Theme 4 Flashcards
Impact of economic growth on business
- potential for increased profits
- reduced costs of production
- increased trade opportunities
- increase in investment (including FDI)
Impact of economic growth on individuals
- reduced unemployment
- increased average incomes
- access to quality public services
Indicators of growth
- GDP per capita
- health
- literacy
- human development index (HDI)
Specialisation
Occurs when a country/business decides to focus on producing a particular good/service E.g., Apple focus on the production of technological products and services
Benefits of trade liberalisation
- increase market size -> increase output + benefit from economies of scale
- reduced costs as imports can be cheaper
Drawbacks of trade liberalisation
- infant industries may not be able to compete against international firms
- dumping may occur -> businesses abroad may sell excess products at unfairly low prices
Reasons for increased globalisation
- reduced trade barriers/trade liberalisation
- political change
- reduced transport and communication costs
- increased importance of global companies
- increased investment flows
- migration (within and between economies)
- growth of global labour force
Protectionism
When a government seeks to protect domestic industries from foreign competition e.g., tariffs and quotas
Tariff
A tax placed on imported goods from other countries - they increase the price of imported goods which shifts demand from foreign businesses to domestic business (why it’s used as a protectionist method)
Quota
An import quota is a government imposed limit on the amount of a particular product allowed into the country
Trading bloc
A group of countries that form an agreement to reduce or eliminate protectionist measures between each other - encourage trade liberalisation between the countries e.g., ASEAN and The EU
Benefits of trading blocs for businesses
- wider markets
- external tariff walls
- infrastructure support
- free movement of labour
Drawbacks of trading blocs for businesses
- increased competition
- common rules and regulations
- retaliation
- inefficiency
Assessment of a country as a market
- levels and growth of disposable income
- ease of doing business
- infrastructure
- political stability
- exchange rates
Extension of the product lifestyle
- Development
- introduction
- growth
- maturity
- EXTENSION - sell in multiple markets for example
- then decline (rather than straight declining after maturity)
Reasons for merger or joint ventures
- spreading risk
- entering new markets/trade blocs
- acquiring national/international brand names and patents
- securing resources/supplies
- maintaining/increasing global competitiveness
Cost leadership
- when a business becomes the LOWEST COST PRODUCER in their industry
- can be achieved using strategies such as:
1. Increasing the productivity of their workforce
2. Using machinery and technology efficiently
3. Outsourcing
4. Offshoring
These reduce prices which increases profit margins and makes them a cost leader
Methods of differentiation
- strong brand
- better design
- better quality
- customer service
Global marketing
- a business doesn’t differentiate its products or marketing between countries.
- the same product is sold in many countries with some fine tuning of the product, price, promotion etc.
Polycentric
Adapt to each market to appeal to local customers to maximise revenue
- changing 3-4 elements of the marketing mix.
Ethnocentric
Standardise the product for all markets to keep costs low, products sold without adaptations e.g., IKEA
- A business which believes that a success story in one country can translate into others.
Geocentric
- A mixture of polycentric and ethnocentric, branding may be done on a global basis.
- Have advantages of a standardised global approach to get economies of scale BUT cater for the needs of individual markets to maximise sales.
Global niche market
- A subset of the global market.
- A very small market in each country but the combination of all the countries together makes enough demand to make the business profitable.
- highly specialised, very loyal customers + premium prices.
Advantages and Disadvantages of the global niche market
Pros:
- Niche markets in many countries can build up to a significant market where a business can enjoy significant demand.
- sell niche across the world to reduce average costa and spread the fixed costs over more units sold.
Cons:
- A niche market in one country can be very small.
- fixed costs are higher for niche businesses.
Cultural factors
- beliefs
- moral values
- traditions
- languages
- laws held by a country
Social factors
- lifestyle
- religions
- economic wealth
- family structure
- education
- political systems held by a country
High context communication needs
- establish social trust first
- value personal relationships + good will
- agreement by general trust
- negotiations slow and ritualistic
Examples: Chinese, Japanese, Vietnamese.
Low context communication needs
- Get down to business first!
- value expertise and performance
- agreement but specific, legalistic contract
- negotiations as efficient as possible
Examples: Scandinavian, English, German
Advantages of MNCs
- MNCs bring FDI
- MNCS create jobs for the host nation
- MNCs pay taxes to the host nation
- MNCs help to increase competition
Disadvantages of MNCs
- MNCs send all their profits back to their home nations
- MNCs only give menial/temporary jobs to the host nations. All the management jobs go to those from the home nation
- Lots of examples of MNCs who don’t pay what they should e.g., Starbucks
- MNCs destroy fledgling businesses who cannot compete as they don’t have the economies of scale of MNCs
Definition of an MNC
A multinational corporation, a business which operates in more than one country e.g., Coca-cola produces in over 200 countries.
Shareholder objectives vs. Ethical objectives
SHAREHOLDER
- high profits
- high dividends
- growth
- return on their investment
- a positive corporate image
Shareholder objectives vs. Ethical objectives
ETHICAL CORPORATES
- low emissions
- safe waste disposal
- paying fair wage rates to employees in other countries
- sourcing sustainable raw materials
Controlling MNCs
- Political Influence e.g., Lower corporation tax in Ireland
- Legal control e.g., new environmental laws
- Pressure groups e.g., strong influence, can cause a PR disaster
- Social media e.g., can orchestrate boycotts on brands and effect sales and reputation of MNCs
