Global Markets And Business Expansion 4.2 Flashcards
What are push factors?
Negative impacts in the domestic market which encourages trade abroad
How may a saturated market be a push factor?
When majority of the consumers in the domestic market already have the product, there is little opportunity to grow and therefore selling abroad will open new markets
How may competition be a push factor?
A competitive market means firms are competing against low cost, low prices and high quality firms which can be hard to compete with. This therefore means that selling abroad reduces competition.
What are pull factors?
These are opportunities in foreign markets that may encourage domestic firms to move abroad
What are the two main types of pull factors?
Risk spreading and economies of scale
How is economies of scale a pull factor?
Selling overseas means increasing the size of production. This means increased output and therefore costs are spread across more units. This means lower costs and therefore lower prices.
How is risk spreading a pull factor?
Any economic challenges being faced by the domestic market may not be faced overseas therefore spreading operations overseas may promote sales and spread the risk
What is the difference between offshoring and outsourcing?
Offshoring is shifting jobs to another country whereas outsourcing is shifting jobs to other organisations
Why can offshoring be good for a firm?
Moving labour to another country can be cheaper for the firm. Lower costs could mean lower prices
How can offshoring be bad for a firm?
If a business is seen to be exploiting cheap labour abroad such as sweatshops or poor people, this can harm reputation
What is the main reason why firms outsource?
Reduces costs by giving a proportion of the workload to a third party
How may a business want to extend its product life cycle ?
It could sell into overseas markets. This means that if the product is in the decline phase, this could be used as an extension strategy
What are the 4 main factors that determine the impact of a movement of the ER?
- Elasticity of demand
- Economic growth in other countries
- Fixed contracts
- Economic risk
How does elasticity of demand determine the impact of a movement of the ER?
If a product is elastic, they are subject to large changes on the exchange rate.
How does being in fixed contracts determine the impact of a movement of the ER?
If a business has already made a fixed contract for exports in the future, changes in the ER may not be significant
What is meant by economic risk?
For example if the currency is pegged to another currency, if this currency was to change, this could cause economic risk
What are the two ways a business can gain a competitive advantage through?
Cost competitiveness and differenetiation
What is the impact of a skills shortage on a business?
A firm that has a high long-term access to skilled labour and low-cost labour have an advantage
What are the 5 main factors a business uses when doing an assessment of a country as a market?
- Level of growth and disposable income
- The ease of doing business
- Infrastructure
- Political stability
- Exchange rates
How does levels of growth and disposable income impact the assessment of a market?
If a market has slow growth or low disposable income, this may be an indicator that demand is low and it may not benefit firms to sell there
How does the ease of doing business impact the assessment of a market?
Barriers to doing business include: bureaucracy, patents, protectionism and regulation. If a market has lots of these, it may make it an unattractive market
How might infrastructure in a country impact the assessment of a market?
When a business has good infrastructure, this means that transportation cost and land may be more easily accessible and so, it may make it more attractive.
How might political stability impact the assessment of a market?
If a country has a highly level of corruption in the government or high regulations from political instability, this may make it more unattractive.
How might exchange rates impact the assessment of a market?
A business may want to sell in a country with a strong exchange rate as this makes imports cheaper into that country
What are the factors that impact the assessment of a country as a production location?
- Cost of production
- Skills and availability of labour
- Infrastructure
- Location in a trading bloc
- Government incentives
- Ease of doing business
- Political stability
- Natural resources
- Return on investment
How do government incentives influence a production location?
Some governments offer incentives for business to set up their production in that country. These include tax breaks, lower interest rates, cheap land or free trade
How does the likely return on investment influence the production location?
A business may use SWOT or PESTLE to determine the external environment of a business. It may also use decision making techniques to determine the likely return on investment of operating there.
What is the difference between a joint venture and a joint merger?
A joint venture is when a business joins with another for a project that one part wouldn’t be able to finance alone. A merger is when 2 businesses integrate operations
What are the 2 ways a business may joint venture
Franchising and licensing
What are 6 ways in which a joint venture/merger may be beneficial to a business?
- Spreading risk over different countries
- Entering new markets and trade blocs
- Acquiring national and international brand names and patents
- Access to intellectual property
- Securing resources of suppliers
- Maintaining or increasing global competitviness
What is intellectual property?
This includes, trademarks, copyrights, patents and trade secrets
Why may acquiring national and international brand names or patents be a reason for a business to merge or venture.
A small business that may lack patents, brand awareness etc may want to venture/merge with a bigger corporation to increase their brand awareness
