Business

Unit 4
Emerging Market

Emerging markets may be thought of as ones with rapid growth and a lot of risks. Investors
like emerging markets, as they are more likely to grow than mature markets.

BRICS

 Brazil
 Russia
 India
 China
 South Africa

MINT

 Mexico
 Indonesia
 Nigeria
 Turkey

Implications of Economic growth

Trade Opportunities - Consumption may also be growing, which is good for investors.
Disposable incomes are likely rising. This will increase the overall demand for goods and
services. Demand is likely to become income elastic, providing greater opportunities for
increased revenues and profits. These goods and services can be produced domestically or
imported in.

Employment Patterns

When people are out of work, they don't have much money to spend or save. If this is the
case, it may not be a good time to export there. On the other hand, unemployed individuals
need jobs and so a firm could find a pool of labour to make goods that it could then export
elsewhere.

Impacts of Emerging markets

When an emerging market experiences an increase in average incomes, the middle classes
are likely expanding. Increasing income allows consumers to spend more on both imports
and domestically produced goods and services. Buying more domestic goods encourages the
growth of domestic firms, giving them more market power and allowing them to compete
internationally.
Indicators of growth

 GDP per capita

 HD
 Literacy Rate
 Health

HD

a collection of statistics that are combined into an index, ranking countries according to
their human development

Exports

goods or services that a firm produces in its home market, but sells in a foreign market

Imports

goods and services that are bought into one country from another

specialization

a production strategy where a business focuses on an s limited scope of products or

services. This results in greater efficiency, allowing for goods and services to be produced at
a lower cost per unit

Comparative advantage

the theory that a country should specialize in products and services that it can produce
more efficiently than in other countries

Competitive advantage

the idea that a business should specialize in any area where it can perform better than its
competitors

FDI

Investing by setting up operations or buy-in assets in businesses in another country

Horizontal FDI

producing the same products or services as is done at home

Vertical FDI
one firm is seeking to acquire materials or support for its products or services e.g.: opening
a call center in another country to deliver customer service

Tariffs

taxes that are imposed on imports

Division of labour

different workers specializing in different productive activities

Globalization

the growing integration of the world's economies

Factors contributing to Globalisation

 Trade liberalization
 Political change
 Reduced cost of transport and communication
 Increased significance of global companies
 Increased investment flows
 Migration
 Growth of global labour force
 Structural change

Multinational Companies

companies that own or control production or service facilities outside the country in which
they are based

Dumping

where an overseas firm sells large quantities of a product below cost in the domestic market

Embargo

a complete ban on international trade - usually for political reasons

Import Quota

a physical limit on the number of imports allowed into a country

Trade barriers

measures designed to restrict trade

Subsidy

financial support gist gives to a domestic producer to help compete with overseas firms

Infant industries

new industries that have yet to establish themselves

Protectionism

an approach used by a government to protect domestic producers

Common market

a market where goods, labour, and capital can move freely across the member states; tariffs
are generally removed, and non-tariff barriers eliminated or at least reduced

Customs union

a union where member states remove all trade barriers between themselves, and members
adopt a common set of barriers against non-members

Free Trade area

a region where member states remove all trade barriers between themselves, but each
member state nevertheless keeps different barriers against non-member states

Regional trade area

The agreement made between two or more countries within a geographical region was
signed to facilitate trade by bringing down barriers

Single market

a market where almost all trade barriers between members have been removed and
common laws or policies aim to move goods and service labour our and capital between
countries as easy as the movement within each country

Trading bloc

a group of countries that have signed a regional trade agreement to reduce or eliminate
tariffs, quotas, and other protectionist barriers between themselves

Examples of the trading bloc

 ASEAN
 NAFTA
  EU

Advantages of trading blocs

 Freeing regional trade may allow individual members to specialize in line with their
country's comparative advantages
 Improves competition
 The volume of trade increases
 Resources easier to source
 Labour easier to recruit
 Production and transport costs fall

Disadvantages of trading blocs

 smaller organizations suffer to remain competitive

 Tensions with other regions
 Harms global trade

Economies of scale

increasing the scale of production leads to a lower cost per unit of output. Increasing size or
speed increases efficiency and lowers costs.

Labour productivity

the number of goods and services produced by one hour of labour

Offshoring

shifting jobs to other countries

Outsourcing

shifting jobs to other countries

Pull factors

factors that entice firms into new markets and are the opportunities that businesses can
take advantage of when selling into overseas markets

Push factors

factors in the existing market that encourage an organization to seek international

opportunities

Saturation
the point when most of the customers who want to buy a product already have it, or there
is a limited remaining opportunity for growth in sales

Examples of push factors

Saturated market
Competition

Examples of pull factors

 Economies of scale
 Risk spreading
 Technological expertise
 Lower cost of transportation
 Lower-cost resources labour or raw materials
 New or bigger markets

Factors to consider in an assessment of a country as a MARKET

 Levels and growth of disposable income

 Ease of doing business
 Infrastructure
 Political stability
 Exchange rates

Disposable income

the amount of money that a person has left over after they have paid their taxes, national
insurance, and other deductions

infrastructure

the basic systems, facilities, services, and capital equipment required for a country's
economy to function, which might include its roads, communication systems, and power
services

Factors to consider in an assessment of a country as a PRODUCTION LOCATION

 Costs of production
 Skills and availability of labour
 Infrastructure
 Location in a trade bloc
 Government incentives
 Ease of doing business
 Political stability
 Natural resources
 Likely return on investment
Reshoring
bringing production back home after using foreign production facilities for a while

Reasons for global mergers

 Spreading risk over different countries

 Entering new markets and trade blocs
 Acquiring international brand names
 Gaining access to intellectual property
 Securing resources or supplies
 Increasing global competitiveness

Intellectual property

a product that is a creation of the mind, such as an invention, literary work, or artwork, that
the law protects from unauthorized use by others. E.g.: patents, copyrights, and trademarks

Advantages of global competitiveness

 Bigger EofS
 give firms more scope to find the best-quality resources at the right prices
 allow companies to get closer to their international customers
 tap into a bigger range of knowledge and scope for innovation
 diversify risk

Impact of exchange rates on businesses

 May have to source its materials from elsewhere to control their costs
 May be able to purchase resources for cheaper

How to have a competitive advantage

 Cost competitiveness
 Differentiation

Differentiation

a firm selects certain attributes of its product or services and tries to match these with
specific customers. can charge higher prices

Global competitiveness

the extent to which a business or a geographical area can compete successfully against rivals

Economic risk
The
The risk that future cash flows will change due to unexpected exchange rate changes

cost leadership

a concept developed by Michael Porter. It describes a way to establish the competitive

advantage and essentially means the lowest cost of operation in the industry

Cost competitiveness

By acquiring ever-increasing economies of scale, a company creates the cheapest product

on the market

barriers to entry

factors that make it difficult for a company to enter an industry and compete effectively

Examples of barriers to entry

 strong economies of scale

 incumbent's high capital investment
 restrictive government policies
 labour unions

Glocalization

It involves the development and sale of products to customers around the world which
reflect specific local customs, tastes, and traditions

Global marketing strategy

the process of adjusting a company's marketing strategies to reflect conditions, consumer

tastes, and demand in other countries

Ethnocentric approach

Overseas markets are seen as identical or similar to domestic markets, approach assumes
that what is good for the domestic market will be good for global markets. The product is
not adapted.

Advantages of ethnocentric approach

 of
 No development costs as the product aren’t adapted
 Lower prices and increased competitiveness

Polycentric approach
Businesses adapt their product to the local markets in which they plan to sell the product.
This involves developing and marketing different products for the demands of the local
customers in different markets. An approach that considers each host country to be unique.
Subsidiary businesses develop their business and marketing strategies to subcuticular needs.

Geocentric approach

Combination of ethnocentric and polycentric approaches. An approach that sees the whole
world as a potential market but with both similarities and differences in domestic and
foreign markets. An effort is made to develop integrated world market strategies to gain the
best from both of these strands.

Advantages of Ethnocentric approach

 lower cost of development and production

 economies of scale

Advantages of Polycentric approach

 targeted products for different markets - higher sales

Advantages of Geocentric approach

 tailoring product to local tastes and needs - higher sales

Disadvantages of Ethnocentric approach

 product may not sell well

 doesn't consider national/cultural differences

Disadvantages of Geocentric approach

 higher cost of product development

Disadvantages of Polycentric approach

 higher cost of development

 difficult to compete with established local brands

Ansoff's Matrix

Marketing planning tool that helps a business determine its product and market growth
strategy. The matrix suggests that a business' attempts to grow to depend on whether it
markets new or existing products in new or existing markets.

Diversification
  NEW products
 NEW market
 VERY risky

Market Development

 EXISTING products
 NEW market
 Relies heavily on an understanding of local needs
 Slight alterations to be made like language on the packaging
 Least risky

Market Penetration

 EXISTING products
 EXISTING markets
 very safe

Product Development

 NEW product
 EXISTING market
 can be expensive

Features of Global niche markets

 a clear understanding of the needs of the market segment

 emphasis on quality
 excellent customer service
 expertise in the product area
 prioritizing profit rather than market share
 innovation

Global niche market

customers who live in more than one country and have particular needs that are not met
fully by the global mass market

Advantages of niche marketing

 prices are higher than in mass markets

 demand is more price inelastic
 product is distributed through specialist retailers or directly to the consumer
 upholds the premium brand image
 exclusivity
Disadvantages of niche marketing

 products sell in relatively low volumes so profits need to be high enough to make it
worthwhile
 the market must be large enough to support the business and specialist distribution
 small size may prevent economies of scale

Cultural/Social Factors

 Cultural differences
 Language
 Unintended Meanings
 Differing tastes
 Appropriate branding and recognition

Cultural audit

study and examination of an organization’s cultural characteristics to determine whether

they hinder or support its vision and mission

Ethnocentrism

the tendency of people to view their cu, lectures ethics, and norms as superior. The
evaluation of other cultures according to preconceptions originating in the standards and
customs of one's own culture.

Impact of MNCs on the local economy

 Local labour and job creation – full-time job opportunities and improving
unemployment situation
 Wages and working conditions - wage inflation may occur
 Local businesses - involved in the construction of factory perhaps
 Local community and environment - infrastructure improvements, contributions to
local government taxes

Impact of MNCs on the national economy

 FDI flows - results in higher GDP, increase in tax revenue, increase in employment,
reduce the national debt
 Balance of payments – the flow of money into the host country through FDI
 Technology and skills transfer - new technologies are introduced to the host country
 Consumers- more choice, lower prices, improved quality, better living standards
 Business culture - may encourage individuals to set up their businesses
 Tax revenues and tax pricing - tax revenue for government spending on healthcare.

Transfer pricing
a system operated by MNCs. It is an attempt to avoid relatively high tax rates through the
prices which one subsidiary charge another for components and finished goods

Business ethics

moral rules or principles of behaviour that should guide members of a profession or

organization and make them deal honestly and fairly with each other and with their
stakeholders

Stakeholders

groups of individuals who can affect or be affected by the actions of a business

Stakeholder conflict

EMPLOYEES - pay and conditions

redundancies
MNCs may not train local workers to a high level. Expat workers may supply the skills and
the locals will provide unskilled labour. R&D facilities may be kept in the home country
creating few opportunities for technology or skills transfer.

Stakeholder conflicts

CONSUMER - misleading advertising

product safety

Stakeholder conflicts

SHAREHOLDER - short term v long term returns on shares

Environmental considerations

 Emissions
 Waste disposal

Supply chain considerations

 Exploitation of labour
 Child labour

Marketing considerations

 Misleading labelling
 Inappropriate promotional activities

Competition policy
government policy that exists to promote competition and ensure that firms don't abuse
their market power, do not attempt to fix prices or use pricing strategies to drive out
competition and do not collude against other producers or the consumer

pressure groups

generally, voluntary organizations that operate at all levels of society, including international
levels, and aim to change either political or commercial decision-making

tax avoidance

using legal methods to reduce the amount of tax that a company pays

tax evasion

using illegal means to avoid paying taxes that are owed

How to control MNCs

 Political influence
 Legal control
 Taxation policy
 Pressure groups
 Social media

Total Revenue = Price x Quantity Sold

Profit/Loss = Total Revenue – Total Costs
Contribution = Selling Price per Unit – Variable Costs
Cash Inflow (Definition) = Income Coming into The Business
Cash Outflow (Definition) = Money Flowing Out of The Business
Net Cash Flow = Total Receipts – Total Payments
Opening Balance = Previous Months Closing Balance
Closing Balance = Opening Balance – Net Cash Flow
Total Costs = Fixed Costs + Variable Costs
Variable Costs (Definition) = Different Cost Paid Over a Set of Time
Fixed Costs (Definition) = The Same Cost Paid Over a Set of Time lop
Gross profit margin = (gross profit X 100)/revenue
Profit of the year margin = (net profit before tax X 100)/revenue
Current ratio = current assets/current liabilities
Acid test ratio = (current assets – inventories)/current liabilities
Gearing ratio = (non-current liabilities/capital employed) X 100%
Return on capital employed (ROCE) = (operating profit/capital employed) X 100%
Labour productivity = total output/average number of employed
Retention rate = (number of staff leaving/average number of staff in post) X 100%
Labour retention = (number of staff staying/average number of staff in post) X 100%