The global environment of business flashcards

Topic 7: The global environment of business

Globalisation vs global strategy

Globalisation is a trend outside any one firm's control: economies and markets becoming more closely linked. A global strategy is one firm's deliberate plan to compete in world markets.

Multinationals: positive and negative effects

Positive: investment, jobs, skills, tax income, consumer choice, spread of technology. Negative: local firms squeezed out, production can move away quickly, strong bargaining power over suppliers.

Which firms are most affected by globalisation?

Those with imported inputs, overseas sales, global rivals and price-aware customers. Firms serving a small local market with local inputs are less affected.

The pound falls from USD 1.60 to USD 1.40. Effect on a USD 700 invoice?

The pound has depreciated. The invoice costs 700 ÷ 1.40 = £500 instead of 700 ÷ 1.60 = £437.50, so £62.50 more.

Percentage change in an exchange rate: £1 = €1.20 rises to €1.32

(1.32 − 1.20) ÷ 1.20 × 100 = 10%: the pound has appreciated by 10%.

Landed cost and an 8% tariff on a £125 import

Landed cost per unit = unit cost + tariff + shipping. Tariff = 125 × 0.08 = £10, so £135 before shipping.

Offshoring payback

Payback (years) = set-up cost ÷ annual saving. Weigh the savings against quality control, shipping time and reputation, and against the option of re-shoring.

Financial vs non-financial support for international traders

Financial: export credit insurance, bank trade finance, grants. Non-financial: official advice and market information, trade shows, agents, business associations.

Factors to consider when trading internationally

Language, culture and customs, logistics, currency, and buying habits.

Standardised vs adapted marketing mix abroad

Standardised: one mix everywhere, cheaper and builds a global brand. Adapted: tailored to each market's culture, law and income, costlier but avoids cultural mistakes.

Free trade vs trading bloc: advantages and disadvantages to a business

Free trade: wider markets, cheaper inputs, but tougher rivals and reliance on foreign suppliers. Trading bloc: smoother access and shared rules for members, but rivals within the bloc, imposed rules and barriers to outsiders.

UK outside the EU and the Eurozone: effects on a business

Own trade deals, rules and interest rate, but more paperwork, possible tariffs and certification, exchange rate risk when selling in euros, and less influence over EU rules.