theme 4 business Flashcards
what is the definition of economies of scale ?
economies of scale - proportionate savings in cost when production is increased
what is a push factor ?
A push factor is something which forces a business to consider trading in another country
what are some examples of push factors which may force a business to persue trading options in other countries?
- saturates markets/market saturation
- high levels of competition in domestic (home) market/s
- product life cycle extension strategies
what are some pull factors for expansion into foreign markets ?
- economies of scale to gain
- ability to spread risk
- offshoring and outsourcing
what does it mean when a market becomes saturated and why is this a push factor for foreign expansion of a business?
- when a market becomes saturated it means that a business has reached the greatest amount of people that they can sell their products and services to. Therefore their sales levels are likely to stay relatively the same.
- This may encourage a business to expand into foreign markets as their product/service will be seen as new and exciting in these new markets.
- R+D is still taking place and a business needs to continue to trade and expand into markets abroad at the same time.
eg. Ansoff’s matrix market development
why may competition in the domestic market lead to a business expanding into foreign markets?
- high levels of competition in a domestic market may mean that a business looks to expand abroad where there is a lower level of competition as they may be able to compete more successfully with domestic businesses in that market rather than their own home/ domestic market
why may product extension strategies be a reason for expansion into foreign markets?
- a mature or declining product could be sold on an international scale as a new and exciting product - may generate more sales and more sales revenue in this way.
- product design, packaging design + logistics
- eg. SPAM
why may economies of scale be a pull factor for a business to expand into foreign markets?
- can drive production to a level to gain economies of scale more easily in foreign countries, which may be due to the lower minimum wage levels which leads to a significant cut in costs
- can paticularly benefit from economies of scale if a product is standard and can be sold in a range of countries with minimal adptations being made to it
- purchasing,technical,marketing,financial and risk bearing economies can be gained in this way
why may the ability to spread risk be a pull factor for a business to expand into a foreign market?
- by selling to other countries a business is less vunerable to changes in the domestic economy
- balanced product portfolio
- different growth rates experienced in countries at the same time - risk is spread as eggs aren’t all in one basket
what is offshoring ?
offshoring is when a business relocates dome of it’s business processes to another country eg. manufacgtiring or supporting processes such as accounting
why might offshoring be a pull factor for expansion into foreign economies?
- can benefit from lower minimum wage levels
- trade blocs and trade deals which can be made that a business can benefit from
- tax offered by host nations may be lower than in the domestic market
- access to a much larger talent pool for recruitment
what are the BRICS countries ?
Brazil
Russia
India
China
South Africa
- the BRICS are a group of emerging economies
what are the MINT countries
- the MINT countries are a group of emerging economies
Mexico
Indonesia
Nigeria
Turkey
what does GDP mean?
GDP - the total value of all goods and services in a market/economy measured over a period of time which is usually 1 year
what is an emerging economy ?
emerging economy - a country developing from an LIC to a HIC, due to the rapid growth of GDP in that country
what is the definition of an economy ?
economy - the state of a country in terms of the production and consumption of goods and services and the availible dupply of money in an economy
what are the 4 indicators of economic growth?
- GDP
- GDP (gross domestic product) per capita
- health
- Human Development Index (HDI)
- adult literacy rate (the amount of people in a country over the age of 15 who can read and write)
what is a push factor?
A push factor is a factor in the domestic market which forces a business to expand into the international market. Push factors are often seen as Threats (SWOT)
what is a pull factor?
a factor which forces a business to trade internationally/outside of their domestic market. Pull factors are often seen as Opportunities (SWOT)
what are some examples of a push factor?
- market saturation
- changes to the tastes and preferances of consumers in the domestic market
- changes to government legislation eg. increases in taxation which will lower a business’ profits
- high levels of competition in the domestic market which the business can no longer compete with
what are some examples of pull factors?
- lower production costs - economies of scale
- spreading of risk
- more profitable markets
- lower material costs
- better availability of raw materials
- residents may have better education levels and specialist training which would make them better suited to the job roles which that business could offer (potential employees) - lower training costs
- ability to obtain overseas trading licences
- spreads the risk across multiple markets
why might businesses trade internationally?
- may be forced to (push factors) (Threats) (SWOT)
- may want to/ feel enticed to due to Opportunities (Pull factors) (SWOT)
- before expanding internationally/into a specific market a business should asses whether they should trade abroad/ asses the market which they want to trade in before expansion of trading capabilities
why might expansion/ trading abroad benefit a product’s life cycle?
- expansion abroad may be beneficial for a product’s life cycle. For example a product may be at different stages of it’s life cycle in different countries. In a foreign country the product may be reaching it’s growth and maturity stage of the life cycle due to being a new product. - this will help a business to generate more sales. Whereas in the domestic market a product may be reaching/ at it’s decline stage of the life cycle which won’t generate as many sales for a business
