Professional Documents
Culture Documents
EDEXCEL
A LEVEL
BUSINESS
UNIT 3 – INTERNATIONAL BUSINESS
STUDIES
Features of EU
1. Single Market
EU has become a common market.The single market was designed to create
the free movement of goods,service,capital,and people. To do this a
large number of trade barriers were removed.
2. Euro.(Single Currency)
Effect of Euro or the use of a single currency on Member and Non Member
countries.
B.Asian region(ASEAN)
ASEAN (Association of South East Asian Nations) : this bloc was formed in 1967
with 10 members of south east Asia ( Indonesia, Malaysia ,Philippines , Singapore ,
Thailand , Brunei, Myanmar, Cambodia, Laos, Vietnam ).In 2006 with 7 countries of
SAARC nations viz Bangladesh, Bhutan, India ,Maldives, Nepal, Pakistan and Sri Lanka
her the trade estimate is $ 14 billion formed a bloc.Asian tigers – Japan, S. Korea, Hong
Kong, Taiwan and Singapore have abundant natural and labour resources. Japan is the
second largest economy. Singapore, Korea, Malaysia, Mexico and Brazil are called NIC
(newly industrialised countries). Examples -Korean firms like Hyundai, LG, Samsung, and
Proton cars from Malaysia.
China’s GDP growth rate was 10.7 % in 2006 which was the highest in the world
characterised by biggest consumer market and massive population of low wage workers
.49, 000 US companies are operating in China .China struck midway between market
economy and government controlled economy .China is termed as world’s factory and
export power house, while India is called world’s service provider.
Outsourcing
1. Huge Cost Savings:Numerous surveys and studies conducted have shown that the
prime outsourcing benefit lies in 40-60% savings in cost due to complete elimination or
minimization of overheads like travel allowance, leave bonus, rent allowance etc. Besides
these outsourcing benefits cost savings on account of offshoring also occur due to large
savings on employee salary bills.
2. Access to Specialized Skills at fraction of the cost:
Outsourcing to countries like India has many benefits like availability of trained,
hardworking and experienced manpower in large numbers and that too at just a fraction
of what it would cost in the parent country. Indian IT professionals are skilled in all the
current and emerging technologies and are known for their competence and excellent
communication skills. In most of the companies the biggest cost consideration are the
employee salaries and with this vital expenditure minimized bottom lines are bound to
rise.
As non-core but essential services like customer support are outsourced to domain
specialists who are skilled in the task, customer satisfaction is bound to increase as
queries and problems are resolved quickly, deliveries are faster and company interaction
is more satisfying for the customers.
Outsourcing doesn't just benefit through cost savings but also has another important
advantage in the form of exploring previously unexplored markets, especially in
developing countries like India, where the economy is on a overdrive. Once you
outsource your work to India or some other country you learn about the economy of
that country, the customer preferences, the incentives offered, the competition, the
work culture and so on. All this will be highly beneficial to your business once you decide
to set up shop in the country.
Drawbacks of outsourcing
o China
o Population – 1,330 million (Comparative advantage)
o Population growth rate – 0.65% Still growing (half a billion)
o Legislation – 1 child per family. Trying to reduce population rate
o China used to be a command economy.
o Foreign capital investment is allowed.
o They are now wanting to make profit and therefore becoming more efficient
o India
o Population – 1,156 million (Comparative advantage)
o Population growth rate – 1.4%
o Abundance of cheap labour – cheap wage rate
o Over populated – empower women
o Environmental damage – large population
o Widespread corruption
o Regulation on FDI
o Import substitution policy – Not importing goods but making them instead.
o Reduces imports and corrects balance of payments
o Created their own brands
o India’s economic growth is faster than most LEDC’s
o Indian economy is still very diverse – large primary, secondary and tertiary
sectors
Factors to be considered.
Spending potential:
The size of population & level of income determine the number of
consumers who are potential customers
For most products, a high and rising GNP per capita will be attractive,
showing that people can afford to consume and will be able to consume more in
the future
Inferior goods will not benefit from rising incomes as people might lose
interest in them if their incomes rise
Cheap form of transport
The structure of population is also relevant
Ageing populations in some northern hemisphere countries suggest higher
potential spending on products which appeal to senior citizens
Culture:
Exchange Rate
The exchange rate is the price of one currency expressed in terms of
another and is crucial to businesses selling goods and services abroad as well
as those firms who import products from other countries. When the exchange
rate rises in value (i.e. an appreciation), this makes exporters' goods, priced in
sterling, more expensive in foreign currency. So demand for these dearer
exports can be expected to fall, depending on the price elasticity of demand
for UK exports and also whether there have been changes in other factors
influencing demand.
A decline in exports reduces overall aggregate demand and should lower
inflationary pressure - so a higher exchange rate could lead to the Monetary
Policy Committee deciding to reduce official base interest rates.
A higher exchange rate also makes imports cheaper when sold in the UK.
This is good news for the real purchasing power of British consumers, and also
for UK firms who need to import raw materials, components and finished
products. But higher prices feed into the consumer price index and can have a
direct effect on our rate of inflation.
So a strong pound is good news for keeping inflation under control, but can
have negative effects on exports which account for around thirty per cent of
aggregate demand. A weaker pound can provide a boost to aggregate demand,
a useful tool in lifting the economy out of a recession.
Competition:
Absolute advantage:
- Refers to the ability to produce more of a good or service than
competitors, using the same amount of resources
- A simple and clear ability to produce at lower costs
- Example: to produce tropical fruits in a cool climate would be costly,
requiring artificial heating and possibly artificial lighting as well. Production is
simply cheaper in tropical countries because they have an absolute advantage
Comparative advantage:
- Is a slightly more complicated concept. The economist´s technique of
focusing on a simplified model to identify the key concepts works well in this case
- The trade between a rich and efficient country and a poorer, less
productive country can benefit both of them
- Refers to the ability to produce a particular good or service at a lower
opportunity cost than another party
⌂ Specialisation
- Comparative advantage exists when a country has a ‘margin of
superiority’ in the production of a good or service i.e. where the marginal cost of
production is lower. One feature of nearly every aspect of economic life is that
individuals, businesses and countries engage in specialisation. Specialisation is
when we concentrate on a particular product or task. Surplus products can then
be exchanged and traded with the potential for gains in welfare for all
parties.Trade allows each country to specialise in the production of those
products that it can produce most efficiently (i.e. those where it has a
comparative advantage).
Advantages of Specialisation.
1. Countries will usually specialise in and then export products, which use
intensively the factors inputs, which they are most abundantly endowed.
Problems of Specialisation
1. Over-reliance can be a problem, if demand falls because no major alternative to
fall back on,
2. specialisation in commodities does not add as much value as manufacturing,
3. Not ideal long-term because it uses unsustainable resources jeopardising future
generations,
4. Price fluctuations leading to uncertainty.
Responsibility to stakeholders:
A Business has to consider
- Ethical decisions as to what and where to manufacture
- Balance between capital and labour
- Where to sell
- Pay and working conditions
- Environmental factors such as waste disposal
- Potential conflicts of socially responsible and ethical behaviour with
profit based and other objectives.
ADVANTAGES of CSR
1. Builds a good company reputation and makes the business more competitive
2. Ensures suppliers and customers know what the business is doing.
3. Builds good public relations
4.Helps to differentiate the business
Cultural forces shape the marketing mix and they are very sensitive in marketing
and they often create problems to marketers due to violations.
They also create a lot of marketing opportunities which if properly used can give
wider scope .
1. Cross-cultural marketing
Advantage:
Tariffs:
o A tax on imported goods. This adds to the price of imports, shifting the
supply curve upwards
o Tariffs are a tax on imports. The higher the taxes the more expensive
imports become. High tariffs restrict the volume of trade
o The higher price will often discourage customers, particularly if there is a
locally made substitute available
o A tariff is a tax placed on an import to increase its price and decrease its
demand
o Home produced goods do not incur the tariff and so are likely to be
cheaper
o It is the PED, shown by the slope of the demand curve, which slows how
much a tariff will reduce demand for imports
o A tariff increases prices for consumers, so they do not benefit directly
o The people who do benefit are the home producers and their employees
o Tariff protection allows them to sell more because they gain a price
advantage compared to imports
o Home producers gain price advantage
o Better job security
o High import price won´t put many off
o Protect new businesses
o Unfair competition – dumping
Import quotas:
o An alternative to tariffs as a form of protection is the use of quotas
o Is a limit on the physical number of goods that can be imported over a
period of time
o WTO and trade bloc agreements make it increasingly difficult for
countries to use tariffs or other forms of protection
Why might countries erect protectionist barriers? :
o Maintains a positive trade balance
o Domestic producers may be offered additional protection
o Existing jobs can be protected from competition from low cost
manufacturers
o New industries are protected
o It allows a small industry to develop and to innovate until it can compete in
the international market without barriers
Unit7 Globalisation
Global industries:
Globalisation is broadly defined as the growing integration and
interdependence of nations
The increased freedom & capacity of individuals & firms to undertake economic
transactions with residents of other countries and operate on a global scale
One measure of the impact of globalisation is the reduction of poverty
Global strategy needs to be considered by any business which sells products to
overseas customers
Mergers & takeovers:
- Some businesses have grown relatively slowly, preferring to expand by internal
growth
Global marketing
Global Marketing Strategy: Where a business doesn’t differentiate its products or
marketing between countries.
The issue of global marketing & global brands evokes an emotive response from
many people
When a company becomes a global marketer, it views the world as one
market and creates products that will only require weeks to fit into any
regional marketplace
Multinationals use their size, power and brands to limit the choices available in
their efforts to dominate their field
Microsoft has one of the strongest brands because its operating systems are
used around the world. Marketing is broadly consistent in different locations,
although price differentiation is used, with higher prices where consumers are
considered to be willing and able to pay more
Variations in marketing preferences and language sometimes make changes in
brand names worthwhile
Advantages:
EOS in production and distribution
Lower marketing costs
Power in the market as your brand is known
Consistency in brand image
Ability to leverage good ideas quickly and efficiently
Uniformity of marketing practices
Disadvantages:
× Differences in consumer needs, wants and usage patterns for products
× Differences in consumer response to marketing mix elements
Advantages of standardization:
-Economies of scale in manufacturing and marketing
-Standardized products and common minimum marketing programs
-Can develop a global organizational structure
-Easy to manage global operations
-Target the mass market that share average common value systems
-Faster rate of expansion and generate large sales volume
-Create customer loyalty world wide
2. Localization
It is also argued that when companies operating across the global will have to modify
their products in order to be successful in their new world markets. International
markets are flooded with different products and there have been many evidences
where businesses that tried to shift their existing products and business models into
overseas markets had failed even with their best of the marketing strategies. Some
common causes of failure are;
-Language / interpretation problems
-Misunderstanding the culture
-Mistiming – economic or political mistiming
These can be minimized by careful research to ensure a good understanding of the
market before a company enters to do business in such new markets.
Advantages of localisation :
-Firm can compete with local firms
-Firm can get acceptability in foreign soil due to their adaptation create local
customer loyalty
-Close match with local customer’s preferences and high satisfaction
-Efficient marketing efforts due to integrated adaptation of marketing mix
(product design, promotion programs, pricing and distribution channels)
-Build relationship with customers
-Competitive advantage over local and global players
Disadvantages:
-Lack of economies of scale in manufacturing and marketing leading to rise in cost
and selling price
-Difficult to manage product and promotion globally due to differences in design .
One of the key issues in the field of international marketing is the appropriate
balance between a localised approach and a global or standardised approach to
marketing. Supporters propose a standardised strategic approach in international
markets because of the emerging ‘global consumer’. They conclude that the
consequence of an increasing commonality in lifestyles of consumers, educational
background and developments in transportation and telecommunications technology
has meant that we are staring to develop homogenized needs As such, there is a
convergence in tastes and preferences across a spectrum of goods and services. But
it is not just their consumption patterns that may distinguish them.
3. Glocalisation
It is the name given to the concept and "Think Global - Act Local" is the mantra
most closely associated with the concept.. The idea behind this phrase is pretty
straightforward. Businesses should set their sights high and aim to reach a
potential customer base around the world. But, to be successful with those
potential customers, businesses need to take account of local needs and wants.
Global businesses should tread carefully, being sensitive to the specific
requirements (customs, tastes, traditions) of the different markets in which
they want to succeed.
So, if glocalisation is partly about adapting existing products to meet the needs
of new markets, where would a strategy built around glocalisation fit into the
popular and important model of product and market strategy
A. A MISUNDERSTANDING OF CULTURE
1. Culturally bound products – Some products may be specific to a certain
culture. Therefore it may be difficult to market some products then others.
2. Market Research – This is important when going into markets overseas.
Businesses have to find out if there is a market for their product and work out
the consumer’s wants and needs.
3. Advertising – The wrong colour, a poor choice of words or inappropriate actors
can ruin an advertising campaign and then give the brand a bad image. It is
important to work out what is suitable in new markets.
B. LANGUAGE BARRIERS
Language can cause many problems especially if a firm uses an
international brand name and/universal names for their products (there
are cost advantages to this). Also when a company tries to translate its
brand name into another language it may not find the suitable words.
C. LEGISLATION
A firm must also adapt its products and marketing to local laws and
customs or there is the risk of prosecution.
D. PRICING STRATERGY
With the wrong pricing strategy the firm may lose market share or fail
to penetrate a new market. A firm with a global brand may find it
difficult or costly to differentiate between markets and may be forced
to sell their product at a uniform price throughout the world, even if a
lower or higher price would be appropriate in some cases.
E. DISTRIBUTION CHANNELS
International marketing can go wrong if it creates a demand, but
distribution channels fails because buyers are reluctant to stock
foreign products. Domestic manufactures may also bring out duplicated
that retailers may prefer to stock.
PACKAGING
Some firms may use the wrong colours, packaging, shape etc. which may
insult the consumers unintentionally
Why multinational?
To maintain/increase competitive advantage and profitability
To reduce costs
To access new markets
To secure resources
To take advantage of government support in host countries
Acquisition
Acquisition is the buying of one company (the ‘target’) by another. An acquisition
may be friendly or hostile. In the former case, the companies cooperate in
negotiations; in the latter case, the takeover target is unwilling to be bought or
Limitations of M&A
Stakeholder groups vary both in terms of their interest in the business activities and
also their power to influence business decisions.
Banks & other Interest and principal to be Can enforce loan covenants
Lenders repaid, maintain credit rating Can withdraw banking facilities
Directors and Salary ,share options, job Make decisions, have detailed
managers satisfaction, status information
Community Environment, local jobs, local Indirect via local planning and
impact opinion leaders
Stakeholder power is an important factor to consider whenever you are asked to write
about the relationship between a business and its stakeholders. In the context of
strategy, what is important is the power and influence that a stakeholder has over the
business objectives.
For stakeholders to have power and influence, their desire to exert influence must be
combined with their ability to exert influence on the business. The power a stakeholder
can exert will reflect the extent to which:
How should a business respond to these variations in stakeholder power and influence?
The matrix below provides some guidance on the approaches often taken:
High level of interest Low level of interest
In handling its stakeholders, a business also has to accept that it will have to make
choices. It is rare that “win-win” solutions can be found for key business decisions.
Almost certainly the business cannot meet the needs of every stakeholder group and
most decisions will end up being “win-lose”: i.e. supporting one stakeholder means
another misses out.
There are often areas where stakeholder interests are aligned (in agreement) – where a
decision can benefit more than one stakeholder group. In other cases, there is a clear
conflict of interest. Here are some common examples:
Stakeholder conflicts
There are two main approaches to handling the often conflicting needs of stakeholders: