Topic 1 - Why Does A Business Seek International Markets

Question 1

How is spreading risk a reason to trade internationally?

Answer 1

Not putting all eggs into one basket

If a business starts/continues a venture abroad then they have more opportunity to make profit but if demand changes and one venture fails, still got the other to fall back on

Question 2

Outsourcing

Answer 2

Moving business functions from internal departments to external firms

Question 3

Offshoring

Answer 3

Relocation of one or more business functions to a different country

Question 4

Reasons for offshoring

Answer 4

• cheaper labour
• ” Raw materials
• ” cost of sales
• tax rates
• access to raw materials
• financial incentives (grants offered)
• how much is saved/added to costs when moving into that country

Question 5

How might competition effect whether a business is to move into a different country?

Answer 5

• too much competition - may not want to move as difficult to gain market share
• little or no competition - potential to move into the country as easy to gain market share and will have a peak in sales if it has not yet been introduced i.e. Introducing mobile phones into Africa

Question 6

What are trading BLOCs

Answer 6

Groups of countries with no trade barriers

Question 7

EU benefits

Answer 7

• free trade/single market economy
• trading is easier between member states
• free movement of labour means potentially higher quality products as can bring in highly skilled people
• encourage competition
• can increase sales massively with no quotas

Question 8

Tarrifs

Answer 8

Fee/taxation onto imports

Question 9

Quotas

Answer 9

Limit on how much a country can imports

Question 10

Why are trade barriers used

Answer 10

Quotas - prevents big companies flooding foreign markets and pushing smaller competitors out of the market, also brings tax to the economy which can be used for infrastructure

Tariffs - discourages people from buying out side of the EU as higher cost which keeps the money within the EU

Question 11

EU drawbacks

Answer 11

• more competition (can be pro and con)
• language barriers
• increased transport costs especially in countries with poor infrastructure
• tax levels vary which can effect selling price

Question 12

Reasons for trading internationally

Answer 12

• market saturation
  = in develops countries so move to developing countries to penetrate their market

-market penetration
=expanding market share so companies can reach a larger number of customers

-extending product life cycle
= maturing the product and moving it abroad so this stage lasts longer

Question 13

How might countries outside of a trading BLOC be effected?

Answer 13

• harder to trade

- falling demand for the countries products (why import something when you can get it cheaper inside the BLOC)

Question 14

Impacts of being in a trading BLOC

Answer 14

• easier to trade
• lower costs
• job opportunities

HOWEVER

• looses protectionist policies
• markets open to competition meaning smaller business’ may take a hit

Question 15

Pros of being in a trading BLOC

Answer 15

• increased competition
• expansion into larger markets (increased export opps)
• economies of scale - producing more to meet demand
• lower prices due to no BLOCs
• political harmony

Question 16

Cons of trading BLOCS

Answer 16

• possible discrimination between non BLOCs members
• unequal distribution of gains
• loss of protectionist policies