Paper 1- Theme 4.2- Global markets and business expansion (4.2.1, 4.2.2, 4.2.3, 4.2.5)

Question 1

Factors that prompt trade and whether they are push or pull factors

what’s the acronym

Answer 1

Saturated market (push)
Competition (push)
Offshoring and outsourcing (pull)
Risk spreading (pull)
Economies of scale (pull)

SCORE

Question 2

define saturated market

Answer 2

when a market is not generating new demand for a product or service

Question 3

How product life cycle can prompt trade

Answer 3

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)

Question 4

Factors affecting a country’s suitability as a market

Answer 4

• 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

Question 5

Explain how Exchange rate affects price of imports and exports and profit

Answer 5

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

Question 6

Weak currency helps….

Answer 6

exporters

product is cheaper for foreign consumers

Question 7

Strong currency helps….

Answer 7

importers

can buy more products for same amount of money

Question 8

Exchange rate acronym to remember how the strength of the current affects cost is imports and exports

Answer 8

SPICED

Strong
Pound
Imports
Cheap
Exports
Dear

Question 9

Factors that affect the suitability of a country as a production location

Answer 9

• 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

Question 10

4.2.5

Answer 10

Global Competitiveness

Question 11

define global competitiveness

Answer 11

the ability of a business to compete in domestic and foreign markets against foreign firms

Question 12

define exchange rate

Answer 12

the price of one currency, expressed in terms of another

Question 13

if pound appreciates

Answer 13

• UK exports are more expensive for other countries

- UK imports are cheaper for UK businesses

Question 14

how does the exchange rate affect businesses

Answer 14

• price of raw materials
• how much there product costs overseas
• profit repatriating may lose value
• fluctuating exchange rates can act as barrier to entry

Question 15

define a commodity rich economy

Answer 15

other countries import from them

e..g Brazil

Question 16

extent to which exchange rates impact a business depends on

Answer 16

• 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)

Question 17

extent to which exchange rates impact a business depends on

Answer 17

• 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)

Question 18

what is competitive advantage

Answer 18

a feature of a business that allows them to be more successful in their given market

Question 19

strategies to achieve competitive advantage

Answer 19

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

Question 20

strategies to achieve cost leadership

Answer 20

• outsourcing
• offshoring
• cost minimisation in production
• increasing productivity (capital intensive, culture/motivation)

Question 21

strategies to achieve product differentiation

Answer 21

• quality of product or service
• brand perception
• wide distribution- across all major channels
• renowned product development and innovation
• USP

Question 22

define a skill shortage

what may cause it

Answer 22

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

Question 23

the impact of skill shortages on international competitiveness of firms

Answer 23

• demand for highly skilled workers exceeds supply (particularly for firms following a differentiation leadership strategy)
• drives up wages (undermines cost leadership strategy)

Question 24

actions that governments can undertake to overcome skill shortages

Answer 24

• 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

Question 25

actions that businesses can undertake to overcome skill shortages

Answer 25

* recruit from overseas, entice with higher wages * offshore labour * outsource to specialists * increase capital intensive production * increase current productivity * provide more training than competitors