6.4 Technology, Competitors and Suppliers, International Trade & Impact of Multinationals

Information Technology (IT) definition

the use of electronic technology to gather, store and processs and communicate information

How has technology transformed business ?

• The product consumer demand

• The ways products are made

• The ways business communicate

• The ways business collect, store and use information

Why are digital technology important for businesses?

1. Keeps firms competitive

• rivals that adopt new tech can cut prices, deliver fast & win customers

2. Widens market

• an online store is open 24/7 and can reach buyers worldwide

3. Turns data into decisions

• software sports patterns human miss, guiding price decisions & determine stock level

What are some ways technology are used in businesses?

1. Automation (robots/AI)

• Handles repetitive or risky jobs accurately + fast (eg. robots used for packing to cut labour cost & speed up delivery)

2. E-commerce platforms

• Providing virtual shop with secure payments & parcel tracks

3. Big data & data mining

• Analysing millions of transaction to reveal trends (eg. offering personalised discounts to shoppers who often buy sportswear)

Opportunities to business of technological change

1. Reduced cost - automated warehouse & AI scheduling reduce waste & staffing bills.

2. New processes/ Faster Service - Next-day delivery builds customer loyalty.

3. Better communication/ Global reach for small firms

4. Access to more information/ Flexible, data-driven pricing - software raises or lowers prices in mins. to match demand.

Threats to business of technological change

1. High set up cost

• Robots, servers, recruiting specialist staff or training need large upfront spending

2. Technical failures

• System breakdowns halt production or crash websites —> affecting customer service

3. Cybersecurity risks/ Data Protection

   • Hackers may steal customer data or stop operations

4. Job losses and morale issues

   • Staff may fear redundancy

   • Training is essential but may be resented if jobs change significantly

How can providing data help with business decisions?

• Allows quick & easy analysis as managers can access up to date data about bus. which supports control across all departments & divisions

• Computer can analyse & summarise data much more efficiently allowing for managers to make faster decisions with accuracy

• Communication & final decisions are informed with others much more frequently & efficiently cross the firm

What are the potential limitations of IT

• Information overload

• Reduced job enrichment & motivation levels as there is lesser authority & empowerment given to work teams as managers have more information

Job enrichment

aims to use the full capabilities of workers by giving them the opportunity to do more challenging & fulfilling wok

Environmental Audit

assessing the impact of activities & decisions of a business on the environment —> many stakeholders are demanding that these audits become a legal requirements

What is the process of Environmental Audit?

• Audits are checked carried out + verified by an independent person/ company —> results are shared & published telling the world the environmental record of the company

How competitors affect business costs

1. Higher marketing spend - increase in rivals usually requires more promotional activities such as advertising and loyalty schemes

2. Need for product innovation

3. Price wars force cost-cutting - Both grocers squeeze suppliers for lower prices and continuously look for ways to reduce overheads

How competitors affect demand

1. Price elasticity of demand - when demand of a product changes as price changes

2. Customer choice - many rival businesses to choose from, buyers can switch for convenience, features or ethics

3. Brand loyalty matters in crowded markets - eg. Nike retains demand despite many trainers in the market by investing in image & sponsorships

How suppliers influence business decisions

• Price of inputs

• Quality of materials

• Supplier reliability

• Lead time

The role of Technology in International Trade 

• Improved communication via the internet between businesses, suppliers and customers have driven growth in international trade 

• Technology removes many barriers, such as distance, paperwork and payment difficulties, that once limited international trade

Examples of how technology play a role in international trade

1. Mobile payment systems - customers in different countries can pay instantly in their local currency

2. Digital sales platforms - even the smallest firm gains a virtual shop window open 24/7 to millions of overseas buyers

3. AI applications - better forecasts mean leaner inventories and fewer stockout (when business runs out of a product & cannot supply customers immediately)

International trade

International trade is the exchange of goods and services across national borders

What are the trends in international trade?

• Global supply chain - many products being made in several countries before reaching customer

• Emerging economies and trade blocs

• Improved transport & online platforms

• Rising trade uncertainty - exchange rates, tariffs & political tensions changing more often

• Environmental checks & new trade policies - customers & governments examine carbon footprints, working conditions and data security before buying or approving goods.

Trade Blocs

When a group of countries that agree to reduce or remove trade barriers between them to increase business & cooperation eg. EU lower tariffs for members

Benefits of increased international trade

1. Larger customer base - selling in many countries boosts potential sales & spread revenue sources beyond home markets

2. Economies of scale - higher global output lets factories run more efficiently, lowering the unit cost

3. Lower inout cost - importing cheaper or high quality materials reduces overall production costs & improve product quality

4. Risk spreading - if demand falls in one country but rises in another, total revenue stays more stable overtime

5. Access to new ideas and tech - working with overseas partners bring innovative designs & processes that can improve product & operations

Free Trade Agreements

a treaty between two or more countries to lower or remove import and export barriers like tariffs and quotas

• Tariff-free sales encourage firms to export or set up factories inside the free trade area

• Managers adjust prices and forecast demand knowing that tariffs are low or zero

What is Global trade rules ?

When more than 160 countries agree maximum tariff levels and fair-trade rules

—> Firms can have confidence that costs will not jump suddenly —> If a partner country breaks the rules, their government can take the dispute to the WTO (World Trade Organisation)

Multinational Business

a business organisation that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries 

Reasons to become a multinational

1. Economies of scale

• As they operate globally, they are able to increase their output and benefit from lowered costs created by economies of scale

2. Create employment

   • New jobs are created in host countries each time a new facility is setup and this raises income, which helps to improve the standard of living in that country

3. New markets

   • MNCs can identify potential markets & begin to sell there

   • They can set up facilities close to their customers, reducing transportation costs

4. Risk is spread

   • By selling in many national markets, the risk of failureis reduced

     • E.g. a recession in one country can be offset by sales in a growing market elsewhere

5. Avoid import restrictions by producing in the local country

Risk of becoming multinational business

1. Communication may be difficult (regional branches with headquarters) 

2. Language, legal and cultural differences could make communications difficult

3. Co-ordination with other plants in the multinational group will become more difficult 

4. The skill level of local employees may be low, meaning increased training cost

Advantages and disadvantages of MNCs for local businesses

Advantages:

• MNCs can boost the local economy, If workers receives higher wages, they may spend more on local products

• Opportunities for joint ventures & partnerships with MNCs who seek to gain knowledge of the local market —> local firms may learn new skills and production methods to improve efficiency

Disadvantages:

• MNCs reduce the supply of workers available to local businesses if they offer better pay and working conditions 

• If MNCs are able to produce at a lower cost and compete with local businesses, they may lose local customers —> may cause unemployment for workers of local bus.

Advantages and disadvantages of MNCs for local communities and the environment

Advantages:

• Local residents may benefit from job opportunities and growth in the local economy

• MNCs often invest to improve infrastructure —> Better roads, transportation and access to water and electricity help local communities

• MNCs may have to pay taxes and business rates to local councils/ authorities. —> funds nay be reinvested back into local communities

Disadvantages:

• MNCs may cause damage to local habitats and the environment

• MNC's may leave unsightly production facilities behind once they have extracted useful resources and left the country

Impact of MNCs on the National Economy

• FD Flows

• Consumers

• Balance of payments

• Business culture

• Tax revenue and transfer pricing

• Technology and skills transfer

Foreign direct investment (FDI)

The net transfer of funds of funds to purchase physical capital eg. machinery & factories

Advantages and disadvantages of FDI flows from MNCs  

Advantages:

• There is an initial lump sum of money that enters the country to pay for the investment

  • If this money is reinvested back into the local economy, it may help to generate new jobs and boost economic growth

Disadvantage:

• Assets from the home country are now owned (or partly owned) by foreign businesses

• Local firms or individuals who have sold the asset may not reinvest the money into the local economy but may move it offshore

How can consumers benefit from MNCs

• wider choice of goods and services

• lower price if MNCS pass their cost advantages on in form of lower prices

• Better quality of goods and services

• Improved living standards, bcs higher income due to job creation → low unemployment

What are some business impact on the environment

1. Air pollution - caused by industrial processes that release harmful gases into the air or harmful substances into the ground

2. Noise pollutioin

3. Water pollution

4. Traffic congestion - caused by vehicles delivering materials to and from businesses, as well as by commuting employees.

5. Visual pollution - caused by unattractive buildings or business works that worsen inhabitants' views of their surroundings.

6. Dereliction

Ways businesses reduce their environmental impact

1. Switching to electric vehicles for staff

2. Encouraging employees to use public transport or walk/cycle to work

3. Responding to climate change - IKEA owns wind farms and solar parks that now generate more electricity than its stores use each year

How can a business improve sustainability

• Implementing recycling

• Using renewable energy

• Avoiding the use of toxic substances

• Using green transportation

• Reduce water use

• Using renewable in production