3.9.3

Question 1

The world is a shrinking place and it is not only large businesses that are now able to operate on an international scale as operating in international markets becomes

Answer 1

easier and cheaper

Question 2

Internationalisation brings with it many

Answer 2

opportunities for businesses as well as a number of threats.

Question 3

Incentives for operating in international markets

Answer 3

• improvements in transportation
• improvements in communication
• trade agreements including customs unions such as EU, NAFTA, ASEAN
• opportunity to target a larger population and enter new geographical markets
• the need to counteract foreign competition

Question 4

Risks for operating in international markets

Answer 4

• reliability when dealing with
  some international businesses and shipping companies
• existence of trade barriers such as quotas and tariffs between some countries
• issues of dealing with local trends and customs
• language barriers

Question 5

What is a tariff?

Answer 5

a tax placed on foreign goods and services. A quota is a limit on the number of imported goods and services.

Question 6

4 methods of entering international markets

Answer 6

exporting, direct investment, licensing and alliances

Question 7

What is direct investment?

Answer 7

Involves investing overseas into production facilities, retail and distribution facilities. Can be highly profitable but capital intensive - firm becomes a multinational.

Question 8

What is exporting?

Answer 8

Produces domestically but ships products abroad.
Lowest risk strategy but may have to deal with protectionist measures imposed by foreign countries.

Question 9

What is licensing?

Answer 9

Giving the rights to a foreign country to produce goods / services for a foreign market. This gains an insight into new markets as a test, but responsibility for sales passes to another business.

Question 10

What are alliances?

Answer 10

Partnership with a foreign firm. Risk is shared as well as expertise of operating in the foreign market. Profits are shared with partner.

Question 11

What is a multinational company (MNC)?

Answer 11

A business with production in more than one country. MNCs are often welcomed by foreign governments (including the UK) because they create jobs, bringing investment to the country and increase tax revenue.

Question 12

Benefits of MNCs

Answer 12

• better access to local markets
• may receive tax incentives from local government
• costs of production (e.g. labour costs) can be lower
• operating in multiple countries spreads the risk.

Question 13

Drawbacks of MNCs

Answer 13

• harder to manage business across countries - time zones, legislation, consistency
• attention taken away from home markets
• some multinationals are
  criticised for damaging local traditions and taking trade away from local businesses.

Question 14

Some businesses might consider the following when choosing which international markets are viable options:

Answer 14

• size and growth potential
• barriers to entry
• similarities to/differences from home market
• PESTLE factors
• competitive rivalry within the market
• alignment with the business’s corporate strategy

Question 15

There are considerable pressures for a business to expand internationally. These include:

Answer 15

• The pressure for growth - growth leads to greater profitability, a key driver of shareholder value.
• The pressure to lower costs - manufacturing abroad can be cheaper, mainly due to the lower labour costs.
• Location - businesses may need to have close proximity to resources and skilled labour. This can speed up transportation and lower transport costs.
• Declining domestic markets - to continue growth businesses may seek opportunities in international markets.

Question 16

What is outsourcing?

Answer 16

where businesses move production overseas and re-shoring is where production is moved back to the domestic country.

Question 17

Reasons for moving production abroad:

Answer 17

• lower costs
• closer to resources
• lower distribution costs
• avoids barriers to trade

Question 18

Reasons for moving production back to the UK:

Answer 18

• pressure to support local employment
• better quality can be achieved domestically

Question 19

The Bartlett and Ghoshal model considers the

Answer 19

the different approaches a business might take towards internationalisation. The matrix considers two variables: the level of responsiveness to local markets and the drive for a standardised global product.

Question 20

Global - Bartlett and Ghoshal model

Answer 20

• a standardised product sold around the world

Question 21

Transnational - Bartlett and Ghoshal model

Answer 21

highly responsive to local markets but business is highly integrated sharing knowledge and expertise.

Question 22

International - Bartlett and Ghoshal model

Answer 22

products produced for the domestic market with some slight alterations for international markets
- perhaps to meet national standards.

Question 23

Multi-domestic - Bartlett and Ghoshal model

Answer 23

products and services tailored for local markets; subsidies may operate independently of one another affiliated to the brand.

Question 24

Issues with global strategy

Answer 24

Business maximises the benefits of economies of scale and efficiencies but will struggle in markets where localised needs exist.

Question 25

Issues with international strategy

Answer 25

Business focusses on domestic markets but through slight modifications with a product to export. Gains benefits of economies but makes slight tweaks to satisfy localised needs.

Question 26

Issues of transnational strategy

Answer 26

Business operates as one entity and there is lots of sharing and learning together. Very hard to implement effectively, but successful transnational businesses benefit from economies of scale but remain responsive to demands of local markets.

Question 27

Issues of multi-domestic strategy

Answer 27

A true MNC - the business is completely focused on meeting local needs through decentralisation. Highly adaptive but difficult to manage and control strategic direction of the business.

Question 28

The risks of running international businesses:

Answer 28

1. Anti-globalisation - anti-global pressure groups and a growing distaste for international firms in some industries can draw negative publicity for MNCs. 2. Cultural differences - often very subtle and form barriers to entry. In particular marketing can be very difficult in foreign markets 3. Differing styles of business - often linked to cultural norms, nations negotiate and make decisions differently. This can make partnerships and trade more complicated. 4.vEthical standards - moral codes in business are not the same across countries. Neither are legal systems to protect businesses and consumers.

Question 29

Impact of internationalisation on marketing

Answer 29

Marketing must be able to understand cultural differences and communicate effectively with customers in foreign markets. Understanding needs of foreign customers can be very challenging and may require localised expertise.

Question 30

Impact of internationalisation on finance

Answer 30

Exporting may require limited financial investment, but becoming an MNC will require significant capital investment and long-term finance.

Question 31

Impact of internationalisation on operations

Answer 31

Distribution and transportation will become a significant operational issue. The business may also have to learn to manage multiple product varieties in order to meet local needs. Maintaining economies of scale will be a key challenge.

Question 32

Impact of internationalisation on HR

Answer 32

As with marketing, localised skills may be required to recruit and train staff. It may be necessary for managers and specialists to relocate in order to establish international production.