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BUSINESS THEME 4 - TOPIC 4.2 - GLOBAL MARKETS AND BUSINESS EXPANSION -…
BUSINESS THEME 4 - TOPIC 4.2 - GLOBAL MARKETS AND BUSINESS EXPANSION
4.2.1 Conditions that prompt trade
Push factors : saturated markets
For most businesses the move to business abroad begins when it becomes more difficult to increase sales in a domestic market
There will be less new customers to target and this is called
market saturation
Competition
markets can become saturated through lots of rival firms and businesses need a way to differentiate
imported products will allow firms to compete on price as foreign firms may have lower labour costs, giving the business a CA
Pull factors
Access to new markets creates huge potential for increased sales and profit
Risk spreading
diversified and wider markets reduce the risk if sales crash in one market, this is an economy of scale
Economies of scale
trading internationally usually the business will increase in size
EoS can lead to CA as lower costs may make lower prices and make mass markets available
offshoring and outsourcing
outsourcing means buying inputs from an independent supplier rather than producing in house
offshoring refers to the process of locating production abroad usually to cut labour costs
Extending product life cycles by selling in multiple markets
exporting to new international markets can be seen as an extension strategy
but market research may be needed to ensure the product will succeed in this market
4.2.5 Global competitiveness
The impact of movements in exchange rates
foreign exchange dealers make continuous adjustments to exchange rates, dependant on supply + demand
SPICED
businesses that export will want a depreciating/weaker £
businesses that import will want a stronger £
Competitive Advantage
cost competitiveness
achieved through
outsourcing, cost leadership
(having lowest costs in market)
,EoS, productivity and offshoring
product differentiation
achieved through
branding + reputation, design + reliability, advertising + packaging
skill shortages and their impact and international competitiveness
when supply is limited of skilled workers it raises their wages and therefore production costs which will reduce competitiveness
training takes time
4.2.2 Assessment of a country as a market
The two main reasons why a company sets up in other countries is to distribute + sell its products and setting up cheaper or higher quality production facilties. When Choosing a country many factors are considered...
Levels + growth of disposable income
can influence demand
Ease of doing business
includes time + cost of opening there, permits + regulations, workforce, taxes, imports + exports, etc
Infrastructure
includes all transport + communication facilities, on top of basic services such as energy + water supplies
Political stability
can include issues such as corruption or civil war
Exchange rates
can be a source of uncertainty and create issues surrounding importing or exporting (SPICED)
4.2.3 Assessment of a country as a production location
The costs of production
Skills + Availability of the labour force
is crucial and in less developing countries labour markets tend to be less regulated
Infrastructure
is vital and weak infrastructure can raise costs or slow production
Location in a trade bloc
Government incentives
such as reducing taxes to encourage FDI
Ease of doing business
Political stability
Natural resources
influences businesses to go there to utilise these
Likely return on investment
4.2.4 Reasons for global mergers or joint ventures
Organic growth
means a business grows from using its own resources. Whereas
Inorganic growth
occurs when a business gets bigger by joining another firm, this can be achieved via a merger or takeover
A merger
involves the mutual decision of two companies to combine and become one entity
A takeover
is usually characterised by the purchase of a smaller company by a larger one
A Joint venture
is a one off-temporary agreement for a particular project
Spreading risk over different regions
expands the portfolio and provides stability
Entering new markets or trading blocs
Acquiring international brand names/patents
Securing resources + supplies
Maintaining + increased global competitiveness
e.g EoS
However, most are unsuccessful and less than 50% achieve anticipated benefits due to things such as culture clashes