Theme 4 - Global Business Flashcards
What is an emerging economy
An economy which the country is becoming a developed nation, often driven by economic growth & trade
What are the BRICS economies
Brazil, Russia, India, China & South Africa
[countries with global influence & power]
What are MINT economies
Mexico, Indonesia, Nigeria & Turkey
[emerging economic giants]
What are 2 opportunities for businesses in emerging economies
High rates of economic growth
Rising disposable income
Demand for goods rising (as secondary sector growing)
What are 2 threats for businesses in emerging economies
Increased risk of intellectual property theft
Restrictions in methods of doing business
Competition
What does EMDE stand for
Emerging Market and Developing Economy
What is Gross Domestic Product (GDP)
The total value of output & services produced in an economy in a stated time period
What are the 4 indicators of economic growth
- Gross Domestic Product (GDP) per capita
- Literacy rate
- Health
- Human development index (HDI)
What is the UK average literacy rate
86.3%
[compare to Nigeria 19.1%]
What country has the healthiest citizens
Norway
What is the Human Development Index (HDI)
A statistic which combines life expectancy, education, and income to rank countries into 4 tiers of human development (given a no. Between 1 (perfect) & 0 (awful))
What is international trade
The practice of selling & buying goods / services from abroad
How do firms benefit from trade
•Allows lower production costs
•access to range of resources & products
How do countries benefit from trade
Consumers in country receive lower prices, increased choice & increased living standards
What are exports
Goods/ services that a firm produces in a home market but sells in a foreign market
What is trade liberalisation
When trade barriers are removed & free trade is allowed to take place
What are imports
Goods/services that are purchased & brought into one country from another
What is specialisation
The process of concentrating on & becoming an expert in a particular subject or skill
Give 2 reasons why a country may have industries in which it leads in the world
Proximity & availability of raw materials
Low labour costs
Historical ability to produce
Who is theorist for Comparative advantage
David Ricardo
What is comparative advantage
When a country decide to specialise in a particular industry / sector due to it being the lowest opportunity cost
What are 2 limitations of comparative advantage
•It assumes the world doesn’t change
•It assumes that goods have no cost of distribution
Who is theorist behind competitive advantage
Michael Porter
What is competitive advantage
When a country or business produces a product or operates an industry better than competitors or other countries
Give 3 advantages for a country that specialises
+Increased productivity & output = reduced average costs & EofS
+ increased scale of production = EofS
+ Gives domestic industries comparative advantage
+ Increased productivity = increased GDP & boost growth
Give 2 disadvantages of a country specialising
- over reliance on one industry
- other countries may become cheaper in the same industry & harder to compete
- if businesses grow too big, can gain diseconomies of scale (lack of communication & coordination )
What is FDI (foreign direct investment)
When a business from one country decides to establish themselves in another country
How does the UN define FDI
Where a firm takes an equity stake of more than 10% in a foreign enterprise
Give 2 reasons why a business might prefer FDI over exporting or licensing
•Managers can keep control over operations
•Protects intellectual property
•To be closer to consumers in foreign market
•To avoid high distribution & logistic costs
•To avoid trade barriers or political opposition
What are the 4 different types of FDI
Joint venture
Strategic alliances
Cross-border M&As
Build green field facilities
Give 3 advantages of FDI for developing countries
+ economic growth & employment
+ capital inflows can help current account
+ higher exports
+ tax revenue
Give 3 disadvantages of FDI for developing countries
- TNCs wield too much power
- profits made go back to home country of corporations
- ethical issues with TNCs working conditions
- over reliance on TNCs
What is globalisation
The economic integration of different countries through increasing freedoms in the cross-border movement, goods / services, technology & finance
Give 3 reasons why globalisation has increased
•Trade liberalisation
•Political change
•Reduced cost of transport & communication
•Increased significance of transnational companies
•Increased investment flows (FDI)
•Migration
•Growth of the global labour force
•Structural change
Give 2 advantages of trade liberalisation
+ allows businesses to increase their market size
+ reduced costs as imports are cheaper
Give 2 disadvantages of trade liberalisation
- infant industries / domestic firms may not be able compete against international firms
- some industries may be subject to dumping as business abroad may sell excess products at very low prices
When did China join the World Trade Organisation (WTO)
2001 - led to significant increase in exports
Why did transport and communication costs reduce and lead to globalisation
Innovation in containerisation
Technological advancements
What is a transnational company
A business that operates in more than one country
Give an example of structural change causing globalisation
UK shifting from manufacturing to tertiary sector over the last 50 years
What is protectionism
The theory/practice of shielding a country’s domestic industries from foreign competition by taxing imports, imposing quotas or passing laws
Give 3 reasons why governments impose trade barriers
Protect jobs
Protect infant industries
Raise revenue
Prevent dumping
Prevent harmful goods
Improve balance of payments
What is a tariff
A tax placed on an import to increase its price & decrease its demand
Give 2 disadvantages of tariffs
- Can increase import costs of raw materials for some businesses
- can erode consumer incomes if PED is inelastic
- other countries may retaliate
What is a import Quota
A physical limit on products coming in to the country
Give 2 disadvantages of Quotas
- difficult to measure degree of protection offered
- hard to implement & lots of paperwork
- retaliation
Give 3 examples of other trade barriers
Embargos
Gov legislation
Domestic subsidies
Give an advantage and disadvantage of gov legislation as a trade barrier
+ can be powerful in preventing fake imports
- difficult to check each import
- black markets
Give 2 advantages of domestic subsidies as a trade barrier
+ encourages increased production
+ can give domestic producers first mover advantage when exporting
+ can help domestic businesses gain EofS
Give 2 disadvantages of domestic subsidies as trade barriers
- encourages business activity that would be unprofitable & inefficient without a subsidy (not sustainable?)
- open to retaliation
What is a trade bloc
A formal agreement between two or more regional countries that remove trade barriers
What are the 6 types of trade blocs (In order of least to most integrated )
- Preferential trading areas
- Free trade area
- Customs union
- Common market
- Single market
- Economic union
What is a preferential trading area
A group of countries that allow certain types of products from participating countries to receive a reduced tariff rate
What is a free trade area
2 or more countries where trade barriers between them are abolished but each country maintains its own tariffs against non-member countries
(E.g. NAFTA & ASEAN)
What is a customs union
Like a free trade area except that member countries maintain a common external tariff against non-member countries
What is a common market
Like a free trade area but there’s a free flow of factors of production between the countries
What is a single market
Where almost all trade barriers between members have been removed & common laws or policies work to make the movement of FofP very easy
What is an economic union
Same as a common market but there is a common tax system & the same currency is used in member countries
What is the EU
An economic union
(However has single market and common market included with some countries not adopting certain aspects like the currency)
What is ASEAN
A free trade area
(Association of Southeast Asian Nations)
What is NAFTA
Free trade area
(North American Free Trade Agreement)
What are two factors that prompt businesses to trade
•Pull factors (entice companies to new markets)
•Push factors (conditions in existing market pushing companies to seek opportunities elsewhere)
What are 3 pull factors for businesses to trade
•Opportunities (e.g. new/bigger markets, lower costs, expertise,etc.)
•Economies of scale
•Risk spreading
What are 3 push factors that prompt businesses to trade
•Saturated markets
•Competition
•Excessive red tape
•Government intervention
•Polítical instability
What can selling in multiple markets do for the business
•Reduce risk
•Extend the product life cycle (developing countries can see matured products as new & exciting, string brand loyalty & rep can create ‘timeless’ products)
What is offshoring
The relocation of business activities from the home country to a different international location (increasingly common with calm centres)
Give 2 reasons why businesses use offshoring
•Lower manufacturing costs
•Potentially better skilled & higher quality labour
•To be closer to customers & demand
•To overcome protectionism
Give 3 disadvantages of offshoring
- longer lead times for supply
- implications of CSR
- additional management costs
- more exposed to exchange rate changes
- communication issues (language & time zones)
What is outsourcing
Where 1 or more business function is contracted out to a 3rd party business, who then owns, manages & administers the selected process to an agreed standard (national or international)
What are 4 processes that could be outsourced
Production
Payroll
Purchasing
Delivery
Give 2 advantages of outsourcing
+ access to specialist suppliers with greater capability & quality
+ reduce costs
+ makes operations more flexible
+ focuses the business on its core activities where it can ‘add’ value
Give 2 disadvantages of outsourcing
- risk that supplier will fail to meet agreed terms (quality, standards)
- potential loss of expertise for business
- no guarantee that costs will be lower
Give 3 things a business should consider when assessing a country asa production location
Cost of production
Skills of workforce
Infrastructure
Trade bloc
Ease of doing business
Political stability
Likely return on investment
Unemployment rate (available labour)
What are 2 factors to consider when deciding on a country to sell in
Disposable income
Infrastructure
Who measures the disposable incomes of countries
OECD Better life index
Who measures infrastructure of countries
Using Global Competitiveness Index by The World Economic Forum
What country is rated the best to start a business in
Singapore
What is a franchise
A business (franchisor) sells the brand/rights/processes/etc. to another business or individual (franchisee) un exchange for financial royalty
What is a joint venture
A commercial enterprise undertaken jointly by 2 or more parties which otherwise retain their distinct identities (only a temporary arrangement)
Give 3 differences between an international merger and joint venture
Merger
• New company, must be CMA approved, Higher risk, long-term
Joint venture
• Existing companies, project & short-term basis, less risky, recommended before a merger
Give 2 advantages of Joint Ventures
+ CMA aren’t involved, limited regulation
+ access to resources & knowledge
+ lowered risk to enter a market
+ shared exposure to risks, workload & financial responsibility
Give 2 disadvantages of Joint Ventures
- 50% of JV fail due to risks & complexity of integrating operations & cultures
- coping with different practices, culture, management styles is difficult
What are all the ways a business can sell into a new market abroad
Exporting
FDI
Joint Ventures
Mergers / takeovers
Franchising
Licensing
What is licensing
Where permission is given by one firm to allow another firm to use its brand name, intellectual property or to reproduce its products / services in return for a significant price
Give 2 advantages of MNCs achieving global competitiveness
+ Bigger EofS
+ improved sourcing of supplies
+ diversified risk
What are exchange rates
The value of one currency in terms of another
What is the acronym for exchange rates impacting global competitiveness of a country’s exports
Strong
Pound
Imports
Cheaper
Exports
Dearer
Give 3 factors that impact the significance of exchange rates on the global competitiveness of a business
Elasticity of demand
Economic growth in other countries
Cause of the fluctuation
Give 2 types of buying contracts to avoid exchange rate fluctuation issues
Fixed contracts
Future / options or both
What is economic risk
The risk that cash flows will change due to unexpected exchange rate changes
Who is theorist behind competitive advantage
Michael Porter
What is a competitive advantage
An advantage over competitors gained by offering consumers greater value
What are the 2 ways of achieving a competitive advantage according to Michael Porter
Cost competitiveness
Differentiation
Give 3 ways to cost compete
EofS
Reducing training costs
Reducing quality
Standardisation
Capacity utilisation
Give 2 ways of differentiating
Performance
Style
Design
Consistency
Reliability
What is one of the biggest threats to global competitiveness for businesses in the UK
Skills shortages
(Particularly for businesses who differentiate & niche businesses )
What a niche market
A small specialised market as a subset of the entire market which caters for a particular segment , product or service
What is a global niche market
A group of customers all over the world that have a particular need that is not met by the global mass market
What is a global brand
A business that views the world as a global marketplace & creates products that will suit a world audience (e.g. Microsoft)
Give 2 advantages of being a global brand
+ power in the market as your brand is known
+ consistency in brand image
+ EofS
Give 2 disadvantages of Global brands
- differences in consumer needs, wants & usage patterns
- differences in competitive environment
- differences in legal environment
What are the 2 approaches to Global marketing
- Global marketing strategy
- Glocalisation
What is glocalisation
When a global company company adapts products / services to suit local tastes & markets (e.g. Starbucks in China)
What is the acronym for the 3 different marketing approaches
Polycentric
Ethnocentric
Geocentric
What is a Polycentric marketing approach
Where a business adapts to each market to appeal to local customers to maximise revenue (each host country is unique)
What is an Ethnocentric marketing approach
Products sold without any adaptation - a business believes one success story in a country will translate in all other countries
What is a Geocentric marketing approach
Where a business keeps their brand but alters some of the product/services they offer to localised tastes
Give 2 considerations when adapting the Product to global markets
Product life cycle
Ansoff
Boston matrix
Give 2 considerations when adapting the Place to global markets
Distribution channels
Transportation (land locked?)
Availability of resources
Give 2 considerations when adapting the Price to global markets
Different currencies & expected values
Pricing strategies
Tariffs & import duties
Luxury item? (How is it seen?)
Income in countries
Give 2 considerations when adapting the Promotion to global markets
Below the line, above the line
Culturally acceptable
Correct translation
Give 3 factors to consider when deciding which PEG marketing approach to use
Finance
Risk
Culture
Brand strength
Flexibility to change
Supply & demand in local markets
How the marketing mix is affected
What are cultural factors
Beliefs, morals, traditions, language, laws, etc
What are social factors
Lifestyle, religion (s), economic wealth, family structures, education, political systems
What is ethnocentrism
The tendency to view their own culture, ethics & norms as superior
What is a cultural audit
The first-hand study & examination of an organisation cultural characteristics to determine whether they hinder or support its vision & mission in different countries
What is high context communication
Tend to have uncertain & mixed meaning and relationships and trust needs to be built before negotiation
What is low context communication
Tend to say what they mean and use formal documentation to negotiate and agree (get down to business first)
Give 3 positive effects of MNCs for a country
•Improve infrastructure
•Creates employment
•Increased standard of living
•Increase skills base
•Raises country’s profile
•Improved balance of payments
Give 3 Negative effects of MNCs for a country
•MNCs pull out quickly
•Poor safety record
•Low paid jobs
•Increased urbanisation
•Profit leakage
•Widen the poverty gap
How do MNCs impact FDI flows into a country
Governments will offer incentives to firms in the form of grants, subsidies & tax breaks to attract investment into their countries
(India has had $300 billion of FDI to date)
How do MNCs impact the Balance of Payments of a country
•Inward investment improves BofP
•Indirect businesses being used (e.g. transportation) improves competitiveness
•Import substitution (instead of importing, buying domestic)
How do MNCs impact Technology & Skill transfers in a country
Bring in new tech & production methods
Workers are then trained so domestic firms can use new tech too (tech transfer)
How do MNCs impact consumers in a country
Gain a wider choice of goods/ services & at a price likely lower than imports
How do MNCs impact on business culture
Cultural & social impacts
Large numbers of foreign businesses can dilute customs & traditional cultures
What is a supply-chain
A system of businesses, people, activities, info and resources involved in moving a product/ service from supplier to customer
What is forced labour
Consists of MNCs threatening harm or harming workers, restricting movement, retaining wages & identity documents, debt bondages, etc.
(E.g. in Qatar World Cup building)
Give 3 ways MNCs can behave unethically
-Labour exploitation (child & forced labour)
-Environment exploitation
-Misleading or inappropriate marketing
What prevents misleading labelling in the UK
The Trade Descriptions Act
(Labels must be accurate & cannot contain false information on price, size, quantity, etc.)
- However, doesn’t apply outside UK
What are the 4 ways to control MNCs
Political controls
Legal controls
Pressure groups
Social media
What are political controls
The government applying pressure to attempt to change the behaviour of MNCs
(E.g R Sunak putting tax avoidance on G20 agenda, gov forcing Google to pay tax)
Give an advantage of using political controls on MNCs
+ MNCs incentivised to get gov approval for ease of doing business
Give 2 disadvantages of political controls on MNCs
-Regulatory capture & bribery
-Some MNCs bring so much wealth & employment to country that unethical activities are ignored by gov
-Only effective if it’s a joint effort from lots of countries, to get rid of capital flight fear
What are legal controls
Legal system applying pressure on MNCs to behave legally and fairly
(E.g. Corp. tax, min wage, US gov forcing BP to compensate Mexicans affected by the Deepwater Horizon disaster)
Give 2 advantages of Legal controls on MNCs
+ laws can be passed at any point to control MNC actions
+ laws mean consumers have some rights against MNCs (e.g Mclibel case)
Give 2 disadvantages of legal controls on MNCs
-Laws can still be broken by MNCs
-May simply move production to a less restrictive country
-Capital flight deters laws being passed
-MNCs can afford legal defence of any challenge
What is a pressure group
An organisation that campaigns for changes in the law or new legislation in specific areas
(E.g. WWF, Amnesty, Greenpeace)
Give 2 advantages of pressure groups for controlling MNCs
+ can raise public awareness of unethical behaviour
+ can create PR problems for MNCs which can create a change in their behaviour
Give 2 disadvantages of Pressure groups as a control of MNCs
- They need to be large & organised to make any impact
- Big & wealthy MNCs can silence or easily counter PG activity
Give an advantage of using social media to control MNCs
+ can be very powerful to change the behaviour of MNCs
(E.g. Twitter can organise boycotts worldwide that affect MNC’s sales & rep)
Give 2 disadvantages of social media as a control for MNCs
- SM can inflict only short-term change as it’s a dynamic medium & consumers easily get bored and move on
- An MNC can ignore and carry on (depends on elasticity )
What is a transfer payments
A form of tax avoidance through having ‘license holders’ that pay the HQ in a tax haven
What is global marketing
Treating the market as one market undifferentiated approach
2 pull factors influencing production location on exam specification
EofS
Risk spreading
