Please enable JavaScript.

Coggle requires JavaScript to display documents.

Theme 4 - Coggle Diagram

- - - - Infrastructure is the physical and organisational structures available in a specific area for example transport, communication, utilities and buildings. businesses need ease of importing and exporting and buildings where goods can be manufactured. Benefits of good infrastructure are :
    - - Unemployment is the amount of workers who do not currently have a job but are actively seeking employment
      - Unemployment rate is the number of people and employed as a percentage of the Labour Force
      - The unemployment rate is calculated by unemployment / labour force then x 100.
    - - Conversion of the factors of factor inputs for example land labour capital and enterprise into final output.
    - - Afraid trade area which is where countries through an agreement remove most or if not all tariffs and set individual tariffs with countries outside the free trade area for example the EU.
    - - Government's may offer incentives for businesses to setup. Tax incentives are given to companies in the hope that foreign investors will bring in capital to support economic development and create local employment for example in Singapore
    - - May need raw materials from location. If you do not locate near war materials you may have to import which may be more expensive. This pushes the cost of production and reduces profits. Some countries have an advantage that they have natural resources not found anywhere else.
    - - If it is expensive, firms worry about moving factories, setting up new production, buying machinery, hiring staff, moving operations and language barriers full stop firms need to know what the expenses are and what will be returned.
  - - - May look to merge with another business to acquire the brand name. Risk can be reduced by entering into a long-term agreement for example Disney acquired shares worth 7.4 billion of Pixar.
    - - A joint venture allows inventors to move their products to market quickly with much less financial risk. Inventors can team up with manufacturing companies who will help them; design, build and make the prototypes necessary to help get the product to market
    - - Moving production or sales into another country can be complex and risky for a single business to go through alone. Businesses may decide to do a joint venture to share the risk for example the business may already have some operations in that country. Risk can be reduced by entering into a long-term agreement for example in 2008 tata bought Jaguar and Land Rover as they wanted the brands in different countries.
    - - A joint venture or merger may be essential to ensure that the business remains competitive in a dynamic global market. The local partner may be able to provide critical market data, local knowledge on the domestic market and information on customers, tastes and trends which will help the parent business to maintain competitive advantage
  - - - The amount of income that a customer has to spend after deductions for example tax or national insurance. If a business wants to move abroad it may assess the level of disposable incomes in that country.
    - - The value of one currency in comparison to another. When assessing a potential market the business will look at the exchange rate. Having the strong pound moving will lead to offshoring as the cost of production may be cheaper as land and factories are cheaper compared to the price at home.
    - - The basic physical and organisational structures and facilities for example buildings, roads and power supplies. needed for the operation of a society or business. Should help to reduce costs of Transportations of goods and they will also be quicker and more efficient. Many developing nations have been slow to get infrastructure in place.
    - - Political stability is an aggressive takeover of a government, which could lead to riots, protests and looting. it can also lead to a civil war for example the one between Syria and Egypt. Political instability is where the propensity of a government to collapse either because of conflicts or rampant competition between various political parties.
  - - - The lack of ability to find skilled workers can cause a decline in competitive advantage. Those businesses that follow a differentiation strategy will suffer the most from skills shortages.
    - - A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. This can be done by differentiation and low cost leadership.
    - - Exchange rates are defined as the value of one currency in terms of another
    - - As the pound appreciates – gets stronger – against other currencies then imports to the UK will be cheaper. This will be good news for all those who like a bottle of French wine with their Nandos, or who like a nice French cheese with some biscuits. Businesses that sell imports will have lower costs, and therefore may enjoy higher profits
    - - If the pound appreciates, gets stronger against other currencies then UK exports to other countries will be more expensive. This may mean that the business that exports, out of the UK, has lower sales or may have to reduce their prices in other countries to keep demand levels up
    - - If the £pound depreciates - gets weaker against other currencies it will make exports to those countries cheaper
    - - If a business imports while there is depreciation it will make those imports dearer. If the imports are raw materials to make other products in the UK then these products will cost more to make and be more expensive for the consumer which may affect demand, sales revenue and profit
  - - - Pull factors may force a business to consider selling abroad for example if there is significant opportunities to sell overseas or the ability to spread risk across more markets or ability to gain economies of scale
      - Economies of Scale
        
        Good way to drive production to a level that delivers economies of scale. Particularly if the product or service is standard across export markets with little or no adaption. achieving greater economies of scale allows the business to become more cost effective.
      - Risk Spreading
        
        A key benefit of exporting to other nations is that it allows the business to spread risk by selling in another country the business is less vulnerable to changes in the domestic economy. Different countries may have different growth rates at any one time, selling in multiple countries can also give a balanced portfolio of growth.
    - - Push factors may Force a business to consider selling abroad for example high levels of domestic competition or saturated markets with low growth opportunity.
      - Saturated Market
        
        A saturated domestic market means that a business or group of businesses has sold a product to just about everyone who would buy one. While research and development is taking place the business must continue to trade and grow.
      - High competition
        
        High level of competition in the house market means businesses will look abroad to where there is less competition for example the food and drink market.
- - - - Trade agreements - reduction and removal of trade barriers. World Trade Organisation situated in Switzerland which lead firms to greater profit and peace
      - Reduced tariffs - some protectionist measures remain in place, a large number of countries with significant global economic influence have lowered protection it measures
      - Expansion of global trading blocs - growth of trading books such as EU and NAFTA have reduced national barriers and promote more trade and integration. NAFTA is the North America trade agreement
      - Improved technology - advances in technology has revolutionise communications, lowered labour cost and unable to businesses to access foreign markets
      - Globalised financial systems - movement of capital can be moved freely or at a low cost (quickly across the world)
      - Greater labour mobility - workers are more likely and willing to move across national borders in search of appointment. Economic migrant
      - Improved transport - movement of people, goods and services across the globe faster and cheaper making it more convenient. E.g. air travel and containerships
      - Growth of multinational corporations - large organisations take advantage of lower trade barriers, labour mobility and cheaper transportation which allows growth and the entrance to untapped market
      - Greater ‘openness’ of a formerly ‘closed’ market - developing countries such as India and China which were previously largely close to trade has become increasingly integrated into the economy and play a role in the creation of new markets and provision of low labour costs.
  - - - A tariff is a tax placed on an import to increase its price and decrease its demand. Tax can be imposed by governments to raise revenue and to restrict imports. A tariff is likely to raise the final price to the consumer – therefore a fall in demand for the goods. Consumers will switch consumption to domestic goods
    - - Sometimes a country will not be able to set tariffs or quotas because of trade agreements or membership of a trade bloc, this means they need to come up with other ways of protecting their domestic industries from floods of cheap imports
    - - Protectionism is the theory or practice of shielding (or protecting) a country's domestic industries from foreign competition by taxing imports, imposing quotas or passing laws.
    - - Subsidies are a way of a government protecting their domestic markets
  - - - Giving people specific tasks to do for example in the construction industry there is an architect, engineer, electrician, plumber, plasterer, site manager and bricklayer) communication is needed
    - - Strengths are that there is higher productivity and efficiency, lower unit costs and encourages investment in specific capital which means companies can benefit from economies of scale.
    - - The process of concentrating and becoming an expert in one particular subject or skill. This gives businesses a competitive advantage as they are able to have high quality products, which makes customers more likely to purchase from the company.
    - - Weaknesses are decreased job enrichment, non-flexible workforce, rise of work at alienation, risk of disruptions to production and risk of structural unemployment due to occupational inactivity.
  - - - The EU is a single marketplace between the 28 member countries (with a notable exception of Switzerland which remains independent). There is free movement of; people, money, goods and services between all 28 countries. 19 of these countries also opted to have the Euro as their currency (to stabilise their currency), this is the Eurozone
    - - ASEAN was started in 1967 by Thailand, Malaysia, Philippines, and Singapore to promote economic and social growth in the region. Since then it has expanded several times with five more countries joining the trade bloc. It has negotiated a free trade agreement among member states and with other countries such as China, as well as eased travel in the region for citizens of member countries.
    - - A trading bloc is a type of intergovernmental agreement to reduce regional trade barriers. Depending on how closely the members wish to integrate their economies they may form different types of trading blocs such as free trade areas, customs unions, common markets and full economic & monetary union
    - - NAFTA was created in 1992 with the simple idea of giving the customers in the USA, Canada and Mexico cheaper goods. Without import tariffs between the countries the goods are less expensive which is a bonus for the consumer, but not always popular with business
  - - - The process of greater integration and interconnectedness between countries. The IMF identifies it as free flow of ideas, goods, services of capitals leading to integration of society.
    - - An emerging economy is one in which the country is becoming a developed nation often driven by relatively high economic growth and a rapid expansion of trade and an increase in investment flows
    - - Positives - can be seen as a potential opportunity for businesses. Multinational corporations see a high economic growth rate compared to more developed economies. Emerging economies have a rapid growth of the middle-class with rising disposable income, which stimulates demand due to purchasing power. Emerging economies are a suitable location for international operations to either locate or produce or sell in domestic labour. Country must have a stable government which welcomes multinational corporations, good infrastructure, low corporation tax, skilled workers for low-cost, highly work ethic and be within a trading bloc.
    - - Negatives - many domestic businesses based in emerging economies are actively pursuing expansion into developed economies. Business within emerging economies are not always straightforward for there is an increased risk of intellectual property theft, restrictions on methods of doing business and competitive challenges from established domestic businesses and threats.
- - - - Product - Products that succeed in global markets are usually at the premium end of the market. A prime example is supercars which appeal to only a small subset of a country’s population, but bought by customers in many countries
      - Price - Global niche markets provide an opportunity for businesses to charge premium prices as the products tend to be more unique. It depends on customer perception, as they will pay what they perceive the product to be worth not its actual value in terms of raw materials
      - Place - Niche products can reach a global audience easily through websites. Alternatively agents may be used in other countries apart from the host country.
      - Promotion - Promotion is just the communication aspect of the entire marketing function. In a global niche market the promotion may be more targeted and subtle than in a mass market. The promotional message must be able to reach across cultures. Brands have to be careful not to devalue the brand image by discounting
    - - The phrase 'Cultural Diversity' means a range of different societies or people of different origins, religions and traditions all living and interacting together. Having cultural sensitivity, means understanding that people all over the world have different interests and values. The greeting rituals are very important in international business, getting it right can set the tone for the whole negotiation.
    - - A global niche market is a very small market in each country, but the combination of all the countries together make enough demand to make the business profitable. A global market niche is a subset of a global market. A global market niche is highly specialised and is characterised by very loyal customers and premium prices.
    - - A niche market is a small specialised market which caters for a particular product or service. E.g. Harley Davidson motorbikes, Rolex watches.
  - - - Social factors include; lifestyle, religion(s), economic wealth, family structures, education, and political systems held by a country
    - - Cultural differences - When doing business abroad a business needs to keep in mind the culture of the nation
      - Different tastes - Businesses need to take into account different tastes the target market might have in the area of operation for example Pepsi lost market share in Southeast Asia when it changed its vending machines from deep blue to light blue. Light blue is a symbol of death and mourning in Southeast Asia.
      - Language - Certain meaning may have a different translation in the country of operation businesses need to take into account language so it doesn't offend the target market
      - Inappropriate/unintended meanings - Some businesses may decide to cut costs and use an online translation tool such as google translate. For example Pepsi in China translated their slogan, “Pepsi Brings You Back to Life.” The slogan in Chinese literally means, “Pepsi Brings Your Ancestors Back from the Dead.”
      - Inappropriate branding and promotion - Even in the largest businesses get their advertising wrong for example in Chinese, the Kentucky Fried Chicken slogan “finger-lickin’ good” came out as “Eat your fingers off”.
      - Unintended meanings - An example of this is Mercedes-Benz shortened the name of its Grand Sports Tourer, which launched in 2005. In Canada GST is the acronym for the widely loathed goods and services tax (like our VAT) is also known as the "gouge and screw tax” or GST for short
    - - Cultural factors include; Beliefs, moral values, traditions, language, laws held by a country
  - - - Market Penetration - Market penetration on a global basis means selling more products to existing customers. Marketing teams may look to see if frequency of use or purchase can be increased. This is a very low risk strategy as the customers are already very loyal
      - Product or service development - New product development in marketing can be critical to keep customers buying more
      - Market Development - Market development means taking products that already exist and finding new global markets for them. This may mean moving into countries that have had trade liberalisation. This may also mean the business has to find suitable alternative markets for the products
      - Diversification - Diversification is the most risky of the four strategies as it means providing new products for new markets. A business will do this in an attempt to move away from shrinking markets and into new more attractive markets
    - - Polycentric – adapt to each market to appeal to local customers to maximise revenue
      - Ethnocentric – standardise the product for all markets to keep costs low. A business which believes that a success story in one country can translate to all other countries in which it operates. Foreign operations are subordinate to domestic markets. Products sold without adaptation
      - Geocentric – business can have some of the advantages of a standardised global approach to get economies of scale but cater for needs of individual markets to maximise sales. Branding may be done on a global basis. The businesses has a world wide approach to marketing and its operations become global
    - - A global marketing strategy means that a business doesn’t differentiate its products or marketing between countries.The same product is sold in many countries with some fine tuning of the product price, promotion etc.
    - - Glocalisation is a combination of the words 'globalisation' and 'localisation' and is used to describe products and services that are both developed and sold to global customers but designed so that they suit the needs of local markets.
- - - - In a world of complex supply chains, migrant workers, sub-suppliers and a constant squeeze on costs, corporate leaders and their stakeholders are keenly aware of the risk of labour exploitation.
    - - Pay varies around the world, as does the cost of living. There are thousands of videos on the internet which explain that MNCs don’t pay fair wages that the locals can live on – which is exploitation. Owners want low costs and low wages, employees want higher wages that they can live on
    - - Moral principles that govern how a company does business. A moral principle is one that knows right from wrong.
    - - Working conditions in developing nations can be well below those of industrialised nations. Owners want high profits and so may cost cut health and safety measures e.g. no fire escapes
    - - MNCs and waste - MNCs regularly flout or ignore “weak” environmental laws in India and other developing nations. The owners want to keep costs down, good waste management is expensive and so there is a stakeholder conflict with those that live near these toxic dumps
      - MNCs and emissions - An emission means the production and discharge of something, especially gas or radiation. The climate crisis of the 21st century has been caused largely by just 90 companies, which between them produced nearly two-thirds of the greenhouse gas emissions generated
    - - Having part of a supply chain in a developing nation can be a problem for the MNCs. Many garment factories or labour intensive production processes are outsourced to slums, refugee camps and unlicensed back street businesses with poor working conditions. This can mean that labour is intentionally or not essentially exploited by the MNCs
      - Forced labour - list of six forced labour indicators: threats or actual physical harm to the worker, restriction of movement or confinement to the workplace, debt bondages, withholding of wages or excessive wage reductions, retention of identity documents and threat of denunciations to the authorities
      - Child labour - Some children are trapped in forms of slavery in armed conflicts, forced labour and debt bondage (to pay off debts incurred by parents and grandparents), drug trafficking and organised begging and in many other forms of labour. For some work, children receive no payment, only food and a place to sleep
  - - - Political Influence - Governments can apply pressure to attempt to change the behaviour of MNCs. MNCs may wish to get political approval from the governments of the host nations, this may help trade and setting up in a new country. If the MNC gains political approval they may find trading smoother and less troublesome.Politicians can be bribed, not such an issue in the UK but quite common in other countries. Some MNCs bring so much wealth and employment to an economy that a weaker government might ignore unethical activities
      - Legal control - If a country introduces laws to reduce pollution or protect children from child labour then this will all cost the MNC money to improve their practices. Quite often the MNC may ignore or flout these regulations. Benefits include Laws can be passed at any point to control the actions of a MNC which are already established in a country. Laws mean that consumers have some rights against the MNC. disadvantages are The MNC may simply move production to a country where there are less laws and restrictions. The host nation does not want to lose the economic input of the MNC so this deters laws being passed. MNCs can afford expensive legal defence of any challenge
      - Pressure groups - Pressure groups are organisations which campaign for changes in the law or new legislation in specific areas. Pressure groups can have a strong influence on public opinion and behaviour of MNC, if they want to avoid a PR disaster. Benefits include Pressure groups can raise public awareness of MNCs activities in host countries. Pressure groups can create PR problems for MNCs peacefully, which can lead to a change in their behaviour. Disadvantages include the pressure group needs to be large and organised if it is to have any impact on changing the activities of the MNCs. The size and wealth of the largest MNCs mean they can easily counter or quieten pressure group activity
      - Social media - Social media can turn a product scare into a national crisis within hours. Social media networks can be used to orchestrate a boycott which will affect the sales and reputation of the MNC. Some benefits include social media can be a very powerful way to change the behaviour of MNCs. Disadvantages include social media can only affect short-term change. The Internet is a dynamic medium, fickle customers become bored easily and move on to the next scandal. A MNC can just dust itself down and carry on with very little impact on their activities
  - - - Creates employment -There are jobs available for local people, thus reducing numbers of unemployed and the resultant drain on local resources
      - Increases skills base -Many MNCs operate training schemes for local people to learn how to use machinery. Such skills also attract other firms to the country
      - Increased standard of living - An increase in earnings increases taxes paid within the country and gives more money to spend on services
      - Raises country’s profile -MNCs plan their moves carefully. This is known worldwide and the movement into a particular country is a statement about its pro-business environment and political stability
      - Improves balance of payments - Many goods made by MNCs are exported to other nearby countries. This increases the amount of money earned by the country.
      - Improves infrastructure -MNCs often improve communication links within a country, e.g. road, rail and port facilities are updated and expanded. This benefits the country.
    - - Profit leakage; Profits from factories or hotels run by the MNC go to the country in which the head office of the company is found.
      - Low paid jobs; Mainly low paid jobs are provided for local people. Higher paid managerial jobs go to workers brought in from the head office country.
      - Pull out quickly; In times of recession/low sales, jobs of workers in the head office country are protected for longer than in other factories.
      - Poor safety record; Poorer countries often have poorer safety standards, and governments are willing to turn a blind eye to breaking the standards that exist.
      - Increases urbanisation; Most jobs created by MNCs are usually found in or close to urban areas. Hope of securing these jobs attracts more people from rural areas to cities.
      - Widens poverty gap; Although wages are low in factories, they are higher than elsewhere. This increases the cost of living for all, as prices of goods rise.
    - - A MNC is a multinational corporation, a business which operates in more than one country.
    - - FDI is foreign direct investment. When a multinational invests in a host country, the scale of the investment (given the size of the firms) is likely to be significant. Governments will often offer incentives to firms in the form of grants, subsidies and tax breaks to attract investment into their countries.
    - - Inward investment will help a country's balance of payments. The investment will be a direct flow of capital into the country and the investment is also likely to result in import substitution and export promotion. Export promotion comes due to the multinational using their production facility as a basis for exporting, while import substitution means that products previously imported may now be bought domestically.
    - - If the multinational manufacturer for domestic markets as well as for export, then the local population will gain from a wider choice of goods and services and at a price possibly lower than imported substitutes. Consumers get the benefit of new products and services from the more industrialised nations.
    - - MNCs will bring with them technology and production methods that are probably new to the host country and a lot can therefore be learnt from these techniques. Workers will be trained to use the new technology and production techniques and domestic firms will see the benefits of the new technology. This process is known as technology transfer.