Topic 4.2 Global Markets and Business expansion Flashcards
Mrs Carr
What is a Merger?
When two businesses join together to form a completely new business entity
What is a joint venture?
A separate business entity created by two or more business who have pooled their resources together for a certain project
Reasons for Mergers and joint ventures
- Spreading risk over different countries/regions
- Entering new markets /trade blocs
- Acquiring national/ international brand names/patents
- Securing resources/Supplies
- Maintaining/increasing global competitiveness
What are the problems with mergers and joint ventures? Unrealistic Objectives
- Firms don’t have enough information about the partner business and overestimate the benefits of the venture in terms of increased sales and reduced costs
What are the problems with mergers and joint ventures? Communication and culture
- Every business has a unique company culture and organisational structure
- They may have different ways of working which can cause conflict
What are the problems with mergers and joint ventures? Management issues
- Mergers often result in layoffs and other cost cutting measures
- This can result in the loss of key employees with skills and knowledge
What are the problems with mergers and joint ventures? Finances
- The process of merging two companies can be costly
- It may result in expensive legal fees and additional investments
Factors that effect global competitiveness
- Brand name
- Quality and design
- Lower prices / economies of scale
- Customer service
- Research and development
- Product reliability
What is cost leadership?
- Businesses seek to produce the same quality products as their competitors but at a lower price
- Good resource management
- Waste minimisation
What is Differentiation?
- A business will produce a unique product or give a unique service
- Can charge a premium price
- Performance
- Style
- Design
- Consistency
- Durability
- Reliability
What are some economic factors that influence global competitiveness?
- Movements in the exchange rate
- Labour skills shortage
What are some of the effects of the Devaluation of the currency ?
- Cheaper exports
- Imports more expensive
- Inflation is likely to occur
- Lower wages
What are push factors?
- Factors that push a business into foreign markets
Examples of Push factors
- Saturated domestic markets
- low growth opportunities
- need to diversify
- end of the product life cycle
What are pull factors?
Factors that encourage businesses to operate abroad
Examples of Pull factors
- Attraction to new overseas markets
- Opportunties to gain economies of scale
- Ways to extend the product life cycle
What is offshoring?
- When a business decides to move part of the production process or all of it to another country
What are the advantages of Offshoring?
- Lower labour costs
- Access to specialised suppliers
- Access to resources
What are the disadvantages of Offshoring?
- Increased short term costs
- Cultural / language barriers can cause bad customer service
- Public relations and staff relations may suffer
What is outsourcing?
- When a business hires an external organisation to complete certain tasks or business functions
What are the advantages of Outsourcing?
- Higher productivity
- Economies of scale
- Help the business meet demand
What are the disadvantages of Outsourcing?
- Possible poor working conditions
- Poor communication - can lead to mistakes and higher costs
How can a business extend the product life cycle ?
- Rebranding
- Price discounting
- Seeking new markets
- Adding value
- New packaging
How does a business asses a country as a market?
- Levels and growth of disposable income
- Exchange rate
- Ease of doing business
- Infrastructure
- Political stability
How does a business asses a country as a production location?
- Cost of production
- Availability and skills of labour
- Government incentives
- Natural resources
- Likely return on investment
- Ease of doing business
- Infrastructure
- Political stability
- Location in the trade bloc
Ease of doing business
- Regulations, taxes, policies and trading
- How easy it is for a business to start up in that country
Government incentives
- Governments give out grants or tax breaks
- Initial investment is less
Natural resources
- No transportation costs
- Increased efficiency as resources are closely located
Likely return on investment
- if their are reduced labour costs but not in a good location in the trade block
- Do the pros weight out the cons
Location In the trade bloc
- Access to larger markets
- Reduction in trade barriers
Advantages of Cost leadership
- Reduced costs lead to reduced prices so they are more competitive
- Waste minimisation - Getting more form their resources
Disadvantages of Cost leadership
- Requires constant innovation to lower costs
- Quality may suffer
Advantages of Differentiation
- Can charge a higher price
- Build brand loyalty
Disadvantages of Differentiation
- May limit growth as it is a niche market
- expensive to do market research
