Theme 4 Flashcards
What is the growth rate of the UK economy like compared to emerging economies?
- UK economy has grown at 2.25% a year for more than 200 years and income doubles every 30 years.
- growth of car production in China is greater than any other country as businesses rely on China for production.
- India also shows substantial % growth but is dwarfed by china.
- In 2030 USA is estimated to still have the biggest economy with china close behind.
- India will have overtaken Japan to become the 3rd largest economy.
- The UK remains one the worlds biggest economy but is falling behind china and India.
- Brazil, Indonesia, Mexico, turkey and nigeria are also emerging economies.
Describe the growing economic power of countries within Asia
- China has become a regional hub which has drawn supplies and therefore helped growth of surrounding countries such as Cambodia, Indonesia and Vietnam.
- Vietnam and Indonesia are important for Asia due to their huge populations - Vietnam (95mil) and Indonesia (256mil).
- Asian countries follow blueprint of china and take education seriously which allows them to improve production of higher value-added products which will ultimately improve their economies.
- The rise of china has changed the focal point of global trade, impacting not only trade of goods but also services including tourism, banking and insurance.
Describe the growing economic power of countries within Africa
- Since 2000, there has been improvement in the economies of sub-saharan Africa.
- Not at the level of china and India, but more impressive than Latin America and Eastern Europe.
- Africa have had growth rates of 5.5% per year since 2000 compared to 2.5% in the west.
- Reasons for this growth could be because just before the year 2000, Britain pushed for debt write-offs in Africa, improving the macro economic balance in the main countries.
- Also, the China induced commodity price boom in 2004/5 and 2014 boosted economies across Africa with Nigeria (oil), Ghana (cocoa) and Kenya (coffee) being home to these commodities.
- Improved governance could also be responsible with reduced wars and increased number of democracy’s in Ghana and Nigeria.
Describe the growing economic power of countries in other parts of the world
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What are the implications of economic growth for businesses?
+ Accelerator effect on capital investment (rising demand and output encourages investment in capital).
+ Positive impact on business confidence, to for example introduce a new product or relocate.
+ Technological innovation due to greater investment.
+ Increased tax revenues for government - used to fund more spending on government services.
- Risks of higher inflation and higher interest rates.
- Inequality of growth of business could cause oligopoly.
How does economic growth increase trade opportunities for businesses?
- Increased profits from trade due to greater demand for goods and services as consumer confidence improves.
- Rise in living standards means customers have greater confidence in purchasing high end goods.
- Increased capital investment can allow for technological innovation improving output and efficiency resulting in greater revenue from trade.
How does economic growth change employment patterns?
- In the early stages of economic development, the key cause of growth is the switch from primary to secondary industries. Working in factories always generates more money than working the land. When this process slows, economic growth is harder to achieve.
- In order to achieve further growth there needs to be a shift towards tertiary and quaternary sectors where jobs are highly skilled and earn high incomes.
What are 4 indicators of growth?
- Gross domestic product (GDP).
- Literacy rates
- Health
- Human development index (HDI).
What is GDP?
- Gross domestic product is the value of all the goods and services produced in a country in the course of a year.
- economic growth is usually measured as the % change in this figure form one year to the next.
What are literacy rates?
- literacy rates are the % of people who are able to read and write.
- High levels of illiteracy may prove unsustainable for future economic development.
what are health indicators?
- Health indicators measure the health of a population through life expectancy, infant mortality and other factors.
- Government spending on healthcare has a direct impact on health.
what is the HDI?
- The human development index was created to find a single measure of healthy economic growth.
- The HDI is a single figure reflecting health, education and economic progress. It combines 3 pieces of data:
- gross national income per capita (PPP).
- life expectancy at birth.
- average years of schooling and expected years of schooling.
What are exports and imports?
- Exports are goods or services produced domestically and consumed abroad.
- Imports are goods or services which are produced abroad and then consumed domestically.
How does international trade and business growth impact exports and imports?
- International trade has impacted the types of imports and exports of countries, for example Britain no longer produce goods such as shoes as they can rely on cheaper imports, meaning they import these products from exporting countries.
- Business growth has also increased imports and exports as economies of scale allows bulk buying imports of materials from exporting countries.
- International trade also increases business growth as businesses are able to tap into new markets via exporting abroad.
what is business specialisation?
- Business specialisation is a method of production where a business focuses on the production of a limited range of products or services to gain greater productive efficiency within the overall business.
- In some cases a company may choose to only produce 1 product e.g. Coca Cola.
- Taylor’s scientific management supports business specialisation as his view is that everything should be broken down into smaller component tasks.
what is competitive advantage?
- a condition or circumstance that puts a company in a favourable and superior business position.
what is the link between business specialisation and competitive advantage?
- Business specialisation allows the business to focus on a limited range of products.
- The business will become more efficient when their output from the same raw materials increases.
- Firms that produce a wide range of products may need lots of different machines, when some machines are vacant due to low demand, capacity utilisation dips and therefore efficiency reduces.
- This can provide a competitive advantage through lower costs per unit which will increase profit margins and put the company in a superior position to competitors.
how does international trade and business growth impact business specialisation and competitive advantage?
- International trade can allow a company to specialise on a limited range of products and still grow their profits through tapping into foreign markets.
- Business growth can impact business specialisation as increased number of large businesses can increase competition, therefore it is more important to gain a competitive advantage which can be achieved through business specialisation.
How does international trade and business growth impact FDI
- International trade has increased FDI as the most obvious way to supply an overseas market is through exporting which will allow a business to reach a wider market.
- Business growth has caused FDI to increase because as the domestic market becomes saturated it is harder to gain a competitive advantage, meaning businesses will aim to look to invest in untapped foreign markets.
8 factors contributing to increased globalisation?
- International trade barriers/trade liberalisation
- Political change
- Reduced cost of transport and communication
- increased significance of TNCs
- Increased investment flows (FDI)
- Migration (within and between economies)
- Growth of the global labour force
- Structural change
how does international trade barriers/trade liberalisation increase globalisation?
- Restrictions are removed improving market access meaning more countries willing to trade with each other.
- Will reduce domestic production and increase reliance on imports from abroad.
- Results in extra competition from across the globe.
how does political change lead to increased globalisation?
- Government policy decides whether a country may focus on production for domestic or global consumption meaning a change from communism to capitalism will encourage globalisation e.g. communism in China.
- Political change through memberships of ego’s such as the WTO improves access to global markets and increases integration.
how does reduced cost of transport and communication increase globalisation?
- Reduced transport costs due to technological advances and more efficient methods of transport (containerisation) have encouraged global trade as transport is less likely to cancel out gains from comparative advantage.
- The growth of the internet has increased e-commerce which provides cheap marketing with global reach, enabling firms of all sizes to compete more easily in global markets.
how does increased significance of TNCs increase globalisation?
- TNCs epitomise global interdependence, as they often span across a number of different countries, with sales, profits and a flow of production being reliant on several countries at once.
how does increased investment flows (FDI) increase globalisation?
- Cross-border mergers and takeovers contribute to international investment flows creating interdependence as communication, imports and exports between countries will all increase.
- Banks borrowing money from abroad to provide more loans for households and firms also create interdependence.
how does migration (within and between economies ) increase globalisation?
- Migrants are often self motivated and ambitious in terms of creating a better life for themselves through start up businesses, which can develop into TNC’s contributing to the global market.
- Highly skilled migrants can increase jobs in the quaternary sector leading to quicker technological advances in transport and communications which both increase globalisation.
how does growth of the global labour force increase globalisation?
- Growth of global labour force reduces skill shortages as pool of skillsets to choose from is so large, this ensures TNCs are able to keep up with competition and at the same time creates interdependency.
- Growth of global labour force allows TNCs to reduce operating costs, allowing the company to generate a greater output and therefore increase the number of imports and exports.
how does structural change increase globalisation?
- Industrialisation of a country from primary to secondary sector allows it access to the global market and able to import and export.
- Structural changes in industry has caused dependancy on countries exporting specialised goods that cannot be produced in their own country.
what is protectionism?
- Giving preference to home producers by making it harder and more expensive for overseas companies to export to your country.
what are tariffs?
- A tariff is a tax imposed on imported goods and services.
what are import quotas?
- A quota is a government-imposed trade restriction that limits the number, or monetary value, of goods that can be imported or exported during a particular period.
what is government legislation?
- The process of the government making or enacting certain laws in order to protect consumers and regulate business activity.
what are domestic subsidies?
- A domestic production subsidy is a payment made by a government to firms in a particular industry based on the output or production.
Why are tariffs often imposed?
- To raise tax revenue.
- For environmental reasons; a tariff could be placed on goods which may have negative externalities.
- Protectionism; to allow domestic firms and infant businesses a chance to grow without being swamped by international competitors. It also protects the balance of trade.
Why are import quotas often imposed?
- Allows a country to be sure of the amount of the good imported from the foreign country.
- To protect jobs of domestic producers.
- Imposed as a bargaining chip to be used in negotiations on trade.
- To protect strategic industries such as defence and agriculture.
Why is government legislation for protectionism often imposed?
- To protect consumers form any harmful products.
- To prevent firms from becoming unethical.
- Prevent harm to the environment.
- Can also be used to reduce competition.
Why do governments pay domestic firms subsidies?
- Money is given to local producers to make their goods cheaper on the domestic market.
- This artificially raises the price of foreign goods relative to domestic goods – therefore reducing demand for them.
what is a trading bloc?
- A type of intergovernmental agreement to reduce regional trade barriers.
How do trading blocs expand?
There are 2 ways to expand trading blocs:
- New trading blocs
- Following success of the first trading blocs, there are now 13 worldwide and discussions have taken place between USA and Europe between merging trade blocs. - Increase in membership
- Trading blocs are attracting more members, and example of this is the EU which had 6 members and now has 28.
what impacts do trading blocs have on businesses?
- The free trade and links between countries within a trading bloc can also improve business connections, this can result in businesses from various countries merging or using their expertise for mutual benefits.
- Manufacturers will see the benefits in trading blocs however memberships are not of great importance to tertiary sector businesses which make up most of our economy.
name the general factors that prompt trade
- push factors
- pull factors
- off shoring/outsourcing
- extending product life cycle selling into multiple markets
what are examples of push factors for trade?
- saturated markets
- competition
what are examples of pull factors for trade?
- Economies of scale
- Risk spreading
how are saturated markets a push factor for trade?
- In a market such as the TV market where a business has sold their product to every customer available, the only way to grow sales is to improve the products or enter a new geographical market which hasn’t been tapped into which is why saturation can limit growth.
how is competition a push factor for trade?
- Arrival of new competitors can threaten a firms market share, and therefore if a new business has enough capital to support its products then an existing business may avoid the market and target and untapped foreign market with less competition.
how is economies of scale a pull factor for trade?
- Widespread production facilities across several countries can cause a business to become fragmented, if a business moved all production to one location it will allow the business to benefit from economies of scale.
- Even without centralising production, growing into international markets will allow the firm to operate at a larger scale and therefore still benefit from economies of scale.
how is risk spreading a pull factor for trade?
- Risk spreading is a pull factor unrelated to costs and competitiveness, the strategy of moving into new markets allows the firm to spread the risk of demand collapsing in one market.
how is off shoring a pull factor for trade?
- Offshoring is when a business relocates its operations to another country.
- This is to take advantage of low labour costs in manufacturing, cost efficiencies and supply chains.
- It has to be more economical to produce goods abroad and transport them to the UK than to pay UK wages to be profitable.
how is extending product life cycles to sell into multiple markets a push factor for trade?
- Product life cycle theory implies once a product hits decline there is no way back.
- Those looking to extend the life cycle may look to international sales, avoiding the heavy investment and uncertainty of designing and launching a new product into the existing market.
- Therefore selling the original product in multiple markets can act as an extension strategy.
what factors can be used to assess the state of a country as a market?
- Levels and growth of disposable income.
- Ease of doing business.
- Infrastructure.
- Political stability.
- Exchange rate.
how does levels and growth of disposable income show the state of a country as a market?
- Disposable income is the amount of money left after income tax, it generally equates to GDP divided by the population size.
- Level of income influences how money is spent in each industry for example a certain % of GDP will be spent on hotels or restaurants.
- It is this type of spending which decides whether a country as a market is profitable and ideal for the level of GDP.
how does the ease of doing business show the state of a country as a market?
- The amount of time needed to setup a business, sort tax bills and supply infrastructure all contribute to how easy it is to do business in a country.
- The quicker a government can do the above things then the more attractive it is for a business to setup in the country.
- Businesses also want government to be as little involved as possible so a small number of regulations is also attractive.
how does infrastructure show the state of a country as a market?
- With a good infrastructure, goods can be transported quicker and more reliably, this along with necessities such as water and electricity will provide an attractive prospect to setup a business in this country.
- Quick deliveries may also allow a business to use a just in time approach.
how does political stability show the state of a country as a market?
- A government may be politically unstable if it is corrupt or going through a change in political ideology, with uncertainty over the future of the country and conflict which may occur.
- A highly regulated country may prevent political corruption.
how do exchange rates show the state of a country as a market?
- Exchange rates can help a business decide which country to locate, if the value of a currency is weak against the pound then this country will become less profitable as the firm will be forced to charge a higher price in the local currency to maintain profit margins.
- However it is best to start up in a country where the currency is weak against the pound as it is cheaper.
- Exchange rates constantly change so it may not be a long term impact.
what 9 factors are used to asses a country as a production location?
- Costs of production.
- Skills and availability of labour force.
- Infrastructure.
- Location in trade bloc.
- Government incentives.
- Ease of doing business
- Political stability.
- Natural resources.
- Likely return on investment.
how does cost of production impact the assessment of a country as a product location?
- A major motive for businesses setting up production in another country is finding the lowest cost for labour, electricity, gas and other initial costs such as land.
- However labour costs are not too important in terms of total costs as they only account for a low proportion of total costs.
how do skills and availability of labour force impact the assessment of a country as a product location?
- Manufacturing requires workers of a certain level of skill and literacy level, so businesses cannot move to a country with a population without these skills.
- Often where there is cheap labour, the literacy levels and skill level will be low therefore a business needs a location with skill whilst being cost effective.
how does infrastructure impact the assessment of a country as a product location?
- Quality of local infrastructure in production locations is important for operation.
- A company may sometime build their own local infrastructure in order to improve efficiency such as in delivery of supplies.
how does the location in trade bloc impact the assessment of a country as a product location?
- Trading blocs allow free trade to occur, this is important for companies establishing a production location as they need to be able to sell to the major markets from the location.
how do government incentives impact the assessment of a country as a product location?
- Governments are keen to attract FDI, incentives may include grants, tax breaks and investment in local infrastructure in order to persuade businesses to locate in the country.
how does ease of doing business impact the assessment of a country as a product location?
- Certain legal systems must be complied with by businesses locating in a country, if these regulations are not too strict it could be an attractive location for a business.
- Efficient systems of bureaucracy will make a country an attractive location.
how does political stability impact the assessment of a country as a product location?
- The government decides laws, taxes and trade policies so politically unstable countries are not attractive to businesses as these policies are likely to change frequently and create uncertainty.
how do natural resources impact the assessment of a country as a product location?
- For businesses early in the supply chain, local sources of natural resources are important, especially if these goods are heavy and expensive to transport.
- locating close to an abundant supply of natural resources required in the production process of a business is attractive.
how does the likely return on investment impact the assessment of a country as a product location?
- Most business decisions are made according to the likely return on investment generated by each option considered.
- When choosing a location, lower costs will create larger profits and locating in a trading bloc will provide higher revenues however decisions on production locations should take into account the shifting power of manufacturing, and the sustainability of the option.
what 5 reasons are there for global mergers or joint ventures?
- Spreading risk over different countries/regions.
- Entering new markets/trade blocs.
- Acquiring national/international brand names/patents.
- Securing resources and supplies.
- Maintaining/increasing global competitiveness.
how is spreading risk over different countries and regions a benefit for global mergers and joint ventures?
- Merging internationally and setting up production bases across several countries will spread risk through reducing the impacts of fluctuating exchange rates as the highs and lows will cancel each other out.
- Whereas if a company solely produces in one country and then exports half of its output, a rising exchange rate will harm competitiveness and profit.
- Producing in several countries can compensate for losses in a country going through a recession as there will likely be one country over performing and therefore reducing risk.
how is entering new markets/trade blocs a benefit for global mergers and joint ventures?
- Joint ventures can be used to enter a new market as a 50/50 agreement for a limited amount of time allows a business to test whether there is potential for growth in the new market with half the risk as profits and losses are shared, if the venture is successful then one of the partners can be bought out.
- If a local joint venture partner is found then an added benefit is that the company will benefit from local expertise.
how is acquiring national/international brand names/patents a benefit for global mergers and joint ventures?
- A business may merge with another business in a different country in order to acquire certain brand names, the companies will then be able to transform a national presence to a global presence with minimal risk.
- Acquiring patents can spur global mergers because if a patent held by a company is soon expiring there will be a rush of generic but identical products being released resulting in a fall in price, therefore a business may look for companies with newly patented products and merge with them in order to develop it into a cash cow to replace the previously patented product.
how is securing resources/supplies a benefit for global mergers and joint ventures?
- Investment into resource rich countries in Africa is common through mergers with suppliers, it allows the firm to secure resources, prevent competitors from obtaining them and also forces these countries to only produce primary products.
- It becomes more important to secure supplies when suppliers are operating unethically and therefore do not meet ethical standards, at this point the business may need to merge with supplier in order to ensure it meets standards.
how is maintaining/increasing global competitiveness a benefit for global mergers and joint ventures?
- A business needs to benefit from economies of scale in order to achieve long term survival, therefore joining with overseas rivals is the best way to increase scale and market share and therefore benefit from EOS.
- This is often coupled with the cutting down of slow selling product lines in order to place larger bulk orders in bestselling products, leaving niche products to other businesses with potential for a merger or joint venture.
How has the movements in exchange rates impacted global competitiveness?
- Movements in exchange rates can affect a firms global competitiveness.
- If the pound appreciates (gets stronger) against other currencies then UK exports to other countries will be more expensive meaning firms will be less competitive in export markets.
- If the pound depreciates (gets weaker) then exports will be cheaper causing firms to become more competitive in export markets.
- Therefore exporters prefer a weaker exchange rate in order to gain price competitiveness in export markets, a lack of competitiveness could cause a loss of jobs due to lack of success.
- It is the opposite for imports as a weaker exchange rate will make imports dearer while a strong exchange rate makes imports cheaper.
- A way to remember this is the acronym:
S trong P ound I mports C heaper E xports D earer
how do businesses gain competitive advantage?
- A competitive advantage is gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
How can competitive advantage be achieved through cost competitiveness?
- One way to be competitive is to charge customers low prices.
- However the only way to make this profitable is by achieving cost leadership and having resource advantages that keep costs lower than the rivals.
how can differentiation be used to gain a competitive advantage?
- ## Businesses in high wage economies will find it hard to achieve cost leadership therefore they use product differentiation to create a unique brand superior to its competitors, this can be achieved through good marketing and branding or a distinct product feature.
how do skill shortages impact global and international competitiveness?
- Skill shortages occur when firms are unable to recruit workers with the necessary skills, this can cause the economy to stop growing.
- An example of this would be a business being forced to turn down work as they cannot find additional workers of necessary skill to complete it.
- Firms cna cause skill shortages through failing to invest in training and apprenticeship schemes.
- Governments can also contribute by supplying the wrong type of education.
- a firm can overcome skill shortages by poaching from rivals, but this may impact cost competitiveness through higher wages.
what is a global marketing strategy?
- A global marketing strategy is where a business does not differentiate its products or marketing between countries. – The same product is sold in many countries with some fine tuning of the product, price, place, etc.
what is global localisation (glocalisation)?
- Glocalisation is the development and sale of products to customers around the world which reflect specific local customs, tastes and traditions.
What are the pros and cons of global marketing?
+ Economies of scale in production and distribution.
+ Lower average marketing cost.
+ Power in the market as your brand is known.
+ Consistency in brand image.
+ Ability to leverage good ideas quickly and efficiently.
+ Uniformity of marketing practices.
- Differences in consumer needs, wants and usage patterns for a product.
- Differences in consumers’ response to marketing mix elements.
- Differences in brand and product development and the competitive environment.
- Differences in the legal environment, some which may conflict with those of the market.
what are the benefits and drawbacks of glocalisation?
+ Matches different consumer needs, wants and usage patterns for a product.
+ Adapt to consumers’ response to marketing mix elements.
+ Comply with the legal environment.
- Lack of economies of scale in production and distribution.
- Higher marketing costs.
- Less power in the market as your brand is less recognisable..
name 3 different marketing approaches
- Domestic/ethnocentric
- International/polycentric
- Mixed/geocentric
what is domestic/ethnocentric marketing?
- Standardising the product for all markets to keep costs low. – Products sold without adaptations. E.g. Ikea or Apple.
what are the benefits and drawbacks of domestic/ethnocentric marketing?
+ Keeps costs of marketing and research and development on international markets low.
+ Consumers in domestic country more likely to buy domestically produced products rather than from foreign companies.
+ Asian countries may trust western producers more than their own.
+ Can benefit from EOS as standardised approach means same materials are used always, allowing to buy in bulk.
- Foreign consumers less likely to buy from foreign companies rather than domestically produced.
- Lack of adaptation may not suit foreign markets and consumers due to different culture or income.
what is mixed/geocentric marketing?
- A mixture of polycentric and ethnocentric. – Businesses can have some of the pros of a standardised approach to get EOS but cater for needs of individual markets to maximise sales.
what are the benefits and drawbacks of mixed/geocentric marketing/
+ Flexible mixture of global and glocal recognises that despite different cultures we have common needs and wants with most people meaning it is cost effective and efficient compared to polycentric.
+ Business still benefits from EOS using partly standardised approach but small things such as size and price is changed to cater for individual markets.
- Will not achieve maximum benefits from EOS or from foreign markets as it is not completely glocal or standardised.
- Delegation to local regions may not be cost effective and could result in mistakes.
what is international/polycentric marketing?
- (the international approach) – adapting the marketing mix to each market to appeal to local customers and to maximise sales in different countries. (Expensive).
what are the benefits and drawbacks of international/polycentric marketing?
+ Local managers are empowered to develop new products suited to the local market, this allows the business to gain from local expertise while raising morale.
+ Products are adapted to suit market and consumers, allowing access to foreign markets.
- Very expensive to adapt marketing strategies and products for each market.
- Delegating to managers could result in mistakes.
what is the marketing mix?
- A combination of factors including: price, product, promotion and place, that can be controlled by a company to influence consumers to purchase its products.
what is ansoffs matrix?
- Ansoffs matrix is a strategic marketing planning tool that links a firm’s marketing strategy with its general strategic direction and presents four alternative growth strategies.
how is the marketing mix applied and adapted to global markets?
- Price: decisions around price need to take into account local factors such as incomes, taxes, rents and other costs. Price will also reflect different local factors, such as wage rates and taxes.
- Product: can take one of three approaches – polycentric, ethnocentric or geocentric.
- Promotion: when promoting products in global markets, businesses need to be conscious of language differences.
- Place: Businesses need to take into account how local consumers typically buy their products. E.g. in physical stores or online?
how is ansoffs matrix applied and adapted to global markets?
- Ansoffs matrix encourages businesses to think in a long term way about where to position themselves.
- Sticking to the strategy of reasonable risk of selling existing products into new markets links to global marketing.
- Opting for the riskiest strategy of selling new products into new markets refers to glocalisation.
The 4 strategies are: - Penetration (existing product, existing market)
- Market development (New market, same product)
- Product development (New product, existing market)
- Diversification (new product new market)
what is cultural diversity/
- The different interests and values of people from different national backgrounds.
how does cultural diversity link to niche markets?
- Factors such as the economy, climate and history/tradition of a country can impact how culturally diverse the market is.
- A culturally diverse nation can be an example of a niche market.
- The population of the country may have different interests such as sport or films and they may also have different values based on behaviour and ideologies, both of these factors can cause the population to be a culturally diverse niche market.
what are global niche markets?
- A global niche market is where a business targets very small markets in each country, but the combination of all the countries together make enough demand to make the business profitable.
- It is a subset of a global market and is characterised by loyal customers and premium prices.
what are the features of global niche markets?
- Global niches are usually at the luxury end of the market as wealthy people who travel a lot are likely to pick up tastes an habits in a more global way and therefore purchase from the same brands worldwide.
- Requires a loyal consumer base and premium prices to make a profit.
how is the marketing mix applied and adapted to suit global niches?
- In the luxury sector the location (place) may need to be adjusted towards distribution near high end, busy streets that consumers will pass by when in a major city.
- Promotional methods may need to be adjusted based on cultural differences within a country e.g. the most used social media platform may vary from country to country.
- Local expertise and knowledge is needed to decide which pricing strategy suits the local attitudes to price.
what 6 cultural/social factors do businesses have to consider?
- Cultural differences.
- Different tastes.
- Language.
- Unintended meanings.
- Inappropriate/inaccurate translations.
- Inappropriate branding and promotion.
why do businesses have to consider social factors such as cultural differences?
- Normal everyday activities can be carried out in different ways in different cultures, some actions could end up causing offence.
- In terms of marketing, inappropriate adverts could offend certain religions and therefore impact the relationship between the company and market.
- Glocalisation needs to be considered in order to adapt a marketing strategy towards different cultures.
why do businesses have to consider social factors such as different tastes/
- Consumer tastes vary in each continent and failing to meet the needs of local people could result in failure to grow in some markets.
- Market research can be used to identify consumer needs and wants, local experts can also be used to help.
why do businesses have to consider social factors such as language?
- Businesses entering a foreign country need to ensure staff can communicate effectively with speakers of different languages.
- The business must also check that marketing materials are checked by locals to avoid translation problems.
why do businesses have to consider social factors such as unintended meanings?
- ## Word to word translations using for example google translate is inaccurate and can cause a different meaning to what was intended which could be seen as disrespectful to a foreign market and cause irreparable damage to the brand.
why do businesses have to consider social factors such as inappropriate/inaccurate translations?
- Often inappropriate translations can cause wrong words to be used which can obscure the meaning intended and result in confused customers.
- Something such as a brand name can sound like something else in the foreign language which may not be an ideal name in the foreign country.
- Slang could be perfectly acceptable in one country however not make sense I another country.
why do businesses have to consider social factors such as inappropriate branding and promotion?
- developing products/services that do not meet market needs and wants and offend a market will lead to failure in foreign markets.
- it is therefore necessary that any wording or imagery is appropriate for the people of the country and matches with the social and cultural norms.
what is an MNC?
- A multinational corporation (MNC) has facilities and other assets in at least one country other than its home country.
- Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management.
what are 3 impacts of MNCs on the local economy?
- local labour, wages, working conditions and job creation.
- local businesses.
- local community and environment.
how do MNCs impact local labour, wages, working conditions and job creation?
- Arrival of MNCs impacts local labour as staff undergo training and are expected to work to rules that may be different to traditional practices, an example of this could be a western company expanding into Africa.
- MNCs moving into developing/low income countries will pay staff above the local average rates, this is still much lower than western wages but as long as they are above local average it will not raise any moral issues.
- MNCs are profit driven and therefore cost pressures imposed by western companies will result in poor and unsafe working conditions.
how do MNCs impact local businesses?
- When an MNC expands into a new country it will prompt the start up of many local businesses who aim to supply the MNC directly e.g. through catering or raw materials.
- The large number of jobs created by the MNC which are above local wage rate will create more business for local cafes, supermarkets and other shops which otherwise would not have as many customers.
- However many MNCs expanding into the same country will cause local businesses in the same market to sell off in order to avoid being out competed.
How do MNCs impact the local community and environment?
- MNCS expanding into developing economies need to consider the environmental impacts of their operations in order to prevent image problems, angering local environmental groups and` media attention towards their unethical behaviour.
- There is obviously an incentive for MNCs to comply with environmental standards however many companies including non-MNCs avoid these, they ultimately get found out and attract attention towards their behaviour.
what 6 impacts do MNCs have on the national economy?
- FDI flows
- Balance of payments
- Technology and skills transfer
- Consumers
- Business culture
- Tax revenues and transfer pricing
how do MNCs impact FDI flows?
- FDI can come from MNCs locating in foreign countries, for example if a company setup a factory and invested money into making it efficient for the company, this will cause investment in land, buildings construction, buying equipment and recruiting + training staff. All of these inject money into the economy of the foreign country.
- However if the MNC is successful in a foreign country, it will make good profits and therefore send them back to the home country resulting in the foreign country being used as a cash cow and losing out financially in the long term.
how do MNCs impact balance of payments?
- If a country has higher imports than exports it runs a current account deficit which may cause the value of currency to depreciate however FDI inflows from MNCs investing into the economy of a foreign country will balance the payments.
- However if an MNC locate din a foreign country makes a profit and then withdraws the money to send back to the home country, this will create a bigger deficit and exacerbate the depreciating currency.
- For low income economies, the withdrawal of cash by an MNC will have a large impact on the economy and exchange rate.
how do MNCs impact technology and skills transfer?
- Much of human progress is based on copying others ideas, this can be applied to MNCs copying each others production techniques and when an MNC locates in a foreign country it is likely that it will bring technology and skills from the west to developing nations (skill transfer).
- The skills and attitudes that an MNC can bring to a developing nation could make locals think more seriously about education and skills training which could benefit the foreign country massively and help stimulate economic development.
how do MNCs impact consumers?
- The movement of MNCs into developing countries will provide more choice for the consumer.
- However an MNC could put a series of local stores in an industry out of business which will prevent consumers from having the choice of using traditional local businesses.
how do MNCs impact business culture?
- MNCs are profit focused, efficient and governed by clear objectives, these attitudes may rub off on suppliers in a developing country resulting in greater professionalism and long term thinking.
- However MNCs often disregard ethical standards, if this rubs off on suppliers in a developing country it could have a negative environmental impact.
how do MNCs impact tax revenues and transfer pricing?
- MNCs often minimise tax payments through spreading their business across different tax authorities and countries with low corp tax (tax havens), this allows MNCs to practice transfer pricing which takes advantage of tax in order to boost profit. This will result in countries with high tax rates receiving minimal tax revenue.
- The scope for tax avoidance also favours MNCs over local businesses who are unable to declare profit in low tax countries.
what are stakeholder conflicts?
- Where those involved or impacted by a business have different interests and therefore have a conflict of interests.
how can ethics in global business lead to stakeholder conflicts?
- Many businesses operate with the corporate objective to make maximum profit to satisfy owners of the business, however this view may not identify with the views of all stakeholders who may value ethical standards over profit.
- This could result in a stakeholder conflict between owners and employees/customers/locals.
how are pay and working conditions in global business unethical?
- The pay people receive is in line with the supply and demand for their skill level within an industry, therefore an ethical business should pay a worker with skills in high demand and low supply higher wages than low demand and high supply skillset.
- Wage rates in a developed country vs a developing country will seem unethical as the wages will be much lower than the developing country, also the working conditions will be poorer. However for a developing country paying the local rate for workers can be justified especially with the economic growth that MNCs create within those countries.
how are environmental considerations such as emissions in global business unethical?
- MNCs often inaccurately state their carbon emissions resulting in the company being fined, government regulations on emissions are necessary in order to ethically consider the environment.
- Often companies will lie about emissions in promotion in order to generate more revenue which is unethical behaviour and also negatively impacts the environment.
what environmental considerations in global business are unethical?
- Emissions
- Waste disposal
how does is exploitation of labour in global business unethical??
- Exploitation of labour exists where for example companies acted as a gangmaster bringing in workers who were bonded to their boss by debt bondage and forced to work.
what supply chain considerations in global business are unethical?
- Exploitation of labour
- Child labour
how is child labour in global business unethical?
- Child labour is an unethical problem in global business where children are working for MNCs in dangerous conditions earning very small wages as there is no other type of job or education available.
- However some may say that it is justified to pay low wages if it is near the local average and also the children are not forced to work, they have a choice.
how is waste disposal in global business unethical?
- Often developed countries will dispose of waste such as e-waste in less developed countries in Africa, this waste contains poisonous material which can affect groundwater and pollute the air.
- Food waste from supermarkets is also a problem as buy one get one free promotions by businesses result in over buying and creating waste in order to increase profit.
- Businesses also promote a green image for themselves however their environmental footprint may be poor, deceiving customers into buying from their business, this is an example of greenwash.
what marketing considerations can be seen as unethical in global business?
- Misleading product labelling.
- Inappropriate promotional activities
how is misleading product labelling in global business unethical?
- In some countries such as the UK it is illegal to make false statements about goods or services, however lots of details on a products label may be implied but not claimed meaning it can deceive consumers without breaking the trade descriptions act.
how are inappropriate promotional activities in global businesses unethical?
- The buy one get one free promotion can be criticised for causing over buying and increasing food wastage in return for maximum profits.
- ## Promotions may also be used on unhealthy items such as chocolate and ice cream, encouraging an unhealthy population which is an unethical action by a business.
what 4 factors can control the actions of MNCs?
- Political influence – e.g. from the government.
- Legal control.
- Pressure groups – e.g. Greenpeace.
- Social media.
Why do we need a stronger political influence on controlling MNCs?
- Contact between the government of a country and MNCs within a country is often used by large wealthy MNCs to influence the political actions of the government.
- The influence of MNCs is greater in developing countries as they offer a greater economic contribution relative to the size of the economy.
Why do we need legal controls for controlling MNCs?
- MNCs operate under the same legal controls as other businesses however there is a point where individual governments may find it hard to exert full authority in temp software takeovers and taxes.
- Legal controls are needed to regulate takeovers to ensure that it will not create a monopoly in a market.
- If the combined market share of 2 companies is over 25% then the takeover will not happen however if a foreign company in a different market decided to takeover a business then the government cannot look at it.
- MNCs have also been able to come to tax arrangements which have meant they pay no tax and provide no tax revenue for authorities.
How can pressure groups help MNCs show control over governments?
- Disputes between governments and MNCs can give rise to pressure groups who will protest against the government.
- Pressure can be applied to the domestic government if the pressure groups raise awareness of the issue internationally, forcing the government to give in.
how can social media control the actions of MNCs?
- Social media is an effective way to police corporate activity, any mistake a company may make to do with customer service or leaked info on carbon emissions could largely damage the reputation of an MNC therefore companies are very careful with social media.
- However some small business owners, who are not well known are likely to care less and adjust their behaviour less because if social media spread info about a scandal of a small company, it is likely they will forget the name unless it is a large international brand.
What are the implications of economic growth for individuals?
+ Higher living standards due to increased investment.
+ Lower unemployment as businesses thrive and grow.
+ Raised tax revenues for government will increase government spending.
- negatively impacts environment through pollution and waste.
- Greater income inequality between low income groups and business owners.
What are the problems with using exports as foreign direct investment in overseas markets?
- Transport costs can cut into profit margins.
- Avoiding protectionist trade barriers such as tariffs and quotas can be difficult.
- Access to natural resources may be poor therefore exporting may cause a shortage in resources e.g. oil.
What are the pros and cons of tariffs?
+ Domestic producers will benefit as import tariffs will encourage consumers to buy domestically rather than import from abroad as it is more cost efficient.
+ The general public will benefit from import tariffs as the money raised will be used to fund public services such as health and education.
- Imported goods become more expensive and therefore prices will be raised by businesses to maintain profit margins, causing a fall in standard of living.
- Tariffs can cause the pace of economic change within a country to slow down through smaller scale imports and therefore lower levels of production.
What are the pros and cons of quotas?
+ Quotas will limit quantities of foreign imports and therefore suppliers within a country will face less foreign competition.
+ Quotas benefit workers with greater job security and possible pay rises due to inflation of domestic economy.
- Quotas limit consumer choice as supply is decreased and prices increase.
- Quotas do not generate government revenue but do prevent job losses which has an indirect positive impact on the population.
- Difficult to measure precise degree of protection quotas to offer.
What are the pros and cons of government legislation?
+ If legislation is passed to protect against imports then domestic firms will benefit with less competition.
+ Job security of the employees of domestic firms will also increase with improve performance.
- Legislation against imports for no good reason can cause conflict and result in retaliation from other countries.
- Reducing imports results in higher prices and less choice for consumers.
What are the pros and cons of domestic subsidies?
+ Subsidies can help low income groups through businesses lowering prices.
+ Can stimulate economic activity in uncompetitive industries, preserving jobs and improving security.
+ Can improve balance of payments through reducing imports and increasing export sales.
- Can cause inefficiency as businesses receiving subsidies become reliant on them.
- Subsidies may also not save an uncompetitive industry as consumers consider other things apart from price.
What more subtle trade barriers can be used to protect domestic consumers from foreign competition?
- Government legislation such as product quality requirements restricting certain products that don’t meet the standards required. E.g. technical barriers to trade (TBT).
- Also, Insistence on trade marks, intellectual property and copyright protection.
- Subsidies or tax breaks given to local producers to make their goods more competitive.
What different types of trading blocs are there?
- Depending on how closely the members wish to integrate their economies they may form different types of trading blocs such as:
- Free trade areas
- customs unions (e.g. airports)
- commons markets and full economic & monetary union (trading in the same currency).
What is the expansion of a trading bloc?
- The expansion of a trading bloc is the process of more countries joining an existing trading bloc, thereby making it expand.
What are the advantages of being in a trade bloc?
- Freedom to trade.
- Enlarged market.
- Protection from international competition outside of the bloc.
- Freedom of movement of people.
What are the disadvantages of being in a trade bloc?
- Retaliation – other blocs may be created as a result.
- Protectionist – having a trade bloc may not help trade liberalisation - the WTO want a reduction on barriers to trade between all countries.
What is the EU and the single market?
- The EU is a single market (also known as a ‘common market’).
- The single market guarantees the free movement of people, goods, services and capital throughout the member states.
- Businesses do not have to send their goods through customs controls or pay taxes when taking goods from England or Scotland.
- Since 1973 there have been no taxes or tariffs or customs controls between EU countries.
What is the ASEAN trading bloc?
- The Association of South East Asian Nations
- It is a 10-member international body that represents more than 500 million people living in the region. Some members include: Thailand, Indonesia, Malaysia, the Philippines and Singapore.
- It has negotiated a free trade agreement among member states and with other countries such as China, as well as eased travel in the region for citizens of member countries.
What is the NAFTA trading bloc?
- North American Free Trade Agreement
- Members: Canada, Mexico, United States.
- Joined together to form a free trade zone.
- The NAFTA agreement covers environmental and labour issues as well as trade and investment, but US unions and environmental groups argue that the safeguards are too weak.
What are push factors for trade?
- threats in a domestic market that force a business to sell abroad.
What are pull factors for trade?
- opportunities that encourage a business to sell abroad.
how is outsourcing a pull factor for trade?
- Outsourcing is when a business contracts out a function to a third party business that may or may not be located in another country.
- May be marketing research, legal work, accountancy, or even human resources functions can be carried out by outsourced companies.
- The most common example is a call centre in India.
What are the pros and cons of joint ventures?
+ lower level of commitment/risk.
+ good way to test waters to see how well companies work together.
- much more limited scope.
- can’t benefit from integration.
What are the pros and cons of mergers?
+ useful where companies want to become fully integrated.
+ possible savings and expertise can be passed on to customers.
- higher commitment/risk.
- very difficult to reverse, can be difficult to get right, difficult period of time for employees etc.
What are the effects of exchange rates on global competitiveness dependant on?
- Inflation; depreciation can cause inflation and this will lead to uncertainty in business.
- Recession; if there is a weak pound this is great for exports at lower prices but if there is a recession in the country buying the goods then demand will still be low.
- PED; if goods are price inelastic then the lower price due to the weak pound won’t affect demand.
- Raw materials; effect of appreciation or depreciation depends on how many raw materials the business buys.
- Competition; effect of appreciation or depreciation depends on how competitive the market is that the business trades in.
What strategies can be used to achieve cost leadership?
- Raising productivity and the output per worker requires efficient planning and organisation of the workplace and when successful can help a business achieve the lowest operating costs in its industry, ensuring workers are fully trained and educated can contribute to this.
- Outsourcing employs firms to carry out jobs which used to be done by the company themselves, however outsourcing these jobs often reduces costs. Also outsourcing to a different country where wages are lower is likely to be more cost effective.
- Offshoring is when a firm moves part of their business overseas, aiming to avoid environmental regulations and employment laws that can add to a firms costs. Lower tax rates can also be taken advantage of abroad.
how is the Boston matrix applied and adapted to global markets?
- Can help a business allocate their marketing budgets.
- The matrix can be used to identify which products need the most marketing support for example a product being adapted to a local foreign market (glocalisation).
- The matrix can be adapted to show the market growth against market wealth of economies which a business could sell into, the position of each economy could reduce the risk of the approach chosen.
What are the advantages of selling into a global niche market?
- There is less competition and greater customer loyalty.
- Prices are likely to be higher and therefore profits may be greater.
- Risk may be reduced.
- Specialist products reduce PED and premium prices may be possible.
What are the disadvantages of selling into a global niche market?
- Some of the possible global economies of scale may not be achievable as each market will need individual attention.
- Co-ordination and communications may be more difficult across differing brands and markets.
- Some products may require unique ingredients or production techniques reducing the scope for economies of scale.
What are positive impacts of MNCs on other countries?
- Creates employment – jobs available for local people, thus reducing numbers of unemployment and the resultant drain on local resources.
- Increases skills base – many MNCs operate training schemes for local people to learn how to use machinery.
- Increases standard of living – an increase in earnings increases taxes paid within the country and gives more money to spend on services.
- Raises country’s profile – the movement into a particular country is a statement about its pro-business environment and political stability.
- Improves balance of payments – many goods made by MNCs are exported to other nearby countries. This increases the amount of money earned by the country.
- Improves infrastructure – MNCs often improve communication links within a country, e.g. road, rail and port facilities are updates and expanded.
What are negative impacts of MNCs on other countries?
- Low paid jobs – mainly low paid jobs are provided for local people. Higher paid managerial jobs go to workers brought in from the head office country.
- Poor safety record – poorer countries often have poorer safety standards, and governments are willing to turn a blind eye.
- Increases urbanisation – most jobs created by MNCs are usually found in or close to urban areas. Hope of securing these jobs attracts more people from rural areas to cities.
- Widens poverty gap – although wages are low in factories, they are higher than elsewhere. This increases the cost of living for all, as prices of goods rise.
What are examples of stakeholders of a business?
- Owners; want high profits, high dividends.
- Employees; want good working conditions, job security and a living wage.
- Customers; want ethical products, fair trade, renewable, sustainable, product safety.
- Suppliers; want orders, contracts and payment on time.
- Government; want taxes and to ensure employment and emission laws are not being broken.
- Locals; want low pollution, less industrial traffic lorries, less visual blight, less noise and jobs.
- Managers; want job prospects, job security, profit linked bonuses and share issues.
What are common stakeholder conflicts which can occur?
- Shareholders and employees – employee welfare comes at a cost. Conflict could occur if shareholders insist that rewards to employees should not come at the expense of dividends.
- Shareholders and customers – charging higher prices will help boost shareholder returns but reduce purchasing power of customers.
- Shareholders and the environment – in an effort to maximise profit, a business might neglect its responsibilities towards the environment.
Capitalising on global growth reason for MNCs rapid growth?
- Global brand/profit quest
- Supplement weak demand
Optimising cost structure reasons for MNCs rapid growth?
- Supply chain stability
- Economies of scale
External conditions that cause rapid MNC growth?
- Avoid protectionism
- Increased take-over activity
Corporate social responsibility pros for an MNC?
- Image (marketing/brand, attract investors)
- Profits (USP if first mover, customer demand)
- Motivational value
Corporate social responsibility cons for an MNC?
- Costs (administrative, constraints cost minimisation objectives)
- Growth (limit opportunity spectrum)
- PR stunt (Banks)
Why are MNCs subject to regulation?
- To protect against exploitation
- To discourage resource depletion
- To ensure local culture is protected
- To discourage abuse of market power
- To protect domestic businesses
