Business IAL Unit 4

Globalisation

The growing integration of the world's economies

GDP

Gross Domestic Product

Gross Domestic Product

The sum total of the value of all the goods and services produced in a nation

HDI

Human Development Index

Human development index

A collection of statistics that are combined into an index, ranking countries according to their human development

international trade

Exporting (selling abroad) and importing (buying from abroad)

Visible trade

The import or export of physical goods

Invisible trade

import and export of services

Imports

The goods and services brought into one country from another

Exports

Goods or services that a firm produces in its home market, but sells in a foreign market

Tariffs

taxes imposed on imported goods

Subsidies

a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

Trade Liberalization

A process that involves countries in reducing or removing trade barriers, such a tariffs and quotas, so goods and services can move around the world more freely

trade bloc

Any association of one or more countries where an agreement is made to reduce trade barriers.

Embargo

an official ban on trade or other commercial activity with a particular country.

Foreign Direct Investment

The flow of money from one country into another country.

For example, setting up operations in a foreign country, purchasing assets/shares

Why might a business use FDI

-High profit potential

-Maintain control over subsidiaries in the new market

-Acquire direct knowledge of the local market

-Avoid barriers to the market

Why might a business prefer FDI over exporting

-Maintain control over operations in another country

-To protect intellectual property

-To be closer to customers

-To reduce high transportation & logistics costs

-To avoid trade barriers/political opposition

Different forms of FDI

-Joint venture

-Strategic alliances

-Mergers & Acquisitions

-Building greenfield facilities

trade barriers

government-imposed regulations that increase the cost and restrict the number of imported goods

Emerging economies

Developing countries where there is rapid growth, but also significant risk

Developing economies

low-income countries characterized by their limitations in the industrial sector

developed economies

A classification for high-income industrialized nations, which have high living standards and the most technically developed infrastructure

Specialisation

A production strategy where a business focuses on a limited scope of products or services. This results in greater efficiency, allowing for goods and services to be produced at a lower cost per unit.

Quota

A limit placed on the quantities of a product that can be imported

WTO (World Trade Organization)

An international organisation that promotes free trade by persuading countries to abolish tariffs & other barriers. It polices free trade agreements, settles trade disputes between governments & organises trade negotiations.

Dumping

The practice of selling goods or services

in a foreign market at a price significantly below their

production cost or the price charged in the domestic

market

Interdependence

Events in one economy are likely to affect other economies.

Migration

The movement of people who aim to live in a new country

Factors contributing to incerased globalisation

S-Structural changes in economy (eg, primary & secondary contribution < Tertiary contribution)

L-global growth of Labour force

I-Increased investment flows

M-Migration

T-Trade liberalisation (WTO)

R-Reduced cost of transport & communication

I-Increased significance of MNCs

P-Political change

Multinational companies (MNC's)

Companies that own or control production or service facilities outside the country in which they are based

Protectionism

An approach used by a governments to protect domestic producers

How may governments carry out protectionism

-Preventing dumping

-Protecting employment

-Protecting infant industries

-To gain tariff revenue

-Preventing entry of harmful or undesirable goods

-Reduce current account deficits

-Retaliation

-National security

Brain drain

When highly educated and talented people find jobs overseas

Trading bloc

A group of countries that has signed a regional trade agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves

Common market

A market where goods, labour and capital can move freely across the member states; tariffs are generally removed and non-tariff barriers eliminated, or at least reduced

Customs union

A union where member states remove all trade barriers between themselves and members adopt a common set of barriers against non-members

Economic union

A type of trade bloc involving both a customs union and a common market

Economic and monetary union

An economic union that uses a common currency

Free Trade Area (FTA)

A region where member states remove all trade barriers between themselves, but each member state nevertheless keeps different barriers against non-member states

Single market

A market where almost all trade barriers between members have been removed and common laws or policies aim to make the movement of goods and services, labour and capital between countries as easy as the movement within each country

Conditions that prompt trade

-Obtaining goods that cannot be produced domestically

-Obtaining goods that can be bought more cheaply from overseas

-Excess supplies

Push factors

Factors in the existing market that encourage an organisation to seek international opportunities

Pull factors

Factors that entices firms into new markets and the opportunities that businesses can take advantage of when sellling into overseas markets

Risk

The probability of a (bad) event happening multiplied by its (negative) impact

Saturation

The point when most of the customers who want to buy a product already have it, or there is limited remaining opportunity for growth in sales

Factors to consider in a trading bloc

-Where to produce

-Where to sell

-How to enter a market

-Business strategy

Push factors that prompt trade

-Saturated Market

-Competition

Pull factors that prompt trade

-Increased sales & profitability

-Economies of scale

-Risk spreading

Attractions that prompt businesses to trade

-New or bigger markets

-Lower costs or more secure resources (minerals, land, labour)

-Lower cost of transportation

-Tech expertise

-Managerial or financial expertise

-Organisational skills

-Assets (brands, patents or other IP)

Offshoring

Moving operations from the country where a company is headquartered to another country, usually one where operating costs are lower

Outsourcing

Moving a business function/job/project to an external specialist organisation to complete

Labour productivity

Output per worker per hour worked

Factors affecting labour productivity

-Skills and qualifications

-Working conditions

-Tech support

-Rules and regulations

Stages of the product lifecycle

1. Development

2. Introduction

3. Growth

4. Maturity

5. Decline

How to extend a products lifecycle

-Changing markets

-Extend products life in current markets

Factors to consider when assessing a country as a market

PEEL AI

P-Political stability

E-Exchange Rates

E-Ease of doing business

L-Levels and growth of disposable income

A-Application of Porter's 5 forces

I-Infrastructure

Porters 5 Forces Model

An analysis tool used to analyse the competitiveness of an industry, which helps in determining the profitability of an industry. Porter argues that the ultimate aim of competitive strategy is to cope with and ideally change the 5 forces to be in favour of the business.

Disposable Income

The amount of money that a person has left over after they have paid their taxes, insurances and other deductions

Factors in assessing a country as a production location

S-Skills & availability of labour force

P-Political stability

E-Ease of doing business

L-Location in a trading bloc

L-Likely return on investment

I-Infrastructure

N-Natural resources

G-Government incentives

C-Cost of production

Reshoring

Bringing production back home after using foreign production facilities for a period of time

Reasons why busniess join together

-Licensing

-Franchising

Joint venture

Where two or more businesses cooperate to share the costs and profits from a business venture

Competitive advantage

An advantage one firm has over its competitors in providing a certain product or service

Appreciation of a currency

A rise in the value of a country's currency

-Exports become more expensive

-Imports become cheaper

Depreciation of a currency

A fall in the value of a country's currency

-Exports become cheaper

-Imports become more expensive

Devaluation of a currency

The adjustment of the value of a currency in relation to other currencies to make it weaker

Revaluation of a currency

The adjustment of the value of a currency in relation to other currencies to make it stronger

International competitiveness

The extent to which a business or a geographical area, such as a country, can compete successfully against rivals

Skills shortages

Where potential employees do not have the skills demanded by employers

Significance of changes in the exchange rate on business

-Elasticity of demand

-Significance of the cause of the fluctuation in exchange rate

-Fixed contracts

-Economic risk

Skill shortage impact on international competitiveness

-Higher wages

-Lower quality

-Lower productivity

-Loss of business

Global marketing strategy

The process of adjusting a company's marketing strategies to reflect conditions, consumer tastes and demand in other countries

Glocalisation

The development and sale of products to customers around the world which reflect specific local customs, tastes and traditions

Ethnocentric approach

An approach to global marketing where a business makes little or no attempt to change or modify the product when selling into new foreign markets.

Considers overseas markets as identical or similar to domestic market

Polycentric approach

An approach to global marketing where a business adapts the product to meet the slightly different needs of customers in new foreign markets.

Businesses will adapt their products to the local market in which they plan to sell to

Geocentric approach

An approach to global marketing where a business uses a combination of the ethnocentric and polycentric marketing approaches when marketing a product in new foreign markets.

The businesses strategy is to maintain and promote its global brand name, whilst also tailoring its products to local markets

Global niche market

A market made up of customers who live in more than one country and have specific needs that are not fully met by a global mass market

Sources of cultural diversity (things Global Niche Businesses need to consider in foreign markets)

-Language

-Hobbies and interests

-Economic development

-Religious norms

-Social norms

-Legal systems

-Weather and climate

-History and traditions

Features of a global niche market

-Economies of scale

-Limited competition

-Premium pricing

-Emphasis on quality

-Focus on profit

-Brand loyalty

How Product is adapted and applied to Global Niches

-Emphasis on quality

-Can be marketed exclusively

-Products are differentiated, or standard products are differentiated (airlines offering first class)

How Price is adapted and applied to Global Niches

-Premium prices can be charged

-Price is more inelastic

How Promotion is adapted and applied to Global Niches

-Promotion is based around brand name

-Promotion reinforces the exclusivity of the brand and need to be more targeted than in a mass market

-Promotions will consider cultural differences, such as language

However,

-Adapting promotional strategies to different markets will increase promotional costs and not allow the Global Niche Business to benefit from marketing economies. The increase of these costs will vary on each Global Niche Market based on the amount of competition

How Place is adapted and applied to Global Niches

-Distribution channels will usually be more exclusive to ensure that brand image is maintained to a high standard

What are the cultural and social factors affecting global marketing

The beliefs and practices, customs, traditions and behaviours of all those people who belong to a specific culture

What are the specific cultural differences between each country and business should consider when marketing globally

-Language

-Hobbies and interests

-Religions and social norms

-Legal systems

-Weather and climate

-History and traditions

Barriers to communication

Obstacles that prevent effective communication between the sender and receiver

Low context culture

Cultures that tend to say what they mean. A communication style that relies heavily on explicit and direct language

High context culture

People rely heavily on situational cues for meaning when communicating with others and emphasise interpersonal relationships. People are taught to speak in a indirect, inexplicit way.

Horizontal transfer

The transfer of knowledge and skills across the same industry

Vertical transfer

Transfer of skills and knowledge, forwards or backwards, along the chain of production in the same industry

Repatriated profit

The return of the profit made by an MNC to the country where the MNC is based

Transfer pricing

Producing units in one country, where a MNC is charged high taxes on profits, then recording certain business transactions in another country when tax rates are lower

Ethics

The principles and acceptable norms that govern behaviour

Code of conduct

A set of rules outlining the proper practices of an organisation that contribute to the welfare of key stakeholders and respect the rights of all of those who are affected by their operations

Institutional framework

The system of formal laws, regulations and procedures, and informal conventions customs and norms that shape activity and behaviour

-This means a firm may be acting within the law of its home country but could be seen to be acting unethically in another

-Equally, although a business may be matching the ethical norms abroad, its activities could conflict with the ethics in their home country

Competition policy

Government policy that exists to promote competition and ensure that firms don't abuse their market power, do not attempt to fix prices or use pricing strategies to drive out competition, and do not work together illegally against other producers or the consumer

Parent company

A company that has control and owns another company

Boycotting

withdrawing from commercial or social relations as a form of protest

Multiplier effect

Where an increase in spending, such as government expenditure, generates a much higher level of total spending in the economy