International Business

The Product life Cycle

The product life cycle is an important concept in marketing.  It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage.  Some continue to grow and others rise and fall.

The main stages of the product life cycle are:

• Introduction – researching, developing and then launching the product
• Growth – when sales are increasing at their fastest rate
• Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturation
• Decline – final stage of the cycle, when sales begin to fall

Extension strategies extend the life of the product before it goes into decline.  Again businesses use marketing techniques to improve sales.  Examples of the techniques are:

• Advertising – try to gain a new audience or remind the current audience
• Price reduction – more attractive to customers
• Adding value – add new features to the current product, e.g. video messaging on mobile phones
• Explore new markets – try selling abroad
• New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies music compilations.

Economic Factors

Economic factors influence the way a business operates in its environment, and can play a key role in how a business structure is organised and how the firm is run.Some economic factors include...

• Inflation
• Unemployment
• Recession
• Natural disasters (uncertainty)
• Quotas
• Tariffs
• Government intervention
• Bureaucracy
• Protectionism
• Competition

Uncertainty in the Economy

Uncertainty in the economy is events or dips in the economy that are unpredictable and can occur for a number of reasons, some of these include...

• Natural disasters
• The collapse of a foreign economy leading to a nock-on-effect
• Competition
• Trends
• Terrorist attacks

Changes in China's economy over the past 30 years

China's economy during the past 40 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy, in 2010 China became the world's largest exporter. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2010 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001.

Annual inflows of foreign direct investment rose to nearly $84 billion in 2007. Cumulative appreciation of the RMB against the US dollar since the end of the dollar peg was more than 20% by late 2008, but the exchange rate has changed little since the onset of the global financial crisis.China joined the World Trade Organization (WTO), which carried with it requirements for further economic liberalization and deregulation. China's ongoing economic transformation has had a profound impact not only on China but also on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.

Economic Indicators:

GDP

$10.09 trillion (2010 est.)

GDP (official exchange rate)

$5.878 trillion (2010 est.)

GDP - per capita

$7,600 (2010 est.)

GDP - composition by sector

Agriculture: 9.6%

Industry: 46.8%

Services: 43.6% (2010 est.)

Labor Force

780 million (2010 est.)

Labor force - by occupation

Agriculture: 38.1%

Industry: 27.8%

Services: 34.1% (2008 est.)

Unemployment rate:

4.3% (September 2009 est.)

Population below poverty line:

2.8% (2007 est.)

Household income or consumption by percentage share:

Lowest 10%: 3.5%

Highest 10%: 15%(2008)

Distribution of family income - Gini index:

41.5 (2007)

Investment (gross fixed):

47.8% of GDP (2010 est.)

Country comparison to the world: 1

Budget:

Revenues: $1.149 trillion

Expenditures: $1.27 trillion (2010 est.)

Public debt:

17.5% of GDP (2010 est.)

Inflation rate (consumer prices):

5% (2010 est.)

Central bank discount rate:

2.79% (31 December 2009)

Commercial bank prime lending rate:

5.81% (31 December 2010 est.)

Stock of money:

$3.838 trillion (31 December 2010 est.)

Market value of publicly traded shares:

$5.008 trillion (31 December 2009 est.)

Industrial production growth rate:

11% (2010 est.)

Electricity - production:

3.451 trillion kWh (2008 est.)

Oil - production:

3.991 million bbl/day (2009 est.)

Natural gas - production:

82.94 billion cu m (2009 est.)

Current account balance:

$272.5 billion (2010 est.)

Exports:

$1.506 trillion (2010 est.)

Imports:

$1.307 trillion (2010 est.)

Reserves of foreign exchange and gold:

$2.622 trillion (31 December 2010 est.)

Debt - external:

$406.6 billion (31 December 2010 est.)

Stock of direct foreign investment - at home:

$574.3 billion (31 December 2010 est.)

Stock of direct foreign investment - abroad:

$278.9 billion (31 December 2010 est.)

Exchange rates:

Renminbi Yuan (RMB) per US dollar - 6.7852 (2010 est.)

BRIC economies

Brazil, Russia, India, China

These 4 countries are together what is known as the BRIC economies.  The BRIC economies are the four fastest growing economies that are expected by 2025-2050 to become the  leading economies in the world. 

FDI

Foreign direct investment enhances the productivity of an economy in many ways.  FDI can grow the GDP of an economy as well as creating capital in the country through paying into the tax system.  FDI can provide employment and bring prosperity and cash flows into countries that are poorly economically developed.

Economic Reform

Economic reform was the key factor that has led to the way the global economy is portrayed today.  The economic reform of China from a centrally planned economy into a free market has let the country take on a more liberal and capitalist approach, which in turn has majorly benefited the economy of the country in making it become one of the fastest growing in the world at 9% per an-um.

Trade Agreements and Alliances

This refers to countries that work close together, or form an alliance.

An example or an alliance is the UN or EU

In trade agreements and alliances competition increases, this benefits customer as prices for products will go down. There will also be more choice and easier availability  of products.

Producers gain higher profits by expanding their products into international markets.

Workers beneficent because international trade leads to higher employment rates 

Protectionism

This is the economic policy of restraining trade between economies through such methods as: 

• Tariffs on imported goods
• Restrictive quotas
• Regulations to allow 'Fair competition' between imports and goods and services produced domestically.

Tariff: this is tax on goods being produced and sold

Quota: A limitation to allow for fair competition

The differences between free trade and protectionism

A free trade market has little or no interference from the government, which means that business' have no limit on the amount of trade that can be done. 
Protectionism is the opposite of a free market with limitation on the amount of trade that is done. This is to stop monopoly's and allow fair competition; companies can be fined if they go over their trade limit.

Single Markets - Advantages and disadvantages

A single market is a type of trade bloc which is composed of a free trade area (for goods) with common policies on product regulation, and freedom of movement of the factors of production (capital and labour) and of enterprise and services. The goal is that the movement of capital, labour, goods, and services between the members is as easy as within them.[1] The physical (borders), technical (standards) and fiscal (taxes) barriers among the member states are removed to the maximum extent possible. These barriers obstruct the freedom of movement of the four factors of production.

A common market is a first stage towards a single market, and may be limited initially to a free trade area with relatively free movement of capital and of services, but not so advanced in reduction of the rest of the trade barriers.

The European Economic Community was the first example of a both common and single market, but it was an economic union since it had additionally a customs union.

Factors affecting businesses moving into international markets

• Availablity of workforce
• skills of workers 
• labour costs
• Market analyasis
• barriers of entry and exit
• Laws and legislation 
• Perfect/ Imperfect competition
• Market share

The impact of Globalisation on consumers

Globalisation has had a variety of impacts on our everyday life. The most obvious impacts are those which can be noticed when you go shopping.

Take consumer choice. Widening global markets mean that more and more products are available to shoppers, at increasingly lower prices. From a cultural perspective, it could be said that the introduction of new brands widens our cultural horizons as supermarket shelves are stacked with products from all over the world. Yet there is a downside; one of globalisation’s impacts is the trend of so-called ‘Westernisation’ and the idea of ‘culture imports’. An obvious example of this is the presence of McDonalds in nearly every major city in the world. Some people argue against globalisation on the ground that it could lead to a loss of culture, rather than a gain, as they fear that every city will be dominated by the same big multinational firms.

                                     

However, big cities are not, yet, completely overrun with these large multinationals, and consumers are actually benefiting from the increased choice and cheaper products which foreign firms have to offer. Whilst this may be good for consumers, it is not so beneficial for the individual when you take into account the jobs which are lost due to domestic firms facing steep competition from cheaper imports

On a more positive note, another area where individuals benefited from globalisation’s impact was in financial services; note the use of past tense there. Although the financial crisis has not exactly made the financial world look good, the impact on our everyday lives from globalisation in relation to finance has been sizeable. The emergence of worldwide financial markets has meant that individual borrowers did have better access to credit. Yet the negative effects of globalisation in the financial sector are also large but have only really been evidenced more recently. The interdependence and interconnectedness of financial markets meant that the recent financial crisis was almost impossible to contain and knock-on effects were felt across the world’s populations.

Mergers and Takeovers

Merger: when two business's join together ( voluntary )

Takeover: one company takes over another  ( Forced )

merger is an example or 'Integration' within industries.

vertical integration: where firms at different stages of production merge

Horizontal integration: where firms at the same industry merge

Examples of takeovers

• TA and carter & EMI
• Universal & EMI
• Facebook & instagram

Examples of mergers

• T-mobile & Orange

Vertical and Horizontal integration

Vertical = firms that merge at a different stage of production line
Horizontal = firms that merge at the same stage of production line

The different economies of scale that apply to businesses as they expand

1. Technical economies. They are found mostly in plants and arise mostly because neither the capital cost nor the running cost of plants increase in proportion to their size. The main idea is to spread the fixed costs over as large output as possible, so AFC decreases.

2. Managerial or administrative economies arise because the same people can usually manage with bigger output, so average administrative cost decreases when production increases. Large firms can employ specialists, which leads to the increase in efficiency.

3. Financial economies arise because e.g. the interest rate for getting a loan is higher for smaller firm that for larger one. This is because large firms have large assets and bank trusts them more. It is also relatively easier for large firms to raise their share-capital by issuing shares.

4. Marketing economies. They are available both in purchases of raw material and in selling of the product. A large firm may have a bulk discount when purchasing raw materials. In terms of promotion, to large firms the average cost is smaller, because the prices of advertisements are the same for all firms.

5. Social economies. They may be developed into two groups: those which build up the goodwill of the community and so attract customer (sponsorship), and those that develop the loyalty of the firm's employers (Christmas bonuses).