4.2 Global Markets and Business Expansion Flashcards
How is Economies of Scale defined?
Increasing the scale of production leads to a lower cost per unit of output. Increasing size or speed increases efficiency and lowers costs.
How is Labour Productivity defined?
The amount of goods and services produced by one hour of labour.
How is Off-shoring defined?
Shifting jobs to other countries
How is Outsourcing defined?
Shifting jobs to other organisations
How is Product Life Cycle defined?
the stages that many products go through:development; introduction; growth; maturity; decline.
How is Pull Factors defined?
Factors that entice firms into new markets and are the opportunities that businesses can take advantage of when selling into overseas markets.
How is Push Factors defined?
Factors in the existing market that encourage an organisation to seek international opportunities.
How is Risk defined?
The probability of an event happening multiplied by its (negative) impact.
How is Saturation defined?
The point when most of the customers who want to buy a product have done so already, or there is limited remaining opportunity for growth in sales.
How has trade grow over the years for the UK?
- International trade has been going on for a long time, bronze from the Great Orme has been found across the Mediterranean, but since the industrial revolution trade has exploded.
- Innovation and the entrepreneurial spirit led UK dominating the world economy in 19th century, exporting pumps, steamships, railway locomotives, this helped develop its banking sector.
- In recent years – UK has been 4th largest exporter, fifth largest importer, largest financial sector and pharmaceuticals also a big exporter.
- Conditions for this include economic (eg being part of EU), entrepreneurial drives to seek new markets (graphene). Trade has continued to expand and we have a global consumer culture. Opportunities for new customers, new resources, cheaper production costs.
What are Push Factors?
- Adverse factors in existing market that encourage the organisation to seek international opportunities. Perhaps overcoming weaknesses in current market or looking to lower costs.
- Saturated Markets
- Competition
How is Saturated Markets a Push Factor for Businesses?
- a saturated market is where most people who would buy the product already have it, or limited opportunity for growth in sales.
- e.g. a cycle manufacturer may look to another country where cycling is taking off.
- most people in UK own a phone so a phone manufacturer either needs to differentiated its product in the home market or look somewhere else
How is Competition a Push Factor for Businesses?
- If more competition in the domestic market it may force a business to sell abroad
- Competitors in the domestic market may sell similar products at a lower price or higher quality. which makes selling the original product difficult or unprofitable.
- When selling products abroad the products may needed to be adapted to meet the tastes of those consumers.
What are Pull Factors?
Opportunities to entice firms into new markets:
- New or bigger markets
- Lower cost or secure resources, such as minerals, land or labour
- Lower cost of transportation
- Technological expertise, including research facilities
- Managerial or financial expertise
- Organisational skills
- Assets, such as brands, patents or other intellectual property.
How is Economies of Scale a Pull Factor for Businesses?
- The increase in production leads to lower costs per unit of output. You can use labour better (division of labour to increase efficiency) , buy in bulk, invest in more efficient machinery, many fixed costs would decline, but if the business gets too big, sometimes resources are spread too thinly (law of diminishing returns)
How is Risk Spreading a Pull Factor for Businesses?
- The probability of a bad event happening multiplied by its negative impact. Can be financial, strategic, operational risks. Some can be insured against, others pose a threat to the business. Selling abroad reduces the risk on the domestic market losing sales, maybe due to recession or change in demographic.
What is Off-shoring?
- shifting jobs to another country
- the main aim is to lower costs or to hire workers with particular skills, but there is a danger to your reputation if you are cutting lots of jobs in the home nation. Other risks include language, cultural differences and PESTLE, loss of IP.
It can fail, the project can increase management costs, reduce efficiency or quality damage reputation and could expose firms to corruption
What is Outsourcing?
- shifting jobs to other organisations
- Shifting functions like HR, operations, finance to another company to reduce costs, specialise areas (focus on what the business is good at, improve quality and flexibility) and to comply with rules or regulations.
- risk can include –> loss of experience/expertise, poor communication and differing interests (can be indirectly expensive to the business)
- but is often less controversial to off-shoring
What is Labour Productivity?
- Firms often cite ‘cheaper’ labour as a pull factor, but this is not a good way to describe the quest for lower labour costs
- it is not simply workers can be paid a lower wage, its that each worker costs less per unit of output that they produce.
- many factors may affect the productivity of workers e.g. skills, working conditions, technological support
- Moving abroad for cheaper labour is not good from a moral point of view, but if its for higher productivity then it’s more accepted, which could be because of better skills, qualifications, working conditions and technologies
How can you extend the a product’s life cycle by selling in multiple markets?
- When in the Decline stage, falling sales and profits as well as market saturation occurs
- could choose to move product to new markets in order to cut costs allowing the firm to increase margins
- or they could choose to sell there product in new markets, where the product could be in the Maturity stage in Europe but in the introduction stage in Asia.
How is Disposable Income defined?
The amount of money that a person has left over after they have paid their taxes, national insurance and other deductions.
How is Exchange Rate defined?
The price of one currency against another.
How is Infrastructure defined?
The basic systems, facilities, services and capital equipment required for a country’s economy to function, which might include its roads, communication systems and power services.
What are some factors to consider in the Assessment of a Country as a Market?
to decide whether or not a country is a good place for investment takes a huge amount or research here are some key factors:
- Levels and growth of disposable income
- Ease of doing business
- Infrastructure
- Political Stability
- Exchange rates
How is Levels and Growth of Disposable Income a Factor to consider in the Assessment of a Country as a Market?
- Many businesses will look to sell their products abroad, but they must evaluate whether customers have sufficient disposable income to actually but their good/service
- Disposable income is the amount of money a person has left over after they have paid their taxes, national insurance and other deductions, which can be used for consumption or savings.
- It is important to understand the average level of household disposable income in comparison to other countries –> a falling level of disposable income may mean that a person with low income are struggling to pay for a minimum standard of living whereas those with high income may be reducing expenditure on luxuries and unnecessary items. –> therefore people are consuming less and are saving more.
- a business may want to consider a country where disposable income is stable or have been growing in the past few years so consumers will be able to buy its product in the future
How is Ease of Doing Business a Factor to consider in the Assessment of a Country as a Market?
This is an important factor to consider when evaluating a country as a potential market. Any potential issues may put off a business as it could delay sales, increase costs and potentially affect other parts of the distribution chain The World Bank uses 10 indicators: 1 - Starting a Business 2 - Dealing with Construction Permits 3 - Getting Electricity 4 - Registering Property 5 - Getting Credit 6 - Protecting Minority Investors 7 - Paying Taxes 8 - Trading across Borders 9 - Enforcing Contracts 10 - Resolving Insolvency
How is Infrastructure a Factor to consider in the Assessment of a Country as a Market?
-Communication and transport links is important.
Many developing countries may have disposable income but have underdeveloped and unreliable transportation infrastructure
-This can add significantly to a company’s production and operating costs. Eg awkward or inefficient entry points (ports and airports), few or unreliable train lines or shipping lanes, poor warehousing facilities, road networks.
Electric shortages and poor internet connections may lead to inefficiencies for businesses who want to co-ordinate product, sales and distribution electronically
- A deal or failure to deliver due to poor infrastructure can lead to lost sales and increased costs.
- Dubai has used it proceeds from its oil to develop infrastructure by creating an artificial harbour for ships and the Jebel Ali Free Trade Zone
How is Political Stability a Factor to consider in the Assessment of a Country as a Market?
A country with a calm political climate can minimise uncertainty, which makes the country more attractive as a potential market to businesses. Some issues to consider:
- The nature of the government and its relationships with business.
- The nature of the government and its relationship with major international institutions, such as UN, WTO, IMF and World Bank.
- Governments approach to regulation and taxation.
Possible political risks in near future, eg elections, increasing authoritarianism, factions in government, levels of corruption coups, terrorism, invasions, protests or human rights issues.
- Hard to measure corruption of a country –> Transparency International is a non-gov organisation which measures perceived levels of public sector corruption
How is Exchange Rate a Factor to consider in the Assessment of a Country as a Market?
- Currencies appreciate and depreciate against others. Businesses will look at fluctuations, but consider the longer term trend.
- If the Pound is strong against other currencies it make it cheaper to buy products and pay dividend to foreign shareholders but exporters products are more expensive so they may lose out of sales and profits.
Exchange Rate trends over long periods are uncertain. A business might want to protect itself from adverse movements:
- Taking out insurance to protect it from financial loss
- Using financial instruments, such as hedging, to try and hedge against financial risks.
