4.2 – Global Markets and Expansion

4.2.1 – Conditions That Prompt Trade

• a) Push factors:
  • Saturated markets:
    • Explanation: Markets that have an abundance of similar products, leading businesses to seek new markets to avoid high competition.
  • Competition:
    • Explanation: The presence of numerous firms in the same industry, pushing businesses to explore new markets to gain a competitive edge.
• b) Pull factors:
  • Economies of scale:
    • Explanation: The cost advantage that businesses obtain due to increased output, encouraging them to expand into new markets to further reduce costs per unit.
  • Risk spreading:
    • Explanation: Diversifying operations into different markets to spread risk and reduce dependence on a single market.
• c) Possibility of off-shoring and outsourcing:
  • Explanation: The potential for businesses to relocate production processes to other countries (off-shoring) or contract out certain business functions (outsourcing) to take advantage of cost savings and efficiencies.
• d) Extending the product life cycle by selling in multiple markets:
  • Explanation: Prolonging the profitability of a product by introducing it to new markets, thus extending its life cycle.

4.2.2 – Assessment of a Country as a Market

• a) Factors to consider:
  • Levels and growth of disposable income:
    • Explanation: Evaluating the average income available to individuals for spending and saving in a potential market.
  • Ease of doing business:
    • Explanation: Considering how conducive the regulatory and operational environment of a country is for starting and operating a business.
  • Infrastructure:
    • Explanation: Assessing the quality of a country’s physical and organizational structures and facilities.
  • Political stability:
    • Explanation: Analyzing the political environment to ensure it is stable and conducive for business operations.
  • Exchange rate:
    • Explanation: Considering the value of a country’s currency in relation to others, which can affect trade and investment.

4.2.3 – Assessment of a Country as a Production Location

• a) Factors to consider:
  • Costs of production:
    • Explanation: Evaluating the total costs involved in manufacturing a product in a potential production location.
  • Skills and availability of labour force:
    • Explanation: Assessing the skill level and availability of the workforce in a potential production location.
  • Infrastructure:
    • Explanation: Considering the existing infrastructure, such as transportation and utilities, which can affect production efficiency.
  • Location in trade bloc:
    • Explanation: Analyzing the benefits of a location within a trade bloc, which can offer advantages such as reduced tariffs.
  • Government incentives:
    • Explanation: Investigating any incentives offered by the government to attract foreign investments.
  • Ease of doing business:
    • Explanation: Considering the regulatory environment and how easy it is to conduct business in a potential production location.
  • Political stability:
    • Explanation: Assessing the political climate to ensure it is stable and favorable for business operations.
  • Natural resources:
    • Explanation: Evaluating the availability of natural resources necessary for production.
  • Likely return on investment:
    • Explanation: Estimating the potential returns on investment in a particular location, considering all the above factors.

4.2.4 – Reasons for Global Mergers or Joint Ventures

• a) Spreading risk over different countries/regions:
  • Explanation: Global mergers or joint ventures can help in diversifying risks by spreading operations over various geographical locations.
• b) Entering new markets/trade blocs:
  • Explanation: Mergers or joint ventures can facilitate entry into new markets or trade blocs, providing new opportunities and access to a larger customer base.
• c) Acquiring national/international brand names/patents:
  • Explanation: Mergers or joint ventures can allow companies to acquire well-established brand names or patents, enhancing their market position.
• d) Securing resources/supplies:
  • Explanation: Companies can secure essential resources or supplies through mergers or joint ventures, ensuring a steady flow of necessary inputs.
• e) Maintaining/increasing global competitiveness:
  • Explanation: Mergers or joint ventures can enhance a company’s competitiveness on the global stage by leveraging combined resources and strengths.

4.2.5 – Global Competitiveness

• a) The impact of movements in exchange rates:
  • Explanation: Fluctuations in exchange rates can affect the competitiveness of businesses globally, influencing the cost of imports and exports.
• b) Competitive advantage through:
  • Cost competitiveness:
    • Explanation: Achieving a competitive edge by producing goods or services at a lower cost than competitors.
  • Differentiation:
    • Explanation: Creating a competitive advantage by offering unique products or services that stand out in the market.
• c) Skill shortages and their impact on international competitiveness:
  • Explanation: A lack of skilled labor can hinder a company’s ability to compete globally, affecting productivity and innovation.