Theme 4 - Global markets and business expansion

Question 1

Push factors

Answer 1

Something that is forcing the business to look at trading in another country
Motivates a firm to look at opportunities in other countries away from domestic markets

Question 2

What do push factors include?

Answer 2

• Saturated market
• Competition in market

Question 3

A domestic market

Answer 3

The home market of the business e.g. if the business is a UK business its home market is in the UK

Question 4

Saturated market

Answer 4

One in which all consumer demand has been or is being met and has reached its peak, becomes challenging for businesses to grow and expand in the domestic market
* Prompts businesses to explore markets in global markets, which can help sustain their growth and profitability
* May move into emerging markets - unsaturated overseas can help increase sales

Question 5

Intense competition

Answer 5

• High levels of competiton reduce sales and profitability - forced to internationally trade where there is less competition
• Reduce reliance on a single market and diversify their revenue streams - reducing their exposure to market voitality and competition
• Change in domestic govt policies
• Change in local consumer preferences

Question 6

Pull factors

Answer 6

Something that is forcing the business to look at trading in another country - makes it attractive for a business to trade abroad
* Likely to be opportunities - in overseas markets- grows faster than domestic markets as demand in other countries increases

Question 7

What are pull factors?

Answer 7

• Economies of scale
• Ability to spread risk
• New and untapped markets, more profitable markets, education and training, lower production material costs high avaliability of resoucres

Question 8

Economies of scale

Answer 8

• Businesses might expand to achieve eos which will reduce their unit costs
• Expanding is an excellent way to drive productions to a level that delivers eos
• Strong pull factor for firms that need global eos in order to grow and survive
• Allows business to become more cost competitive

Question 9

Ability to expand

Answer 9

• Expanding a firm to sell in several overseas markets can reduce the costs and downturns in one market
• More able to spread risks, more able it is to be stable

Question 10

Other push factors

Answer 10

• New and untapped markets, more profitable markets, education and training one market given residents specific skills and knowledge
• Lower production, material costs, higher avalibility of resoucres, ability to ontain overseas trade

Question 11

Product lifecycle extension

Answer 11

Represents the value of sales frome time it is introduced until it is no longer sold anymore
The stages include introduction, growth, maturity and decline
Product may be at different stage of product lifecycle in different markets

Question 12

An extension stratergy

Answer 12

A stratergy used by a business to lengthen the life cycle of a product e.g. selling in multiple markets

Question 13

Offshoring

Answer 13

When a company moves part of the production process, or all of it, to another country
In countries with emerging economies and offer cheaper labor, costs

Question 14

Reasons for offshoring

Answer 14

• Lower labour costs
• Access to raw materials
• Access to skilled labour

Question 15

Advantages and Disadvantages of offshoring

Answer 15

Ads:
* Lower labour costs - help keep business costs down and increase profitability
* Access to specialised suppliers in countries abroad who provide better quality service
* EOS as businesses sell to larger international markets
* Increase jobs and qol in a country locating in, investments

Dis:
* Public relations and employer/employee relations may suffer due to relocation as domestic workers lose jobs - loss of investment in home country, exploited workers in host countrys
* Increased cost in short term e.g. relocation costs
* Possible poor customer service due to language barrier

Question 16

Reshoring

Answer 16

When a business moves its departments back to its country of origin
Changing consumer behaviours/attitudes as customers are becoming more away of firms overseas attitudes - bad repuation if treat staff badly overseas

Question 17

Outsourcing

Answer 17

When a business contracts out some activities to other businesses

Question 18

Reasons for outsourcing

Answer 18

• Allows businesses to focus on core competencies
• Reduced demand
• Easier to comply with rules and regulations in countries
• Skills they dont specalise in

Question 19

Advantages and Disadvantages of outsourcing

Answer 19

Ads:
* Businesses take advantage of specalist skills
* Cost effectiveness - no permanent staff costs
* Benefit from higher labour productivity in other countries
* Accept other contracts

Dis:
* Damage to brand image - values of one business may not align with other
* Poor communication between businesses can cause issues
* No control over the quality of outsourced work - negative effect on reputation

Question 20

Assessing a new market abroad?

Answer 20

• Ease of doing business
• Infrastructure
• Political stability
• Exchange rates
• Levels and growth of disposable incomes

Question 21

EODB

Assessing a country as a market

Answer 21

• Rules and regulations involved in establishing a business in a particular market may be relativley simple or extraordinarly hard
• Issues to consider include; accessing credit, registering properties and enforcing contratcs
• If businesses face signifcant challenges setting up a business - leads to delays in operations and the business generating sales
• Businesses will trade easily with countries with similar culture, langauges etc
• Businesses enterting international markets need to take into account the laws, trade barriers etc of the country they are entering into

Question 22

Infrastructure

Assessing a country for production

Answer 22

• The physical systems and services a country has that allow society and businesses to work effectivley such as roads, transportation and communication
• Good infrastructure improves the production process and delivery of goods and services to the customer which reduces costs and increases sales - a country w poor infrastructure would be difficult market for a business to operate in
• Avaliability of technology affects size of the market
• If needs to buy/sell w poor infrastructure - pay to improve - costs rise

Question 23

Levels of growth and disposable incomes

Assessing a country as a market

Answer 23

• Selling in countries with higher disposable incomes - more sales
• Selling in countries with lower disposable incomes - slower growth of sale
• Businesses should look into trends of incomes overtime - any potential rise in sales
• Expand into emerging economies - rising incomes

Question 24

Exchange rates

Answer 24

• Attractiveness of a country depeneds on where it imports/exports and increase or decrease in exchange rates
• Exchange rates can be subject to extreme fluccuations due to external factors - should look at historical trends
• Businesses moving into strong currencies can i,port raw material and components for production at a lower price - exports more expensive

Question 25

Political stability

Answer 25

* Businesses may be at risk of not gaining a roi in a country with political instability * At risk of unpredictable policyt changes - affects employment * Subject to corruption, lack of law enforcement and higher levels of crime * More likley to have a disruption to trading * A stable economy and govt is less risky investment for the business

Question 26

Assessment of production locations abroad?

Answer 26

* Costs of production * Skills and avaliability of labour force * Infrastructure * Location in trading bloc * Ease of doing business * Government incentives * Political stability * Natural resources * Return on investment

Question 27

Costs of production

Answer 27

* Businesses want to keep costs of production low as this can help them increase their profit margin or allow them to sell at a lower price to gain a comeptitive advantage * Costs of land and office space often cheaper overseas aswell as utilities like water and electricity

Question 28

Skills and avaliability of labour force

Answer 28

* Quality of workforce important as it will directly impact the quality of good and services produced in an economy * Businesses will need to consider factors such as literacy rates and whether the workforce has the right skills needed for the business * Businesses may look at the size of the labour force and also locate production where labour costs are lower

Question 29

Location in trading bloc

Answer 29

* A business within a trading bloc will be able to access many advantages such as reduced protectionist measures * May relocate to be within a trading bloc to benefit from this

Question 30

EODB (PRODUCTION)

Answer 30

* A business will want to relocate in an area where there is limited bureucracy so that the process of establishing a business production facilities is not delayed or has high costs * A business will consider a countrys regulations such as enviromental protection laws that say how much pollution firms can release, reaction of people living there, proximity to markets they want to sell in

Question 31

Government incentives

Answer 31

* Businesses may be offered incentives by the governmemt such as specalist advice, lower corp tax rates and tax relief, offering loans with low interest rates, grants for training staff * Govt do so to attract fdi - bring money into country through increased employment and tax revenue

Question 32

Political stability

Answer 32

* A country with political instability - corruption, lack of law enforcement, higher levels of crime * A country with political stability and stable economy is seen as less of a risk

Question 33

Natural resources

Answer 33

* Businesses may locate where they have easy access to the raw materials as they need - reduces delays and cost of transporting materials

Question 34

Return on investment

Answer 34

* Reduce the risk of initial investment not being paid back * Firms may use investment apprasial to compare the roi of different potential locations for production

Question 35

Infrastructure | Assessing a country for production

Answer 35

* Businesses need to consider the infrastructure needed such as roads as this will affect the production process * Businesses may also consider the avaliability of services, banks, it * May look at the utilities avaliable - waste disposal, energy supplies * The standard and effectiveness of security avaliable

Question 36

A global merger

Answer 36

A permanent agreement betweeb two businesses from two different countries join together

Question 37

A joint venture

Answer 37

Where two businesses join together to share their knowledge, resources and skills ro form a seperate business entitity for a limited period of time They share equity and profits of the business

Question 38

Reasons for joint ventures/mergers?

Answer 38

* Spreading risk * Access to different markets * Securing resources and supplies * Acquiring national/international brand names/patents * Maintaining/increasing global competitiveness

Question 39

Spreading risk | joint ventures/mergers

Answer 39

* Businesses operating in different markets spreads the risks associated with fluctuating economic conditions * If there is an economic downturn in one country/market they will still gain sales in another market that is less affected * A foreign firm in a joint venture/merger should bring good knowledge of the local market customs and legal requirements - reduces these risks * Any risk shared between partners in a joint venture

Question 40

Access to different markets ## Footnote Merger and joint ventures

Answer 40

* Entering a market using a merger/ joint venture is quicker than using organic growth * If one of the firms is within a trading bloc - the other firm will also have access to the bloc w/o paying tariffs * May enter to avoid govt restrictions on businesses * A business with MEDC with a slow growing market might invest in a business in a LDE with an emerging economy - more growth * In EME many govts insist that foreign businesses can only operate as joint ventures as it can benefit domestic businesses * Firms in LDES enter into mergers with MDEC access to more established markets * Form joint venture with local economy - gain knowledge of local markets

Question 41

Securing resources and supplies ## Footnote Joint ventures/mergers

Answer 41

* Businesses can strategically merge or create a joint venture with another business that has access to resouces - quickly gain access to these resources - helps speed up the production process - one firm might have good access to the resouce * Businesses might enter into a merger.joint venture with its supplier of raw metrials which will give the firm greater control over the quantity, and reliablity of price

Question 42

Acquiring national/international brand names/patents

Answer 42

* A patent is a legal right given by the government to an individual or business to make, use or sell and invention to exldude others form doing so * Using a merger/aquisition is a method businesses can use to get access to intellectual proteporty or a business with strong reputation * MNCS have better resources than smaller businesses such as marketing expertise and distribution channels - make better use of patents * Firms also entet to obtain a well known national ot international brand na,e likley to gain customers from already exisiting brand and increase brand recogniton

Question 43

Reasons for Maintaining/increasing global competitivness

Answer 43

* Increase their global dominace - expanding - benefit from eos - which will reduce unit costs - reduce prices - more competitive * May enter to remove competitor from the market * Give access to new technologies, expertise, skilled workers, new products - more innovation, more competitive * Enter with several firms that make similar products to maintain competitvness through diversification with different products each servce diff market any loss of sales of one could offset the sales of another business

Question 45

Global competitiviness

Answer 45

The ability of a business to perform better than ts rivals across markets in different countries

Question 46

What factors affect global competitivness?

Answer 46

* Fluccuations in exchange rates * Competitive advantage; cost leadership and differentiation * Skills shortages

Question 47

Currency appreciation

Answer 47

The value of one currency increases against another currency

Question 48

Advantages and disadvantages of currency appreciation

Answer 48

Advantages: * If a business imports raw materials and components from abroad they will now be cheaper * This will help a business to increase costs and increase their profit margin Disadvantages: * If a business exports goods/services to foreign consumers the goods will be more expensive for international customers * This may lead to a fall in sales as consumers now shift demand to domestic businesses

Question 49

Currency depreciation

Answer 49

The value of a currency decreases against another currency

Question 50

Advantages and disadvantages of currency depreciation

Answer 50

Advantages: * If a business exports goods/services abroad they become more competitive because their products are cheaper to purchase * In the domestic market there may be less competiton from foreign firms as imports are now more expensive for domestic consumers to purchase Disadvantages: * If a business imports raw materials or components from abroad they are now more expensive * This leads to an increase in the costs of a business which could then be passed onto consumers in the form of higher prices

Question 51

Competitive advantage

Answer 51

**A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices** Businesses can gain a competitive advantages through cost leadership and differentiation

Question 52

Cost leadership

Answer 52

When a business becomes the lowest cost producer in their industry Lower prices increase competitivness - attract customers and increase market share This can be achieved through increasing their productivity of workforce, using machinery and technology effcientley, outsourcing and offshoring Businesses with low quality aim for cost leadership

Question 53

Differentiation

Answer 53

* When the business makes the characteristics of their products/services different to those of their competitiors * Methods of differentiation; developing a strong brand, strong usp, better design and quality and customer services * Firms can use differentiation to charge higher prices - products with lower ped is good for * Differentiation can only be used in the long term if firm possess a barrier to entry - w/o barrier to entry another firm could copy the usp - No longer differentiated * Differentiation can be used to attract customers that place high value on product characteristics such as brand or design - outsource to ensure high quality production

Question 54

The impact of skills shortages

Answer 54

* If ability to obtain skilled labour is difficult - affect their ability to gain a competitive advantages * Due to increased production costs as a result of having to rise wages, could use less skilled staff but that would mean a reduction in quality and unskilled workers - can train but leads to increased costs and thus less comeptitivness * Whole countries can have skills shortages - lack of training - migration - offer incentives to reduce the skills shortage

Question 55

Evaluation of CL and D

Answer 55

* Businesses that rely on product differentiation - require highly skilled workers - therefore are more affected by the skills shortage * Costleadership difficult to achieve if workers lack skills - may not be as productive - can lead to increase costs such as waste * In order to overcome these issues a business can use offshoring and outsourcing to access the skills needed for their business

Question 56

Advantages and Disadvantages of global mergers and aquisitions

Answer 56

Advantages: * Economies of scale gained from costs being spread over larger output which can lead to increased profit margins * Diversifying risk due to having products in several markets so there is a fall in sales of a certain product the business can still generate profit from other products * Opportunity to enter new markets which might otherwise be closed to the business * Access to knowledge and resources Disadvantages: * No guarntee a business will gain a return on investment if it is not a successful merger * Diseconomies of scale can occur due to communication issues and a lack of control as the business expands * A culture clash between the two businessess can affect the quality of business - poor sales * When two businesses merge redundancies can occur because same roles taken - this affects the motivation levels of the remaining employees

Question 57

Intellectual property

Answer 57

A produce that is a creation of the mind, such as invention, that the law protects from unauthorised use by others. It includes patents, copyrights and trademarks

Question 58

Global competitiveness

Answer 58

The extent to which a business or a geographical area such as a country, can compete successfully against rival