The business environment

Question 1

What are the 1st 3/9 types of conducting business internationally?

Answer 1

• Offshoring - Contracting out activities to other countries
• Exporting and importing - physically moving products/materials
• Foreign direct investments - build or acquire facilities in another country and manage directly

Question 2

What are the 2nd 3/9 types of conducting business internationally?

Answer 2

• Licensing - production of goods/services to a company in another country to deliver under license
• Joint venture - where two organisation shares resources
• Wholly owner subsidiary - a company directly owned/operated by a holding company

Question 3

What are the 3rd 3/6 types of conducting business internationally?

Answer 3

• Multinationals - based in one country, operate in many
• Transnational companies - operate in many but decentralised
• Global companies - Closely integrated operations across many countries

Question 4

What are the 6 PESTEL analysis factors?

Answer 4

• Political
• Economic
• Socio-cultural
• Technological
• Environmental
• Legal

Question 5

Explain the PESTEL factor political

Answer 5

• Rules of foreign ownership
• Level of state intervention
• Governmental attitudes to foreign investment
• Policy on labour law
• Political stability
• Corruption

Question 6

Explain the PESTEL factor economic

Answer 6

The theory of absolute advantage

Question 7

What is the theory of absolute advantage?

Answer 7

The theory of absolute advantage states that there is an economic advantage of counties to specialise in the production of goods/services that they can produce cheaper than other countries.

Question 8

Explain the PESTEL factor socio-cultural

Answer 8

Socio-cultural factors recognise that different so cities have different practices and understandings.

Question 9

What are Hofstedes 5 dimensions of national culture?

Answer 9

• Power distance
• Uncertainty avoidance
• Individualism/collectivism
• Masculinity/femininity
• Long-term and short-term orientation

Question 10

Analysis of high/low power distance

Answer 10

• High: Accept inequality of power
• Low: Less acceptance of power inequality

Question 11

Analysis of high/low uncertainty avoidance

Answer 11

• High: not comfortable with ambiguity
• Low: happy with ambiguity

Question 12

Analysis of high/low Individualism/collectivism

Answer 12

• High: Focus on individualism
• Low: Focus on collectivism

Question 13

Analysis of high/low masculinity/femininity

Answer 13

• High: roles are clearly defined
• Low: gender roles overlap

Question 14

Analysis of high/low long term and short term orientation

Answer 14

• High: concerned about future
• Low: more short-term orientated

Question 15

Explain the PESTEL factor technological

Answer 15

Technological factors include all aspects of infrastructure - ports, airports, internet etc…

Question 16

Explain the PESTEL factor environmental

Answer 16

Environmental factors refer to natural resources - oil, coal, minerals, land, water

Question 17

Explain the PESTEL factor legal

Answer 17

Things such as trade agreements (European union etc…)

Question 18

What are the steps of pestel analysis?

Answer 18

• Identify external forces
• Identify most relevant/most likely to influence industry
• How the organisation considers the forces (changes in practice)

Question 19

What are porters 5 forces of analysis

Answer 19

• Threat of new entrants
• Bargaining power of suppliers
• Rivalry among competing sellers
• Bargaining power of buyers
• Availability of substitute products

Question 20

Analysis or porters factor: intensity of rivalry

Answer 20

greater rivalry = less profit
Rivalry increases when:
- Many firms, none dominate
- Slowly growing market, so firms fight for share
- High fixed costs encourage overproduction
- Loyalties (family businesses, political support) prolong overcapacity

Question 21

Analysis or porters factor: threat of new entrants

Answer 21

Affected by entry barriers:
- Costs of equipment/facilities
- Lack of distribution facilities
- Customer loyalty to established brands
- Small companies lack economies of scale
- Subsidies/regulations favour existing firms

Question 22

Analysis or porters factor: Bargaining power of buyers

Answer 22

Greater power of buyers = less profit for seller
Buyer power increases if:
- Buyer takes high % of sellers sales
- Many alternative products/suppliers available
- Product is high % of buyers costs, creates incentive to swap supplier
- Cost of switching to other supplier is low

Question 23

Analysis or porters factor: bargaining power of suppliers

Answer 23

High power of supplier = less profit to buyer
Supplier power is high if:
- Buyer takes small percentage of sales
- Few alternative products/suppliers
- Product is a low % of buyers costs
- Cost of switching supplier is high

Question 24

Analysis or porters factor: availability of substitute products

Answer 24

Easy to substitute = less profit for competing firms
Substitution is easier if:
- Buyers are willing to change buying habits
- Tech developments enable new products/services
- New suppliers enter market