Theme 4.2 - Global markets and expansion Flashcards
What is a push factor
Pushes Businesses to expand outside domestic country e.g saturated markets, intense competition
What is a pull factor
Encourages businesses to operate within markets abroad e.g economies of scale (cheaper access to raw materials)
What is offshoring
- The movement of part of production process, or all, to another country e.g for lower labour costs, skilled labour (done by the same Business)
What is outsourcing
- Process of hiring an external organisation to complete certain tasks/functions e.g for reduced costs, compilation with rules and regulations (done by a different business)
What are 2 benefits and a drawback of offshoring
+ Lower labour costs
+ Access to specialised suppliers
- Employer/employee relations may suffer, domestic workers loose jobs
What are 2 benefits and a drawback of outsourcing
+ Specialist skill, more effective
+ Cost effective, don’t have to spend money investing in new facilities abroad
- damage to brand image if the values and brand ethics don’t align e.g Foxconn and Apple
What is the product life cycle
Introduction - growth - maturity - decline - extension strategy e.g new packaging
What factors do businesses need to consider as to entering new markets and their attractiveness
- Political stability (corruption)
- Levels of growth of disposable income
- Infrastructure (transport)
- Ease of doing business ( The World Economic Forum, WEF)
What factors need to be considered when assessing a country as a production location
- cost of production (increased profit margin)
- location in trading blocs (reduction in protectionist measures)
- natural resources (reduced transport, easy access)
What is a global merger
Permanent agreement between 2 business from different countries to join together
What are joint ventures
Where 2 businesses join together to share knowledge, resources, skills to form separate business entity for a limited period of time
What are some reasons for global mergers and joint ventures
- Spreading risk (acquiring national/internatonal brand names and patents + intellectual property with strong brand reputation)
- maintaining global competitiveness (economies of scale, lower costs, reduced prices, increased sales, higher market share - however this can lead to culture clash)
What is global competitiveness
Ability of a business to perform better than its rivals across markets in different countries
What can impact global competitiveness
Exchange rates
- Appreciation (value of currency increase agains another)
- Depreciation (currency decreases agains other)
Acronym for changing exchange rates and their meanings (appreciation&depreciation)
S.P.I.C.E.D - strong point imports cheaper, exports dearer
W.P.I.D.E.C - weak pound imports dearer exports cheaper
2 Factors that provide global competitiveness
- Cost leadership
- Differentiation
Cost leadership explanation
Lowest cost producer in industry, through increasing productivity, using machinery efficiently, outsourcing
- reduce price/keep the same leading to an increase in profit margins
Differentiation explanation
Different from competition
- strong brand image, better design, better quality and customer service
What’s an implication of skills shortage
Affects ability to gain a competitive advantage as
- workers lack skill, not productive
- increase cost factors due to waste
Differentiation hard to achieve
- workers lack skill and expertise
(can use offshoring or outsourcing to combat this issue)
