Theme 3 - Assessing the potential of different economies

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  • Created by: becky.65
  • Created on: 14-02-18 12:32
Broadly speaking, what are the two main reasons that a company starts to operate in another country?
To distribute and sell its products or services and to reduce risks by diversifying into new markets
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Why is the decision as to which country to expand into difficult?
There will usually be trade-offs between different factors
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How can levels and growth of disposable income influence a business to expand into a new market?
Economic growth suggests incomes are rising, so if demand for the product is income elastic, then demand will increase. However, if incomes for only the elite are growing, then only luxury items will experience an increase in demand
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What is essential when a business wants to expand into a new market?
Extensive market research of current spending trends and existing products that are selling well
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How can the ease of doing business influence a business to expand into a new market?
It makes it easier to start and run a business in a country
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What factors does the Ease of Doing Business Index look at?
Time, cost and minimum capital required to open a new business, dealing with permits and regulations, ease with which employees can be fired and hired, tax payable as a share of gross profit, cost and time needed to import and export
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What is infrastructure?
All transport and communication facilities, as well as energy and water supplies
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How can infrastructure influence a business to expand into a new market?
Economic growth requires infrastructure as weak infrastructure increases costs of production. Trade requires transport and it is also needed to bring employees to the workplace
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How can political stability influence a business to expand into a new market?
Businesses need a stable political situation to be successful as political unrest tends not to attract businesses. Corruption can also be a problem
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How can exchange rates influence a business to expand into a new market?
Unstable exchange rates can bring uncertainty, selling exports in a foreign market that has a weak currency can be a problem because of cheaper domestic products, so it may be cheaper to set up in the country which can cut costs and open up markets
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How can skills and availability of the labour force influence the location of production sites?
There can be a trade-off between the need for cheap labour and labour with the right technical skills; wage costs are critical in maintaining competitiveness; the ease with which labour can be hired and fired is important; labour markets are less reg
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How does infrastructure influence the location of production sites?
It is vital for a business to be able to access supplies, distribute goods and communicate with stakeholders. Weak infrastructure holds up economic development as it slows down modernisation and can raise costs
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How does the location of trade blocs influence the location of production sites?
Businesses tend to set up production facilities inside the trade bloc where they can have access to a large market without trade barriers
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How can government incentives influence the location of production sites?
Some governments reduce business tax rates to encourage FDI or reduce trade barriers
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How does the availability of natural resources influence the location of production sites?
Mining and oil companies go where the resources are and then export to where the demand is and businesses are always seeking to find the lowest commodity prices. However, this is not the case so much anymore as commodities are cheap to transport
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How does the likely return on investment influence the location of production sites?
Businesses will choose the location that is the most profitable in the long run, but this can be very risky especially when setting up in emerging economies
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Other cards in this set

Card 2

Front

Why is the decision as to which country to expand into difficult?

Back

There will usually be trade-offs between different factors

Card 3

Front

How can levels and growth of disposable income influence a business to expand into a new market?

Back

Preview of the front of card 3

Card 4

Front

What is essential when a business wants to expand into a new market?

Back

Preview of the front of card 4

Card 5

Front

How can the ease of doing business influence a business to expand into a new market?

Back

Preview of the front of card 5
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