Theme 4 (Global business)

• Emerging economy


  An economy in the process of rapid growth and industrialisation
• Gross Domestic Product (GDP)


  The measure of the size and health of a country's economy over a period of time, measuring the total value of goods and services produced
• BRIC

  • Brazil
  • Russia
  • India
  • China
• MINT


  • Mexico
  • Indonesia
  • Nigeria
  • Turkey
• Two implications of economic growth for individuals and businesses

  • Trade opportunities for business
  • Employee patterns
• Four indicators of growth

  • Gross Domestic Product (GDP) per capita
  • Literacy
  • Health
  • Human Development Index (HDI)
• Exports


  Goods or services produced by one country are then sold to another country
• Imports


  Goods and services that are purchased by one country from another country
• Foreign Direct Investment (FDI)

  Investment from one country into another that involves establishing operations or acquiring tangible assets, including stakes in other businesses
• Specialisation

  Results in greater efficiency, which allows for goods and services to be produced at a lower cost, which then allows for a business to lower its prices or increase its profits
• Trade liberalisation


  The reduction of trade barriers between countries
• Benefits of trade liberalisation

  • Increased trade opportunities
  • Increased economic growth
• Drawbacks of trade liberalisation


  • Increased job outsourcing
  • Environmental costs
• Globalisation


  The growing integration of the world's economies into one single market
• Benefits of globalisation


  • Technology and skills transfer
  • More competition leading to lower prices for consumers
• Drawbacks of globalisation


  • Degradation of environment
  • Vulnerability to external economic shocks – e.g. global financial crisis
• Factors contributing to increased globalisation

  • Increased significance of global (transnational) companies
  • Reduced cost of transportation and communication
  • Political change
• Tariffs


  A tax or duty that raises the price of imported goods and causes a reduction in domestic demand and in increase in domestic supply
• Import quotas


  Volume limits on the levels of imports allowed into a specific country
• Other forms of trade barrier

  • Subsidy
  • Government legislation
• Benefits of trade barriers

  • Protects domestic producers
  • Increased consumption of locally produced goods and services
• Drawbacks of trade barriers


  • Higher costs on imported products
  • Might limit the range of goods and services available
• Examples of trading blocs


  • European Union
  • NAFTA (now known as US-Mexico-Canada Agreement)
  • ASEAN
• Trading bloc

  A group of countries in specific regions that manage and promote trade activities between them
• Impact on businesses of trading blocs

  • Increased trade opportunities as barriers are lifted between markets
  • Can allow for economies of scale as market becomes bigger
  • Increased competition can lead to price pressures, need to differentiate and to improve efficiency
• Examples of push factors in relation to conditions that prompt trade

  • High levels of domestic competition
  • Saturated market with limited growth opportunities
• Examples of pull factors in relation to conditions that prompt trade

  • Spread risk globally
  • Achieve economies of scale as production output increases
• Off-shoring


  The relocation of a business function, usually manufacturing, to a location overseas
• Outsourcing


  Where a business function is contracted out to a third party, and can be either local, national or international
• Product life cycle


  Products can be at different stages of the life cycle in individual markets; a product in the growth stage in another country represents an opportunity for a business to trade internationally
• Factors a business might consider when assessing a country as a market


  • Levels and growth rate of disposable income
  • Exchange rate
  • Ease of doing business
  • Infrastructure
• Factors a business might consider when assessing a country as a production location


  • Ease of doing business
  • Political stability
  • Cost of production
  • Infrastructure
  • Skills and availability of labour force
  • Location in trade bloc
  • Government incentives
  • Natural resources
  • Likely return on investment
• Reasons for global mergers or joint ventures


  • Spread risk over different countries/markets
  • Entering new markets/trade blocs
  • Acquiring national/international brand names/patents
  • Securing resources/supplies
  • Maintaining/increasing global competitiveness
• Appreciation of the exchange rate


  A stronger pound makes imports cheaper but exports more expensive; a business that uses a higher proportion of imports in its operations is more likely to benefit than a business that relies heavily on exports
• Depreciation of the exchange rate

  A weaker pound makes imports more expensive but exports are cheaper; a business that uses a higher proportion of imports in its operations is more likely to suffer as a result than a business that relies heavily on exports, who should see an increase in sales/profits (depending on pricing decisions taken by the firm
• Ways a business can achieve a global competitive advantage


  • Cost competitiveness/leadership
  • Differentiation
• Skills shortages


  • Increase in labour costs
  • Decrease in labour productivity
• Glocalisation


  A product or service that is developed and sold globally, but is also adapted to meet the needs and wants of customers in a local market
• Domestic/ethnocentric


  Assumes that what marketing strategy works in the home market will work in all markets
• Mix/geocentric


  Main aim of marketing is a global brand but recognizes needs of individual markets