Paper 1- Theme 4.2- Global markets and business expansion (4.2.1, 4.2.2, 4.2.3, 4.2.5) Flashcards
Factors that prompt trade and whether they are push or pull factors
what’s the acronym
Saturated market (push) Competition (push) Offshoring and outsourcing (pull) Risk spreading (pull) Economies of scale (pull)
SCORE
define saturated market
when a market is not generating new demand for a product or service
How product life cycle can prompt trade
Product life cycle can be extended by releasing or rebranding in another country
-product starts again from Launch stage (extending the life cycle of the product)
(e.g. Kitkat was starting to enter decline and so launched in Japan and now is growing again)
Factors affecting a country’s suitability as a market
- ease of doing business - levels of bureaucracy, government restrictions/ support, leniency of regulations
- levels and growth of disposable income (leads to growth of middle class)
- political stability - corruption, civil wars and poor governance can make successful trading difficult
- levels of infrastructure- facilities that support everyday economic activity
- exchange rate - if exchange rate are higher, imports become cheaper but exports more expensive
Explain how Exchange rate affects price of imports and exports and profit
exchange rate is value of one country’s currency compared to another
if UK exchange rate gets stronger: imports become cheaper but exports more expensive
- this means any profit made in foreign country’s is worth less in UK
- if the country you locate in gets a stronger exchange rate, your profit brought back to your home country will be worth more
Weak currency helps….
exporters
product is cheaper for foreign consumers
Strong currency helps….
importers
can buy more products for same amount of money
Exchange rate acronym to remember how the strength of the current affects cost is imports and exports
SPICED
Strong Pound Imports Cheap Exports Dear
Factors that affect the suitability of a country as a production location
- cost of production
- skills and availability of workforce
- natural resources
- location in trade bloc - lower export taxes, easier travel of goods and services
- government incentives
- likely return on investment - heavy investment required to offshore, decide whether its economically viable
- infrastructure
- ease of doing business
- political stability
4.2.5
Global Competitiveness
define global competitiveness
the ability of a business to compete in domestic and foreign markets against foreign firms
define exchange rate
the price of one currency, expressed in terms of another
if pound appreciates
- UK exports are more expensive for other countries
- UK imports are cheaper for UK businesses
how does the exchange rate affect businesses
- price of raw materials
- how much there product costs overseas
- profit repatriating may lose value
- fluctuating exchange rates can act as barrier to entry
define a commodity rich economy
other countries import from them
e..g Brazil
extent to which exchange rates impact a business depends on
- price elasticity (if inelastic may not be as affected)
- level of competition and substitutes
- reliance on imports or exports
- extent to how much profits are being returned from foreign countries back home (repatriating)
extent to which exchange rates impact a business depends on
- price elasticity (if inelastic may not be as affected)
- level of competition and substitutes
- reliance on imports or exports
- extent to how much profits are being returned from foreign countries back home (repatriating)
what is competitive advantage
a feature of a business that allows them to be more successful in their given market
strategies to achieve competitive advantage
cost leadership - lowest unit cost so can charge low prices
product differentiation - making the perception of your brand as unique and superior to other brands
strategies to achieve cost leadership
- outsourcing
- offshoring
- cost minimisation in production
- increasing productivity (capital intensive, culture/motivation)
strategies to achieve product differentiation
- quality of product or service
- brand perception
- wide distribution- across all major channels
- renowned product development and innovation
- USP
define a skill shortage
what may cause it
lack of workers with the right qualifications in the industry
- lack of spend on training & apprenticeships by business
- government supplying wrong type of education schemes
the impact of skill shortages on international competitiveness of firms
- demand for highly skilled workers exceeds supply (particularly for firms following a differentiation leadership strategy)
- drives up wages (undermines cost leadership strategy)
actions that governments can undertake to overcome skill shortages
- invest in training
- provide more apprenticeships and higher education schemes
- encourage inward migration of skilled workers
- provide incentives for firms to invest in training or education
actions that businesses can undertake to overcome skill shortages
- recruit from overseas, entice with higher wages
- offshore labour
- outsource to specialists
- increase capital intensive production
- increase current productivity
- provide more training than competitors
