Notesale: Turn your study into money

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International Markets
Outsourcing – Buying in services of specialist companies to manage part of the production
process
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Benefits of outsourcing:
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Cheaper labour
Less to manage
Use of specialist companies
No problem of employing specialists
Quality should go up
Quicker production
Less human costs

Insourcing:
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Can ensure quality in the process
More control over brand image

Product lifecycle
Extension strategy: Selling abroad
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Recession in domestic economy – depends on YED
Market saturation
Not being sold in foreign market
Use product differently abroad
Global brand awareness

Benefits of extension strategy/selling abroad:
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Larger market
More sales = more revenue
Potential for more profit
Economies of scale (production)
Spreads risk
Brand awareness
Innovation
Tax benefits

World trade Organisation (WTO) – Aims:
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High level of protectionism in agriculture
High tariff rates on non-agricultural goods and services
There is a lack of strong protectionism for intellectual property rights in many nations
Increase in anti-dumping policies

General Agreement on Tariffs and Trade organisations (GATT) – Aims:
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Gradually eliminate barriers to entry
Provide set of rules and a means for their enforcement

Impact of Offshoring
People made redundant:
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Less disposable income
Loss of skills
Opportunity to use skills in more prosperous industry
Increase in demand for inferior goods

Gained employment:
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More disposable income
Increase in skills
Low wages in some countries
Depends on length on investment

Cheaper and better quality of product:
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Save money
Better value for money
Company may decide to charge same price
Firm may see significantly higher demand, depending on PED
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More jobs available, therefore larger potential for growth in domestic markets
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Negatives of protectionism:
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Restricting foreign investment can restrict employment
o This can lead to restricted growth, and therefore no significant increase in
employment (NEGATIVE MULTIPLIER EFFECT)

Assessment of creation of trade blocs
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Increase in employment – extent of benefit depends on who sees increase in
employment, and whether one country suffers from this or not
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Growing industries – could be bad for the environment

Key Players in World Economy
China
Reasons for economic growth:
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Structural change eg textiles
Population growth
Increase in disposable
Increase in FDI

The Asian Growth Model
Features of Asian thrift economies:
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Comparative advantage in low-value manufacturing
Export-led growth (increase in exports = increase in aggregate demand)
High savings ratio (increase in savings = investment = increase in AD)
Poverty reduction (increase in consumption = increase in AD)
o What defines poverty?
o GDP per capita doesn’t take into account equality

Keeping RMB (currency) weak – raise interest rates
USA says – “china’s weak currency is to blame for US trade deficit”

Is the US dollar too strong?
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Trade deficit with EU and oil exporters
Increase in demand for US dollar = increase in exchange rates

China is the world’s largest holder of US Treasury Bills at $800bn
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Services account for 2/3
of India’s output, with less than a third of the labour force – 53% of the labour force is in
agriculture, which is fine if it is efficient and not subsistence farming
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Violence and discrimination against women and property rights – deter investment
Inadequate availability of quality basic and higher education

Strengths:
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Growth of 4
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Cheap exports
Low dependency rate
Relatively low wages, therefore increasing foreign investment

Weaknesses:
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Imports expensive
(X-M) is negative = increasing deficit
Growth rate slowing
Increase interest rates
Uneducated workforce

Opportunities:
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2/3 people subsidised food (might be poor quality)
35% tax rate for super rich, leading to high consumption and more investment
Depreciation of rupee could lead to FDI

Threats:
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Growth of the world economy is slowing – less FDI/demand

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High inflation meaning real incomes are falling – Indian government have raised interest
rates in order to reduce inflation
Low level of exports
Low job creation compared to population growth

Brazil:
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Large growth of middle classes
Government provided cash transfers for 12 million poorest people
Very unequal income distribution
Consumer credit growing
19% of GDP spent on investment
6th largest economy in the world

To what extent might changing commodity prices affect Brazil?
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Heavily reliant on commodities
Prices go up:
o Less demand = less revenue = significantly reduces employment
o However, if the commodity is price inelastic, demand won’t change significantly
o if prices go down, the opposite happens
How reliant will they be in the future?
How strong is the Government?
How large is the change in the price?

Challenges China is facing:
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Lower quality of labour
Factories not built in given time
High start up costs (might not be compared to the world)
Foreign investors may have no cultural knowledge
Hard to communicate

Impact of China’s growth on stakeholders:
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More choice
Cheap imports – domestic products find it hard to compete
More employment opportunities

China’s growth is stronger than the rest of the BRICs
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India and China are less vulnerable to external shocks
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Prediction – there will be less uncertainty when investing in China
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Impact on trade:
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Absolute advantage only implies in individual cases, the theory of opportunity cost
comes into play
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Identify the product
with the lowest
opportunity cost
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Problems/assumptions:
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Not everyone has skills to move industry
Land for one industry may not be usable for another industry
Mobility of labour
Are there enough resources for there to be an increase in production?
It take a long period of time to train labour
It assumes we only trade with one country
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Firms with inflexible models, who are looking to expand abroad, can encounter difficulties –
different cultures = different expectations
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Other sources of difficulty:
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Business discussions with foreign parties
Communication differences to be addressed before advertising
Marketing message must be appropriate and meaningful
Pricing strategies

Market orientation is essential
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Key ideas to consider before merging two firms:
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Management structures
Impact of different cultures on communication
Expectations – set out a clear set of aims/guidelines
Language barriers
Time devotion
compromise

What do trade barriers do?
Tariff – a tax put on goods coming into the country
Quota – a limit on the amount of a certain import coming into a country
What happens when tax is added?
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There is a decrease in supply as the firm cannot produce as much due to rising costs
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Protectionism only benefits domestic firms
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A quota on an import will mean there is a restriction on the supply
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Undervaluing/devaluing currency:
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Domestic firm finds it easy to export, but expensive/hard to export
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Might lead to retaliation
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Global strategy – use the same strategy in very localisation
Global localisation – change the strategy depending on needs and expectations
Liberalisation of trade – gradual removal of trade barriers
Harmonisation of laws (eg IPR) – become more similar
Roles of mergers and takeovers:
Merger – joining forces
Takeover – buying another firm
Types of integration – vertical and horizontal (refers to where each firm is in the supply chain)
Types of takeover – hostile and non-hostile
Inorganic growth – mergers and takeovers
organic growth – growing internally eg retained profits
CSR – where companies invest in the local community and the environment in order to benefit
from society
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In other words, shareholder value is the sum of all
strategic decisions that affect the firm's ability to efficiently increase the amount of free cash
flow over time
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Can they be controlled?
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Pressure groups – parties put pressure on firms to change strategies through eg
petitions, boycotting
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It can be a good strategy as it puts real pressure
on large firms
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The effectiveness depends on the
number of views / popularity of the websites used
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Effectiveness depends
on the commitment of the company towards regulating themselves
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Governments – firms must abide by the laws and regulations set by the government
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Where are we now?
Why are their increasing exports to China?
There are growing middle class incomes, which are being spent on foreign goods and services
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2012 – Youth unemployment cost the UK £4
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The longer they are unemployed, the worse their skills get
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More money for the government as they don’t have to spend as much on employee
welfare
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This would lead to more consumption and growth
Increases public sector deficit
Increases national debt

Reduces ability for
long term investment

Quantitative easing – pumping money into the economy by the central bank by buying assets
(government bonds)
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It encourages banks to
lend money
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Impact of leaving the EU:
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Trade barriers
Bitter relationship
Less risk/impact if EU collapses/currency falls



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