INTERNATIONAL BUSINESS UNIT 3

• Saturated home markets 
• fierce competition in home markets
• Competition from imports
• Product in mature or decline stage of the product life cycle, extension strategy 
• Potential for increased sales and profits 
• economies of scale 
• Spread risk
• global sourcing 
• Expanding trading blocs 

Benefits of trading within a trading bloc in example the EU

• access to other markets without exports being penalised, no tariffs for block members, economies of scale, spreading risk, creates a larger market can attract FDI
• Dis advantages = no protection for domestic industries from other block members exports, increased competiton, new rules and regulations may not suit all businesses,a common external tariff increased costs of raw material/supplies from outside

INDIA  = Young population able to push economic growth in future, big polulations, education must be improved, high number of IT graduates, poor infrastructure, low levels of international trade 

CHINA = most populous country, population growth slowed due to one child policy, in future populations will age reducing number of workers, growth based on infrastructure and manufacturing exports 

Impact on individuals in UK of further growth of emeging economies 

-lower prices cheaper products, more consumer choice, job opportunities, secure employment 

-jobs lost when competition from imports is stiff, job lost when employers outsource of produce off-shore, however some individuals are not affected 

Impact on Businesses in the UK of further growth of emerging economies 

-access to new export markets,jobs needed in Uk to meet increasing demand, increasingly wealthy customers may change demand patterns, rapid growth, access to new skills (IT in india) offshoring and reducing costs, outsourcing,  access to new trading areas, FDI inflows from emerging economies (TATA)

-competiton from producers with lower costs, reduced market power, rising costs in commodities due to increasing demand

Factors to consider when choosing a location 

• level of economic development 
• Legal frmework 
• Government policy 
• political stability 
• ease of setting up a business 
• natural resources and commodity prices 
• labour market and technological capabilities 
• infrastructure 
• exchange rates
• language and culture 

Specialisation - Leads to increased output and effiency, economies of scale gained, goods and services produced more cheaply, competitive adv enhanced, ecport earnings increased, competiton amongst profucers help lower price and drive innovation 

• However, can leas to over reliance in one area of the economy, comparative adv can move elsewhere, emerging economies have incresing demand, over reliance can lead to severe structual unemployment if demand should fall

Shareholder vs stakeholder approach 

Shareholder approach means that their interests are the most important, other groups are secondary 

Stakeholder approach is when a business makes decision taking into account the decision of all stakeholders 

There is inevitably a trade off between the two 

Ethical decision making 

• favourable media attention, imporved public image, can carry premium prices, motivated workforce and possible increase in productivity, may be profitable, more imporved relationships with suppliers leading to better quality, expose of unethical practices can have detrimental effects, competitive advantage 
• labour costs increased as fair wages, supllies and materials ethically sorced are more expensive, changining exisitng corporate culture may be expensive, competitors who are not ethical have lower cost/prices, imortance vary to market segment and image of company 

Joint ventures 

• a way of spreading risk, local knowledge, shared costs, helps avoid social and cultural clashes, can use exisiting supply chians and distribution networks, may be a condition of entry to some markets 
• partner may not be suitable or reliable, management styles may clash, communitcation problems, clash of culture, profits are shared 

Trade barriers, portectionsns and tariffs and quotas

• protect infant industries, stop cheaper imports from replacing domestic substitues, tax revenue, balance of trade is important 
• cause of welfare loss, reduces competition, reduces incomes in exporting countries, can provoke retaliation, some infant industries are allowed to continue to produce inefficiently for a long time charging high prices to domestic consumers 

• Critics - the unhealthy dominance of US and european corporate culture across the globe, western economies exploit less developed nations, images of low paid sweatshops 
• supporters - it brings wealth and development to many countries, made billions of people aroun the roles better off both financial and material ways, binds countries together and helps maintains peace and stability 

Inorganic growth by mergers and takeovers (aquisistions) 

• entering new markets, increasing turnover and profitability, exonomies of scale, synergy, spread risk across range of countries, aquiring brand names and patents 

Global Marketing strategy 

• economies of scale, product range is smaller, samke marketing used everywhere, less time spent on market research, less time spent on product development, brand recognition, customers likley to buy what they know 
• same sales lost as all segments of the market not catered for, turnover and profits may not be maximised, marketing tacticts and products may cause negative reactions from some segments 

Glocalisation 

• sales likley to increase as each merket specifically targeted, turnover and profit maximisation, marketing tactics and solutions or products are ideally suited for each market, customers feel cared for, special 
• cannot exploit economies of scale, market research costly, wider product range and marketing campain harder to manage, average costs likely to be higher 

Market niches 

• focusing on special segment ability to provide products which are often greater demand, more price inelastic, premium pricing, direct competition reduced, know your customers better 
• economies of scale not fully exploited, average costs higher, market size limited, if successful may cause a takeover bid, consumer intrest may suddendly change, may become mass market 

• use their size and power to exploit employees and host economies, damage the environment, harm the economic prospects of the countries, may leave host country if they find cheaper suitable labour elsewhere 
• they create employment and wealth for their own and host economies, they raise incomes, help poor countries develop, reap economies of scale and cater for mass market, employees acquire scarce skills 

Why have the expanded globally?

• to access new markets, to reduce costs, to control resources, to take advantage of government incentives, to get around trade barriers 

Are they a force for good or bad? 

• Creates FDI, brings jobs, regional multiplier effect, skills and technology transfer, increased demand for local businesses/suppliers, increased tax revenues and the government has more revenue to spend, export earnings, other MNC´s may follow, CSR policies bring benefits 

• illegal and unethical behaviour, exploitation of labour, environmental degradation/pollution, unsustainable practices, tax avoidance, “race to the bottom”, cultural imperialism, local businesses pushed out, profits repatriated and not put back into local economy 

Factors which affect the ability to control MNC´s

• size of MNC, size and importance of host government, importance of MNC to host country, strength of public opinion, how much does public opinion matter to MNC´s, social media/internet, the strength and vigour of pressure 

Factors that can control MNC´s 

• public opinion, pressure groups (boicott), social media, self regulation, government control and regulation, legal enforcement, shareholder groups 

shoudl FDI be encouraged?

• incoming business will create jobs, training and technology transfer, gain from tax revenues, may encourage more FDI
• threat to domestic businesses, exploitation, unemployment may rise