The business environment Flashcards
What are the 1st 3/9 types of conducting business internationally?
- 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
What are the 2nd 3/9 types of conducting business internationally?
- 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
What are the 3rd 3/6 types of conducting business internationally?
- Multinationals - based in one country, operate in many
- Transnational companies - operate in many but decentralised
- Global companies - Closely integrated operations across many countries
What are the 6 PESTEL analysis factors?
- Political
- Economic
- Socio-cultural
- Technological
- Environmental
- Legal
Explain the PESTEL factor political
- Rules of foreign ownership
- Level of state intervention
- Governmental attitudes to foreign investment
- Policy on labour law
- Political stability
- Corruption
Explain the PESTEL factor economic
The theory of absolute advantage
What is the theory of absolute advantage?
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.
Explain the PESTEL factor socio-cultural
Socio-cultural factors recognise that different so cities have different practices and understandings.
What are Hofstedes 5 dimensions of national culture?
- Power distance
- Uncertainty avoidance
- Individualism/collectivism
- Masculinity/femininity
- Long-term and short-term orientation
Analysis of high/low power distance
- High: Accept inequality of power
- Low: Less acceptance of power inequality
Analysis of high/low uncertainty avoidance
- High: not comfortable with ambiguity
- Low: happy with ambiguity
Analysis of high/low Individualism/collectivism
- High: Focus on individualism
- Low: Focus on collectivism
Analysis of high/low masculinity/femininity
- High: roles are clearly defined
- Low: gender roles overlap
Analysis of high/low long term and short term orientation
- High: concerned about future
- Low: more short-term orientated
Explain the PESTEL factor technological
Technological factors include all aspects of infrastructure - ports, airports, internet etc…
Explain the PESTEL factor environmental
Environmental factors refer to natural resources - oil, coal, minerals, land, water
Explain the PESTEL factor legal
Things such as trade agreements (European union etc…)
What are the steps of pestel analysis?
- Identify external forces
- Identify most relevant/most likely to influence industry
- How the organisation considers the forces (changes in practice)
What are porters 5 forces of analysis
- Threat of new entrants
- Bargaining power of suppliers
- Rivalry among competing sellers
- Bargaining power of buyers
- Availability of substitute products
Analysis or porters factor: intensity of rivalry
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
Analysis or porters factor: threat of new entrants
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
Analysis or porters factor: Bargaining power of buyers
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
Analysis or porters factor: bargaining power of suppliers
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
Analysis or porters factor: availability of substitute products
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
