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Theme 4 Section 4.2

Edexcel Business Theme 4

What prompts international trade? Specialisation, FDI, Labour Migration, new trade routes, expansion of global capital flows, increased communication
What are the push factors that create global trade? 1. Saturated domestic markets 2. Increased competition
What are the pull factors that contribute to trade? 1. Economies of scale 2. Lower overseas costs - offshoring and outsourcing 3. Risk spreading 4. Rising GDP per capita in developing nations
When assessing a country as a market, what factors are considered? 1. Levels and growth of disposable income 2. Ease of doing business 3. Infrastructure 4. Political stability 5. Exchange rate
When assessing a country as a production location, what factors are considered? 1. Costs of production 2. Skills and availability of labour force 3. Infrastructure 4. Location in trade bloc 5. Government incentives 6. Ease of doing business 7. Political stability 8. Natural resources 9. Likely return on investment
What is a joint venture? A joint venture (JV) is a separate business entity created by two or more firms, involving shared ownership, returns and risks
What are the benefits of a joint venture? 1. Partners benefit from each other's expertise and resources 2. Each  partner might have the option to acquire in the future 3. Reduces the risk of a growth strategy - particularly if it involves entering a new market or diversification
What are the drawbacks of a joint venture? 1. Profits must be shared 2. Culture clash may occur between the two organisations. 3. Short Termism: because the JV is only for a limited time there can be a lack of long term focus for staff
What is a Merger? A merger is a combination of two previously separate firms which is achieved by forming a completely new firm into which the two original businesses are integrated Source: Tutor2u.net
What are the advantages of a global merger? 1. Higher overall profits for both sets of shareholders 2. The new business is permanent so avoids the short termism of joint ventures 3. Economies of scale – a larger organisation provides the opportunity to cut costs
What are the disadvantages of a global merger? 1. Culture clash a major risk when combining companies from different countries 2. Diseconomies of scale from problems coordinating a global business 3. Competition authorities may seek to block the new businesses power
What factors influence a businesses global competitiveness? 1. Exchange rates (alter prices) 2. Labour productivity in the nation 3. Product Differentiation
What is the difference between offshoring and outsourcing? Offshoring - the work is done outside the businesses main country of operation Outsourcing - some of a businesses operations are subcontracted to another business
Why Do Businesses Move Production Overseas? (Offshoring) 1. Manufacturing costs lower 2. Potentially better skilled & higher quality 3. Makes use of existing capacity overseas 4. Take advantage of free trade areas
What are the drawbacks of offshoring? 1. Longer lead times for supply 2. Implications for CSR 3. Additional management costs 4. Impact of exchange rates 5. Communication: language & time zones
What is Reshoring? Reshoring is the reverse of offshoring. It involves moving business activities from overseas back to the domestic country
Reasons for Reshoring (1) 1. Greater certainty and shorter delivery times 2. Minimise risk of supply chain disruptions 3. Reduce complexity of supply chain 4. Easier to work with domestic suppliers
Reasons for Reshoring (2) 5. Greater certainty about the quality of inputs and components 6. Cost advantage of producing or sourcing overseas is not as significant as it used to be
How can a business achieve global differentiation? 1. Superior product quality (features, benefits, durability, reliability) 2. Branding 3. Wide distribution 4. Sustained promotion
How do skills shortages affect a businesses competitiveness? They add to the costs of operations as business have to train workers and may cause delays in production. The additional costs will force up prices. They could also result in less innovation
Created by: mrholland