Theme 4 Flashcards
BRIC economies
Brazil
Russia
India
China
MINT
Mexico
Indonesia
Nigeria
Turkey
What is a BRIC economy
They are superpowers. Superpowers are countries or groupings of countries with global influence and power
What are MINT economies
a group of countries with the potential to realize rapid economic growth
What is an economy
An economy is the state of a country or region in terms of the production and consumption of goods and services and the supply of money
UK GDP growth rate
1.7%
Implications of economic growth for individuals and businesses
Growing economies start to see changes in employment patterns, working women, migration, the rise of multi-job, homeworking and search for a better work-life balance
Indicators of growth
GDP per capita
Literacy
Health
Human Development Index
Specialisation
Is the process of concentrating on and becoming expert in a particular subject or skill
In terms of countries it means that a country will have industries in which it leads the world
Benefits of specialisation (esp to India)
Increased productivity and output, this means reduced average costs and EOS
Scale of production can be increased to gain EOS
Gives a comparative advantage over the next best country esp in regards to call services and telecom
Increased productivity will lead to GDP growth and increasing sales will boost economy
Downside of specialisation
A country may become over reliant in one industry (all eggs in one basket)
Other countries may become cheaper in the same industries posing a threat to the country that specialises in that industry
FDI
Foreign Direct Investment- this means that a business from one country decides to establish themselves in another county
FDI and business growth
FDI may decide to build factories or other business premises which will create jobs for the host nation eg Microsoft,Facebook,Amazon have all set up in India
A more specialised example may be Vodafone who bought an existing business in India and developed it with the latest telecom ideas so MNCs would bring skills and technology to emerging countries
Globalisation
Is the process by which the world becomes more integrated and interconnected in relation to culture and markets on a global scale
Trade Liberalisation
Is the process by which international trade is made easier through relaxation of tariffs and barriers
General Agreement on Tariffs and Trade (GATT)
Was created as a means to kickstart the globe after the world war. It creates the living standards of developing nations allowing exportation of global goods to more industrialised nations
Benefits of GATT
.New jobs for unskilled workers
.Labour intensive production manufactures benefitted from comparative advantage due to their cheap costs
World Trade Organisations
WTO was created GATT in 1994 and exists to reduce barriers to trade and ensure that countries keep to the agreements they have made
WTO can be seen as the overseers of global trade, tariffs and barriers
Benefits of trade liberalisation
.Takes down barriers to trade between nations, removing quotas and tariffs creating more lenient imports and exports
.Helps to lower prices and broaden the range of quality goods and services available
Drawbacks of trade liberalisation
.Increased trade can mean pollution or over-cultivation of land to keep up with new demands
.Developing nations can become economically dependent on industrialised ones
Politics in globalisation
Used to be carried out by individual governments who wanted to protect the interest of their country however now happens on a global scale through summits and meeting between heads of state
The planet is now one market
Who are the G7 countries
Germany
Canada
France
Italy
Japan
UK
USA
Globalisation in transport
Cost of transporting goods long distances between countries has been reduced by cargo containers as well as cheaper air flights offer business personnel needing to attend meetings in different countries
Globalisation in communication
Reduces cost of communication through the internet. Via messaging and other telecommunications sources such as Skype means that communication is free and far flung countries are no longer isolated from the market
Globalisation caused by significance of MNCs
Globalisation has been caused by some large companies setting up or buying existing businesses in other countries. These stem from the G7 countries.
Ways investment flows have increased through globalisation
Globalisation caused by FDI. Businesses will invest in a business or set up production inside a trading bloc to get around tariffs
Can give a country income, jobs, GDP growth and skills transfer
Globalisation through migration
The free movement of people between nations to work. Provides a source of low income, able bodied workers
Global Work Force
Is one that is free to seek better jobs in other countries
this can cause resentment in host nations as some citizens may believe their jobs are being taken
Structural Change
Is an economic condition that occurs when an industry changes the way it operates eg a developing country may move from agriculture to a manufacture approach as they become more industrialised
Protectionism
Is the theory or practice of shielding a country’s domestic industries from foreign competition by taxing imports, imposing quotas or passing laws
What is a tariff
Is a tax placed on an import to increase its price and decrease its demand in an effort to make consumers switch consumption to domestic goods
Impact of tariffs on businesses
Imposing a tariff may help a country to protect new domestic industries from foreign competition as well as protect ageing inefficient industries. However if a business faces stiff tariffs they may have to reduce production meaning having to delayer employees
Reason tariffs are imposed
To raise tax revenue which can be used to fund a country’s social factors
For environmental reason eg sin tax on cigarettes
Protectionism (:
Advantages of tariffs
It can ensure better job security
Tariff protection allows domestic businesses to sell more because they gain price advantage compared to imports
Disadvantages of tariffs
Tariffs may just increase the costs to the consumers
Other countries may retaliate by imposing their own tariffs on imports
What is an import quota
A quota is a physical limit on the quantity of goods imported or exported eg 10,000 units a year
Why are quotas imposed
Allows a country to be sure of the amount of a good imported
Uses of import quotas
Imposed to protect jobs of domestic producers
Import quotas are also imposed as a bargaining chip to be used in negotiations on trade
Advantages of import quotas
Protects domestic industries
Safeguarding of jobs
Make imports more expensive making domestic products look cheaper and favourable
Disadvantages of import quotas
Require heavy paperwork and complex
Other countries may do the same as a result
Government Legislation
Is when a country puts in place laws to protect their domestic industries from floods of cheap imports
Advantages of government legislation
Can be used in preventing fake imports into countries
Can be used to repel businesses to protect domestic markets
Disadvantages of government legislation
Can also repel opportunities for development and profits through FDI
Every import cannot be checked as some are still fake
Domestic Subsidies
Money is given to local producers to make their goods cheaper on the domestic market
Advantages of domestic subsidies
Encourages businesses to increase their production, this can lead to more jobs being created and tax paid back to the government
Disadvantages of domestic subsidies
Domestic subsidies are a form of protectionism and so is open to retaliation from other nations in return. This may mean higher tariffs or quotas on our export
Trading Blocs
Is a type of intergovernmental agreement to reduce regional trade barriers and increase trade liberalisation between countries in those blocs. This can be implemented as free trade areas, customs unions etc
3 Main Trading Blocs
EU
NAFTA
ASEAN
EU Trading Bloc
27 countries excluding the UK with the notable exception of Switzerland who is afraid if it joins, the EU imposed tax may scare MNCs such as Nestle away. It is a single market place where there is the free movement of money, goods, people and services between all 27 countries
ASEAN Trading Bloc countries
Thailand
Philippine
Malaysia
Vietnam
Burma
Laos
Cambodia
Brunei
ASEAN Trading Bloc
Is a large market consisting of 600 Million. Founded in 1927 to promote economic and social growth in the region. Since then it has expanded with the possibility of China joining the bloc which they have negotiated with for eased movement and travel of people and products
NAFTA Trading Bloc
Consists of United States, Canada, Mexico. Was created with the simple idea of giving the customers in the North American region cheaper goods. Without import tariffs between the countries the goods are less expensive which is popular with the consumer but not with the business
Expansion of trading blocs
The process of more countries joining an existing trading bloc, thereby making it expand. These benefits might be; access to larger markets, economies of scale by producing and selling more, enhanced competition and migration with a good supply of able bodied labour
Opportunities of trading blocs
Freedom to trade
Enhanced Market
Protection from international competition outside the bloc
Freedom of movement of people
Drawbacks of trading blocs
Dominance of developed countries in global trading
It can kill off domestic business in developing nations
Can reduce the national identity as countries become standardised, westernised and Mcdonaldised.
Push Factor
Makes a business consider selling abroad
-High Levels of domestic competitions
-Saturated markets with only low growth opportunities
Saturated Market
A saturated domestic market means that a business or group of businesses has sold a product to just about everyone who will buy one
E.g. Chinese smartphone manufacturers; Apple, Samsung, Huawei and LG all now sell to overseas markets
High levels of domestic competition
High levels of competition in the home markets mean that a business will look abroad to where there may be less competition and lucrative market opportunities to trade
Pull Factors
Motivates a business to consider expanding abroad
-Significant opportunities to sell to overseas markets
-Ability to spread risk across more markets
-Ability to gain economies of scale
Opportunities in overseas markets
Exporting is one way for a business to increase sales and this can contribute to increased profits
• An export opportunity may arise when demand increases for your product in other countries
Ability to spread risk
A key benefit of exporting to other nations is that it allows the business to spread the risk
• By selling in other countries the business is less vulnerable to changes in the domestic economy
Ability to gain economies of scale
Achieving greater economies of scale will allow the business to become more cost-competitive
Offshoring
When a business relocates some of its production process to another country. This may be to cut costs or to take advantage of a trading bloc
Outsourcing
This is where a business delegates to a third party to produce for it eg payroll
Outsourcing examples
Production
Payroll
Purchasing
Delivery
Extension of product life cycle
Extending the product lifecycle by selling in multiple markets
• This means being able to sell a product that might be in decline in the UK into a new international market as a new product
Assessment of a country as a market
Disposable income
Ease of doing business
Infrastructure
Political stability
Exchange rate
Disposable Income
Is the amount that a customer has to spend after their bills have been paid. It helps a business assess whether people in that country can afford the product
Disposable income per household
Household disposable income is the amount of money that a household earns each year after taxes
Growth of disposable income
The growth rate of a disposable income can signal potential opportunities in that country to sell to
Ease of doing business
Is an index created by the world bank group. Higher rankings with a loaner number indicate a better and simpler regulations for a business
Infrastructure
Is the basic physical and organisational structures and facilities (roads, buildings, power supplies) needed for the operation of a society or business
Why is infrastructure important for sales
Infrastructure can refer to roads and physical structures which a business can use to deliver products. Infrastructure can also mean telecommunications as without it a business cannot communicate with its customers and supplier
Political Stability
Each new government may see to impose a series of law which will need to be adhered to eg environmental laws, employment laws etc which may ultimately affect the business operations
Exchange Rates Acronyms
Strong
Pound
Imports
Cheaper
Exports
Dearer
Weaker
Pound
Imports
Dearer
Exports
Cheaper
Assessment of a country as a production location
Costs of production
Skills and availability of labour force
Infrastructure
Location in trading bloc
Government incentives
Ease of doing business
Political stability
Natural resources
Likely return on investment
Costs of production
Main cost of production is wages of employees. A business may asses the national minimum wage of that country to forecast their profits with that cost ad whether they will make a return on investment
Skills and availability of labour force
A high unemployment rate means large pool of candidates for every position
Infrastructure in assessment of a country as a production location
A business will need to assess if the country has adequate road, rail, sea and air transport systems so goods can be exported and imported easily
Location in trade bloc
Some business may start production in a country as a way into a trade bloc. This could be to avoid protectionism tactics from countries and take advantage from the leniency in trade
Government Incentives
The government of a country may offer incentives for businesses to set up there. One way is through tax incentives in hopes to attract FDI and another example is through government grants
Natural Resources
A business may need raw materials from that country as import can be expensive and push the costs of production. An example of a country with natural resources is China with rare Earth elements
Likely return on investment
If a business sets up production in another country, it is expensive eg hiring staff, buying machinery etc. investors will need to know that these expenses will be returned with profits
Joint ventures
A joint venture is a commercial enterprise undertaken jointly by 2 or more parties. They retain their distinct identities and is a temporary arrangement
Mergers
A merger is where 2 businesses come together to become one, on a permanent basis eg Orange and T mobile became EE
Characteristics of joint ventures and mergers
Spreading risk over different countries/regions
Entering new markets and trade blocs
Acquiring national/international brand names
Spreading risk with a joint venture
Moving production or sales into another country can be very complex and risky for a single business to go in alone. Often a business might decide to enter into a joint venture to share the risk
Spreading risk with a merger
Risky can also be reduce by entering into a more long term arrangement with a merger. This can be accessing a wider market and audience as well as access to fresh expertise
Advantages of joint ventures
Access to knowledge and resources
Access to new opportunities such as new markets
Shared exposure to risks and financial responsiblit
Disadvantages of joint ventures
Many risks involve and complexity of integrating operations
Coping with different cultures, management styles etc
Brand name acquisition
A business may look to merge with another business in order to acquire a lucrative brand name
Patent acquisition
A joint venture allows investors to move their products to market quickly with less financial risk
Securing resources and supplies
A business in one country may need resources that are only found in another country and so they may enter into a joint venture to secure access to these resources
Maintaining global competitiveness
A joint venture or merger may be essential to ensure that the business remain competitive in a dynamic global market
Exchange rates
Is the. Value of one currency in terms of another
Appreciations and exports
If the pound appreciates, gets stronger against other currencies then UK exports to other countries will be more expensive
Appreciation and imports
As the pound appreciates- gets stronger- against other currencies then imports to the UK will be cheaper
Depreciation and exports
If the pound depreciates- get weaker- against other currencies it will make exports to those countries cheaper
Depreciation and imports
If a business imports while there is depreciation it will make those imports more expensive
Competitive advantage
A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices etc
Strategies used to gain a competitive advantage
Low cost leadership
Differentiation
Low cost leadership
This is where the business will seek to produce the same quality products as its competitors at a lower price
-They may gain cost leadership due to: waste minimisation, efficient production methods etc
Differentiation
A strategy where a business will produce a unique product or give a unique service. According to Kotler this may include; performance, style, design etc
Skill shortages and their impact on international competitiveness
The lack of ability to find skilled worker can cause a decline in competitive advantage as businesses who differentiate the mot find it hard to locate expertise in that niche field
Global Marketing
A global marketing strategy means that a business doesn’t differentiate its products or marketing between countries. The same product is sold with some fine tuning of the product price, promotion etc
Global Brands
A global brand views the world as a global marketplace and creates products that will suit a world audience
Global Marketing Decisions
In global marketing promotional messages may be the same all over the world leading to reduced average marketing costs, economies of scale
Advantages of global marketing
Economies of scale can be achieved in both production and distribution
Power in the market as the brand is known
Disadvantages in global marketing
Differences in consumer needs and wants
Differences in the legal environment
Glocalisation
Is used to describe products and services that are both developed and sold to global customers but designed so that they suit the needs of local markets
Glocalisation and the local market
Globalisation is where businesses are aware of the identities of the local market and as a result combine the base product to fit that particular markets
The PEG Approach
Polycentric
Ethnocentric
Geocentric
Polycentric
This is the International approach and is where the business adapt the marketing mix to maximise sales in different countries
Ethnocentric
Is an approach which believed that success in one country can mean success in other countries markets therefore no adaptation to the product is done
Geocentric
Is an approach where a business aims to achieve economies of scale but cater for the need of an individual market to maximise sales
2 variations of the 4Ps
Standardised
Adapted
Product Standardised
International standardisation states that as people travel the world they can be assured that where ever they go the product they buy will be the same
Product Adapted
Coca-Cola makes its products sweeter for some markets to take account local tastes
In Canada it has taken the decision to make it less sweet to bring it in line with other countries
Place Standardised
Distribution in national markets such as the UK will consist of the traditional distribution chain; manufacturer, wholesaler, retailer, consumer
Place adapted
In an overseas market there will be more parties involved because the goods need to be moved around a foreign market where the business practices may differ from the local practice
Price Standardised
Setting an international price is complex as it would be unethical to demand the same price from Mexico and Brazil as it does from France due to the difference in disposable income
Price Adapted
Business needs to consider factors such as; the cost of transport, import duties, exchange rates etc
Promotion standardised
This type of marketing strategy conforms to work across different cultures and countries to promote a product. This reduces costs and ensures the brand is known worldwide
Promotion Adapted
Advertising messages in countries may have to be adapted because of language, political climate, cultural attitudes and religious practices
Application and Adaptation of Ansoff’s Matrix to global markets
Ansoff Matrix is a management tools that helps business leaders decide how to grow their business. Ansoff suggested that a there were only 4 real strategies that a business would follow
Niche Market
Is a small specialised market which caters for a particular product or service
Cultural diversity
Having cultural sensitivity means understanding that people all over the world have different values and interests
-International Business
-Cultural differences eg greetings rituals
Global Niche Market
Is a very small segment in each country but the combination of all the countries together make enough demand to make the business profitable. A global market niche is highly specialised and is characterised by very loyal customers and premium prices
Advantages of selling in a global market niche
There is less competition and greater customer loyalty
Prices are likely to be higher and therefore greater profits
Disadvantages of selling in a global market niche
Vulnerable to market change
Co-ordinated communications may be more difficult across differing brands and markets
Product in a global niche market
Products that succeed in global markets are usually at the premium end of the market
Price in a global niche market
Global niche markets provide an opportunity for businesses to charge premium prices a the products tend to be more unique
Place in a global niche market
A business may choose to sell to select and exclusive outlets and distributors. They may also choose reach and sell to the target audience online
Positives of MNCs
.Improves infrastructure eg communication links rails and roads
.Creates Employment
.Increases skills base
.Increases the standard of living
Negatives of MNCs
.Widens the poverty gap
.Profit Leakage
.Low paid jobs
.Poor safety record
Cultural Factors
Includes thing such as beliefs, moral values, traditions, language and laws held by a country
Social Factors
Include thing such as; lifestyle, religion, economic wealth, family structure and education etc
High Context Countries
Establish social trust first
Value personal relations and good will
Agreement by general trust
Negotiations slow and ritualistic
Examples: Chinese, Korean, Arab
Low Context Countries
Get down to business first
Value expertise and performance
Agreement by specific and legalistic contract
Negotiations efficient as possible
Examples: Italian, English, North American
Different Tastes
In different countries the customers demand different things due to tradition and what they are used to. For example caramel and apple is sold in the USA but not in the UK or Australia due to different tastes
Language
Sometimes translating things into different languages may result in mistranslations and may also be costly to translate into different languages
Unintended Meanings
Sometimes meaning may have no significance to the host country however other countries may have a problem with wordings and abbreviations. Eg Toyota MR2 didn’t do well in France as MR2 ounces like the word ‘Merde’
Factors used in controlling MNCs
Political influence
Legal control
Pressure groups
Social media
Political influence
Governments can apply pressure to attempt to change the behaviour of MNCs eg for MNCs that have been avoiding paying tax
Pros of political influence
If MNC gains political approval they may find trading smoother and easier
MNCs may wish to get political approval from governments which in return may help set up in a new country
Cons of political influence
Politicians ca be bribed
MNCs bring in large amounts of wealth therefore weaker governments might ignore unethical activities
Legal Control
Some countries put in place legislation to control the activity of an MNC or to stop them exploiting their country eg child labour laws and environmental laws
Benefits of legal control
Laws can be passed at any point
MNCs cannot break these laws as they are rigid
Cons of legal control
MNCs may simply move production to another country
MNCs can afford expensive legal defences
Pressure groups
Pressure groups are organisations which campaign for changes in the law or new legislation in specific areas eg Greenpeace, Friends of the Earth
Pros of pressure groups
Can raise public awareness of MNCs activities
Pressure groups can create PR problems for MNCs eg boycotting
Cons of pressure groups
The pressure group must be large to have any form of influence
The size and wealth of MNCs mean that smaller pressure groups pose little threat
Social Media
Social media networks can be used to orchestrate a boycott on an MNC which will affect the sales and reputation of the MNC
Pros of social media
Social media is powerful and peaceful
Can reach a large audience quickly
Cons of social media
Social media may only cause short-term change
An MNC can ignore or debunk social media through PR tactics easily
