Business and Economics 3

"Becoing global, worldwide business, other countries rely on you for trade"

The increased freedom and capacity of individuals and firms to: 

- undertake economies transactions with other countries 

- Operate on a global scale

Examples : 

Firms moving to a lower cost location = BT call centres

People moving to a higher wage location = immigrents to the UK 

Goods moving more freely = Eurozone 

Information moving more freely around the world = Metal Exchange 

Effects:

- Less competition 

- Loss of culture in countries 

- Jobs / busiesses move around the world

- Consumers are better informed

Benefits:

- Developing countires have more disposible income 

- Global competition encourages innovation and development 

- Governments work together 

- Greater access to foreign cultures 

- Developing countries benefit from experienced businesses 

Costs: 

- Outsourcing while it provides jobs in one country, jobs are lost in another 

- Countries loose cultures and they all become simular 

- Diseases spred world wide 

- Footloose effect 

"Taking things outside the business"

When a business moves part of the company to another company 

Apple moved all of their manufacturing to Samsung 

Benefits 

- Cheeper

- Businesses can focus on what they are better at 

- No need for massive investment and infastructure 

Costs 

- Loss of control over quailty 

- Loss of economies of scale

- Hand away techincal information and personal developments 

4 factors to consider when investing in a new market and country 

1. Product 

Do i change to product to fit with the new culture and target audiance?

2. Price 

Is the orginal price a fair price to charge in this market / country? 

3. Distrabution 

What is the best way to sell the product in this market, online or in stores? 

4. Premotion 

How should we advertise the product / service? Do we keep it the same? 

"Keeping everything the same"

Benefits 

- Economies of scale

- Easier marketing 

- Easier to control of HQ

- "global brand" is created 

Costs 

- Dont adapt to the culture

- Loose customers

- Dont recognise differences in markets 

"Adapting to the new market"

Benefits 

- Greater customer satifaction 

- Increase in sales 

- Increase in brand loyalty 

- Sucess as new market had been recognised 

Costs 

- Dont benefit from economies of scale 

- Loose global brand 

- High costs in changing advertising, image etc

"Smaller more specialised part of the market, where consumers in one country have a particular need(s) that are not met fully by the global market"

- Product or service is likely to be different to the mass market 

- Product orientated, not focused on market share

Characteristics of a global niche businesses 

- Clear understanding of the customers needs

- High levels of customer service

- Expertise in the field 

- Innovation to satisfy the customer

- Able to recognise a change in the market 

"A business that operates in more than one country" 

Toyota       Shell       Apple       HSBC       IMB       BP       Ford        Dell

Why expand?

- Reduces costs - economies of scale, cheaper labour, reduced transport costs

- Different regulations - taxes lower

- Improvement in communications 

- Gaining access to new markets which adds growth - BRIC economies, ASIEN 

- Reduces risk by spreading operations geographically and politically 

Why businesses chose to invest in other countries ...

Avoide Tariffs 

- Move goods freely around - low transport costs

- No import costs 

Cheeper labour 

- More profits 

- Cheeper prices

Close to raw materials 

- Dont have to pay to ship materials 

- Cheeper, lower costs for the business

Positives 

- FDI leads to the multiplier effect

- Tax revenue for the new country 

- Education, training and skills

- Consumers have more choice

- CSR, ethical approach

- Help to rebalance trade 

Negatives 

- Money isnt spent its saved (no multiplier) 

- Only unskilled manual tasts are used on local people 

- transfer pricing 

- expoliting cheep labour (wages dont rise) 

- local businesses can't compete so job loss

- Standardisation (culture lost) 

- Environmental impact 

- Gives multinationals more market share 

- Footloose effect (when conditions change MNC leave and move else where) 

"sombody who is some way is effected by the a businesses actions"

What are the aims of those effected by a business: 

Employees - better working conditions, efficent practices, job security 

Suppliers - increased production, ethical sourcing, prices of products falling 

Consumers - falling prices, ethical sourcing, increased choice

Local communities - helping local projects, reduction in waste

Shareholders - high profits, increased productivity, costs cut

Government - Better working conditions, high profits, fair treatement of workers

"An absolute advantage exists if the real resource costs of production is lower in one country that in the other" 

- Coffee is cheaper to make in Brazil that in the UK, Brazil have an absoulte advantage

- Gold is found in the UK and South Africa however there is easier access to Gold in South Africa so they have an absolute advantage

Which ever country is the best should make that product 

David Racardo - "Comparative advantage states that if two countries each specialise in the product with the lowest opportunity cost and then trade real incomes will increase for both countries"

USA is best at making cars and rubber

Malaysia is worse at both cars and rubber 

However Malaysia is less bad at making rubber so they make ruber and the USA make cars 

Specialise in what you are least bad at

More production = more earnings = everybody benefits 

Why are goods made in China and India? 

- Good supply chain

- Lower labour costs = more profits 

- lots of raw materials = good access, cheeper 

- Larga market to sell too = trade blocs (ASEIN), large population 

- Experience in maunfacturing 

"Self regualting to meet ethical standards" 

Benefits 

- Helps to project a good sales image (increased sales) 

- Increased motivation - more productivity 

- Respected businesses, good reputation 

- Differenciate yourself from other homogenouse products 

- Enviromental approach can reduce costs

Disadvantages 

- Increased Costs 

- Set yourself standards which you have to meet 

- Milton Friment businesses should only focus on profits 

- Loss of investment because of high costs