product
-Increased rate of production increases efficiency
What is location in a trade bloc?
Access to larger markets, reduction in trade barriers
Benefits:
-Increased market
-Reduced imports/export costs
-Reduced political intervention
What are government incentives?
Keen to attract foreign businesses so offer grants, tax breaks or investment
Benefits:
-Reduces initial investment of relocation
-Incentive for local government support
What are natural resources?
Locating closer to areas with large abundances of raw materials is easier and less expensive to transport
Benefits:
-Reduced transport costs
-Closer to materials which improves the efficiency of transportation
What is the ease of doing business for production?
E.g. basic legal systems, political systems
World Bank Factors:
-Ease of starting a business
-Getting electricity
-Ease of exporting
-Enforcing contracts
-Ease of receiving construction permits
What is political stability for production?
-The political stance and role of the governments in setting laws, tax levels and trade policies
-Consider the stability of the legal and political environment as well as regularity of changes
-Instability includes: riots, civil wars and terrorism
What is a merger?
A combination of two previously separate firms forming a completely new business
What is a joint venture?
A separate business entity is created by two or more parties which involves shared ownership
What are the factors of a merger?
-Increased economies of scale
-Sharing technology and knowledge
-Long term
-Increased market share
-Businesses integrate completely
-Shares issued in name of new business
-Creation of a new third business
What are the factors of a joint venture?
-Increased economies of scale
-Two businesses working together
-Sharing technology and knowledge
-Can be long term or short term
-Can create a new third business
What are the reasons for a merger or joint venture?
-Spreading risk over different countries/regions
-Enter new markets and trade blocs
-Acquiring national/international brand names/patents
-Securing resources/supplies
-Maintaining/increasing global competitiveness
What are the problems with mergers and joint ventures?
-Unrealistic objectives, may overestimate the benefits
-Communication and culture, may have very different practises leading to a clash of cultures
-Management issues, lay offs and cost cutting measures may lose key employees
-Finances, can be costly or involve expensive legal fees
What is competitive advantage?
An advantage over competitors gained by offering consumers greater value
E.g. lower prices or greater benefits which justify a higher price
What factors influence competitiveness?
-Lower price
-Differentiate e.g. USP, brand name, quality
What is cost leadership?
Producing the same quality products as competitors but at a lower price
Can be due to:
-Good resource management
-Efficient production methods
-Waste minimisation
What is differentiation?
Producing a unique product or giving a unique service which can allow a premium price to be charged
E.g. performance, style, design
What factors influence global competitiveness?
-Movements in the exchange rate
-Labour skills shortages
How does exchange rates influence global competitiveness?
-A sharp depreciation will make exports cheaper and more competitive
-An appreciation will make export prices more expensive
-Affects outsourcing business if they’re abroad
How will a skill shortage affect global competitiveness?
-Workers lack the right qualifications in an industry
-Skills influence productivity and competitive advantages
