External Environment - Globalisation issues

Question 1

Globalisation and its benefits

Answer 1

• Access to developing countries with growing living standards (aspirational population)
• Access to over 700 million customers, much larger than home market
• creating trade relationships often reduces/removes tariffs on imported goods
• Allows for the sharing of expertise and knowledge between business and industries
• Access to cheaper operating resources such as Tech components or labour

-Access to new markets allows for business growth = increased revenue = retained profits = being able to spread risk

Question 2

Globalisation and its costs

Answer 2

• Particular countries can be politically unstable and socially unstable (Risky)
• Language and currency differences may also reduce the success of international trade

Question 3

Effects of globalisation on UK businesses

Answer 3

• cost savings through purchasing, production and marketing economies of scale
• choice of cheaper locations as businesses no longer stick to the one country
• higher consumer expectations as customers can now browse the internet and compare products very easily
• increased competition as a result of the increase of global companies setting up in the UK and online

Question 4

Reasons for growth of MNC’s - Increased market share & dominance

Answer 4

• Existing on a larger scale allows for market domination
• Your business quickly becomes associated with a certain product/service & become the go to business

Question 5

Reasons for growth of MNC’s - Closeness to local markets

Answer 5

• Setting up as a MNC in another country instead of a business that sets up in only country but exports to other countries
• It allows the MNC to engage with the local community
• The UK company have an established production plant in Australia. The product range in these countries differ from the UK. Local tastes dictate

Question 6

Reasons for growth of MNC’s - Often leads to lower labour costs particularly when setting up in less developed countries

Answer 6

• There is a minimum wage disparity between the EU & 3rd world countries
• The EU aims to establish a minimum wage in developing countries but it is very hard to establish
• If EU businesses set up in 3rd world countries and pay their minimum wage it would look very bad so they may have to pay a higher wage

Question 7

Reasons for growth of MNC’s - Falling cost of transportation of people and goods

Answer 7

• Cost of freight and passenger travel continues to come down, as competition increases & cost of oil drops
• Meaning it’s more economical for producers to export around the globe
• This will result is transportation being less of a reason against setting up in a foreign country

Question 8

Methods of growth - FDI

Answer 8

• FDI occurs when overseas companies set-up or purchase operations in another country

Question 9

Methods of growth - The main reasons often quoted for FDI

Answer 9

• To access new overseas markets or better serve existing markets
• To take advantage of lower manufacturing and wage costs
• To access new technology and skills, particularly in R&D
• To locate a business function near clusters of similar or related companies

Question 10

Methods of Growth - Two methods of FDI

Answer 10

• Creating new facilities in the host country: this method takes time and effort and finance. e.g. building, hiring, training.
• An advantage is that it can effectively replicate corporate culture

• Building over an existing company in the host country: A quick way to expand into new markets
• The advantages are overseas company can gain knowledge & experience of local markets and can often buy loss making companies and “Turn them around”