Chapter 2 Domestic and Global Expansion PDF

*Business for QCE Units 3&4*: CHAPTER SUMMARY Chapter 2 Domestic and global expansion Planning for growth in the maturity stage The maturity stage of a business refers to the fulfilment of its current market, the inability to grow or that the business has hit its peak. Strategic planning ens...

*Business for QCE Units 3&4*: CHAPTER SUMMARY Chapter 2 Domestic and global expansion Planning for growth in the maturity stage The maturity stage of a business refers to the fulfilment of its current market, the inability to grow or that the business has hit its peak. Strategic planning ensures long-term business viability by ensuring the market and business position allows for growth. The growth strategy ensures the business remains relevant and maintains its goals and objectives. The Ansoff Matrix allows for strategic planning via four growth strategies -- market penetration, product development, market development and diversification -- which involve existing and new markets and products. Vertical growth is a strategy focusing on existing customers and market. The aim is to take greater market share via increased sales opportunities or by taking over processes. Horizontal growth involves businesses selling their existing products and services to new customers in a new location to expand their geographical reach. However, such products or services may be slightly altered or the growth could include acquisitions. New markets Business expansion can occur on five levels: domestic, international, multinational, global and transitional business. Domestic markets are those where growth occurs within the geographical limits of the country. Domestic expansion allows businesses to operate in familiar environments and reduces the risks of expansion, while promoting economic growth. Global markets are business activities that occur beyond the borders of the home country, require more than one country and are prevalent due to established global communication and relationships. Gross Domestic Product (GDP) is influential in globalisation decisions as it affects the interest rates to be paid by a business, predicts business growth and is utilised by investors for decision making. Emerging markets An emerging market involves an economy that is not as strict or efficient as advanced markets, but where a growing population exists with disposable income and an interest in purchasing the goods or services. The first business to expand into an emerging economy has the opportunity to obtain a large market share, access customers, access untapped capital and resources, build the business's brand and retain a high ROI. Environmental factors It is pivotal to understand the socio-cultural, technological, economic, environmental, political, legal and ethical factors that might impact customer buying habits and the economic stability of the country. The STEEPLE analysis is an acronym for Socio-cultural, Technological, Economic, Environmental, Political, Legal and Ethical, and is used to analyse factors outside the business's control Culture: ideas, customs, social behaviour of a country, group of people or society Communication: refers to language barriers as well as how a message is communicated. Etiquette: accepted or polite behaviours expected by various cultures or countries. Logistics: practicality of doing business in new markets such as location, time zone differences, supply-chain elements etc. Expansion strategies Niche market A small set of the market that has unique and opportunistic characteristics that can be strategically developed or grow naturally. Innovation for expansion Innovating the product, process, marketing or organisational methods of a business allows for a competitive advantage and to retain or expand market share. Research and development Activities that develop new services or products, improve existing services or products or evolve the processes. Emerging technologies Encourage business diversification, innovation and expansion as these technologies are considered to alter the environment they will contribute to. Emerging technologies can disrupt industries, drive business growth, facilitate expansion and create niche markets. Modes of entry The mode of entry refers to a planned strategy or process to determine the delivery of a business's products into a new market. Entry can be costly and may require partnerships, investors or loans, while also ensuring that the business's cash flow, cash reserves and available capital align with its mode of entry costs. Formats of market entry Movement of goods and services between countries Contractual agreements to facilitate entry to other countries Development of strategies and operations in other countries Importing and exporting Exporting involves manufacturing products/services in a business's home country and then selling them to another country. Importing involves obtaining a good/service from an external country to facilitate with business activities. Licensing A contractual agreement that allows a business to use another business's intellectual property, as evident within franchising. Exclusive licenses: the commercialisation of intellectual property to sell to new domestic and international markets, and to the exclusion of all others. Sole licence: an exclusive licence with an exception such as being restricted to a product, field or geographical area. Non-exclusive licenses: while given the right to utilise the intellectual property in the market, the licensee is not the only one. Open-source licence: applicable to computer software, whereby the source code of the software is freely available to other software developers. International agents and distributors Local partners to help navigate expansion Opportunity for financial grants and incentives available for bringing an economic boost to a new region Strategic alliances and joint ventures Partnership: allows businesses with complementary skills to benefit from each other's strengths Joint venture: agreement between two or more companies to form a new business Strategic alliance: partnership to gain new expertise of access to new technology, but with a limited scope and function Overseas manufacturing Reduce operational costs by outsourcing or offshoring to allow the business to focus on core business advantage and to more strategically invest funds to allow for business growth. Sales subsidiaries A business owned and controlled by a larger company Sales subsidiary sells the products of the ownership company through its subsidiaries Risk management A process to identify, evaluate and understand the risk of business activities in order to minimise the impact of such risks The business must consider the probability of implications from the activity and the consequence if the risk occurs. Contingency planning A prepared plan of action to mitigate future events or circumstances that can have a significant impact. PPRR model: Prevention, Preparedness, Response and Recovery