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Global Markets 4.2
Theme 4
| Question | Answer |
|---|---|
| What is Disposable Income? | Disposable income is the total income an individual has available to spend after paying income taxes and any other statutory payments. |
| Why will countries with high disposable income be attractive to UK Businesses? | Those countries with high levels of disposable income will be seen as attractive to UK businesses as they can target them with highly differentiated products. |
| Why is China perfect for new market development? | China is seen as a rising star and has high levels of disposable income |
| What is meant by the ease of doing business? | The ease of doing business is how accessible markets are for a business. For example is their excessive bureaucracy, where rules and regulations increase the time taken to do business e.g. paperwork when exporting products. |
| What is Infrastructure? | Infrastructure is the physical systems that a country (or business) require to operate effectively. e.g. roads, railways and airports, communication e.g. phone and internet facilities and ease of use, utilities such as electricity, gas and water |
| Any profit made in the foreign country from providing goods and services will be more expensive to repatriate (send back) to the UK . Why? | The business will have to turn the foreign currency into £s. This will impact negatively on profits of the businesses profits. |
| What factors have to be considered when locating abroad? | Costs of production/Infrastructure/skills and availability of labour force/ease of doing business/government incentives |
| Why is producing goods in the UK expensive? | We have to import a great deal of the raw materials that do not naturally occur in this country e.g. Cocoa We have a high standard of living and a high national minimum wage in comparison to other countries |
| Why does infrastructure need to be considered when deciding to locate abroad? | Does the country have adequate road, rail, sea and air transport systems so goods can be exported and imported easily? Does the country have suitable buildings and premises where the goods could be manufactured? |
| Why would businesses choose to locate in a trade bloc? | Locating in a trade bloc such as ASEAN allows easier access to markets within those countries, with lower export taxes. For example Nissan and Toyota all have manufacturing plants in the UK to gain access to the rich and developed EU market for cars |
| Why is the workforce a factor to consider when locating abroad? | In the UK there is often a shortage of suitably skilled workers i.e. a lack of availability. This can be resolved by locating in other countries and utilising the skills of workers there. |
| What makes Egypt a politically unstable country in which to locate a business? | Heightened threat of terrorist attacks against UK interests and British nationals from groups motivated by the conflict in Syria. Terrorists continue to plan attacks in this country/Threat of kidnapping, particularly in remote desert areas. |
| What makes Thailand a politically unstable country in which to locate a business? | Possibility of civil unrest and the threat of terrorist attack. The security situation remains volatile. On 17 August 2015, a bomb attack killed about 20 people and injured over 120 |
| Why may Governments offer incentives e.g. Grants to locate in their country? | Tax incentives are given to companies in the hope that foreign investors will bring in capital to support economic development and create local employment. Nissan were given a grant by UK government to locate in the unemployment blackspot of Sunderland. |
| Why is likely return on investment an important factor to consider when locating a business abroad? | Setting up production in another country is expensive e.g Moving factory/Setting up new production/Buying machinery/ Hiring key staff with local knowledge (language). Investors will need to know that these expenses will be returned with profits |
| What happens when the pound appreciates (gets stronger)? | If the £pound appreciates (gets stronger) against other currencies then UK exports to other countries will be more expensive |
| What happens when the pound depreciates? | If the £pound depreciates then UK exports will be cheaper |
| If the £pound depreciates (gets weaker) against other currencies it will make exports to those countries cheaper. A business can then ...... | Keep prices to other countries the same and enjoy the higher profit Lower prices to other countries and gain market share and more revenue from extra sales |
| The effect of an exchange rate change on a business will depend on several factors. What are they? | Recession - a weak £pound is great for exports at lower prices but if there is a recession in the country buying the goods then demand will still be low PED - If good are price inelastic then the lower price due to the weak pound won’t effect demand |
| What is a competitive advantage? | 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. |
| What is a low cost leadership strategy? | With this strategy a business will seek to produce the same quality products as its competitors at a lower price Large businesses typically do well as they can benefit for the largest reduction in average costs and EOS |
| What can a business do in order to become the lowest-cost producer? | High levels of productivity High capacity utilisation Use of bargaining power to negotiate the lowest prices for production inputs Lean production methods (e.g. JIT) Technical Economies of Scale |
| What is a purchasing economy of scale? | Where global businesses can buy supplies in bulk meaning that they are able to obtain massive discounts. It is a way to become a low cost producer. |
| What are technical economies of scale? | They allow a business to lower unit costs by investing heavily in the best machinery making it quicker to produce better quality mass market goods at a lower price. |
| What is competitive advantage through differentiation? | With this strategy a business will produce a unique product or give a unique service. They may be similar products but each will have some attributes which set it aside from the competition. |
| How did Kotler suggest products can be differentiated? | Performance Style – TGI restaurants Design Consistency Durability Reliability – Eveready battery bunny Reparability |
| What is a skills shortage? | A skills shortage is where there is a shortage of individuals in the labour market with skills to meet labour market demand. Businesses which follow a differentiation strategy are more vulnerable to skills shortages as they require more skilled staff |
| What is a skills gap? | A skills gap means that current employees do not have the necessary skills that employers require. |
| What is a global merger? | A global merger occurs when two businesses join together beyond the boundaries of a specific country. They will be MNCs and these types of merger are likely to increase the power of the new business. |
| What is a joint venture? | A joint venture occurs when two or more business agree to act collectively to set up a new business venture with all parties contributing equity to fund the set up and purchase of assets. |
| How are joint ventures different to mergers? | Joint ventures are different from takeovers and mergers in that the risks and returns of the business formed as the joint venture are shared by the parties involved. Usually this is a 50:50 share, although that doesn't have to be the case. |
| What are the reasons for a joint venture/global merger? | 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 is spreading risk over different countries/regions? | By operating in a number of countries a business reduces the risk associated with one individual country. |
| What are the benefits of spreading risk over different countries/regions? | Profits in one geographical area can sustain business elsewhere to overcome short term downturns in the economy. If one country is in recession, impacting on sales revenue, another might be undergoing economic growth, countering this. |
| What is the benefit of Acquiring national/international/brand names/patents? | Taking over brand names and patents allows a business to market its range of products in many different countries. Marketing EOS allow the business to lower unit costs. A global brand reduces the need to have a local variation of the brand. |
| What is a benefit of securing resources/supplies? | This reduces costs because the business does not have to deal with an intermediate that would cut profit margins as they would require payment. By removing the middle man the business operates more effectively. |
| What are push factors? | Factors that force a business to leave the market in which they currently operate to look for new income streams in the future. These factors in the existing market encourage an organisation to seek international opportunities e.g. domestic recession. |
| What is market saturation? | When it becomes impossible to expand sales further in that particular market In a saturated market most sales are likely to be replacement ones. This means that a business will eventually see sales revenue fall |
| Market Saturation occurs at what stage of the Product life Cycle? | Maturity |
| How can firms combat saturation? | Diversifying their range/Seeking new Markets |
| Buying power increases and a business negotiates cheaper unit costs through bulk buying. This is what type of economies of scale? | Purchasing Economies of Scale |
| What is risk spreading? | Risk spreading means that the business becomes less reliant on the vagaries (unexpected changes) of one or just a few markets. |
| What is outsourcing? | When a business contracts out production to another business. This might lead to a loss of quality control but can allow the business to match supply to meet demand. Apple outsources the production of the iPhone to Foxconn in China. |
| Products that are in a saturated market | Microwaves Fridges TV's Washing Machines |
| What is offshoring? | Offshoring involves the relocation of business activities from the home country to a different international location. Offshoring is common with business services (e.g. UK financial services using call centres based in India). |
| Push factors are factors that push a business to expand outside of their domestic country. The UK leaving the EU is an example. State three businesses that have been affected. | (1)Sony has moved their headquarters from the UK to the Netherlands (2)Honda closed a production plant in Wales in 2021 (3) HSBC chose to move their London base to France |
| Define pull factors | Pull factors encourage businesses to operate within markets abroad which present significant growth opportunities e.g. economies of scale/risk spreading |
| Economies of scale is a pull factor. Explain this with an example. | Usually occurs when a business expands its production in new markets abroad (able to purchase raw materials & labour at lower prices) e.g. Ikea expanded into China following removal of the their one-child policy (furniture sales increased) |
| Risk spreading is a pull factor. Explain this with an example. | Aston Martin produces motor cars in the UK, however it exports them to multiple markets to reduce exposure to risks associated with operating in a single market |
| State two benefits of Offshoring | (1) Access to specialised suppliers in countries abroad who provide better quality service, raw materials or components (2) Lower labour costs may be available in other countries which help businesses to keep costs down and increase profitability |
| Describe two problems of Offshoring | (1) Public relations and employer/employee relations may suffer due to relocation as domestic workers lose jobs (2) Possibly poor customer service due to language and cultural differences between the domestic consumers and foreign workers |
| State one disadvantage of Outsourcing | Damage to brand image as the values of the two businesses may not be in alignment E.g. Foxconn workers producing Apple products were committing suicide due to the low pay and poor working conditions |
| State two benefits of Outsourcing | (1) Businesses can take advantage of specialist skills that another business has or that can complete a particular task more efficiently (2) Cost effectiveness as businesses avoid having to spend money investing in new facilities abroad |
| State four factors to consider before entering a new market | Infrastructure/Ease of doing business/Levels of growth and disposable income/Exchange rates/Political stability |
| Explain what is meant by Ease of Doing Business | Ease of doing business is how accessible markets are for a business e.g. is there excessive bureaucracy, where rules and regulations increase the time taken to do business e.g. paperwork when exporting products |
| State two issues of trading with a country that is politically unstable | Businesses may be at risk of not gaining a return on their investment in a country with political instability/A country with political instability will be subject to corruption, lack of law enforcement and higher levels of crime |
| State four factors to consider when setting up production facilities in another country | Costs of production/Government incentives/Natural resources/Skills and availability of labour force/Location in trade bloc |
| Describe why Skills and availability of labor force is an important factor when assessing a production location | The quality of the workforce is important as this will directly impact the quality of the goods and services produced in an economy/Businesses may choose to locate production in a market where the labour costs are lower |
| Describe why location in a trading bloc is an important factor when assessing a production location | A business located in a market within a trade bloc will be able to access many advantages such as reduced protectionist measures E.g. Japanese Co. Toyota invested in manufacturing facilities in the UK (prior to Brexit) to gain access to the EU market |
| State why access to natural resources is an important factor when assessing a production location | It is often important that a business has easy access to their raw materials as this can help (1) to reduce transportation costs and (2) help to reduce any potential delays to the production process |
| State four reasons for a Global Merger | Spread risk/Secure resources and supplies/Enter new market/Acquire International Brand |
| State two disadvantages of a Global merger or Joint Venture | (1) The initial costs of merging can be significantly high. There is no guarantee a business will gain a return on their initial investment (2) A culture clash between the two businesses can affect the quality of the business, leading to poor sales |
| State two benefits of a Global Merger or Joint Venture | (1) Diversifying risk due to having products in several markets so if there is a fall in sales of certain products, the business can still generate revenue (2) Opportunity to enter new markets which otherwise may be closed to the business |
| Define Cost Leadership and explain two ways it can be achieved | Cost leadership is when a business becomes the lowest cost producer in their industry. It can be achieved through; Using machinery and technology efficiently/Outsourcing and Offshoring |
Created by:
durquhart1
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