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Business > Theme 4 > Flashcards

Theme 4 Flashcards

1
Q

Economic growth depends on :

A

> willingness to accept inward investment from multinationals

> more enterprising behaviour from local businesses

> more stable government

> easier access to export markets due to improvements in communication and transport : globalisation

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2
Q

Growing economic power of countries (Asia and Africa)

A

> manufacturers in China are looking for suppliers from whom transport costs will not be great

> as a result, other Asian economies (Vietnam, Indonesia, Cambodia) have seen rapid growth

> these countries represent a viable source of supply for China and are also building their own manufacturing base.

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3
Q

New export opportunities (implications of economic growth for businesses)

A

as developing countries see incomes rising, UK businesses may discover new markets to which they can export.
UK is good at providing :
> fashion design
> design engineering and architecture
> culture (books and entertainment)
> financial and other business services

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4
Q

Offshoring production (implications of economic growth for businesses)

A

> many UK manufacturers have closed their facilities and move them to developing countries

> the goal of offshoring is to exploit the lower production costs, boosting profit margins, even if transport costs rise as a result

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5
Q

Increased domestic competition (implications of economic growth for businesses)

A

as countries develop, entrepreneurs are increasingly able to access capital and credit. therefore they will start up businesses that may be so successful that they can start exporting to countries like the UK. This leads to increased competition for UK businesses

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6
Q

Implications of economic growth for individuals

A

as an economy grows, the types of jobs change.
Those employed in agriculture move to manufacturing jobs.
the change in employment patterns will have a variety of impacts:
> rural to urban migration
> increased need for managers, expanding the middle class
> increasing skill levels within the economy

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7
Q

GDP per capita (indicators of growth)

A

Gross domestic product per person is a measure of the total output of a country’s economy divided by the population.

rising levels of income per person should result in people spending more. This is a clear indication for the economic development taking place.

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8
Q

Literacy (indicators of growth)

A

illiteracy rates - the number of people that cannot read or write - should see a dramatic improvement as an economy develops.
A literate workforce will be more capable of performing tasks that add more value to production.

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9
Q

Health (indicators of growth)

A

levels of heath should improve as the economy develops. simply measuring life expectancy is a good clue as to the health of a nation.

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10
Q

Human development index (indicators of growth)

A

HDI is an attempt to provide a single measure of economic development encompassing education, income and health.

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11
Q

Government spending (China)

A

this focused first on infrastructure (roads and dams for power and water) and then turned to housing, railways, schools and hospitals. Spending on these areas helps to reinforce the growth path

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12
Q

Foreign direct investment

A

the term used to describe investment in long-term assets from roads to buildings.

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13
Q

weakness in the Indian economy

A
  • poor infrastructure - India’s democratic system means that if the voters don’t agree with a policy, the government cannot force it.
  • narrow education system - education for the masses is poor, with 29% of the population being illiterate.
  • balance of payments deficit - India’s deficit of $9.7 billion shows that Indian consumers are buying more imports than foreigners want to buy Indian exports.
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14
Q

Potential problems for UK businesses (exporting)

A
  • short-termsim in uk plcs - cracking such major markets will take time, but shareholders are often unwilling to wait.
  • underestimating market potential - many British commentators have predicted China’s economy to implode but it is still going strong.
  • ponderous decision making - waiting too long to commit has allowed foreign competitors to get into China.
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15
Q

Key opportunities for UK businesses (exporting)

A
  • India may be a more comfortable market with more cultural similarities than China.
  • as China’s economy continues to develop, its service sector is likely to show higher growth rates. much of the UK’s global success stories are in the service sector.
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16
Q

Problems in Africa (corruption)

A

corruption is a problem in most African countries. its prevalence offers businesses two major issues :
- costs can rise as local or national officials expect payment to allow a firm to receive the necessary licences.
- companies that value corporate social responsibility cannot condone doing business in a corrupt manner.

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17
Q

Problems in Africa (poor infrastructure)

A

issues relating to infrastructure include substandard :
> electricity supply
> road networks
> rail networks
> waste disposal facilities

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18
Q

Problems in Africa (investor concern about stability)

A

> health epidemics, government collapse and inconsistent application of the rule of law create instability.

> these concerns over stability represent a major obstacle to investment.

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19
Q

Imports

A

Britain imports goods and services worth over $40 billion per month. these imports may be :
> foreign brands that add to the choice available to UK consumers.
> goods or services that Britain no longer mass produces.
> materials and components which may be produced far more cheaply.
> services, such as tourism, which involve importing services from foreign hotels

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20
Q

Exports

A

the value of Uk exports is about $29.8 billion per month.
+ exporting offers business the chance to increase sales ad to achieve growth, which enable them to enjoy economies of scale.
+ exports allows businesses to not have to rely on the domestic market.
+ if a firms home economy enters recession, sales may fall. However the impact may be less significant if they can export to unaffected markets.

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21
Q

Business specialisation

A

choosing to produce only one product or products for a single market.
porter’s focused differentiation or focused cost leadership are examples of strategies based on specialisation.

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22
Q

How specialisation can boost efficiency

A

+ choosing to produce just one product, fewer machines will be needed, therefore reducing costs.
+ there is a similar effect with training costs. there is no need for multi-skilling.
+ Taylor believed an employee who repeats one simple task get quicker over time, boosting efficiency.

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23
Q

Competitive advantage from specialisation

A

+ lower production costs from making one product, allows for lower prices boosting competitiveness.
+ alternatively, a company may not lower its prices and instead benefit from a higher profit margin on every unit sold.

24
Q

Benefits of FDI

A

+ avoiding problems involved in exporting - struggles to organise transport of goods.
+ avoiding transport costs - the shipping costs of exporting products can be significant
+ avoiding trade barriers - tariffs and quotas are bypassed if the product is produced in that country
+ access to natural resources - this is focused on extractive businesses
+ lower operating costs - build production facilities in countries where land and labour are cheaper.

25
Q

Trade liberalisation

A

involves removing trade barriers, such as :
> tariffs - these are taxes imposed on imports that raise the price of imported products, aiding sales of domestic rivals.

> quotas - these are physical limits on the quantity of a type of good that can be imported in a year.

> regulations - rules, paperwork and systems can be put in place to make it harder for imports to enter a country.

26
Q

Tariffs + -

A

+ as tariffs help firms to survive, they protect jobs of firms whose rivals are being taxed
+ tariffs also indirectly protect the other businesses that rely on these firms for trade (suppliers and local firms)
+ tariffs raise tax revenues, allowing governments to increase spending on public services

  • imposing tariffs pushes up prices, reducing consumers’ ability to buy the product, reducing standards of living.
  • tariffs help inefficient firms to survive, potentially harming competitiveness.
27
Q

Quotas + -

A

+ domestic firms face less competition, improving their competitiveness. this improves profits for shareholders and job security for workers
+ preventing unemployment theoretically reduces government spending on benefits

  • no extra tax revenues is gained by the government
  • they push prices up domestically for consumers
28
Q

Domestic subsidies + -

A

a subsidy is a payment made by government to a business producing a certain product or located n a particular area that the government wishes to support.

+ stimulate demand, perhaps allowing struggling businesses to boost order books, allowing investment in more efficient production
+ positive effect on the balance of payments by reducing imports and boosting exports from firms receiving the subsidies

  • artificially inflating profit margins of inefficient businesses can prevent them from improving
  • subsidies must be funded, meaning the government must increase taxation.
29
Q

Trading blocs + -

A

a group of countries that sign up to free trade between them, protected by a tariff wall against imports from outside.

+ free movement of goods between members gives the potential to create a large single market
+ external tariff walls insulate the business from competition
+ as trade grows it becomes necessary for governments to provide infrastructure

  • competition increases due to freer trade
  • to create a single market, new rules and regulations may need to be agreed
  • within a geographically close bloc, there Amy be common factors that become common problems
30
Q

Attraction of trading blocs

A

+ harmonisation of laws allows one product to be made that meets legal requirements in all member countries.
+ countries working together within a trading bloc have more power than individual nations to stand up to non-member techniques such as during (selling excess stock at low prices)
+ competing in a larger ‘home’ market incentivises the boosting of efficiency for firms in member states.

31
Q

Saturated markets (push factors)

A

when a firm is keen to grow, new customers must found. If everyone in a domestic market that wants the product had already brought it, growth can only come in one of two ways:

> widen the range of products being sold

> sell to new markets

32
Q

Competition (push factors)

A

particularly if a giant new competitor enters a market, existing businesses may recognise that their survival lies in fleeing the competition

33
Q

Extending product life cycle (push factors)

A

> as a product enters is decline phase of its lifecycle, entering a new international market may represent a viable extension strategy

> sustaining a high level of sales ensures the product continues to generate a positive cash flow which can be invested in new product development

34
Q

Economies of scale (pull factors)

A

> economies of scale are the cost advantages a company gains from increasing their output.

> the opportunity to boost unit sales through successfully entering new international markets brings with it the opportunity to benefit form economies of scale.

> economies of scale will be accentuated if production is concentrated in a few locations globally.

> with economies of scale comes a reduction in unit costs, boosting profit margins.

35
Q

Possibility of offshoring and outsourcing (pull factors)

A

> the lure of lower costs is great, especially when the differentials between the costs of land, labour and support services are so great between the UK and many developing economies

> therefore, this opportunity to reduce costs can acts a very significant pull factor to UK-based businesses

36
Q

Risk spreading (pull factors)

A

> entering more International markets is an effective way or spreading risk. if sales fail in one country, there are other markets where sales may remain stable

> although the process of entering a new market may carry an element of risk, if successful, the overall level of risk is reduced.

37
Q

Factors determining market attractiveness

A

> levels of disposable income
growth of disposable income
ease of doing business
quality of infrastructure
political stability
exchange rates

38
Q

Acquiring national/international brand names/patents

A

> buying up a strong portfolio of brands offers a lower risk way to penetrate into new International markets.

> buying businesses that hold patents is a quick route to effective new product development. once an idea has been patented, the resources of a global firm may be able to bring that idea t the market more successfully than a smaller, national business

39
Q

Strengths of global brands

A

+ huge sales provide production opportunities to enjoy significant economies of scale
+ global brands can be bought for reassurance and familiarity
+ many promotional tools are global and can only be economic if the brand sells globally
+ global scale provides strong negotiating power with retailers

40
Q

strengths of localising brands

A

+ tailoring to local tastes and habits should boost market share
+ local buyers can assume you are a local producer, which may help sales
+ an innovative product designed for local tastes may end up being a global success
+ localising brands probably means localised production, which cuts costs

41
Q

Domestic/ethnocentric

A

> this approach to global marketing stays focused on the home country. the attitudes of the company’s senior managers will be heavily influenced by their national culture.

> this approach expects consumers in foreign markets to welcome the company’s products as they are.

> ethnocentric attitudes can also come form consumers who are sometimes unwilling to consider imported products worthy.

42
Q

International/polycentric

A

> a polycentric approach is founded in the belief that all markets are different. Thus decisions are made at a local level.

> the empowerment of local managers to develop new products and brands with local tastes in mind can undo some of the advantages of operating on a global scale

> however, the firm still look to benefit from size

43
Q

Mixed/geocentric

A

> this combines ethnocentric and polycentric perspectives.

> follows the belief that people all over the world share some characteristics, thus the creation of global brands with a level of consistency worldwide is possible.

> however, the approach also accepts that local differences exist. The geocentric approach would empower local managers, but on the understanding that where possible global is best.

44
Q

Features of global niche markets

A

> wealthy people tend to travel a lot, picking up tastes and habits. This explains why niches at the higher-income end tend to develop as global niche markets.

> for products that are not luxuries there is less commonality globally. Thus, these markets tend to differ by country.

> therefore it is safe to say at mist global niche markets cater to the wealthy.

> on the other hand, most mass markets tend to have local variations that make a standardised, global, ethnocentric approach less likely to work

45
Q

Positive impacts of MNCs (employment)

A

+ western training methods may make the local workforce more productive/employable
+ MNCs usually pay higher wage rates than local firms, improving standards of living
+ MNCs have international reputations to maintain, so they will tend to provide above-average conditions
+ MNCs create many jobs for developing economies

46
Q

Negative impacts of MNCs (employment)

A
  • western employers may attract over-qualified people - possibly stripping local businesses
  • some locals may feel bitter that they are paid less than westerners for doing exactly the same job
  • conditions may be above-average but still shocking for westerners
  • the success of MNCs may sometimes be at the expense of independent firms
47
Q

Local businesses

A

> when a MNC sets up operations in a new area, the impact on most local businesses is likely to be positive

> a new factory that creates hundreds of jobs will look to local businesses for some supplies, will create more spending power locally and will add income to the area

> however, if the operation started by a MNC provides direct competition to an existing company

48
Q

FDI flows (impact of MNCs)

A

> when MNCs choose to invest directly into other countries, they re injecting cash into the national economy

> however, there are concerns that FDI flows may not entirely work in that direction. Once a MNC is generating profit, the likelihood is that the profit will be sent back to their home country.

49
Q

Balance of payments (impact of MNCs)

A

> countries that import more than they export run a current account deficit. this is likely to lead to a fall in the value of the currency, which creates a risk of inflation.

> however, the inflow of cash form MNCs cancels out the current scout deficit.

> the problem occurs when the MNC chooses to send the profits home resulting in even more cash outflow.

50
Q

Technology and skills transfer (impact of MNCs)

A

> when MNCs open facilities in a new host nation, they are likely to introduce ideas and methods that may be new to the country

> this allows the local economy to copy or ‘borrow’ there techniques, improving the efficiency of local businesses

> access to new technology can be the key to economic development. skills can then be developed, which sustain the ongoing development

51
Q

Consumers (impact of MNCs)

A

as MNCs enter new countries, consumers within those countries gain more choice. This is broadly seen as a good thing. However, problems may emerge if the competition from the MNCs drives domestic firms out of business.

52
Q

emissions (environmental considerations)

A

> for products that produce emissions that are harmful to the environment regulations are in place.

> consumers may be attracted by products with lower emissions

> ethical issues may arise if the company tests themselves and adjusts the results in the hope of securing a long-term customer

> if a company discovers an emissions problem and fails to communicate this externally, this is unethical

53
Q

Waste disposal (environment considerations)

A

> many products produced by businesses pose problems of disposal when their life is complete

> in developed economies, disposal of hazardous substances is highly regulated and thus expensive, however this is not the case in less economically developed countries

54
Q

Misleading product labelling (marketing considerations)

A

issues include :
> implications of messages about the vague benefits of a product

> implying the product is ‘all natural’ without explicitly lying about the level of highly processed ingredients used

> unhelpful imagery on packaging or adverts

55
Q

Inappropriate promotional activities (marketing considerations)

A

unethical examples:
> promotions that encourage consumers to buy more than they need which leads to waste

> promotions on unhealthy food which encourages large consumption of items that should be had in small quantities.

> editing images of models can lead to unrealistic standards for the consumer

Business (4 decks)

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